As Filed With the Securities and Exchange Commission on May 1, 1997
REGISTRATION NO. 33-12470
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 18
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
LIFE OF VIRGINIA SEPARATE ACCOUNT III
(Exact Name of Registrant)
THE LIFE INSURANCE COMPANY OF VIRGINIA
(Name of Depositor)
6610 West Broad Street, Richmond, Virginia 23230
(Address of Principal Executive Office)
---------------------------------------
J. Neil McMurdie
Associate Counsel and Assistant Vice President
The Life Insurance Company of Virginia
6610 West Broad Street, Richmond, Virginia 23230
(Name and Address of Agent for Service of Process)
Copy to:
Stephen E. Roth
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Ave., N.W. Washington, D.C. 20004-2404
- ------------------------------------------------------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1997 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a) of Rule 485
on pursuant to paragraph (a) of Rule 485
- ------------------------------------------------------------------
* Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the
Registrant has registered an indefinite amount of securities. The Registrant
filed the 24f-2 Notice for the fiscal year ended December 31, 1996 on February
28, 1997.
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RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
ITEM NO. OF
FORM N-8B-2 CAPTION IN PROSPECTUS
1. Cover Page
2. Cover Page
3. Not Applicable
4. Distribution of the Policy
5. The Life Insurance Company of Virginia; Separate
Account III; State Regulation of Life of Virginia
6. Separate Account III
7. Not Applicable
8. Not Required
9. Legal Proceedings
10. Summary; Separate Account III; The Funds; Charges
and Deductions; The Policy; Policy Rights and Benefits; Voting
Rights; General Provisions
11. Summary; The Funds
12. Summary; The Funds
13. Summary; Charges and Deductions; The Funds
14. Summary; The Policy
15. The Policy
16. The Policy; The Funds
17. Summary; Charges and Deductions; Policy Rights and
Benefits; The Funds
18. The Funds; The Policy
19. General Provisions; Voting Rights
20. Not Applicable
21. Policy Rights and Benefits; General Provisions
22. Separate Account III
23. Safekeeping of the Assets of Separate Account III
24. General Provisions
25. The Life Insurance Company of Virginia
26. Not Applicable
27. The Life Insurance Company of Virginia
28. Executive Officers and Directors
29. The Life Insurance Company of Virginia
30. Not Applicable
31. Not Applicable
32. Not Applicable
33. Not Applicable
34. Not Applicable
35. Distribution of the Policy
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36. Not Required
37. Not Applicable
38. Summary; Distribution of the Policy
39. Summary; Distribution of the Policy
40. Not Applicable
41. The Life Insurance Company of Virginia;
Distribution of the Policy
42. Not Applicable
43. Not Applicable
44. The Policy
45. Not Applicable
46. Policy Rights and Benefits; Charges and Deductions;
General Provisions
47. The Funds
48. Separate Account III
49. Not Applicable
50. Separate Account III
51. Cover Page; Summary; The Policy; Charges and
Deductions
52. The Funds
53. Federal Tax Matters
54. Not Applicable
55. Not Applicable
56. Not Required
57. Not Required
58. Not Required
59. Financial Statements
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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"). The Policy may
be purchased to operate as a single premium policy, or it may be purchased
through a series of planned premiums paid either monthly, quarterly,
semi-annually or annually; the minimum first-year planned premium is $5,000.
Additional (unplanned) Premium Payments may also be paid, within limits
described in this Prospectus. All premiums paid during a policy year, including
planned premiums and additional premium payments, are assumed to have been paid
on the first day of the policy year (the policy anniversary) for purposes of
calculating certain charges under the Policy (including surrender charges).
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.
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 determines the allocation of the premiums among those Investment
Subdivisions. Each Investment Subdivision of Separate Account III will invest
solely in a designated investment portfolio which is part of a series type
investment company. Currently, there are nine such Funds available under this
Policy: The Variable Insurance Products Fund, the Variable Insurance Products
Fund II, Variable Insurance Products Fund III, the GE Investments Funds, Inc.,
the Oppenheimer Variable Account Funds, the Janus Aspen Series, the Federated
Insurance Series, The Alger American Fund, and PBHG Insurance Series Fund, Inc.
(collectively referred to as the "Funds"). The Funds, their investment managers
and their currently 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, 1997.
1
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VARIABLE INSURANCE PRODUCTS FUND, which is managed by Fidelity Management &
Research Company, has three portfolios that are currently available to
Policyowners through Separate Account III:
VIP Equity-Income Portfolio
VIP Growth Portfolio
VIP Overseas Portfolio
VARIABLE INSURANCE PRODUCTS FUND II, which is managed by Fidelity Management &
Research Company, has two portfolios that are currently available to
Policyowners through Separate Account III: VIP Asset Manager Portfolio and VIP
Contrafund Portfolio.
VARIABLE INSURANCE PRODUCTS FUND III, which is managed by Fidelity Management
& Research Company, has two portfolios that are currently available to
Policyowners through Separate Account III: VIP Growth & Income Portfolio (not
available in California) and VIP Growth Opportunities Portfolio (not available
in California), are available to Policyowners through Separate Account III.
GE INVESTMENTS FUNDS, INC, which is managed by GE Investment Management, Inc.
has eight portfolios that are currently available to Policyowners through
Separate Account III:
Money Market Fund
Government Securities Fund
S&P 500 Index Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Global Income Fund
(not available in California)
Value Equity Fund
(not available in California)
OPPENHEIMER VARIABLE ACCOUNT FUNDS, which is managed by Oppenheimer Funds
Inc., has five portfolios that are currently available to Policyowners through
Separate Account III:
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Multiple Strategies Fund
JANUS ASPEN SERIES, which is managed by Janus Capital Corporation, has seven
portfolios that are currently available to Policyowners through Separate Account
III:
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
International Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Capital Appreciation Portfolio
(not available in California)
FEDERATED INSURANCE SERIES, which is managed by Federated Advisers, has three
portfolios that are currently available to Policyowners through Separate Account
III:
Federated Utility Fund II
Federated High Income Bond Fund II
Federated American Leaders Fund II
THE ALGER AMERICAN FUND, which is managed by Fred Alger Management, Inc., has
two portfolios that are currently available to Policyowners through Separate
Account III: Alger American Growth Portfolio and Alger American Small
Capitalization Portfolio.
PBHG INSURANCE SERIES FUND, INC. which is managed by Pilgrim Baxter &
Associates, Ltd., has two portfolios that are currently available to
Policyowners through Separate Account III: Growth II Portfolio (not available in
California) and Large Cap Growth Portfolio (not available in California).
2
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The accompanying prospectuses for the Funds describe the investment objectives
and the risks of each of the Funds' portfolios.
During the Initial Investment Period, all premiums will be placed in the
Investment Subdivision of Separate Account III that invests exclusively in the
Money Market Fund of the GE Investments Funds, Inc. At the end of that period,
the cash value at that time and all subsequent 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.
3
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TABLE OF CONTENTS
Page
Definitions................................................................. 6
Summary
The Policy................................................................ 8
Separate Account III...................................................... 8
Premiums.................................................................. 8
Policy Benefits........................................................... 9
Benefits at Maturity......................................................10
Charges and Deductions....................................................10
Distribution of the Policy................................................10
Tax Treatment.............................................................10
Refund Privilege..........................................................11
Exchange Privilege........................................................11
Illustrations of Death Benefits,
Cash Values and Surrender Values........................................11
Fund Annual Expenses......................................................11
Life of Virginia and Separate Account III
The Life Insurance Company of Virginia....................................14
General Electric Company..................................................14
Separate Account III......................................................14
Addition, Deletion, or
Substitution of Investments.............................................15
The Funds
Variable Insurance Products Fund..........................................16
Variable Insurance Products Fund II.......................................16
Variable Insurance Products Fund III......................................17
GE Investments Funds, Inc.................................................17
Oppenheimer Variable Account Funds........................................18
Janus Aspen Series........................................................19
Federated Insurance Series................................................19
The Alger American Fund...................................................20
PBHG Insurance Series Fund, Inc...........................................20
Resolving Material Conflicts..............................................21
Termination of Participation Agreements...................................21
The Policy
Purpose of the Policy.....................................................22
Purchasing a Policy.......................................................22
Dates Under the Policy....................................................22
Payments Made Under the Policy............................................22
Allocation of Premiums....................................................24
Policy Lapse and Reinstatement............................................24
Examination of Policy (Refund Privilege)..................................25
Exchange Privilege........................................................25
Policy Rights and Benefits
Cash Value Benefits.......................................................25
Transfers.................................................................27
Telephone Transfers.......................................................27
Dollar-Cost Averaging.....................................................28
Portfolio Rebalancing.....................................................28
Powers of Attorney........................................................28
Loan Benefits.............................................................28
Death Benefit.............................................................29
Changes in the Specified Amount...........................................30
Benefits at Maturity......................................................31
Optional Payment Plans....................................................31
Specialized Uses of the Policy............................................32
Charges and Deductions
Monthly Deduction.........................................................32
Charges Against Separate Account III......................................34
Surrender Charge..........................................................34
4
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TABLE OF CONTENTS (CONT.)
Page
Partial Withdrawal Charge................................................35
Transfer Charge..........................................................35
Other Charges............................................................35
Reduction of Charges for Group Sales.....................................35
General Provisions
Postponement of Payment..................................................36
Limits on Contesting the Policy..........................................36
The Contract.............................................................36
Misstatement of Age or Sex...............................................36
Suicide..................................................................37
Annual Statement.........................................................37
Nonparticipating.........................................................37
Written Notice...........................................................37
The Owner................................................................37
The Beneficiary..........................................................37
Changing the Owner or Beneficiary........................................37
Using the Policies as Collateral.........................................37
Optional Insurance Benefits..............................................38
Reinsurance..............................................................38
Distribution of the Policy.................................................38
Federal Tax Matters
Tax Status of the Policy.................................................38
Tax Treatment of Policy Proceeds.........................................39
Tax Treatment of Policy Loans and
Other Distributions....................................................40
Taxation of the Company..................................................40
Income Tax Withholding...................................................41
Other Considerations.....................................................41
Legal Developments Regarding
Employment-Related Benefit Plans.........................................41
Voting Rights..............................................................41
State Regulation of Life of Virginia.......................................42
Executive Officers and Directors of
Life of Virginia.........................................................43
Legal Matters..............................................................44
Legal Proceedings..........................................................44
Experts....................................................................44
Change in Auditors.........................................................44
Additional Information.....................................................44
Financial Statements.......................................................44
Appendix..................................................................A-1
This Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION. LIFE INSURANCE IS A LONG TERM INVESTMENT. PROSPECTIVE POLICYOWNERS
SHOULD CONSIDER THEIR NEED FOR INSURANCE COVERAGE AND THE POLICY'S LONG TERM
INVESTMENT POTENTIAL. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY SIMILAR OR
COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
5
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DEFINITIONS
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.
EFFECTIVE DATE - The date coverage begins under the Policy.
FUNDS -- The mutual funds designated as eligible investments for Separate
Account III.
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 Effective Date
and ends on the date of receipt at the Home Office of the Policy Delivery and
Acceptance Letter, signed and dated by the Policyowner, indicating that the
Policyowner has received and accepted the Policy, or, if the Policy is not
accepted, when all amounts due are refunded, whichever is applicable.
INSURED -- The person upon whose life the Policy is issued.
INVESTMENT SUBDIVISION -- A subdivision of Separate Account III, each of which
invests exclusively in shares of a designated portfolio of one of the Funds. All
Investment Subdivisions may not be available in all states.
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.
6
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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, any endorsements and riders.
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.
7
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SUMMARY
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION SHOULD BE READ IN CONJUNCTION
WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE POLICY
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 first-year planned 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.) The
Policyowner determines the allocation of the premiums and Cash Value among the
Investment Subdivisions of Separate Account III. (SEE Allocation of Premiums.)
Policies issued prior to November 14, 1995, contain certain rights, benefits
and procedures which differ from those described elsewhere in this Prospectus.
An individual who has purchased such a Policy should refer to Appendix B in
conjunction with the remainder of this Prospectus in order to determine his or
her rights and benefits under the Policy.
SEPARATE ACCOUNT III
Separate Account III currently has thirty-four Investment Subdivisions to
which premiums and cash values may be allocated. Each Investment Subdivision
invests exclusively in the shares of a portfolio of one of the Funds. Currently,
the Funds include the Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Variable Insurance Products Fund III, the GE Investments
Funds, Inc., the Oppenheimer Variable Account Funds, the Janus Aspen Series, the
Federated Insurance Series, the Alger American Fund and the PBHG Insurance
Series Fund, Inc. The accompanying prospectuses for the Funds describe the
investment objectives and the risks of each of the Funds' portfolios.
Separate Account III also has certain "closed" Investment Subdivisions no
longer available for allocation of premium payments and transfers of Cash Value.
Cash Value remaining in the closed Investment Subdivisions may, however, be
transferred to the Investment Subdivisions that are currently available under
the Policies. Further information about the shares of the Fund portfolios in
which the closed Investment Subdivisions are invested may be found in the
current prospectuses for those Fund portfolios, and in a supplement to this
prospectus. Write or call Life of Virginia for more information if needed.
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.)
PREMIUMS
The initial premium is due on the Policy Date. The minimum first-year planned
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 Fund of the GE
Investments Funds, Inc. In order to allocate money out of the Money Market Fund
of the GE Investments Funds, Inc. the Policyowner must have submitted, and Life
of Virginia must have received, 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 point in time.
8
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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.)
A Policy will lapse only when the Surrender Value is insufficient to pay the
monthly deduction (SEE Charges and Deductions -- Monthly Deduction.), and a
grace period expires without a sufficient payment. (SEE Policy Lapse and
Reinstatement -- Lapse.) 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.)
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.) 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.)
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.) Life of Virginia may not honor transfers
made by third parties holding multiple powers of attorney. (SEE Powers of
Attorney.)
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 portion equal
to the Cash Value less the total of all premium payments made; a 4% rate is
credited for the portion 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.)
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.) In addition, a policy
loan entails the risk that the Policy will lapse if policy debt exceeds 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.) 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
9
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with an optional payment plan. (SEE Optional Payment Plans.)
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.) In addition,
the Policyowner may change the optional payment plan in effect. (SEE Optional
Payment Plans.)
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.)
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.)
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 equals
the current cost of insurance rate multiplied by the net amount at risk under
the Policy. As a current practice, Policies qualifying for the Preferred Funding
Risk Class may have a lower cost of insurance charge. Life of Virginia may, at
its discretion, increase or decrease this charge; however, in no event will the
cost of insurance charge exceed amounts based on the 1980 Commissioners'
Standard Ordinary Mortality Table, adjusted for any substandard rating.
A premium tax charge is deducted monthly during the first ten years following
each premium payment. (SEE Dates Under the Policy.) 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.) 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.) 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.)
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.)
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
10
<PAGE>
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.)
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.
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)).
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.)
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.
FUND ANNUAL EXPENSES FEE TABLE
VARIABLE INSURANCE PRODUCTS FUND
ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Equity-
Income Growth Overseas
Portfolio Portfolio Portfolio
<S> <C>
Management Fees 0.51% 0.61% 0.76%
Other Expenses (after any expense reimbursement) 0.07% 0.08% 0.13%
----- ----- -----
Total Fund Annual Expenses 0.58% 0.69% 0.93%
===== ===== =====
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Asset
Manager Contrafund
Portfolio Portfolio
<S> <C>
Management Fees 0.64% 0.61%
Other Expenses (after any expense reimbursement) 0.10% 0.13%
----- -----
Total Fund Annual Expenses 0.74% 0.74%
===== =====
</TABLE>
11
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND III ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Growth & Growth
Income Opportunities
Portfolio Portfolio
<S> <C>
Management Fees 0.50% 0.61%
Other Expenses (after any expense reimbursement) 0.20% 0.16%
----- -----
Total Fund Annual Expenses 0.70% 0.77%
===== =====
</TABLE>
GE INVESTMENTS FUNDS, INC. ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Real
Money Government S&P 500 Total International Estate
Market Securities Index Return Equity Securities
Fund Fund Fund Fund Fund Fund
<S> <C>
Management Fees (after fee waiver) .10% .50% .35% .50% 1.00% .85%
Other Expenses (after any expense reimbursements) .05% .17% .13% .10% .50% .22%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses .15% .67% .48% .60% 1.50% 1.07%
==== ==== ==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Global Value
Income Equity
Fund * Fund *
<S> <C>
Management Fees (after fee waiver) .60% .65%
Other Expenses (after any expense reimbursements) .30% .26%
---- ----
Total Fund Annual Expenses .90% .91%
==== ====
</TABLE>
* Global Income Fund and Value Equity Fund had not yet commenced operations as
of December 31, 1996.
OPPENHEIMER VARIABLE ACCOUNT FUNDS ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Opp. Opp. Opp.
High Opp. Capital Multiple Opp.
Income Bond Appreciation Strategies Growth
Fund Fund Fund Fund Fund
<S> <C>
Management Fees .75% .74% .72% .73% .75%
Other Expenses .06% .04% .03% .04% .04%
---- ---- ---- ---- ----
Total Fund Annual Expenses .81% .78% .75% .77% .79%
==== ==== ==== ==== ====
</TABLE>
JANUS ASPEN SERIES ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Aggressive Worldwide International
Growth Growth Growth Growth Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
<S> <C>
Management Fees(after any fee waivers/reductions) .65% .72% .66% .05% .79%
Other Expenses (after any expense reimbursements) .04% .04% .14% 1.21% .15%
---- ---- ---- ----- ----
Total Fund Annual Expenses .69% .76% .80% 1.26% .94%
==== ==== ==== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Flexible Capital
Income Appreciation
Portfolio Portfolio *
<S> <C>
Management Fees .65% .75 %
Other Expenses (after any expense reimbursements) .19% .30 %
---- ------
Total Fund Annual Expenses .84% 1.05 %
==== =======
</TABLE>
*Capital Appreciation Portfolio had not yet commenced operations as of December
31, 1996.
12
<PAGE>
FEDERATED INSURANCE SERIES ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Federated
Federated Federated American
Utility High Income Leaders
Fund II Bond Fund II Fund II
<S> <C>
Management Fees (after fee waiver) 0.24% 0.00% 0.53%
Other Expenses (after any expense reimbursement) 0.61% 0.80% 0.32%
----- ----- -----
Total Fund Annual Expenses 0.85% 0.80% 0.85%
===== ===== =====
</TABLE>
THE ALGER AMERICAN FUND ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Alger Alger
American American
Growth Small Capitalization
Portfolio Portfolio
<S> <C>
Management Fees 0.75% 0.85%
Other Expenses 0.04% 0.03%
----- -----
Total Expenses 0.79% 0.88%
===== =====
</TABLE>
PBHG INSURANCE SERIES FUND, INC. ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Growth II Large Cap Growth
Portfolio * Portfolio *
<S> <C>
Management Fees 0.85% 0.72%
Other Expenses 0.30% 0.38%
----- -----
Total Expenses 1.15% 1.10%
===== =====
</TABLE>
*Growth II Portfolio and Large Cap Growth Portfolio has not yet commenced
operations as of December 31, 1996.
The purpose of these tables is to assist the Owner in understanding the
various costs and expenses that an Owner will bear, directly and indirectly.
Except as noted below, the Tables reflect charges and expenses of Account III as
well as the underlying Funds for the most recent fiscal year. For more
information on the charges described in these Tables see Charges and Deductions
and the Prospectuses for the underlying Funds which accompany this Prospectus.
In addition to the expenses listed above, premium taxes varying from 0 to 3.5%
may be applicable.
The expense information regarding the Funds was provided by those Funds. The
Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable
Insurance Products Fund III, Oppenheimer Variable Account Funds, Janus Aspen
Series, Federated Insurance Series, The Alger American Fund, PBHG Insurance
Series Fund, Inc. and their investment advisers are not affiliated with Life of
Virginia. While Life of Virginia has no reason to doubt the accuracy of these
figures provided by these non-affiliated Funds, Life of Virginia has not
independently verified such information. The annual expenses listed for all the
Funds are net of certain reimbursements by the Funds' investment advisers. Life
of Virginia cannot guarantee that the reimbursements will continue.
Absent certain reimbursements and reductions that are reflected in the table,
the total annual expenses of the portfolios of the Variable Insurance Products
Fund during 1996 would have been 0.56% for Equity-Income Portfolio, 0.67% for
Growth Portfolio and O.92% for Overseas Portfolio.
Absent certain reimbursements and reductions that are reflected in the table,
the total annual expenses of the portfolios of the Variable Insurance Products
Fund II during 1996 would have been 0.73 for Asset Manager Portfolio and 0.71%
for Contrafund Portfolio.
Absent certain reimbursements and reductions that are reflected in the table,
the total annual expenses of the portfolios of the Variable Insurance Products
Fund III during 1996 would have been 0.76% for Growth Opportunities Portfolio.
13
<PAGE>
GE Investment Management Incorporated currently serves as investment adviser
to GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.).
Prior to May 1, 1997, Aon Advisors, Inc. served as investment adviser to this
Fund and had agreed to reimburse the Fund for certain expenses of each of the
Fund's portfolios. Absent certain fee waivers or reimbursements, the total
annual expenses of the portfolios of GE Investments Funds, Inc. during 1996
would have been 0.48% for S&P 500 Index Fund, 0.67% for Government Securities
Fund, 0.55% for Money Market Fund, 0.60% for Total Return Fund, 1.07% for Real
Estate Securities Fund, 1.56% for International Equity Fund. The Other Expenses
for the Global Income Fund and the Value Equity Fund are estimates by the Fund
since these portfolios were recently organized and have no operating history,
and actual expenses may be greater or less than those shown.
Absent reimbursements, the total annual expenses of the portfolios of the
Janus Aspen Series during 1996 would have been .83% for Growth Portfolio, .83%
for Aggressive Growth Portfolio, 0.91% for Worldwide Growth Portfolio, 2.21% for
International Growth Portfolio, and 1.07% for Balanced Portfolio. The Other
Expenses listed for the Capital Appreciation Portfolio of Janus Aspen Series are
estimates provided by the Fund because the portfolio had not yet commenced
operations as of December 31, 1996. The total expenses absent fee waivers are
estimated to be 1.30%.
Absent certain fee waivers or reimbursements, the total annual expenses of the
portfolios of the Federated Insurance Series during 1996 would have been 1.36%
for Federated Utility Fund II, 1.39% for Federated High Income Bond Fund II, and
1.07% for Federated American Leaders Fund II.
The Other Expenses listed for the Growth II Portfolio and Large Cap Growth
Portfolio of PBHG Insurance Series Fund, Inc. are estimates provided by the Fund
because the portfolios were recently organized and have a brief operating
history. Actual expenses may be greater or less than those shown.
LIFE OF VIRGINIA AND SEPARATE ACCOUNT 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. Eighty percent of the
capital stock of Life of Virginia is owned by General Electric Capital Assurance
Corporation ("GE Capital Assurance"). The remaining 20% is owned by GE Life
Insurance Group, Inc. GE Capital Assurance and GE Life Insurance Group, Inc.,
are indirectly, wholly-owned subsidiaries of General Electric Capital
Corporation ("GE Capital"). GE Capital, a diversified financial services
company, is a wholly-owned subsidiary of General Electric Company. Life of
Virginia is principally engaged in the offering of life insurance and annuity
policies and ranks among the 25 largest stock life insurance companies in the
United States in terms of business in force. The Company is admitted to do
business in 49 states and the District of Columbia. The principal offices of
Life of Virginia are at 6610 West Broad Street, Richmond, Virginia 23230.
GENERAL ELECTRIC COMPANY
General Electric Company ("GE") is a New York corporation founded more than
100 years ago by Thomas Edison. GE is the world's largest manufacturer of jet
engines, engineering plastics, medical diagnostic equipment and large-sized
electric power generation equipment. Its subsidiary, GE Capital, is a
diversified financial services company with subsidiaries engaged in commercial
and industrial specialized, mid-market and indirect consumer financing
businesses. The GE family of companies includes numerous insurance companies,
including GE Capital Assurance, Great Northern Insured Annuity Corporation, GE
Capital Life Assurance Company of New York, Life of Virginia, First Colony Life
Insurance Company, Federal Home Life Insurance Company, The Harvest Life
Insurance Company, Union Fidelity Life Insurance Company and others.
The GE family of companies also includes Forth Financial Securities
Corporation (a broker/dealer registered with the Securities and Exchange
Commission) which acts as principal underwriter for the Policies.
SEPARATE ACCOUNT III
Separate Account III was established by Life of Virginia as a separate
investment account on February 10, 1987. Separate Account III currently has
thirty-four Investment Subdivisions available for allocation under the Policy,
but that number may change in the future. Each Investment Subdivision invests
exclusively in shares representing an interest in a separate corresponding
portfolio of one of the nine Funds described below. After the Initial Investment
Period, all premiums are allocated in accordance with the instructions of the
Policyowner among up to seven of the thirty-four Investment Subdivisions
available under this Policy.
The assets of Separate Account 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
14
<PAGE>
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 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.) 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 nine series-type mutual Funds. Each
of the Funds currently available under the Policy is a registered open-end,
diversified investment company of the series-type.
Each Investment Subdivision invests exclusively in a designated investment
portfolio of one of the Funds. The assets of each Fund 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.) Should an agreement between Life of Virginia and a
Fund terminate, Separate Account III 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 Investment Subdivisions investing in
portfolios of that Fund.
15
<PAGE>
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 portfolio of a Fund decide not to
sell its shares to Life of Virginia, Life of Virginia will be unable to honor
policyowner requests to allocate their cash values or premium payments to
Investment Subdivisions investing in shares of that Fund or portfolio.
Certain Investment Subdivisions of Separate Account 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 has three portfolios that are currently
available to Policyowners through Separate Account III: VIP Equity-Income
Portfolio, VIP Growth Portfolio, and VIP Overseas Portfolio.
VIP EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the portfolio
will also consider the potential for capital appreciation. The portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
VIP GROWTH PORTFOLIO seeks to achieve capital appreciation. The portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
VIP OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. The portfolio provides a means for investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
Fidelity Management & Research Company serves as investment adviser to the
Variable Insurance Products Fund. For managing each portfolio's investments and
business affairs, each portfolio pays Fidelity Management & Research Company a
monthly fee.
Variable Insurance Products Fund VIP Equity-Income, VIP Growth, and VIP
Overseas Portfolios' fee rates are each made up of two components: (1) a group
fee rate based on the monthly average net assets of all the mutual funds advised
by Fidelity Management & Research Company; and (2) an individual portfolio fee
rate of .20% for the Variable Insurance Products Fund Equity-Income Portfolio,
.30% for the Variable Insurance Products Fund Growth Portfolio and .45% for the
Variable Insurance Products Fund Overseas Portfolio. The group fee rate cannot
rise above .52% and it drops as total assets in all these portfolios. Therefore,
the maximum total management fees that can be charged for the VIP Equity-Income
Portfolio is .72%, for the VIP Growth Portfolio is .82%, and for the VIP
Overseas Portfolio is .97% of the average net assets of these portfolios.
One-twelfth of the sum of the group fee rate and the individual fee rate is
applied to each portfolio's net assets averaged over the most recent month,
giving a dollar amount which is the management fee for that month.
VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund II, which is managed by Fidelity Management &
Research Company, has two portfolios that are currently available to
Policyowners through Separate Account III: VIP Asset Manager Portfolio and VIP
Contrafund Portfolio.
VIP ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
VIP CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in
equity securities of companies believed to be undervalued or out-of-favor.
Fidelity Management & Research Company serves as investment adviser to the
Variable Insurance Products Fund II. For managing each portfolio's investments
and business affairs, each portfolio pays Fidelity Management & Research Company
a monthly fee.
Variable Insurance Products Fund VIP Asset-Manager and VIP Contrafund
Portfolios' fee rates are each made up of two components: (1) a group fee rate
based on the monthly average net assets of all the mutual funds advised by
Fidelity Management & Research Company; and (2) an individual portfolio fee rate
of .25% for the VIP Asset Manager Portfolio and .30% for Contrafund Portfolio.
The group fee rate cannot rise above .52% and it drops as total assets in all
mutual funds rise. Therefore, the maximum total management fees that can be
charged for the VIP Asset-Manager Portfolio is .77% and for the VIP Contrafund
Portfolio is .82% of the average net assets of these portfolios. One-twelfth of
the sum of the group fee rate and the individual fee rate is applied to each
portfolio's net assets averaged over the most recent month, giving a dollar
amount which is the management fee for that month.
16
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND III
Variable Insurance Products Fund III, which is managed by Fidelity Management
& Research Company, has two portfolios that are currently available to
Policyowners through Separate Account III: VIP Growth & Income Portfolio and VIP
Growth Opportunities Portfolio. VIP GROWTH & INCOME PORTFOLIO AND VIP GROWTH
OPPORTUNITIES PORTFOLIO ARE NOT AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO
CALIFORNIA POLICYOWNERS.
VIP GROWTH & INCOME PORTFOLIO seeks high total return through a combination of
current income and capital appreciation by investing mainly in equity
securities.
VIP GROWTH OPPORTUNITIES seeks capital growth by investing primarily in common
stock and securities convertible to common stock.
Fidelity Management & Research Company serves as investment adviser to the
Variable Insurance Products Fund III. For managing each portfolio's investments
and business affairs, each portfolio pays Fidelity Management & Research Company
a monthly fee.
Variable Insurance Products Fund III VIP Growth and Income Portfolio and VIP
Growth Opportunities Portfolio's fee rates are each made up of two components:
(1) a group fee rate based on the monthly average net assets of all the mutual
funds advised by Fidelity Management & Research Company; and (2) an individual
portfolio fee rate of .20% for Growth and Income Portfolio and .30% for Growth
Opportunities Portfolio. The group fee rate cannot rise above .52% and it drops
as total assets in all mutual funds rise. Therefore, the maximum total
management fees that can be charged for the VIP Growth and Income Portfolio is
.72% and for the Growth Opportunities Portfolio is .82% of the average net
assets of these portfolios. One-twelfth of the sum of the group fee rate and the
individual fee rate is applied to each portfolio's net assets averaged over the
most recent month, giving a dollar amount which is the management fee for that
month.
GE INVESTMENTS FUNDS, INC.
GE Investments Funds, Inc. ("GE Investments Funds") has eight portfolios that
are currently available to Policyowners through Separate Account III: Money
Market Fund, Government Securities Fund, S&P 500 Index Fund, Total Return Fund,
International Equity Fund, Real Estate Securities Fund, Global Income Fund and
Value Equity Fund. GLOBAL INCOME PORTFOLIO AND VALUE EQUITY PORTFOLIO ARE NOT
AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
MONEY MARKET FUND has the investment objective of providing the highest level
of current income as is consistent with high liquidity and safety of principal
by investing in high quality money market securities.
GOVERNMENT SECURITIES FUND has the investment objective of seeking high
current income and protection of capital through investments in intermediate and
long-term debt instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
S&P 500 INDEX FUND(1) has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index, through
investment in common stocks traded on the New York Stock Exchange and the
American Stock Exchange, to a limited extent, in the over-the-counter markets.
- -----------------------
(1) "Standard and Poor's", "S&P", and "S&P 500" are trademarks of
McGraw-Hill Companies, Inc. and have been licensed for use by GE
Investment Management Incorporated. The S&P 500 Index Fund is not
sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard
& Poor's makes no representation or warranty, express or implied, to the
investors in this Fund or any member of the public regarding the
advisability of investing in this Fund or in securities generally or the
ability of the S&P 500 Index to track general stock market performance.
S&P's only relationship to the Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is
determined, composed and calculated by S&P without regard to the Fund.
S&P has no obligation to take the needs of the Fund or the investors in
the Fund into consideration in determining, composing or calculating the
S&P 500 Index. S&P is not responsible for and has not participated in
the determination of the prices or composition of the Fund or the timing
of the issuance or sale of the shares of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P
500 Index or any data included therein and S&P shall have no liability
for any errors, omissions, or interruptions therein. S&P makes no
warranty, express or implied, as to the results to be obtained by the
Fund, investors in the Fund, or any other person or entity from the use
of the S&P 500 Index or any data included therein. S&P makes no express
or implied warranties, and expressly disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect
to the S&P 500 Index or any data included therein. Without limiting any
of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect or consequential damages (including lost
profits), even if notified of the possibility of such damages.
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TOTAL RETURN FUND has the investment objective of providing the highest total
return, composed of current income and capital appreciation, as is consistent
with prudent investment risk by investing in common stocks, bonds and money
market instruments, the proportion of each being continuously determined by the
investment adviser.
INTERNATIONAL EQUITY FUND has the investment objective of providing long-term
capital appreciation. The portfolio seeks to achieve its objective by investing
primarily in equity and equity-related securities of companies that are
organized outside of the U.S. or whose securities are principally traded outside
of the U.S.
REAL ESTATE SECURITIES FUND has the investment objective of providing maximum
total return through current income and capital appreciation. The portfolio
seeks to achieve its objective by investing primarily in securities of U.S.
issuers that are principally engaged in or related to the real estate industry
including those that own significant real estate assets. The portfolio will not
invest directly in real estate.
GLOBAL INCOME FUND has the investment objective of high total return,
emphasizing current income and, to a lesser extent, capital appreciation. The
portfolio seeks to achieve these objectives by investing primarily in
income-bearing debt securities and other income-bearing instruments of U.S. and
foreign issuers.
VALUE EQUITY FUND has the investment objective of providing long-term capital
appreciation. The portfolio seeks to achieve this objective by investing
primarily in common stock and other equity securities that are undervalued by
the market and offer above-average capital appreciation potential.
GE Investment Management, Incorporated serves as investment adviser to GE
Investments Funds. GE Investments Funds pays GE Investment Management
Incorporated compensation in the form of an investment advisory fee, computed
and accrued daily, and paid monthly. The investment advisory fee for each
portfolio is based on the average daily net assets of the portfolio at the
following annual rates: for S&P 500 Index Fund .35%; Government Securities Fund,
Money Market Fund, and Total Return Fund .50% of the first $100,000,000, .45% of
the next $100,000,000, .40% of the next $100,000,000, .35% of the next
$100,000,000, and .30% of amounts in excess of $400,000,000; International
Equity Fund 1.00% on the first $100,000,000, .95% on the next $100,000,000, and
.90% of the amounts in excess of $200,000,000; Real Estate Securities Fund .85%
of the first $100,000,000, .80% on the next $100,000,000, and .75% of the
amounts in excess of $200,000,000; Global Income Fund .60% of the fund's average
daily net assets for the previous month; and Value Equity .65% of the fund's
average daily net assets for the previous month. See the fund prospectus for
further details. GE Investment Management has agreed to waive a portion of the
investment advisory fee for the first $100,000,000 of average daily net assets
of the Money Market Fund for 1997, resulting in a fee of .10%. There is no
guarantee that the fee waiver will continue after 1997.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Variable Account Funds has five portfolios that are currently
available to Policyowners through Separate Account III: Oppenheimer High Income
Fund, Oppenheimer Bond Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer
Growth Fund, and Oppenheimer Multiple Strategies Fund.
OPPENHEIMER HIGH INCOME FUND seeks a high level of current income from
investment in high yield fixed income securities, including unrated securities
or high risk securities in the lower rating categories. These securities may be
considered to be speculative. THIS FUND MAY HAVE SUBSTANTIAL HOLDINGS OF
LOWER-RATED DEBT SECURITIES OR "JUNK" BONDS. The risks of investing in junk
bonds are described in the prospectus for the Oppenheimer Variable Account
Funds, which should be read carefully before investing.
OPPENHEIMER BOND FUND primarily seeks a high level of current income from
investment in high yield fixed income securities rated "Baa" or better by
Moody's or "BBB" or better by Standard & Poor's. Secondarily, it seeks capital
growth when consistent with its primary objective.
OPPENHEIMER CAPITAL APPRECIATION FUND seeks to achieve capital appreciation by
investing in "growth-type" companies.
OPPENHEIMER GROWTH FUND seeks to achieve capital appreciation by investing in
securities of well-known established companies.
OPPENHEIMER MULTIPLE STRATEGIES FUND seeks a total investment return (which
includes current income and capital appreciation in the value of its shares)
from investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
Oppenheimer Funds, Inc. serves as investment adviser to Oppenheimer Variable
Account Funds. Oppenheimer Variable Account Funds pay Oppenheimer Funds, Inc. a
monthly management fee. The monthly fee payable to Oppenheimer Funds, Inc. is
computed separately on the net assets of each portfolio as of the close of
business each day. The management fee rates are as follows (i) for
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Capital Appreciation Fund, Growth Fund, and Multiple Strategies Fund: 0.75% of
the first $200 million of net assets, 0.72% of the next $200 million, 0.69% of
the next $200 million, 0.66% of the next $200 million, and 0.60% of net assets
over $800 million; and (ii) for High Income Fund and Bond Fund: 0.75% of the
first $200 million of net assets, 0.72% of the next $200 million, 0.69% of the
next $200 million, 0.66% of the next $200 million, 0.60% of the next $200
million, and 0.50% of net assets over $1 billion.
JANUS ASPEN SERIES
The Janus Aspen Series has seven portfolios that are currently available to
Policyowners through Separate Account III: Growth Portfolio, Aggressive Growth
Portfolio, Worldwide Growth Portfolio, International Growth Portfolio, Balanced
Portfolio, Flexible Income Portfolio and Capital Appreciation Portfolio. THE
CAPITAL APPRECIATION PORTFOLIO IS NOT AVAILABLE IN CONNECTION WITH POLICIES
ISSUED TO CALIFORNIA POLICYOWNERS.
GROWTH PORTFOLIO has the investment objective of long-term capital growth in a
manner consistent with the preservation of capital. The Growth Portfolio is a
diversified portfolio that pursues its objective by investing in common stocks
of companies of any size. Generally, this portfolio emphasizes larger, more
established issuers.
AGGRESSIVE GROWTH PORTFOLIO has the investment objective of long-term growth
of capital. The Aggressive Growth Portfolio is a non-diversified portfolio that
will seek to achieve its objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies.
WORLDWIDE GROWTH PORTFOLIO has the investment objective of long-term growth of
capital in a manner consistent with the preservation of capital. The Worldwide
Growth Portfolio will seek to achieve its objective by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of all
sizes. The portfolio normally invests in issuers from at least five different
countries including the United States.
INTERNATIONAL GROWTH PORTFOLIO has the investment objective of long-term
growth of capital. The International Growth Portfolio will seek to achieve its
objective primarily through investments in common stocks of issuers located
outside the United States. The portfolio normally invests at least 65% of its
total assets in securities of issuers from at least five different countries,
excluding the United States.
BALANCED PORTFOLIO has the investment objective of seeking long-term growth of
capital, consistent with the preservation of capital and balanced by current
income. The portfolio normally invests 40-60% of its assets in securities
selected primarily for their growth potential and 40-60% of its assets in
securities selected primarily for their income potential.
FLEXIBLE INCOME PORTFOLIO has the investment objective of seeking to obtain
maximum total return, consistent with preservation of capital. Total return is
expected to result from a combination of income and capital appreciation. The
portfolio pursues its objective primarily by investing in any type of
income-producing securities. THIS PORTFOLIO MAY HAVE SUBSTANTIAL HOLDINGS OF
LOWER-RATED DEBT SECURITIES OR "JUNK" BONDS. The risks of investing in junk
bonds are described in the prospectus for the Janus Aspen Series, which should
be read carefully before investing.
CAPITAL APPRECIATION PORTFOLIO is a nondiversified portfolio that has the
investment objective of seeking long-term growth of capital. It pursues its
objective by investing primarily in common stocks of issuers of any size.
Janus Capital Corporation serves as investment adviser to the portfolios of
Janus Aspen Series. The portfolios pay a fee to the investment adviser. The
Growth, Aggressive Growth, Worldwide Growth, International Growth and Balanced
Portfolios are each subject to the following advisory fee schedule: 1% of the
first $30 million, 0.75% of the next $270 million, 0.70% of the next $200
million, 0.65% of amounts over $500 million. The Flexible Income Portfolio is
subject to the following advisory fee schedule: .65% of the first $300 million,
and .55% of amounts over $300 million. Janus Capital has agreed to reduce the
advisory fee for the Growth, Aggressive Growth, Worldwide Growth, International
Growth, Balanced and Capital Appreciation Portfolios to the extent that such fee
exceeds the effective rate of the Janus retail fund corresponding to such
portfolios. In addition, Janus Capital has agreed to reimburse each portfolio
for advisory fees and other expenses in excess of a specified percentage of net
assets. The expense limits of the portfolios differ and are set forth in the
Statement of Additional Information for Janus Aspen Series.
FEDERATED INSURANCE SERIES
The Federated Insurance Series has three portfolios that are currently
available to Policyowners through Separate Account III: Federated Utility Fund
II, Federated High Income Bond Fund II and Federated American Leaders Fund II.
FEDERATED UTILITY FUND II has the investment objective of high current income
and moderate capital appreciation. The Federated Utility Fund II will seek to
achieve its objective by investing primarily in equity and debt securities of
utility companies.
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FEDERATED HIGH INCOME BOND FUND II has the investment objective of high
current income. The Federated High Income Bond Fund II will seek to achieve its
objective by investing primarily in a diversified portfolio of professionally
managed fixed-income securities. THE FIXED-INCOME SECURITIES IN WHICH THE FUND
INTENDS TO INVEST ARE LOWER-RATED CORPORATE DEBT OBLIGATIONS, COMMONLY REFERRED
TO AS "JUNK BONDS". THE RISKS OF THESE SECURITIES ARE DESCRIBED IN THE
PROSPECTUS FOR THE FEDERATED INSURANCE SERIES, WHICH SHOULD BE READ CAREFULLY
BEFORE INVESTING.
FEDERATED AMERICAN LEADERS FUND II has the primary investment objective of
long-term growth of capital, and a secondary objective of providing income. The
Federated American Leaders Fund II will seek to achieve its objective by
investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue chip" companies.
Federated Advisers serves as investment adviser to the Federated Utility Fund
II, Federated High Income Bond Fund II and Federated American Leaders Fund II.
The maximum management fee is annual investment advisory fee equal to .75% of
the Federated Utility Fund II's average daily net assets, .60% of the Federated
High Income Bond Fund II's average daily net assets, and .75% of the Federated
American Leaders Fund II's average daily net assets. The adviser has voluntarily
chosen to waive all or a portion of its fee in order that the total annual
expenses for Federated Utility Fund II, Federated High Income Bond Fund II, and
Federated American Leaders Fund II would not exceed 0.85%, 0.80% and 0.85%,
respectively, of average net assets. Based on total expenses during 1996 of
1.36% for Federated Utility Fund II, 1.39% for Federated High Income Bond Fund
II, and 1.07% for Federated American Leaders Fund II, the adviser estimates that
during 1997 it will waive management fees of .51%, .60% and .22%, respectively.
The adviser can terminate this voluntary waiver at any time at its sole
discretion.
THE ALGER AMERICAN FUND
The Alger American Fund has two portfolios that are currently available to
Policyowners through Separate Account III: Alger American Small Capitalization
Portfolio and Alger American Growth Portfolio.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital
appreciation. Except during temporary defensive periods, the portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase, have a total market capitalization within the range of
companies included in the Russell 2000 Growth Index or the S&P Small Cap 600
Index, updated quarterly. Both indexes are broad indexes of small capitalization
stocks. The portfolio may invest up to 35% of its total assets in equity
securities of companies that, at the time of purchase, have total market
capitalization outside this combined range and in excess of that amount (up to
100% of its assets) during temporary defensive periods.
ALGER AMERICAN GROWTH PORTFOLIO has the investment objective of long-term
capital appreciation. Except during temporary defensive periods, this portfolio
invests at least 65% of its total assets in equity securities of companies that,
at the time of purchase, have a total market capitalization of $1 billion or
greater.
Fred Alger Management, Inc. serves as the investment manager to the Alger
American Small Capitalization Portfolio and Alger American Growth Portfolio. The
manager receives an annual fee from each portfolio based on the average daily
net assets of the portfolio at the following rates: Small Capitalization
Portfolio, 0.85%; Growth Portfolio, 0.75%. Fred Alger Management, Inc. has
agreed to reimburse each of these portfolios to the extent that the annual
operating expenses (excluding interest, taxes, fees for brokerage services and
extraordinary expenses) exceed 1.50% of the average daily net assets of either
portfolio for any fiscal year.
PBHG INSURANCE SERIES FUND, INC.
PBHG Insurance Series Fund, Inc. has two portfolios that are currently
available to Policyowners through Separate Account III: Growth II Portfolio and
Large Cap Growth Portfolio. THE GROWTH II PORTFOLIO AND THE LARGE CAP GROWTH
PORTFOLIO ARE NOT CURRENTLY AVAILABLE IN CONNECTION WITH POLICIES ISSUED TO
CALIFORNIA POLICYHOLDERS.
GROWTH II PORTFOLIO seeks long-term capital appreciation by investing in
equity securities of small and medium sized companies (market capitalization of
up to $4 billion) which have an outlook for strong earnings growth and
significant capital appreciation.
LARGE CAP GROWTH PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of larger capitalization companies (market
capitalization of greater than $1 billion) which have an outlook for strong
growth in earnings and potential for capital appreciation.
Pilgrim Baxter & Associates, Ltd. serves as investment adviser to the
portfolios of PBHG Insurance Series Fund, Inc.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
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Life of Virginia currently is compensated by an affiliate(s) of each of the
Funds based upon an annual percentage of the average assets held in the Fund by
Life of Virginia. These percentage amounts, which vary by Fund, are intended to
reflect administrative and other services provided by Life of Virginia to the
Fund and/or affiliate(s).
More detailed information concerning the investment objectives and policies of
the Funds and the investment advisory services and charges can be found in the
current prospectuses for the Funds which accompany or precede this Prospectus. A
prospectus for each Fund can be obtained by writing or calling Life of
Virginia's Home Office. The prospectus for each Fund should be read carefully
before any decision is made concerning the allocation of premium payments or
transfers among the Investment Subdivisions of Separate Account 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 GE Investments Funds, 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, Janus Aspen Series, GE Investments Funds, Inc., and The Alger
American Fund may sell shares to certain retirement plans. As a result, there is
a possibility that a material conflict may arise between the interests of
policyowners generally or certain classes of Policyowners, and such retirement
plans or participants in such retirement plans.
In the event of a material conflict, Life of Virginia will take any necessary
steps, including removing Separate Account III assets from that Fund, to resolve
the matter. See the individual Fund prospectus for greater details.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares to
Separate Account III contain varying provisions regarding termination. The
following summarizes those provisions:
VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, AND
VARIABLE INSURANCE PRODUCTS FUND III (THE "FUND"). These agreements provide
for termination (1) on one year's advance notice by either party, (2) at Life
of Virginia's option if shares of the Fund are not reasonably available to
meet requirements of the policies, (3) at the option of either party if
certain enforcement proceedings are instituted against the other, (4) upon
vote of the policyowners to substitute shares of another mutual fund, (5) at
Life of Virginia's option if shares of the Fund are not registered, issued, or
sold in accordance with applicable laws or if the Fund ceases to qualify as
regulated investment companies under the Internal Revenue Code, (6) at the
option of the Fund or 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.
OPPENHEIMER VARIABLE ACCOUNT FUNDS. This agreement may be terminated by the
parties on six months' advance written notice.
JANUS ASPEN SERIES. This agreement may be terminated by the parties on six
months' advance written notice.
FEDERATED INSURANCE SERIES. This agreement may be terminated by any of the
parties on 180 days advance written notice to the other parties.
THE ALGER AMERICAN FUND. This agreement may be terminated at the option of
any party upon six months' advance written notice to the other parties,
unless a shorter time is agreed to by the parties.
PBHG INSURANCE SERIES FUND, INC. This agreement may be terminated at the
option of any party upon six months' advance written notice to the other
parties, unless a shorter time is agreed to by the parties.
GE INVESTMENTS FUNDS, INC. has entered into a Stock Sale Agreement with Life
of Virginia pursuant to which the Fund sells its shares to Separate Account
III.
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.
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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 does not unfairly discriminate against similarly-situated
purchasers. Life of Virginia assigns Insureds to standard and substandard risk
classes. Cost of insurance deductions will generally be higher under Policies
insuring persons assigned to substandard risk classes.
If the first full premium is not paid with the application, insurance will
become effective on the Effective Date, which is the date that premium is paid
and the Policy is delivered while all persons proposed for insurance are
insurable. If the 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 policy anniversary coincident with or preceding receipt of the
Additional Premium Payment.
PAYMENTS MADE UNDER THE POLICY
INITIAL PREMIUM. The initial premium is due on the Policy Date. This amount
will be stated on the policy data pages. If the Insured is above age 60, the
initial premium must equal the total planned premium. All premiums are payable
to Life of Virginia at its Home Office.
PLANNED PREMIUMS. The amount of the planned premium will be stated on the
policy data pages. The minimum first year planned premium is $5,000.
The total planned premium must equal the guideline single premium for life
insurance as determined in the Internal Revenue Code for the Policy's initial
specified amount. The relationship between the guideline single premium and the
specified amount depends on the age, sex (where appropriate), and risk class of
the Insured. Generally, the same guideline single premium will purchase a higher
specified amount for a younger Insured than for an older Insured of the same sex
and risk class. Likewise, the same guideline
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single premium will purchase a slightly higher specified amount for a female
Insured than for a male Insured of the same age and risk class. Representative
specified amounts for a $10,000 guideline single premium are set forth below:
SPECIFIED AMOUNT FOR A $10,000 GUIDELINE SINGLE PREMIUM
AGE MALE FEMALE
10 $172,614 $222,762
20 118,079 148,384
30 79,351 97,259
40 51,445 63,084
50 34,265 42,083
60 23,862 28,731
70 17,680 20,131
PREFERRED FUNDING RISK CLASS
A Policy issued with respect to an Insured assigned to the standard risk
class may qualify for the Preferred Funding Risk Class, provided that the amount
of total premiums paid under the Policy meets the premium requirements of the
Preferred Funding Schedule. The Preferred Funding Schedule, set forth below,
shows the amount of total premiums that must be paid (as a percentage of a
Policy's total planned premiums) as of the beginning of Policy years one through
five in order for a Policy to qualify for the Preferred Funding Risk Class. Cost
of insurance charges deducted under Policies in this risk class are subject to
certain limits. See below.
POLICY YEAR TOTAL
PREMIUMS (as a % of
the Total Planned
Premium)
1 20%
2 40%
3 60%
4 80%
5+ 100%
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.) 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.)
(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. If
the initial premium equals the maximum premiums limitation at issue,
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
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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.) Only the portion of the payment in excess of any outstanding
Policy Debt will be treated as an Additional Premium Payment.
ALLOCATION OF PREMIUMS
The Policyowner determines the allocation of premiums among Investment
Subdivisions of Separate Account III that will take effect after the Initial
Investment Period. 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 1%.
The initial premium will be allocated to the Investment Subdivision investing
in the Money Market Fund the GE Investments Funds on the Effective Date. Once
allocated, the Policy's Cash Value will remain there until the end of the
Initial Investment Period. For premiums received after the Policy is approved
for issue, but before the end of the Initial Investment Period, the premiums
will also be placed in the Investment Subdivision that invests exclusively in
the Money Market Fund of the GE Investments Funds at the end of the valuation
period during which they were received until the end of the Initial Investment
Period. The Initial Investment Period ends either on the date the Home Office
receives a form satisfactory to Life of Virginia and signed by the Policyowner,
indicating that the Policyowner has received and accepted the Policy, or if the
Policy is not accepted when all amounts due are refunded.
If a Policy is issued as applied for, insurance coverage under the Policy
normally begins on the Policy Date or at the end of the valuation period during
which the full first premium is received at the Home Office, whichever is later.
If a Policy is issued on a basis other than as applied for the insurance
coverage will normally begin on the date the Policy is accepted by the
Policyowner or at the end of the valuation period during which the full first
premium is received at the Home Office, whichever is later.
The 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), 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.
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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 outstanding loan
balance and any due and unpaid monthly deductions. A lapse of the Policy may
result in adverse tax consequences. (SEE Federal Tax Matters.)
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 later. 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.
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.) In addition, the
Policyowner has certain policy loan privileges under the Policy. (SEE Loan
Benefits.) The Policy also provides for the payment of a Death Benefit upon the
death of the Insured. (SEE Death Benefit.)
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.)
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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.) 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.)
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 of the Policy which exceeds the
sum of the premiums paid and outstanding policy debt. 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).
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 Fund of GE Investments Funds and, therefore, there is no
Cash Value in the other Investment Subdivisions. (SEE Allocation of Premiums.)
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 any Cash Value transferred out of the Investment Subdivision during
the current Valuation Period; and
(e) is any Cash Value withdrawn as a partial withdrawal during the current
Valuation Period.
In addition, whenever a Valuation Period includes the Monthly Anniversary Day,
the Cash Value at the end of such period is reduced by the monthly deduction
allocated to the Cash Value in the Investment Subdivision for that Monthly
Anniversary Day. (SEE Charges and Deductions -- Monthly Deduction.)
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
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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.) When, however, the Surrender Value
is insufficient to pay the monthly deduction and the grace period expires
without an adequate payment by the Policyowner, the Policy will lapse and
terminate without value. (SEE Policy Lapse and Reinstatement -- Lapse.)
TRANSFERS
After the Initial Investment Period, Policyowners may transfer 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. 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.
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To request a telephone transfer, Policyowners should call Life of Virginia's
Telephone Transfer Line at 800-772-3844. Life of Virginia will record all
telephone transfer requests. Transfer requests received prior to the close of
the New York Stock Exchange 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 Subdivision designated for the purpose of
Dollar-Cost Averaging is the Investment Subdivision that invests in the Money
Market Fund of GE Investments Funds, Inc. 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).
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.
PORTFOLIO REBALANCING
Owners may elect to have Life of Virginia automatically transfer amounts on a
quarterly, semi-annual or annual basis to maintain a specified percentage of
Cash Value in each of two or more Investment Subdivisions designated by the
Owner. This privilege is intended to permit owners to use "Portfolio
Rebalancing," a strategy that maintains over time the Owner's desired allocation
percentage in the designated Investment Subdivisions. The percentage of Cash
Value in each of the Investment Subdivisions may shift from the Premium Payment
allocation percentage due to the performance of the Investment Subdivisions.
Life of Virginia makes no representations or guarantees that Portfolio
Rebalancing will result in a profit or protect against loss.
Owners must complete the Portfolio Rebalancing agreement to participate in the
Portfolio Rebalancing program. Owners may designate the Investment Subdivisions
and specify the rebalancing percentages in the agreement. The specified
percentages must be in whole percentages and must be at least 1%. The date that
a rebalancing transfer is effected is measured from the Policy Date, or other
date selected at the sole discretion of Life of Virginia, based on the
rebalancing frequency chosen by an Owner. Cash Value must be allocated to each
of the designated Investment Subdivisions for rebalancing to become effective.
Portfolio Rebalancing is offered free of charge and will continue as long as
there is Cash Value in each of the designated Investment Subdivisions. Prior to
that time, Owners may discontinue rebalancing by sending Life of Virginia a
written cancellation notice. Owners may make changes to their Portfolio
Rebalancing program by calling Life of Virginia's Telephone Transfer Line at
800-772-3844. Portfolio Rebalancing transfers are not included for the purpose
of determining any transfer charge. Owners should consider the possible effects
of electing other automatic programs such as Dollar-Cost Averaging concurrent
with Portfolio Rebalancing. Life of Virginia reserves the right to exclude
investment subdivisions from Portfolio Rebalancing. Life of Virginia also
reserves the right to discontinue Portfolio Rebalancing upon 30 days written
notice to the Owner.
POWERS OF ATTORNEY
As a general rule and as a convenience to Policyowners, Life of Virginia
allows the use of powers of attorney whereby Policyowners give third parties the
right to effect cash value transfers on behalf of the Policyowners. However,
when the same third party possesses powers of attorney executed by many
Policyowners, the result can be simultaneous transfers involving large amounts
of cash value. Such transfers can disrupt the orderly management of the mutual
funds underlying the variable policy, can result in higher costs to
Policyowners, and are generally not compatible with the long-range goals of
purchasers of variable policies. Life of Virginia believes that such
simultaneous transfers effected by such third parties are not in the best
interests of all shareholders of the funds underlying its policies, and this
position is shared by the managements of those mutual funds.
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.)
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 General Account Cash Value up to an amount
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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 General Account Cash Value in excess
of the above amount. For purposes of crediting these two rates of interest, the
Cash Value as calculated on the preceding Monthly Anniversary Day 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.) 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.) 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.) 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.)
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
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<PAGE>
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 total planned premium
and the age, sex (where appropriate), and risk class of the Insured. (SEE
Premiums.) After a Policy has been in effect for one year, however, the
specified amount may be increased. (SEE Changes in the Specified Amount.)
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. Prior to any
increase in specified amount, the total planned premium for the original
specified amount must have been paid. 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. At the time of the requested
increase, the Insured must be in the same risk class as at the time the Policy
was issued. 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, sex (where appropriate), and risk class of the Insured. 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.
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Representative minimum increases are set forth below:
SPECIFIED AMOUNT FOR A $1,000 ADDITIONAL PREMIUM PAYMENT
STANDARD STANDARD
AGE MALE FEMALE
10 $16,945 $21,813
20 11,497 14,530
30 7,789 9,549
40 5,048 6,188
50 3,351 4,116
60 2,321 2,806
70 1,708 1,958
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.)
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.) 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, where
appropriate.
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.
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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.
SPECIALIZED USES OF THE POLICY
The Policy should be purchased as a long-term investment designed to provide a
death benefit. The Policy's Surrender Value, as well as its death benefit, may
be used to provide proceeds for various individuals and business financial
planning purposes. However, loans and partial withdrawals will affect the
Surrender Value and death benefit proceeds, and may cause the Policy to lapse.
If the investment performance of Investment Subdivisions to which cash value is
allocated is not sufficient to provide funds for the specific planning purpose
contemplated, or if insufficient payments are made or cash value maintained,
then the Owner may not be able to utilize the Policy to achieve the purposes for
which it was purchased. Because the Policy is designed to provide benefits on a
long-term basis, before purchasing a Policy for a specialized purpose a
purchaser should consider whether the long-term nature of the Policy, and the
potential impact of any contemplated loans and partial withdrawals, are
consistent with the purpose for which the Policy is being considered.
CHARGES AND DEDUCTIONS
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
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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), 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. All premium payments made
during a Policy year are deemed to have been made on the first day of such
Policy year; accordingly, one year is considered to have elapsed since the
payment of such premiums on each subsequent policy anniversary. In order to
determine the portion of Cash Value in Separate Account III subject to the
premium tax charge and distribution expense charge, premiums are grouped by
Policy year.
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. To determine the 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 current cost of insurance rate. To determine the
net amount at risk on a Monthly Anniversary Day, the Death Benefit on that date
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 on
that date is subtracted. Thus, the net amount at risk depends upon and will be
affected by changes in the Policy's Cash Value.
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On those Monthly Anniversary Days on which a Policy qualifies for the
Preferred Funding Risk Class (see above), the cost of insurance charge will not
exceed .0792% of the Policy's Cash Value on the Monthly Anniversary Day.
Furthermore, once the amount of total premiums paid meets or exceeds total
planned premium, the cost of insurance charge will not exceed .05% of the
Policy's Cash Value on the Monthly Anniversary Day. These are equivalent to
annual rates of .95% and .60%, respectively, of a Policy's Cash Value. These
limits on the cost of insurance charge represent Life of Virginia's current
practice, which we may change at our discretion.
Changes in the Death Benefit may affect the amount of the 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.) may cause the cost of insurance charge to increase.
The current monthly cost of insurance rate is based on the Insured's sex
(where appropriate), Attained Age, policy duration and risk class. Life of
Virginia may, at its discretion, increase or decrease this rate; however, in no
event will the current cost of insurance rate exceed the guaranteed maximum cost
of insurance rate set forth in the Policy. The guaranteed maximum cost of
insurance rate is based on the Insured's sex (where appropriate), Attained Age
and risk class. The guaranteed maximum cost of insurance rates allowable under
the Policies are based on the Commissioners' 1980 Standard Ordinary Mortality
Table, adjusted for any substandard rating. The current and 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.
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 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.)
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. For purposes of this section, all premium payments
made during a Policy year are deemed to have been made on the first day of such
Policy year; accordingly, one year is considered to have elapsed on each policy
anniversary.
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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 years in which premiums are paid under the
Policies. 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 that are available at the time of the request. 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 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.
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(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.
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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.
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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
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)) and regulations promulgated thereunder by the
Secretary of the Treasury (the "Treasury") prescribe diversification standards
for the investments of Separate Account III which must be met 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 GE Investments Funds), it
has entered into agreements regarding participation in the Funds, which require
the Funds to be operated in compliance with the requirements prescribed by the
Treasury. Thus, Life of Virginia believes that Separate Account III will be
treated as adequately diversified for federal tax purposes.
38
<PAGE>
In certain circumstances, variable contract owners may be considered the
owners, for federal tax purposes, of the assets of the separate account used to
support such contracts. In those circumstances, income and gains from the
separate account assets would be includable in the variable contract owners'
gross income annually as earned. The Internal Revenue Service (the "Service")
has stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the owner possesses incidents
of ownership in those assets, such as the ability to exercise investment control
over the assets. The Treasury Department has announced, in connection with the
issuance of temporary regulations concerning diversification requirements, that
those temporary regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated 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 Department sets forth a new
position which is adverse to taxpayers, the position is applied on a prospective
basis only. Thus, if the Service or the Treasury Department were to issue
regulations or a ruling which treated a Policyowner as the owner of the assets
of Separate Account 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 optional payment plan 3 and the
Beneficiary is at an advanced age at such time, such as age 80 or older, it is
possible that payments would be treated in a manner similar to that under Plan
4. If 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, and Exchange Privilege.),
the right to change owners (SEE Changing the Owner or Beneficiary.), 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.
39
<PAGE>
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, will be classified as
modified endowment contracts if cumulative premiums paid exceed the schedule of
premiums allowed by the 7-pay test. Additional Premium Payments made in order to
increase the Specified Amount also will generally cause the Policy to be
classified as a modified endowment contract. For policies classified as modified
endowment contracts, loans and other distributions will be treated as described
in items 3, 4 and 5 above, and Life of Virginia 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.
40
<PAGE>
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.
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.
41
<PAGE>
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.
42
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF LIFE OF VIRGINIA
NAME AND POSITION(S) PRINCIPAL OCCUPATIONS
WITH LIFE OF VIRGINIA* LAST FIVE YEARS
Ronald V. Dolan*,# Director, Chairman of the Board, Life of
Virginia since 1997; President and Chief
Executive Officer of First Colony Life
Insurance Company since 1992; President, First
Colony Corporation since 1985
Paul E. Rutledge III* Director, President and Chief Executive
Officer since 1997; President and Chief
Operating Officer, Life of Virginia, 5/91 to
4/97; Executive Vice President and Chief
Operating Officer, United Investors Life
Insurance Company, Birmingham, Alabama, 9/87
to 4/91.
William D. Baldwin* Director, Life of Virginia since 1987; Senior
Vice President, Life of Virginia, since 1985.
Selwyn L. Flournoy,Jr.* Director, Life of Virginia, since 5/89; Senior
Vice President, Life of Virginia, since 1980.
Robert A. Bowen* Director, Life of Virginia, since 2/93; Senior
Vice President, Life of Virginia, since 1986;
Systems Manager, Life of Virginia, since 1986.
Linda L. Lanam* Director, Life of Virginia, since 2/93, Senior
Vice President since 1997, Vice President and
Senior Counsel, Life of Virginia, since 1989;
Corporate Secretary for Life of Virginia and
for a number of Life of Virginia affiliates,
since 1992.
Robert D. Chinn* Director, Life of Virginia since 1997, Senior
Vice President - Agency, Life of Virginia,
since 1/92; Vice President, Life of Virginia,
since 1985.
Thomas A. Barefield* Director, Life of Virginia since 1997, Senior
Vice President - Special Markets, Life of
Virginia, since 1993; Vice President - Special
Markets, Life of Virginia, 1/91 to 12/93; Vice
President Registered Products, Life of
Virginia, 12/86 to 1/91.
Michael Weitz Senior Vice President- Brokerage since 1995
Elliott Rosenthal Senior Vice President - Investment Products
1997; Vice President and Senior Investment
Actuary 1/95-4/97; Investment Actuary
1/82-2/95
Victor C. Moses** Director, Life of Virginia, since April 1,
1996. Director of GNA since April 1994.
Senior Vice President, Business Development,
and Chief Actuary of GNA since May 1993.
Senior Vice President and Chief Financial
Officer of GNA 1991-1993. Vice President and
Chief Actuary of GNA 1983-1991. Senior Vice
President, Controller and Treasurer GNA
Investors Trust 1992-1993.
Geoffrey S. Stiff** Director, Life of Virginia, since April 1,
1996. Director of GNA since April 1994.
Senior Vice President, Chief Financial Officer
and Treasurer of GNA since May 1993. Vice
President, Chief Financial Officer and
Director of Employers Reinsurance Corporation
1987-1993. Senior Vice President, Controller
and Treasurer of GNA Investors Trust since
1993.
- ----------------------------------------------
* Messrs. Dolan, Rutledge, Baldwin, Bowen, Flournoy, Chinn, Barefield and Ms.
Lanam are members of the Executive Committee of the Board of Directors of
Life of Virginia.
The principal business address of each person listed, unless otherwise
indicated, is The Life Insurance Company of Virginia, 6610 W. Broad Street,
Richmond, VA 23230.
# The principal business address for Mr. Dolan is First Colony Life Insurance
Company 700 Main Street, Post Office 1280, Lynchburg, VA 24505-1280
** The principal business address for Mr. Moses and Mr. Stiff is GNA
Corporation, Two Union Square, 601 Union Street, Seattle, WA 98101.
The composition of the Board of Directors of Life of Virginia changed following
the sale of Life of Virginia on April 1, 1996.
43
<PAGE>
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P. of Washington, D.C. has provided advice
on certain legal matters relating to federal securities laws applicable to the
issue and sale of the variable life insurance Policy described in this
Prospectus. 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 J. Neil McMurdie, Associate
Counsel and Assistant Vice President 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
KPMG Peat Marwick LLP
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries, as of December 31, 1996 and for the nine month period
ended December 31, 1996 and the preacquisition three month period ended March
31,1996 and the financial statements of Life of Virginia Separate Account III as
of December 31, 1996 and for the year or periods then ended have been included
herein and in the registration statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
Ernst & Young LLP
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries at December 31, 1995 and for each of the two years in
the period ended December 31, 1995 and the Life of Virginia Separate Account III
statements of operations and statements of changes in net assets for each of the
two years or periods ended December 31, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, to the extent indicated in their reports thereon also apearing
elsewhere herein, and included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
CHANGE IN AUDITORS
Subsequent to the acquisition of Life of Virginia by GNA Corporation on April
1, 1996, Life of Virginia selected KPMG Peat Marwick LLP to be its auditor.
Accordingly, Life of Virginia's principal auditors has changed for the year
ending December 31, 1996, from Ernst & Young LLP, to KPMG Peat Marwick LLP. The
former auditors were dismissed and KPMG Peat Marwick LLP was retained because
KPMG Peat Marwick LLP is the auditor for GE Capital, GNA Corporation's parent.
This change of auditors was approved by the members of Life of Virginia's Board
of Directors.
Neither KPMG Peat Marwick LLP nor Ernst & Young LLP's reports on the financial
statements contains any adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles.
Furthermore, there were no disagreements with either on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure which would have caused them to make reference to the subject matter
of the disagreement in connection with their reports.
ADDITIONAL INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
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.
44
<PAGE>
SUPPLEMENT DATED MAY 1, 1997
TO PROSPECTUS DATED MAY 1, 1997
LIFE OF VIRGINIA SEPARATE ACCOUNTS II AND III
Prior to November 23, 1995, Policyowners could allocate premiums (or net
premiums, as applicable) and policy cash (or account) values to six Investment
Subdivisions which are now closed to new investment (the "Closed Investment
Subdivisions"). Although no new allocations can be made to these Closed
Investment Subdivisions, existing allocations of policy value will be permitted
to remain there. Alternatively, Policyowners may transfer amounts from the
Closed Investment Subdivisions to the other Investment Subdivisions currently
available under the Policy.
This supplement contains information regarding the investment objectives and
advisory fees of the portfolios in which the Closed Investment Subdivisions
invest. It is being provided for the benefit of Policyowners who have policy
value allocated to one or more of those Closed Investment Subdivisions.
THE FUNDS
Oppenheimer Variable Account Funds ("OVAF")
Oppenheimer Money Fund seeks the maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity.
OppenheimerFunds, Inc. ("OFI") serves as investment adviser to the OVAF. The
OVAF pays OFI a monthly management fee. Effective September 1, 1994, the monthly
fee payable to OFI is computed separately on the net assets of each portfolio as
of the close of business each day. The management fee rate for the Oppenheimer
Money Fund is 0.450% of the first $500 million of net assets, 0.425% of the next
$500 million, 0.400% of the next $500 million, and 0.375% of net assets over
$1.5 billion.
Variable Insurance Products Fund ("VIPF")
Money Market Portfolio seeks high current income while maintaining a stable
share price by investing in a broad range of money market securities.
High Income Portfolio seeks high current income by investing mainly in
high-yielding, high-risk debt securities, with an emphasis on lower-quality
securities.
Fidelity Management & Research Company ("FMR") serves as investment advisor to
the VIPF. For managing each portfolio's investments and business affairs, each
portfolio pays FMR a monthly fee.
VIPF Money Market and High Income Portfolios' fee rates are each made up of two
components: (1) a group fee rate based on the monthly average net assets of all
the mutual funds advised by FMR; and (2) an individual portfolio fee rate of
.03% for the Money Market Portfolio and .45% for the High Income Portfolio. The
group fee rate cannot rise above .52% and it drops as total assets in all mutual
funds rise. Therefore, the maximum total management fee that can be charged for
the VIP Money Market Portfolio is .55% and for the VIP High Income Portfolio is
.97%. One-twelfth of the sum of the group fee rate and the individual fee rate
is applied to each portfolio's net assets averaged over the most recent month,
giving a dollar amount which is the management fee for that month.
Neuberger & Berman Advisers Management Trust
Each portfolio of the Advisers Management Trust invests all of its net
investable assets in its corresponding series of Advisers Managers Trust.
<PAGE>
Balanced Portfolio has the investment objective of providing long-term capital
growth and reasonable current income without undue risk to principal. Its
corresponding series, AMT Balanced Investments, has the same investment
objective.
Limited Maturity Bond Portfolio has the investment objective of providing the
highest current income consistent with low risk to principal and liquidity; and
secondarily, total return. Its corresponding series, AMT Limited Maturity Bond
Investments, has the same investment objective.
Growth Portfolio has the investment objective of seeking capital appreciation
without regard to income. Its corresponding series, AMT Growth Investments, has
the same investment objective.
Neuberger & Berman Management Incorporated (N&B Management) serves as the
investment manager of the series. N&B Management Incorporated provides
investment management services to AMT Limited Maturity Bond Investments, AMT
Growth Investments and AMT Balanced Investments that include, among other
things, making and implementing investment decisions and providing facilities
and personnel necessary to operate the corresponding series of Advisers Managers
Trust. N&B Management provides administrative services to the three Portfolios
that include furnishing similar facilities and personnel for the portfolios.
With the consent of each of the Portfolios, N&B Management is authorized to
subcontract some of its responsibilities under its administration agreement with
the Portfolios to third parties. For such administrative and investment
services, N&B Management is paid the following fees (as a percentage of average
daily net assets):
<TABLE>
<CAPTION>
Management Administration
(Series) (Portfolio)
<S> <C>
Limited Maturity Bond 0.25% of first $500 million 0.40%
0.225% of next $500 million
0.20% of next $500 million
0.175% of next $500 million
0.15% of over $2 billion
Balanced 0.55% of first $250 million 0.30%
0.525% of next $250 million
0.50% of next $250 million
0.475% of next $250 million
0.45% of next $500 million
0.425% of over $1.5 billion
Growth 0.55% of first $250 million 0.30%
0.525% of next $250 million
0.50% of next $250 million
0.475% of next $250 million
0.45% of next $500 million
0.425% of over $1.5 billion
</TABLE>
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives and policies of
the Funds and the investment advisory services and charges can be found in the
current prospectuses for the Funds. A prospectus for each Fund can be obtained
by writing or calling Life of Virginia's Home Office. The prospectus for each
Fund should be read carefully before any decision is made concerning transfers
among the investment subdivisions.
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
(804) 281-6000
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Table of Contents
Year ended December 31, 1996
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PAGE
Independent Auditors' Report ..............................................1
Financial Statements:
Statements of Assets and Liabilities...............................3
Statements of Operations...........................................9
Statements of Changes in Net Assets...............................19
Notes to Financial Statements.............................................29
============================================================================
<PAGE>
[LOGO] KPMG Peat Marwick LLP
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
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 (the Account) (comprising, the Life of Virginia
Series Fund, Inc.--Common Stock Index, Government Securities, Money Market,
Total Return, International Equity and Real Estate Securities Portfolios; the
Oppenheimer Variable Account Fund--Money, Bond, Capital Appreciation, Growth,
High Income and Multiple Strategies Funds; the Variable Insurance Products
Fund--Money Market, High Income, Equity-Income, Growth and Overseas Portfolios;
the Variable Insurance Products Fund II--Asset Manager and Contrafund
Portfolios; the Advisers Management Trust--Balanced, Bond and Growth Portfolios;
the Federated Investors Insurance Series--American Leaders, High Income Bond and
Utility Funds II; the Alger American--Small Cap and Growth Portfolios; and the
Janus Aspen Series--Aggressive Growth, Growth, Worldwide Growth, Balanced,
Flexible Income and International Growth Portfolios) as of December 31, 1996 and
the related statements of operations and changes in net assets for the year or
periods then ended. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying statements of
operations and changes in net assets of Life of Virginia Separate Account III
for the years or periods ended December 31, 1995 and 1994, were audited by other
auditors, whose report thereon dated February 8, 1996 expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence with
the underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
1
<PAGE>
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
portfolios constituting Life of Virginia Separate Account III as of December 31,
1996 and the results of their operations and changes in their net assets for the
year or period then ended in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
February 11, 1997
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
Policyholders
Life of Virginia Separate Account III
and Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of operations and changes in net
assets for each of the two years in the period ended December 31, 1995 for the
Life of Virginia Series Fund, Inc. Common Stock Index, Government Securities,
Money Market and Total Return portfolios, the Oppenheimer Variable Account Funds
portfolios, the Variable Insurance Products Fund portfolios, the Variable
Insurance Products Fund II Asset Manager portfolio, the Advisers Management
Trust portfolios, and for the period from June 30, 1995 (date of inception) to
December 31, 1995 for the Life of Virginia Series Fund, Inc. International
Equity portfolio, for the period from December 6, 1995 (date of inception) to
December 31, 1995 for the Life of Virginia Series Fund, Inc. Real Estate
Securities portfolio, for the period from January 16, 1995 (date of inception)
to December 31, 1995 for the Variable Insurance Products Fund II Contrafund
portfolio, for the period from February 7, 1995 (date of inception) to December
31, 1995 for the Insurance Management Series portfolios, for the year ended
December 31, 1995 and for the period from May 11, 1994 (date of inception) to
December 31, 1994 for the Janus Aspen Aggressive Growth, Growth, and Worldwide
Growth portfolios, for the period from October 27, 1995 (date of inception) to
December 31, 1995 for the Janus Aspen Balanced portfolio, for the period from
November 1, 1995 (date of inception) to December 31, 1995 for the Janus Aspen
Flexible Income portfolio, for the period from October 6, 1995 (date of
inception) to December 31, 1995 for the Alger American Small Cap portfolio and
for the period from November 2, 1995 (date of inception) to December 31, 1995
for the Alger American Growth portfolio. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets for
the periods described in the first paragraph of each of the respective
portfolios constituting Life of Virginia Separate Account III, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Richmond, Virginia
February 8, 1996
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
===================================================================================================================================
Life of Virginia Series Fund, Inc.
----------------------------------------------------------------------------
Common Government Money Total International Real Estate
Stock Index Securities Market Return Equity Securities
Assets Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Life of Virginia Series
Fund, Inc., at fair value (note 2):
Common Stock Index Portfolio (59,322
shares; cost - $1,270,806) $ 898,137 - - - - -
Government Securities Portfolio (73,273
shares; cost - $747,098) - 700,491 - - - -
Money Market Portfolio (926,568 shares;
cost - $9,907,530) - - 9,617,771 - - -
Total Return Portolio (79,210 shares;
cost - $1,155,580) - - - 1,008,345 - -
International Equity Portfolio
(68,871 shares; cost - $771,311) - - - - 745,870 -
Real Estate Securities Portfolio
(15,164 shares; cost - $184,452) - - - - - 213,963
Dividend receivable 652,254 77,670 500,346 387,179 46,694 14,330
Receivable from affiliate (note 3) 8,671 - - 3,128 396 -
Receivable for units sold - - 226,933 121 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,559,062 778,161 10,345,050 1,398,773 792,960 228,293
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) $ 316 2,889 453,543 308 193 253
Payable for units withdrawn 144 17 - - 23 6
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 460 2,906 453,543 308 216 259
===================================================================================================================================
Net assets $ 1,558,602 775,255 9,891,507 1,398,465 792,744 228,034
===================================================================================================================================
Outstanding units 58,616 43,554 683,115 62,796 69,054 14,627
===================================================================================================================================
Net asset value per unit $ 26.59 17.80 14.48 22.27 11.48 15.59
===================================================================================================================================
</TABLE>
3
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
==================================================================================================================================
Oppenheimer Variable Account Fund
-----------------------------------------------------------------------------
Capital High Multiple
Money Bond Appreciation Growth Income Strategies
Assets Fund Fund Fund Fund Fund Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Oppenheimer Variable
Account Fund, at fair value (note 2):
Money Fund (157,798 shares;
cost - $157,798) $ 157,798 - - - - -
Bond Fund (142,182 shares;
cost - $1,624,619) - 1,653,572 - - - -
Capital Appreciation Fund
(137,369 shares; cost - $4,383,417) - - 5,317,572 - - -
Growth Fund (70,159 shares;
cost - $1,566,262) - - - 1,911,122 - -
High Income Fund (353,474
shares; cost - $3,856,001) - - - - 3,934,164 -
Multiple Strategies Fund
(149,715 shares; cost - $2,041,847) - - - - - 2,340,040
Receivable from affiliate (note 3) - 2,188 15,672 4,123 10,309 1,930
Receivable for units sold - 373 18,729 - - 2,052
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 157,798 1,656,133 5,351,973 1,915,245 3,944,473 2,344,022
==================================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) $ 1,571 417 1,335 475 993 586
Payable for units withdrawn - - - - 6 -
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,571 417 1,335 475 999 586
==================================================================================================================================
Net assets $ 156,227 1,655,716 5,350,638 1,914,770 3,943,474 2,343,436
==================================================================================================================================
Outstanding units 10,387 81,322 177,408 78,571 135,468 103,922
==================================================================================================================================
Net asset value per unit $ 15.04 20.36 30.16 24.37 29.11 22.55
==================================================================================================================================
</TABLE>
4
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
======================================================================================================================
Variable Insurance Products Fund
--------------------------------------------------------------
Money High Equity-
Market Income Income Growth Overseas
Assets Portfolio Portfolio Portfolio Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Variable Insurance Products
Fund, at fair value (note 2):
Money Market Portfolio (1,107,058 shares;
cost - $1,107,058) $ 1,107,058 - - - -
High Income Portfolio (105,735 shares;
cost - $1,231,252) - 1,323,805 - - -
Equity-Income Portfolio (583,350 shares;
cost - $10,130,711) - - 12,267,844 - -
Growth Portfolio (282,599 shares;
cost - $7,520,846) - - - 8,800,141 -
Overseas Portfolio (286,646 shares;
cost - $5,000,789) - - - 5,400,408
Accrued interest income 5,154 - - - -
Receivable from affiliate (note 3) - - 104,074 7,945 -
Receivable for units sold - - 20,439 129 -
- ----------------------------------------------------------------------------------------------------------------------
Total assets $ 1,112,212 1,323,805 12,392,357 8,808,215 5,400,408
======================================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) $ 1,756 385 3,098 2,204 19,381
Payable for units withdrawn - - - - 4,483
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,756 385 3,098 2,204 23,864
======================================================================================================================
Net assets $ 1,110,456 1,323,420 12,389,259 8,806,011 5,376,544
======================================================================================================================
Outstanding units 73,394 53,819 478,350 320,102 315,896
======================================================================================================================
Net asset value per unit $ 15.13 24.59 25.90 27.51 17.02
======================================================================================================================
</TABLE>
5
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
=======================================================================================================================
Variable Insurance
Products Fund II Advisers Management Trust
-------------------------- ----------------------------------
Asset
Manager Contrafund Balanced Bond Growth
Assets Portfolio Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Variable Insurance Products
Fund II, at fair value (note 2):
Asset Manager Portfolio (488,171 shares;
cost - $7,034,914) $ 8,264,734 - - - -
Contrafund Portfolio (280,904 shares;
cost - $4,112,025) - 4,651,776 - - -
Investment in Advisers Management Trust,
at fair value (note 2):
Balanced Portfolio (116,987 shares;
cost - $1,715,603) - - 1,862,430 - -
Bond Portfolio (44,779 shares;
cost - $627,518) - - - 629,147 -
Growth Portfolio (29,216 shares;
cost - $697,871) - - - - 753,181
Receivable from affiliate (note 3) - 60,384 10,601 9,822 -
Receivable for units sold 1,060 150 - - -
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 8,265,794 4,712,310 1,873,031 638,969 753,181
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) $ 12,130 1,176 469 160 3,805
Payable for units withdrawn - - - 1,375 -
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 12,130 1,176 469 1,535 3,805
=======================================================================================================================
Net assets $ 8,253,664 4,711,134 1,872,562 637,434 749,376
=======================================================================================================================
Outstanding units 405,585 283,121 114,320 52,421 49,204
=======================================================================================================================
Net asset value per unit $ 20.35 16.64 16.38 12.16 15.23
=======================================================================================================================
</TABLE>
6
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
==========================================================================================================
Federated Investors
Insurance Series Alger American
--------------------------------- ---------------------
American High Income Small
Leaders Bond Utility Cap Growth
Assets Fund II Fund II Fund II Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Federated Investors
Insurance Series,
at fair value (note 2):
American Leaders Fund II
(1,156 shares; cost -
$14,784) $ 17,639 - - - -
High Income Bond Fund II
(66,264 shares; cost -
$649,154) - 678,539 - - -
Utility Fund II (20,488 shares;
cost - $224,211) - - 241,959 - -
Investment in Alger American,
at fair value (note 2):
Small Cap Portfolio (25,708
shares; cost - $1,065,088) - - - 1,051,704 -
Growth Portfolio (39,012 shares;
cost - $1,309,776) - - - - 1,339,294
Receivable from affiliate (note 3) - 228 - 604 9,311
Receivable for units sold 150 - - 20,070 3,855
- ----------------------------------------------------------------------------------------------------------
Total assets $ 17,789 678,767 241,959 1,072,378 1,352,460
==========================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate
(note 3) $ 26 168 247 263 337
Payable for units withdrawn - - - - -
- ----------------------------------------------------------------------------------------------------------
Total liabilities 26 168 247 263 337
==========================================================================================================
Net assets $ 17,763 678,599 241,712 1,072,115 1,352,123
==========================================================================================================
Outstanding units 1,606 50,680 17,985 111,215 125,545
==========================================================================================================
Net asset value per unit $ 11.06 13.39 13.44 9.64 10.77
==========================================================================================================
</TABLE>
7
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
Janus Aspen Series
---------------------------------------------------------------------------
Aggressive Worldwide Flexible International
Growth Growth Growth Balanced Income Growth
Assets Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Janus Aspen Series,
at fair value (note 2):
Aggressive Growth Portfolio
(104,134 shares;
cost - $1,888,964) $ 1,899,397 - - - - -
Growth Portfolio (180,074
shares; cost - $2,467,075) - 2,792,944 - - - -
Worldwide Growth Portfolio
(253,254 shares; cost -
$4,223,284) - - 4,923,248 - - -
Balanced Portfolio (42,732
shares; cost - $591,164) - - - 631,157 - -
Flexible Income Portfolio
(14,206 shares; cost -
$159,067) - - - - 159,679 -
International Growth Portfolio
(24,813 shares; cost -
$372,667) - - - - - 390,067
Receivable from affiliate (note 3) 77,774 2,915 3,867 - - 79
Receivable for units sold - - 25,952 400 - -
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,977,171 2,795,859 4,953,067 631,557 159,679 390,146
==========================================================================================================================
Liabilities
- --------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate
(note 3) 495 698 1,230 1,044 208 98
Payable for units withdrawn - 8,273 - - - -
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 495 8,971 1,230 1,044 208 98
==========================================================================================================================
Net assets $ 1,976,676 2,786,888 4,951,837 630,513 159,471 390,048
==========================================================================================================================
Outstanding units 129,703 190,622 319,680 51,766 14,100 33,423
==========================================================================================================================
Net asset value per unit $ 15.24 14.62 15.49 12.18 11.31 11.67
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations
<TABLE>
<CAPTION>
=======================================================================================================================
Life of Virginia Series Fund, Inc.
--------------------------------------------------------------
Common Government
Stock Index Securities
Portfolio Portfolio
---------------------------------- ---------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------- ---------------------------
<S> <C>
Investment income:
Income - Dividends $ 652,254 16,395 3,862 77,670 47,230 30,120
Expenses - Mortality and expense risk charges (note 3) 15,181 5,726 2,438 10,265 11,615 7,015
- ------------------------------------------------------------------------------------------- ---------------------------
Net investment income 637,073 10,669 1,424 67,405 35,615 23,105
- ------------------------------------------------------------------------------------------- ---------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 70,710 5,027 24,353 4,093 12,380 (726)
Unrealized appreciation (depreciation) on investments (460,582) 109,436 (18,877) (68,909) 79,507 (53,290)
- ------------------------------------------------------------------------------------------- ---------------------------
Net realized and unrealized gain (loss) on investments (389,872) 114,463 5,476 (64,816) 91,887 (54,016)
- ------------------------------------------------------------------------------------------- ---------------------------
Increase (decrease) in net assets from operations $ 247,201 125,132 6,900 2,589 127,502 (30,911)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================================
Life of Virginia Series Fund, Inc.
-------------------------------------------------------------------
Money Market Total Return
Portfolio Portfolio
--------------------------------- -------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 500,346 259,698 121,314 387,179 78,232 28,915
Expenses - Mortality and expense risk charges (note 3) 131,290 60,222 56,058 16,395 11,743 8,331
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 369,056 199,476 65,256 370,784 66,489 20,584
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 137,112 128,436 71,551 37,094 10,068 12,297
Unrealized appreciation (depreciation) on investments (89,338) (122,638) (35,496) (292,293) 134,624 (23,103)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 47,774 5,798 36,055 (255,199) 144,692 (10,806)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 416,830 205,274 101,311 115,585 211,181 9,778
===============================================================================================================================
</TABLE>
9
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
====================================================================================================================================
Life of Virginia Series Fund, Inc. (continued)
----------------------------------------------------------------------------
International Real Estate
Equity Portfolio Securities Portfolio
----------------------------------------------------------------------------
Period from Period from
Year ended June 30, 1995 to Year ended December 6, 1995 to
December 31, 1996 December 31, 1995 December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 46,694 3,880 14,330 22
Expenses - Mortality and expense risk charges (note 3) 5,198 737 1,294 -
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income 41,496 3,143 13,036 22
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain 19,981 44 3,590 -
Unrealized appreciation (depreciation) on investments (29,424) 3,983 29,513 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (9,443) 4,027 33,103 (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 32,053 7,170 46,139 20
====================================================================================================================================
</TABLE>
10
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
=========================================================================================================================
Oppenheimer Variable Account Fund
----------------------------------------------------------------
Money Bond
Portfolio Portfolio
----------------------------- ------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 12,118 20,916 7,934 106,583 89,363 77,461
Expenses - Mortality and expense risk charges (note 3) 2,973 4,563 2,444 22,427 21,561 11,684
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 9,145 16,353 5,490 84,156 67,802 65,777
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) - - - 31,061 16,138 1,885
Unrealized appreciation (depreciation) on investments - - - (44,892) 167,799 (109,321)
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments - - - (13,831) 183,937 (107,436)
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 9,145 16,353 5,490 70,325 251,739 (41,659)
=========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================
Oppenheimer Variable Account Fund
----------------------------------------------------------
Capital
Appreciation Growth
Portfolio Portfolio
---------------------------- --------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 216,310 9,020 75,387 100,033 20,599 7,353
Expenses - Mortality and expense risk charges (note 3) 58,271 29,001 12,482 18,585 12,467 9,424
- -------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 158,039 (19,981) 62,905 81,448 8,132 (2,071)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 207,037 18,656 (63,084) 104,773 58,948 1,904
Unrealized appreciation (depreciation) on investments 284,866 654,277 (44,360) 101,309 212,160 (3,327)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 491,903 672,933 (107,444) 206,082 271,108 (1,423)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 649,942 652,952 (44,539) 287,530 279,240 (3,494)
===================================================================================================================
</TABLE>
11
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
===============================================================================================================================
Oppenheimer Variable Account Fund
------------------------------------------------------------------
High Multiple
Income Strategies
Portfolio Portfolio
-------------------------------- ---------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 317,982 157,280 66,988 161,518 142,518 78,665
Expenses - Mortality and expense risk charges (note 3) 39,512 22,782 9,119 29,130 25,397 18,173
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 278,470 134,498 57,869 132,388 117,121 60,492
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 57,827 18,618 (7,921) 53,160 24,327 7,076
Unrealized appreciation (depreciation) on investments 72,516 83,576 (88,498) 106,953 206,074 (115,438)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 130,343 102,194 (96,419) 160,113 230,401 (108,362)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 408,813 236,692 (38,550) 292,501 347,522 (47,870)
===============================================================================================================================
</TABLE>
12
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
=======================================================================================================================
Variable Insurance Products Fund
---------------------------------------------------------------
High
Money Market Income
Portfolio Portfolio
----------------------------- ------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 75,804 237,224 117,080 201,481 186,422 74,381
Expenses - Mortality and expense risk
charges (note 3) 18,807 54,127 36,325 20,933 28,004 24,358
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 56,997 183,097 80,755 180,548 158,418 50,023
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) - - - (17,100) 137,054 (9,188)
Unrealized appreciation (depreciation) on investments - - - 27,229 66,195 (98,535)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments - - - 10,129 203,249 (107,723)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 56,997 183,097 80,755 190,677 361,667 (57,700)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===============================================================================================================================
Variable Insurance Products Fund
-----------------------------------------------------------------------
Equity-
Income Growth
Portfolio Portfolio
--------------------------------- ---------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 413,062 399,376 223,035 461,083 20,548 169,544
Expenses - Mortality and expense risk
charges (note 3) 140,373 82,498 49,043 101,913 65,478 44,949
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 272,689 316,878 173,992 359,170 (44,930) 124,595
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 500,603 130,101 39,859 536,491 280,133 50,460
Unrealized appreciation (depreciation) on investments 539,174 1,347,468 5,531 31,232 1,091,397 (175,677)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1,039,777 1,477,569 45,390 567,723 1,371,530 (125,217)
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,312,466 1,794,447 219,382 926,893 1,326,600 (622)
===============================================================================================================================
</TABLE>
13
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
============================================================================================
Variable Insurance Products Fund
-------------------------------
Overseas
Portfolio
------------------------------
Year ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 176,637 25,524 25,352
Expenses - Mortality and expense risk charges (note 3) 81,887 70,739 46,220
- -----------------------------------------------------------------------------------------
Net investment income (expense) 94,750 (45,215) (20,868)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 517,315 383,399 799,938
Unrealized appreciation (depreciation) on investments (15,497) 356,600 (781,857)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 501,818 739,999 18,081
- -----------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 596,568 694,784 (2,787)
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
======================================================================================================================
Variable Insurance Products Fund II
----------------------------------------------------------
Asset
Manager Contrafund
Portfolio Portfolio
------------------------------- --------------------------
Period from
January 16,
Year ended 1995 to
Year ended December 31, December 31, December 31,
1996 1995 1994 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 555,062 156,409 244,645 15,826 18,917
Expenses - Mortality and expense risk charges (note 3) 107,941 96,822 85,004 38,668 5,771
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 447,121 59,587 159,641 (22,842) 13,146
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 168,152 13,225 (78,029) 100,260 10,744
Unrealized appreciation (depreciation) on investments 400,455 1,011,885 (664,103) 476,601 63,150
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 568,607 1,025,110 (742,132) 576,861 73,894
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,015,728 1,084,697 (582,491) 554,019 87,040
======================================================================================================================
</TABLE>
14
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
=======================================================================================================================
Advisers Management Trust
-------------------------------------------------------
Balanced Bond
Portfolio Portfolio
---------------------------- -----------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 293,957 47,572 62,843 67,433 51,824 14,592
Expenses - Mortality and expense risk charges (note 3) 24,806 27,169 22,785 9,529 11,324 8,596
- -----------------------------------------------------------------------------------------------------------------------
Net investment income 269,151 20,403 40,058 57,904 40,500 5,996
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 13,816 103,017 13,727 (5,135) (637) (5,627)
Unrealized appreciation (depreciation) on investments (182,324) 294,095 (137,181) (34,909) 39,427 (3,564)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (168,508) 397,112 (123,454) (40,044) 38,790 (9,191)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 100,643 417,515 (83,396) 17,860 79,290 (3,195)
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================
Advisers Management Trust
-------------------------
Growth
Portfolio
-------------------------
Year ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 68,654 11,027 32,391
Expenses - Mortality and expense risk charges (note 3) 9,845 6,161 3,818
- -----------------------------------------------------------------------------------------
Net investment income 58,809 4,866 28,573
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 5,513 3,921 (7,042)
Unrealized appreciation (depreciation) on investments (6,856) 87,810 (44,045)
- -----------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1,343) 91,731 (51,087)
- -----------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 57,466 96,597 (22,514)
=========================================================================================
</TABLE>
15
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
==================================================================================================================
Federated Investors
Insurance Series
--------------------------------------------------------
American High Income
Leaders Bond
Fund II Fund II
------------ ---------------------------------------
Period from
September 5,
1996 to Period from
December 31, Year ended February 7, 1995 to
1996 December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 96 36,032 1,350
Expenses - Mortality and expense risk charges (note 3) 60 5,378 190
- ----------------------------------------------------------------------------------------------------------------
Net investment income 36 30,654 1,160
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments:
Net realized gain 19 1,726 8
Unrealized appreciation on investments 2,855 27,920 1,465
- ----------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 2,874 29,646 1,473
- ----------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 2,910 60,300 2,633
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================
Federated Investors
Insurance Series
------------------------------------------
Utility
Fund II
-----------------------------------------
Period from
Year ended February 7, 1995 to
December 31, 1996 December 31, 1995
- ----------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 6,514 2,908
Expenses - Mortality and expense risk charges (note 3) 2,042 839
- ----------------------------------------------------------------------------------------------------
Net investment income 4,472 2,069
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments:
Net realized gain 9,190 237
Unrealized appreciation on investments 5,651 12,097
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain on investments 14,841 12,334
- ----------------------------------------------------------------------------------------------------
Increase in net assets from operations 19,313 14,403
====================================================================================================
</TABLE>
16
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
===================================================================================================================
Alger American
--------------------------------------------------------
Small
Cap Growth
Portfolio Portfolio
--------------------------- ---------------------------
Period from Period from
October 6, November 2,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 3,785 - 14,003 -
Expenses - Mortality and expense risk charges (note 3) 10,887 312 7,612 81
- -------------------------------------------------------------------------------------------------------------------
Net investment (expense) (7,102) (312) 6,391 (81)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) (13,977) 912 (8,548) 1
Unrealized appreciation (depreciation) on investments (18,580) 5,196 27,545 1,973
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (32,557) 6,108 18,997 1,974
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ (39,659) 5,796 25,388 1,893
===================================================================================================================
</TABLE>
17
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Operations, Continued
<TABLE>
<CAPTION>
===============================================================================================================
Janus Aspen Series
-----------------------------------------------
Aggressive
Growth
Portfolio
---------------------------------------------
Period from
May 11,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends $ 16,844 23,054 3,044
Expenses - Mortality and expense risk charges (note 3) 23,442 12,371 1,506
- ---------------------------------------------------------------------------------------------------------------
Net investment income (expense) (6,598) 10,683 1,538
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 267,683 127,218 11,250
Unrealized appreciation (depreciation) on investments (112,622) 116,589 6,467
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 155,061 243,807 17,717
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 148,463 254,490 19,255
===============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===========================================================================================================
Janus Aspen Series
-------------------------------------------
Growth
Portfolio
-----------------------------------------
Period from
May 11,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 59,031 27,427 1,325
Expenses - Mortality and expense risk charges (note 3) 27,643 11,359 2,240
- -----------------------------------------------------------------------------------------------------------
Net investment income (expense) 31,388 16,068 (915)
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 132,138 22,274 554
Unrealized appreciation (depreciation) on investments 144,223 180,762 884
- -----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 276,361 203,036 1,438
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 307,749 219,104 523
===========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
============================================================================================================
Janus Aspen Series
--------------------------------------------
Worldwide
Growth
Portfolio
-----------------------------------------
Period from
May 11,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 59,279 5,062 8
Expenses - Mortality and expense risk charges (note 3) 40,177 10,890 2,227
- ------------------------------------------------------------------------------------------------------------
Net investment income (expense) 19,102 (5,828) (2,219)
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 156,316 17,153 (4,342)
Unrealized appreciation (depreciation) on investments 498,790 203,456 (2,281)
- ------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 655,106 220,609 (6,623)
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 674,208 214,781 (8,842)
============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Janus Aspen Series
--------------------------------------------------------------------
Flexible International
Balanced Income Growth
Portfolio Portfolio Portfolio
------------------------- -------------------------- -------------
Period from Period from Period from
October 27, November 1, June 5,
Year ended 1995 to Year ended 1995 to 1996 to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Investment income:
Income - Dividends 10,644 242 9,499 182 2,339
Expenses - Mortality and expense risk charges (note 3) 4,138 70 1,046 11 1,253
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 6,506 172 8,453 171 1,086
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) 3,534 6 111 - 2,328
Unrealized appreciation (depreciation) on investments 38,227 1,767 585 26 17,399
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 41,761 1,773 696 26 19,727
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 48,267 1,945 9,149 197 20,813
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets
<TABLE>
<Cation>
===================================================================================================================================
Life of Virginia Series Fund, Inc.
--------------------------------------------------------------
Common Government
Stock Index Securities
Portfolio Portfolio
--------------------------------- ---------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 637,073 10,669 1,424 67,405 35,615 23,105
Net realized gain (loss) 70,710 5,027 24,353 4,093 12,380 (726)
Unrealized appreciation (depreciation) on investments (460,582) 109,436 (18,877) (68,909) 79,507 (53,290)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 247,201 125,132 6,900 2,589 127,502 (30,911)
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - - - - - -
Loan interest (45) (19) 1 (35) (29) (1)
Transfers (to) from the general account of Life of Virginia:
Death benefits (70,983) - - - - -
Surrenders (8,805) - (1,587) (27,170) (57,612) -
Loans (23,690) - 2,349 (1,574) (2,218) -
Cost of insurance and administrative expense (note 3) (12,093) (4,705) (2,040) (8,533) (9,352) (5,709)
Transfer gain (loss) and transfer fees (note 3) (3,844) 2,612 (2,559) (829) (845) (1,072)
Transfers (to) from the Guarantee Account (note 1) 40,800 8,390 - (3,299) - -
Interfund transfers 531,241 493,348 139,818 12,746 35,175 316,447
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 452,581 499,626 135,982 (28,694) (34,881) 309,665
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 699,782 624,758 142,882 (26,105) 92,621 278,754
Net assets at beginning of year 858,820 234,062 91,180 801,360 708,739 429,985
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 1,558,602 858,820 234,062 775,255 801,360 708,739
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
Life of Virginia Series Fund, Inc.
--------------------------------------------------------------------
Money Market Total Return
Portfolio Portfolio
---------------------------------- -----------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income 369,056 199,476 65,256 370,784 66,489 20,584
Net realized gain (loss) 137,112 128,436 71,551 37,094 10,068 12,297
Unrealized appreciation (depreciation) on investments (89,338) (122,638) (35,496) (292,293) 134,624 (23,103)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 416,830 205,274 101,311 115,585 211,181 9,778
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 21,281,538 14,618,729 20,660,275 - - 38,027
Loan interest 843 2 4 (130) (90) (517)
Transfers (to) from the general account of Life of Virginia:
Death benefits (30,581) - - - - -
Surrenders (292,797) (83,593) (9,028) (105,824) (52,620) (82,639)
Loans (1,123,153) - - - 5,060 20,066
Cost of insurance and administrative expense (note 3) (120,240) (49,685) (47,797) (13,237) (9,674) (6,767)
Transfer gain (loss) and transfer fees (note 3) (46,805) (455,729) (13,101) 1,607 1,184 (11)
Transfers (to) from the Guarantee Account (note 1) (480,716) 35,940 - 40,576 2,000 -
Interfund transfers (15,451,140) (12,260,599) (19,072,381) 264,670 180,662 249,860
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 3,736,949 1,805,065 1,517,972 187,662 126,522 218,019
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 4,153,779 2,010,339 1,619,283 303,247 337,703 227,797
Net assets at beginning of year 5,737,728 3,727,389 2,108,106 1,095,218 757,515 529,718
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year 9,891,507 5,737,728 3,727,389 1,398,465 1,095,218 757,515
===================================================================================================================================
</TABLE>
19
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
=====================================================================================================================
Life of Virginia Series Fund, Inc. (continued)
-----------------------------------------------
International
Equity Portfolio
-------------------------------------
Period from
Year ended June 30, 1995 to
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 41,496 3,143
Net realized gain 19,981 44
Unrealized appreciation (depreciation) on investments (29,424) 3,983
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 32,053 7,170
- ---------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - -
Transfers (to) from the general account of Life of Virginia:
Surrenders 750 -
Cost of insurance and administrative expense (note 3) (4,299) (624)
Transfer gain (loss) and transfer fees (note 3) 320 (13)
Transfers from the Guarantee Account (note 1) - 14,623
Interfund transfers 551,175 191,589
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 547,946 205,575
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets 579,999 212,745
Net assets at beginning of period 212,745 -
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 792,744 212,745
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=====================================================================================================================
Life of Virginia Series Fund, Inc. (continued)
-----------------------------------------------
Real Estate
Securities Portfolio
----------------------------------------
Period from
Year ended December 6, 1995 to
December 31, 1996 December 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income 13,036 22
Net realized gain 3,590 -
Unrealized appreciation (depreciation) on investments 29,513 (2)
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 46,139 20
- ---------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 9,377 -
Transfers (to) from the general account of Life of Virginia:
Surrenders - -
Cost of insurance and administrative expense (note 3) (1,186) -
Transfer gain (loss) and transfer fees (note 3) (277) (1)
Transfers from the Guarantee Account (note 1) - -
Interfund transfers 173,587 375
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 181,501 374
- ---------------------------------------------------------------------------------------------------------------------
Increase in net assets 227,640 394
Net assets at beginning of period 394 -
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period 228,034 394
=====================================================================================================================
</TABLE>
20
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
=================================================================================================================================
Oppenheimer Variable Account Fund
-----------------------------------------------------------------
Money Bond
Portfolio Portfolio
------------------------------ -------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 9,145 16,353 5,490 84,156 67,802 65,777
Net realized gain (loss) - - - 31,061 16,138 1,885
Unrealized appreciation (depreciation) on investments - - - (44,892) 167,799 (109,321)
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 9,145 16,353 5,490 70,325 251,739 (41,659)
- ---------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Loan interest (247) - - (240) (521) (25)
Transfers (to) from the general account of Life of Virginia:
Net premiums - - - - - -
Death benefits - - - - - -
Surrenders - - - (19,035) (89,985) (13,105)
Loans (7,000) - - (46,361) (3) (838)
Cost of insurance and administrative expense (note 3) (2,228) (4,184) (1,573) (18,368) (15,660) (10,719)
Transfer gain (loss) and transfer fees (note 3) (1,331) (1,197) (795) 5,246 (11,174) 7,513
Transfers (to) from the Guarantee Account (note 1) - - - 9,597 - -
Interfund transfers (178,397) 64,757 209,744 49,462 (1,051,342) 1,974,504
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (189,203) 59,376 207,376 (19,699) (1,168,685) 1,957,330
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (180,058) 75,729 212,866 50,626 (916,946) 1,915,671
Net assets at beginning of year 336,285 260,556 47,690 1,605,090 2,522,036 606,365
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 156,227 336,285 260,556 1,655,716 1,605,090 2,522,036
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Oppenheimer Variable Account Fund
--------------------------------------------------------------------
Capital
Appreciation Growth
Portfolio Portfolio
------------------------------- -------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 158,039 (19,981) 62,905 81,448 8,132 (2,071)
Net realized gain (loss) 207,037 18,656 (63,084) 104,773 58,948 1,904
Unrealized appreciation (depreciation) on investments 284,866 654,277 (44,360) 101,309 212,160 (3,327)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 649,942 652,952 (44,539) 287,530 279,240 (3,494)
- ------------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Loan interest (1,349) (876) (783) (58) (8) 855
Transfers (to) from the general account of Life of Virginia:
Net premiums 51,453 - - - - -
Death benefits - - - - - -
Surrenders (22,921) (9,862) - (5,002) (16,486) (16,371)
Loans (37,406) (7,659) - (31,288) - 771
Cost of insurance and administrative expense (note 3) (48,816) (23,791) (10,705) (15,042) (10,195) (7,676)
Transfer gain (loss) and transfer fees (note 3) 6,558 (1,288) 5,785 5,414 (304) (2,179)
Transfers (to) from the Guarantee Account (note 1) 38,369 15,348 - 22,600 2,000 -
Interfund transfers 1,391,680 1,211,520 671,394 515,014 81,977 232,662
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 1,377,568 1,183,392 665,691 491,638 56,984 208,062
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 2,027,510 1,836,344 621,152 779,168 336,224 204,568
Net assets at beginning of year 3,323,128 1,486,784 865,632 1,135,602 799,379 594,810
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year 5,350,638 3,323,128 1,486,784 1,914,770 1,135,602 799,378
====================================================================================================================================
</TABLE>
21
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
====================================================================================================================================
Oppenheimer Variable Account Fund
--------------------------------------------------------------------
High Multiple
Income Strategies
Portfolio Portfolio
---------------------------------- --------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 278,470 134,498 57,869 132,388 117,121 60,492
Net realized gain (loss) 57,827 18,618 (7,921) 53,160 24,327 7,076
Unrealized appreciation (depreciation) on investments 72,516 83,576 (88,498) 106,953 206,074 (115,438)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 408,813 236,692 (38,550) 292,501 347,522 (47,870)
- ------------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 8,422 - - 23,572 - -
Loan interest (50) (42) 116 (207) (433) (876)
Transfers (to) from the general account of Life of Virginia:
Death benefits - - (13,450) (60,123) (3,955) -
Surrenders (4,708) (24,217) (7,877) (212,502) (179,975) (79,370)
Loans (37,253) (18,152) (976) (9,140) (63,108) 18,360
Cost of insurance and administrative expense (note 3) (32,765) (15,109) (7,582) (23,520) (20,637) (14,828)
Transfer gain (loss) and transfer fees (note 3) 4,282 8,580 (2,970) 789 928 (499)
Tranfers (to) from the Guarantee Account (note 1) - 9,748 - 4,000 - -
Interfund transfers 1,526,214 760,586 865,998 240,604 222,736 912,293
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 1,464,142 721,394 833,259 (36,527) (44,444) 835,080
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 1,872,955 958,086 794,709 255,974 303,078 787,210
Net assets at beginning of year 2,070,519 1,112,433 317,724 2,087,462 1,784,384 997,174
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 3,943,474 2,070,519 1,112,433 2,343,436 2,087,462 1,784,384
====================================================================================================================================
</TABLE>
22
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
====================================================================================================================================
Variable Insurance Products Fund
---------------------------------------------------------------------
High
Money Market Income
Portfolio Portfolio
------------------------------------ --------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 56,997 183,097 80,755 180,548 158,418 50,023
Net realized gain (loss) - - - (17,100) 137,054 (9,188)
Unrealized appreciation (depreciation) on investments - - - 27,229 66,195 (98,535)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 56,997 183,097 80,755 190,677 361,667 (57,700)
- ------------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - - - - 4,082 -
Loan interest 720 (2,227) 459 (361) (11) (394)
Transfers (to) from the general account of Life of Virginia:
Death benefits - (18,745) - (59,986) - -
Surrenders (129,716) (442,432) (188,736) (136,277) (28,969) -
Loans (17,326) (37,441) (127,953) (1,885) (9,125) (38,133)
Cost of insurance and administrative expense (note 3) (14,528) (43,910) (29,075) (16,160) (21,564) (20,127)
Transfer gain (loss) and transfer fees (note 3) (2,554) (6,558) 3,232 4,523 (1,538) (4,154)
Transfers (to) from the Guarantee Account (note 1) 5,528 59,781 - - (32,657) -
Interfund transfers (1,016,677) (1,749,674) 3,439,732 (873,671) (572,358) 1,830,069
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (1,174,553) (2,241,206) 3,097,659 (1,083,817) (662,140) 1,767,261
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (1,117,556) (2,058,109) 3,178,414 (893,140) (300,473) 1,709,561
Net assets at beginning of year 2,228,012 4,286,121 1,107,707 2,216,560 2,517,033 807,472
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 1,110,456 2,228,012 4,286,121 1,323,420 2,216,560 2,517,033
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
Variable Insurance Products Fund
--------------------------------------------------------------------
Equity-
Income Growth
Portfolio Portfolio
---------------------------------- ---------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 272,689 316,878 173,992 359,170 (44,930) 124,595
Net realized gain (loss) 500,603 130,101 39,859 536,491 280,133 50,460
Unrealized appreciation (depreciation) on investments 539,174 1,347,468 5,531 31,232 1,091,397 (175,677)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,312,466 1,794,447 219,382 926,893 1,326,600 (622)
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 77,436 10,886 - 27,587 - 38,543
Loan interest (6,953) (1,495) (242) (3,910) (717) (605)
Transfers (to) from the general account of Life of Virginia:
Death benefits (92,711) (4,351) (9,401) (73,221) (10,299) -
Surrenders (373,251) (112,902) (91,168) (32,373) (120,929) (77,570)
Loans (215,646) (106,657) (46,996) (43,837) (117,116) (44,927)
Cost of insurance and administrative expense (note 3) (114,634) (66,845) (41,229) (83,276) (53,507) (36,257)
Transfer gain (loss) and transfer fees (note 3) 41,116 14,451 21,282 14,043 (7,004) (5,419)
Transfers (to) from the Guarantee Account (note 1) 127,788 4,600 - 135,064 (33,912) -
Interfund transfers 3,056,657 2,227,097 2,288,157 1,429,513 1,797,003 1,173,835
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 2,499,802 1,964,784 2,120,403 1,369,590 1,453,519 1,047,600
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 3,812,268 3,759,231 2,339,785 2,296,483 2,780,119 1,046,978
Net assets at beginning of year 8,576,991 4,817,760 2,477,975 6,509,528 3,729,409 2,682,431
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year 12,389,259 8,576,991 4,817,760 8,806,011 6,509,528 3,729,409
===================================================================================================================================
</TABLE>
23
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
=====================================================================================================
Variable Insurance Products Fund
------------------------------------
Overseas
Portfolio
------------------------------------
Year ended December 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 94,750 (45,215) (20,868)
Net realized gain (loss) 517,315 383,399 799,938
Unrealized appreciation (depreciation) on investments (15,497) 356,600 (781,857)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 596,568 694,784 (2,787)
- -----------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 10,673 2,721 -
Loan interest (326) (240) 176
Transfers (to) from the general account of Life of Virginia:
Death benefits (10,056) - (23,147)
Surrenders (99,794) (7,562) (8,499)
Loans (49,140) 2,467 (108,886)
Cost of insurance and administrative expense (note 3) (67,126) (58,660) (36,676)
Transfer gain (loss) and transfer fees (note 3) 30,035 (8,973) (69,891)
Transfers (to) from Gurantee Account (note 1) 47,987 (35,445) -
Interfund transfers (2,098,908) 3,279,602 (1,281,245)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (2,236,655) 3,173,910 (1,528,168)
- -----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (1,640,087) 3,868,694 (1,530,955)
Net assets at beginning of period 7,016,631 3,147,937 4,678,892
- -----------------------------------------------------------------------------------------------------
Net assets at end of period $ 5,376,544 7,016,631 3,147,937
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==============================================================================================================================
Variable Insurance Products Fund II
--------------------------------------------------------------
Asset
Manager Contrafund
Portfolio Portfolio
---------------------------------- --------------------------
Period from
January 16,
Year ended 1995 to
Year ended December 31, December 31, December 31,
1996 1995 1994 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 447,121 59,587 159,641 (22,842) 13,146
Net realized gain (loss) 168,152 13,225 (78,029) 100,260 10,744
Unrealized appreciation (depreciation) on investments 400,455 1,011,885 (664,103) 476,601 63,150
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,015,728 1,084,697 (582,491) 554,019 87,040
- ------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - - - 139,592 -
Loan interest (3,433) (675) 248 (465) -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - (36,529) (20,796) -
Surrenders (497,465) (202,275) (9,335) (35,592) (22,360)
Loans (368,309) (244,730) 28,270 (41,285) (2,010)
Cost of insurance and administrative expense (note 3) (86,595) (78,782) (69,410) (34,864) (4,851)
Transfer gain (loss) and transfer fees (note 3) 2,356 100,982 (13,452) 58,463 464
Transfers (to) from Gurantee Account (note 1) 1,000 - - 105,233 100
Interfund transfers (122,445) 363,603 3,330,776 2,524,438 1,404,008
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (1,074,891) (61,877) 3,230,568 2,694,724 1,375,351
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (59,163) 1,022,820 2,648,077 3,248,743 1,462,391
Net assets at beginning of period 8,312,827 7,290,007 4,641,930 1,462,391 -
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 8,253,664 8,312,827 7,290,007 4,711,134 1,462,391
===============================================================================================================================
</TABLE>
24
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
====================================================================================================
Advisers Management Trust
-----------------------------------
Balanced
Portfolio
-----------------------------------
Year ended December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 269,151 20,403 40,058
Net realized gain (loss) 13,816 103,017 13,727
Unrealized appreciation (depreciation) on investments (182,324) 294,095 (137,181)
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 100,643 417,515 (83,396)
- ----------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - 4,082 40
Loan interest (657) (420) -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - -
Surrenders (27,861) (186,754) -
Loans (34,817) (73,079) (1,218)
Cost of insurance and administrative expense (note 3) (20,292) (22,223) (18,451)
Transfer gain (loss) and transfer fees (note 3) 5,371 6,489 (3,236)
Interfund transfers (79,871) (102,681) 417,986
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (158,127) (374,586) 395,121
- ----------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (57,484) 42,929 311,725
Net assets at beginning of year 1,930,046 1,887,117 1,575,392
- ----------------------------------------------------------------------------------------------------
Net assets at end of year $ 1,872,562 1,930,046 1,887,117
====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================================
Advisers Management Trust
--------------------------------------------------------
Bond Growth
Portfolio Portfolio
------------------------- ----------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income 57,904 40,500 5,996 58,809 4,866 28,573
Net realized gain (loss) (5,135) (637) (5,627) 5,513 3,921 (7,042)
Unrealized appreciation (depreciation) on investments (34,909) 39,427 (3,564) (6,856) 87,810 (44,045)
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 17,860 79,290 (3,195) 57,466 96,597 (22,514)
- -------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums - 2,721 - - 2,721 -
Loan interest 258 851 - (1,215) - -
Transfers (to) from the general account of Life of Virginia:
Death benefits - - (8,977) - - -
Surrenders (43,768) - (82,405) - - -
Loans (55,969) 3,998 (26,252) - (710) (20,645)
Cost of insurance and administrative expense (note 3) (7,634) (9,345) (7,646) (7,938) (5,013) (3,141)
Transfer gain (loss) and transfer fees (note 3) (5,840) 1,033 (1,860) (482) (693) (1,848)
Interfund transfers (163,478) 5,402 745,043 (74,169) 380,756 83,486
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (276,431) 4,660 617,903 (83,804) 377,061 57,852
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (258,571) 83,950 614,708 (26,338) 473,658 35,338
Net assets at beginning of year 896,005 812,055 197,347 775,714 302,056 266,718
- -------------------------------------------------------------------------------------------------------------------------
Net assets at end of year 637,434 896,005 812,055 749,376 775,714 302,056
=========================================================================================================================
</TABLE>
25
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
=============================================================================================================================
Federated Investors Insurance Series
-----------------------------------------------------
American High Income
Leaders Bond
Fund II Fund II
----------- ---------------------------------------
Period from Period from
September 5, 1996 to Year ended February 7, 1995 to
December 31, 1996 December 31, 1996 December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
From operations:
Net investment income $ 36 30,654 1,160
Net realized gain 19 1,726 8
Unrealized appreciation on investments 2,855 27,920 1,465
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 2,910 60,300 2,633
- -----------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Loan interest - - -
Transfers (to) from the general account of Life of Virginia:
Loans - (40,000) -
Cost of insurance and administrative expense (note 3) (65) (4,447) (151)
Transfer gain (loss) and transfer fees (note 3) (1,522) 100 73
Transfers (to) from Guarantee Account (note 1) 300 (6,742) -
Interfund transfers 16,140 571,170 95,663
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 14,853 520,081 95,585
- -----------------------------------------------------------------------------------------------------------------------------
Increase in net assets 17,763 580,381 98,218
Net assets at beginning of period - 98,218 -
- -----------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 17,763 678,599 98,218
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================================
Federated Investors Insurance Series
----------------------------------------
Utility
Fund II
---------------------------------------
Period from
Year ended February 7, 1995 to
December 31, 1996 December 31, 1995
- -------------------------------------------------------------------------------------------------------
<S> <C>
Increase in net assets
From operations:
Net investment income 4,472 2,069
Net realized gain 9,190 237
Unrealized appreciation on investments 5,651 12,097
- -------------------------------------------------------------------------------------------------------
Increase in net assets from operations 19,313 14,403
- -------------------------------------------------------------------------------------------------------
From capital transactions:
Loan interest (110) (40)
Transfers (to) from the general account of Life of Virginia:
Loans (2,022) (1,207)
Cost of insurance and administrative expense (note 3) (1,683) (686)
Transfer gain (loss) and transfer fees (note 3) (364) 65
Transfers (to) from Guarantee Account (note 1) 3,000 -
Interfund transfers 130,977 80,066
- -------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 129,798 78,198
- -------------------------------------------------------------------------------------------------------
Increase in net assets 149,111 92,601
Net assets at beginning of period 92,601 -
- -------------------------------------------------------------------------------------------------------
Net assets at end of period 241,712 92,601
=======================================================================================================
</TABLE>
26
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
===========================================================================================================================
Alger American
-----------------------------------------------------------
Small
Cap Growth
Portfolio Portfolio
-------------------------- -------------------------------
Period from Period from
October 6, November 2,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ (7,102) (312) 6,391 (81)
Net realized gain (loss) (13,977) 912 (8,548) 1
Unrealized appreciation (depreciation) on investments (18,580) 5,196 27,545 1,973
- ---------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations (39,659) 5,796 25,388 1,893
- ---------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 22,914 - 11,882 -
Loan interest 68 - (11,178) -
Transfers (to) from the general account of Life of Virginia:
Death benefits (11,290) - - -
Surrenders (40,820) - (716) -
Loans (33,607) - (10,642) -
Cost of insurance (note 3) (10,161) (243) (7,424) (84)
Transfer gain (loss) and transfer fees (note 3) 5,384 (5,081) 9,692 (530)
Transfer to Guarantee Account 929 - 5,392 -
Interfund transfers 863,942 313,943 1,228,789 99,661
- ---------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 797,359 308,619 1,225,795 99,047
- ---------------------------------------------------------------------------------------------------------------------------
Increase in net assets 757,700 314,415 1,251,183 100,940
Net assets at beginning of period 314,415 - 100,940 -
- ---------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 1,072,115 314,415 1,352,123 100,940
===========================================================================================================================
</TABLE>
27
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
=========================================================================================================
Janus Aspen Series
--------------------------------------------
Aggressive
Growth
Portfolio
-----------------------------------------
Period from
May 11,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ (6,598) 10,683 1,538
Net realized gain (loss) 267,683 127,218 11,250
Unrealized appreciation (depreciation) on investments (112,622) 116,589 6,467
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 148,463 254,490 19,255
- ---------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 3,031 - -
Loan interest (266) - -
Transfers (to) from the general account of
Life of Virginia:
Surrenders (48,757) (5,038) -
Loans (2,874) (2,322) -
Cost of insurance (note 3) (20,310) (12,055) (1,760)
Transfer gain (loss) and transfer fees (note 3) (3,623) 55,524 24,384
Transfers (to) from the Guarantee Account (note 1) 10,008 10,848 -
Interfund transfers (61,164) 1,209,599 399,243
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (123,955) 1,256,556 421,867
- ---------------------------------------------------------------------------------------------------------
Increase in net assets 24,508 1,511,046 441,122
Net assets at beginning of period 1,952,168 441,122 -
- ---------------------------------------------------------------------------------------------------------
Net assets at end of period $ 1,976,676 1,952,168 441,122
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================================
Janus Aspen Series
---------------------------------------------
Growth
Portfolio
------------------------------------------
Period from
May 11,
Year ended Year ended 1994 to
December 31, December 31, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 31,388 16,068 (915)
Net realized gain (loss) 132,138 22,274 554
Unrealized appreciation (depreciation) on investments 144,223 180,762 884
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 307,749 219,104 523
- ----------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 24,787 - -
Loan interest (1,074) - -
Transfers (to) from the general account of
Life of Virginia:
Surrenders (24,314) - -
Loans (75,374) (22,537) -
Cost of insurance (note 3) (23,158) (9,297) (1,892)
Transfer gain (loss) and transfer fees (note 3) 435 (777) 1,810
Transfers (to) from the Guarantee Account (note 1) 65,687 2,500 -
Interfund transfers 1,204,517 471,417 646,782
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 1,171,506 441,306 646,700
- ----------------------------------------------------------------------------------------------------------
Increase in net assets 1,479,255 660,410 647,223
Net assets at beginning of period 1,307,633 647,223 -
- ----------------------------------------------------------------------------------------------------------
Net assets at end of period 2,786,888 1,307,633 647,223
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
Janus Aspen Series
---------------------------------------------------------------------
Worldwide
Growth Balanced
Portfolio Portfolio
--------------------------------------- --------------------------
Period from Period from
May 11, October 27,
Year ended Year ended 1994 to Year ended 1995 to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1994 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 19,102 (5,828) (2,219) 6,506 172
Net realized gain (loss) 156,316 17,153 (4,342) 3,534 6
Unrealized appreciation (depreciation) on investments 498,790 203,456 (2,281) 38,227 1,767
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 674,208 214,781 (8,842) 48,267 1,945
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums (533) - - - -
Loan interest 95,498 9 - 53,887 -
Transfers (to) from the general account of
Life of Virginia:
Surrenders (27,186) (4,667) - - -
Loans (15,174) (2,293) - (1,996) -
Cost of insurance (note 3) (34,706) (8,860) (1,830) (3,985) (54)
Transfer gain (loss) and transfer fees (note 3) 685 2,987 (1,887) (851) (185)
Transfers (to) from the Guarantee Account (note 1) 43,645 - - 45,923 -
Interfund transfers 2,870,698 729,507 425,797 457,706 29,856
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 2,932,927 716,683 422,080 550,684 29,617
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 3,607,135 931,464 413,238 598,951 31,562
Net assets at beginning of period 1,344,702 413,238 - 31,562 -
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period 4,951,837 1,344,702 413,238 630,513 31,562
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=======================================================================================================
Janus Aspen Series
------------------------------------------
Flexible International
Income Growth
Portfolio Portfolio
--------------------------- -------------
Period from Period from
November 1, June 5,
Year ended 1995 to 1996 to
December 31, December 31, December 31,
1996 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) 8,453 171 1,086
Net realized gain (loss) 111 - 2,328
Unrealized appreciation (depreciation) on investments 585 26 17,399
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 9,149 197 20,813
- -------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums (18) - -
Loan interest - - -
Transfers (to) from the general account of
Life of Virginia:
Surrenders - - -
Loans (4,791) - -
Cost of insurance (note 3) (963) (12) (958)
Transfer gain (loss) and transfer fees (note 3) (200) 17 58
Transfers (to) from the Guarantee Account (note 1) - - 10,500
Interfund transfers 149,346 6,746 359,635
- -------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 143,374 6,751 369,235
- -------------------------------------------------------------------------------------------------------
Increase in net assets 152,523 6,948 390,048
Net assets at beginning of period 6,948 - -
- -------------------------------------------------------------------------------------------------------
Net assets at end of period 159,471 6,948 390,048
=======================================================================================================
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Notes to Financial Statements
December 31, 1996
================================================================================
(Continued)
(1) DESCRIPTION OF ENTITY
Life of Virginia Separate Account III (the Account) is a separate
investment account established in 1986 by The Life Insurance Company
of Virginia (Life of Virginia) under the laws of the Commonwealth of
Virginia. The Account operates as a unit investment trust under the
Investment Company Act of 1940. The Account is used to fund certain
benefits for variable life insurance policies issued by Life of
Virginia. As of April 1, 1996, Life of Virginia is a wholly-owned
subsidiary of GNA Corporation, which is a wholly-owned subsidiary of
General Electric Capital Corporation. Prior to April 1, 1996, Life
of Virginia was an indirect wholly-owned subsidiary of Aon
Corporation (Aon).
In May 1996, two new investment subdivisions were added to the
Account. One of these subdivisions, the International Growth
Portfolio, invests solely in a designated portfolio of the Janus
Aspen Series, a series type mutual fund. The other new subdivision,
the American Leaders Fund II, invests solely in a designated
portfolio of the Federated Investors Insurance Series, a series type
mutual fund.
During 1995, nine new investment subdivisions were added to the
Account. The Utility Fund II and High Income Bond Fund II each
invests solely in a designated portfolio of the Federated Investors
Insurance Series, a series type mutual fund. The Contrafund
Portfolio invests solely in a designated portfolio of the Variable
Insurance Products Fund II, a series type mutual fund. The
International Equity Portfolio and the Real Estate Securities
Portfolio each invests solely in a designated portfolio of Life of
Virginia Series Fund, Inc., a series type mutual fund. The Balanced
Portfolio and Flexible Income Portfolio each invests solely in a
designated portfolio of the Janus Aspen Series, a series type mutual
fund. The Growth and Small Cap Portfolio each invests solely in a
designated portfolio of the Alger American Fund, a series type
mutual fund.
In November 1995, six subdivisions were closed to new money. Three
of these subdivisions, the Balanced Portfolio, Bond Portfolio, and
Growth Portfolio each invests solely in a designated portfolio of
the Advisers Management Trust, a series type mutual fund. The fourth
and fifth closed subdivisions, the Money Market Portfolio and High
Income Portfolio, each invested solely in a designated portfolio of
the Variable Insurance Products Fund, a series type mutual fund. The
sixth closed subdivision, the Money Fund invests solely in a
designated portfolio of the Oppenheimer Variable Account Fund, a
series type mutual fund.
For policies issued after May 1, 1995, some policyowners may
transfer cash values between the Account's portfolios and the
Guarantee Account that is part of the general account of Life of
Virginia. Amounts transferred to the Guarantee Account earn interest
at the interest rate effective at the time of such transfer and
remain in effect for one year, after which a new rate may be
declared.
29
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Notes to Financial Statements
================================================================================
(Continued)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Investments are stated at fair value which is based on the
underlying net asset value per share of the respective portfolios or
funds. Purchases and sales of investments are recorded on the trade
date. Realized gains and losses on investments are determined on the
average cost basis. The units and unit values are disclosed as of
the last business day in the applicable year or period.
The aggregate cost of the investments acquired and the aggregate
proceeds of investments sold, for the year or period ended December
31, 1996, were:
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
-------------------------------------------------------------------
Life of Virginia Series Fund, Inc.:
Common Stock Index $ 912,708 477,638
Government Securities 228,599 266,574
Money Market 56,524,092 53,915,290
Total Return 456,697 287,306
International Equity 2,012,953 1,463,920
Real Estate 226,443 45,977
Oppenheimer Variable Account Funds:
Money 53,915 233,107
Bond 1,895,508 1,836,895
Capital Appreciation 2,603,890 1,095,400
Growth 1,115,959 548,496
High Income 7,773,273 6,034,289
Multiple Strategies 662,994 569,954
Variable Insurance Products Fund:
Money Market 417,782 1,538,505
High Income 582,750 1,490,705
Equity-Income 6,170,969 3,469,216
Growth 5,372,996 3,660,604
Overseas 12,186,494 14,348,048
Variable Insurance Products Fund II: 1,460,459 2,092,244
Asset Manager 4,575,331 1,962,384
Contrafund
-------------------------------------------------------------------
30
<PAGE>
(Continued)
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Notes to Financial Statements
=============================================================================
(2) CONTINUED
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
----------------------------------------------------------------
Advisers Management Trust:
Balanced $ 322,175 216,153
Bond 156,718 373,827
Growth 74,239 98,843
Federated Investors Insurance Series:
American Leaders 14,887 122
Bond 631,117 80,376
Utility 291,189 156,576
Alger American:
Small Cap 1,500,032 735,291
Growth 1,662,119 443,299
Janus Aspen Series:
Aggressive Growth 5,417,416 5,544,765
Growth 2,439,232 1,228,818
Worldwide Growth 4,008,078 1,076,600
Balanced 658,185 100,536
Flexible Income 163,856 11,805
International Growth 452,361 82,021
----------------------------------------------------------------
FEDERAL INCOME TAXES
The Account is not taxed separately because the operations of the
Account are part of the total operations of Life of Virginia. Life
of Virginia is taxed as a life insurance company under the Internal
Revenue Code (the Code). Life of Virginia is included in the General
Electric Capital Assurance Company consolidated federal income tax
return. The Account will not be taxed as a regulated investment
company under subchapter M of the Code. Under existing federal
income tax law, no taxes are payable on the investment income or on
the capital gains of the Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the
reporting period. Actual results could differ from those estimates.
31
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
Notes to Financial Statements
================================================================================
(3) RELATED PARTY TRANSACTIONS
The premiums transferred from Life of Virginia to the Account
represent gross premiums recorded by Life of Virginia on its
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 premiums 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 the policy specified amount of insurance, death
benefit option, cash values, duration, the insured's sex, issue age
and risk class, is deducted from the policy cash values each month
to compensate Life of Virginia for the cost of insurance. 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
crediting of an initial net premium and the investment of that
premium are charged to Life of Virginia. In addition, any such gain
or loss resulting from the processing time between a request for
policy surrender and the sale of the underlying shares is also
charged to Life of Virginia.
Life of Virginia Series Fund, Inc. (the Fund) is an open-end
diversified management investment company whose shares are sold
to Life of Virginia's Separate Accounts.
Forth Financial Securities Corporation (FFSC), a wholly-owned
subsidiary of GNA Corporation, acts as principal underwriter (as
defined in The Investment Company Act of 1940) of the Account's
policies pursuant to an agreement with Life of Virginia.
Aon Advisors, Inc. (Investment Advisor), a wholly-owned subsidiary
of Aon, serves as investment advisor to the Fund and provides
portfolio management, investment advice, and related administrative
services for the Fund. As compensation for its services, the
Investment Advisor is paid an investment advisory fee by the Fund
based on the average daily net assets at an effective annual rate of
.35% for the Common Stock Index Portfolio, .50% for the Government
Securities, Money Market and Total Return Portfolios, 1.00% for the
International Equity Portfolio and .85% for the Real Estate
Securities Portfolio. Effective July 1, 1994, the investment advisor
agreed to waive a portion of the advisory fee for the Money Market
portfolio such that the effective annual rate is .10%.
Certain officers and directors of Life of Virginia are also officers
and directors of FFSC and the Fund.
32
================================================================================
<PAGE>
[logo]
THE LIFE INSURANCE COMPANY OF
VIRGINIA AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
[KPMG PEAT MARWICK LETTERHEAD]
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated balance sheets of The Life
Insurance Company of Virginia (an indirect wholly-owned subsidiary of General
Electric Capital Corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the nine months ended December 31, 1996. We have also audited the
preacquisition statements of income, stockholders' equity and cash flows for the
three months ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The accompanying
financial statements of the Life Insurance Company of Virginia as of and for the
years ended December 31, 1995 and 1994, were audited by other auditors whose
report, dated February 8, 1996 on those financial statements included an
explanatory paragraph that described the change in the company's method of
accounting for certain investments.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Life
Insurance Company of Virginia and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for the nine month period ended
December 31, 1996 and the preacquisition three month period ended March 31, 1996
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective April
1, 1996, General Electric Capital Corporation acquired all of the outstanding
stock of The Life Insurance Company of Virginia in a business combination
accounted for as a purchase. As a result of the acquisition, the consolidated
financial information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, is not comparable.
/s/ KPMG PEAT MARWICK LLP
January 15, 1997
<PAGE>
Report of Independent Auditors
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated statement of financial position of
The Life Insurance Company of Virginia and subsidiaries as of December 31, 1995,
and the related consolidated statements of income, stockholder's equity, and
cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Life Insurance
Company of Virginia and subsidiaries at December 31, 1995, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 2, the Company changed its method of accounting for
certain investments in 1994.
/s/ Ernst & Young LLP
Richmond, Virginia
February 8, 1996
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Preacquisition
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments:
Fixed maturities:
Available for sale - at fair value; (amortized cost:
December 31, 1996 - $5,102.2; 1995 - $4,267.2) $ 5,142.7 4,411.0
Equity securities - at fair value
Common stocks (cost: December 31, 1996 - $31.6; 1995 - $31.5) 34.7 35.4
Preferred stocks (cost: December 31, 1996 - $123.5; 1995 - $102.2) 130.8 121.5
Mortgage loans on real estate (net of reserve for losses:
December 31, 1996 - $20.8; 1995 - $23.6) 585.4 592.5
Real estate (net of accumulated depreciation: December 31, 1996 -
$4.4; 1995 - $5.6) 19.4 36.6
Policy loans 179.5 151.7
Short-term investments 42.4 81.7
- --------------------------------------------------------------------------------------------------------------------
Total investments 6,134.9 5,430.4
- --------------------------------------------------------------------------------------------------------------------
Cash 6.4 1.6
Receivables:
Premiums and other 21.0 13.5
Accrued investment income 116.6 72.3
Receivable from affiliates, net - 558.4
- --------------------------------------------------------------------------------------------------------------------
Total receivables 137.6 644.2
Deferred policy acquisition costs 70.3 363.9
Goodwill (net of accumulated amortization: December 31, 1996 - $5.0) 125.4 -
Present value of future profits
(net of accumulated amortization: December 31, 1996 - $45.2; 419.2 32.6
1995 - $32.5)
Property and equipment at cost
(net of accumulated depreciation: December 31, 1996 - $1.7; 1.7 3.7
1995 - $18.4)
Deferred income tax benefit 72.9 -
Other assets 12.3 65.9
Assets held in separate accounts 2,762.7 2,019.6
- --------------------------------------------------------------------------------------------------------------------
Total assets 9,743.4 8,561.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1996 and 1995
(in millions, except share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Preacquisition
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Policy liabilities:
Future policy benefits $ 518.3 472.4
Policy and contract claims 69.1 31.7
Unearned and advance premiums 0.1 0.3
Other policyholder funds 5,094.4 5,013.9
- --------------------------------------------------------------------------------------------------------------------
Total policy liabilities 5,681.9 5,518.3
General liabilities:
Payable to affiliate, net 8.8 -
Commissions and general expenses 46.8 12.8
Current income taxes 45.4 9.5
Deferred income taxes - 75.5
Other liabilities 192.2 104.3
Liabilities related to separate accounts 2,762.7 2,019.6
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 8,737.8 7,740.0
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $1,000 par value:
Authorized, issued and outstanding: 4,000 shares 4.0 4.0
Paid-in additional capital 928.1 749.1
Net unrealized investment gains 19.4 103.1
Retained earnings (deficit) 54.1 (34.3)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,005.6 821.9
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 9,743.4 8,561.9
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Income
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Preacquisition
-----------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
REVENUE
Premiums and policy fees $ 154.7 92.4 179.3 218.8
Separate account fees 23.1 5.9 17.7 11.3
Net investment income (note 2) 334.4 112.0 402.1 490.6
Realized investment gains (losses) (note 2) 6.0 9.0 (76.5) (25.8)
Other income 0.6 1.0 2.8 8.5
- -----------------------------------------------------------------------------------------------------------------------------
Total revenue earned 518.8 220.3 525.4 703.4
- -----------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Benefits to policyholders 326.4 166.0 372.9 477.1
Commissions and general expenses 53.2 28.8 43.7 75.7
Amortization of intangibles 50.1 0.6 3.2 5.1
Amortization of deferred policy acquisition costs 3.2 6.0 39.3 57.1
- -----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 432.9 201.4 459.1 615.0
INCOME BEFORE INCOME TAX 85.9 18.9 66.3 88.4
Provision for income tax (note 3)
Current expense (benefit) 39.7 (3.8) 37.9 21.0
Deferred expense (benefit) (7.9) 10.8 (10.8) (5.7)
- -----------------------------------------------------------------------------------------------------------------------------
31.8 7.0 27.1 15.3
NET INCOME (LOSS) $ 54.1 11.9 39.2 73.1
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Preacquisition
----------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK
$1,000 par value common stock, authorized,
issued and outstanding 4,000 in 1996,
1995 and 1994)
Balance at beginning and end of period $ 4.0 4.0 4.0 4.0
PAID-IN ADDITIONAL CAPITAL
Balance at beginning of period 818.4 749.1 704.1 704.1
Adjustment to reflect purchase method (note 1) 109.7 - - -
Capital contribution from parent (notes 4, 7) - 69.3 45.0 -
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 928.1 818.4 749.1 704.1
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Balance at beginning of period 11.9 103.1 (97.5) 23.6
Adjustment to reflect purchase method
(note 1) (11.9) - - -
Effect of change in accounting principles
at January 1 (note 2) - - - 25.1
Net unrealized investment gains (losses) 19.4 (91.2) 200.6 (146.2)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 19.4 11.9 103.1 (97.5)
NET FOREIGN EXCHANGE GAINS (LOSSES)
Balance at beginning of period - - (3.0) (2.3)
Net foreign exchange gains (losses) - - 3.0 (0.7)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period - - - (3.0)
RETAINED EARNINGS (DEFICIT)
Balance at beginning of period (22.4) (34.3) 159.8 126.7
Adjustment to reflect purchase method
(note 1) 22.4 - - -
Net income 54.1 11.9 39.2 73.1
Dividends to stockholder - - (40.0) (40.0)
Stock dividend to affiliate (note 7) - - (193.3) -
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 54.1 (22.4) (34.3) 159.8
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity at end of period $ 1,005.6 811.9 821.9 767.4
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Preacquisition
-------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 54.1 11.9 39.2 73.1
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Change in policy liabilities 53.5 (32.8) 114.2 331.4
Change in accrued investment income (37.6) 4.1 (2.1) 1.8
Deferred policy acquisition costs (74.9) (22.2) (76.1) (91.8)
Amortization of deferred policy acquisition costs 3.2 6.0 39.3 57.1
Amortization of intangibles 50.1 0.6 3.2 5.1
Other amortization and depreciation 7.3 1.4 (1.2) 2.3
Premiums and operating receivables, commissions and general
expenses, income taxes, other assets and other liabilities 77.8 22.9 (65.7) (139.7)
Realized investment (gains) losses (6.0) (9.0) 76.5 25.8
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 127.5 (17.1) 127.3 265.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale (purchase) of short-term investments - net 49.4 (10.1) (18.8) (0.3)
Sale or maturity of investments
Fixed maturities - held to maturity:
Maturities - - 3.9 50.8
Calls and prepayments - - 60.9 727.5
Sales - - - -
Fixed maturities - available for sale
Maturities 201.5 46.1 35.0 50.4
Calls and prepayments 353.5 101.0 58.6 269.1
Sales 452.0 115.8 1,700.3 444.7
All other investments 177.3 44.9 124.6 231.1
Purchase of investments:
Fixed maturities - held to maturity - - - (734.0)
Fixed maturities - available for sale (1,279.5) (144.1) (1,950.7) (1,018.5)
All other investments (39.5) (65.5) (183.5) (357.1)
Sale (purchase) of property and equipment - (0.2) (0.8) (1.8)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (85.3) 87.9 (170.5) (338.1)
Cash flows from financing activities:
Capital contribution - 2.8 - -
Cash dividends to stockholder - (40.0) (6.0) (20.0)
Change in cash overdrafts (12.7) 28.8 - -
Interest sensitive life, annuity and investment contract deposits 1,275.4 301.9 1,059.5 1,455.5
Interest sensitive life, annuity and investment contract withdrawals (1,305.6) (358.8) (1,031.7) (1,362.6)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities (42.9) (65.3) 21.8 72.9
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (0.7) 5.5 (21.4) (0.1)
Cash at beginning of period 7.1 1.6 23.0 23.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 6.4 7.1 1.6 23.0
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA & SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
===============================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
(GAAP) and include the accounts of The Life Insurance Company of
Virginia and its subsidiaries ("Life of Virginia" or "Company").
Subsidiaries include Globe Life Insurance Company and Assigned
Settlements Inc. at December 31, 1994 and only Assigned Settlements
Inc. at December 31, 1996 and 1995. All material intercompany
accounts and transactions have been eliminated.
Prior to April 1, 1996 Combined Insurance Company of America
("CICA") owned 100% or 4,000 shares of Life of Virginia. CICA is a
wholly-owned subsidiary of AON Corporation (AON). On April 1, 1996,
CICA sold 100% of the issued and outstanding shares of Life of
Virginia to General Electric Capital Corporation ("GE Capital").
Immediately thereafter, 80% was contributed to General Electric
Capital Assurance Company (the "Parent"). On December 31, 1996, the
remaining 20% was contributed to General Electric Life Insurance
Group, Inc. ("GELIC").
Life of Virginia primarily sells variable annuities and universal
life insurance to customers throughout most of the United States.
Life of Virginia distributes variable annuities primarily through
stockbrokers and universal life insurance primarily through career
agents and independent brokers. Life of Virginia is also engaged in
the sale of traditional individual and group life products and
guaranteed investment contracts. Approximately 34%, 43% and 46% of
premium and annuity consideration collected, in 1996, 1995, and
1994, respectively, came from customers residing in the South
Atlantic region of the United States.
Although the Company markets its products through numerous
distributors, approximately 21.2% and 13.8% of the Company's sales
in 1996 and 1995, respectively, have been through two specific
national stockbrokers. Loss of all or a substantial portion of the
business provided by these stockbrokers could have a material
adverse effect on the business and operations of the Company. The
Company does not believe, however, that the loss of such business
would have a long-term adverse effect because of the Company's
competitive position in the marketplace and the availability of
business from other distributors.
Certain 1995 and 1994 amounts have been reclassified to conform to
1996 presentation.
PURCHASE ACCOUNTING METHOD
Upon acquisition of Life of Virginia by GE Capital, Life of Virginia
restated its financial statements in accordance with the purchase
method of accounting which allocates the net purchase price for Life
of Virginia and its subsidiaries of $932.1 million according to the
fair values of the acquired assets and liabilities, including the
estimated present value of future profits. These allocated values
were dependent upon policies in force and market conditions at the
time of closing.
(Continued)
7
<PAGE>
============================================================================
(1) CONTINUED
These allocations are summarized below:
(In millions) April 1, 1996
- ----------------------------------------------------------------------------
Assets acquired:
Cash and investments (including mortgages) $ 6,006.2
Goodwill 130.3
Present value of future profits 484.1
Assets held in separate accounts 2,096.6
Other assets 194.2
- -------------------------------------------------------------------------------
Total $ 8,911.4
- -------------------------------------------------------------------------------
Liabilities assumed:
Policyholder liabilities $ 5,658.7
Other liabilities 224.0
Liabilities related to separate accounts 2,096.6
- -------------------------------------------------------------------------------
Total 7,979.3
- -------------------------------------------------------------------------------
Adjusted purchase price $ 932.1
- -------------------------------------------------------------------------------
In addition to revaluing all material tangible assets and liabilities to
their respective estimated market values as of the closing date of the
sale, Life of Virginia also recorded in its financial statements the
excess of cost over fair value of net assets acquired (goodwill) as well
as the present value of future profits to be derived from the purchased
business. These amounts were determined in accordance with the purchase
method of accounting. This new basis of accounting resulted in an
increase in stockholders' equity of $120.2 million in 1996 reflecting the
application of the purchase method of accounting. The Company's
consolidated financial statements subsequent to April 1, 1996 reflect
this new basis of accounting.
All amounts for periods ended before April 1, 1996 are labeled
"Preacquisition" and are based on the preacquisition historical costs in
accordance with generally accepted accounting principles. The periods
ending after such date are based on fair values at April 1, 1996 and
subsequent costs in accordance with the purchase method of accounting.
PRESENT VALUE OF FUTURE PROFITS
As of April 1, 1996 Life of Virginia established an intangible asset
which represents the "present value of future profits" (PVFP). PVFP
reflects the estimated fair value of the Company's life insurance
business in-force and represents the portion of the cost to acquire the
Company that is allocated to the value of the right to receive future
cash flows from insurance contracts existing at the date of acquisition.
Such value is the present value of the actuarially determined projected
cash flows for the acquired policies discounted at a rate of 15%, the
rate of return required by the Parent to invest in the business being
acquired.
(Continued)
8
<PAGE>
(1) CONTINUED
PVFP is amortized over the estimated contract life of the business
acquired in relation to the present value of estimated gross profits. The
estimated gross profit streams are periodically reevaluated and the
unamortized balance of PVFP adjusted to the amount that would have
existed had the actual experience and revised estimates been known and
applied since inception. The amortization period is the remaining life of
the policies, which ranges from 10 to 30 years from the date of original
policy issue. Based on current assumptions, net amortization of the PVFP
asset, expressed as a percentage, is projected to be 13.3%, 12.1%, 10.9%,
9.7% and 8.3% for the years ended December 31, 1997 through 2001,
respectively. Actual amortization incurred during these years may vary as
assumptions are modified to incorporate actual results.
Prior to April 1, 1996, Life of Virginia's PVFP was calculated in a
similar manner as the PVFP discussed above and related to policies
in-force on April 30, 1986, the date the Company was acquired by Aon.
Under purchase accounting this PVFP was removed.
The projected ending balance of PVFP will be further adjusted to
reflect the impact of unrealized gains or losses on fixed maturities
held as available for sale in the investment portfolios. Such
adjustments are not recorded in the Company's net income but rather as
a credit or charge to stockholders' equity, net of income tax. The
components of PVFP are as follows:
<TABLE>
<CAPTION>
Preacquisition
-------------------------------------------------
Nine months Three months
ended ended Year ended, Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S><C>
PVFP - beginning of period $ - 32.6 48.6 53.7
Adjustment related to the purchase
method of accounting 484.0 - - -
Interest added 22.4 0.5 2.1 3.2
Gross amortization, excluding interest (67.5) (1.1) (5.3) (8.3)
Dividend of Globe Life Insurance
Company (note 7) - - (12.8) -
PVFP attributable to unrealized gains (19.7) - - -
- -----------------------------------------------------------------------------------------------------------------
PVFP - end of period $ 419.2 32.0 32.6 48.6
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
GOODWILL
Under the purchase method of accounting, the excess of purchase price
over the fair value of assets and liabilities acquired and PVFP is
established as an asset and referred to as "goodwill." The Company has
elected to amortize goodwill on the straight line basis over a 20 year
period.
(Continued)
9
<PAGE>
(1) CONTINUED
The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding
goodwill as of each reporting period. In the event that the Company
determined that goodwill was not recoverable it would amortize such
amounts as additional goodwill expense in the accompanying financial
statements. As of December 31, 1996, the Company believes that no such
adjustment is necessary.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and
liabilities as well as the disclosure of contingent assets or liabilities
at the date of the financial statements. As a result, actual results
reported as revenue and expenses could differ from the estimates reported
in the accompanying financial statements. As further discussed in the
accompanying notes to the consolidated financial statements, significant
estimates and assumptions affect deferred acquisition costs, PVFP, future
life policy benefits, provisions for real estate-related losses and
related reserves, other-than-temporary declines in values for fixed
maturities, the valuation allowance for deferred income taxes and the
calculation of fair value disclosures for certain financial instruments.
DEFERRED TAX ASSETS AND LIABILITIES
Pursuant to the acquisition on April 1, 1996, GE Capital, the Company's
ultimate parent, and Aon Corporation, the Company's previous ultimate
parent, agreed to file an election to treat the acquisition of Life of
Virginia as an asset acquisition under the provisions of Internal Revenue
Code Section 338(h)(10). As a result of that election, the tax basis of
the Company's assets as of the date of acquisition were revalued based
upon fair market values. The principal effect of the election was to
establish a tax basis of intangibles of approximately $348 million for
the value of the business acquired that is amortizable for tax purposes
over 10-15 years.
Deferred income taxes have been provided for the effects of temporary
differences between financial reporting and tax bases of assets and
liabilities and have been measured using the enacted marginal tax rates
and laws that are currently in effect.
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
For universal life-type and investment products, generally there is no
requirement for payment of premium other than to maintain account values
at a level sufficient to pay mortality and expense charges. Consequently,
premiums for universal life-type policies and investment products are not
reported as revenue, but as deposits. Policy fee revenue for universal
life-type policies and investment products consists of charges for the
cost of insurance, policy administration, and surrenders assessed during
the period. Expenses include interest credited to policy account balances
and benefit claims incurred in excess of policy account balances.
(Continued)
10
<PAGE>
(1) CONTINUED
In general, for accident and health products, premiums collected are
reported as earned proportionately over the period covered by the
policies. For all other life products, premiums are recognized as revenue
when due. Benefits and related expenses associated with the premium
revenues are charged to expense proportionately over the lives of the
policies through a provision for future policy benefit liabilities and
through deferral and amortization of deferred policy acquisition costs.
REINSURANCE
Reinsurance premiums, commissions, and expense reimbursements on
reinsured business are accounted for on a basis consistent with those
used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums and benefits ceded to other companies
have been reported as a reduction of premium revenue and benefits.
Expense reimbursements received in connection with reinsurance ceded have
been accounted for as a reduction of the related policy acquisition costs
or, to the extent such reimbursements exceed the related acquisition
costs, as other revenue. All reinsurance receivables and prepaid
reinsurance premium amounts are reported as assets.
INVESTMENTS
Fixed maturities are carried at fair value. The amortized cost of fixed
maturities is adjusted for amortization of premiums and accretion of
discounts to maturity that are included in net investment income.
Included in fixed maturities are investments in collateralized mortgage
obligations ("CMOs"). Premiums and discounts arising from the purchase of
CMOs are treated as yield adjustments and included in net investment
income. Prepayment assumptions are obtained from dealer surveys. The
retrospective adjustment method is used to adjust for prepayment
activity.
Short-term investments are carried at amortized cost which approximates
market value. Equity securities are valued at fair value. Mortgage loans
are carried at their unpaid balance, net of unamortized discounts and
reserves. Real estate is carried generally at cost less accumulated
depreciation. Policy loans are carried at unpaid principal balance. Other
long-term investments are carried generally at cost.
Realized investment gains or losses are computed using specific costs of
securities sold. Unrealized gains and temporary unrealized losses on
fixed maturities available for sale and equity securities are excluded
from income and are recorded directly to stockholders' equity, net of
related deferred income taxes and adjustments to amortization of deferred
policy acquisition costs and present value of future profits.
(Continued)
11
<PAGE>
(1) CONTINUED
Investments that have declines in fair value below cost, that are judged
to be other than temporary, are written down to estimated fair values and
reported as realized investment losses. Additionally, reserves for
mortgage loans and certain other long-term investments are established
based on an evaluation of the respective investment portfolio, past
credit loss experience, and current economic conditions. Writedowns and
the change in reserves are included in realized investment gains and
losses in the statements of income. In general, the Company ceases to
accrue investment income when interest or dividend payments are in
arrears.
Life of Virginia measures "impaired" loans at the present value of the
loans discounted cash flow using the effective interest rate of the
original loan as the discount rate. Impaired loans are loans for which it
is probable that the Company will be unable to collect all amounts due
according to terms of the original contractual terms of the loan
agreement. This definition includes, among other things, leases, or
larger groups of small-homogenous loans, and therefore applies
principally to the Company's commercial loans.
Accounting policies relating to interest rate swaps are discussed in
Note 9.
DEFERRED POLICY ACQUISITION COSTS
Costs of acquiring new business, principally commissions, underwriting
and sales expenses that vary with and are primarily related to the
production of new business, are deferred. For non-universal life-type
products, amortization of deferred acquisition costs are related to and
based on the present value of expected premium revenues on the policies.
Periodically amortization is adjusted to reflect current withdrawal
experience. Expected premium revenues are estimated by using the same
assumptions used in estimating future policy benefits.
Deferred policy acquisition costs related to universal life-type policies
and investment products are amortized in relation to the present value of
expected gross profits on the policies. Such amortization is adjusted
periodically to reflect differences in actual and assumed gross profits.
To the extent that unrealized gains or losses on available for sale
securities would result in an adjustment to deferred policy acquisition
costs amortization, had those gains or losses actually been realized, the
related deferred policy acquisition cost adjustments are recorded along
with the unrealized gains or losses included in stockholders' equity with
no effect on net income.
(Continued)
12
<PAGE>
(1) CONTINUED
The components of deferred acquisition costs are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S><C>
Deferred acquisition costs - $ - 363.9 388.1 413.2
beginning of period
Commissions and expenses deferred 74.9 22.2 76.1 108.8
Amortization (3.2) (6.0) (39.3) (57.1)
Credit Life and Health cession (note 4) - - - (107.0)
Dividend of Globe Life Insurance
Company (note 7) - - (22.8) -
Deferred acquisition costs attributable
to unrealized gains (losses) (1.4) 17.9 (38.2) 30.2
- --------------------------------------------------------------------------------------------------------------------
Deferred acquisition costs - end of period $ 70.3 398.0 363.9 388.1
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are generally depreciated using the straight- line
method over their estimated useful lives. As a result of purchase
accounting fully depreciated property and equipment were removed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values
for financial instruments. The carrying amounts in the consolidated
statements of financial position for cash and short-term investments
approximate their fair values. Fair values for fixed maturity securities
and equity securities are based on quoted market prices or, if they are
not actively traded, on estimated values obtained from independent
pricing services or in the case of private placements, are estimated by
discounted expected future cash flows using a current market rate
applicable to the yield credit quality, call features and maturity of the
investments, as applicable. The fair values for mortgage loans and policy
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for similar loans to borrowers with similar
credit ratings. Fair values of derivatives are based on quoted prices for
exchange-traded instruments or the cost to terminate or offset with other
contracts.
Fair values for liabilities for investment-type contracts are estimated
using discounted cash flow calculations based on interest rates currently
being offered for similar contracts with maturities consistent with those
remaining for the contracts being valued.
(Continued)
13
<PAGE>
(1) CONTINUED
SEPARATE ACCOUNT BUSINESS
The assets and liabilities of the separate accounts represent designated
funds of group pension, variable life and annuity policyholders and are
not guaranteed or supported by other general investments of the Company.
The Company earns mortality and expense risk fees from the separate
accounts and assesses withdrawal charges in the event of early
withdrawals. The assets are carried at fair value and are offset by
liabilities that represent such policyholders' equity in those assets.
The net investment income generated from these assets is not included in
the consolidated statements of income.
The Company has periodically transferred capital to the separate accounts
to provide for the initial purchase of investments in the new portfolios.
As of December 31, 1996, approximately $29.3 million of the Company's
common stock investment related to its capital investments in the
separate accounts.
FUTURE POLICY BENEFIT LIABILITIES AND UNEARNED PREMIUMS AND POLICY AND
CONTRACT CLAIMS
Future policy benefit liabilities on non-universal life-type and accident
and health products have been provided on the net level premium method.
The liabilities are calculated based on assumptions as to investment
yield, mortality, morbidity and withdrawal rates that were determined at
the date of issue or acquisition of Life of Virginia by the Parent, and
provide for possible adverse deviations. Interest assumptions are graded
and range from 7.4% to 6.5%.
Withdrawal assumptions are based principally on experience and vary by
plan, year of issue, and duration.
Policyholder liabilities on universal life-type and investment products
are generally based on policy account values. Interest crediting rates
for these products range from 8.6% to 4.5%.
Unearned premiums generally are calculated using the pro rata method
based on gross premiums. However, in the case of credit life and credit
accident and health, the unearned premiums are calculated such that the
premiums are earned over the period of risk in a reasonable relationship
to anticipated claims.
Policy and contract claim liabilities represent estimates for reported
claims, as well as provisions for losses incurred, but not yet reported.
These claim liabilities are based on historical experience and are
estimates of the ultimate amount to be paid when the claims are settled.
Changes in the estimated liability are reflected in income as the
estimates are revised.
(Continued)
14
<PAGE>
(1) CONTINUED
FOREIGN CURRENCY TRANSLATION
Foreign revenues and expenses are translated at average exchange rates.
Foreign assets and liabilities are translated at year-end exchange rates.
Unrealized foreign exchange gains or losses on translation are generally
reported in stockholders' equity. No tax effect was taken into
consideration for unrealized losses.
(2) INVESTED ASSETS AND RELATED INCOME
Under purchase accounting, the market value of Life of Virginia's fixed
maturity investments as of April 1, 1996, became Life of Virginia's new
cost basis in such investments. The difference between the new cost basis
and original par is then amortized against investment income over the
remaining effective lives of the fixed maturity investments. As a result
of the interest rate environment as of April 1, 1996, the market value of
Life of Virginia's fixed maturity investments was approximately $37.4
million lower than original amortized cost.
The Company's investments in debt and equity securities are considered
available for sale and are carried at estimated fair value, with the
aggregate unrealized appreciation or depreciation being recorded as a
separate component of stockholders' equity. The carrying value and
amortized cost of investments at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
December 31, 1996
----------------- --------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Available for sale:
U.S. government and agencies $ 65.5 2.1 - 67.6
States and political subdivisions 2.1 - - 2.1
Foreign governments 178.2 5.6 - 183.8
Corporate securities 3,092.1 29.0 (19.6) 3,101.5
Mortgage-backed securities 1,764.3 29.7 (6.3) 1,787.7
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities 5,102.2 66.4 (25.9) 5,142.7
Total equity securities 155.1 11.2 (0.8) 165.5
- ---------------------------------------------------------------------------------------------------------------------
Total available for sale $ 5,257.3 77.6 (26.7) 5,308.2
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
15
<PAGE>
(2) CONTINUED
<TABLE>
<CAPTION>
Preacquisition
----------------- --------------------------------------------------
December 31, 1995
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Available for sale:
U.S. government and agencies $ 60.7 1.5 - 62.2
States and political subdivisions 2.2 0.2 - 2.4
Foreign governments 18.6 0.6 - 19.2
Corporate securities 2,478.6 140.2 (9.9) 2,608.9
Mortgage-backed securities 1,596.3 19.6 (16.9) 1,599.0
Other fixed maturities 110.8 8.5 - 119.3
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities 4,267.2 170.6 (26.8) 4,411.0
Total equity securities 133.7 26.2 (3.0) 156.9
- ---------------------------------------------------------------------------------------------------------------------
Total available for sale $ 4,400.9 196.8 (29.8) 4,567.9
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of fixed maturities, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Amortized Fair
(millions) Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Due in one year or less $ 82.1 82.5
Due after one year through five years 961.8 902.8
Due after five years through ten years 1,626.5 1,671.5
Due after ten years 667.5 698.2
Mortgage-backed securities 1,764.3 1,787.7
- ----------------------------------------------------------------------------------------------------------------------
$ 5,102.2 5,142.7
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The cumulative effect on January 1, 1994 of adopting Statement No. 115
increased stockholders equity by $25.1 million (net of adjustments to
deferred policy acquisition costs of $14.0 million and deferred income
taxes of $20.2 million) to reflect the net unrealized fixed maturities
holding gains on securities previously carried at amortized cost; there
was no effect on net income as a result of the adoption.
(Continued)
16
<PAGE>
(2) CONTINUED
On November 30, 1995, Life of Virginia reclassified all held to maturity
securities to available for sale. The amortized cost and related
unrealized gains for the securities reclassified was $2,698.3 million and
$50.9 million, respectively.
Securities on deposit for regulatory authorities as required by law
amounted to $4.5 million at December 31, 1996 and 1995.
Life of Virginia had $12.6 million and $34.2 million of non-income
producing investments on December 31, 1996 and December 31, 1995,
respectively.
Life of Virginia's "impaired" loans consist of loans requiring allowances
for loan losses of .2 and 12.2 as of December 31, 1996 and 1995,
respectively. Interest income earned on these loans while they were
considered impaired was 1.2 and 5.5 as of December 31, 1996 and 1995,
respectively.
Life of Virginia's mortgage and real estate portfolio is distributed by
geographic location and type. However, Life of Virginia has concentration
exposures in certain regions and in certain types as shown in the
following two tables.
Geographic distribution as of December 31, 1996:
<TABLE>
<CAPTION>
Mortgage Real estate
- -------------------------------------------------------------------------- ----------------------------------------
<S><C>
South Atlantic 48.3% 75.2%
East North Central 14.6% 1.4%
Mountain 12.7% -
West South Central 11.2% -
Pacific 7.3% 8.1%
Middle Atlantic 4.5% 15.3%
East South Central 1.4% -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
17
<PAGE>
(2) CONTINUED
Type distribution as of December 31, 1996:
<TABLE>
<CAPTION>
Mortgage Real estate
- -------------------------------------------------------------------------- ----------------------------------------
<S><C>
Office building 23.7% 66.4%
Retail 22.8% 18.4%
Industrial 21.9% -
Apartments 19.2% -
Other commercial 8.2% 15.2%
Hotel/motel 4.2% -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of net unrealized investment gains (losses) are as
follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Gross unrealized investment gains (losses)
Fixed maturities available for sale $ 40.5 2.8 143.8 (154.9)
Equity securities 10.4 5.8 23.2 (2.9)
PVFP (19.7) - - -
Deferred policy acquisition costs (1.4) 9.9 (8.0) 30.2
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized before deferred tax $ 29.8 18.5 159.0 (127.6)
Unrealized income tax benefit (expense) (10.4) (6.6) (55.9) 30.1
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized $ 19.4 11.9 103.1 (97.5)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
18
<PAGE>
(2) CONTINUED
The components of net investment income are as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities $ 276.8 93.1 332.8 404.1
Equity securities 8.7 4.2 10.8 25.2
Mortgage loans on real estate 41.3 13.5 49.8 49.9
Short-term investments 3.1 0.5 3.5 3.8
Other investments 9.9 3.0 13.2 18.0
- -----------------------------------------------------------------------------------------------------------------------
Gross investment income 339.8 114.3 410.1 501.0
Investment expenses (5.4) (2.3) (8.0) (10.4)
- -----------------------------------------------------------------------------------------------------------------------
Net investment income $ 334.4 112.0 402.1 490.6
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities:
Gross gains $ 0.6 0.5 12.9 8.6
Gross losses (0.7) (1.4) (90.2) (39.2)
Fixed maturities held to maturity:
Gross gains - - 1.1 11.3
Gross losses - - (13.8) (9.8)
Equity securities 6.0 10.3 5.6 (1.9)
Mortgage loans on real estate - (0.4) 2.3 9.6
Other 0.1 - 5.6 (4.4)
- -----------------------------------------------------------------------------------------------------------------------
Total before tax 6.0 9.0 (76.5) (25.8)
Less applicable tax (2.3) (1.9) 26.8 9.0
- -----------------------------------------------------------------------------------------------------------------------
Total $ 3.7 7.1 (49.7) (16.8)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
19
<PAGE>
(2) CONTINUED
The changes in net unrealized gains (losses) on fixed maturities and
equity security investments are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities:
Available for sale $ 40.5 (141.0) 298.7 (214.2)
Held to maturity - - 233.7 (351.0)
Equity securities 10.4 (17.4) 26.1 (38.8)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ 50.9 (158.4) 558.5 (604.0)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) INCOME TAX
Beginning April 1, 1996, Life of Virginia and its subsidiary will be
included in the life insurance company consolidated Federal income tax
return of GECA. Prior to the April 1, 1996, Life of Virginia was included
in the consolidated federal income tax return of Aon and its principal
domestic subsidiaries and in accordance with intercompany policy,
provided taxes on income based on a separate company basis. Amounts
payable or recoverable related to periods before April 1, 1996, are
subject to an indemnification agreement with Aon. As such the Company is
not at risk for any income taxes nor entitled to recoveries related to
those periods.
Income taxes are recorded in the statements of income and directly in
stockholders' equity accounts. Income tax expense (benefit) for the years
ending December 31 was allocated as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Statement of income:
Operating income (excluding
realized investment gains
and losses) $ 29.5 5.1 53.9 24.3
Realized investment gains/losses 2.3 1.9 (26.8) (9.0)
Income tax expense/(benefit)
included in the statement of
income 31.8 7.0 27.1 15.3
Stockholders' equity:
Unrealized gains/(losses) on
securities available for sale 10.4 (49.3) 86.0 (42.4)
- ---------------------------------------------------------------------------------------------------------------------
Total income tax expense/(benefit) $ 42.2 (42.3) 113.1 (27.1)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
20
<PAGE>
(3) CONTINUED
The actual Federal income tax expense differed from the expected tax
expense computed by applying the U.S. Federal statutory rate to income
before income tax expense. A reconciliation of the income tax provisions
based on the statutory corporate tax rate to the provisions reflected in
the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Preacquisition
-------- -------------------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S><C>
Statutory tax rate $ 30.1 35.0% $ 6.6 35.0% $ 23.2 35.0% $ 31.0 35.0%
Tax-exempt
investment
income
deductions (1.0) (1.2) - (0.1) (0.1) (0.1) (0.8) (0.9)
Adjustment of prior
year taxes - - - - 3.5 5.3 (11.8) (13.3)
Other - net 2.7 3.2 0.4 2.1 0.5 0.7 (3.1) (3.5)
- -------------------------------------------------------------------------------------------------------------------------
Effective tax rate $ 31.8 37.0% $ 7.0 37.0% $ 27.1 40.9% $ 15.3 17.3%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
21
<PAGE>
(3) CONTINUED
Significant components of Life of Virginia's deferred tax liabilities and
assets are as follows (in millions):
<TABLE>
<CAPTION>
Preacquisition
------------------
December 31, December 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Deferred tax liabilities:
Present value of future profits $ 89.8 -
Policy acquisition costs - 96.9
Employee benefits - 11.0
Unrealized investment gains 10.4 58.7
Other 6.5 35.2
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities 106.7 201.8
- ----------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Insurance reserve amounts 120.4 78.2
Policy acquisition costs 34.3 -
Guaranty fund amounts 10.8 -
Other 14.1 48.1
- ----------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 179.6 126.3
- ----------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities (assets) $ (72.9) 75.5
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes the deferred tax assets will be fully realized in the future
based on the expectation of the reversal of existing temporary
differences, anticipated future earnings, and consideration of all other
available evidence. Accordingly, no valuation allowance is established.
The amount of income taxes paid (refund) for nine months ended December
31, 1996, three months ended March 31, 1996, the years ended December 31,
1995 and 1994 was $38.6 million, $(2.4) million, $44.9 million, and $56.7
million, respectively.
(Continued)
22
<PAGE>
(4) REINSURANCE AND CLAIM RESERVES
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. In 1996 and 1995, Life of Virginia's
reinsurance consists primarily of long-duration contracts that are
entered into with financial institutions and related party reinsurance.
In 1994, Life of Virginia's reinsurance consisted primarily of
short-duration contracts that were entered into with numerous automobile
dealerships, financial institutions, and related party reinsurance.
Although these reinsurance agreements contractually obligate the
reinsurers to reimburse the Company, they do not discharge the Company
from its primary liabilities and the Company remains liable to the extent
that the reinsuring companies are unable to meet their obligations.
A summary of reinsurance activity is as follows:
<TABLE>
<CAPTION>
Preacquisition
--------------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
---------------- ---------------- ---------------- ------------------
Earned Earned Earned Earned
---------------- ---------------- ---------------- ------------------
<S><C>
Direct $ 210.5 77.2 261.5 404.2
Assumed 6.6 35.0 4.3 8.3
Ceded 62.4 19.8 86.5 193.7
- -------------------------------------------------------------------------------------------------------------------
Net premiums 154.7 92.4 179.3 218.8
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Due to the nature of the Company's reinsurance contracts, premiums earned
approximate premiums written.
A significant portion of Life of Virginia's ceded premiums relates to
group life and health premiums. Life of Virginia is the primary carrier
for the State of Virginia employees group life and health plan. By
statute, Life of Virginia must reinsure these risks with other Virginia
domiciled companies who wish to participate.
Incurred losses and loss adjustment expenses are net of reinsurance of
$60.5 million, $17.2 million, $63.1 million and $102.1 million for the
nine months ended December 31, 1996, three months ended March 31, 1996
and the years ended December 31, 1995 and 1994, respectively.
In December 1994, Life of Virginia ceded to CICA $406.6 million of its
guaranteed investment contract liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA available for
sale fixed maturities with a fair value of $278.1 million and a cost of
$287.2 million and preferred stock with a fair value of $110.5 million
and a cost of $119.7 million. Included in receivable from affiliates at
December 31, 1995 is $212.6 million which represents the remaining ceded
guaranty investment contract liability.
(Continued)
23
<PAGE>
(4) CONTINUED
In July 1994, Life of Virginia ceded to Union Fidelity Life Insurance
Company ("UFLIC") $280.7 million of its credit life and health reserves
and associated acquisition costs of $107.0 million. In conjunction with
the liability cession, Life of Virginia recognized a $29.1 million loss
which is reflected as a $20.8 million premium ceded and $8.3 million
realized loss on investments.
Premiums, benefits to policyholders, and commissions and general expenses
ceded to UFLIC during the second six months of 1994 amounted to $35.0
million, $14.4 million, and $14.2 million, respectively.
In January 1995, Life of Virginia ceded to CICA $600 million of its
single premium deferred annuity liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA available for
sale fixed maturities with a fair value of $436.1 million and cost of
$501.4 million and held to maturity fixed maturities with a fair value of
$81.4 million and a cost of $95.1 million. In addition, $5.5 million of
accrued income related to the assets above was transferred to CICA. This
transaction resulted in a deferred reinsurance gain of $77.0 million, $24
million of which was recognized in 1995. Additionally, Life of Virginia
recognized a $79.0 million realized investment loss. Included in
receivable from affiliates at December 31, 1995 is $357.5 million which
represents the ceded single premium deferred annuity liability of $410.5
million less a deferred reinsurance gain of $53 million.
In connection with the sale of the Company, the following transactions
occurred effective January 1, 1996: single premium deferred annuity
liabilities reinsured with CICA in 1995 were recaptured, guaranteed
investment contract liabilities reinsured with CICA in 1994 were
recaptured, other lines of CICA insurance business inforce were assumed,
and other related liabilities of CICA were assumed. In conjunction with
the recapture and assumption, CICA transferred to Life of Virginia assets
with a fair market value totaling $842.6 million. For the three months
ended March 31, 1996, premiums of $33.9 million, benefits of $46.7
million, commission expense of $10.2 million and a capital contribution
of $69.3 million as a result of various reinsurance transactions. The $53
million deferred reinsurance gain remaining at December 31, 1995 from the
January 1995 single premium deferred annuity cession to CICA was
recognized as a capital contribution. The tables below summarize the
assets and liabilities transferred from CICA to the Company.
(Continued)
24
<PAGE>
(4) CONTINUED
<TABLE>
<CAPTION>
Millions Fair Market Value
- ---------------------------------------------------------------------------------
<S><C>
Assets transferred:
Fixed maturity $ 727.4
Preferred stock 88.2
Policy loans 14.2
Accrued investment income 10.0
Cash 2.8
- ---------------------------------------------------------------------------------
Total 842.6
- ---------------------------------------------------------------------------------
Liabilities recaptured and assumed:
Single premium deferred annuity 410.5
Guaranteed investment contracts 212.6
Universal life contracts 156.6
Individual traditional contracts 33.2
Other lines of business inforce 19.9
Other liabilities 16.5
- ---------------------------------------------------------------------------------
Total 849.3
- ---------------------------------------------------------------------------------
</TABLE>
(5) EMPLOYEE BENEFITS
SAVINGS PLAN
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric contributory savings plan.
Provisions made for the savings plan were $.6 million for the nine months
ended December 31, 1996.
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's contributory savings plan for the benefit of salaried and
commissioned employees. Provisions made for the savings plan were $.3
million, $.8 million and $1.2 million for the three months ended March
31, 1996, and the years ended December 31, 1995 and 1994, respectively.
This plan terminated upon the acquisition of Life of Virginia by GE
Capital.
EMPLOYEE STOCK OWNERSHIP PLAN
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's leveraged ESOP for the benefit of salaried and certain
commissioned employees. Contributions to the ESOP for the three months
ended March 31, 1996 and the years ended December 31, 1995 and 1994
charged to Life of Virginia's operations amounted to $.1 million, $.5
million and $.6 million, respectively. This plan terminated upon the
acquisition of Life of Virginia by GE Capital.
(Continued)
25
<PAGE>
(5) CONTINUED
PENSION PLAN
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric contributory defined
benefit pension plan. Generally, benefits are based on the greater of a
formula recognizing career earnings or a formula recognizing length of
service and final average earnings. Benefit provisions are subject to
collective bargaining. General Electric's funding policy is to contribute
amounts sufficient to meet minimum funding requirements as set forth in
employee benefit and tax laws plus such additional amounts as determined
appropriate. The components of net periodic pension cost and benefit
obligations of the General Electric defined benefit plan are not
separately available for Life of Virginia. In connection with Life of
Virginia's participation in the General Electric contributory defined
benefit pension plan a $.4 million expense was incurred for the nine
months ended December 31, 1996.
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's non-contributory defined benefit pension plan providing
retirement benefits for salaried employees and certain commissioned
employees based on years of service and salary. Aon's funding policy was
to contribute amounts to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of
1974, plus such additional amounts as Aon determines to be appropriate
from time to time. The components of net periodic pension cost and
benefit obligations of the Aon defined benefit plan were not separately
available for Life of Virginia. In connection with Life of Virginia's
participation in the Aon defined benefit plan, net pension credits of
$1.2 million, $3.8 million and $3.1 million in the three months ended
March 31, 1996 and the years ended December 31, 1995 and 1994. This plan
terminated upon the acquisition of Life of Virginia by GE Capital.
During 1993, the Aon Pension Plan was amended to include certain
additional amounts of compensation in determining plan benefits and in
1994 to reduce the maximum amount of compensation that can be considered
under the plan as required by law. Further, the Pension Plan was amended
in 1994 to provide increases in benefits to current pensioners.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric retiree health and life
insurance benefit plan. The plan's principally provide health and life
insurance benefits to employees who retire under the General Electric
pension plan with 10 or more years of service. Retirees share in the cost
of their health care benefits. The funding policy for retiree health
benefits is generally to pay covered expenses as they are incurred.
Expenses incurred by Life of Virginia for the nine months ended December
31, 1996 for the retiree health and life insurance benefit plan were $1.3
million.
(Continued)
26
<PAGE>
(5) CONTINUED
Prior to the acquisition on April 1, 1996, Aon sponsored two defined
benefit postretirement health and welfare plans in which Life of Virginia
participated that cover both salaried and nonsalaried employees. One plan
provides medical benefits, prior to and subsequent to Medicare
eligibility, and the other provides life insurance benefits. The
postretirement health care plan is contributory, with retiree
contributions adjusted annually; the life insurance plan is
noncontributory. Both plans are funded on a pay-as-you-go basis. These
plans terminated upon the acquisition of Life of Virginia by GE Capital.
(6) LEASE COMMITMENTS
Life of Virginia has noncancelable operating leases for certain office
space, equipment and automobiles. Future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 1996 are as follows:
(millions) Minimum lease payments
-------------------------------------------------------------------
1997 $ 1.1
1998 0.8
1999 0.4
2000 0.2
2001 0.1
Later years -
-------------------------------------------------------------------
Total minimum payments required $ 2.6
-------------------------------------------------------------------
MINIMUM LEASE PAYMENTS
Rental expenses for all operating leases for the nine months ended
December 31, 1996, the three months ended March 31, 1996 and the years
ended December 31, 1995 and 1994 amounted to $2.5 million, $.8 million,
$3.6 million and $5.1 million, respectively.
(7) RELATED PARTY TRANSACTIONS
Life of Virginia pays investment advisory fees and other fees to
affiliates; Parent after April 1, 1996 and Aon previous to that date.
Amounts incurred for these items aggregated $3.2 million, $3.5 million,
$5.8 million and $37.8 million for nine months ended December 31, 1996,
the three months ended March 31, 1996 and the years ended December 31,
1995 and 1994, respectively. Life of Virginia charges affiliates for
certain services and for the use of facilities and equipment which
aggregated $2.0 million, $1.0 million, $10.0 million and $101.2 million
for the nine months ended December 31, 1996, the three months ended March
31, 1996 and the years ended December 31, 1995, and 1994, respectively.
(Continued)
27
<PAGE>
(7) CONTINUED
At December 31, 1996 and 1995, Life of Virginia held investments in
securities of certain affiliates amounting to $2.6 million and $12.6
million, respectively. Amounts included in net investment income related
to these holdings totaled $0.1 million, $0.2 million, $1.0 million and
$3.5 million for the nine months ended December 31, 1996, the three
months ended March 31, 1996 and the years ended December 31, 1995 and
1994, respectively.
In January 1995, Life of Virginia dividended 100% of its Globe Life
Insurance Company ("Globe") common stock to CICA, a subsidiary of Aon. At
December 31, 1994, Globe had assets of $954.9 million, liabilities of
$765.7 million and stockholders' equity of $189.2 million. The fair
market value of this dividend was $193.3 million.
In 1995, Life of Virginia received from CICA, in the form of a capital
contribution, fixed maturities with a fair value of $45.0 million.
In January 1995, Life of Virginia transferred limited partnership
investments with a fair value of $8.0 million and cost of $7.5 million,
common stocks with a fair value of $5.6 million and cost of $3.4 million,
and cash of $6.4 million to pay a $20.0 million dividend declared but not
paid in 1994. A $2.7 million realized investment gain was recorded on
this transfer.
In December 1994, Life of Virginia exchanged common stocks with a fair
value of $61.4 million and cost of $67.1 million for CICA's available for
sale fixed maturities and related accrued income with fair values of
$60.9 million and $.5 million, respectively. Life of Virginia recorded
the fixed maturity securities at CICA's fair value of $60.9 million
resulting in a $5.7 million realized loss that is reflected in the
statement of income.
(8) LITIGATION
Life of Virginia is subject to numerous claims and lawsuits that arise in
the ordinary course of business. In some of these cases the remedies that
may be sought or damages claimed are substantial, including cases that
seek punitive or extraordinary damages. Accruals for these lawsuits have
been provided to the extent that losses are deemed probable and are
estimable. Although the ultimate outcome of these suits cannot be
ascertained and liabilities in indeterminate amounts may be imposed on
Life of Virginia, on the basis of present information, availability of
insurance coverage, and advice received from counsel, it is the opinion
of management that the disposition or ultimate determination of such
claims and lawsuits will not have a material adverse effect on the
consolidated financial position or results of operations of Life of
Virginia.
(Continued)
28
<PAGE>
(9) FINANCIAL INSTRUMENTS
INTEREST RATE RISK MANAGEMENT
Life of Virginia used interest rate swap agreements to manage asset and
liability durations relating to its capital accumulation annuity
business. As of December 31, 1995 and 1994, these swap agreements had the
net effect of lengthening liability durations. Variable rates received on
interest rate swap agreements correlate with crediting rates paid on
outstanding liabilities. The net effect of swap payments is settled
periodically and reported in income. There was no settlement of
underlying notional amounts.
Life of Virginia performed frequent analyses to measure the degree of
correlation associated with its derivative program. Life of Virginia
assessed the adequacy of the correlation analyses results in determining
whether the derivatives qualify for hedge accounting. Realized gains and
losses on derivatives that qualify as hedges were deferred and reported
as an adjustment of the cost basis of the hedged item. Deferred gains and
losses were amortized into income over the life of the hedged item. The
fair value of swap agreements hedging liabilities were not recognized in
the consolidated statements of financial position.
These interest rate swaps gave rise to credit risks due to possible
non-performance by counterparties. The credit risk was generally limited
to the fair value of those contracts that were favorable to Life of
Virginia. Life of Virginia limited its credit risk by restricting
investments in derivative contracts to a diverse group of highly rated
major financial institutions. Life of Virginia closely monitored the
credit worthiness of, and exposure to, its counterparties and considered
its credit risk to be minimal.
Life of Virginia had $0.0 million and $250.0 million notional
amount of interest rate swaps outstanding at December 31, 1996 and
1995, respectively.
During the three months ended March 31, 1996 and the year ended
December 31, 1995 Life of Virginia amortized $.6 million and $1.4
million, respectively, of net deferred losses relating to interest rate
swaps into income.
The interest rates on Life of Virginia's principal outstanding swaps at
December 31, are presented below:
Pay Receive
Fixed Variable
------------------------------------------------------------------
1995 7.9 - 8.3% 5.40%
------------------------------------------------------------------
As of December 31, 1995, the principal swaps have maturities ranging from
September 1999 to October 2000 and variable rates based on five year
treasury rates. These swaps were terminated prior to March 31, 1996
resulting in a $1.1 million gain which was deferred.
(Continued)
29
<PAGE>
(9) CONTINUED
OTHER FINANCIAL INSTRUMENTS
Life of Virginia has certain investment commitments to provide fixed-rate
loans. The investment commitments, which would be collateralized by
related properties of the underlying investments, involve varying
elements of credit and market risk. Investment commitments outstanding at
December 31, 1996 and December 31, 1995, totaled $1.7 million and $21.7
million, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to
encompass the majority of policy liabilities, various other non-financial
instruments, or other intangible items related to Life of Virginia's
business. Accordingly, care should be exercised in deriving conclusions
about Life of Virginia's business or financial condition based on the
fair value disclosures.
The carrying amount and fair value of certain of Life of Virginia's
financial instruments are as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------
December 31, 1996 December 31, 1995
-------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Fixed maturities and
equity securities
(note 2) $ 5,308.2 5,308.2 4,567.9 4,567.9
Mortgage loans on
real estate 585.4 622.6 592.5 638.2
Policy loans 179.5 179.5 151.7 150.2
Cash, short-term
investments and
receivables 186.4 186.4 727.5 727.5
Assets held in separate accounts 2,762.7 2,762.7 2,019.6 2,019.6
- ------------------------------------------------------------------------------------------------------
Liabilities:
Investment type
insurance contracts 3,055.0 3,027.6 2,769.7 2,796.9
Commissions and
general expenses 46.8 46.8 12.8 12.8
Interest rate swaps - - - 24.1
Liabilities related to separate accounts 2,762.7 2,762.7 2,019.6 2,019.6
- ------------------------------------------------------------------------------------------------------
</TABLE>
See Note 1 regarding the method used to estimate fair values.
(Continued)
30
<PAGE>
(10) STOCKHOLDERS' EQUITY
Generally, the capital and surplus of Life of Virginia available for
transfer to the Parent are limited to the amounts that the statutory
capital and surplus exceed minimum statutory capital requirements;
however, payments of the amounts as dividends may be subject to approval
by regulatory authorities. The maximum amount of dividends which can be
paid by the Company without prior approval at December 31, 1996, is $41.9
million.
Statutory net income (loss) and stockholders' equity is summarized below:
<TABLE>
<CAPTION>
Preacquisition
------------------------------------------------------
Nine months Three months
ended ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S><C>
Statutory net income $ 69.7 (8.3) 53.9 58.2
Statutory stockholders equity 419.1 360.5 364.2 400.6
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The National Association of Insurance Commissioners has developed certain
Risk Based Capital (RBC) requirements for life insurers. If prescribed
levels of RBC are not maintained, certain actions may be required on the
part of the Company or its regulators. At December 31, 1996 the Company's
Total Adjusted Capital and Authoritized Control Level - RBC were, $504.6
million and $78.6 million, respectively. This level of adjusted capital
qualifies under all tests.
================================================================================
31
<PAGE>
APPENDIX
This appendix replaces the one in the prospectus dated May 1, 1996. The
illustrations have been revised to reflect the expenses of the portfolios that
will be available after November 22, 1995.
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
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.
The tables illustrate a Policy issued to a male, age 55, with a total planned
premium of $50,000. The first two illustrations show a single premium of $50,000
paid at issue, with no further premiums. The last two illustrations show an
annual premium of $10,000 payable for five years, with no further premiums. The
specified insurance amount for the first three illustrations is $141,964.
Because the fourth illustration shows a rating of 200% (substandard), the
specified insurance amount is $125,475. The second column of each illustration
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)
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, adjusted for any substandard rating class.
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 charge equals the current cost of insurance rate
multiplied by the net amount at risk under the policy. Policies qualifying for
the Preferred Funding Risk Class may have a lower cost of insurance charge. (SEE
Cost of Insurance provision of the prospectus.)
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 10%. 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 10%, 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 indicate
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 illustrations take into account a charge of 0.61%, which
represents the average investment advisory fee of the Funds, and a charge of
0.21%, which represents the average annual other expenses of the Funds. Assumed
charges for fees and other expenses, as an annual percentage of the average
daily net assets of the Funds, are based on the actual fees and expenses
incurred by the funds in 1996, or on estimates as described below. Actual fees
and expenses charged to a policy will depend on the Investment Subdivisions
chosen by the Policyowner. The illustrations also take into account the 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 10% correspond to approximate net annual rates of
- -2.12%, 3.88% and 7.88%, respectively.
A-1
<PAGE>
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.
All of the information used to determine average fees and expenses for the
illustrations was provided by the Funds. In some cases, estimates were
substituted by the Funds for the actual fees and expenses. Life of Virginia does
not represent that such estimates are true and complete, and has not
independently verified these figures.
The hypothetical values shown in the tables do not reflect any charges for
federal income taxes against Separate Account 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 10% by an amount sufficient to cover the tax charges in order
to produce the death benefits and Cash Values illustrated. (SEE Federal Tax
Matters.)
The tables also do not reflect any reduction in sales charges available to
certain groups (SEE Reduction in Charges for Group Sales.); if the reduced
charges were illustrated they would show increased Cash Values.
Upon request, Life of Virginia will provide a comparable illustration based
upon the proposed Insured's age, sex, where appropriate, and risk class and the
proposed premium payments.
A-2
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $141,964
Rating 100% (Standard) Initial Premium $ 50,000
Level Death Benefit Total Planned Premium (1) $ 50,000
<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>
1 52,500 45,404 48,404 141,964 48,371 51,371 141,964 48,371 51,371 141,964
2 55,125 43,070 46,070 141,964 49,043 52,043 141,964 49,780 52,780 141,964
3 57,881 40,671 43,671 141,964 49,650 52,650 141,964 51,228 54,228 141,964
4 60,775 38,195 41,195 141,964 50,183 53,183 141,964 52,715 55,715 141,964
5 63,814 36,130 38,630 141,964 51,134 53,634 141,964 54,743 57,243 141,964
6 67,005 33,956 35,956 141,964 51,988 53,988 141,964 56,813 58,813 141,964
7 70,355 31,652 33,152 141,964 52,726 54,226 141,964 58,926 60,426 141,964
8 73,873 29,189 30,189 141,964 53,325 54,325 141,964 61,083 62,083 141,964
9 77,566 26,532 27,032 141,964 53,758 54,258 141,964 63,286 63,786 141,964
10 81,445 23,645 23,645 141,964 53,996 53,996 141,964 65,536 65,536 141,964
15 103,946 2,206 2,206 141,964 50,155 50,155 141,964 76,932 76,932 141,964
20 132,665 * * * 34,037 34,037 141,964 90,309 90,309 141,964
25 169,318 * * * * * * 106,013 106,013 141,964
30 216,097 * * * * * * 124,448 124,448 141,964
35 275,801 * * * * * * 146,088 146,088 153,393
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a single premium of $50,000 with no
additional premiums. 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 -2.12% AND 3.88%. 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.
A-3
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $141,964
Rating 100% (Standard) Initial Premium $ 50,000
Level Death Benefit Total Planned Premium (1) $ 50,000
<TABLE>
<CAPTION>
0% Assumed Hypothetical 10% Assumed Hypothetical 10% 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>
1 52,500 45,404 48,404 141,964 50,349 53,349 141,964 50,349 53,349 141,964
2 55,125 43,070 46,070 141,964 53,224 56,224 141,964 53,923 56,923 141,964
3 57,881 40,671 43,671 141,964 56,254 59,254 141,964 57,737 60,737 141,964
4 60,775 38,195 41,195 141,964 59,453 62,453 141,964 61,810 64,810 141,964
5 63,814 36,130 38,630 141,964 63,337 65,837 141,964 66,665 69,165 141,964
6 67,005 33,956 35,956 141,964 67,421 69,421 141,964 71,828 73,828 141,964
7 70,355 31,652 33,152 141,964 71,721 73,221 141,964 77,292 78,792 141,964
8 73,873 29,189 30,189 141,964 76,255 77,255 141,964 83,084 84,084 141,964
9 77,566 26,532 27,032 141,964 81,045 81,545 141,964 89,231 89,731 141,964
10 81,445 23,645 23,645 141,964 86,120 86,120 141,964 95,763 95,763 141,964
15 103,946 2,206 2,206 141,964 118,216 118,216 141,964 136,299 136,299 158,107
20 132,665 * * * 168,280 168,280 180,060 194,165 194,165 207,756
25 169,318 * * * 241,302 241,302 253,367 278,418 278,418 292,339
30 216,097 * * * 342,321 342,321 359,437 395,574 395,574 415,353
35 275,801 * * * 477,401 477,401 501,272 560,920 560,920 588,966
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume a single premium of $50,000 with no
additional premiums. 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 10% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -2.12% AND 7.88%. 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 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE HYPOTHETICAL INVESTMENT RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-4
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $141,964
Rating 100% (Standard) Initial Premium $ 10,000
Level Death Benefit Total Planned Premium (1) $ 50,000
<TABLE>
<CAPTION>
0% Assumed Hypothetical 10% Assumed Hypothetical 10% 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>
1 10,500 9,047 9,647 141,964 10,033 10,633 141,964 10,033 10,633 141,964
2 21,525 16,538 17,738 141,964 19,498 20,698 141,964 20,738 21,938 141,964
3 33,101 23,792 25,592 141,964 29,708 31,508 141,964 32,158 33,958 141,964
4 45,256 30,818 33,218 141,964 40,742 43,142 141,964 44,338 46,738 141,964
5 58,019 37,730 40,630 141,964 52,792 55,692 141,964 57,639 60,539 141,964
6 60,920 35,236 37,936 141,964 55,653 58,353 141,964 61,894 64,594 141,964
7 63,966 32,714 35,114 141,964 58,728 61,128 141,964 66,521 68,921 141,964
8 67,164 30,137 32,137 141,964 62,021 64,021 141,964 71,538 73,538 141,964
9 70,523 27,470 28,970 141,964 65,534 67,034 141,964 76,965 78,465 141,964
10 74,049 24,577 25,577 141,964 69,174 70,174 141,964 82,721 83,721 141,964
15 94,507 4,012 4,012 141,964 89,921 89,921 141,964 117,604 117,604 141,964
20 120,618 * * * 120,169 120,169 141,964 167,521 167,521 179,247
25 153,942 * * * 170,927 170,927 179,474 240,213 240,213 252,224
30 196,473 * * * 242,484 242,484 254,609 341,292 341,292 358,357
35 250,755 * * * 338,169 338,169 355,078 483,948 483,948 508,146
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume five annual premiums of $10,000 paid at the
beginning of each year, with no additional premiums. 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 10% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -2.12% AND 7.88%. 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 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE HYPOTHETICAL INVESTMENT RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-5
<PAGE>
VARIABLE LIFE INSURANCE
Male Issue Age 55 Initial Specified Amount $125,475
Rating 200% (Substandard) Initial Premium $ 10,000
Level Death Benefit Total Planned Premium (1) $ 50,000
<TABLE>
<CAPTION>
0% Assumed Hypothetical 10% Assumed Hypothetical 10% 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>
1 10,500 8,299 8,899 125,475 9,252 9,852 125,475 9,252 9,852 125,475
2 21,525 14,760 15,960 125,475 17,575 18,775 125,475 19,229 20,429 125,475
3 33,101 20,989 22,789 125,475 26,564 28,364 125,475 30,004 31,804 125,475
4 45,256 26,999 29,399 125,475 36,316 38,716 125,475 41,654 44,054 125,475
5 58,019 32,906 35,806 125,475 47,045 49,945 125,475 54,369 57,269 125,475
6 60,920 29,259 31,959 125,475 48,394 51,094 125,475 57,991 60,691 125,475
7 63,966 25,406 27,806 125,475 49,737 52,137 125,475 61,869 64,269 125,475
8 67,164 21,280 23,280 125,475 51,039 53,039 125,475 66,009 68,009 125,475
9 70,523 16,800 18,300 125,475 52,255 53,755 125,475 70,424 71,924 125,475
10 74,049 11,769 12,769 125,475 53,235 54,235 125,475 75,029 76,029 125,475
15 94,507 * * * 51,828 51,828 125,475 100,525 100,525 125,475
20 120,618 * * * 26,622 26,622 125,475 138,658 138,658 148,364
25 153,942 * * * * * * 195,117 195,117 204,873
30 196,473 * * * * * * 268,739 268,739 282,176
35 250,755 * * * * * * 357,694 357,694 375,579
</TABLE>
* In the absence of an additional premium, the Policy would lapse.
(1) The values illustrated assume five annual premiums of $10,000 paid at the
beginning of each year, with no additional premiums. 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 10% SHOWN ABOVE
CORRESPOND TO NET ANNUAL RATES OF -2.12% AND 7.88%. 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 10% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE
MADE BY LIFE OF VIRGINIA OR THE FUNDS THAT THESE HYPOTHETICAL INVESTMENT RATES
OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
APPENDIX B
MATTERS RELATING TO POLICIES ISSUED PRIOR TO 11/14/95
Policies issued prior to November 14, 1995 contain certain rights, benefits
and procedures which differ from those described elsewhere in this Prospectus.
An individual who has purchased such a Policy must refer to this Appendix in
conjunction with the remainder of this Prospectus in order to determine his or
her rights and benefits under the Policy.
Summary of Rights and Benefits Under These Policies. Policies issued on or
before November 14, 1995 were designed to operate generally as single premium
policies; the minimum initial premium was $5,000.
Policies issued before November 14, 1995 utilized only one underwriting class
with respect to Insureds, and imposed a current cost of insurance charge at a
rate equivalent to an annual rate of 0.55% of a Policy's Cash Value in Separate
Account III. The initial specified amount was determined in part by the initial
premium paid.
Rights, benefits, and procedures with respect to the policies issued prior to
November 14, 1995 are set forth in greater detail below.
* * *
With respect to the rights and benefits described below, these rights and
benefits should be substituted in their entirety for the related rights and
benefits found elsewhere in this Prospectus. All other procedures described
herein, however, are meant to modify the procedures found elsewhere in the
Prospectus, and must be read in conjunction with the procedures found elsewhere
in this Prospectus.
* * *
While this 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.
* * *
References to the minimum first-year planned premium, wherever they appear in
the Prospectus, should be replaced with references to the minimum initial
premium; specifically, the minimum initial premium required to issue a Policy is
$5,000.
The third paragraph of the CHARGES AND DEDUCTIONS provision is replaced with
the following: 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.
* * *
The following sentence is deleted from the end of the first paragraph under
PURCHASING A POLICY: Life of Virginia assigns Insureds to standard and
substandard risk classes. Cost of insurance deductions will generally be higher
under Policies insuring persons assigned to substandard risk classes.
* * *
The INITIAL PREMIUM provision of the Prospectus is replaced with the following:
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.
* * *
B-1
<PAGE>
The fifth sentence of the second paragraph of the DEATH BENEFIT provision of
the Prospectus is replaced with the following: 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.
* * *
The first two paragraphs of the CHANGES IN THE SPECIFIED AMOUNT provision of
the Prospectus are replaced with the following:
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.
* * *
The following is deleted from the CHARGES ATTRIBUTABLE TO PREMIUM PAYMENTS
provision of the Prospectus. All premium payments made during a Policy year are
deemed to have been made on the first day of such Policy year; accordingly, one
year is considered to have elapsed since the payment of such premiums on each
subsequent policy anniversary. In order to determine the portion of Cash Value
in Separate Account III subject to the premium tax charge and distribution
expense charge, premiums are grouped by Policy year.
* * *
The COST OF INSURANCE CHARGE provision of the Prospectus is replaced with the
following:
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 on a Monthly Anniversary Day, the Death Benefit on that date 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 on that date
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.) 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.
* * *
The third paragraph of the TAX TREATMENT OF POLICY LOANS AND OTHER
DISTRIBUTIONS UNDER CERTAIN POLICIES provision of the prospectus is replaced
with the following:
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.)
B-2
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1997
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). 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.
<PAGE>
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.
DOLLAR-COST AVERAGING
For policies issued on or after May 1, 1995, as an alternative to the
dollar-cost averaging program described above, Policyowners may elect to have
Life of Virginia automatically transfer specified amounts from the Guarantee
Account to any available Investment Subdivision on a monthly or quarterly basis.
To make the election, Policyowners must complete a Dollar-Cost Averaging
Agreement. Money may be allocated to the Guarantee Account as an initial or
subsequent premium or in the form of a transfer of cash value from one or more
Investment Subdivisions. Such allocations must comply with all applicable
minimum amount and percentage requirements (see Purchasing a Policy, p. 18 and
Allocation of Premiums, p. 20) as well as rules applicable to transfers to the
Guarantee Account. Apart from automatic transfers under the Dollar-Cost
Averaging Agreement, all rules regarding transfers from the Guarantee Account
will apply.
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.
22). 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, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Commission such supplementary and periodic information, documents, and
reports as may be prescribed by any rule or regulation of the Commission
heretofore, or hereafter duly adopted pursuant to authority conferred in that
section.
RULE 484 UNDERTAKING
The Life Insurance Company of Virginia's By-laws provide, in Article V,
Section 5, for indemnification of directors, officers and employees of the
Company.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise under circumstances
where the burden of proof set forth in Section 11(b) of the Act has not been
sustained, the registrant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
REPRESENTATION PURSUANT TO RULE 26(E)(2)(A)
Life of Virginia hereby represents that the fees and charges deducted under
the Policy, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
Life of Virginia.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following Papers and Documents:
The facing sheet
The Prospectus consisting of ___ pages The undertaking to
file reports The Rule 484 undertaking Representation
pursuant to Section 26(e)(2)(A) The signatures Written
consents of the following persons:
(a) J. Neil McMurdie
(b) Messrs. Sutherland, Asbill & Brennan, L.L.P.
(c) Bruce E. Booker, FSA
(d) KPMG Peat Marwick LLP
(e) Ernst & Young LLP
The following exhibits:
See next page
<PAGE>
EXHIBITS
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
(1)(a) Resolution of Board of Directors of Life of Virginia authorizing the
establishment of Separate Account III. 1/
(1)(b) Resolution of Board of Directors of Life of Virginia
authorizing the addition of Investment Subdivisions to
Separate Account III. 1/
(1)(c) Resolution of Board of Directors of Life of Virginia authorizing the
addition of Fidelity Asset Manager Portfolio and Neuberger & Berman
Advisers Management Trust to Separate Account III. 1/
(1)(d) Resolution of Board of Directors of Life of Virginia authorizing the
removal of subdivisions investing in the 1993 Portfolio, the 1998
Portfolio and the 2003 Portfolio of the Fidelity Zero Coupon Bond
Fund. 1/
(1)(e) Resolution of Board of Directors of Life of Virginia
authorizing the removal of subdivisions investing in the Cash
Management Fund, High-Yield Bond Fund, Growth-Income Fund,
Growth Fund, and U.S. Government Guaranteed/AAA Rated
Securities Fund of the American Life/Annuity Series. 1/
(1)(f) Resolution of Board of Directors of Life of Virginia authorizing the
addition of Investment Subdivisions investing in the Growth
Portfolio and the Limited Maturity Bond Portfolio of the Neuberger &
Berman Advisers Management Trust to Separate Account III. 1/
(1)(g) Resolution of Board of Directors of Life of Virginia authorizing the
establishment of Investment Subdivisions of Separate Account III
which invest in shares of Janus Aspen Series, Growth Portfolio,
Aggressive Growth Portfolio, and Worldwide Growth Portfolio. 4/
(1)(h) Resolution of Board of Directors of Life of Virginia authorizing the
establishment of an additional Investment Subdivision of Separate
Account III which invests in shares of the Utility Fund of the
Insurance Management Series. 5/
(1)(i) Resolution of Board of Directors of Life of Virginia authorizing the
establishment of additional Investment Subdivisions of Separate
Account III which invest in shares of the Corporate Bond Fund of the
Insurance Management Series and the Contrafund Portfolio of the
Variable Insurance Products Fund II. 5/
(1)(j) Resolution of Board of Directors of Life of Virginia authorizing the
establishment of two additional Investment Subdivisions of Separate
Account III which invest in shares of the International Equity
Portfolio and the Real Estate Securities Portfolio of the Life of
Virginia Series Fund. 6/
(1)(k) Resolution of Board of Directors of Life of Virginia authorizing the
establishment of four additional Investment Subdivisions of Separate
Account III which invest in shares of the American Growth Portfolio
and the American Small Capitalization Portfolio of The Alger
American Fund, and the Balanced Portfolio and Flexible Income
Portfolio of the Janus Aspen Series. 7/
(1)(l) Resolution of Board of Directors of Life of Virginia authorizing the
establishment of two additional investment subdivisions of Separate
Account 4, investing in shares of the Federated American Leaders
Fund II of the Federated Insurance Series, and the International
Growth Portfolio of the Janus Aspen Series. 10/
(1)(m) Resolution of Board of Directors of Life of Virginia authorizing
additional Investment Subdivisions investing in shares of Growth and
Income Portfolio and Growth Opportunities Portfolio of Variable
Insurance Products Fund III; Growth II Portfolio and Large Cap
Growth Portfolio of the PBHG Insurance Series Fund, Inc.; and Global
Income Fund and Value Equity Fund of GE Investments Funds, Inc.
(1)(n) Resolution of Board of Directors of Life of Virginia authorizing
additional Investment Subdivisions investing in shares of Capital
Appreciation Portfolio of Janus Aspen Series.
(2) Not Applicable
(3)(a) Underwriting Agreement between The Life Insurance Company of
Virginia and Forth Financial Securities Corporation. 1/
(3)(a)(i)Underwriting Agreement dated April 2, 1996 between The Life
Insurance Company of Virginia and Forth Financial Securities
Corporation. 10/
<PAGE>
(3)(b) Form of Dealer Sales Agreement between Forth Financial Securities
Corporation and Broker-Dealers. 1/
(3)(c) Product Commission Schedule 1/
(4) Not Applicable
(5)(a) Policy Form 1/
(5)(b) Endorsement to Policy 1/
(5)(b)(i)Endorsement providing Partial Withdrawals 2/
(5)(c) Guarantee Account Rider 6/
(6)(a) Certificate of Incorporation of The Life Insurance Company of
Virginia 1/
(6)(b) By-Laws of The Life Insurance Company of Virginia 1/
(7) Not Applicable
(8)(a) Stock Sale Agreement between The Life Insurance Company of Virginia
and Life of Virginia Series Fund, Inc. 1/
(8)(a)(i)Amendments to Stock Sale Agreement between The Life Insurance
Company of Virginia and Life of Virginia Series Fund, Inc. 1/
(8)(b) Participation Agreement among The Life Insurance Company of
Virginia, Variable Insurance Products Fund II and Fidelity
Distributors Corporation. 1/
(8)(b)(i)Amendment to Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia. 10/
(8)(b)(ii)Amendment to Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia. 10/
(8)(c) Participation Agreement Among Variable Insurance Products Fund,
Fidelity Distributors Corporation and The Life Insurance Company of
Virginia. 1/
(8)(d) Agreement between Oppenheimer Variable Account Funds, Oppenheimer
Management Corporation and The Life Insurance Company of Virginia.
1/
(8)(d)(i)Amendment to Agreement between Oppenheimer Variable Account Funds,
Oppenheimer Management Corporation and The Life Insurance Company of
Virginia. 1/
(8)(d)(ii)Assignment and Modification Agreement between Neuberger and Berman
Advisers Management Trust and The Life Insurance Company of
Virginia. 10/
(8)(e) Sales Agreement between Advisers Management Trust and The Life
Insurance Company of Virginia. 1/
(8)(e)(i)Addendum to Sales Agreement between Advisers Management Trust and
The Life Insurance Company of Virginia. 1/
(8)(f) Fund Participation Agreement between Janus Aspen Series and The Life
Insurance Company of Virginia. 4/
(8)(g) Fund Participation Agreement between Insurance Management Series,
Federated Securities Corp., and The Life Insurance Company of
Virginia. 5/
(8)(h) Fund Participation Agreement between The Alger American Fund, Fred
Alger and Company, Inc., and The Life Insurance Company of Virginia.
7/
(8)(i) Fund Participation Agreement between Variable Insurance Products
Fund III and The Life Insurance Company of Virginia.
(8)(j) Fund Participation Agreement between PBHG Insurance Series Fund,
Inc. and The Life Insurance Company of Virginia.
<PAGE>
(9) Services Agreement 1/
(10) Form of Application 1/
(11) Memorandum describing Life of Virginia's Issuance, Transfer,
Redemption and Exchange Procedures for Policies. 10/
2. See Exhibit 1(A)5
3. Consents of the following:
(3)(a) Opinion and Consent of J. Neil McMurdie, Associate Counsel and
Assistant Vice President for Life of Virginia
(3)(b) Consent of Sutherland, Asbill & Brennan, L.L.P., Outside Counsel
(3)(c) Consent of KPMG Peat Marwick LLP
(3)(d) Consent of Ernst & Young LLP
4. Not Applicable
5. Not Applicable
6. Opinion and Consent of Actuary Bruce E. Booker, Vice President and Actuary of
Life of Virginia
7. (a) Power of Attorney 3/
(b) Power of Attorney dated April 2, 1996 10/
(c) Power of Attorney dated April 16, 1997
-------------------------------------------------
1/ Incorporated by reference to Post-Effective Amendment No. 8 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on April 24, 1992, File No.
33-12470.
2/ Incorporated by reference to Post-Effective Amendment No. 9 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on March 25, 1993.
3/ Incorporated by reference to Post-Effective Amendment No. 10 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on April 30, 1993.
4/ Incorporated by reference to Post-Effective Amendment No. 11 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on April 29, 1994.
5/ Incorporated by reference to Post-Effective Amendment No. 12 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on January 3, 1995.
6/ Incorporated by reference to Post-Effective Amendment No. 13 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on March 2, 1995.
7/ Incorporated by reference to Post-Effective Amendment No. 14 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on April 8, 1995.
8/ Incorporated by reference to Post-Effective Amendment No. 15 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on September 28, 1995.
9/ Incorporated by reference to Post-Effective Amendment No. 16 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on October 31, 1995.
10/ Incorporated by reference to Post-Effective Amendment No. 17 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on May 1, 1996.
11/ Incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement of form S-6, for Life of Virginia Separate Account III,
filed with the Securities and Exchange Commission on May 1, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Life of Virginia Separate Account III, certifies that it meets all the
requirements for effectiveness of this registration statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this amendment to
the Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the County of Henrico in the Commonwealth of Virginia, on the 29th day of
April, 1997.
Life of Virginia Separate Account III
(Seal)The Life Insurance Company of Virginia
(Depositor)
Attest: ________________________ By: ____________________________________
Selwyn L. Flournoy, Jr.
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, The Life Insurance
Company of Virginia certifies that it meets the requirements for effectiveness
of this registration statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this amendment to the Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the County of Henrico in the
Commonwealth of Virginia on the 29th day of April, 1997.
(Seal)The Life Insurance Company of Virginia
Attest:_________________________ By: ___________________________________
Selwyn L. Flournoy, Jr.
Senior Vice President
Given under my hand this ______ day of ____________, 19___ in the City/County of
_______________________, Commonwealth of Virginia.
- ---------------------------
Notary Public
- ---------------------------
My Commission Expires
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ RONALD V. DOLAN Director, Chairman of the Board 4/29/97
- ------------------------
Ronald V. Dolan
/s/ PAUL E. RUTLEDGE III Director, President, and 4/29/97
- ------------------------ Chief Executive Officer
Paul E. Rutledge III
/s/ WILLIAM D. BALDWIN Director, Senior Vice President 4/29/97
- ------------------------
William D.Baldwin
Director, Senior Vice President 4/29/97
- ------------------------
Selwyn L. Flournoy, Jr.
/s/ ROBERT A. BOWEN Director, Senior Vice President 4/29/97
- ------------------------ and Director
Robert A. Bowen
/s/ LINDA L. LANAM Director, Senior Vice President 4/29/97
- ------------------------
Linda L. Lanam
/s/ ROBERT D. CHINN Director, Senior Vice President 4/29/97
- ------------------------
Robert D. Chinn
/s/ THOMAS A. BAREFIELD Director, Senior Vice President 4/29/97
- ------------------------
Thomas A. Barefield
/s/ VICTOR C. MOSES Director 4/29/97
- ------------------------
Victor C. Moses
/s/ GEOFFREY S. STIFF Director 4/29/97
- ------------------------
Geoffrey S. Stiff
By _______________________________, pursuant to Power of Attorney executed on
April 16, 1997.
<PAGE>
EXHIBITS
LIFE OF VIRGINIA SEPARATE ACCOUNT III
(1)(m) Resolution of Board of Directors
(1)(n) Resolution of Board of Directors
(8)(i) Fund Participation Agreement
(8)(j) Fund Participation Agreement
3(a) Opinion and Consent of J. Neil McMurdie
Counsel of Life of Virginia
3(b) Consent of Sutherland, Asbill and Brennan, L.L.P.
3(c) Consent of KPMG Peat Marwick LLP
3(d) Consent of Ernst & Young LLP
6 Opinion and Consent of Bruce E. Booker, Actuary
The Life Insurance Company of Virginia
7(c) Power of Attorney
EXHIBIT (1)(m)
Resolution of Board of Directors
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE EXECUTIVE COMMITTEE OF
THE BOARD OF DIRECTORS OF
THE LIFE INSURANCE COMPANY OF VIRGINIA
The undersigned, being all of the members of the Executive Committee of the
Board of Directors of The Life Insurance Company of Virginia, a Virginia
corporation, in lieu of a meeting held for the purpose and pursuant to the
provisions of Section 13.1-685 of the Code of Virginia do hereby approve the
following resolutions:
WHEREAS, The Executive Committee of the Board of Directors of The Life Insurance
Company of Virginia ("Company"), pursuant to the provisions of Section 38.2-3113
of the Code of Virginia, adopted resolutions establishing Life of Virginia
Separate Account II ("Separate Account II") on August 21, 1986; and
WHEREAS, The Executive Committee of the Board of Directors of the Company,
pursuant to the provisions of Section 38.2-3113 of the Code of Virginia, adopted
resolutions establishing Life of Virginia Separate Account III ("Separate
Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish six additional investment subdivisions
of each of the aforesaid separate accounts which will invest in shares of the
Global Income Fund and the Value Equity Fund of the GE Investments Funds, Inc.,
the PBHG Growth II Portfolio and the PBHG Large Cap Growth Portfolio of the PBHG
Insurance Series Fund, Inc., and the Growth and Income Portfolio and the Growth
Opportunities Portfolio of the Fidelity's Variable Insurance Products Fund III;
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create six additional
investment subdivisions of each of the aforementioned separate accounts. Each of
the new subdivisions shall invest in shares of a single mutual fund portfolio as
set forth below:
INVESTMENT SUBDIVISIONS TO BE INVESTED IN:
GE Investment Funds, Inc.
GEI Global Income Global Income Fund
GEI Value Equity Value Equity Fund
PBHG Insurance Series Fund, Inc.
PIL Growth II Growth II Portfolio
PIL Large Cap Growth Large Cap Growth Portfolio
Variable Insurance Products Fund III
FID Growth and Income Growth and Income Portfolio
FID Growth Opportunities Growth Opportunities Portfolio
FURTHER RESOLVED, That the President, or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute whatever agreement or agreements may be necessary or appropriate to
enable such investments to be made, and the Executive Committee hereby ratifies
the action of any such officer in executing any such agreement prior to the date
of these resolutions; and
FURTHER RESOLVED, That the President or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute and deliver such other documents and do such acts and things as each
or any of them may deem necessary or desirable to carry out the foregoing
resolutions and the intent and purposes thereof.
FURTHER RESOLVED, That these resolutions shall take effect as of March 3, 1997.
<PAGE>
/s/WILLIAM D. BALDWIN 2/26/97 /s/ROBERT ALLEN BOWEN 2/26/97
- ---------------------------------- ----------------------------------
William D. Baldwin Date Robert Allen Bowen Date
/s/SELWYN L. FLOURNOY, JR. 2/26/97 /s/H. GAYLORD HODGES, Jr. 2/24/97
- ---------------------------------- ----------------------------------
Selwyn L. Flournoy, Jr. Date H. Gaylord Hodges Date
/s/LINDA L. LANAM 2/26/97 /s/JOHN J. PALMER 2/21/97
- ---------------------------------- ----------------------------------
Linda L. Lanam Date John J. Palmer Date
/s/PAUL E. RUTLEDGE III 2/29/97
- ----------------------------------
Paul E. Rutledge III Date
EXHIBIT (1)(n)
Resolution of Board of Directors
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE EXECUTIVE COMMITTEE OF
THE BOARD OF DIRECTORS OF
THE LIFE INSURANCE COMPANY OF VIRGINIA
The undersigned, being all of the members of the Executive Committee of the
Board of Directors of The Life Insurance Company of Virginia, a Virginia
corporation, in lieu of a meeting held for the purpose and pursuant to the
provisions of Section 13.1-685 of the Code of Virginia do hereby approve the
following resolutions:
WHEREAS, The Executive Committee of the Board of Directors of The Life Insurance
Company of Virginia ("Company"), pursuant to the provisions of Section 38.2-3113
of the Code of Virginia, adopted resolutions establishing Life of Virginia
Separate Account II ("Separate Account II") on August 21, 1986; and
WHEREAS, The Executive Committee of the Board of Directors of the Company,
pursuant to the provisions of Section 38.2-3113 of the Code of Virginia, adopted
resolutions establishing Life of Virginia Separate Account III ("Separate
Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish one additional investment subdivision
of each of the aforesaid separate accounts which will invest in shares of the
Capital Appreciation Portfolio of the Janus Aspen Series;
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create one additional
investment subdivision of each of the aforementioned separate accounts. Each of
the new subdivisions shall invest in shares of a single mutual fund portfolio as
set forth below:
INVESTMENT SUBDIVISIONS: TO BE INVESTED IN:
Janus Aspen Series-
JAN Capital Appreciation Capital Appreciation Portfolio
FURTHER RESOLVED, That the President, or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute whatever agreement or agreements may be necessary or appropriate to
enable such investments to be made, and the Executive Committee hereby ratifies
the action of any such officer in executing any such agreement prior to the date
of these resolutions; and
FURTHER RESOLVED, That the President or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute and deliver such other documents and do such acts and things as each
or any of them may deem necessary or desirable to carry out the foregoing
resolutions and the intent and purposes thereof.
FURTHER RESOLVED, That these resolutions shall take effect as of April 1, 1997.
/s/WILLIAM D. BALDWIN 2/26/97 /s/ROBERT ALLEN BOWEN 2/26/97
- ---------------------------------- ---------------------------------
William D. Baldwin Date Robert Allen Bowen Date
/s/SELWYN L. FLOURNOY, JR. 2/26/97 /s/H. GAYLORD HODGES, Jr. 2/24/97
- ---------------------------------- ---------------------------------
Selwyn L. Flournoy, Jr. Date H. Gaylord Hodges Date
/s/LINDA L. LANAM 2/26/97 /s/JOHN J. PALMER 2/21/97
- ---------------------------------- ---------------------------------
Linda L. Lanam Date John J. Palmer Date
/s/PAUL E. RUTLEDGE III 2/29/97
- ----------------------------------
Paul E. Rutledge III Date
EXHIBIT 3(a)
Opinion and Consent Counsel
<PAGE>
April 23, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
With reference to Post-Effective Amendment No. 18 to Registration Statement
33-12470 on Form S-6, filed by The Life Insurance Company of Virginia and Life
of Virginia Separate Account III with the Securities and Exchange Commission
covering flexible premium variable life insurance policies, I have examined such
documents and such law as I considered necessary and appropriate, and on the
basis of such examination, it is my opinion that:
1. The Life Insurance Company of Virginia is duly organized and validly
existing under the laws of the Commonwealth of Virginia and has been duly
authorized to issue individual flexible premium variable life insurance
policies by the Bureau of Insurance of the State Corporation Commission of
the Commonwealth of Virginia.
2. Life of Virginia Separate Account III is a duly authorized and existing
separate account established pursuant to the provisions of Section
38.2-3113 of the Code of Virginia.
3. The flexible premium variable life insurance policies, when issued as
contemplated by said Form S-6 Registration Statement, will constitute
legal, validly issued and binding obligations of The Life Insurance
Company of Virginia.
I hereby consent to the use of this letter, or copy thereof, as an exhibit to
Post Effective Amendment No. 18 to the Registration Statement on Form S-6 (File
Number 33-12470) and the reference to me under the caption "Legal Matters" in
the Statement of Additional Information contained in said Post-Effective
Amendment.
Sincerely,
/s/J. NEIL MCMURDIE
- -------------------
J. Neil McMurdie
Associate Counsel and
Assistant Vice President
Law Department
EXHIBIT 3(b)
Consent of Sutherland, Asbill & Brennan, L.L.P.
<PAGE>
[Sutherland, Asbill & Brennan, L.L.P. letterhead]
Atlanta Austin New York Washington
1275 Pennsylvania Avenue, N.W. Tel: (202) 383-0100
Washington, D.C. 20004-2404 Tel: (202) 637-3593
April 29, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
RE: Life of Virginia Separate Account III
Gentlemen:
We hereby consent to the use of our name under the caption "Legal Matters"
in the Prospectus filed as part of the Post-Effective Amendment No. 18 to the
Registration Statement on Form S-6 filed by Life of Virginia Separate Account
III for certain variable life insurance contracts (File No. 33-12470). In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
/s/STEPHEN E. ROTH
------------------
By Stephen E. Roth
EXHIBIT 3(c)
Consent of Auditors
<PAGE>
[Letterhead of KPMG Peat Marwick LLP, Independent Auditors
The Board of Directors
The Life Insurance Company of Virginia
Life of Virginia Separate Account III
We consent to the reference to our firm under the caption "Experts" and to the
use of our report with respect to the consolidated financial statements of the
Life Insurance Company of Virginia and subsidiaries as of December 31, 1996 and
for the nine month period ended December 31, 1996 and the preacquisition three
month period ended March 31, 1996, dated January 15, 1997, and our report with
respect to the financial statements of Life of Virginia Separate Account III as
of December 31, 1996 and for the year or periods then ended, dated, February 11,
1997, in Amendment No. 18 to the Registration Statement (Form S-6 No. 33- 12470)
and related Prospectus of Life of Virginia Separate Account III, for the
registration of an indefinite amount of securities.
Richmond, Virginia
April 25, 1997
[LETTERHEAD OF ERNST & YOUNG LLP]
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and "Change
in Auditors" and to the use of our reports dated February 8, 1996, with respect
to the consolidated financial statements and the related financial statement
schedules of The Life Insurance Company of Virginia and subsidiaries and the
Life of Virginia Separate Account III, in Amendment No. 18 to the Registration
Statement (Form S-6 No. 33-12470) and related Prospectus of Life of Virginia
Separate Account III for the registration of an indefinite amount of securities.
/s/ Ernst & Young LLP
Richmond, Virginia
April 25, 1997
EXHIBIT 6
Opinion and Consent of Bruce E. Booker
Vice President and Actuary of Life of Virginia
<PAGE>
[Letterhead of Life of Virginia]
April 28, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Gentlemen:
This opinion is furnished in connection with the registration by The Life
Insurance Company of Virginia of a flexible premium variable life insurance
policy ("Policies") under the Securities Act of 1933. The prospectus included in
Post-Effective Amendment No. 18 to Registration Statement No. 33-12470 on Form
S-6 describes the Policy. I have provided actuarial advice concerning the
preparation of the Registration Statement and the preparation of the Policy form
described in the Registration Statement and Exhibits thereto.
In my professional opinion, the illustration of death benefits and cash values
included in the Appendix of the prospectus, based on the assumptions stated in
the illustrations, are consistent with the provisions of the Policy. The rate
structure of the Policy has not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations, appear more
favorable to a prospective purchaser of a Policy for male age 55 than to
prospective purchasers of Policies for males at other ages or underwriting
classes or for females.
Additionally, the prospectus information contained in the examples of the death
benefit options, based on the assumptions stated in those examples, are
consistent with the provisions of the policy.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus.
Sincerely,
/s/BRUCE E. BOOKER
- ------------------
Bruce E. Booker, FSA, MAAA
Vice President & Actuary
EXHIBIT (8)(i)
Participation Agreement between Variable Insurance Products Fund III and The
Life Insurance Company of Virginia.
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
THE LIFE INSURANCE COMPANY OF VIRGINIA
THIS AGREEMENT, made and entered into as of the 15th day of April, 1997
by and among THE LIFE INSURANCE COMPANY OF VIRGINIA, (hereinafter the
"Company"), a Virginia corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is or will, before it purchases any Fund shares,
be a duly organized, validly existing segregated asset account, established by
resolution of the Board of Directors of the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
<PAGE>
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their
<PAGE>
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 38.2-3113 of the Virginia Insurance Code and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly
<PAGE>
authorized for issuance and sold in compliance with the laws of the State of
Virginia and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Virginia and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Virginia to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Virginia and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
<PAGE>
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Virginia and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and will be covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimum coverage as required currently of entities
subject to the requirements of Rule 17g-1 of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall
<PAGE>
be borne by the Fund. If the Company chooses to receive camera-ready film in
lieu of receiving printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Fund's per unit cost of typesetting and printing the Fund's prospectus. The
same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in a particular separate account in the same proportion as Fund shares of such
portfolio for which instructions have been received in that separate account, so
long as and to the extent that the Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Fund calculates voting privileges
in a manner consistent with the standards set forth on Schedule B attached
hereto and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
<PAGE>
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material. The Fund or its designee
will use reasonable efforts to review materials within a shorter time period if
the Company makes a request for expedited review in a letter accompanying such
materials.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales
<PAGE>
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
<PAGE>
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all
<PAGE>
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
<PAGE>
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
<PAGE>
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful conduct of
the Fund, Adviser or Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund;
or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this
<PAGE>
Agreement by the Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
<PAGE>
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements specified
in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of an Account,
or the sale or acquisition of shares of the Fund.
<PAGE>
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by ninety (90)
days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or
<PAGE>
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
<PAGE>
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Attention: Thomas A. Barefield, Senior Vice President
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may
<PAGE>
request in order to ascertain whether the insurance operations of the Company
are being conducted in a manner consistent with the California Insurance
Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared for filing with
the Virginia Bureau of Insurance under statutory accounting principles) and
annual report (prepared under generally accepted accounting principles ("GAAP"),
if any), as soon as practical and in any event within 120 days after the end of
each fiscal year;
(b) the Company's quarterly statutory
statements, as soon as practical and in any event within 45 days after the end
of each quarterly period:
(c) any registration statement (without
exhibits) and financial reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as soon as practical after
the filing thereof;
(d) any other report submitted to the Company by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after the receipt
thereof. However, the Company shall be under no obligation to provide any such
reports that contain privileged or confidential information.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: _________________________
Name: _________________________
Title: _________________________
VARIABLE INSURANCE PRODUCTS FUND III
By: ________________________
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _______________________
Paul J. Hondros
President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Account
Life of Virginia Separate Account II P 1096 1/87
(August 21, 1986)
Life of Virginia Separate Account III P 1097 1/87
(February 10, 1987)
Life of Virginia Separate Account 4 P 1098 A 8/87
(August 18, 1987) P 1140 10/90
P 1142 4/94
P 1142 N 4/94
P 1143 4/94
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder meeting to
facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as of
the Record Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
<PAGE>
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall produce
and personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card before it
is printed. Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund) (This and related steps
may occur later in the chronological process due to possible
uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document). Printed and
folded notices and statements will be sent to Company for insertion into
envelopes (envelopes and return envelopes are provided and paid for by the
Insurance Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly as
possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place in
another department or another vendor depending on process used. An often used
procedure is to sort Cards on arrival by proposal into vote categories of all
yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
<PAGE>
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and is the
signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new Card
and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards that
have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the Cards
as they first arrive into categories depending upon their vote; an estimate of
how the vote is progressing may then be calculated. If the initial estimates and
the actual vote do not coincide, then an internal audit of that vote should
occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated in
terms of a percentage and the number of shares.) Fidelity Legal must review and
approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the vote
in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. Fidelity Legal
will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise necessary
for legal, regulatory, or accounting purposes, Fidelity Legal will be permitted
reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Fidelity Variable Insurance Products Fund:
<PAGE>
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio
Contrafund Portfolio
G.E. Investments Funds, Inc.
Money Market Fund
Government Securities Fund
Common Stock Index Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Value Equity Fund
Global Income Fund
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Multiple Strategies Fund
Janus Aspen Series
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
International Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Capital Appreciation Portfolio
Federated Insurance Series
Federated Utility Fund II
Federated High Income Bond Fund II
Federated American Leaders Fund II
The Alger American Fund:
Alger American Growth Portfolio
Alger American Small Capitalization Portfolio
Fidelity Advisor Funds
Equity Income Fund
Equity Growth Fund
Growth Opportunities Fund
Income and Growth Fund
PBHG Insurance Series Fund, Inc.
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
EXHIBIT (8)(j)
Participation Agreement between PBHG Insurance Series Fund, Inc. and The Life
Insurance Company of Virginia.
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 1st day of May, 1997, by and between
the PBHG INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation, PILGRIM
BAXTER & ASSOCIATES, LTD. ("Adviser"), a Delaware corporation, THE LIFE
INSURANCE COMPANY OF VIRGINIA ("LIFE COMPANY"), a life insurance company
organized under the laws of the Commonwealth of Virginia.
WHEREAS, FUND is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"`40 Act"), as an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several
Portfolios ("Portfolios"), with those currently available being listed on
Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for
certain variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the FUND to be sold to and held by Variable
Contract separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having FUND as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and as a broker-dealer under the
Securities Exchange Act of 1934, as amended and acts as the FUND's investment
adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE
COMPANY, FUND, and ADVISER agree as follows:
<PAGE>
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for investment
of purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its designee
of the order for the shares of FUND. For purposes of this Section 1.2, LIFE
COMPANY shall be the designee of FUND for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and FUND receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as FUND and LIFE COMPANY may agree in writing) of such
order by 8:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which FUND calculates its net asset value pursuant to the rules of the
SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of FUND held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by FUND or its
designee of the request for redemption, in accordance with the provisions of
this agreement and FUND's Registration Statement. For purposes of this Section
1.3, LIFE COMPANY shall be the designee of FUND for receipt of requests for
redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by FUND; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and FUND receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as FUND and LIFE
COMPANY may agree in writing) of such request for redemption by 8:30 a.m. New
York time on the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. FUND shall notify LIFE
COMPANY or its designee of the number of shares so issued as payment of such
dividends and distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 7:00 p.m. New York time.
If FUND provides LIFE COMPANY with incorrect share net asset value information
through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the Separate
Accounts, shall be entitled to an adjustment to the number of shares purchased
or redeemed to reflect the correct share net asset value. Any error in the
calculation of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to LIFE COMPANY.
<PAGE>
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of FUND shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to FUND by LIFE COMPANY by 8:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, FUND shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require FUND to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within three Business Days or such longer period permitted by the '40 Act or the
rules, orders or regulations thereunder and FUND shall notify the person
designated in writing by LIFE COMPANY as the recipient for such notice of such
delay by 3:00 p.m. New York Time the same Business Day that LIFE COMPANY
transmits the redemption order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be
sold only to Participating Insurance Companies which have agreed to participate
in FUND to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
Portfolios of FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of the shares of or liquidate any Portfolio
of FUND if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Directors of the FUND
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry
only. Stock certificates will not be issued to LIFE COMPANY or the Separate
Accounts. Shares ordered from Portfolio will be recorded in appropriate book
entry titles for the Separate Accounts.
<PAGE>
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the Commonwealth
of Virginia and that it has legally and validly established each Separate
Account as a segregated asset account under such laws, and that Forth Financial
Securities Corporation, the principal underwriter for the Variable Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or,
prior to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the `40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts
will be registered under the Securities Act of 1933 (the "`33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts
are currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and
sold pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the `40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the `33 Act and the `40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the Code,
and the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
<PAGE>
2.7 FUND represents and warrants that each Portfolio invested in by
the Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8. ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND. FUND
shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE
COMPANY, free of charge, with as many copies of the current prospectus for the
shares of the Portfolios as LIFE COMPANY may reasonably request for distribution
to existing Variable Contract owners whose Variable Contracts are funded by such
shares. FUND or its designee shall provide LIFE COMPANY, at LIFE COMPANY's
expense, with as many copies of the current prospectus for the shares as LIFE
COMPANY may reasonably request for distribution to prospective purchasers of
Variable Contracts. If requested by LIFE COMPANY in lieu thereof, FUND or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type or, at the request of LIFE COMPANY, as a
diskette in the form sent to the financial printer) and other assistance as is
reasonably necessary in order for the parties hereto once a year (or more
frequently if the prospectus for the shares is supplemented or amended) to have
the prospectus for the FUND shares and the prospectuses for other funds serving
as underlying investments for the Variable Contract printed together in one
document. The expenses of such printing will be apportioned between (a) LIFE
COMPANY and (b) FUND in proportion to the number of pages of the FUND's
prospectus and the total number of pages of prospectus of other underlying
funds, taking account of other relevant factors affecting the expense of
printing, such as covers, columns, graphs and charts; FUND to bear the cost of
printing the FUND's prospectus portion of such document for distribution only to
owners of existing Variable Contracts funded by the FUND's shares and LIFE
COMPANY to bear the remaining expense; provided, however, LIFE COMPANY shall
bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Variable
Contracts not funded by the FUND's shares. In the event that LIFE COMPANY
requests that FUND or its designee provide FUND's prospectus in a "camera ready"
or diskette format, FUND shall be responsible for providing the prospectus in
<PAGE>
the format in which it is accustomed to formatting prospectuses and shall bear
the expense of providing the prospectus in such format (e.g. typesetting
expenses), and LIFE COMPANY shall bear the expense of adjusting or changing the
format to conform with any of its prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy
of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all amendments
or supplements to any of the above that relate to the Portfolios promptly after
the filing of each such document with the SEC or other regulatory authority.
LIFE COMPANY will provide FUND with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly after
the filing of each such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to
FUND and ADVISER, each piece of sales literature or other promotional material
in which FUND or ADVISER is named, at least ten (10) Business Days prior to its
intended use. No such material will be used if FUND or ADVISER objects to its
use in writing within five (5) Business Days after receipt of such material.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to
LIFE COMPANY, each piece of sales literature or other promotional material in
which LIFE COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if LIFE
COMPANY objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any
information or make any representations on behalf of LIFE COMPANY or concerning
LIFE COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by LIFE COMPANY or its designee, except with
the prior written permission of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning FUND
other than the information or representations contained in a registration
statement or prospectus for FUND, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by FUND or its designee, except with the
prior written permission of FUND.
<PAGE>
4.5 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under National Association of Securities Dealers, Inc.
("NASD") rules, the `40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application
with the SEC to request an order granting relief from various provisions of the
'40 Act and the rules thereunder to the extent necessary to permit FUND shares
to be sold to and held by Variable Contract separate accounts of both affiliated
and unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND and
each Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 5. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 5, the
conditions and undertakings imposed by the Exemptive Order shall govern this
Agreement and the parties hereto agree to amend this Agreement consistent with
the Exemptive Order. The Fund will not enter into a participation agreement with
any other Participating Insurance Company unless it imposes the same conditions
and undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board of Directors of the Fund (the "Board") will monitor
FUND for the existence of any material irreconcilable conflict between the
interests of Variable Contract owners of all separate accounts investing in FUND
and between the interests of Qualified Plan Participants, if any, and Variable
Contract Owners investing in Fund. An irreconcilable material conflict may arise
for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by Variable Contract owners,
Qualified Plans or Qualified Plan Participants, if any; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of Variable
Contract owners and (g) if applicable, a decision by a Qualified Plan to
disregard the voting instructions of plan participants.
<PAGE>
5.3 LIFE COMPANY will report any potential or existing conflicts to
the Board. LIFE COMPANY will be responsible for assisting the Board in carrying
out its duties in this regard by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. The
responsibility includes, but is not limited to, an obligation by the LIFE
COMPANY to inform the Board whenever it has determined to disregard Variable
Contract owner voting instructions. These responsibilities of LIFE COMPANY will
be carried out with a view only to the interests of the Variable Contract
owners.
5.4 If a majority of the Board or majority of its disinterested
Directors, determines that a material irreconcilable conflict exists affecting
LIFE COMPANY, LIFE COMPANY, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested
Directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including; (a) withdrawing the assets
allocable to some or all of the Separate Accounts from FUND or any Portfolio
thereof and reinvesting those assets in a different investment medium, which may
include another Portfolio of FUND, or another investment company; (b) submitting
the question as to whether such segregation should be implemented to a vote of
all affected Variable Contract owners and as appropriate, segregating the assets
of any appropriate group (i.e variable annuity or variable life insurance
Contract owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Variable Contract owners
the option of making such a change; and (c) establishing a new registered
management investment company (or series thereof) or managed separate account.
If a material irreconcilable conflict arises because of LIFE COMPANY's decision
to disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, LIFE COMPANY
may be required, at the election of FUND, to withdraw the Separate Account's
investment in FUND, and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take such remedial action shall be carried out
with a view only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the
disinterested members of the Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict but in no event
will FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations under the Exemptive Order. Such
reports, materials, and data shall be submitted more frequently if deemed
appropriate by the Board.
<PAGE>
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE COMPANY will vote shares for which it
has not received timely voting instructions, as well as shares it owns, in the
same proportion as its votes those shares for which it has received voting
instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
if Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
`40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Exemptive Order, then FUND, and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule 6e-2
and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
Rules are applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to
indemnify and hold harmless FUND, ADVISER and each of their directors,
principals, officers, employees and agents and each person, if any, who controls
FUND or ADVISER within the meaning of Section 15 of the `33 Act (collectively,
the "Indemnified Parties" for purposes of this Article VII) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of LIFE COMPANY, which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of FUND's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus
or sales literature for the Variable Contracts or
contained in the Variable Contracts (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity
with information furnished to LIFE COMPANY by or on
behalf of FUND for use in the registration statement
<PAGE>
or prospectus for the Variable Contracts or in the
Variable Contracts or sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or
FUND shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration statement,
prospectus or sales literature of FUND not supplied by
LIFE COMPANY, or persons under its control) or wrongful
conduct of LIFE COMPANY or persons under its control,
with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such statement
or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to FUND for inclusion therein by or on behalf
of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to
provide substantially the services and furnish the
materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in
this Agreement or arise out of or result from any other
material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from LIFE COMPANY to such party of LIFE
<PAGE>
COMPANY's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 Indemnification by ADVISER. ADVISER agrees to indemnify and hold
harmless LIFE COMPANY and each of its directors, officers, employees, and agents
and each person, if any, who controls LIFE COMPANY within the meaning of Section
15 of the `33 Act (collectively, the "Indemnified Parties" for the purposes of
this Article VII) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of ADVISER which
consent shall not be unreasonably withheld) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of FUND's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or
prospectus or sales literature of FUND (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, provided
that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or
omission or such alleged statement or omission was
made in reliance upon and in conformity with
information furnished to ADVISER or FUND by or on
behalf of LIFE COMPANY for use in the registration
statement or prospectus for FUND or in sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of
the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Contracts not supplied by ADVISER or persons
under its control) or wrongful conduct of FUND or
ADVISER or persons under their control, with respect
to the sale or distribution of the Variable Contracts
or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales
literature covering the Variable Contracts, or any
amendment thereof or supplement thereto or the
omission or alleged omission to state therein a
material fact required to be stated therein or
<PAGE>
necessary to make the statements therein not
misleading, if such statement or omission or such
alleged statement or omission was made in reliance
upon and in conformity with information furnished to
LIFE COMPANY for inclusion therein by or on behalf of
FUND; or
(d) arise as a result of (i) a failure by FUND to provide
substantially the services and furnish the materials
under the terms of this Agreement; or (ii) a failure
by a Portfolio(s) invested in by the Separate Account
to comply with the diversification requirements of
Section 817(h) of the Code; or (iii) a failure by a
Portfolio(s) invested in by the Separate Account to
qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of
any representation and/or warranty made by ADVISER or
FUND in this Agreement or arise out of or result from
any other material breach of this Agreement by
ADVISER or FUND.
7.5 ADVISER shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
7.6 ADVISER shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified ADVISER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify ADVISER of any such claim shall not
relieve ADVISER from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, ADVISER shall be entitled to participate at its own expense
in the defense thereof. ADVISER also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from ADVISER to such party of ADVISER's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and ADVISER will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the provisions
herein.
<PAGE>
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or FUND at any time
from the date hereof upon six (6) months' prior
written notice, unless a shorter time is agreed to by
the parties;
(b) At the option of LIFE COMPANY, if FUND shares are not
reasonably available to meet the requirements of the
Variable Contracts as determined by LIFE COMPANY.
Prompt notice of election to terminate shall be
furnished by LIFE COMPANY, said termination to be
effective ten days after receipt of notice unless
FUND makes available a sufficient number of shares to
reasonably meet the requirements of the Variable
Contracts within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution
of formal proceedings against FUND by the SEC, the
NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in LIFE COMPANY's reasonable judgment,
materially impair FUND's ability to meet and perform
FUND's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
LIFE COMPANY with said termination to be effective
upon receipt of notice;
(d) At the option of FUND, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the
NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in FUND's reasonable judgment, materially
impair LIFE COMPANY's ability to meet and perform its
obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by FUND with
said termination to be effective upon receipt of
notice;
(e) In the event FUND's shares are not registered, issued
or sold in accordance with applicable state or
federal law, or such law precludes the use of such
shares as the underlying investment medium of
Variable Contracts issued or to be issued by LIFE
COMPANY. Termination shall be effective upon such
occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease
to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code, or if FUND
reasonably believes that the Variable Contracts may
fail to so qualify. Termination shall be effective
upon receipt of notice by LIFE COMPANY;
<PAGE>
(g) At the option of LIFE COMPANY, upon FUND's breach of
any material provision of this Agreement, which
breach has not been cured to the satisfaction of LIFE
COMPANY within ten days after written notice of such
breach is delivered to FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of
any material provision of this Agreement, which
breach has not been cured to the satisfaction of FUND
within ten days after written notice of such breach
is delivered to LIFE COMPANY;
(i) At the option of FUND, if the Variable Contracts are
not registered, issued or sold in accordance with
applicable federal and/or state law. Termination
shall be effective immediately upon such occurrence
without notice;
(j) In the event this Agreement is assigned without the
prior written consent of LIFE COMPANY, FUND, and
ADVISER, termination shall be effective immediately
upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, the FUND and the ADVISER at the option of LIFE COMPANY shall
continue to make available additional shares of the Fund pursuant to the terms
of this Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of Existing Contracts or LIFE
COMPANY, whichever shall have the legal authority to do so, shall be permitted
to reallocate investment in the FUND, redeem investments in the FUND and/or
invest in the FUND upon the making of additional premium payments under the
Existing Contracts. The parties agree that this Section 8.3 shall not apply to
any terminations under Article V of this Agreement.
8.4 In the event of a termination of this Agreement pursuant to
Section 8.2 hereof, LIFE COMPANY, as promptly as practicable under the
circumstances, shall notify FUND and ADVISER that it wishes to exercise the
option afforded by Section 8.3 hereof.
8.5 Except as necessary to implement Variable Contract owner
initiated transactions, or as required by state insurance laws or regulations or
as permitted by order of the Securities and Exchange Commission, LIFE COMPANY
shall not redeem the shares attributable to the Variable Contracts (as opposed
to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified FUND of its intention to do so.
<PAGE>
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to FUND:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to the ADVISER:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to LIFE COMPANY:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Attn: Thomas A. Barefield
With a copy to:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Attn: J. Neil McMurdie, Esq.
Notice shall be deemed given on the date of receipt by the addressee
as evidenced by the return receipt.
<PAGE>
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any orders of
the SEC granting exemptive relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Directors or officers of FUND or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
10.8 No provision of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
FUND, ADVISER and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
<PAGE>
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Brian F. Berrenak
---------------------
Name: Brian F. Berrenak
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/ Eric C. Schneider
---------------------
Name: Eric C. Schneider
Title: CFO
THE LIFE INSURANCE COMPANY
OF VIRGINIA
By: /s/ Thomas A. Barefield
-----------------------
Name: Thomas A. Barefield
Title: Sr. Vice President
<PAGE>
APPENDIX A
PBHG Insurance Series Fund, Inc. - Portfolios
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
<PAGE>
APPENDIX B
Separate Accounts Selected Portfolios
- ----------------- -------------------
Life of Virginia Separate Account II PBHG Growth II
Life of Virginia Separate Account III PBHG Large Cap Growth
Life of Virginia Separate Account 4
Life of Virginia Separate Account 5
EXHIBIT 14(c)
Power of Attorney
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
POWER OF ATTORNEY
The Life Insurance Company of Virginia, a Virginia Corporation, (the "Company")
and each of its undersigned officers and directors, hereby nominate and appoint
Paul E. Rutledge III, Selwyn L. Flournoy, Jr., and J. Neil McMurdie, (with full
power to each of them to act alone) as his/her true and lawful attorney-in-fact
and agent, for him/her and in his/her name and place in any and all capacities,
to execute and sign all Registration Statements of the Company filed with the
Securities and Exchange Commission on form N-4 under the Securities Act of 1933
and the Investment Company Act of 1940 and on form S-6 under the Securities Act
of 1933 (including any and all pre-and post-effective amendments and any
supplements thereto), and to file with the Securities and Exchange Commission
all such Registration Statements, amendments and any supplements thereto, as
well as any and all exhibits and other documents necessary or desirable to such
Registration Statement, amendment or supplement, granting to such attorneys and
each of them, full power and authority to do and perform each and every act
necessary and/or appropriate as fully and with all intents and purposes as the
Company itself and the undersigned officers and directors themselves might or
could do.
IN WITNESS WHEREOF, THE LIFE INSURANCE COMPANY OF VIRGINIA has
caused this power of attorney to be executed in its full name and by its
President and attested by its Secretary, and the undersigned officers and
directors have each executed such power of attorney, on this 16th day of April,
1997.
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: /s/PAUL E. RUTLEDGE III
-------------------------------------
Paul E. Rutledge III
President and Chief Executive Officer
ATTEST:
/s/LINDA L. LANAM
- -------------------------
Linda L. Lanam, Secretary
(Signatures Continue on Next Page)
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Name Title
/s/RONALD V. DOLAN Director and Chairman
- -------------------------
Ronald V. Dolan
/s/PAUL E. RUTLEDGE III Director, President and Chief Executive Officer
- ------------------------- (Principal Executive Officer)
Paul E. Rutledge III
/s/SELWYN L. FLOURNOY, JR. Director and Senior Vice President
- -------------------------
Selwyn L. Flournoy, Jr. (Principal Financial and Principal Accounting
Officer)
/s/WILLIAM D. BALDWIN Director and Senior Vice President
- -------------------------
William D. Baldwin
/s/ROBERT A. BOWEN Director and Senior Vice President
- -------------------------
Robert A. Bowen
/s/LINDA L. LANAM Director and Senior Vice President
- -------------------------
Linda L. Lanam
/s/VICTOR C. MOSES Director
- -------------------------
Victor C. Moses
/s/GEOFFREY S. STIFF Director
- -------------------------
Geoffrey S. Stiff
/s/THOMAS A. BAREFIELD Director and Senior Vice President
- -------------------------
Thomas A. Barefield
/s/ROBERT D. CHINN Director and Senior Vice President
- -------------------------
Robert D. Chinn
