As Filed With the Securities and Exchange Commission on May 1, 1998
Registration No. 33-12470
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 19
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
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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)
<TABLE>
<S> <C>
Linda L. Lanam, Esq. Copy to:
Senior Vice President, General Counsel & Secretary Stephen E. Roth, Esq.
The Life Insurance Company of Virginia Sutherland, Asbill & Brennan LLP
6610 West Broad Street, 1275 Pennsylvania Ave., N.W.
Richmond, Virginia 23230 Washington, D.C. 20004-2415
(Name and Address of Agent for Service of Process)
</TABLE>
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It is proposed that this filing will become effective:
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1998 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
Title of Securities Being Registered: Interest in a separate account under
Flexible Premium Variable Life Insurance Policies
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<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS
IN FORM N-8B-2 AND THE PROSPECTUS
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ITEM NO. OF FORM N-8B-2 CAPTION IN PROSPECTUS
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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
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. OF FORM N-8B-2 CAPTION IN PROSPECTUS
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<S> <C>
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
</TABLE>
<PAGE>
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
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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 ten such Funds available
under this Policy: the Janus Aspen Series, 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
Federated Insurance Series, the Alger American Fund, PBHG Insurance Series Fund,
Inc. and Goldman Sachs Variable Insurance Trust (collectively referred to as the
"Funds"). The Funds, their investment managers and their currently available
portfolios are 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, 1998.
1
<PAGE>
Janus Aspen Series, which is managed by Janus Capital Corporation, has
seven portfolios that are 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
Variable Insurance Products Fund, which is managed by Fidelity Management
& Research Company, has three portfolios that are available to Policyowners
through Separate Account III:
VIP Equity-Income Portfolio
VIP Overseas Portfolio
VIP Growth Portfolio
Variable Insurance Products Fund II, which is managed by Fidelity
Management & Research Company, has two portfolios that are available to
Policyowners through Separate Account III: VIP II Asset Manager Portfolio and
VIP II Contrafund Portfolio.
Variable Insurance Products Fund III, which is managed by Fidelity
Management & Research Company, has two portfolios that are available to
Policyowners through Separate Account III: VIP III Growth & Income Portfolio and
VIP III Growth Opportunities Portfolio.
GE Investments Funds, Inc, which is managed by GE Investment Management,
Inc. has nine portfolios that are available to Policyowners through Separate
Account III:
S&P 500 Index Fund
Money Market Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Global Income Fund
Value Equity Fund
Income Fund
U.S. Equity Fund (not available in California)
Oppenheimer Variable Account Funds, which is managed by OppenheimerFunds
Inc., has five portfolios that are available to Policyowners through Separate
Account III:
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Aggressive Growth Fund
Oppenheimer Growth Fund
Oppenheimer Multiple Strategies Fund
Federated Insurance Series, which is managed by Federated Advisers, has
three portfolios that are available to Policyowners through Separate Account
III:
Federated American Leaders Fund II
Federated Utility Fund II
Federated High Income Bond Fund II
The Alger American Fund, which is managed by Fred Alger Management, Inc.,
has two portfolios that are available to Policyowners through Separate Account
III: Alger American Growth Portfolio and Alger American Small Capitalization
Portfolio.
PBHG Insurance Series Fund, In., which is managed by Pilgrim Baxter &
Associates, Ltd., has two portfolios that are available to Policyowners through
Separate Account III: Growth II Portfolio and Large Cap Growth Portfolio.
2
<PAGE>
Goldman Sachs Variable Insurance Trust, which is managed by Goldman Sachs
Asset Management has two portfolios that are available to policyowners through
Separate Account III: Goldman Sachs Growth and Income Fund and Goldman Sachs Mid
Cap Equity Fund. Neither of these funds are available to policyowners in the
state of California.
The accompanying prospectuses for the Funds describe the investment
objectives and the risks of each of the Funds' portfolios.
During the Initial Investment Period, all net 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 net premiums will be
allocated in accordance with Policyowner instructions.
It may not be advantageous to purchase a Policy either as a replacement for
another type of life insurance policy, or to obtain additional insurance
protection if another flexible premium variable life insurance policy is owned.
3
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TABLE OF CONTENTS
Page
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DEFINITIONS 6
SUMMARY 8
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 11
Values and Surrender Values
Fund Annual Expenses 12
LIFE OF VIRGINIA AND SEPARATE 13
ACCOUNT III
The Life Insurance Company of Virginia 13
IMSA Disclosure 14
General Electric Company 14
Separate Account III 14
Addition, Deletion, or Substitution of 14
Investments
THE FUNDS 15
Janus Aspen Series 15
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
Federated Insurance Series 18
The Alger American Fund 18
PBHG Insurance Series Fund, Inc. 19
Goldman Sachs Variable Insurance Trust 19
Resolving Material Conflicts 19
Termination of Participation Agreements 20
THE POLICY 20
Purpose of the Policy 20
Purchasing a Policy 21
Dates Under the Policy 21
Payments Made Under the Policy 21
Preferred Funding Risk Class 22
Allocation of Premiums 23
Policy Lapse and Reinstatement 23
Examination of Policy (Refund 24
Privilege)
Exchange Privilege 24
POLICY RIGHTS AND BENEFITS 24
Cash Value Benefits 24
Transfers 26
Telephone Transfers 26
Dollar-Cost Averaging 26
Portfolio Rebalancing 27
Powers of Attorney 27
Loan Benefits 27
Death Benefit 28
Page
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Changes in the Specified Amount 29
Benefits at Maturity 30
Optional Payment Plans 30
Specialized Uses of the Policy 31
CHARGES AND DEDUCTIONS 31
Monthly Deduction 31
Charges Against Separate Account III 33
Surrender Charge 33
Partial Withdrawal Charge 34
Transfer Charge 34
Other Charges 34
Reduction of Charges for Group Sales 34
GENERAL PROVISIONS 35
Postponement of Payment 35
Limits on Contesting the Policy 35
The Contract 35
Misstatement of Age or Sex 35
Suicide 36
Statement of Values 36
Nonparticipating 36
Written Notice 36
The Owner 36
The Beneficiary 36
Changing the Owner or Beneficiary 36
Using the Policies as Collateral 36
Optional Insurance Benefits 36
Reinsurance 37
DISTRIBUTION OF THE POLICY 37
FEDERAL TAX MATTERS 37
Tax Status of the Policy 37
Tax Treatment of Policy Proceeds 38
Tax Treatment of Policy Loans and
Other Distributions Under Certain
Policies 38
Taxation of the Company 39
Income Tax Withholding 39
Other Considerations 40
LEGAL DEVELOPMENTS REGARDING
EMPLOYMENT-RELATED BENEFIT
PLANS 40
VOTING RIGHTS 40
STATE REGULATION OF LIFE OF
VIRGINIA 40
EXECUTIVE OFFICERS AND
DIRECTORS OF LIFE OF VIRGINIA 41
LEGAL MATTERS 41
LEGAL PROCEEDINGS 41
YEAR 2000 COMPLIANCE 42
EXPERTS 42
CHANGE IN AUDITORS 42
ADDITIONAL INFORMATION 43
FINANCIAL STATEMENTS 43
Appendix A A-1
Appendix B B-1
Appendix C C-1
Appendix D D-1
4
<PAGE>
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 SIMILIAR
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.
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.
6
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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 has thirty-seven Investment Subdivisions to which
premiums and cash values may be allocated. Each Investment Subdivision invests
exclusively in the shares of a portfolio of one of the Funds. The Funds include
the Janus Aspen Series, the Variable Insurance Products Fund, the Variable
Insurance Products Fund II, the Variable Insurance Products Fund III, the GE
Investments Funds, Inc., the Oppenheimer Variable Account Funds, the Federated
Insurance Series, the Alger American Fund, the PBHG Insurance Series Fund, Inc.
and Goldman Sachs Variable Insurance Trust. The accompanying prospectuses for
the Funds describe the investment objectives and the risks of each of the Funds'
portfolios.
The Death Benefit may, and the Cash Value will, vary with the investment
experience of the Investment Subdivisions chosen by the Owner, as well as with
the frequency and amount of any Additional Premium Payments, and any charges
imposed in connection with the Policy. (See Cash Value Benefits.)
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.
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.)
8
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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 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.)
9
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Benefits at Maturity
On the Maturity Date of a Policy, if the Insured is still living, the
Policyowner will be paid the Cash Value reduced by any outstanding Policy Debt.
(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 Capital
Brokerage Corporation, which will act as the principal underwriter of the
Policy. Capital Brokerage Corporation is registered as a broker-dealer with the
Securities and Exchange Commission and is a member of the National Association
of Securities Dealers, Inc. This Policy will also be distributed through other
registered broker-dealers who have entered into written sales agreements with
the principal underwriter.
Tax Treatment
Cash Value under this Policy should be subject to the same federal income
tax treatment as cash value in a conventional fixed-benefit policy. Under
existing tax law, a Policyowner is not deemed to be in constructive receipt of
cash values under a policy until actual surrender. However, certain pre-death
distributions (including surrenders, Partial Withdrawals and loans to the extent
of any income in the contract, as well as any assignment or pledge) under this
policy will usually have tax consequences and may also incur a 10% penalty tax,
unless the policy is not a "modified endowment contract" for federal income tax
purposes. This policy will generally be a modified endowment contract if it is
entered into after June 20, 1988 (or certain changes are made in it after that
date), because premiums are paid into it more rapidly than the rate defined by a
"7-Pay test", but in certain limited circumstances this may not be the case.
Apart from this (even if the policy is not a
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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.
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<PAGE>
Fund Annual Expenses
Fund Charges. The fees and expenses for each of the Funds (as a percentage
of net assets) for the year ended December 31, 1997 are set forth in the
following table. For more information on these fees and expenses, see the
prospectuses for the Funds which accompany this prospectus.
<TABLE>
<CAPTION>
Management
Fees Other Expenses
(after fee waiver (after reimbursement- Total Annual
Fund as applicable) as applicable) Expenses
- ---------------------------------------------------- ------------------- ----------------------- ------------
<S> <C> <C> <C>
Janus Aspen Series
Growth Portfolio .................................. 0.65% 0.05% 0.70%
Aggressive Growth Portfolio ....................... 0.73% 0.03% 0.76%
International Growth Portfolio .................... 0.67% 0.29% 0.96%
Worldwide Growth Portfolio ........................ 0.66% 0.08% 0.74%
Balanced Portfolio ................................ 0.76% 0.07% 0.83%
Flexible Income Portfolio ......................... 0.65% 0.10% 0.75%
Capital Appreciation Portfolio .................... 0.23% 1.03% 1.26%
Variable Insurance Products Fund: * ................
Equity-Income Portfolio ........................... 0.50% 0.08% 0.58%
Overseas Portfolio ................................ 0.75% 0.17% 0.92%
Growth Portfolio .................................. 0.60% 0.09% 0.69%
Variable Insurance Products Fund II: *
Asset Manager Portfolio ........................... 0.55% 0.10% 0.65%
Contrafund Portfolio .............................. 0.60% 0.11% 0.71%
Variable Insurance Products Fund III: *
Growth & Income Portfolio ......................... 0.49% 0.21% 0.70%
Growth Opportunities Portfolio .................... 0.60% 0.14% 0.74%
GE Investments Funds, Inc.:
S&P 500 Index Fund ................................ 0.34% 0.12% 0.46%
Money Market Fund ................................. 0.20% 0.12% 0.32%
Total Return Fund ................................. 0.50% 0.15% 0.65%
International Equity Fund ......................... 0.98% 0.36% 1.34%
Real Estate Securities Fund ....................... 0.83% 0.12% 0.95%
Global Income Fund ................................ 0.40% 0.17% 0.57%
Value Equity Fund ................................. 0.37% 0.09% 0.46%
Income Fund ....................................... 0.42% 0.17% 0.59%
U.S. Equity Fund .................................. 0.55% 0.25% 0.80%
Oppenheimer Variable Account Funds:
Oppenheimer Bond Fund ............................. 0.73% 0.05% 0.78%
Oppenheimer Aggressive Growth Fund ................ 0.71% 0.02% 0.73%
Oppenheimer Growth Fund ........................... 0.73% 0.02% 0.75%
Oppenheimer High Income Fund ...................... 0.75% 0.07% 0.82%
Oppenheimer Multiple Strategies Fund .............. 0.72% 0.03% 0.75%
Federated Insurance Series:
Federated American Leaders Fund II ................ 0.66% 0.19% 0.85%
Federated Utility Fund II ......................... 0.48% 0.37% 0.85%
Federated High Income Bond Fund II ................ 0.51% 0.29% 0.80%
The Alger American Fund: ...........................
Alger American Growth Portfolio ................... 0.75% 0.04% 0.79%
Alger American Small Capitalization Portfolio ..... 0.85% 0.04% 0.89%
PBHG Insurance Series Fund, Inc.: ..................
PBHG Growth II Portfolio .......................... 0.0% 1.20% 1.20%
PBHG Large Cap Growth Portfolio ................... 0.0% 1.10% 1.10%
Goldman Sachs Variable Insurance Trust Fund
Goldman Sachs Growth and Income Fund .............. 0.75% 0.15% 0.90%
Goldman Sachs Mid Cap Equity Fund ................. 0.80% 0.15% 0.95%
</TABLE>
*The fees and expenses reported for Variable Insurance Products Fund,
Variable Insurance Products Fund II and Variable Insurance Products Fund III
are prior to any fee waiver and/or reimbursement as applicable.
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<PAGE>
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.
The expense information regarding the Funds was provided by those Funds.
Janus Aspen Series, The Variable Insurance Products Fund, Variable Insurance
Products Fund II, Variable Insurance Products Fund III, Oppenheimer Variable
Account Funds, Federated Insurance Series, The Alger American Fund, PBHG
Insurance Series Fund, Inc., Goldman Sachs Variable Insurance Trust 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 except for the
Variable Insurance Products Funds, Variable Insurance Products Funds II, and
Variable Insurance Products III are net of certain reimbursements by the Funds'
investment advisers. Life of Virginia cannot guarantee that the reimbursements
will continue.
Absent reimbursements, the total annual expenses of the portfolios of the
Janus Aspen Series during 1997 would have been .78% for Growth Portfolio, .78%
for Aggressive Growth Portfolio, 1.08% for International Growth Portfolio, .81%
for Worldwide Growth Portfolio, .83% for Balanced Portfolio and 2.19% for
Capital Appreciation Portfolio.
With reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund during 1997 would have been .57% for VIP
Equity-Income Portfolio, .90% for VIP Overseas Portfolio and .67% for VIP Growth
Portfolio.
With reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund II during 1997 would have been .64% for VIP II
Asset Manager Portfolio and .68% for VIP II Contrafund Portfolio.
With reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund III during 1997 would have been .73% for VIP
III Growth Opportunities Portfolio.
GE Investment Management Incorporated currently serves as investment
adviser to GE Investments Funds, Inc. (formerly Life of Virginia Series Fund,
Inc.). Prior to May 1, 1997, Aon Advisors, Inc. served as investment adviser to
this Fund and had agreed to reimburse the Fund for certain expenses of each of
the Fund's portfolios. Absent certain fee waivers or reimbursements, the total
annual expenses of the portfolios of GE Investments Funds, Inc. during 1997
would have been .46% for S&P 500 Index Fund, .48% for Money Market Fund, .65%
for Total Return Fund, 1.43% for International Equity, .96% for Real Estate
Fund, .57% for Global Income Fund, .46% for Value Equity Fund, .76% for Income
Fund and .86% for U.S. Equity Fund.
Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of the Federated Insurance Series during 1997 would have been
.94% for Federated American Leaders Fund II, 1.12% for Federated Utility Fund
II, and .89% for Federated High Income Bond Fund II.
Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of PBHG Insurance Series Funds, Inc. during 1997 would have been
4.38% for Growth II Portfolio and 5.21% for Large Cap Growth Portfolio.
Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of Goldman Sachs Variable Insurance Trust would have been 1.51%
for Growth and Income Fund and 1.33% for Mid Cap Equity Fund.
Other Policies
We offer other variable life insurance policies which also invest in the
same portfolios of the Funds. These Policies may have different charges that
could affect the value of the Investment Subdivisions and may offer different
benefits more suitable to your needs. To obtain more information about these
policies, contact your agent, or call (800) 352-9910.
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 Financial Assurance Holdings, 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 New York corporation,
is a diversified financial services company and is a wholly-owned
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<PAGE>
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.
IMSA Disclosure
Life of Virginia is a member of the Insurance Marketplace Standards
Association (IMSA). Life of Virginia may use the IMSA membership logo and
language in its advertisements, as outlined in IMSA's Marketing and Graphics
Guidelines. Companies that belong to IMSA subscribe to a set of ethical
standards covering the various aspects of sales and service for individually
sold life insurance and annuities.
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 Capital Brokerage 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-seven Investment Subdivisions available for allocation under the Policy,
but that number may change in the future. Each Investment Subdivision invests
exclusively in shares representing an interest in a separate corresponding
portfolio of one of the ten 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-seven 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 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
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<PAGE>
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 1940 Act 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 ten mutual funds. Each of the
Funds currently available under the Policy is a registered open-end, diversified
investment company of the series-type.
Each Investment Subdivision invests exclusively in a designated investment
portfolio of one of the Funds. The assets of each portfolio are separate from
other portfolios of that Fund and each portfolio has separate investment
objectives and policies. As a result, each portfolio operates as a separate
investment portfolio and the investment performance of one portfolio has no
effect on the investment performance of any other portfolio. Some of the Funds
may, in the future, create additional portfolios.
Each of the Funds sells its shares to 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. A summary of
these termination provisions may be found in the Statement of Additional
Information. Should an agreement between Life of Virginia and a Fund terminate,
the Account will not be able to purchase additional shares of that Fund. In that
event, Policyowners will no longer be able to allocate account values or premium
payments to Investment Subdivisions investing in portfolios of that Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to Separate Account III
despite the fact that the participation agreement between the Fund and Life of
Virginia has not been terminated. Should a Fund or a portfolio of a Fund decide
not to sell its shares to Life of Virginia, Life of Virginia will be unable to
honor Policyowner requests to allocate their account values or premium payments
to Investment Subdivisions investing in shares of that Fund or portfolio.
Certain Investment Subdivisions invest in portfolios that have similar
investment objectives and/or policies; therefore, before choosing Investment
Subdivisions, carefully read the individual prospectuses for the Funds, along
with this prospectus.
Janus Aspen Series
The Janus Aspen Series has seven portfolios that are available under this
Policy: Growth Portfolio, Aggressive Growth Portfolio, Worldwide Growth
Portfolio, International Growth Portfolio, Balanced Portfolio, Flexible Income
Portfolio, and Capital Appreciation Portfolio
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<PAGE>
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 Janus Aspen Series, which should be
read carefully before investing.
Capital Appreciation Portfolio has the investment objective of seeking
long-term growth of capital by investing primarily in common stocks of companies
of any size.
Janus Capital Corporation serves as investment adviser to Janus Aspen
Series.
Variable Insurance Products Fund
Variable Insurance Products Fund has three portfolios that are available
under this Policy: VIP Equity-Income Portfolio, VIP Overseas Portfolio and VIP
Growth Portfolio.
VIP Equity-Income Portfolio seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the
Portfolio will also consider the potential for capital appreciation. The
portfolio's goal is to achieve a yield, which exceeds the composite yield on the
securities comprising the Standard & Poor's Composite Index of 500 Stocks.
VIP Overseas Portfolio seeks long-term growth of capital primarily through
investments in foreign securities. The portfolio provides a means for investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
VIP Growth Portfolio seeks to achieve capital appreciation. The portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund.
Variable Insurance Products Fund II
Variable Insurance Products Fund II has two portfolios that are available
under this Policy: VIP II Asset Manager Portfolio and VIP II Contrafund
Portfolio.
VIP II Asset Manager Portfolio seeks high total return with reduced risk
over the long-term by allocating its assets among domestic and foreign stocks,
bonds and short-term money market instruments.
VIP II Contrafund Portfolio seeks capital appreciation by investing mainly
in equity securities of companies believed to be undervalued or out-of-favor.
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<PAGE>
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund II.
Variable Insurance Products Fund III
Variable Insurance Products Fund III has two portfolios that are available
under this Policy: VIP III Growth & Income Portfolio and VIP III Growth
Opportunities Portfolio.
VIP III Growth & Income Portfolio seeks high total return through a
combination of current income and capital appreciation by investing mainly in
equity securities.
VIP III Growth Opportunities Portfolio seeks capital growth by investing
primarily in common stock and securities convertible to common stock.
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund III.
GE Investments Funds, Inc.
GE Investments Funds, Inc. (GE Investments Funds) has nine portfolios that
are available under this Policy: S&P 500 Index Fund, Money Market Fund, Total
Return Fund, International Equity Fund, Real Estate Securities Fund, Global
Income Fund, Value Equity Fund, Income Fund and U.S. Equity Fund. The U.S.
Equity Fund is not available in California at this time.
S&P 500 Index Fund1 has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index, through
investment in common stocks traded on the New York Stock Exchange and the
American Stock Exchange, to a limited extent, in the over-the-counter markets.
Money Market Fund has the investment objective of providing the highest
level of current income as is consistent with high liquidity and safety of
principal by investing in high quality money market securities.
Total Return Fund has the investment objective of providing the highest
total return, composed of current income and capital appreciation, as is
consistent with prudent investment risk by investing in common stocks, bonds and
money market instruments, the proportion of each being continuously determined
by the investment adviser.
International Equity Fund has the investment objective of providing
long-term capital appreciation. The portfolio seeks to achieve its objective by
investing primarily in equity and equity-related securities of companies that
are organized outside of the U.S. or whose securities are principally traded
outside of the U.S.
Real Estate Securities Fund has the investment objective of providing
maximum total return through current income and capital appreciation. The
portfolio seeks to achieve its objective by investing primarily in securities of
U.S. issuers that are principally engaged in or related to the real estate
industry including those that own significant real estate assets. The portfolio
will not invest directly in real estate.
Global Income Fund has the investment objective of high total return,
emphasizing current income and, to a lesser extent, capital appreciation. The
portfolio seeks to achieve these objectives by investing primarily in
income-bearing debt securities and other income-bearing instruments of U.S. and
foreign issuers.
Value Equity Fund has the investment objective of providing long-term
capital appreciation. The portfolio seeks to achieve this objective by investing
primarily in common stock and other equity securities that are undervalued by
the market and offer above-average capital appreciation potential.
Income Fund has the investment objective or providing maximum income
consistent with prudent investment management and preservation of capital by
investing primarily in income-bearing debt securities and other income bearing
instruments.
U.S. Equity Fund has the investment objective of proving long-term growth
of capital by investing primarily in equity securities of U.S. companies.
- ---------
1 "Standard & Poor's," "S&P," and "S&P 500" are trademarks of Mc-Graw Hill
Companies, Inc. and have been licensed for use by GE Investment Management
Incorporated. The S&P 500 Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation or
warranty, express or implied, regarding the advisability of investing in this
Fund or the Policy.
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<PAGE>
GE Investment Management Incorporated serves as investment adviser to GE
Investments Funds.
Oppenheimer Variable Account Funds
Oppenheimer Variable Account Funds has five portfolios that are available
under this Policy: Oppenheimer High Income Fund, Oppenheimer Bond Fund,
Oppenheimer Aggressive Growth Fund, Oppenheimer Growth Fund, and Oppenheimer
Multiple Strategies Fund.
Oppenheimer High Income Fund seeks a high level of current income from
investment in high yield fixed income securities, including unrated securities
or high risk securities in the lower rating categories. These securities may be
considered to be speculative. This Fund may have substantial holdings of
lower-rated debt securities or "junk" bonds. The risks of investing in junk
bonds are described in the prospectus for the Oppenheimer Variable Account
Funds, which should be read carefully before investing.
Oppenheimer Bond Fund primarily seeks a high level of current income.
Secondarily, this Fund seeks capital growth when consistent with its primary
objective. Bond Fund will, under normal market conditions, invest at least 65%
of its total assets in investment grade debt securities.
Oppenheimer Aggressive Growth Fund seeks to achieve capital appreciation by
investing in "growth-type" companies. Prior to May, 1998 this fund was known as
Capital Appreciation.
Oppenheimer Growth Fund seeks to achieve capital appreciation by investing
in securities of well-known established companies.
Oppenheimer Multiple Strategies Fund seeks a total investment return (which
includes current income and capital appreciation in the value of its shares)
from investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
OppenheimerFunds, Inc. serves as investment adviser to Oppenheimer Variable
Accounts Funds.
Federated Insurance Series
The Federated Insurance Series has three portfolios that are available
under this Policy: Federated Utility Fund II, Federated High Income Bond Fund II
and Federated American Leaders Fund II.
Federated Utility Fund II has the investment objective of high current
income and moderate capital appreciation. The Federated Utility Fund II will
seek to achieve its objective by investing primarily in equity and debt
securities of utility companies.
Federated High Income Bond Fund II has the investment objective of high
current income. The Federated High Income Bond Fund II will seek to achieve its
objective by investing primarily in a diversified portfolio of professionally
managed fixed-income securities. The fixed-income securities in which the Fund
intends to invest are lower-rated corporate debt obligations, commonly referred
to as "junk bonds". The risks of these securities are described in the
prospectus for the Federated Insurance Series, which should be read carefully
before investing.
Federated American Leaders Fund II has the primary investment objective of
long-term growth of capital, and a secondary objective of providing income. The
Federated American Leaders Fund II will seek to achieve its objective by
investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue chip" companies.
Federated Advisers serves as investment adviser to Federated Insurance
Series.
The Alger American Fund
The Alger American Fund has two portfolios that are available under this
Policy: Alger American Growth Portfolio and Alger American Small Capitalization
Portfolio.
Alger American Growth Portfolio has the investment objective of long-term
capital appreciation. Except during temporary defensive periods, this portfolio
invests at least 65% of its total assets in equity securities of companies that,
at the time of purchase, have a total market capitalization of $1 billion or
greater.
Alger American Small Capitalization Portfolio seeks long-term capital
appreciation. Except during temporary defensive periods, the portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase of the securities, have total market capitalization within the
range of companies included in the Russell 2000 Growth Index
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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.
Fred Alger Management, Inc. serves as the investment manager to The Alger
American Fund.
PBHG Insurance Series Fund, Inc.
PBHG Insurance Series Fund, Inc. (PBHG Insurance Series Fund) has two
portfolios that are available under this Policy: Growth II Portfolio and Large
Cap Growth Portfolio.
PBHG Growth II Portfolio seeks capital appreciation by investing at least
65% of its total assets in the equity securities of small and medium sized
growth companies (market capitalization of up to $4 billion) that, in the
adviser's opinion, have an outlook for strong earnings growth and the potential
for significant capital appreciation.
PBHG Large Cap Growth Portfolio seeks long-term growth of capital by
investing primarily in the equity securities of large capitalization companies
(market capitalization of greater than $1 billion) that, in the adviser's
opinion, have an outlook for strong growth in earnings and potential for capital
appreciation.
Pilgrim Baxter & Associates, Ltd. serves as the investment adviser to PBHG
Insurance Series Fund, Inc.
Goldman Sachs Variable Insurance Trust
Goldman Sachs Variable Insurance Trust has two portfolios that are under
this Policy: Goldman Sachs Growth and Income Fund and Goldman Sachs Mid Cap
Equity Fund (neither of these Funds are available in California at this time).
Goldman Sachs Growth and Income Fund seeks long-term capital growth and
growth of income, primarily through equity securities that, in the management
team's view, offer favorable capital appreciation and/or dividend-paying
ability.
Goldman Sachs Mid Cap Equity Fund seeks to meet its objective primarily
through investments in equity securities of companies with public stock market
capitalizations within the range of the market capitalization of companies
constituting the Russell Midcap Index at the time of investment (currently
between $400 million and $16 billion).
Goldman Sachs Asset Management serves as investment adviser to Goldman
Sachs Variable Insurance Trust.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
Life of Virginia currently is compensated by an affiliate(s) of each of the
Funds based upon an annual percentage of the average assets held in the Fund by
Life of Virginia. These percentage amounts, which vary by Fund, are intended to
reflect administrative and other services provided by Life of Virginia to the
Fund and/or affiliate(s).
More detailed information concerning the investment objectives and
policies of the Funds and the investment advisory services and charges can be
found in the current prospectuses for the Funds which accompany or precede this
Prospectus. A prospectus for each Fund can be obtained by writing or calling
Life of Virginia's Home Office. The prospectus for each Fund should be read
carefully before any decision is made concerning the allocation of premium
payments or transfers among the Investment Subdivisions of Separate Account 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., The Alger
American Fund, and Goldman Sachs Variable Insurance Trust 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.
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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:
Janus Aspen Series. This agreement may be terminated by the parties on six
months' advance written notice.
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.
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.
Oppenheimer Variable Account Funds. 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.
Goldman Sachs Variable Insurance Trust. 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.
THE POLICY
This Prospectus describes the basic Policy. There may be differences in
your Policy because of requirements of the state where your Policy is issued.
Any such differences will be included in your Policy.
Purpose of the Policy
The Policy is designed to provide the Owner with lifetime insurance
protection. Although the Policy may operate as a single premium policy, under
certain circumstances additional premiums either may be paid at the
Policyowner's option or are required in order to keep the Policy in force.
Moreover, the Policy enables the Policyowner to adjust the level of Death
Benefit Proceeds payable under a Policy by increasing the specified amount.
Thus, as insurance needs or financial conditions change, the Policyowner has
flexibility to adjust Death Benefit Proceeds and to make Additional Premium
Payments.
The Policy is a "variable" policy because, unlike the fixed benefits of an
ordinary life insurance policy, the Cash Value will, and under certain
circumstances the Death Benefit may, increase or decrease depending upon the
investment experience of the Investment Subdivisions of Separate Account III to
which the Policyowner allocates premiums. Accordingly, the Policyowner reaps the
benefit of any appreciation in value of the underlying assets, but also bears
the investment risk of any depreciation in the value of those assets. The
payment of one or more premiums does not guarantee that the Policy will stay in
force. Instead, whether or not a Policy continues in force will depend on the
amount of the Surrender Value, which in turn will depend upon the investment
experience of the chosen Investment Subdivision(s) of Separate Account III. So
long as the Policy remains in force, the Death Benefit payable will never be
less than the specified amount; however, there is no guaranteed minimum Cash
Value.
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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 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
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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 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.
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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 of 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 or by calling Life of Virginia's Telephone Transfer Line at 800-772-3844.
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.
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
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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.)
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
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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
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
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(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 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.
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 or by calling Life of Virginia's
Telephone Transfer Line at 800-772-3844. Policyowners may also make
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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,
as a strategy to maintain 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
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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 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.)
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The amount of the Death Benefit provided by a Policy will be the greater
of: (1) the specified amount; or (2) the Cash Value on the date of death,
multiplied by the applicable corridor percentage. Accordingly, the Death Benefit
will never be less than the specified amount, as long as the Policy remains in
force. Under the terms of the Policy, however, the Policy's Death Benefit may be
greater than the specified amount, depending upon the length of time the Policy
is in force, any Additional Premium Payments made, and the Policy's investment
results. If the death benefit is greater than the specified amount, it will vary
with the Policy's Cash Value. Initially, the specified amount is determined when
the Policy is issued by the amount of the 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.
<TABLE>
<CAPTION>
Attained Corridor Attained Corridor Attained Corridor
Age Percentage Age Percentage Age Percentage
- ----------------- ------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
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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.
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
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next; (2) some of these charges are further based upon portions of Cash Value
attributable to Additional Premium Payments; and (3) the cost of insurance can
vary from month to month.
Charges Attributable to Premium Payments. During the first ten years
following a premium payment (See Dates Under the Policy), 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. If proceeds from this charge are not needed to cover mortality and
expense risks, Life of Virginia may use proceeds to finance distribution of the
Policies.
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, a Senior Vice President, 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.
Statement of Values
At least once each year, Life of Virginia will send the owner a Statement
of Values within 30 days after each report date. The statement will show cash
value, premium payments and charges made during the report period.
Nonparticipating
The Policy does not participate in the divisible surplus of Life of
Virginia. No dividends are payable.
Written Notice
Any written notice should be sent to Life of Virginia at its Home Office at
6610 West Broad Street, Richmond, Virginia 23230. The notice should include the
Policy number and the Insured's full name. Any notice sent by Life of Virginia
to a Policyowner will be sent to the address shown in the application unless an
appropriate address change form has been filed with the Company.
The Owner
The Policyowner is the person so designated in the application or as
subsequently changed. The Policyowner has rights in a Policy during the
Insured's lifetime. If the Policyowner dies before the Insured and there is no
Contingent Owner, ownership passes to the Policyowner's estate. Unless an
optional payment plan is chosen, the Proceeds payable on surrender of the Policy
will be paid to the Policyowner in a lump sum.
The Beneficiary
The original Beneficiaries and Contingent Beneficiaries are designated by
the Policyowner in the application. If changed, the Primary Beneficiary or
Contingent Beneficiary is as shown in the latest change filed with Life of
Virginia. One or more Primary or Contingent Beneficiaries may be named in the
application. In such a case, the Proceeds will be paid in equal shares to the
survivors in the appropriate Beneficiary class, unless requested otherwise by
the Policyowner.
Unless an optional payment plan is chosen, the Death Benefit Proceeds
payable at the Insured's death will be paid in a lump sum to the primary
Beneficiary. If the primary Beneficiary dies before the Insured, the Proceeds
will be paid to the Contingent Beneficiary. If no Beneficiary survives the
Insured, the Proceeds will be paid to the Policyowner or the Policyowner's
estate.
Changing the Owner or Beneficiary
During the Insured's life, the Policyowner may be changed. If the right is
reserved, the Beneficiary may also be changed during the Insured's life. To make
a change, written request must be sent to Life of Virginia at its Home Office.
The request and the change must be in a form satisfactory to Life of Virginia
and must actually be received by the Company. The change will take effect as of
the date the request is signed by the Policyowner. The change will be subject to
any payment made before the change is recorded by Life of Virginia.
Using the Policies as Collateral
The Policy can be assigned as collateral security. Life of Virginia must be
notified in writing if a Policy is assigned. Any payment made before the
assignment is recorded at Life of Virginia's Home Office will not be affected.
Life of Virginia is not responsible for the validity of an assignment. A
Policyowner's rights and the rights of a Beneficiary may be affected by an
assignment.
Optional Insurance Benefits
There are currently no optional insurance benefits offered under the
Policy.
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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 Capital Brokerage Corporation, the principal underwriter of
the Policies, or of broker-dealers who have entered into written sales
agreements with the principal underwriter. Capital Brokerage Securities
Corporation, a Virginia corporation located at 6630 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. Capital Brokerage 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 Capital
Brokerage 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 policy 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.
In certain circumstances, variable policy owners may be considered the
owners, for federal tax purposes, of the assets of the separate account used to
support such policies. 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 policy 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
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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 policy 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. In addition, in the case of Policies
issued to a non-natural taxpayer, such as a corporation or trust, (or held for
the benefit of such an entity), a portion of the taxpayer's otherwise deductible
interest expenses may not be deductible as a result of ownership of a Policy
even if no loans are taken under the Policy. An exception to this rule is
provided for certain life insurance contracts which cover the life of an
individual who is a 20-percent owner, or an officer, director, or employee of, a
trade or business. Entities that are considering purchasing the Policy, or
entities that will be beneficiaries under a Policy, should consult a tax
advisor.
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.
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:
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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 policies 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 policy for purposes of
determining any tax on distributions.
The provisions of TAMRA are complex and are open to considerable variation
in interpretation. Policyowners should consult their tax advisors before making
any decisions regarding increases in or additions to coverage or distributions
from their Policies.
Taxation of the Company
Because of its current status under the Code, Life of Virginia does not
expect to incur any federal income tax liability that would be chargeable to
Separate Account III. Based upon this expectation, no charge is being made
currently to Separate Account III for federal income taxes. If, however, Life of
Virginia determines that such taxes may be incurred, it may assess a charge for
those taxes from Separate Account III.
Life of Virginia may also incur state and local taxes (in addition to
premium taxes for which deductions are currently made) in several states. At
present, these taxes are not significant. If there is a material change in
applicable state or local tax laws, charges for such taxes attributable to
Separate Account III may be made.
Income Tax Withholding
Generally, unless the Policyowner provides Life of Virginia a written
election to the contrary before a distribution is made, Life of Virginia is
required to withhold income taxes from a portion of the money received by the
Policyowner upon partial or full surrender of the Policy or if the Policy
matures (and, if the Policy is a modified endowment contract, upon a Policy
loan). If the Policyowner requests that no taxes be withheld, or if Life of
Virginia does not withhold a sufficient amount of taxes, the Policyowner will be
responsible for the payment of any taxes and early distribution penalties that
may
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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 and as a result, Life of
Virginia determines that it is permitted to vote Fund shares in its own right,
it may elect to do so.
The number of votes which each Policyowner has the right to instruct will
be determined by dividing a Policy's Cash Value in an Investment Subdivision of
Separate Account III by the net asset value per share of the corresponding
portfolio in which the Subdivision invests. Fractional shares will be counted.
The number of votes which the Policyowner has the right to instruct will be
determined as of the date coincident with the date established by a particular
Fund for determining shareholders eligible to vote at the meeting of that Fund.
Voting instructions will be solicited by written communications prior to such
meeting in accordance with procedures established by that Fund.
Life of Virginia will vote Fund shares held in Separate Account III as to
which no timely instructions are received and Fund shares held in Separate
Account III that it owns as a consequence of accrued charges under the Policies,
in proportion to the voting instructions which are received with respect to all
Policies funded through Separate Account III. Each person having a voting
interest will receive proxy materials, reports, and other materials relating to
the appropriate portfolio.
Disregard of Voting Instructions. Life of Virginia may, when required by
state insurance regulatory authorities, disregard voting instructions if the
instructions require that the shares be voted so as to cause a change in the
sub-classification or investment objective of a Fund or one or more of its
portfolios or to approve or disapprove an investment advisory contract for a
portfolio of a Fund. In addition, Life of Virginia itself may disregard voting
instructions in favor of changes initiated by a Policyowner in the investment
policy or the investment advisor of a portfolio of a Fund if Life of Virginia
reasonably disapproves of such changes. A change would be disapproved only if
the proposed change is contrary to state law or prohibited by state regulatory
authorities or Life of Virginia determined that the change would have an adverse
effect on its General Account in that the proposed investment policy for the
portfolio may result in overly speculative or unsound investments. In the event
Life of Virginia does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next semi-annual report
to Policyowners.
STATE REGULATION OF LIFE OF VIRGINIA
Life of Virginia, a stock life insurance company organized under the laws
of Virginia, is subject to regulation by the State Corporation Commission of the
Commonwealth of Virginia. An annual statement is filed with the Virginia
Commissioner of Insurance on or before March 1 of each year covering the
operations and reporting on the financial condition of Life of Virginia as of
December 31 of the preceding year. Periodically, the Commissioner of Insurance
examines the liabilities and
40
<PAGE>
reserves of Life of Virginia and Separate Account III and certifies their
adequacy, and a full examination of Life of Virginia's operations is conducted
by the State Corporation Commission, Bureau of Insurance of the Commonwealth of
Virginia at least once every five years.
In addition, Life of Virginia is subject to the insurance laws and
regulations of other states within which it is licensed to operate. Generally,
the Insurance Department of any other state applies the laws of the state of
domicile in determining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS OF LIFE OF VIRGINIA
<TABLE>
<CAPTION>
Name and Position(s)
With Life of Virginia* Principal Occupations Last Five Years
- -------------------------- -------------------------------------
<S> <C>
Ronald V. Dolan*,# Director, Chairman of the Board, Life of Virginia since 1997; President and Chief
Executive Officer of First Colony Life Insurance Company since 1992; President, First
Colony Corporation since 1985
Selwyn L. Flournoy,Jr.* Director, Life of Virginia, since 5/89; Senior Vice President, Life of Virginia, since
1980.
Linda L. Lanam* Director, Life of Virginia, since 2/93, Senior Vice President since 1997, Vice President
and Senior Counsel, Life of Virginia, since 1989; Corporate Secretary for Life of
Virginia and for a number of Life of Virginia affiliates, since 1992.
Robert D. Chinn* Director, Life of Virginia since 1997, Senior Vice President - Agency, Life of Virginia,
since 1/92; Vice President, Life of Virginia, since 1985.
Elliott Rosenthal Senior Vice President - Investment Products 1997; Vice President and Senior
Investment Actuary 1/95-4/97; Investment Actuary 1/82-2/95
Victor C. Moses** Director, Life of Virginia, since April 1, 1996. Director of GNA since April 1994.
Senior Vice President, Business Development, and Chief Actuary of GNA since May
1993. Senior Vice President and Chief Financial Officer of GNA 1991-1993. Vice
President and Chief Actuary of GNA 1983-1991. Senior Vice President, Controller and
Treasurer GNA Investors Trust 1992-1993.
Geoffrey S. Stiff** Director, Life of Virginia, since April 1, 1996. Director of GNA since April 1994.
Senior Vice President, Chief Financial Officer and Treasurer of GNA since May 1993.
Vice President, Chief Financial Officer and Director of Employers Reinsurance
Corporation 1987-1993. Senior Vice President, Controller and Treasurer of GNA
Investors Trust since 1993.
</TABLE>
- ---------
* Messrs. Dolan, Flournoy, Chinn, 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.
LEGAL MATTERS
Sutherland, Asbill & Brennan LLP 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, Assistant
Vice President and Associate Counsel.
LEGAL PROCEEDINGS
Life of Virginia, like all other companies, is involved in lawsuits,
including class action lawsuits. In some class action and other lawsuits
involving insurance companies, substantial damages have been sought and/or
material settlement payments
41
<PAGE>
have been made. Although the outcome of any litigation cannot be predicted with
certainty, Life of Virginia believes that at the present time there are no
pending or threatened lawsuits that are reasonably likely to have a material
adverse impact on it or Account III.
YEAR 2000 COMPLIANCE
Like other financial services providers, Life of Virginia utilizes computer
systems that may be affected by Year 2000 date data processing issues and it
also relies on services providers, including banks, custodians, administrators,
and investment managers that also may be affected. Life of Virginia is engaged
in a process to evaluate and develop plans to have its computer systems and
critical applications ready to process Year 2000 date data. It is also
confirming that its service providers are also so engaged. The resources that
are being devoted to this effort are substantial. Remedial actions include
inventorying the company's computer systems, applications and interfaces,
assessing the impact of the Year 2000 date data on them, developing a range of
solutions specific to particular situations and implementing appropriate
solutions. Some systems, applications and interfaces will be replaced or
upgraded to new software or new releases of existing software which are Year
2000 ready. Others will be modified as necessary to become ready. It is
difficult to predict with precision whether the amount of resources ultimately
devoted, or the outcome of these efforts, will have any negative impact on Life
of Virginia and Account III. However, as of the date of this prospectus, it is
not anticipated that Owners will experience negative effects on their
investment, or on the services provided in connection therewith, as a result of
Year 2000 readiness implementation. Life of Virginia's target dates for
completion of these activities depend upon the particular situation. The
Company's goal is to be substantially Year 2000 ready for critical applications
by mid-1999, but there can be no assurance that Life of Virginia will be
successful in meeting its goal, or that interaction with other service providers
will not impair Life of Virginia's services at that time.
EXPERTS
KPMG Peat Marwick LLP
The consolidated balance sheets of The Life Insurance Company of Virginia
and subsidiary as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for the year ended
December 31, 1997, nine month period ended December 31, 1996 and the
preacquisition three month period ended March 31, 1996, and the statement of
assets and liabilities of Life of Virginia Separate Account III as of December
31, 1997 and the related statements of operations and changes in net assets for
each of the two years or lesser periods then ended have been included herein and
in the registration statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein and
upon the authority of such firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP with respect to the consolidated
financial statements of The Life Insurance Company of Virginia and subsidiary
contains an explanatory paragraph that states effective April 1, 1996, General
Electric Capital Corporation acquired all of the outstanding stock of The Life
Insurance Company of Virginia in a business combination accounted for as a
purchase. As a result of the acquisition, the consolidated financial information
for the periods after the acquisition is presented on a different cost basis
than that for the periods before the acquisition and, therefore, is not
comparable.
Ernst & Young LLP.
The consolidated statements of income, stockholder's equity and cash flows
of The Life Insurance Company of Virginia and subsidiaries for the year ended
December 31, 1995 and the statements of operations and changes in net assets of
Life of Virginia Separate Account III for the year or period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, to the extent indicated in their
reports thereon also appearing elsewhere herein, and are included in reliance
upon such reports given upon the authority of such firm as experts in accounting
and auditing.
CHANGE IN AUDITORS
Subsequent to the acquisition of us by GNA Corporation on April 1, 1996, we
selected KPMG Peat Marwick LLP to be our auditor. Accordingly, our principal
auditor has changed for the year ending December 31, 1996, from Ernst & Young
LLP, to KPMG Peat Marwick LLP. The former auditors were dismissed and KPMG Peat
Marwick LLP was retained because KPMG Peat Marwick LLP is the auditor for GE
Capital, the indirect parent of GNA Corporation. This change was approved by the
members of our Board of Directors.
42
<PAGE>
Neither KPMG Peat Marwick LLP's nor Ernst & Young LLP's reports on the
financial statements contain any adverse opinion or a disclaimer of opinion, or
were qualified or modified as to uncertainty or audit scope. Furthermore, there
were no disagreements with either on any matter of accounting principle or
practice, financial statement disclosure or auditing scope or procedure which
would have caused them to make reference to the subject 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.
43
<PAGE>
Appendix A
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES
Year ended December 31, 1997
(With Independent Auditors' Report Thereon)
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
TABLE OF CONTENTS
Year ended December 31, 1997
Page
-----
Independent Auditors' Report ................... A-3
Financial Statements:
Statements of Assets and Liabilities .......... A-5
Statements of Operations ...................... A-12
Statements of Changes in Net Assets ........... A-25
Notes to Financial Statements ................. A-46
A-2
<PAGE>
Report of Independent Auditors
Policyholders
Life of Virginia Separate Account III and Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of assets and liabilities of
Life of Virginia Separate Account III (the Account) (comprising the GE
Investments Funds, Inc. -- S&P 500 Index, Money Market, Total Return,
International Equity, Real Estate Securities, Global Income, Value Equity and
Income Funds; the Oppenheimer Variable Account Funds -- Bond, Capital
Appreciation, Growth, High Income and Multiple Strategies Funds; the Variable
Insurance Products Fund -- Equity-Income, Growth and Overseas Portfolios; the
Variable Insurance Products Fund II -- Asset Manager and Contrafund Portfolios;
the Variable Insurance Products Fund III -- Growth & Income and Growth
Opportunities Portfolios; the Federated Investors Insurance Series -- American
Leaders, High Income Bond and Utility Funds II; the Alger American -- Small Cap
and Growth Portfolios; the PBHG Insurance Series Fund -- PBHG Large Cap Growth
and Growth II Portfolios; and the Janus Aspen Series -- Aggressive Growth,
Growth, Worldwide Growth, Balanced, Flexible Income, International Growth and
Capital Appreciation Portfolios) as of December 31, 1997 and the related
statements of operations and changes in net assets for the aforementioned funds
and the GE Investments Funds, Inc. -- Government Securities Fund; Oppenheimer
Variable Account Funds -- Money Fund; Variable Insurance Products Fund -- Money
Market and High Income Portfolios; and Neuberger & Berman Advisers Management
Trust -- Balanced, Bond and Growth Portfolios of Life of Virginia Separate
Account III for each of the two years or lesser periods then ended. These
financial statements are the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The accompanying statements of operations and changes in net assets
of Life of Virginia Separate Account III for the year or period ended December
31, 1995, were audited by other auditors, whose report thereon dated February 8,
1996 expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the underlying mutual funds or their transfer agent. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to above
present fairly, in all material respects, the financial position of each of the
respective portfolios constituting Life of Virginia Separate Account III as of
December 31, 1997 and the results of their operations and changes in their net
assets for each of the two years or lesser periods then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Richmond, Virginia
February 13, 1998
A-3
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Policyholders
Life of Virginia Separate Account III and Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of operations and changes in
net assets for the year ended December 31, 1995 for the Life of Virginia Series
Fund, Inc. Common Stock Index, Government Securities, Money Market and Total
Return portfolios, the Oppenheimer Variable Account Funds portfolios, the
Variable Insurance Products Fund portfolios, the Variable Insurance Products
Fund II Asset Manager portfolio, the Advisers Management Trust portfolios, the
Janus Aspen Aggressive Growth, Growth, and Worldwide Growth portfolios, and for
the period from 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 Corporate Bond and Utility 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and changes in 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.
ERNST & YOUNG LLP
Richmond, Virginia
February 8, 1996
A-4
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series
Fund, Inc.)
--------------------------------
Money
S&P 500 Market
Index Fund Fund
---------------- ---------------
<S> <C>
ASSETS
Investment in GE Investments Funds, Inc., at fair
value (note 2):
S&P 500 Index Fund (166,350 shares;
cost -- $3,234,024) ................................... $ 3,198,902 --
Money Market Fund (11,872,653 shares;
cost -- $11,874,757) .................................. -- 11,872,653
Total Return Fund (126,372 shares;
cost -- $1,789,876) ................................... -- --
International Equity Fund (25,601 shares;
cost -- $305,010) ..................................... -- --
Real Estate Securities Fund (70,455 shares;
cost -- $1,144,713) ................................... -- --
Receivable from affiliate ................................. 3,956 --
Receivable for units sold ................................. 498 --
----------- ----------
TOTAL ASSETS .............................................. $ 3,203,356 11,872,653
=========== ==========
LIABILITIES
Accrued expenses payable to affiliate
(note 3) ................................................. $ 2,217 606,806
Payable for units withdrawn ............................... -- 11,523
----------- ----------
TOTAL LIABILITIES ......................................... 2,217 618,329
=========== ==========
Net assets attributable to variable life policyholders $ 3,201,139 11,254,324
=========== ==========
Outstanding units ......................................... 93,601 747,796
=========== ==========
Net asset value per unit .................................. $ 34.20 15.05
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.)
---------------------------------------------
Total International Real Estate
Return Equity Securities
Fund Fund Fund
-------------- --------------- --------------
<S> <C>
ASSETS
Investment in GE Investments Funds, Inc., at fair
value (note 2):
S&P 500 Index Fund (166,350 shares;
cost -- $3,234,024) ................................... -- -- --
Money Market Fund (11,872,653 shares;
cost -- $11,874,757) .................................. -- -- --
Total Return Fund (126,372 shares;
cost -- $1,789,876) ................................... 1,669,370 -- --
International Equity Fund (25,601 shares;
cost -- $305,010) ..................................... -- 273,419 --
Real Estate Securities Fund (70,455 shares;
cost -- $1,144,713) ................................... -- -- 1,076,552
Receivable from affiliate ................................. 46 -- --
Receivable for units sold ................................. 250 -- --
--------- ------- ---------
TOTAL ASSETS .............................................. 1,669,666 273,419 1,076,552
========= ======= =========
LIABILITIES
Accrued expenses payable to affiliate
(note 3) ................................................. 1,042 16,178 6,225
Payable for units withdrawn ............................... -- -- --
--------- ------- ---------
TOTAL LIABILITIES ......................................... 1,042 16,178 6,225
========= ======= =========
Net assets attributable to variable life policyholders 1,668,624 257,241 1,070,327
========= ======= =========
Outstanding units ......................................... 64,351 20,612 58,202
========= ======= =========
Net asset value per unit .................................. 25.93 12.48 18.39
========== ======== ==========
</TABLE>
A-5
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.)
(continued)
--------------------------------------------
Global Value
Income Equity Income
Fund Fund Fund
------------ ------------ --------------
<S> <C>
ASSETS
Investment in GE Investments Funds, Inc., at fair value (note 2):
Global Income Fund (1,392 shares; cost -- $14,378).............. $13,709 -- --
Value Equity Fund (19,186 shares; cost -- $249,548)............. -- 251,525 --
Income Fund (105,855 shares; cost -- $1,280,455) ............... -- -- 1,281,909
Receivable from affiliate ....................................... -- 358 --
Receivable for units sold ....................................... -- -- --
------- ------- ---------
TOTAL ASSETS .................................................... $13,709 251,883 1,281,909
======= ======= =========
LIABILITIES
Accrued expenses payable to affiliate (note 3) .................. $ 10 177 61,452
Payable for units withdrawn ..................................... -- -- 260
------- ------- ---------
TOTAL LIABILITIES ............................................... 10 177 61,712
======= ======= =========
Net assets attributable to variable life policyholders .......... $13,699 251,706 1,220,197
======= ======= =========
Outstanding units ............................................... 1,336 19,156 121,898
======= ======= =========
Net asset value per unit ........................................ $ 10.25 13.14 10.01
======= ======== ==========
</TABLE>
A-6
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account
Funds
-------------------------------
Capital
Bond Appreciation
Fund Fund
---------------- --------------
<S> <C>
ASSETS
Investment in Oppenheimer Variable Account
Funds, at fair value (note 2):
Bond Fund (295,692 shares;
cost -- $3,477,793)................................. $ 3,521,693 --
Capital Appreciation Fund (166,976 shares;
cost -- $5,835,273)................................. -- 6,839,322
Growth Fund (119,872 shares;
cost -- $3,232,519) ................................ -- --
High Income Fund (579,437 shares;
cost -- $6,650,297) ................................ -- --
Multiple Strategies Fund (188,461 shares;
cost -- $2,701,408) ................................ -- --
Receivable from affiliate .............................. 6,297 10,218
Receivable for units sold .............................. 2,415 19
------------ ---------
TOTAL ASSETS ........................................... $ 3,530,405 6,849,559
============ =========
LIABILITIES
Accrued expenses payable to affiliate (note 3) ......... $ 2,509 4,834
Payable for units withdrawn ............................ -- --
------------ ---------
TOTAL LIABILITIES ...................................... 2,509 4,834
============ =========
Net assets attributable to variable life policyholders $ 3,527,896 6,844,725
============ =========
Outstanding units ...................................... 160,651 205,918
============ =========
Net asset value per unit ............................... $ 21.96 33.24
============ ==========
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
--------------------------------------------
High Multiple
Growth Income Strategies
Fund Fund Fund
-------------- -------------- --------------
<S> <C>
ASSETS
Investment in Oppenheimer Variable Account
Funds, at fair value (note 2):
Bond Fund (295,692 shares;
cost -- $3,477,793)................................. -- -- --
Capital Appreciation Fund (166,976 shares;
cost -- $5,835,273)................................. -- -- --
Growth Fund (119,872 shares;
cost -- $3,232,519) ................................ 3,888,638 -- --
High Income Fund (579,437 shares;
cost -- $6,650,297) ................................ -- 6,675,119 --
Multiple Strategies Fund (188,461 shares;
cost -- $2,701,408) ................................ -- -- 3,205,723
Receivable from affiliate .............................. 10,665 7,311 7,339
Receivable for units sold .............................. -- -- 250
--------- --------- ---------
TOTAL ASSETS ........................................... 3,899,303 6,682,430 3,213,312
========= ========= =========
LIABILITIES
Accrued expenses payable to affiliate (note 3) ......... 2,781 4,709 2,287
Payable for units withdrawn ............................ -- -- --
--------- --------- ---------
TOTAL LIABILITIES ...................................... 2,781 4,709 2,287
========= ========= =========
Net assets attributable to variable life policyholders 3,896,522 6,677,721 3,211,025
========= ========= =========
Outstanding units ...................................... 127,881 207,125 123,075
========= ========= =========
Net asset value per unit ............................... 30.47 32.24 26.09
========== ========== ==========
</TABLE>
A-7
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES -- Continued
<TABLE>
<CAPTION>
Variable Insurance Products Fund
----------------------------------------------------
Equity-
Income Growth Overseas
Portfolio Portfolio Portfolio
ASSETS ----------------- --------------- --------------
<S> <C>
Investment in Variable Insurance Products Fund, at fair value (note 2):
Equity-Income Portfolio (653,078 shares; cost -- $12,703,478) .......... $ 15,856,739 -- --
Growth Portfolio (279,070 shares; cost -- $9,356,526) .................. -- 10,353,485 --
Overseas Portfolio (238,791 shares; cost -- $4,674,883) ................ -- -- 4,584,789
Receivable from affiliate ............................................... 184,301 49,128 --
Receivable for units sold ............................................... 103 -- --
------------- ---------- ---------
TOTAL ASSETS ............................................................ $ 16,041,143 10,402,613 4,584,789
============= ========== =========
LIABILITIES
Accrued expenses payable to affiliate (note 3) .......................... $ 11,464 7,760 22,217
Payable for units withdrawn ............................................. -- 2,301 --
------------- ---------- ---------
TOTAL LIABILITIES ....................................................... 11,464 10,061 22,217
============= ========== =========
Net assets attributable to variable life policyholders .................. $ 16,029,679 10,392,552 4,562,572
============= ========== =========
Outstanding units ....................................................... 489,456 310,040 243,467
============= ========== =========
Net asset value per unit ................................................ $ 32.75 33.52 18.74
============= =========== ==========
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Variable Insurance
Products Fund II Products Fund III
------------------------------- --------------------------
Asset Growth & Growth
Manager Contrafund Income Opportunities
Portfolio Portfolio Portfolio Portfolio
ASSETS ---------------- -------------- ----------- --------------
<S> <C>
Investment in Variable Insurance Products Fund II, at fair
value (note 2):
Asset Manager Portfolio (532,712 shares;
cost -- $7,829,920) ........................................ $ 9,594,141 -- -- --
Contrafund Portfolio (388,534 shares;
cost -- $6,383,696) ........................................ -- 7,747,364 -- --
Investment in Variable Insurance Products Fund III, at fair
value (note 2):
Growth & Income Portfolio (32,799 shares;
cost -- $399,654) .......................................... -- -- 410,968 --
Growth Opportunities Portfolio (18,252 shares;
cost -- $312,482) .......................................... -- -- -- 351,717
Receivable from affiliate ...................................... -- 102,245 -- --
Receivable for units sold ...................................... -- 5,811 -- --
------------ --------- ------- -------
TOTAL ASSETS ................................................... $ 9,594,141 7,855,420 410,968 351,717
============ ========= ======= =======
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. $ 17,812 5,617 523 270
Payable for units withdrawn .................................... 196 -- -- --
------------ --------- ------- -------
TOTAL LIABILITIES .............................................. 18,008 5,617 523 270
============ ========= ======= =======
Net assets attributable to variable life policyholders ......... $ 9,576,133 7,849,803 410,445 351,447
============ ========= ======= =======
Outstanding units .............................................. 395,218 385,172 33,181 28,619
============ ========= ======= =======
Net asset value per unit ....................................... $ 24.23 20.38 12.37 12.28
============ ========== ======== ========
</TABLE>
A-8
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES -- Continued
<TABLE>
<CAPTION>
Federated Investors
Insurance Series
-----------------------------------------
American High Income
Leaders Bond Utility
Fund II Fund II Fund II
ASSETS -------------- ------------- ------------
<S> <C>
Investment in Federated Investors
Insurance Series, at fair value
(note 2):
American Leaders Fund II
(26,307 shares;
cost -- $460,397) ................. $ 516,400 -- --
High Income Bond Fund II
(204,140 shares; cost --
$2,150,785) ....................... -- 2,235,337
Utility Fund II (27,389 shares;
cost -- $323,552) ................. -- -- 391,392
Investment in Alger American, at
fair value (note 2):
Small Cap Portfolio (33,219
shares; cost -- $1,489,796) ....... -- -- --
Growth Portfolio (40,804
shares; cost -- $1,519,356) ....... -- -- --
Investment in PBHG Insurance
Series Fund, at fair value
(note 2):
PBHG Large Cap Growth
Portfolio (2,696 shares;
cost -- $31,213) .................. -- -- --
PBHG Growth II Portfolio
(8,450 shares;
cost -- $91,682) .................. -- -- --
Receivable from affiliate ............. 1,079 1 2,220
Receivable for units sold ............. 648 -- --
---------- --------- -------
TOTAL ASSETS .......................... $ 518,127 2,235,338 393,612
========== ========= =======
LIABILITIES
Accrued expenses payable to
affiliate (note 3) ................... $ 367 1,586 272
Payable for units withdrawn ........... -- 138 --
---------- --------- -------
TOTAL LIABILITIES ..................... 367 1,724 272
========== ========= =======
Net assets attributable to variable
life policyholders ................... $ 517,760 2,233,614 393,340
========== ========= =======
Outstanding units ..................... 35,856 148,413 23,413
========== ========= =======
Net asset value per unit .............. $ 14.44 15.05 16.80
========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
PBHG
Insurance
Alger American Series Fund
----------------------------- ----------------------
PBHG
Small Large Cap PBHG
Cap Growth Growth Growth II
Portfolio Portfolio Portfolio Portfolio
ASSETS -------------- -------------- ----------- ----------
<S> <C>
Investment in Federated Investors
Insurance Series, at fair value
(note 2):
American Leaders Fund II
(26,307 shares;
cost -- $460,397) ................. -- -- -- --
High Income Bond Fund II
(204,140 shares; cost --
$2,150,785) .......................
Utility Fund II (27,389 shares;
cost -- $323,552) ................. -- -- -- --
Investment in Alger American, at
fair value (note 2):
Small Cap Portfolio (33,219
shares; cost -- $1,489,796) ....... 1,453,328 -- -- --
Growth Portfolio (40,804
shares; cost -- $1,519,356) ....... -- 1,744,760 -- --
Investment in PBHG Insurance
Series Fund, at fair value
(note 2):
PBHG Large Cap Growth
Portfolio (2,696 shares;
cost -- $31,213) .................. -- -- 31,869 --
PBHG Growth II Portfolio
(8,450 shares;
cost -- $91,682) .................. -- -- -- 90,836
Receivable from affiliate ............. 5,039 13,014 8 1,335
Receivable for units sold ............. 2,844 205 -- --
--------- --------- ------ ------
TOTAL ASSETS .......................... 1,461,211 1,757,979 31,877 92,171
========= ========= ====== ======
LIABILITIES
Accrued expenses payable to
affiliate (note 3) ................... 1,054 1,203 23 65
Payable for units withdrawn ........... -- -- -- --
--------- --------- ------ ------
TOTAL LIABILITIES ..................... 1,054 1,203 23 65
========= ========= ====== ======
Net assets attributable to variable
life policyholders ................... 1,460,157 1,756,776 31,854 92,106
========= ========= ====== ======
Outstanding units ..................... 137,751 131,397 2,718 8,640
========= ========= ====== ======
Net asset value per unit .............. 10.60 13.37 11.72 10.66
========== ========== ======= =======
</TABLE>
A-9
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series
-------------------------------------------------------------
Aggressive Worldwide
Growth Growth Growth Balanced
Portfolio Portfolio Portfolio Portfolio
ASSETS ---------------- -------------- -------------- --------------
<S> <C>
Investment in Janus Aspen Series, at fair value (note 2):
Aggressive Growth Portfolio (129,799 shares;
cost -- $2,557,497) ......................................... $ 2,667,374 -- -- --
Growth Portfolio (248,877 shares;
cost -- $3,896,519) ......................................... -- 4,599,246 -- --
Worldwide Growth Portfolio (350,595 shares;
cost -- $6,833,877) ......................................... -- -- 8,200,412 --
Balanced Portfolio (200,937 shares;
cost -- $3,297,524) ......................................... -- -- -- 3,510,378
Receivable from affiliate ...................................... 123,091 8,199 31,385 226
Receivable for units sold ...................................... 19 -- 435 37,330
------------ --------- --------- ---------
TOTAL ASSETS ................................................... $ 2,790,484 4,607,445 8,232,232 3,547,934
============ ========= ========= =========
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. $ 2,012 3,239 5,842 2,416
------------ --------- --------- ---------
TOTAL LIABILITIES .............................................. 2,012 3,239 5,842 2,416
============ ========= ========= =========
Net assets attributable to variable life policyholders ......... $ 2,788,472 4,604,206 8,226,390 3,545,518
============ ========= ========= =========
Outstanding units .............................................. 164,512 259,831 440,385 241,520
============ ========= ========= =========
Net asset value per unit ....................................... $ 16.95 17.72 18.68 14.68
============ ========== ========== ==========
</TABLE>
A-10
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
------------------------------------------------
Flexible International Capital
Income Growth Appreciation
Portfolio Portfolio Portfolio
ASSETS -------------- --------------- -------------
<S> <C>
Investment in Janus Aspen Series, at fair value (note 2):
Flexible Income Portfolio (14,658 shares;
cost -- $167,567) ........................................... $ 172,668 -- --
International Growth Portfolio (95,980 shares;
cost -- $1,710,371) ......................................... -- 1,773,714 --
Capital Appreciation Portfolio (948 shares;
cost -- $12,540) ............................................ -- -- 11,958
Receivable from affiliate ...................................... -- 12,521 --
Receivable for units sold ...................................... -- 2,844 --
---------- --------- ------
TOTAL ASSETS ................................................... $ 172,668 1,789,079 11,958
========== ========= ======
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. $ 664 1,261 33
---------- --------- ------
TOTAL LIABILITIES .............................................. 664 1,261 33
========== ========= ======
Net assets attributable to variable life policyholders ......... $ 172,004 1,787,818 11,925
========== ========= ======
Outstanding units .............................................. 13,793 130,880 950
========== ========= ======
Net asset value per unit ....................................... $ 12.47 13.66 12.55
========== ========== =======
</TABLE>
See accompanying notes to financial statements.
A-11
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series
Fund, Inc.)
-----------------------------------
S&P 500 Index
Fund
-----------------------------------
Year ended December 31,
1997 1996 1995
----------- ------------- ---------
<S> <C>
Investment income:
Income -- Dividends ....................................... $ 83,460 652,254 16,395
Expenses -- Mortality and expense risk charges and
administrative expenses (note 3) ........................ 30,270 15,181 5,726
--------- ------- ------
Net investment income (expense) ............................ 53,190 637,073 10,669
--------- ------- ------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) .................................. 125,533 70,710 5,027
Unrealized appreciation (depreciation) on investments ..... 337,547 (460,582) 109,436
--------- -------- -------
Net realized and unrealized gain (loss) on investments ..... 463,080 (389,872) 114,463
--------- -------- -------
Increase in net assets from operations ..................... $ 516,270 247,201 125,132
========= ======== =======
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series
Fund, Inc.)
----------------------------------
Government Securities
Fund
----------------------------------
Year ended December 31,
1997 1996 1995
----------- ------------ ---------
<S> <C>
Investment income:
Income -- Dividends ....................................... -- 77,670 47,230
Expenses -- Mortality and expense risk charges and
administrative expenses (note 3) ........................ 9,821 10,265 11,615
----- ------ ------
Net investment income (expense) ............................ (9,821) 67,405 35,615
------ ------ ------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) .................................. 2,596 4,093 12,380
Unrealized appreciation (depreciation) on investments ..... 46,607 (68,909) 79,507
------ ------- ------
Net realized and unrealized gain (loss) on investments ..... 49,203 (64,816) 91,887
------ ------- ------
Increase in net assets from operations ..................... 39,382 2,589 127,502
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund,
Inc.) (continued)
----------------------------------------
Money Market
Fund
----------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------ -------------
<S> <C>
Investment income:
Income -- Dividends ...................................... $ 524,091 500,346 259,698
Expenses -- Mortality and expense risk charge and
administrative expenses (note 3) ....................... 134,484 131,290 60,222
----------- ------- -------
Net investment income (expense) ........................... 389,607 369,056 199,476
----------- ------- -------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ................................. (256,503) 137,112 128,436
Unrealized appreciation (depreciation) on
investments ............................................ 287,655 (89,338) (122,638)
----------- ------- --------
Net realized and unrealized gain (loss) on investments 31,152 47,774 5,798
----------- ------- --------
Increase in net assets from operations .................... $ 420,759 416,830 205,274
=========== ======= ========
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series
Fund, Inc.)
(continued)
---------------------------------
Total Return
Fund
---------------------------------
Year ended December 31,
1997 1996 1995
--------- ------------- ---------
<S> <C>
Investment income:
Income -- Dividends ...................................... 228,688 387,179 78,232
Expenses -- Mortality and expense risk charge and
administrative expenses (note 3) ....................... 20,274 16,395 11,743
------- ------- ------
Net investment income (expense) ........................... 208,414 370,784 66,489
------- ------- ------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ................................. 1,710 37,094 10,068
Unrealized appreciation (depreciation) on
investments ............................................ 26,729 (292,293) 134,624
------- -------- -------
Net realized and unrealized gain (loss) on investments 28,439 (255,199) 144,692
------- -------- -------
Increase in net assets from operations .................... 236,853 115,585 211,181
======= ======== =======
</TABLE>
A-12
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.) (continued)
----------------------------------------------------------
International
Equity Fund
----------------------------------------------------------
Period from
Year ended Year ended June 30, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- ------------------
<S> <C>
Investment income:
Income -- Dividends .................................. $ 86,245 46,694 3,880
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ............... 11,206 5,198 737
-------- ------ -----
Net investment income ................................. 75,039 41,496 3,143
-------- ------ -----
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ............................. 146,386 19,981 44
Unrealized appreciation (depreciation) on investments (6,150) (29,424) 3,983
-------- ------- -----
Net realized and unrealized gain (loss) on investments 140,236 (9,443) 4,027
-------- ------- -----
Increase (decrease) in net assets from operations ..... $215,275 32,053 7,170
======== ======= =====
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.) (continued)
------------------------------------------------------------
Real Estate
Securities Fund
------------------------------------------------------------
Period from
Year ended Year Ended December 6, 1995 to
December 31, 1997 December 31, 1996 December 31, 1995
------------------- ------------------- --------------------
<S> <C>
Investment income:
Income -- Dividends ................................... $ 111,357 14,330 22
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ................ 10,398 1,294 --
--------- ------
Net investment income .................................. 100,959 13,036 22
--------- ------ --
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) .............................. 142,744 3,590 --
Unrealized appreciation (depreciation) on investments . (97,672) 29,513 (2)
--------- ------ -----
Net realized and unrealized gain (loss) on investments . 45,072 33,103 (2)
--------- ------ -----
Increase (decrease) in net assets from operations ...... $ 146,031 46,139 20
========= ====== ====
</TABLE>
A-13
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.) (continued)
-----------------------------------------------------------
Global Income Value Equity Income
Fund Fund Fund
-------------------- ------------------- ------------------
Period from Period from Period from
September 15, 1997 June 17, 1997 December 12, 1997
to to to
December 31, 1997 December 31, 1997 December 31, 1997
-------------------- ------------------- ------------------
<S> <C>
Investment income:
Income -- Dividends ........................................... $ 684 2,631 3,329
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ........................ 19 710 733
------ ----- -----
Net investment income .......................................... 665 1,921 2,596
------ ----- -----
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ...................................... -- 208 (2,508)
Unrealized appreciation (depreciation) on investments ......... (669) 1,977 1,454
------ ----- ------
Net realized and unrealized gain (loss) on investments ......... (669) 2,185 (1,054)
------ ----- ------
Increase (decrease) in net assets from operations .............. $ (4) 4,106 1,542
====== ===== ======
</TABLE>
A-14
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
----------------------------------
Money Fund
---------------------------------
Year ended December 31,
1997 1996 1995
---------- -------- ---------
<S> <C>
Investment income:
Income -- Dividends ........................................... $ 7,779 12,118 20,916
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ........................ 1,958 2,973 4,563
------- ------ ------
Net investment income (expense) ................................ 5,821 9,145 16,353
------- ------ ------
Net realized and unrealized gain (loss) on investments:
Net realized gain ............................................. -- -- --
Unrealized appreciation (depreciation) on investments ......... -- -- --
Net realized and unrealized gain (loss) on investments -- -- --
Increase in net assets from operations ......................... $ 5,821 9,145 16,353
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
(continued)
---------------------------------------
Bond Fund
---------------------------------------
Year ended December 31,
1997 1996 1995
------------ ------------ ---------
<S> <C>
Investment income:
Income -- Dividends ........................................... $ 128,635 106,583 89,363
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ........................ 21,914 22,427 21,561
--------- ------- ------
Net investment income (expense) ................................ 106,721 84,156 67,802
--------- ------- ------
Net realized and unrealized gain (loss) on investments:
Net realized gain ............................................. 11,410 31,061 16,138
Unrealized appreciation (depreciation) on investments ......... 14,947 (44,892) 167,799
--------- ------- -------
Net realized and unrealized gain (loss) on investments ......... 26,357 (13,831) 183,937
--------- ------- -------
Increase in net assets from operations ......................... $ 133,078 70,325 251,739
========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
(continued)
--------------------------------------
Capital Appreciation Fund
--------------------------------------
Year ended December 31,
1997 1996 1995
----------- --------- ------------
<S> <C>
Investment income:
Income -- Dividends ........................................... $271,809 216,310 9,020
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ........................ 80,784 58,271 29,001
-------- ------- ------
Net investment income (expense) ................................ 191,025 158,039 (19,981)
Net realized and unrealized gain (loss) on investments:
Net realized gain ............................................. 362,326 207,037 18,656
Unrealized appreciation (depreciation) on investments ......... 69,894 284,866 654,277
-------- ------- -------
Net realized and unrealized gain (loss) on investments ......... 432,220 491,903 672,933
-------- ------- -------
Increase in net assets from operations ......................... $623,245 649,942 652,952
======== ======= =======
</TABLE>
A-15
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
(continued)
-----------------------------------
Growth Fund
-----------------------------------
Year ended December 31,
1997 1996 1995
----------- --------- ---------
<S> <C>
Investment income:
Income -- Dividends ........................................... $137,266 100,033 20,599
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ........................ 39,859 18,585 12,467
-------- ------- ------
Net investment income (expense) ................................ 97,407 81,448 8,132
-------- ------- ------
Net realized and unrealized gain (loss) on investments:
Net realized gain ............................................. 211,799 104,773 58,948
Unrealized appreciation (depreciation) on investments ......... 311,259 101,309 212,160
-------- ------- -------
Net realized and unrealized gain (loss) on investments ......... 523,058 206,082 271,108
-------- ------- -------
Increase in net assets from operations ........................ $620,465 287,530 279,240
======== ======= =======
</TABLE>
A-16
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds (continued)
--------------------------------------------------------------
High Income Fund Multiple Strategies Fund
------------------------------- ------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
----------- --------- --------- --------- --------- ----------
<S> <C>
Investment income:
Income -- Dividends .................................... $ 395,329 317,982 157,280 204,231 161,518 142,518
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ................. 56,210 39,512 22,782 36,789 29,130 25,397
--------- ------- ------- ------- ------- -------
Net investment income ................................... 339,119 278,470 134,498 167,442 132,388 117,121
--------- ------- ------- ------- ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain .................................... 180,406 57,827 18,618 34,009 53,160 24,327
Unrealized appreciation (depreciation) on
investments ......................................... (53,341) 72,516 83,576 206,122 106,953 206,074
--------- ------- ------- ------- ------- -------
Net realized and unrealized gain on investments ......... 127,065 130,343 102,194 240,131 160,113 230,401
--------- ------- ------- ------- ------- -------
Increase in net assets from operations .................. $ 466,184 408,813 236,692 407,573 292,501 347,522
========= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
------------------------------------------------------------------
Money Market Portfolio High Income Portfolio
----------------------------- ------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
---------- -------- --------- ------------ ------------ ----------
<S> <C>
Investment income:
Income -- Dividends .................................... $91,625 75,804 237,224 105,638 201,481 186,422
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ................. 10,228 18,807 54,127 15,435 20,933 28,004
------- ------ ------- ------- ------- -------
Net investment income (expense) ......................... 81,397 56,997 183,097 90,203 180,548 158,418
------- ------ ------- ------- ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) ............................. -- -- -- 185,532 (17,100) 137,054
Unrealized appreciation (depreciation) on
investments ......................................... -- -- -- (92,552) 27,229 66,195
------- ------ ------- ------- ------- -------
Net realized and unrealized gain on investments ......... -- -- -- 92,980 10,129 203,249
------- ------ ------- ------- ------- -------
Increase in net assets from operations .................. $81,397 56,997 183,097 183,183 190,677 361,667
======= ====== ======= ======= ======= =======
</TABLE>
A-17
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Variable Insurance Products Fund (continued)
---------------------------------------------------------------------------
Equity-Income Portfolio Growth Portfolio
--------------------------------------- -----------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
------------- ------------ ------------ ------------ --------- ------------
<S> <C>
Investment income:
Income -- Dividends ........................... $1,283,339 413,062 399,376 315,208 461,083 20,548
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .................................... 186,346 140,373 82,498 121,040 101,913 65,478
---------- ------- ------- ------- ------- ------
Net investment income (expense) ................ 1,096,993 272,689 316,878 194,168 359,170 (44,930)
---------- ------- ------- ------- ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) .................... 1,197,816 500,603 130,101 1,766,746 536,491 280,133
Unrealized appreciation (depreciation) on
investments ................................ 1,016,128 539,174 1,347,468 (282,336) 31,232 1,091,397
---------- ------- --------- --------- ------- ---------
Net realized and unrealized gain on
investments ................................... 2,213,944 1,039,777 1,477,569 1,484,410 567,723 1,371,530
---------- --------- --------- --------- ------- ---------
Increase in net assets from operations ......... $3,310,937 1,312,466 1,794,447 1,678,578 926,893 1,326,600
========== ========= ========= ========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
(continued) Variable Insurance Products Fund II
--------------------------------------- -------------------------------------
Overseas Portfolio Asset Manager Portfolio
--------------------------------------- -------------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
------------- ------------ ------------ ----------- ------------ ------------
<S> <C>
Investment income:
Income -- Dividends ........................... $ 506,300 176,637 25,524 1,006,221 555,062 156,409
Expenses -- Mortality and expense
risk charges and administrative
expenses (note 3) ........................... 73,250 81,887 70,739 120,291 107,941 96,822
---------- ------- ------ --------- ------- -------
Net investment income (expense) ................ 433,050 94,750 (45,215) 885,930 447,121 59,587
---------- ------- ------- --------- ------- -------
Net realized and unrealized gain (loss)
on investments:
Net realized gain ........................... 801,884 517,315 383,399 187,349 168,152 13,225
Unrealized appreciation
(depreciation) on investments .............. (489,713) (15,497) 356,600 534,401 400,455 1,011,885
---------- ------- ------- --------- ------- ---------
Net realized and unrealized gain (loss)
on investments ................................ 312,171 501,818 739,999 721,750 568,607 1,025,110
---------- ------- ------- --------- ------- ---------
Increase in net assets from operations ......... $ 745,221 596,568 694,784 1,607,680 1,015,728 1,084,697
========== ======= ======= ========= ========= =========
</TABLE>
A-18
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Variable Insurance Variable Insurance
Products Fund II (continued) Product Fund III
------------------------------------------------- -----------------------------
Growth Growth
Contrafund & Income Opportunities
Portfolio Portfolio Portfolio
------------------------------------------------- -------------- --------------
Period from Period from Period from
January 16, May 16, May 16,
Year ended 1995 to 1997 to 1997 to
Year ended December 31, December 31, December 31, December 31,
December 31, 1997 1996 1995 1997 1997
------------------- -------------- -------------- -------------- --------------
<S> <C>
Investment income:
Income -- Dividends ........................... $ 150,006 15,826 18,917 -- --
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .................................... 81,691 38,668 5,771 1,712 1,910
---------- ------ ------ ----- -----
Net investment income (expense) ................ 68,315 (22,842) 13,146 (1,712) (1,910)
---------- ------- ------ ------ ------
Net realized and unrealized gain (loss) on
investments:
Net realized gain ........................... 268,831 100,260 10,744 6,219 876
Unrealized appreciation (depreciation)
on investments ............................. 823,917 476,601 63,150 11,314 39,235
---------- ------- ------ ------ ------
Net realized and unrealized gain (loss) on
investments ................................... 1,092,748 576,861 73,894 17,533 40,111
---------- ------- ------ ------ ------
Increase in net assets from operations ......... $1,161,063 554,019 87,040 15,821 38,201
========== ======= ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Neuberger & Berman Advisers Management Trust
----------------------------------------------------------------------
Balanced Portfolio Bond Portfolio
------------------------------------ ---------------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
------------ ------------- --------- ----------- ----------- ---------
<S> <C>
Investment income:
Income -- Dividends ........................... $ 123,193 293,957 47,572 36,455 67,433 51,824
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .................................... 24,999 24,806 27,169 6,443 9,529 11,324
---------- ------- ------ ------ ------ ------
Net investment income .......................... 98,194 269,151 20,403 30,012 57,904 40,500
---------- ------- ------ ------ ------ ------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) .................... 315,380 13,816 103,017 (3,318) (5,135) (637)
Unrealized appreciation (depreciation) on
investments ................................ (146,827) (182,324) 294,095 (1,629) (34,909) 39,427
---------- -------- ------- ------ ------- ------
Net realized and unrealized gain (loss) on
investments ................................... 168,553 (168,508) 397,112 (4,947) (40,044) 38,790
---------- -------- ------- ------ ------- ------
Increase in net assets from operations ......... $ 266,747 100,643 417,515 25,065 17,860 79,290
========== ======== ======= ====== ======= ======
</TABLE>
A-19
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Neuberger & Berman Advisers Management
Trust (continued)
--------------------------------------
Growth Portfolio
--------------------------------------
Year ended December 31,
1997 1996 1995
------------ ----------- ---------
<S> <C>
Investment income:
Income -- Dividends ........................................... $ 64,488 68,654 11,027
Expenses -- Mortality and expense risk charges and
administrative expenses (note 3) ............................ 9,747 9,845 6,161
--------- ------ ------
Net investment income .......................................... 54,741 58,809 4,866
--------- ------ ------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ...................................... 150,610 5,513 3,921
Unrealized appreciation (depreciation) on investments ......... (55,310) (6,856) 87,810
--------- ------ ------
Net realized and unrealized gain (loss) on investments ......... 95,300 (1,343) 91,731
--------- ------ ------
Increase in net assets from operations ......................... $ 150,041 57,466 96,597
========= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Federated Investors
Insurance Series
---------------------------------------------------------------------------------------
American Leaders Fund II High Income Bond Fund II
---------------------------------- --------------------------------------------------
Period from Period from
September 5, February 7,
Year ended 1996 Year ended Year ended 1995
December 31, to December 31, December 31, December 31, to December 31,
1997 1996 1997 1996 1995
-------------- ----------------- -------------- -------------- ----------------
<S> <C>
Investment income:
Income -- Dividends ........... $ 1,480 96 45,217 36,032 1,350
Expenses -- Mortality and
expense risk charges and
administrative expenses
(note 3) .................... 3,437 60 10,943 5,378 190
-------- -- ------ ------ -----
Net investment income
(expense) ..................... (1,957) 36 34,274 30,654 1,160
-------- -- ------ ------ -----
Net realized and unrealized gain
on investments:
Net realized gain ........... 11,788 19 5,827 1,726 8
Unrealized appreciation on
investments ................ 53,148 2,855 55,167 27,920 1,465
-------- ----- ------ ------ -----
Net realized and unrealized gain
on investments ................ 64,936 2,874 60,994 29,646 1,473
-------- ----- ------ ------ -----
Increase in net assets from
operations .................... $ 62,979 2,910 95,268 60,300 2,633
======== ===== ====== ====== =====
</TABLE>
A-20
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Federated Investors
Insurance Series (continued)
---------------------------------------------------------
Utility Fund II
---------------------------------------------------------
Period from
February 7,
1995 to
Year ended Year ended December 31,
December 31, 1997 December 31, 1996 1995
------------------- ------------------- -------------
<S> <C>
Investment income:
Income -- Dividends .................................... $12,197 6,514 2,908
Expenses -- Mortality and expense risk
charges and administrative expenses (note 3) ......... 3,837 2,042 839
------- ----- -----
Net investment income (expense) ......................... 8,360 4,472 2,069
------- ----- -----
Net realized and unrealized gain on investments:
Net realized gain ...................................... 11,484 9,190 237
Unrealized appreciation on investments ................. 50,092 5,651 12,097
------- ----- ------
Net realized and unrealized gain on investments ......... 61,576 14,841 12,334
------- ------ ------
Increase in net assets from operations .................. $69,936 19,313 14,403
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Alger American
--------------------------------------------
Small Cap Portfolio
--------------------------------------------
Period from
October 6,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- --------------
<S> <C>
Investment income:
Income -- Dividends ..................... $ 42,941 3,785 --
Expenses -- Mortality and expense
risk charges and administrative
expenses (note 3) ..................... 18,711 10,887 312
--------- ------ ---
Net investment income (expense) .......... 24,230 (7,102) (312)
--------- ------ ----
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) .............. 155,266 (13,977) 912
Unrealized appreciation
(depreciation) on investments (23,084) (18,580) 5,196
--------- ------- -----
Net realized and unrealized gain
(loss) on investments ................... 132,182 (32,557) 6,108
--------- ------- -----
Increase (decrease) in net assets from
operations .............................. $ 156,412 (39,659) 5,796
========= ======= =====\
</TABLE>
<TABLE>
<CAPTION>
Alger American
-------------------------------------------
Growth Portfolio
-------------------------------------------
Period from
November 2,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C>
Investment income:
Income -- Dividends ..................... 15,712 14,003 --
Expenses -- Mortality and expense
risk charges and administrative
expenses (note 3) ..................... 21,426 7,612 81
------ ------ --
Net investment income (expense) .......... (5,714) 6,391 (81)
------ ------ ---
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) .............. 121,886 (8,548) 1
Unrealized appreciation
(depreciation) on investments 195,886 27,545 1,973
------- ------ -----
Net realized and unrealized gain
(loss) on investments ................... 317,772 18,997 1,974
------- ------ -----
Increase (decrease) in net assets from
operations .............................. 312,058 25,388 1,893
======= ====== =====
</TABLE>
A-21
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
PBHG Insurance
Series Fund
----------------------------------------------
PBHG PBHG
Large Cap Growth II
Growth Portfolio Portfolio
---------------------- ---------------------
Period from Period from
July 22, 1997 May 22, 1997
to December 31, 1997 to December 31, 1997
---------------------- ---------------------
<S> <C>
Investment income:
Income -- Dividends ............................................. $ -- --
Expenses -- Mortality and expense risk charges and administrative
expenses (note 3) ............................................. 205 540
----- ---
Net investment income (expense) .................................. (205) (540)
----- ----
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ........................................ (1) 1,296
Unrealized appreciation (depreciation) on investments ........... 656 (846)
------- -----
Net realized and unrealized gain (loss) on investments ........... 655 450
------- -----
Increase (decrease) in net assets from operations ................ $ 450 (90)
======= =====
</TABLE>
A-22
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series
------------------------------------------------------------------
Aggressive Growth Portfolio Growth Portfolio
------------------------------------ -----------------------------
Year ended December 31, Year ended December 31,
1997 1996 1995 1997 1996 1995
------------ ------------- --------- --------- --------- ---------
<S> <C>
Investment income:
Income -- Dividends .................................... $ -- 16,844 23,054 112,727 59,031 27,427
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ................. 28,915 23,442 12,371 49,779 27,643 11,359
--------- ------ ------ ------- ------ ------
Net investment income (expense) ......................... (28,915) (6,598) 10,683 62,948 31,388 16,068
--------- ------ ------ ------- ------ ------
Net realized and unrealized gain (loss) on
investments:
Net realized gain .................................... 192,226 267,683 127,218 243,734 132,138 22,274
Unrealized appreciation (depreciation) on
investments ......................................... 99,444 (112,622) 116,589 376,858 144,223 180,762
--------- -------- ------- ------- ------- -------
Net realized and unrealized gain on investments ......... 291,670 155,061 243,807 620,592 276,361 203,036
--------- -------- ------- ------- ------- -------
Increase in net assets from operations .................. $ 262,755 148,463 254,490 683,540 307,749 219,104
========= ======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
----------------------------------------------------------------------------------------
Worldwide Growth Portfolio Balanced Portfolio
-------------------------------------------- -------------------------------------------
Period from
October 27,
Year ended Year ended Year ended Year ended Year ended 1995 to
December 31, December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1996 1995
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C>
Investment income:
Income -- Dividends ......... $ 114,020 59,279 5,062 54,275 10,644 242
Expenses -- Mortality and
expense risk charges and
administrative expenses
(note 3) .................. 91,422 40,177 10,890 15,089 4,138 70
---------- ------ ------ ------ ------ ---
Net investment income
(expense) ................... 22,598 19,102 (5,828) 39,186 6,506 172
---------- ------ ------ ------ ------ ---
Net realized and unrealized
gain (loss) on investments:
Net realized gain ......... 457,649 156,316 17,153 16,368 3,534 6
Unrealized appreciation
(depreciation) on
investments .............. 666,571 498,790 203,456 172,861 38,227 1,767
---------- ------- ------- ------- ------ -----
Net realized and unrealized
gain on investments ......... 1,124,220 655,106 220,609 189,229 41,761 1,773
---------- ------- ------- ------- ------ -----
Increase in net assets from
operations .................. $1,146,818 674,208 214,781 228,415 48,267 1,945
========== ======= ======= ======= ====== =====
</TABLE>
A-23
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
--------------------------------------------
Flexible Income Portfolio
--------------------------------------------
Period from
November 1,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- --------------
<S> <C>
Investment income:
Income -- Dividends ...................... $12,042 9,499 182
Expenses -- Mortality and expense
risk charges and administrative
expenses (note 3) ...................... 2,246 1,046 11
------- ----- ---
Net investment income (expense) ........... 9,796 8,453 171
------- ----- ---
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ............... 3,107 111 --
Unrealized appreciation
(depreciation) on investments ......... 4,489 585 26
------- ----- ---
Net realized and unrealized gain (loss)
on investments ........................... 7,596 696 26
------- ----- ---
Increase (decrease) in net assets from
operations ............................... $17,392 9,149 197
======= ===== ===
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
-------------------------------------------
International Capital
Growth Appreciation
Portfolio Portfolio
----------------------------- -------------
Period from Period from
June 5, May 22,
Year ended 1996 to 1997 to
December 31, December 31, December 31,
1997 1996 1997
-------------- -------------- -------------
<S> <C>
Investment income:
Income -- Dividends ...................... 13,292 2,339 37
Expenses -- Mortality and expense
risk charges and administrative
expenses (note 3) ...................... 19,234 1,253 112
------ ----- ---
Net investment income (expense) ........... (5,942) 1,086 (75)
------ ----- ---
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ............... 145,208 2,328 (7,519)
Unrealized appreciation
(depreciation) on investments ......... 45,943 17,399 (582)
------- ------ ------
Net realized and unrealized gain (loss)
on investments ........................... 191,151 19,727 (8,101)
------- ------ ------
Increase (decrease) in net assets from
operations ............................... 185,209 20,813 (8,176)
======= ====== ======
</TABLE>
See accompanying notes to financial statements.
A-24
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund,
Inc.)
---------------------------------------
S&P 500 Index Fund
---------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------- -----------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income ............................ $ 53,190 637,073 10,669
Net realized gain (loss) ......................... 125,533 70,710 5,027
Unrealized appreciation (depreciation) on
investments .................................... 337,547 (460,582) 109,436
---------- -------- -------
Increase in net assets from operations ............ 516,270 247,201 125,132
---------- -------- -------
From capital transactions:
Net premiums ..................................... 29,621 -- --
Loan interest .................................... (472) (45) (19)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ................................. (1,802) (70,983) --
Surrenders ..................................... (50,594) (8,805) --
Loans .......................................... (10,019) (23,690) --
Cost of insurance and administrative
expense (note 3) .............................. (24,852) (12,093) (4,705)
Transfer gain (loss) and transfer fees ......... (2,909) (3,844) 2,612
Transfers (to) from the Guarantee Account
(note 1) ....................................... 33,241 40,800 8,390
Interfund transfers .............................. 1,154,053 531,241 493,348
---------- -------- -------
Increase (decrease) in net assets from capital
transactions ..................................... 1,126,267 452,581 499,626
---------- -------- -------
Increase (decrease) in net assets ................. 1,642,537 699,782 624,758
Net assets at beginning of year ................... 1,558,602 858,820 234,062
---------- -------- -------
Net assets at end of year ......................... $3,201,139 1,558,602 858,820
========== ========= =======
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund,
Inc.)
--------------------------------------
Government Securities Fund
--------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------ -----------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income ............................ (9,821) 67,405 35,615
Net realized gain (loss) ......................... 2,596 4,093 12,380
Unrealized appreciation (depreciation) on
investments .................................... 46,607 (68,909) 79,507
------ ------- ------
Increase in net assets from operations ............ 39,382 2,589 127,502
------ ------- -------
From capital transactions:
Net premiums ..................................... 13,143 -- --
Loan interest .................................... (455) (35) (29)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (262,974) (27,170) (57,612)
Loans .......................................... (23,924) (1,574) (2,218)
Cost of insurance and administrative
expense (note 3) .............................. (8,334) (8,533) (9,352)
Transfer gain (loss) and transfer fees ......... (3,207) (829) (845)
Transfers (to) from the Guarantee Account
(note 1) ....................................... 288 (3,299) --
Interfund transfers .............................. (529,174) 12,746 35,175
-------- ------- -------
Increase (decrease) in net assets from capital
transactions ..................................... (814,637) (28,694) (34,881)
-------- ------- -------
Increase (decrease) in net assets ................. (775,255) (26,105) 92,621
Net assets at beginning of year ................... 775,255 801,360 708,739
-------- ------- -------
Net assets at end of year ......................... -- 775,255 801,360
======== ======= =======
</TABLE>
A-25
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund, Inc.)
(continued)
--------------------------------------------------
Money Market Fund
--------------------------------------------------
Year ended December 31,
1997 1996 1995
---------------- ---------------- ----------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income ......................... $ 389,607 369,056 199,476
Net realized gain (loss) ..................... (256,503) 137,112 128,436
Unrealized appreciation (depreciation) on
investments ................................ 287,655 (89,338) (122,638)
-------------- ------- --------
Increase in net assets from operations ........ 420,759 416,830 205,274
-------------- ------- --------
From capital transactions:
Net premiums ................................. 14,800,378 21,281,538 14,618,729
Loan interest ................................ 25,356 843 2
Transfers (to) from the general account
of Life of Virginia:
Death benefits ............................. -- (30,581) --
Surrenders ................................. (81,503) (292,797) (83,593)
Loans ...................................... (259,694) (1,123,153) --
Cost of insurance and administrative
expense (note 3) .......................... (124,687) (120,240) (49,685)
Transfer gain (loss) and transfer fees ..... (135,353) (46,805) (455,729)
Transfers (to) from the Guarantee
Account (note 1) ........................... (32,069) (480,716) 35,940
Interfund transfers .......................... (13,250,370) (15,451,140) (12,260,599)
-------------- ----------- -----------
Increase (decrease) in net assets from
capital transactions ......................... 942,058 3,736,949 1,805,065
-------------- ----------- -----------
Increase (decrease) in net assets ............. 1,362,817 4,153,779 2,010,339
Net assets at beginning of year ............... 9,891,507 5,737,728 3,727,389
-------------- ----------- -----------
Net assets at end of year ..................... $ 11,254,324 9,891,507 5,737,728
============== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
(formerly Life of Virginia Series Fund,
Inc.) (continued)
-----------------------------------------
Total Return Fund
-----------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income ......................... 208,414 370,784 66,489
Net realized gain (loss) ..................... 1,710 37,094 10,068
Unrealized appreciation (depreciation) on
investments ................................ 26,729 (292,293) 134,624
------- -------- -------
Increase in net assets from operations ........ 236,853 115,585 211,181
------- -------- -------
From capital transactions:
Net premiums ................................. 37,415 -- --
Loan interest ................................ 77 (130) (90)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ............................. (122,969) -- --
Surrenders ................................. (9,555) (105,824) (52,620)
Loans ...................................... (31,550) -- 5,060
Cost of insurance and administrative
expense (note 3) .......................... (16,232) (13,237) (9,674)
Transfer gain (loss) and transfer fees ..... (3,467) 1,607 1,184
Transfers (to) from the Guarantee
Account (note 1) ........................... 45,496 40,576 2,000
Interfund transfers .......................... 134,091 264,670 180,662
-------- -------- -------
Increase (decrease) in net assets from
capital transactions ......................... 33,306 187,662 126,522
-------- -------- -------
Increase (decrease) in net assets ............. 270,159 303,247 337,703
Net assets at beginning of year ............... 1,398,465 1,095,218 757,515
--------- --------- -------
Net assets at end of year ..................... 1,668,624 1,398,465 1,095,218
========= ========= =========
</TABLE>
A-26
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc. (formerly Life
of Virginia Series Fund, Inc.) (continued)
-----------------------------------------------
International Equity Fund
-----------------------------------------------
Period from
June 30,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................................... $ 75,039 41,496 3,143
Net realized gain (loss) ........................................... 146,386 19,981 44
Unrealized appreciation (depreciation) on investments .............. (6,150) (29,424) 3,983
---------- ------- -----
Increase (decrease) in net assets from operations ................... 215,275 32,053 7,170
---------- ------- -----
From capital transactions:
Net premiums ....................................................... 1,056 -- --
Loan interest ...................................................... (12) -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................... -- -- --
Surrenders ....................................................... -- 750 --
Loans ............................................................ 1,860 -- --
Cost of insurance and administrative expense (note 3) ............ (9,446) (4,299) (624)
Transfer gain (loss) and transfer fees ........................... (16,723) 320 (13)
Transfer (to) from the Guarantee Account (note 1) .................. -- -- 14,623
Interfund transfers ................................................ (727,513) 551,175 191,589
---------- ------- -------
Increase (decrease) in net assets from capital transactions ......... (750,778) 547,946 205,575
---------- ------- -------
Increase (decrease) in net assets ................................... (535,503) 579,999 212,745
Net assets at beginning of period ................................... 792,744 212,745 --
---------- ------- -------
Net assets at end of year ........................................... $ 257,241 792,744 212,745
========== ======= =======
</TABLE>
A-27
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc. (formerly Life
of Virginia Series Fund, Inc.) (continued)
-----------------------------------------------
Real Estate Securities Fund
-----------------------------------------------
Period from
December 6,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................................... $ 100,959 13,036 22
Net realized gain (loss) ........................................... 142,744 3,590 --
Unrealized appreciation (depreciation) on investments .............. (97,672) 29,513 (2)
---------- ------ -----
Increase (decrease) in net assets from operations ................... 146,031 46,139 20
---------- ------ ----
From capital transactions:
Net premiums ....................................................... 62,904 9,377 --
Loan interest ...................................................... -- -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................... -- -- --
Surrenders ....................................................... -- -- --
Loans ............................................................ (16,740) -- --
Cost of insurance and administrative expense (note 3) ............ (9,178) (1,186) --
Transfer gain (loss) and transfer fees ........................... (5,456) (277) (1)
Transfer (to) from the Guarantee Account (note 1) .................. 3,269 -- --
Interfund transfers ................................................ 661,463 173,587 375
---------- ------- ----
Increase (decrease) in net assets from capital transactions ......... 696,262 181,501 374
---------- ------- ----
Increase (decrease) in net assets ................................... 842,293 227,640 394
Net assets at beginning of period ................................... 228,034 394 --
---------- ------- ----
Net assets at end of year ........................................... $1,070,327 228,034 394
========== ======= ====
</TABLE>
A-28
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc. (formerly Life
of Virginia Series Fund, Inc.) (continued)
------------------------------------------------
Global Value
Income Equity Income
Fund Fund Fund
--------------- -------------- -------------
Period from Period from Period from
September 15, June 17, December 12,
1997 to 1997 to 1997 to
December 31, December 31, December 31,
1997 1997 1997
--------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................................... $ 665 1,921 2,596
Net realized gain (loss) ........................................... -- 208 (2,508)
Unrealized appreciation (depreciation) on investments .............. (669) 1,977 1,454
------ ----- ------
Increase (decrease) in net assets from operations ................... (4) 4,106 1,542
--------- ----- ------
From capital transactions:
Net premiums ....................................................... -- 4,596 --
Loan interest ...................................................... -- -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................... -- -- --
Surrenders ....................................................... -- -- --
Loans ............................................................ -- -- (2,396)
Cost of insurance and administrative expense (note 3) ............ (18) (615) (742)
Transfer gain (loss) and transfer fees ........................... -- 360 (202)
Transfer (to) from the Guarantee Account (note 1) .................. -- -- --
Interfund transfers ................................................ 13,721 243,259 1,221,995
-------- ------- ---------
Increase (decrease) in net assets from capital transactions ......... 13,703 247,600 1,218,655
-------- ------- ---------
Increase (decrease) in net assets ................................... 13,699 251,706 1,220,197
Net assets at beginning of period ................................... -- -- --
-------- ------- ---------
Net assets at end of year ........................................... $13,699 251,706 1,220,197
======== ======= =========
</TABLE>
A-29
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
---------------------------------------
Money Fund
---------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------- -----------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ 5,821 9,145 16,353
Net realized gain (loss) ......................... -- -- --
Unrealized appreciation (depreciation) on
investments .................................... -- -- --
----------- ----- ------
Increase (decrease) in net assets from
operations ....................................... 5,821 9,145 16,353
----------- ----- ------
From capital transactions:
Net premiums ..................................... -- -- --
Loan interest .................................... -- (247) --
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... -- -- --
Loans .......................................... -- (7,000) --
Cost of insurance and administrative
expense (note 3) .............................. (1,618) (2,228) (4,184)
Transfer gain (loss) and transfer fees ......... 26 (1,331) (1,197)
Transfers (to) from the Guarantee
Account (note 1) ............................... -- -- --
Interfund transfers .............................. (160,456) (178,397) 64,757
----------- -------- ------
Increase (decrease) in net assets from
capital transactions ............................. (162,048) (189,203) 59,376
----------- -------- ------
Increase (decrease) in net assets ................. (156,227) (180,058) 75,729
Net assets at beginning of year ................... 156,227 336,285 260,556
----------- -------- -------
Net assets at end of year ......................... $ -- 156,227 336,285
=========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
-------------------------------------------
Bond Fund
-------------------------------------------
Year ended December 31,
1997 1996 1995
------------ ------------ -----------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. 106,721 84,156 67,802
Net realized gain (loss) ......................... 11,410 31,061 16,138
Unrealized appreciation (depreciation) on
investments .................................... 14,947 (44,892) 167,799
------- ------- -------
Increase (decrease) in net assets from
operations ....................................... 133,078 70,325 251,739
------- ------- -------
From capital transactions:
Net premiums ..................................... 12,401 -- --
Loan interest .................................... 224 (240) (521)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... -- (19,035) (89,985)
Loans .......................................... (20,518) (46,361) (3)
Cost of insurance and administrative
expense (note 3) .............................. (17,321) (18,368) (15,660)
Transfer gain (loss) and transfer fees ......... 4,175 5,246 (11,174)
Transfers (to) from the Guarantee
Account (note 1) ............................... 10,164 9,597 --
Interfund transfers .............................. 1,749,977 49,462 (1,051,342)
--------- ------- ------------
Increase (decrease) in net assets from
capital transactions ............................. 1,739,102 (19,699) (1,168,685)
--------- ------- ------------
Increase (decrease) in net assets ................. 1,872,180 50,626 (916,946)
Net assets at beginning of year ................... 1,655,716 1,605,090 2,522,036
--------- --------- ------------
Net assets at end of year ......................... 3,527,896 1,655,716 1,605,090
========= ========= ============
</TABLE>
A-30
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
(continued)
---------------------------------------
Capital Appreciation Fund
---------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------ ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ 191,025 158,039 (19,981)
Net realized gain (loss) ......................... 362,326 207,037 18,656
Unrealized appreciation (depreciation) on
investments .................................... 69,894 284,866 654,277
---------- ------- -------
Increase (decrease) in net assets from
operations ....................................... 623,245 649,942 652,952
---------- ------- -------
From capital transactions:
Net premiums ..................................... 160,331 -- --
Loan interest .................................... (478) (1,349) (876)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (5,632) (22,921) (9,862)
Loans .......................................... (76,259) (37,406) (7,659)
Cost of insurance and administrative
expense (note 3) .............................. (69,581) (48,816) (23,791)
Transfer gain (loss) and transfer fees ......... (10,950) 6,558 (1,288)
Transfers (to) from the Guarantee
Account (note 1) ............................... 86,490 38,369 15,348
Interfund transfers .............................. 786,921 1,391,680 1,211,520
---------- --------- ---------
Increase (decrease) in net assets from
capital transactions ............................. 870,842 1,326,115 1,183,392
---------- --------- ---------
Increase (decrease) in net assets ................. 1,494,087 1,976,057 1,836,344
Net assets at beginning of year ................... 5,350,638 3,323,128 1,486,784
---------- --------- ---------
Net assets at end of year ......................... $6,844,725 5,299,185 3,323,128
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
(continued)
-------------------------------------------
Growth Fund
-------------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------- ---------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. 97,407 81,448 8,132
Net realized gain (loss) ......................... 211,799 104,773 58,948
Unrealized appreciation (depreciation) on
investments .................................... 311,259 101,309 212,160
------- ------- ---------
Increase (decrease) in net assets from
operations ....................................... 620,465 287,530 279,240
------- ------- ---------
From capital transactions:
Net premiums ..................................... 136,857 -- --
Loan interest .................................... (1,570) (58) (8)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... -- (5,002) (16,486)
Loans .......................................... (52,908) (31,288) --
Cost of insurance and administrative
expense (note 3) .............................. (33,074) (15,042) (10,195)
Transfer gain (loss) and transfer fees ......... 5,703 5,414 (304)
Transfers (to) from the Guarantee
Account (note 1) ............................... 67,111 22,600 2,000
Interfund transfers .............................. 1,239,168 515,014 81,977
--------- ------- -----------
Increase (decrease) in net assets from
capital transactions ............................. 1,361,287 491,638 56,984
--------- ------- -----------
Increase (decrease) in net assets ................. 1,981,752 779,168 336,224
Net assets at beginning of year ................... 1,914,770 1,135,602 799,378
--------- --------- -----------
Net assets at end of year ......................... 3,896,522 1,914,770 1,135,602
========= ========= ===========
</TABLE>
A-31
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
(continued)
----------------------------------------
High Income Fund
----------------------------------------
Year ended December 31,
1997 1996 1995
-------------- ------------ ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ 339,119 278,470 134,498
Net realized gain (loss) ......................... 180,406 57,827 18,618
Unrealized appreciation (depreciation) on
investments .................................... (53,341) 72,516 83,576
---------- ------- -------
Increase (decrease) in net assets from
operations ....................................... 466,184 408,813 236,692
---------- ------- -------
From capital transactions:
Net premiums ..................................... 94,743 8,422 --
Loan interest .................................... (628) (50) (42)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (9,092) (4,708) (24,217)
Loans .......................................... (29,617) (37,253) (18,152)
Cost of insurance and administrative
expense (note 3) .............................. (45,518) (32,765) (15,109)
Transfer gain (loss) and transfer fees ......... 32,059 4,282 8,580
Transfers (to) from the Guarantee
Account (note 1) ............................... -- -- 9,748
Interfund transfers .............................. 2,226,116 1,526,214 760,586
---------- --------- -------
Increase (decrease) in net assets from
capital transactions ............................. 2,268,063 1,464,142 721,394
---------- --------- -------
Increase (decrease) in net assets ................. 2,734,247 1,872,955 958,086
Net assets at beginning of year ................... 3,943,474 2,070,519 1,112,433
---------- --------- ---------
Net assets at end of year ......................... $6,677,721 3,943,474 2,070,519
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
(continued)
---------------------------------------
Multiple Strategies Fund
---------------------------------------
Year ended December 31,
1997 1996 1995
------------ ------------ -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. 167,442 132,388 117,121
Net realized gain (loss) ......................... 34,009 53,160 24,327
Unrealized appreciation (depreciation) on
investments .................................... 206,122 106,953 206,074
------- ------- -------
Increase (decrease) in net assets from
operations ....................................... 407,573 292,501 347,522
------- ------- -------
From capital transactions:
Net premiums ..................................... 12,358 23,572 --
Loan interest .................................... (722) (207) (433)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. (2,000) (60,123) (3,955)
Surrenders ..................................... -- (212,502) (179,975)
Loans .......................................... 8,746 (9,140) (63,108)
Cost of insurance and administrative
expense (note 3) .............................. (29,942) (23,520) (20,637)
Transfer gain (loss) and transfer fees ......... 356 789 928
Transfers (to) from the Guarantee
Account (note 1) ............................... 23,966 4,000 --
Interfund transfers .............................. 447,254 240,604 222,736
------- -------- --------
Increase (decrease) in net assets from
capital transactions ............................. 460,016 (36,527) (44,444)
------- -------- --------
Increase (decrease) in net assets ................. 867,589 255,974 303,078
Net assets at beginning of year ................... 2,343,436 2,087,462 1,784,384
--------- --------- ---------
Net assets at end of year ......................... 3,211,025 2,343,436 2,087,462
========= ========= =========
</TABLE>
A-32
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Variable Insurance Products Funds
-----------------------------------------------
Money Market Portfolio
-----------------------------------------------
Year ended December 31,
1997 1996 1995
--------------- --------------- ---------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .............. $ 81,397 56,997 183,097
Net realized gain (loss) ..................... -- -- --
Unrealized appreciation (depreciation) on
investments ................................ -- -- --
------------- ------ -------
Increase (decrease) in net assets from
operations ................................... 81,397 56,997 183,097
------------- ------ -------
From capital transactions:
Net premiums ................................. -- -- --
Loan interest ................................ (8,013) 720 (2,227)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ............................. -- -- (18,745)
Surrenders ................................. (11,729) (129,716) (442,432)
Loans ...................................... (17,933) (17,326) (37,441)
Cost of insurance and administrative
expense (note 3) .......................... (8,075) (14,528) (43,910)
Transfer gain (loss) and transfer fees ..... (66,375) (2,554) (6,558)
Transfers (to) from the Guarantee
Account (note 1) ........................... -- 5,528 59,781
Interfund transfers .......................... (1,079,728) (1,016,677) (1,749,674)
------------- ---------- ----------
Increase (decrease) in net assets from
capital transactions ......................... (1,191,853) (1,174,553) (2,241,206)
------------- ---------- ----------
Increase (decrease) in net assets ............. (1,110,456) (1,117,556) (2,058,109)
Net assets at beginning of year ............... 1,110,456 2,228,012 4,286,121
------------- ---------- ----------
Net assets at end of year ..................... $ -- 1,110,456 2,228,012
============= ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Funds
--------------------------------------------
High Income Portfolio
--------------------------------------------
Year ended December 31,
1997 1996 1995
--------------- --------------- ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .............. 90,203 180,548 158,418
Net realized gain (loss) ..................... 185,532 (17,100) 137,054
Unrealized appreciation (depreciation) on
investments ................................ (92,552) 27,229 66,195
------- ------- -------
Increase (decrease) in net assets from
operations ................................... 183,183 190,677 361,667
------- ------- -------
From capital transactions:
Net premiums ................................. -- -- 4,082
Loan interest ................................ 6 (361) (11)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ............................. -- (59,986) --
Surrenders ................................. (163,901) (136,277) (28,969)
Loans ...................................... (6,459) (1,885) (9,125)
Cost of insurance and administrative
expense (note 3) .......................... (11,738) (16,160) (21,564)
Transfer gain (loss) and transfer fees ..... (44,309) 4,523 (1,538)
Transfers (to) from the Guarantee
Account (note 1) ........................... -- -- (32,657)
Interfund transfers .......................... (1,280,202) (873,671) (572,358)
---------- -------- --------
Increase (decrease) in net assets from
capital transactions ......................... (1,506,603) (1,083,817) (662,140)
---------- ---------- --------
Increase (decrease) in net assets ............. (1,323,420) (893,140) (300,473)
Net assets at beginning of year ............... 1,323,420 2,216,560 2,517,033
---------- ---------- ---------
Net assets at end of year ..................... -- 1,323,420 2,216,560
========== ========== =========
</TABLE>
A-33
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Variable Insurance Products Fund (continued)
--------------------------------------------
Equity-Income Portfolio
-------------------------------------------
Year ended December 31,
1997 1996 1995
--------------- -------------- ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .............. $ 1,096,993 272,689 316,878
Net realized gain (loss) ..................... 1,197,816 500,603 130,101
Unrealized appreciation (depreciation) on
investments ................................ 1,016,128 539,174 1,347,468
----------- ------- ---------
Increase (decrease) in net assets from
operations ................................... 3,310,937 1,312,466 1,794,447
----------- --------- ---------
From capital transactions:
Net premiums ................................. 215,369 77,436 10,886
Loan interest ................................ (5,772) (6,953) (1,495)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ............................. (18,249) (92,711) (4,351)
Surrenders ................................. (71,914) (373,251) (112,902)
Loans ...................................... (121,271) (215,646) (106,657)
Cost of insurance and administrative
expense (note 3) .......................... (151,529) (114,634) (66,845)
Transfer gain (loss) and transfer fees ..... 58,911 41,116 14,451
Transfers (to) from the Guarantee
Account (note 1) ........................... 112,723 127,788 4,600
Interfund transfers .......................... 311,215 3,056,657 2,227,097
----------- --------- ---------
Increase (decrease) in net assets from
capital transactions ......................... 329,483 2,499,802 1,964,784
----------- --------- ---------
Increase (decrease) in net assets ............. 3,640,420 3,812,268 3,759,231
Net assets at beginning of year ............... 12,389,259 8,576,991 4,817,760
----------- --------- ---------
Net assets at end of year ..................... $16,029,679 12,389,259 8,576,991
=========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
(continued)
---------------------------------------
Growth Portfolio
---------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------ ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .............. 194,168 359,170 (44,930)
Net realized gain (loss) ..................... 1,766,746 536,491 280,133
Unrealized appreciation (depreciation) on
investments ................................ (282,336) 31,232 1,091,397
--------- ------- ---------
Increase (decrease) in net assets from
operations ................................... 1,678,578 926,893 1,326,600
--------- ------- ---------
From capital transactions:
Net premiums ................................. 78,875 27,587 --
Loan interest ................................ (3,060) (3,910) (717)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ............................. (1,634) (73,221) (10,299)
Surrenders ................................. (28,946) (32,373) (120,929)
Loans ...................................... (153,343) (43,837) (117,116)
Cost of insurance and administrative
expense (note 3) .......................... (99,653) (83,276) (53,507)
Transfer gain (loss) and transfer fees ..... 26,694 14,043 (7,004)
Transfers (to) from the Guarantee
Account (note 1) ........................... 44,630 135,064 (33,912)
Interfund transfers .......................... 44,400 1,429,513 1,797,003
--------- --------- ---------
Increase (decrease) in net assets from
capital transactions ......................... (92,037) 1,369,590 1,453,519
--------- --------- ---------
Increase (decrease) in net assets ............. 1,586,541 2,296,483 2,780,119
Net assets at beginning of year ............... 8,806,011 6,509,528 3,729,409
--------- --------- ---------
Net assets at end of year ..................... 10,392,552 8,806,011 6,509,528
========== ========= =========
</TABLE>
A-34
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Variable Insurance
Products Fund (continued)
--------------------------------------------
Overseas Portfolio
--------------------------------------------
Year ended December 31,
1997 1996 1995
--------------- --------------- ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ......................... $ 433,050 94,750 (45,215)
Net realized gain (loss) ................................ 801,884 517,315 383,399
Unrealized appreciation (depreciation)
on investments ........................................ (489,713) (15,497) 356,600
------------ ------- -------
Increase (decrease) in net assets from operations ........ 745,221 596,568 694,784
------------ ------- -------
From capital transactions:
Net premiums ............................................ 12,810 10,673 2,721
Loan interest ........................................... (2,436) (326) (240)
Transfers (to) from the general account
of Life of Virginia
Death benefits ........................................ -- (10,056) --
Surrenders ............................................ (26,126) (99,794) (7,562)
Loans ................................................. (140,934) (49,140) 2,467
Cost of insurance and administrative
expense (note 3) .................................... (59,162) (67,126) (58,660)
Transfer gain (loss) and transfer fees ............... (12,801) 30,035 (8,973)
Transfers (to) from Guarantee Account (note 1) 61,472 47,987 (35,445)
Interfund transfers ..................................... (1,392,016) (2,098,908) 3,279,602
------------ ---------- ---------
Increase (decrease) in net assets
from capital transactions ............................... (1,559,193) (2,236,655) 3,173,910
------------ ---------- ---------
Increase (decrease) in net assets ........................ (813,972) (1,640,087) 3,868,694
Net assets at beginning of period ........................ 5,376,544 7,016,631 3,147,937
------------ ---------- ---------
Net assets at end of period .............................. $ 4,562,572 5,376,544 7,016,631
============ ========== =========
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance
Products Fund II
-----------------------------------------
Asset Manager Portfolio
-----------------------------------------
Year ended December 31,
1997 1996 1995
------------ --------------- ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ......................... 885,930 447,121 59,587
Net realized gain (loss) ................................ 187,349 168,152 13,225
Unrealized appreciation (depreciation)
on investments ........................................ 534,401 400,455 1,011,885
------- ------- ---------
Increase (decrease) in net assets from operations ........ 1,607,680 1,015,728 1,084,697
--------- --------- ---------
From capital transactions:
Net premiums ............................................ 98,687 -- --
Loan interest ........................................... (4,946) (3,433) (675)
Transfers (to) from the general account
of Life of Virginia
Death benefits ........................................ (149,074) -- --
Surrenders ............................................ (8,956) (497,465) (202,275)
Loans ................................................. (97,092) (368,309) (244,730)
Cost of insurance and administrative
expense (note 3) .................................... (98,131) (86,595) (78,782)
Transfer gain (loss) and transfer fees ............... 397 2,356 100,982
Transfers (to) from Guarantee Account (note 1) 33,707 1,000 --
Interfund transfers ..................................... (59,803) (122,445) 363,603
--------- --------- ---------
Increase (decrease) in net assets
from capital transactions ............................... (285,211) (1,074,891) (61,877)
--------- ---------- ---------
Increase (decrease) in net assets ........................ 1,322,469 (59,163) 1,022,820
Net assets at beginning of period ........................ 8,253,664 8,312,827 7,290,007
--------- ---------- ---------
Net assets at end of period .............................. 9,576,133 8,253,664 8,312,827
========= ========== =========
</TABLE>
A-35
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Variable Insurance Products Variable Insurance
Fund II (continued) Products Fund III
-------------------------------------------- -----------------------------
Growth & Growth
Contrafund Income Opportunities
Portfolio Portfolio Portfolio
-------------------------------------------- -------------- --------------
Period from Period from Period from
January 16, May 16, May 16,
Year ended Year ended 1995 to 1997 to 1997 to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1997
-------------- -------------- -------------- -------------- --------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ 68,315 (22,842) 13,146 (1,712) (1,910)
Net realized gain (loss) ......................... 268,831 100,260 10,744 6,219 876
Unrealized appreciation (depreciation)
on investments ................................. 823,917 476,601 63,150 11,314 39,235
---------- ------- ------ ------ ------
Increase (decrease) in net assets from operations 1,161,063 554,019 87,040 15,821 38,201
---------- ------- ------ ------ ------
From capital transactions:
Net premiums ..................................... 171,916 139,592 -- 12,486 18,354
Loan interest .................................... (3,288) (465) -- -- --
Transfers (to) from the general account
of Life of Virginia
Death benefits ................................. (1,797) (20,796) -- -- --
Surrenders ..................................... (9,456) (35,592) (22,360) -- --
Loans .......................................... (118,554) (41,285) (2,010) -- --
Cost of insurance and administrative
expense (note 3) .............................. (72,675) (34,864) (4,851) (1,616) (1,627)
Transfer gain (loss) and transfer fees ......... 34,177 58,463 464 10,283 (20)
Transfers (to) from Guarantee Account
(note 1) ....................................... 150,028 105,233 100 -- 2,963
Interfund transfers .............................. 1,827,255 2,524,438 1,404,008 373,471 293,576
---------- --------- --------- ------- -------
Increase (decrease) in net assets from capital
transactions ..................................... 1,977,606 2,694,724 1,375,351 394,624 313,246
---------- --------- --------- ------- -------
Increase (decrease) in net assets ................. 3,138,669 3,248,743 1,462,391 410,445 351,447
Net assets at beginning of period ................. 4,711,134 1,462,391 -- -- --
---------- --------- --------- ------- -------
Net assets at end of period ....................... $7,849,803 4,711,134 1,462,391 410,445 351,447
========== ========= ========= ======= =======
</TABLE>
A-36
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Neuberger & Berman Advisers Management Trust
--------------------------------------------
Balanced Portfolio
-------------------------------------------
Year ended December 31,
1997 1996 1995
--------------- ------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ...................... $ 98,194 269,151 20,403
Net realized gain (loss) ............................. 315,380 13,816 103,017
Unrealized appreciation (depreciation) on
investments ........................................ (146,827) (182,324) 294,095
------------- -------- -------
Increase (decrease) in net assets from operations ..... 266,747 100,643 417,515
------------- -------- -------
From capital transactions:
Net premiums ......................................... -- -- 4,082
Loan interest ........................................ (669) (657) (420)
Transfers (to) from the general account of Life of
Virginia:
Death benefits ..................................... -- -- --
Surrenders ......................................... (19,398) (27,861) (186,754)
Loans .............................................. (4,103) (34,817) (73,079)
Cost of insurance and administrative expense
(note 3) .......................................... (19,558) (20,292) (22,223)
Transfer gain (loss) and transfer fees ............. 669 5,371 6,489
Transfers (to) from the Guarantee Account
(note 1) ........................................... -- -- --
Interfund transfers .................................. (2,096,250) (79,871) (102,681)
------------- -------- --------
Increase (decrease) in net assets from capital
transactions ......................................... (2,139,309) (158,127) (374,586)
------------- -------- --------
Increase (decrease) in net assets ..................... (1,872,562) (57,484) 42,929
Net assets at beginning of year ....................... 1,872,562 1,930,046 1,887,117
------------- --------- ---------
Net assets at end of year ............................. $ -- 1,872,562 1,930,046
============= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Neuberger & Berman Advisers Management
Trust
---------------------------------------
Bond Portfolio
---------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------- -----------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ...................... 30,012 57,904 40,500
Net realized gain (loss) ............................. (3,318) (5,135) (637)
Unrealized appreciation (depreciation) on
investments ........................................ (1,629) (34,909) 39,427
------ ------- ------
Increase (decrease) in net assets from operations ..... 25,065 17,860 79,290
------ ------- ------
From capital transactions:
Net premiums ......................................... -- -- 2,721
Loan interest ........................................ (2,301) 258 851
Transfers (to) from the general account of Life of
Virginia:
Death benefits ..................................... -- -- --
Surrenders ......................................... -- (43,768)
Loans .............................................. 53,065 (55,969) 3,998
Cost of insurance and administrative expense
(note 3) .......................................... (5,054) (7,634) (9,345)
Transfer gain (loss) and transfer fees ............. (38,185) (5,840) 1,033
Transfers (to) from the Guarantee Account
(note 1) ........................................... -- -- --
Interfund transfers .................................. (670,024) (163,478) 5,402
-------- -------- ------
Increase (decrease) in net assets from capital
transactions ......................................... (662,499) (276,431) 4,660
-------- -------- ------
Increase (decrease) in net assets ..................... (637,434) (258,571) 83,950
Net assets at beginning of year ....................... 637,434 896,005 812,055
-------- -------- -------
Net assets at end of year ............................. -- 637,434 896,005
======== ======== =======
</TABLE>
A-37
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Neuberger & Berman Advisers
Management Trust (continued)
-----------------------------------
Growth Portfolio
-----------------------------------
Year ended December 31,
1997 1996 1995
------------ ----------- ----------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ................................ $ 54,741 58,809 4,866
Net realized gain (loss) ....................................... 150,610 5,513 3,921
Unrealized appreciation (depreciation) on investments .......... (55,310) (6,856) 87,810
---------- ------ ------
Increase (decrease) in net assets from operations ............... 150,041 57,466 96,597
---------- ------ ------
From capital transactions:
Net premiums ................................................... -- -- 2,721
Loan interest .................................................. (894) (1,215) --
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... -- -- --
Surrenders ................................................... -- -- --
Loans ........................................................ (7,618) -- (710)
Cost of insurance and administrative expense (note 3) ........ (7,810) (7,938) (5,013)
Transfer gain (loss) and transfer fees ....................... (1,185) (482) (693)
Transfers (to) from the Guarantee Account (note 1) ............. -- -- --
Interfund transfers ............................................ (881,910) (74,169) 380,756
---------- ------- -------
Increase (decrease) in net assets from capital transactions ..... (899,417) (83,804) 377,061
---------- ------- -------
Increase (decrease) in net assets ............................... (749,376) (26,338) 473,658
Net assets at beginning of year ................................. 749,376 775,714 302,056
---------- ------- -------
Net assets at end of year ....................................... $ -- 749,376 775,714
========== ======= =======
</TABLE>
A-38
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Federated Investors Insurance Series
-------------------------------------------------------------------------
American Leaders Fund II High Income Bond Fund II
----------------------------- -------------------------------------------
Period from Period from
September 5, February 7,
Year ended 1996 to Year ended Year ended 1995 to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1997 1996 1995
-------------- -------------- -------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ (1,957) 36 34,274 30,654 1,160
Net realized gain (loss) ......................... 11,788 19 5,827 1,726 8
Unrealized appreciation (depreciation) on
investments .................................... 53,148 2,855 55,167 27,920 1,465
-------- ----- ------ ------ -----
Increase (decrease) in net assets from
operations ....................................... 62,979 2,910 95,268 60,300 2,633
-------- ----- ------ ------ -----
From capital transactions:
Net premiums ..................................... 92,480 -- 43,594 -- --
Loan interest .................................... (3) -- (1,353) -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ................................. -- -- -- -- --
Surrenders ..................................... -- -- -- -- --
Loans .......................................... 205 -- (11,473) (40,000) --
Cost of insurance and administrative
expense (note 3) .............................. (3,145) (65) (8,961) (4,447) (151)
Transfer gain (loss) and transfer fees ......... 1,084 (1,522) (359) 100 73
Transfer (to) from the Guarantee Account
(note 1) ....................................... 5,323 300 5,441 (6,742) --
Interfund transfers .............................. 341,074 16,140 1,432,858 571,170 95,663
---------- ------ --------- ------- ------
Increase (decrease) in net assets from capital
transactions ..................................... 437,018 14,853 1,459,747 520,081 95,585
---------- ------ --------- ------- ------
Increase (decrease) in net assets ................. 499,997 17,763 1,555,015 580,381 98,218
Net assets at beginning of period ................. 17,763 -- 678,599 98,218 --
---------- ------ --------- ------- ------
Net assets at end of period ....................... $517,760 17,763 2,233,614 678,599 98,218
========== ====== ========= ======= ======
</TABLE>
A-39
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Federated Investors Insurance Series (continued)
------------------------------------------------
Utility Fund II
-----------------------------------------------
Period from
February 7,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................................... $ 8,360 4,472 2,069
Net realized gain (loss) ........................................... 11,484 9,190 237
Unrealized appreciation (depreciation) on investments .............. 50,092 5,651 12,097
--------- ----- ------
Increase (decrease) in net assets from operations ................... 69,936 19,313 14,403
--------- ------ ------
From capital transactions:
Net premiums ....................................................... -- -- --
Loan interest ...................................................... (55) (110) (40)
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................... -- -- --
Surrenders ....................................................... -- -- --
Loans ............................................................ (34,631) (2,022) (1,207)
Cost of insurance and administrative expense (note 3) ............ (3,486) (1,683) (686)
Transfer gain (loss) and transfer fees ........................... 2,314 (364) 65
Transfer (to) from the Guarantee Account (note 1) .................. 10,521 3,000 --
Interfund transfers ................................................ 107,029 130,977 80,066
--------- ------- ------
Increase (decrease) in net assets from capital transactions ......... 81,692 129,798 78,198
--------- ------- ------
Increase (decrease) in net assets ................................... 151,628 149,111 92,601
Net assets at beginning of period ................................... 241,712 92,601 --
--------- ------- ------
Net assets at end of period ......................................... $ 393,340 241,712 92,601
========= ======= ======
</TABLE>
A-40
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Alger American
-----------------------------------------------
Small Cap Portfolio
-----------------------------------------------
Period from
October 6,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............................... $ 24,230 (7,102) (312)
Net realized gain (loss) ...................................... 155,266 (13,977) 912
Unrealized appreciation (depreciation) on investments ......... (23,084) (18,580) 5,196
---------- ------- -----
Increase (decrease) in net assets from operations .............. 156,412 (39,659) 5,796
---------- ------- -----
From capital transactions:
Net premiums .................................................. 88,579 22,914 --
Loan interest ................................................. 2 68 --
Transfers (to) from the general account of Life of
Virginia:
Death benefits .............................................. -- (11,290) --
Surrenders .................................................. (1,243) (40,820) --
Loans ....................................................... (51,090) (33,607) --
Cost of insurance and administrative expense
(note 3) ................................................... (17,890) (10,161) (243)
Transfer gain (loss) and transfer fees ...................... (6,935) 5,384 (5,081)
Transfer (to) from the Guarantee Account (note 1) ............. 72,126 929 --
Interfund transfers ........................................... 148,081 863,942 313,943
---------- ------- -------
Increase (decrease) in net assets from capital transactions 231,630 797,359 308,619
---------- ------- -------
Increase (decrease) in net assets .............................. 388,042 757,700 314,415
Net assets at beginning of period .............................. 1,072,115 314,415 --
---------- ------- -------
Net assets at end of period .................................... $1,460,157 1,072,115 314,415
========== ========= =======
</TABLE>
A-41
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
PBHG
Insurance
Alger American (continued) Series Fund
-------------------------------------------- ----------------------------
PBHG
Large Cap PBHG
Growth Growth Growth II
Portfolio Portfolio Portfolio
-------------------------------------------- -------------- -------------
Period from Period from Period from
November 2, July 22, May 22,
Year ended Year ended 1995 to 1997 to 1997 to
December 31, December 31, December 31, December 31, December 31,
1997 1996 1995 1997 1997
-------------- -------------- -------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ...................... $ (5,714) 6,391 (81) (205) (540)
Net realized gain (loss) ............................. 121,886 (8,548) 1 (1) 1,296
Unrealized appreciation (depreciation) on
investments ........................................ 195,886 27,545 1,973 656 (846)
---------- ------ ----- ------ -----
Increase (decrease) in net assets from operations ..... 312,058 25,388 1,893 450 (90)
---------- ------ ----- ------ -----
From capital transactions:
Net premiums ......................................... 23,449 11,882 -- -- 4,615
Loan interest ........................................ (449) (11,178) -- -- --
Transfers (to) from the general account of Life of
Virginia:
Death benefits ..................................... -- -- -- -- --
Surrenders ......................................... (4,963) (716) -- -- --
Loans .............................................. (60,475) (10,642) -- -- --
Cost of insurance and administrative expense
(note 3) .......................................... (20,884) (7,424) (84) (134) (460)
Transfer gain (loss) and transfer fees ............. (16,706) 9,692 (530) 53 1,309
Transfer (to) from the Guarantee Account
(note 1) ........................................... 25,127 5,392 -- 3,269 2,518
Interfund transfers .................................. 147,496 1,228,789 99,661 28,216 84,214
---------- --------- ------ ------- ------
Increase (decrease) in net assets from capital
transactions ......................................... 92,595 1,225,795 99,047 31,404 92,196
---------- --------- ------ ------- ------
Increase (decrease) in net assets ..................... 404,653 1,251,183 100,940 31,854 92,106
Net assets at beginning of period ..................... 1,352,123 100,940 -- -- --
---------- --------- ------- ------- ------
Net assets at end of period ........................... $1,756,776 1,352,123 100,940 31,854 92,106
========== ========= ======= ======= ======
</TABLE>
A-42
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series
------------------------------------------
Aggressive Growth Portfolio
------------------------------------------
Year ended December 31,
1997 1996 1995
-------------- ------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ (28,915) (6,598) 10,683
Net realized gain (loss) ......................... 192,226 267,683 127,218
Unrealized appreciation (depreciation) on
investments .................................... 99,444 (112,622) 116,589
---------- -------- -------
Increase (decrease) in net assets from
operations ....................................... 262,755 148,463 254,490
---------- -------- -------
From capital transactions:
Net premiums ..................................... 60,192 3,031 --
Loan interest .................................... (77) (266) --
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (318) (48,757) (5,038)
Loans .......................................... (68,184) (2,874) (2,322)
Cost of insurance and administrative
expense (note 3) .............................. (24,702) (20,310) (12,055)
Transfer gain (loss) and transfer fees ......... 43,699 (3,623) 55,524
Transfers (to) from the Guarantee
Account (note 1) ............................... 34,546 10,008 10,848
Interfund transfers .............................. 503,885 (61,164) 1,209,599
---------- -------- ---------
Increase (decrease) in net assets from
capital transactions ............................. 549,041 (123,955) 1,256,556
---------- -------- ---------
Increase (decrease) in net assets ................. 811,796 24,508 1,511,046
Net assets at beginning of period ................. 1,976,676 1,952,168 441,122
---------- --------- ---------
Net assets at end of period ....................... $2,788,472 1,976,676 1,952,168
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series
----------------------------------------
Growth Portfolio
----------------------------------------
Year ended December 31,
1997 1996 1995
------------- ------------- ------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. 62,948 31,388 16,068
Net realized gain (loss) ......................... 243,734 132,138 22,274
Unrealized appreciation (depreciation) on
investments .................................... 376,858 144,223 180,762
------- ------- -------
Increase (decrease) in net assets from
operations ....................................... 683,540 307,749 219,104
------- ------- -------
From capital transactions:
Net premiums ..................................... 100,831 24,787 --
Loan interest .................................... (600) (1,074) --
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- --
Surrenders ..................................... (11,331) (24,314) --
Loans .......................................... (101,750) (75,374) (22,537)
Cost of insurance and administrative
expense (note 3) .............................. (43,347) (23,158) (9,297)
Transfer gain (loss) and transfer fees ......... 594 435 (777)
Transfers (to) from the Guarantee
Account (note 1) ............................... 84,063 65,687 2,500
Interfund transfers .............................. 1,105,318 1,204,517 471,417
--------- --------- -------
Increase (decrease) in net assets from
capital transactions ............................. 1,133,778 1,171,506 441,306
--------- --------- -------
Increase (decrease) in net assets ................. 1,817,318 1,479,255 660,410
Net assets at beginning of period ................. 2,786,888 1,307,633 647,223
--------- --------- -------
Net assets at end of period ....................... 4,604,206 2,786,888 1,307,633
========= ========= =========
</TABLE>
A-43
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
--------------------------------------------
Worldwide Growth Portfolio
--------------------------------------------
Year ended Year ended Year ended
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- --------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............... $ 22,598 19,102 (5,828)
Net realized gain (loss) ...................... 457,649 156,316 17,153
Unrealized appreciation (depreciation) on
investments ................................. 666,571 498,790 203,456
---------- ------- -------
Increase in net assets from operations ......... 1,146,818 674,208 214,781
---------- ------- -------
From capital transactions:
Net premiums .................................. 334,686 (533) --
Loan interest ................................. (933) 95,498 9
Transfers (to) from the general account
of Life of Virginia:
Death benefits .............................. (1,737) -- --
Surrenders .................................. (5,393) (27,186) (4,667)
Loans ....................................... (74,934) (15,174) (2,293)
Cost of insurance and administrative
expense (note 3) ........................... (79,593) (34,706) (8,860)
Transfer gain (loss) and transfer fees ...... 14,879 685 2,987
Transfers (to) from the Guarantee
Account (note 1) ............................ 109,443 43,645 --
Interfund transfers ........................... 1,831,317 2,870,698 729,507
---------- --------- -------
Increase (decrease) in net assets from
capital transactions .......................... 2,127,735 2,932,927 716,683
---------- --------- -------
Increase (decrease) in net assets .............. 3,274,553 3,607,135 931,464
Net assets at beginning of period .............. 4,951,837 1,344,702 413,238
---------- --------- -------
Net assets at end of period .................... $8,226,390 4,951,837 1,344,702
========== ========= =========
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
-------------------------------------------
Balanced Portfolio
-------------------------------------------
Period from
October 27,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............... 39,186 6,506 172
Net realized gain (loss) ...................... 16,368 3,534 6
Unrealized appreciation (depreciation) on
investments ................................. 172,861 38,227 1,767
------- ------ -----
Increase in net assets from operations ......... 228,415 48,267 1,945
------- ------ -----
From capital transactions:
Net premiums .................................. 32,001 -- --
Loan interest ................................. (48) 53,887 --
Transfers (to) from the general account
of Life of Virginia:
Death benefits .............................. -- -- --
Surrenders .................................. (2,416) -- --
Loans ....................................... 26,990 (1,996) --
Cost of insurance and administrative
expense (note 3) ........................... (13,436) (3,985) (54)
Transfer gain (loss) and transfer fees ...... 606 (851) (185)
Transfers (to) from the Guarantee
Account (note 1) ............................ 41,217 45,923 --
Interfund transfers ........................... 2,601,676 457,706 29,856
--------- ------- ------
Increase (decrease) in net assets from
capital transactions .......................... 2,686,590 550,684 29,617
--------- ------- ------
Increase (decrease) in net assets .............. 2,915,005 598,951 31,562
Net assets at beginning of period .............. 630,513 31,562 --
--------- ------- ------
Net assets at end of period .................... 3,545,518 630,513 31,562
========= ======= ======
</TABLE>
A-44
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
--------------------------------------------
Flexible
Income
Portfolio
--------------------------------------------
Period from
November 1,
Year ended Year ended 1995 to
December 31, December 31, December 31,
1997 1996 1995
-------------- -------------- --------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............... $ 9,796 8,453 171
Net realized gain (loss) ...................... 3,107 111 --
Unrealized appreciation (depreciation) on
investments ................................. 4,489 585 26
--------- ----- ---
Increase (decrease) in net assets from
operations .................................... 17,392 9,149 197
--------- ----- ---
From capital transactions:
Net premiums .................................. 21,946 (18) --
Loan interest ................................. (28) -- --
Transfers (to) from the general account
of Life of Virginia:
Death benefits .............................. -- -- --
Surrenders .................................. -- -- --
Loans ....................................... (30,720) (4,791) --
Cost of insurance and administrative
expense (note 3) ........................... (1,977) (963) (12)
Transfer gain (loss) and transfer fees ...... (429) (200) 17
Transfers (to) from the Guarantee
Account (note 1) ............................ 3,243 -- --
Interfund transfers ........................... 3,106 149,346 6,746
--------- ------- -----
Increase (decrease) in net assets from
capital transactions .......................... (4,859) 143,374 6,751
--------- ------- -----
Increase (decrease) in net assets .............. 12,533 152,523 6,948
Net assets at beginning of period .............. 159,471 6,948 --
--------- ------- -----
Net assets at end of period .................... $ 172,004 159,471 6,948
========= ======= =====
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
-------------------------------------------
International Capital
Growth Appreciation
Portfolio Portfolio
----------------------------- -------------
Period from Period from
June 5, May 22,
Year ended 1996 to 1997 to
December 31, December 31, December 31,
1997 1996 1997
-------------- -------------- -------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............... (5,942) 1,086 (75)
Net realized gain (loss) ...................... 145,208 2,328 (7,519)
Unrealized appreciation (depreciation) on
investments ................................. 45,943 17,399 (582)
------- ------ ------
Increase (decrease) in net assets from
operations .................................... 185,209 20,813 (8,176)
------- ------ ------
From capital transactions:
Net premiums .................................. 60,001 -- --
Loan interest ................................. (1,662) -- --
Transfers (to) from the general account
of Life of Virginia:
Death benefits .............................. -- -- --
Surrenders .................................. -- -- --
Loans ....................................... (10,000) -- --
Cost of insurance and administrative
expense (note 3) ........................... (16,021) (958) (181)
Transfer gain (loss) and transfer fees ...... 12,507 58 (24)
Transfers (to) from the Guarantee
Account (note 1) ............................ 122,804 10,500 --
Interfund transfers ........................... 1,044,932 359,635 20,306
--------- ------- ------
Increase (decrease) in net assets from
capital transactions .......................... 1,212,561 369,235 20,101
--------- ------- ------
Increase (decrease) in net assets .............. 1,397,770 390,048 11,925
Net assets at beginning of period .............. 390,048 -- --
--------- ------- ------
Net assets at end of period .................... 1,787,818 390,048 11,925
========= ======= ======
</TABLE>
See accompanying notes to financial statements
A-45
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
(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. The Life Insurance Company of Virginia is a
stock life insurance company operating under a charter granted by the
Commonwealth of Virginia on March 21, 1871. Eighty percent of the capital stock
of Life of Virginia is owned by General Electric Capital Assurance Corporation.
The remaining 20% is owned by GE Financial Assurance Holdings, Inc. General
Electric Capital Assurance Corporation and GE Financial Assurance Holdings, Inc.
are indirectly, wholly-owned subsidiaries of General Electric Capital ("GE
Capital"). GE Capital, a diversified financial services company, is a
wholly-owned subsidiary of General Electric Company (GE), a New York
corporation. Prior to April 1, 1996, Life of Virginia was an indirect
wholly-owned subsidiary of Aon Corporation (Aon).
In May 1997, seven new investment subdivisions were added to the Account.
The Growth & Income Portfolio and Growth Opportunities Portfolio each invest
solely in a designated portfolio of the Variable Insurance Products Fund III.
The Global Income Fund and the Value Equity Fund each invest solely in a
designated portfolio of the GE Investments Funds, Inc. The Capital Appreciation
Portfolio invests solely in a designated portfolio of the Janus Aspen Series.
The Growth II Portfolio and the Large Cap Growth Portfolio each invest solely
in a designated portfolio of the PBHG Insurance Series Fund. All designated
portfolios described above are series type mutual funds.
During 1997, the Life of Virginia Series Fund, Inc. changed its name to
the GE Investments Funds, Inc. As a result the Life of Virginia Series Funds,
Inc. -- Common Stock Index, Government Securities, Money Market, Total Return,
International Equity, and Real Estate Securities Portfolios were renamed the GE
Investments Funds, Inc. -- S&P 500 Index, Government Securities, Money Market,
Total Return, International Equity, and Real Estate Securities Funds,
respectively. On December 12, 1997, the Account added the GE Investments Funds,
Inc. -- Income Fund as a new investment subdivision and made the following
substitutions of shares held by the investment subdivisions:
<TABLE>
<CAPTION>
Before the Substitution After the Substitution
----------------------- -----------------------
<S> <C>
Shares of Money Market Shares of Money Market Fund -- GE
Portfolio -- Variable Insurance Products Investments Funds, Inc.
Fund
Shares of Money Fund -- Oppenheimer Shares of Money Market Fund -- GE
Variable Account Funds Investments Funds, Inc.
Shares of Government Securities Shares of Income Fund -- GE Investments
Fund -- GE Investments Funds, Inc. Funds, Inc.
Shares of Bond Portfolio -- Neuberger & Shares of Income Fund -- GE Investments
Berman Advisers Management Trust Funds, Inc.
Shares of High Income Shares of High Income
Portfolio -- Variable Insurance Products Fund -- Oppenheimer Variable Account
Fund Funds
Shares of Growth Portfolio -- Neuberger & Shares of Growth Portfolio -- Variable
Berman Advisers Management Trust Insurance Products Fund
Shares of Balanced Portfolio -- Neuberger Shares of Balanced Portfolio -- Janus
& Berman Advisers Management Trust Aspen Series
</TABLE>
The foregoing substitutions were carried out pursuant to an order of the
Securities and Exchange Commission (Commission) issued on December 11, 1997,
with the approval of any necessary department of insurance. The effect of such
a share substitution was to replace certain portfolios of Variable Insurance
Products Fund, Oppenheimer Variable Account Funds, GE Investments Funds, Inc.,
and Neuberger & Berman Advisers Management Trust with those of GE Investments
Funds, Inc., Oppenheimer Variable Account Funds, Variable Insurance Products
Fund, and Janus Aspen Series as investment options.
A-46
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(1) DESCRIPTION OF ENTITY -- Continued
In May 1996, two new investment subdivisions were added to the Account.
One of these subdivisions, the International Growth Portfolio, invests solely
in a designated portfolio of the Janus Aspen Series, a series type mutual fund.
The other new subdivision, the American Leaders Fund II, invests solely in a
designated portfolio of the Federated Investors Insurance Series, a series type
mutual fund.
During 1995, nine new investment subdivisions were added to the Account.
The Utility Fund II and High Income Bond Fund II each invest solely in a
designated portfolio of the Federated Investors Insurance Series, a series type
mutual fund. The Contrafund Portfolio invest 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
invest solely in a designated portfolio of GE Investments Funds, Inc., a series
type mutual fund. The Balanced Portfolio and Flexible Income Portfolio each
invest solely in a designated portfolio of the Janus Aspen Series, a series
type mutual fund. The Growth and Small Cap Portfolio each invest solely in a
designated portfolio of the Alger American Fund, a series type mutual fund.
In November 1995, six subdivisions were closed to new money. Three of
these subdivisions, the Balanced Portfolio, Bond Portfolio, and Growth
Portfolio each invest solely in a designated portfolio of the Advisers
Management Trust, a series type mutual fund. The fourth and fifth closed
subdivisions, the Money Market Portfolio and High Income Portfolio, each invest
solely in a designated portfolio of the Variable Insurance Products Fund, a
series type mutual fund. The sixth closed subdivision, the Money Fund, invests
solely in a designated portfolio of the Oppenheimer Variable Account Funds, 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.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments
Investments are stated at fair value which is based on the underlying net
asset value per share of the respective portfolios or funds. Purchases and
sales of investments are recorded on the trade date and income distributions
are recorded on the ex-dividend date. Realized gains and losses on investments
are determined on the average cost basis. The units and unit values are
disclosed as of the last business day in the applicable year or period.
A-47
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
The aggregate cost of the investments acquired and the aggregate proceeds
of investments sold, for the year or period ended December 31, 1997, were:
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
- -------------- ------------- ------------
GE Investments Funds, Inc.:
S&P 500 Index ...................... $ 8,032,050 6,194,365
Government Securities .............. 1,251,481 2,001,175
Money Market ....................... 61,002,543 58,778,814
Total Return ....................... 922,950 290,364
International Equity ............... 7,620,532 8,233,219
Real Estate Securities ............. 4,069,320 3,251,803
Global Income ...................... 14,406 28
Value Equity ....................... 261,813 12,473
Income ............................. 2,508,341 1,225,378
Oppenheimer Variable Account Funds:
Money .............................. 7,779 165,577
Bond ............................... 2,411,856 570,092
Capital Appreciation ............... 3,174,508 2,084,978
Growth ............................. 2,656,616 1,202,158
High Income ........................ 12,173,121 9,559,231
Multiple Strategies ................ 856,625 231,073
Variable Insurance Products Fund:
Money Market ....................... 117,746 1,224,804
High Income ........................ 106,897 1,523,682
Equity-Income ...................... 8,750,306 7,375,355
Growth ............................. 12,824,108 12,755,174
Overseas ........................... 13,987,950 15,115,740
Variable Insurance Products Fund II:
Asset Manager ...................... 1,899,086 1,291,429
Contrafund ......................... 4,530,147 2,527,307
Variable Insurance Products Fund III:
Growth & Income .................... 477,203 83,768
Growth Opportunities ............... 320,493 8,887
A-48
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
- -------------- ------------ ------------
Advisers Management Trust:
Balanced ........................... $ 130,321 2,161,304
Bond ............................... 540,253 1,164,453
Growth ............................. 82,552 931,033
Federated Investors Insurance Series:
American Leaders II ................ 640,382 206,557
High Income Bond II ................ 1,613,788 117,984
Utility II ......................... 255,252 167,395
Alger American:
Small Cap .......................... 5,205,381 4,935,939
Growth ............................. 3,218,130 3,130,436
PBHG Insurance Series Fund:
PBHG Large Cap Growth .............. 31,499 285
PBHG Growth II ..................... 131,457 41,071
Janus Aspen Series:
Aggressive Growth .................. 6,708,660 6,232,353
Growth ............................. 2,700,020 1,514,310
Worldwide Growth ................... 4,750,673 2,597,729
Balanced ........................... 2,844,427 154,435
Flexible Income .................... 185,899 180,506
International Growth ............... 3,209,551 2,017,055
Capital Appreciation ............... 110,111 90,052
A-49
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Capital Transactions
The increase (decrease) of outstanding units from capital transactions for
the years or periods ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
------------------------------
S&P 500 Government
Index Securities
Fund Fund
--------------- --------------
<S> <C>
Units outstanding at December 31, 1994 ...................... 14,529 46,022
Net premiums ............................................... -- --
Loan interest .............................................. (1) (1)
Transfers (to) from the general account of Life of Virginia:
Death benefits ........................................... -- --
Surrenders ............................................... -- (1,652)
Loans .................................................... -- (64)
Cost of insurance and administrative expense ............. (238) (268)
Transfers (to) from the Guarantee Account .................. 425 --
Interfund transfers ........................................ 24,972 1,009
-------- --------
Net increase (decrease) in units from capital transactions .. 25,158 (976)
-------- --------
Units outstanding at December 31, 1995 ...................... 39,687 45,046
Net premiums ............................................... -- --
Loan interest .............................................. (2) (1)
Transfers (to) from the general account of Life of Virginia:
Death benefits ........................................... (2,944) --
Surrenders ............................................... (365) (1,455)
Loans .................................................... (982) (84)
Cost of insurance and administrative expense ............. (502) (457)
Transfers (to) from the Guarantee Account .................. 1,692 (177)
Interfund transfers ........................................ 22,032 682
-------- --------
Net increase (decrease) in units from capital transactions .. 18,929 (1,492)
-------- --------
Units outstanding at December 31, 1996 ...................... 58,616 43,554
Net premiums ............................................... 918 705
Loan interest .............................................. (15) (24)
Transfers (to) from the general account of Life of Virginia:
Death benefits ........................................... (56) --
Surrenders ............................................... (1,568) (14,115)
Loans .................................................... (310) (1,284)
Cost of insurance and administrative expense ............. (770) (447)
Transfers (to) from the Guarantee Account .................. 1,030 15
Interfund transfers ........................................ 35,756 (28,404)
-------- ---------
Net increase (decrease) in units from capital transactions .. 34,985 (43,554)
-------- ---------
Units outstanding at December 31, 1997 ...................... 93,601 --
======== =========
</TABLE>
<TABLE>
<CAPTION>
GE Investments Funds, Inc.
---------------------------------------------
Money Total International
Market Return Equity
Fund Fund Fund
--------------- -------------- --------------
<S> <C>
Units outstanding at December 31, 1994 ...................... 279,834 46,934 --
Net premiums ............................................... 855,859 -- --
Loan interest .............................................. -- (5) --
Transfers (to) from the general account of Life of Virginia:
Death benefits ........................................... -- -- --
Surrenders ............................................... (4,894) (2,846) --
Loans .................................................... -- 274 --
Cost of insurance and administrative expense ............. (2,909) (523) (61)
Transfers (to) from the Guarantee Account .................. 2,104 108 1,432
Interfund transfers ........................................ (717,801) 9,771 18,757
-------- -------- ------
Net increase (decrease) in units from capital transactions .. 132,359 6,779 20,127
-------- -------- ------
Units outstanding at December 31, 1995 ...................... 412,193 53,713 20,127
Net premiums ............................................... 1,523,788 -- --
Loan interest .............................................. 60 (7) --
Transfers (to) from the general account of Life of Virginia:
Death benefits ........................................... (2,190) -- --
Surrenders ............................................... (20,965) (5,166) --
Loans .................................................... (80,419) -- 67
Cost of insurance and administrative expense ............. (8,609) (646) (384)
Transfers (to) from the Guarantee Account .................. (34,420) 1,981 --
Interfund transfers ........................................ (1,106,323) 12,921 49,244
---------- -------- ------
Net increase (decrease) in units from capital transactions .. 270,922 9,083 48,927
---------- -------- ------
Units outstanding at December 31, 1996 ...................... 683,115 62,796 69,054
Net premiums ............................................... 888,521 1,582 69
Loan interest .............................................. 1,522 3 (1)
Transfers (to) from the general account of Life of Virginia:
Death benefits ........................................... -- (5,200) --
Surrenders ............................................... (4,893) (404) --
Loans .................................................... (15,590) (1,334) 123
Cost of insurance and administrative expense ............. (7,485) (686) (623)
Transfers (to) from the Guarantee Account .................. (1,925) 1,924 --
Interfund transfers ........................................ (795,469) 5,670 (48,010)
---------- -------- ---------
Net increase (decrease) in units from capital transactions .. 64,681 1,555 (48,442)
---------- -------- ---------
Units outstanding at December 31, 1997 ...................... 747,796 64,351 20,612
========== ======== =========
</TABLE>
A-50
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
GE Investments Funds, Inc. (continued)
------------------------------------------------
Real Estate Global Value
Securities Income Equity Income
Fund Fund Fund Fund
------------- ----------- ---------- -----------
<S> <C>
Units outstanding at December 31, 1994 ........................... -- -- -- --
Net premiums ................................................... -- -- -- --
Loan interest .................................................. -- -- -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................ -- -- -- --
Surrenders .................................................... -- -- -- --
Loans ......................................................... -- -- -- --
Cost of insurance and administrative expense .................. -- -- -- --
Transfers (to) from the Guarantee Account ...................... -- -- -- --
Interfund transfers ............................................ 34 -- -- --
-- -- -- --
Net increase (decrease) in units from capital transactions ....... 34 -- -- --
-- -- -- --
Units outstanding at December 31, 1995 ........................... 34 -- -- --
Net premiums ................................................... 753 -- -- --
Loan interest .................................................. -- -- -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................ -- -- -- --
Surrenders .................................................... -- -- -- --
Loans ......................................................... -- -- -- --
Cost of insurance and administrative expense .................. (95) -- -- --
Transfers (to) from the Guarantee Account ...................... -- -- -- --
Interfund transfers ............................................ 13,935 -- -- --
------ -- -- --
Net increase (decrease) in units from capital transactions ....... 14,593 -- -- --
------ -- -- --
Units outstanding at December 31, 1996 ........................... 14,627 -- -- --
Net premiums ................................................... 3,906 -- 356 --
Loan interest .................................................. -- -- -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................ -- -- -- --
Surrenders .................................................... -- -- -- --
Loans ......................................................... (1,039) -- -- (240)
Cost of insurance and administrative expense .................. (570) (2) (48) (74)
Transfers (to) from the Guarantee Account ...................... 203 -- -- --
Interfund transfers ............................................ 41,075 1,338 18,848 122,212
------ ------ ------ -------
Net increase (decrease) in units from capital transactions ....... 43,575 1,336 19,156 121,898
------ ------ ------ -------
Units outstanding at December 31, 1997 ........................... 58,202 1,336 19,156 121,898
====== ====== ====== =======
</TABLE>
A-51
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
------------------------------------------
Capital
Money Bond Appreciation
Fund Fund Fund
------------ -------------- --------------
<S> <C>
Units outstanding at December 31, 1994 ............ 18,745 147,920 76,520
Net premiums ..................................... -- -- --
Loan interest .................................... -- 4 25
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................ -- -- --
Surrenders .................................... -- 2,256 4,214
Loans ......................................... -- 1,691 --
Cost of insurance and administrative expense .. (307) 1,407 733
Transfers (to) from the Guarantee Account ........ -- (908) --
Interfund transfers .............................. 4,754 (70,852) 49,237
---------- ---------- -----------
Net increase (decrease) in units from capital
transactions ..................................... 4,447 (66,402) 54,209
---------- ---------- -----------
Units outstanding at December 31, 1995 ............ 23,192 81,518 130,729
Net premiums ..................................... -- (1) --
Loan interest .................................... (17) -- 449
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................ -- -- --
Surrenders .................................... -- 1 35,618
Loans ......................................... (477) 5 86,753
Cost of insurance and administrative expense .. (152) 4 34,370
Transfers (to) from the Guarantee Account ........ -- -- (17,958)
Interfund transfers .............................. (12,159) (205) (92,553)
---------- ------------ -----------
Net increase (decrease) in units from capital
transactions ..................................... (12,805) (196) 46,679
---------- ------------ -----------
Units outstanding at December 31, 1996 ............ 10,387 81,322 177,408
Net premiums ..................................... -- 567 5,184
Loan interest .................................... -- 10 (15)
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................ -- -- --
Surrenders .................................... -- -- (182)
Loans ......................................... -- (938) (2,466)
Cost of insurance and administrative expense .. (104) (792) (2,250)
Transfers (to) from the Guarantee Account ........ -- 465 2,796
Interfund transfers .............................. (10,283) 80,017 25,443
---------- ------------ -----------
Net increase (decrease) in units .................. (10,387) 79,329 28,510
---------- ------------ -----------
Units outstanding at December 31, 1997 ............ -- 160,651 205,918
========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Funds
-------------------------------------------
High Multiple
Growth Income Strategies
Fund Fund Fund
------------- -------------- --------------
<S> <C>
Units outstanding at December 31, 1994 ............ 54,677 51,645 108,079
Net premiums ..................................... -- -- --
Loan interest .................................... (3) (5) (24)
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................ -- -- (222)
Surrenders .................................... (24) (8,422) (10,095)
Loans ......................................... (19) -- (3,540)
Cost of insurance and administrative expense .. (58) (5,208) (1,158)
Transfers (to) from the Guarantee Account ........ 38 1,022 --
Interfund transfers .............................. 2,975 41,879 12,494
----------- ----------- ----------
Net increase (decrease) in units from capital
transactions ..................................... 2,909 29,266 (2,545)
----------- ----------- ----------
Units outstanding at December 31, 1995 ............ 57,586 80,911 105,534
Net premiums ..................................... 789 -- 1,018
Loan interest .................................... (21) (6) (9)
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................ -- -- (2,597)
Surrenders .................................... (351) (561) (9,180)
Loans ......................................... (573) (3,511) (395)
Cost of insurance and administrative expense .. (747) (1,688) (1,016)
Transfers (to) from the Guarantee Account ........ 587 2,536 173
Interfund transfers .............................. 21,301 57,787 10,394
----------- ----------- ------------
Net increase (decrease) in units from capital
transactions ..................................... 20,985 54,557 (1,612)
----------- ----------- ------------
Units outstanding at December 31, 1996 ............ 78,571 135,468 103,922
Net premiums ..................................... 4,979 3,036 515
Loan interest .................................... (57) (20) (30)
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................ -- -- (83)
Surrenders .................................... -- (291) --
Loans ......................................... (1,925) (949) 364
Cost of insurance and administrative expense .. (1,203) (1,459) (1,248)
Transfers (to) from the Guarantee Account ........ 2,441 -- 999
Interfund transfers .............................. 45,075 71,340 18,636
----------- ----------- ------------
Net increase (decrease) in units .................. 49,310 71,657 19,153
----------- ----------- ------------
Units outstanding at December 31, 1997 ............ 127,881 207,125 123,075
=========== =========== ============
</TABLE>
A-52
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
Variable Insurance Products
Fund
---------------------------
Money High
Market Income
Portfolio Portfolio
------------- -------------
<S> <C>
Units outstanding at December 31, 1994 .......................... 307,911 137,168
Net premiums ................................................... -- 221
Loan interest .................................................. (155) (1)
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... (1,297) --
Surrenders ................................................... (30,624) (1,567)
Loans ........................................................ (2,592) (493)
Cost of insurance and administrative expense ................. (3,039) (1,166)
Transfers (to) from the Guarantee Account ...................... 4,138 (1,766)
Interfund transfers ............................................ (121,109) (30,952)
-------- ---------
Net increase (decrease) in units from capital transactions ...... (154,678) (35,724)
-------- ---------
Units outstanding at December 31, 1995 .......................... 153,233 101,444
Net premiums ................................................... -- --
Loan interest .................................................. 49 (17)
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... -- (2,625)
Surrenders ................................................... (8,837) (5,963)
Loans ........................................................ (1,180) (82)
Cost of insurance and administrative expense ................. (990) (707)
Transfers (to) from the Guarantee Account ...................... 377 --
Interfund transfers ............................................ (69,258) (38,231)
-------- ---------
Net increase (decrease) in units from capital transactions ...... (79,839) (47,625)
-------- ---------
Units outstanding at December 31, 1996 .......................... 73,394 53,819
Net premiums ................................................... -- --
Loan interest .................................................. (523) --
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... -- --
Surrenders ................................................... (765) (6,032)
Loans ........................................................ (1,169) (238)
Cost of insurance and administrative expense ................. (526) (432)
Transfers (to) from the Guarantee Account ...................... -- --
Interfund transfers ............................................ (70,411) (47,117)
-------- ---------
Net increase (decrease) in units ................................ (73,394) (53,819)
-------- ---------
Units outstanding at December 31, 1997 .......................... -- --
======== =========
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
-------------------------------------
Equity-
Income Growth Overseas
Portfolio Portfolio Portfolio
----------- ----------- -------------
<S> <C>
Units outstanding at December 31, 1994 .......................... 279,777 205,138 223,734
Net premiums ................................................... 523 -- 202
Loan interest .................................................. (72) (31) (18)
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... (209) (442) --
Surrenders ................................................... (5,420) (5,195) (563)
Loans ........................................................ (5,120) (5,031) 184
Cost of insurance and administrative expense ................. (3,209) (2,299) (4,367)
Transfers (to) from the Guarantee Account ...................... 221 (1,457) (2,639)
Interfund transfers ............................................ 106,909 77,199 244,178
------- ------- -------
Net increase (decrease) in units from capital transactions ...... 93,623 62,744 236,977
------- ------- -------
Units outstanding at December 31, 1995 .......................... 373,400 267,882 460,711
Net premiums ................................................... 3,304 1,064 682
Loan interest .................................................. (297) (151) (21)
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... (3,957) (2,821) (642)
Surrenders ................................................... (15,932) (1,247) (6,376)
Loans ........................................................ (9,205) (1,689) (3,139)
Cost of insurance and administrative expense ................. (4,893) (3,208) (4,289)
Transfers (to) from the Guarantee Account ...................... 5,455 5,203 3,066
Interfund transfers ............................................ 130,475 55,069 (134,096)
------- ------- --------
Net increase (decrease) in units from capital transactions ...... 104,950 52,220 (144,815)
------- ------- --------
Units outstanding at December 31, 1996 .......................... 478,350 320,102 315,896
Net premiums ................................................... 8,841 6,684 600
Loan interest .................................................. (237) (259) (114)
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... (749) (139) --
Surrenders ................................................... (2,952) (2,453) (1,224)
Loans ........................................................ (4,978) (12,995) (6,601)
Cost of insurance and administrative expense ................. (6,220) (8,445) (2,771)
Transfers (to) from the Guarantee Account ...................... 4,627 3,782 2,879
Interfund transfers ............................................ 12,774 3,763 (65,198)
------- ------- --------
Net increase (decrease) in units ................................ 11,106 (10,062) (72,429)
------- ------- --------
Units outstanding at December 31, 1997 .......................... 489,456 310,040 243,467
======= ======= ========
</TABLE>
A-53
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
Variable Insurance Variable Insurance
Products Products
Fund II Fund III
------------------------ --------------------------
Asset Growth & Growth
Manager Contrafund Income Opportunities
Portfolio Portfolio Portfolio Portfolio
----------- ------------ ----------- --------------
<S> <C>
Units outstanding at December 31, 1994 .......................... 467,908 -- -- --
Net premiums ................................................... -- -- -- --
Loan interest .................................................. (24) -- -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... -- -- -- --
Surrenders ................................................... (7,239) (1,711) -- --
Loans ........................................................ (8,758) (154)
Cost of insurance and administrative expense ................. (2,819) (371) -- --
Transfers (to) from the Guarantee Account ...................... -- 8 -- --
Interfund transfers ............................................ 13,012 107,436 -- --
------- ------- -- --
Net increase (decrease) in units from capital transactions ...... (5,828) 105,208 -- --
------- ------- -- --
Units outstanding at December 31, 1995 .......................... 462,080 105,208 -- --
Net premiums ................................................... -- 9,420
Loan interest .................................................. (180) (31) -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... -- (1,403) -- --
Surrenders ................................................... (26,089) (2,402) -- --
Loans ........................................................ (19,316) (2,786) -- --
Cost of insurance and administrative expense ................. (4,541) (2,353) -- --
Transfers (to) from the Guarantee Account ...................... 52 7,102 -- --
Interfund transfers ............................................ (6,421) 170,366 -- --
------- ------- -- --
Net increase (decrease) in units from capital transactions ...... (56,495) 177,913 -- --
------- ------- -- --
Units outstanding at December 31, 1996 .......................... 405,585 283,121 -- --
Net premiums ................................................... 3,583 9,027 1,078 1,677
Loan interest .................................................. (180) (173) -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ............................................... (5,411) (94) -- --
Surrenders ................................................... (325) (497) -- --
Loans ........................................................ (3,524) (6,225) -- --
Cost of insurance and administrative expense ................. (3,562) (3,816) (139) (149)
Transfers (to) from the Guarantee Account ...................... 1,223 7,878 -- 271
Interfund transfers ............................................ (2,171) 95,951 32,242 26,820
------- ------- ------ ------
Net increase (decrease) in units ................................ (10,367) 102,051 33,181 28,619
------- ------- ------ ------
Units outstanding at December 31, 1997 .......................... 395,218 385,172 33,181 28,619
======= ======= ====== ======
</TABLE>
A-54
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
Advisers Management Trust
---------------------------------------
Balanced Bond Growth
Portfolio Portfolio Portfolio
------------- ------------- -----------
<S> <C>
Units outstanding at December 31, 1994 ......... 148,475 75,260 27,788
Net premiums .................................. (18,152) 4 (291)
Loan interest ................................. (5,677) -- 30
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- --
Surrenders ................................. -- -- 13,267
Loans ...................................... (26,671) (1) 5,192
Cost of insurance and administrative
expense ................................... 62,341 (8) 1,579
Transfers (to) from the Guarantee
Account ..................................... -- -- --
Interfund transfers ........................... (36,037) 613 7,295
------- -------- ------
Net increase (decrease) in units
from capital transactions ..................... (24,196) 608 27,072
------- -------- ------
Units outstanding at December 31, 1995 ......... 124,279 75,868 54,860
Net premiums .................................. -- -- --
Loan interest ................................. 10 (344) (23)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- --
Surrenders ................................. (1,611) -- (964)
Loans ...................................... (2,060) -- (1,204)
Cost of insurance and administrative
expense ................................... (281) (2,251) (702)
Transfers (to) from the Guarantee
Account ..................................... -- -- --
Interfund transfers ........................... (6,017) (21,032) (2,763)
------- --------- ------
Net increase (decrease) in units from capital
transactions .................................. (9,959) (23,627) (5,656)
------- --------- ------
Units outstanding at December 31, 1996 ......... 114,320 52,241 49,204
Net premiums .................................. -- -- --
Loan interest ................................. (36) (192) (49)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................ -- -- --
Surrenders ................................ (1,036) -- --
Loans ..................................... (219) 4,440 (417)
Cost of insurance and adminis-
trative expense ......................... (1,045) (423) (428)
Transfers (to) from the Guarantee
Account ..................................... -- -- --
Interfund transfers ........................... (111,984) (56,066) (48,310)
-------- --------- -------
Net increase (decrease) in units ............... (114,320) (52,241) (49,204)
-------- --------- -------
Units outstanding at December 31, 1997 ......... -- -- --
======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
Federated Investors
Insurance Series
-----------------------------------------
American High
Leaders Income Bond Utility
Fund II Fund II Fund II
------------ ------------- --------------
<S> <C>
Units outstanding at December 31, 1994 ......... -- -- --
Net premiums .................................. -- -- --
Loan interest ................................. -- -- (4)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- --
Surrenders ................................. -- -- --
Loans ...................................... -- -- (117)
Cost of insurance and administrative
expense ................................... -- (13) (67)
Transfers (to) from the Guarantee
Account ..................................... -- -- --
Interfund transfers ........................... -- 8,287 7,772
---- ----- --------
Net increase (decrease) in units
from capital transactions ..................... -- 8,274 7,584
---- ----- --------
Units outstanding at December 31, 1995 ......... -- 8,274 7,584
Net premiums .................................. -- -- --
Loan interest ................................. -- -- (9)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- --
Surrenders ................................. -- -- --
Loans ...................................... -- (3,262) (162)
Cost of insurance and administrative
expense ................................... (6) (363) (134)
Transfers (to) from the Guarantee
Account ..................................... 29 (550) 240
Interfund transfers ........................... 1,583 46,581 10,466
------- ------ ---------
Net increase (decrease) in units from capital
transactions .................................. 1,606 42,406 10,401
------- ------ ---------
Units outstanding at December 31, 1996 ......... 1,606 50,680 17,985
Net premiums .................................. 7,266 2,919 --
Loan interest ................................. -- (91) (4)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................ -- -- --
Surrenders ................................ -- -- --
Loans ..................................... 16 (768) (2,368)
Cost of insurance and adminis-
trative expense ......................... (247) (600) (238)
Transfers (to) from the Guarantee
Account ..................................... 418 364 719
Interfund transfers ........................... 26,797 95,909 7,319
------- ------ ---------
Net increase (decrease) in units ............... 34,250 97,733 5,428
------- ------ ---------
Units outstanding at December 31, 1997 ......... 35,856 148,413 23,413
======= ======= =========
</TABLE>
A-55
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
PBHG Insurance
Alger American Series Fund Janus Aspen Series
-------------------------- ----------------------- ------------------------
Large Cap Aggressive
Small Cap Growth Growth Growth II Growth Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
----------- -------------- ----------- ----------- ------------- ----------
<S> <C>
Units outstanding at December 31, 1994 ......... -- -- -- -- 38,797 66,450
Net premiums .................................. -- -- -- -- -- --
Loan interest ................................. -- -- -- -- -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- -- -- -- --
Surrenders ................................. -- -- -- -- -- (160)
Loans ...................................... -- -- -- -- -- (74)
Cost of insurance and administrative
expense ................................... (26) (9) -- -- (177) (382)
Transfers (to) from the Guarantee
Account ..................................... -- -- -- -- -- 344
Interfund transfers ........................... 33,546 10,491 -- -- 97,800 38,349
------ -------- -- -- ------- ------
Net increase (decrease) in units from capital
transactions .................................. 33,520 10,482 -- -- 97,623 38,077
------ -------- -- -- ------- ------
Units outstanding at December 31, 1995 ......... 33,520 10,482 -- -- 136,420 104,527
Net premiums .................................. 2,249 1,125 -- -- (657) (2,168)
Loan interest ................................. 7 -- -- -- -- 190
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. (1,108) (1,058) -- -- -- --
Surrenders ................................. (4,005) (68) -- -- -- 34,885
Loans ...................................... (3,297) (1,007) -- -- 24 2,056
Cost of insurance and administrative
expense ................................... (997) (702) -- -- 49 14,531
Transfers (to) from the Guarantee
Account ..................................... 91 510 -- -- (559) (7,160)
Interfund transfers ........................... 84,755 116,263 -- -- (5,574) 43,761
------ -------- -- -- ------- -------
Net increase (decrease) in units from capital
transactions .................................. 77,695 115,063 -- -- (6,717) 86,095
------ -------- -- -- ------- -------
Units outstanding at December 31, 1996 ......... 111,215 125,545 -- -- 129,703 190,622
Net premiums ............................... ... 9,853 1,256 -- 439 4,146 6,158
Loan interest ................................. -- (24) -- -- (5) (37)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- -- -- -- --
Surrenders ................................. (138) (266) -- -- (22) (692)
Loans ...................................... (5,683) (3,238) -- -- (4,697) (6,214)
Cost of insurance and administrative
expense ................................... (1,990) (1,118) (11) (44) (1,702) (2,647)
Transfers (to) from the Guarantee
Account ..................................... 8,023 1,345 283 239 2,380 5,134
Interfund transfers ........................... 16,471 7,897 2,446 8,006 34,709 67,507
------- -------- ----- ----- -------- -------
Net increase (decrease) in units ............... 26,536 5,852 2,718 8,640 34,809 69,209
------- -------- ----- ----- -------- -------
Units outstanding at December 31, 1997 ......... 137,751 131,397 2,718 8,640 164,512 259,831
======= ======== ===== ===== ======== =======
</TABLE>
A-56
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
-------------------------------------------------------------------------
Flexible International Capital
Worldwide Balanced Income Growth Appreciation
Portfolio Portfolio Portfolio Portfolio Portfolio
----------- --------------- --------------- --------------- -------------
<S> <C>
Units outstanding at December 31, 1994 ......... 42,734 -- -- -- --
Net premiums .................................. -- -- -- -- --
Loan interest ................................. -- -- -- -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- -- -- --
Surrenders ................................. -- (19) -- -- --
Loans ...................................... (3,459) (10) -- -- --
Cost of insurance and administrative
expense ................................... (1,427) (37) (1) -- --
Transfers (to) from the Guarantee
Account ..................................... 384 -- -- -- --
Interfund transfers ........................... 72,352 3,038 663 -- --
------ ------- ----- -- --
Net increase (decrease) in units from capital
transactions .................................. 67,850 2,972 662 -- --
------ ------- ----- -- --
Units outstanding at December 31, 1995 ......... 110,584 2,972 662 -- --
Net premiums .................................. 4,425 1,590 ----- -- --
Loan interest ................................. (192) (9) (2) -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. -- -- -- -- --
Surrenders ................................. (4,341) (452) -- -- --
Loans ...................................... (13,458) (253) (448) -- --
Cost of insurance and administrative
expense ................................... (4,135) (578) (90) (87) --
Transfers (to) from the Guarantee
Account ..................................... 11,729 726 -- 951 --
Interfund transfers ........................... 215,068 47,770 13,978 32,559 --
------- -------- -------- ------ --
Net increase (decrease) in units from capital
transactions .................................. 209,096 48,794 13,438 33,423 --
------- -------- -------- ------ --
Units outstanding at December 31, 1996 ......... 319,680 51,766 14,100 33,423 --
Net premiums .................................. 19,120 2,260 1,522 4,872 --
Loan interest ................................. (53) (3) (2) (135) --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ............................. (99) -- -- -- --
Surrenders ................................. (308) (171) -- -- --
Loans ...................................... (4,281) 1,907 (2,130) (812) --
Cost of insurance and administrative
expense ................................... (4,547) (949) (137) (1,301) (9)
Transfers (to) from the Guarantee
Account ..................................... 6,252 2,912 225 9,973 --
Interfund transfers ........................... 104,621 183,798 215 84,860 959
------- -------- -------- ------ ----
Net increase (decrease) in units ............... 120,705 189,754 (307) 97,457 950
------- -------- -------- ------ ----
Units outstanding at December 31, 1997 ......... 440,385 241,520 13,793 130,880 950
======= ======== ======== ======= ====
</TABLE>
A-57
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Federal Income Taxes
The Account is not taxed separately because the operations of the Account
are part of the total operations of Life of Virginia. Life of Virginia is taxed
as a life insurance company under the Internal Revenue Code (the Code). Life of
Virginia is included in the General Electric Capital Assurance Company
consolidated federal income tax return. The Account will not be taxed as a
regulated investment company under subchapter M of the Code. Under existing
federal income tax law, no taxes are payable on the investment income or on the
capital gains of the Account.
Use of Estimates
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect amounts and disclosures reported therein. Actual results could differ
from those estimates.
(3) RELATED PARTY TRANSACTIONS
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% of the premium payment
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.
GE Investments Funds, Inc. (the Fund) is an open-end diversified
management investment company.
Capital Brokerage Corporation, an affiliate of Life of Virginia, is a
Washington Corporation registered with the Commission under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc. Capital Brokerage Corporation also
serves as principal underwriter for variable life insurance Policies issued by
Life of Virginia.
GE Investment Management Incorporated (Investment Advisor), a wholly-owned
subsidiary of GE, currently serves as investment advisor to GE Investments
Funds, Inc. As compensation for its services, the Investment Advisor is paid an
investment advisory fee by the Fund based on the average daily net assets at an
effective annual rate of .35% for the S&P 500 Index Fund, .10% for the
Government Securities Fund, .50% for the Money Market and Total Return Funds,
1.00% for the International Equity Fund and .85% for the Real Estate Securities
Fund. Prior to May 1, 1997, Aon Advisors, Inc. served as investment advisor to
the Fund and was subject to the same compensation arrangement as GE Investment
Management Incorporated.
Certain officers and directors of Life of Virginia are also officers and
directors of Capital Brokerage Corporation.
A-58
<PAGE>
THE LIFE INSURANCE COMPANY OF
VIRGINIA AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1997, 1996, and 1995
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Directors
The Life Insurance Company of Virginia:
We have audited the accompanying consolidated balance sheets of The Life
Insurance Company of Virginia (an indirect wholly-owned subsidiary of General
Electric Capital Corporation) and subsidiary as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the year ended December 31, 1997 and the nine months ended
December 31, 1996. We have also audited the preacquisition statements of income,
stockholders' equity and cash flows for the three months ended March 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The accompanying consolidated
financial statements of The Life Insurance Company of Virginia for the year
ended December 31, 1995, were audited by other auditors whose report, dated
February 8, 1996 on those consolidated financial statements included an
explanatory paragraph that described the change in the Company's method of
accounting for certain investments.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Life Insurance
Company of Virginia and subsidiary as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the year ended December 31,
1997, the nine month period ended December 31, 1996 and the preacquisition three
month period ended March 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective April
1, 1996, General Electric Capital Corporation acquired all of the outstanding
stock of The Life Insurance Company of Virginia in a business combination
accounted for as a purchase. As a result of the acquisition, the consolidated
financial information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, is not comparable.
KPMG Peat Marwick LLP
Richmond, Virginia
January 6, 1998
<PAGE>
REPORT OF INDEPENDENT AUDITIORS
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated statements of income,
stockholder's equity, and cash flows of The Life Insurance Company of Virginia
and subsidiaries for the year ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of The Life Insurance Company of Virginia and subsidiaries for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Richmond, Virginia
February 8, 1996
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1997 and 1996
(in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Assets 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments:
Fixed maturities:
Available for sale - at fair value (amortized cost:
December 31, 1997 - $5,468.1; 1996 - $5,102.2) $ 5,622.6 5,142.7
Equity securities - at fair value
Common stocks (cost: December 31, 1997 - $43.1; 1996 - $31.6) 54.1 34.7
Preferred stocks (cost: December 31, 1997 - $87.6; 1996 - $123.5) 97.6 130.8
Mortgage loans on real estate (net of reserve for losses:
December 31, 1997 - $17.2; 1996 - $20.8) 496.2 585.4
Real estate (net) 11.8 19.4
Policy loans 188.4 179.5
Short-term investments - 42.4
- ------------------------------------------------------------------------------------------------------------------
Total investments 6,470.7 6,134.9
- ------------------------------------------------------------------------------------------------------------------
Cash 0.2 6.4
Receivables:
Premiums and other 6.6 7.9
Reinsurance recoverable 8.7 13.1
Accrued investment income 123.1 116.6
- ------------------------------------------------------------------------------------------------------------------
Total receivables 138.4 137.6
Deferred policy acquisition costs 165.0 70.3
Goodwill (net of accumulated amortization: December 31, 1997 - $11.3;
1996 - $5.0) 117.1 125.4
Present value of future profits (net) 332.6 419.2
Property and equipment at cost (net) 3.2 1.7
Deferred income taxes 57.4 72.9
Other assets 15.4 12.3
Assets held in separate accounts 4,066.4 2,762.7
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 11,366.4 9,743.4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(continued)
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Balance Sheets, Continued
December 31, 1997 and 1996
(in millions, except share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Policy liabilities:
Future policy benefits $ 520.6 518.3
Policy and contract claims 83.0 69.1
Unearned and advance premiums 0.1 0.1
Other policyholder funds 5,369.2 5,094.4
- ------------------------------------------------------------------------------------------------------------------
Total policy liabilities 5,972.9 5,681.9
General liabilities:
Payable to affiliate, net 9.4 8.8
Commissions and general expenses 51.1 46.8
Current income taxes 45.8 45.4
Other liabilities 71.5 192.2
Liabilities related to separate accounts 4,066.4 2,762.7
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 10,217.1 8,737.8
- ------------------------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $1,000 par value:
Authorized, issued and outstanding: 4,000 shares 4.0 4.0
Additional paid-in capital 925.9 928.1
Net unrealized investment gains 74.3 19.4
Retained earnings 145.1 54.1
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,149.3 1,005.6
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 11,366.4 9,743.4
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Statements of Income
For the year ended December 31, 1997, the periods from April 1, 1996 to December
31, 1996 and from January 1, 1996 to March 31, 1996, and the year ended December
31, 1995 (in millions)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Preacquisition
--------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Revenue
Premiums and policy fees $ 273.2 154.7 92.4 179.3
Separate account fees 44.4 23.1 5.9 17.7
Net investment income (note 2) 472.5 334.4 112.0 402.1
Realized investment gains (losses) (note 2) 13.3 6.0 9.0 (76.5)
Other income 2.5 0.6 1.0 2.8
- ----------------------------------------------------------------------------------------------------------------------
Total revenue earned 805.9 518.8 220.3 525.4
- ----------------------------------------------------------------------------------------------------------------------
Benefits and Expenses
Benefits to policyholders 509.8 326.4 166.0 372.9
Commissions and general expenses 82.5 53.2 28.8 43.7
Amortization of intangibles 59.6 50.1 0.6 3.2
Amortization of deferred policy acquisition
costs 10.8 3.2 6.0 39.3
- ----------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 662.7 432.9 201.4 459.1
Income Before Income Tax 143.2 85.9 18.9 66.3
Provision for income tax (note 3)
Current expense (benefit) 64.8 39.7 (3.8) 37.9
Deferred expense (benefit) (12.6) (7.9) 10.8 (10.8)
- ----------------------------------------------------------------------------------------------------------------------
52.2 31.8 7.0 27.1
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 91.0 54.1 11.9 39.2
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
For the year ended December 31, 1997, the periods from April 1, 1996 to December
31, 1996 and from January 1, 1996 to March 31, 1996, and the year ended December
31, 1995 (in millions)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Preacquisition
---------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Common stock
$1,000 par value common stock, authorized,
issued and outstanding 4,000 in 1997,
1996 and 1995)
- ------------------------------------------------------------------------------------------------------------------
Balance at beginning and end of period $ 4.0 4.0 4.0 4.0
- ------------------------------------------------------------------------------------------------------------------
Additional Paid-in Capital
Balance at beginning of period 928.1 818.4 749.1 704.1
Adjustment to reflect purchase method (note 1) (2.2) 109.7 - -
Capital contribution from parent (notes 4, 7) - - 69.3 45.0
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period 925.9 928.1 818.4 749.1
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized Investment Gains (Losses)
Balance at beginning of period 19.4 11.9 103.1 (97.5)
Adjustment to reflect purchase method
(note 1) - (11.9) - -
Net unrealized investment gains (losses) 54.9 19.4 (91.2) 200.6
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period 74.3 19.4 11.9 103.1
- ------------------------------------------------------------------------------------------------------------------
Net Foreign Exchange Gains (Losses)
Balance at beginning of period - - - (3.0)
Net foreign exchange gains (losses) - - - 3.0
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period - - - -
- ------------------------------------------------------------------------------------------------------------------
Retained Earnings (Deficit)
Balance at beginning of period 54.1 (22.4) (34.3) 159.8
Adjustment to reflect purchase method
(note 1) - 22.4 - -
Net income 91.0 54.1 11.9 39.2
Dividends to stockholder - - - (40.0)
Stock dividend to affiliate (note 7) - - - (193.3)
- ------------------------------------------------------------------------------------------------------------------
Balance at end of period 145.1 54.1 (22.4) (34.3)
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity at end of period $ 1,149.3 1,005.6 811.9 821.9
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the year ended December 31, 1997, the periods from April 1, 1996 to December
31, 1996 and from January 1, 1996 to March 31, 1996, and the year ended December
31, 1995 (in millions)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Preacquisition
----------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 91.0 54.1 11.9 39.2
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Change in policy liabilities 239.0 53.5 (32.8) 114.2
Change in accrued investment income (6.5) (37.6) 4.1 (2.1)
Deferred policy acquisition costs (112.3) (74.9) (22.2) (76.1)
Amortization of deferred policy acquisition costs 10.8 3.2 6.0 39.3
Amortization of intangibles 59.6 50.1 0.6 3.2
Other amortization and depreciation 8.0 7.3 1.4 (1.2)
Premiums and operating receivables, commissions and general
expenses, income taxes and other (128.5) 77.8 22.9 (65.7)
Realized investment (gains) losses (13.3) (6.0) (9.0) 76.5
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 147.8 127.5 (17.1) 127.3
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale (purchase) of short-term investments - net 42.4 49.4 (10.1) (18.8)
Sale or maturity of investments
Fixed maturities - held to maturity:
Maturities - - - 3.9
Calls and prepayments - - - 60.9
Fixed maturities - available for sale
Maturities - 201.5 46.1 35.0
Calls and prepayments - 353.5 101.0 58.6
Sales 739.1 452.0 115.8 1,700.3
All other investments 145.1 177.3 44.9 124.6
Purchase of investments:
Fixed maturities - available for sale (1,104.1) (1,279.5) (144.1) (1,950.7)
All other investments (30.8) (39.5) (65.5) (183.5)
Purchase of property and equipment (2.4) - (0.2) (0.8)
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (210.7) (85.3) 87.9 (170.5)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Capital contribution - - 2.8 -
Cash dividends to stockholder - - (40.0) (6.0)
Change in cash overdrafts 4.7 (12.7) 28.8 -
Interest sensitive life, annuity and investment contract deposits 1,894.2 1,275.4 301.9 1,059.5
Interest sensitive life, annuity and investment contract withdrawals (1,842.2) (1,305.6) (358.8) (1,031.7)
- ------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 56.7 (42.9) (65.3) 21.8
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (6.2) (0.7) 5.5 (21.4)
Cash at beginning of period 6.4 7.1 1.6 23.0
- ------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 0.2 6.4 7.1 1.6
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA & SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1997
===============================================================================
(1) Summary of Significant Accounting Principles and Practices
Basis of Presentation
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles (GAAP) and
include the accounts of The Life Insurance Company of Virginia ("Life
of Virginia" or "Company") and its subsidiary, Assigned Settlements
Inc. All material intercompany accounts and transactions have been
eliminated.
Prior to April 1, 1996, Combined Insurance Company of America ("CICA")
owned 100% or 4,000 shares of Life of Virginia. CICA is a wholly-owned
subsidiary of AON Corporation (AON). On April 1, 1996, CICA sold 100%
of the issued and outstanding shares of Life of Virginia to General
Electric Capital Corporation ("GE Capital"). Immediately thereafter,
80% was contributed to General Electric Capital Assurance Company (the
"Parent"). On December 31, 1996, the remaining 20% was contributed to
General Electric Financial Assurance Holdings, Inc. ("GEFAH").
Life of Virginia primarily sells variable annuities and universal life
insurance to customers throughout most of the United States. Life of
Virginia distributes variable annuities primarily through stockbrokers
and universal life insurance primarily through career agents and
independent brokers. Life of Virginia is also engaged in the sale of
traditional individual and group life products and guaranteed
investment contracts. Approximately 23%, 34% and 43% of premium and
annuity consideration collected, in 1997, 1996, and 1995, respectively,
came from customers residing in the South Atlantic region of the United
States.
Although the Company markets its products through numerous
distributors, approximately 22%, 21% and 14% of the Company's sales in
1997, 1996 and 1995, respectively, have been through two specific
national stockbrokers. Loss of all or a substantial portion of the
business provided by these stockbrokers could have a material adverse
effect on the business and operations of the Company. The Company does
not believe, however, that the loss of such business would have a
long-term adverse effect because of the Company's competitive position
in the marketplace and the availability of business from other
distributors.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA & SUBSIDIARY
Notes to Consolidated Financial Statements
===============================================================================
(1) Continued
Estimates
Financial statements prepared in conformity with generally accepted
accounting principles require management to make estimates and
assumptions that could affect amounts and disclosures reported therein.
Actual results could differ from those estimates. As further discussed
in the accompanying notes to the consolidated financial statements,
significant estimates and assumptions affect deferred acquisition
costs, PVFP, future life policy benefits, provisions for real
estate-related losses and related reserves, other-than-temporary
declines in values for fixed maturities, the valuation allowance for
deferred income taxes and the calculation of fair value disclosures for
certain financial instruments.
Certain 1996 and 1995 amounts have been reclassified to conform to 1997
presentation.
Purchase Accounting Method
Upon acquisition of Life of Virginia by GE Capital, Life of Virginia
restated its financial statements in accordance with the purchase
method of accounting. The net purchase price for Life of Virginia and
its subsidiary of $929.9 million was allocated according to the fair
values of the acquired assets and liabilities, including the estimated
present value of future profits. These allocated values were dependent
upon policies in force and market conditions at the time of closing.
In addition to revaluing all material tangible assets and liabilities
to their respective estimated fair values as of the closing date of the
sale, Life of Virginia also recorded in its consolidated financial
statements the excess of cost over fair value of net assets acquired
(goodwill) as well as the present value of future profits to be derived
from the purchased business. These amounts were determined in
accordance with the purchase method of accounting. This new basis of
accounting resulted in an increase in stockholders' equity of $118
million (net of purchase accounting adjustments of $2.2 million in
1997), reflecting the application of the purchase method of accounting.
The Company's consolidated financial statements subsequent to April 1,
1996 reflect this new basis of accounting.
<PAGE>
(1) Continued
All amounts for periods ended before April 1, 1996 are labeled
"Preacquisition" and are based on the preacquisition historical costs
in accordance with generally accepted accounting principles. The
periods ending after such date are based on fair values at April 1,
1996 (which becomes the new cost basis) and subsequent costs in
accordance with the purchase method of accounting.
Present Value of Future Profits
As of April 1, 1996, Life of Virginia established an intangible asset
which represents the present value of future profits ("PVFP"). PVFP
reflects the estimated fair value of the Company's life insurance
business in-force and represents the portion of the cost to acquire the
Company that is allocated to the value of the right to receive future
cash flows from insurance contracts existing at the date of
acquisition. Such value is the present value of the actuarially
determined projected cash flows for the acquired policies discounted at
an appropriate rate.
PVFP is amortized over the estimated contract life of the business
acquired in relation to the present value of estimated gross profits.
The estimated gross profit streams are periodically reevaluated and the
unamortized balance of PVFP adjusted to the amount that would have
existed had the actual experience and revised estimates been known and
applied since inception. The amortization period is the remaining life
of the policies, which range from 10 to 30 years from the date of
original policy issue. Based on current assumptions, net amortization
of the PVFP asset, expressed as a percentage, is projected to be 12.4%,
11.6%, 10.8%, 9.5% and 8.1% for the years ended December 31, 1998
through 2002, respectively. Actual amortization incurred during these
years may vary as assumptions are modified to incorporate actual
results.
Prior to April 1, 1996, Life of Virginia's PVFP was calculated in a
similar manner as the PVFP discussed above and related to policies
in-force on April 30, 1986, the date the Company was acquired by Aon.
Under purchase accounting this PVFP was removed.
<PAGE>
(1) Continued
The projected ending balance of PVFP will be further adjusted to
reflect the impact of unrealized gains or losses on fixed maturities
classified as available for sale in the investment portfolios. Such
adjustments are not recorded in the Company's net income but rather as
a credit or charge to stockholders' equity, net of applicable income
tax. The components of PVFP are as follows:
<TABLE>
<CAPTION>
Preacquisition
------------------------------
Nine months Three months
Year ended ended ended Year ended,
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
PVFP - beginning of period $ 419.2 - 32.6 48.6
Adjustment related to the purchase
method of accounting - 484.0 - -
Interest accreted at 6.75% for 1997
and 6.25% for 1996 28.4 22.4 0.5 2.1
Gross amortization, excluding interest (81.6) (67.5) (1.1) (5.3)
Dividend of Globe Life Insurance
Company (note 7) - - - (12.8)
Effect of net unrealized
investment (gains) losses (33.4) (19.7) - -
- ---------------------------------------------------------------------------------------------------------------
PVFP - end of period $ 332.6 419.2 32.0 32.6
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Goodwill
Under the purchase method of accounting, Goodwill is the excess of the
purchase price over the fair value of assets and liabilities acquired
and PVFP. The Company has elected to amortize goodwill on the straight
line basis over a 20 year period.
The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding
goodwill as of each reporting period. In the event that the Company
determined that goodwill was not recoverable it would amortize such
amounts as additional goodwill expense in the accompanying consolidated
financial statements. As of December 31, 1997, the Company believes
that no such adjustment is necessary.
<PAGE>
(1) Continued
Deferred Tax Assets and Liabilities
Pursuant to the acquisition on April 1, 1996, GE Capital, and Aon
Corporation, the Company's previous ultimate parent, agreed to file an
election to treat the acquisition of Life of Virginia as an asset
acquisition under the provisions of Internal Revenue Code Section
338(h)(10). As a result of that election, the tax basis of the
Company's assets as of the date of acquisition were revalued based upon
fair market values. The principal effect of the election was to
establish a tax basis of intangibles for the value of the business
acquired that is amortizable for tax purposes over 10-15 years.
Deferred income taxes have been provided for the effects of temporary
differences between financial reporting and tax bases of assets and
liabilities and have been measured using the enacted marginal tax rates
and laws that are currently in effect.
Recognition of Premium Revenue and Related Expenses
For universal life-type and investment products, generally there is no
requirement for the payment of a premium other than to maintain account
values at a level sufficient to pay mortality and expense charges.
Consequently, premiums for universal life-type policies and investment
products are not reported as revenue, but as deposits. Policy fee
revenue for universal life-type policies and investment products
consists of charges for the cost of insurance, policy administration,
and surrenders assessed during the period. Expenses include interest
credited to policy account balances and benefit claims incurred in
excess of policy account balances.
In general, for accident and health products, premiums collected are
reported as earned proportionately over the period covered by the
policies. For all other life products, premiums are recognized as
revenue when due. Benefits and related expenses associated with the
premium revenues are charged to expense proportionately over the lives
of the policies through a provision for future policy benefit
liabilities and through deferral and amortization of deferred policy
acquisition costs.
<PAGE>
(1) Continued
Reinsurance
Reinsurance premiums, commissions, and expense reimbursements on
reinsured business are accounted for on a basis consistent with those
used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums and benefits ceded to other
companies have been reported as a reduction of premium revenue and
benefits. Expense reimbursements received in connection with
reinsurance ceded have been accounted for as a reduction of the related
policy acquisition costs or, to the extent such reimbursements exceed
the related acquisition costs, as other revenue. All reinsurance
receivables and prepaid reinsurance premium amounts are reported as
assets.
Investments
Fixed maturities are classified as available for sale and carried at
fair value. The amortized cost of fixed maturities is adjusted for
amortization of premiums and accretion of discounts to maturity that
are included in net investment income. Included in fixed maturities are
investments in mortgage-backed securities. Investment income on
mortgage-backed securities is initially based upon yield, cash flow and
prepayment assumptions at the date of purchase. Subsequent revisions in
those assumptions are recorded using the retrospective method, whereby
the amortized cost of the securities is adjusted to the amount that
would have existed had the revised assumptions been in place at the
date of purchase. The adjustments to amortized cost are recorded as a
charge or credit to investment income.
Short-term investments are carried at amortized cost which approximates
fair value. Equity securities are valued at fair value. Mortgage loans
are carried at their unpaid principal balance, net of allowances for
estimated uncollectible amounts. Real estate is carried generally at
cost less accumulated depreciation. Policy loans are carried at unpaid
principal balance. Other long-term investments are carried generally at
cost.
Changes in the market values of investments available-for-sale, net of
the effect on deferred policy acquisition costs, present value of
future profits and deferred federal income taxes are reflected as
unrealized investment gains or losses in a separate component of
stockholders' interest and accordingly, have no effect on net income.
<PAGE>
(1) Continued
Investments that have declines in fair value below cost, that are
judged to be other than temporary, are written down to estimated fair
value and reported as realized investment losses. Additionally,
reserves for mortgage loans and certain other long-term investments are
established based on an evaluation of the respective investment
portfolio, past credit loss experience, and current economic
conditions. Writedowns and the change in reserves are included in
realized investment gains and losses in the consolidated statements of
income. In general, the Company ceases to accrue investment income when
interest or dividend payments are in arrears.
Impaired loans are loans for which it is probable that the Company will
be unable to collect all amounts due according to terms of the original
contractual terms of the loan agreement. This definition includes,
among other things, leases, or larger groups of small-homogenous loans,
and therefore applies principally to the Company's commercial loans.
Life of Virginia measures impaired loans at the present value of the
loans discounted cash flow using the effective interest rate of the
original loan as the discount rate.
Deferred Policy Acquisition Costs
Costs of acquiring new business, principally commissions, underwriting
and sales expenses that vary with and are primarily related to the
production of new business, are deferred. For non-universal life-type
products, amortization of deferred policy acquisition costs is related
to and based on the present value of expected premium revenues on the
policies. Periodically amortization is adjusted to reflect current
withdrawal experience. Expected premium revenues are estimated by using
the same assumptions used in estimating future policy benefits.
Deferred policy acquisition costs related to universal life-type
policies and investment products are amortized in relation to the
present value of expected gross profits on the policies. Such
amortization is adjusted periodically to reflect differences in actual
and assumed gross profits.
<PAGE>
(1) Continued
To the extent that unrealized gains or losses on available for sale
securities would result in an adjustment to deferred policy acquisition
costs amortization, had those gains or losses actually been realized,
the related deferred policy acquisition cost adjustments are recorded
along with the unrealized gains or losses included in stockholders'
equity with no effect on net income.
The components of deferred policy acquisition costs are as follows:
<TABLE>
<CAPTION>
Preacquisition
-------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C>
Deferred policy acquisition costs - $ 70.3 - 363.9 388.1
beginning of period
Commissions and expenses deferred 112.3 74.9 22.2 76.1
Amortization (10.8) (3.2) (6.0) (39.3)
Dividend of Globe Life Insurance
Company (note 7) - - - (22.8)
Effect of net unrealized investment
(gains) losses (6.8) (1.4) 17.9 (38.2)
- ------------------------------------------------------------------------------------------------------------
Deferred policy acquisition costs - end of period $ 165.0 70.3 398.0 363.9
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Property and Equipment
Property and equipment are generally depreciated using the
straight-line method over their estimated useful lives. As a result of
purchase accounting, fully depreciated property and equipment were
removed.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate fair values
for financial instruments. The carrying amounts in the consolidated
statements of financial position for cash and short-term investments
approximate their fair values. Fair values for fixed
<PAGE>
(1) Continued
maturity securities and equity securities are based on quoted market
prices or, if they are not actively traded, on estimated values
obtained from independent pricing services or in the case of private
placements, are estimated by discounted expected future cash flows
using a current market rate applicable to the yield credit quality,
call features and maturity of the investments, as applicable. The fair
values for mortgage loans and policy loans are estimated using
discounted cash flow analyses, using interest rates currently being
offered for similar loans to borrowers with similar credit ratings.
Fair values of derivatives are based on quoted prices for
exchange-traded instruments or the cost to terminate or offset with
other contracts.
Fair values for liabilities for investment-type contracts are estimated
using discounted cash flow calculations based on interest rates
currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Separate Account Business
The assets and liabilities of the separate accounts represent
designated funds of group pension, variable life and annuity
policyholders and are not guaranteed or supported by other general
investments of the Company. The Company earns mortality and expense
risk fees from the separate accounts and assesses withdrawal charges in
the event of early withdrawals. The assets are carried at fair value
and are offset by liabilities that represent such policyholders' equity
in those assets. The net investment income generated from these assets
is not included in the consolidated statements of income.
The Company has periodically transferred capital to the separate
accounts to provide for the initial purchase of investments in the new
portfolios. As of December 31, 1997, approximately $44.6 million of the
Company's common stock investment related to its capital investments in
the separate accounts.
Future Policy Benefit Liabilities and Unearned Premiums and Policy and
Contract Claims
Future policy benefit liabilities on non-universal life-type and
accident and health products have been provided on the net level
premium method. The liabilities are calculated based on assumptions as
to investment yield, mortality, morbidity and
<PAGE>
(1) Continued
withdrawal rates that were determined at the date of issue or
acquisition of Life of Virginia by the Parent, and provide for possible
adverse deviations. Interest assumptions are graded and range from 7.4%
to 6.5%.
Withdrawal assumptions are based principally on experience and vary by
plan, year of issue, and duration.
Policyholder liabilities on universal life-type and investment products
are generally based on policy account values. Interest crediting rates
for these products range from 8.6% to 4.5%.
Unearned premiums generally are calculated using the pro rata method
based on gross premiums. However, in the case of credit life and credit
accident and health, the unearned premiums are calculated such that the
premiums are earned over the period of risk in a reasonable
relationship to anticipated claims.
Policy and contract claim liabilities represent estimates for reported
claims, as well as provisions for losses incurred, but not yet
reported. These claim liabilities are based on historical experience
and are estimates of the ultimate amount to be paid when the claims are
settled. Changes in the estimated liability are reflected in income as
the estimates are revised.
Foreign Currency Translation
Foreign revenues and expenses are translated at average exchange rates.
Foreign assets and liabilities are translated at year-end exchange
rates. Unrealized foreign exchange gains or losses on translation are
generally reported in stockholders' equity. No tax effect was taken
into consideration for unrealized losses.
(2) Invested Assets and Related Income
Under purchase accounting, the fair value of Life of Virginia's fixed
maturity investments as of April 1, 1996, became Life of Virginia's new
cost basis in such investments. The difference between the new cost
basis and original par is then amortized against investment income over
the remaining effective lives of the fixed maturity investments.
<PAGE>
(2) Continued
The Company's investments in debt and equity securities are considered
available for sale and are carried at estimated fair value, with the
aggregate unrealized appreciation or depreciation being recorded as a
separate component of stockholders' equity. The carrying value and
amortized cost of investments at December 31, 1997 and 1996 were as
follows:
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Available for sale:
U.S. government and agencies $ 44.3 1.3 - 45.6
States and political subdivisions 1.8 0.3 - 2.1
Foreign governments 200.1 6.5 (0.3) 206.3
Corporate securities 3,362.1 120.6 (8.1) 3,474.6
Mortgage-backed securities 1,859.8 39.6 (5.4) 1,894.0
- ----------------------------------------------------------------------------------------------------------------
Total fixed maturities 5,468.1 168.3 (13.8) 5,622.6
Total equity securities 130.7 21.5 (0.5) 151.7
- ----------------------------------------------------------------------------------------------------------------
Total available for sale $ 5,598.8 189.8 (14.3) 5,774.3
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Available for sale:
U.S. government and agencies $ 65.5 2.1 - 67.6
States and political subdivisions 2.1 - - 2.1
Foreign governments 178.2 5.6 - 183.8
Corporate securities 3,092.1 29.0 (19.6) 3,101.5
Mortgage-backed securities 1,764.3 29.7 (6.3) 1,787.7
- -----------------------------------------------------------------------------------------------------------------
Total fixed maturities 5,102.2 66.4 (25.9) 5,142.7
Total equity securities 155.1 11.2 (0.8) 165.5
- -----------------------------------------------------------------------------------------------------------------
Total available for sale $ 5,257.3 77.6 (26.7) 5,308.2
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Continued
The scheduled maturity distribution of the fixed maturity portfolio at
December 31 follows. Expected maturities may differ from scheduled
contractual maturities because issuers of securities may have the right
to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
1997
---------------------------
Amortized Fair
(millions) Cost Value
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Due in one year or less $ 105.8 106.7
Due after one year through five years 1,196.8 1,224.3
Due after five years through ten years 1,654.9 1,705.3
Due after ten years 650.8 692.3
- -----------------------------------------------------------------------------------------------------------
Subtotals 3,608.3 3,728.6
Mortgage-backed securities 1,859.8 1,894.0
- -----------------------------------------------------------------------------------------------------------
Totals $ 5,468.1 5,622.6
- -----------------------------------------------------------------------------------------------------------
</TABLE>
As required by law, the Company has investments on deposit with
governmental authorities and banks for the protection of policyholders
of $4.7 million and $4.5 million at December 31, 1997 and 1996,
respectively.
At December 31, 1997, approximately 24.8% and 15.9% of the Company's
investment portfolio is comprised of securities issued by the
manufacturing and financial industries, respectively, the vast majority
of which are rated investment grade, and which are senior secured
bonds. No other industry group comprises more than 10% of the Company's
investment portfolio. This portfolio is widely diversified among
various geographic regions in the United States, and is not dependent
on the economic stability of one particular region.
At December 31, 1997, the Company did not hold any fixed maturity
securities, other than securities issued or guaranteed by the U.S.
government, which exceeded 10% of shareholders interest.
<PAGE>
(2) Continued
The credit quality of the fixed maturity portfolio at December 31,
follows. The categories are based on the higher of the ratings
published by Standard & Poors or Moody's.
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
Fair Fair
value Percent value Percent
- ------------------------------------------------------------------------------------------------------
<S> <C>
Agencies and treasuries $ 308 5.5% $ 317 6.2%
AAA/Aaa 1,465 26.0 1,437 27.9
AA/Aa 320 5.7 247 4.8
A/A 1,101 19.6 988 19.2
BBB/Baa 1,862 33.1 1,864 36.3
BB/Ba 307 5.5 207 4.0
B/B 77 1.4 13 0.3
Not rated 182 3.2 69 1.3
- -----------------------------------------------------------------------------------------------------
Totals $ 5,622 100.0% $ 5,142. 100.0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
Bonds with earnings ranging from AAA/Aaa to BBB-/Baa3 are generally
regarded as investment grade securities. Some agencies and treasuries
(that is, those securities issued by the United States government or an
agency thereof) are not rated, but all are considered to be investment
grade securities. Finally, some securities, such as private placements,
have not been assigned a rating by any rating service and are therefore
categorized as "not rated." This has neither positive nor negative
implications regarding the value of the security.
<PAGE>
(2) Continued
The Company had $6.4 million and $12.6 million of non-income producing
investments on December 31, 1997 and December 31, 1996, respectively.
"Impaired" loans are defined under generally accepted accounting
principles as loans for which it is probable that the lender will be
unable to collect all amounts due according to the original contractual
terms of the loan agreement. That definition excludes, among other
things, leases or large groups of smaller-balance homogenous loans, and
therefore applies principally to the Company's commercial loans.
Under these principles, the Company has two types of "impaired" loans
as of December 31, 1997 and 1996: loans requiring allowances for losses
and loans expected to be fully recoverable because the carrying amount
has been reduced previously through charge-offs or deferral at income
recognition ($23.0 million and $-, respectively). There was no
allowance for losses on these loans as of December 31, 1997 and 1996.
Average investment in impaired loans during 1997 was $23.0 million and
interest income earned on these loans while they were considered
impaired was $2.0 million. There were no impaired loans nor related
interest income earned on such loans in 1996.
The Company's mortgage and real estate portfolio is distributed by
geographic location and type. However, the Company has concentration
exposures in certain regions and in certain types as shown in the
following two tables.
Geographic distribution as of December 31, 1997:
<TABLE>
<CAPTION>
Mortgage Real estate
- -----------------------------------------------------------------------------------------------------------
<S> <C>
South Atlantic 47.0% 60.3%
East North Central 14.8 2.3
Mountain 14.1 -
West South Central 12.0 37.4
Pacific 6.6 -
Middle Atlantic 3.9 -
East South Central 1.6 -
- ------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Continued
Type distribution as of December 31, 1997:
<TABLE>
<CAPTION>
Mortgage Real estate
- --------------------------------------------------------------------------------------------------------
<S> <C>
Office building 19.8% 51.1%
Retail 23.7 21.3
Industrial 21.2 -
Apartments 21.8 25.3
Other 13.5 2.3
- --------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
- --------------------------------------------------------------------------------------------------------
</TABLE>
Net unrealized gains and losses on investment securities classified as
available-for-sale are reduced by deferred income taxes and adjustments
to the present value of future profits and deferred policy acquisition
costs that would have resulted had such gains and losses been realized.
Net unrealized gains and losses on available-for-sale investment
securities reflected as a separate component of stockholders' equity
are summarized as follows:
<TABLE>
<CAPTION>
Preacquisition
-------------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Net unrealized gains on available-for-sale investment securities before
adjustments:
Fixed maturities $ 154.5 40.5 2.8 143.8
Equity securities 21.0 10.4 5.8 23.2
- --------------------------------------------------------------------------------------------------------------------
Subtotal 175.5 50.9 8.6 167.0
Adjustments to the present value
of future profits and deferred policy
acquisition costs (61.2) (21.1) 9.9 (8.0)
Deferred income taxes (40.0) (10.4) (6.6) (55.9)
- --------------------------------------------------------------------------------------------------------------------
Net unrealized gains on
available-for-sale investment
securities 74.3 19.4 11.9 103.1
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Continued
The source of investment income of the Company is as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities $ 398.5 274.4 93.1 332.8
Equity securities 7.3 8.7 4.2 10.8
Mortgage loans on real estate 48.3 41.3 13.5 49.8
Short-term investments 1.0 2.5 0.5 3.5
Other investments 22.3 12.9 3.0 13.2
- --------------------------------------------------------------------------------------------------------------
Gross investment income 477.4 339.8 114.3 410.1
Investment expenses (4.9) (5.4) (2.3) (8.0)
- --------------------------------------------------------------------------------------------------------------
Net investment income $ 472.5 334.4 112.0 402.1
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Gross realized investment gains and losses resulting from the sales of
investment securities were as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities available for sale:
Gross gains $ 8.3 0.6 0.5 12.9
Gross losses - (0.7) (1.4) (90.2)
Fixed maturities held to maturity:
Gross gains - - - 1.1
Gross losses - - - (13.8)
Equity securities 3.4 6.0 10.3 5.6
Mortgage loans on real estate (0.8) - (0.4) 2.3
Other 2.4 0.1 - 5.6
- ---------------------------------------------------------------------------------------------------
Total before tax 13.3 6.0 9.0 (76.5)
Less applicable tax (4.7) (2.3) (1.9) 26.8
- ----------------------------------------------------------------------------------------------------
Total $ 8.6 3.7 7.1 (49.7)
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(2) Continued
The changes in net unrealized gains (losses) on fixed maturities and
equity security investments are as follows:
<TABLE>
<CAPTION>
Preacquisition
-----------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C>
Fixed maturities:
Available for sale $ 114.0 40.5 (141.0) 298.7
Held to maturity - - - 233.7
Equity securities 10.6 10.4 (17.4) 26.1
- --------------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ 124.6 50.9 (158.4) 558.5
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Income Tax
Beginning April 1, 1996, Life of Virginia and its subsidiary have been
included in the life insurance company consolidated federal income tax
return of GE Capital Assurance and are also subject to a separate
tax-sharing agreement, as approved by state insurance regulators, the
provisions of which are substantially the same as the tax-sharing
agreement with GE Capital. Prior to April 1, 1996, Life of Virginia was
included in the consolidated federal income tax return of Aon and its
principal domestic subsidiaries and in accordance with intercompany
policy, provided taxes on income based on a separate company basis.
Amounts payable or recoverable related to periods before April 1, 1996,
are subject to an indemnification agreement with Aon. As such the
Company is not at risk for any income taxes nor entitled to recoveries
related to those periods.
<PAGE>
(3) Continued
Income taxes are recorded in the statements of income and directly in
stockholders' equity accounts. Income taxes for the years ending
December 31 was allocated as follows:
<TABLE>
<CAPTION>
Preacquisition
-----------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Statement of income:
Operating income (excluding
realized investment gains
and losses) $ 47.5 29.5 5.1 53.9
Realized investment gains/losses 4.7 2.3 1.9 (26.8)
- --------------------------------------------------------------------------------------------------------
Income tax expense included
in the statement of income 52.2 31.8 7.0 27.1
Stockholders' equity:
Unrealized gains/(losses) on
securities available for sale 29.6 10.4 (49.3) 86.0
- --------------------------------------------------------------------------------------------------------
Total $ 81.8 42.2 (42.3) 113.1
- --------------------------------------------------------------------------------------------------------
</TABLE>
The actual federal income tax expense differed from the expected tax
expense computed by applying the U.S. federal statutory rate to income
before income tax expense. A reconciliation of the income tax
provisions based on the statutory corporate tax rate to the provisions
reflected in the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Preacquisition
------------------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, December 31, December 31,
1997 1996 1996 1995
--------------------- --------------------- -------------------- ---------------------
<S> <C>
Statutory tax rate ..................... $ 50.1 35.0% $ 30.1 35.0% $ 6.6 35.0% $ 23.2 35.0%
Tax-exempt investment income
deductions ............................ ( 0.9) (0.7) ( 1.0) (1.2) -- (0.1) ( 0.1) (0.1)
Adjustment of prior year taxes ......... -- -- -- -- -- -- 3.5 5.3
Other-net .............................. 3.0 2.2 2.7 3.2 0.4 2.1 0.5 0.7
------- ---- ------- ---- ------ ---- ------- ----
Effective tax rate ..................... $ 52.2 36.5% $ 31.8 37.0% $ 7.0 37.0% $ 27.1 40.9%
======= ==== ======= ==== ====== ==== ======= ====
</TABLE>
Significant compnents of Life of Virginia's deffered tax liabilities and
assets are as follows (in millions):
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
-------------- -------------
<S> <C>
Deferred tax liabilities:
Present value of future profits ......... $ 79.1 89.9
Unrealized investment gains ............. 40.0 10.4
Other ................................... 2.7 6.5
------ -----
Total deferred tax liabilities ........... 121.8 106.7
------ -----
Deferred tax assets:
Insurance reserve amounts ............... 142.9 120.4
Policy acquisition costs ................ 11.8 34.3
Guaranty fund amounts ................... 9.4 10.8
Other ................................... 15.1 14.1
------ -----
Total deferred tax assets ................ 179.2 179.6
------ -----
Net deferred tax assets .................. $ 57.4 72.9
====== =====
</TABLE>
Deferred taxes are allocated to individual subsidiaries by applying the
asset and liability method of accounting for deferred income taxes.
Intercompany balances are settled annually.
<PAGE>
(3) Continued
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized.
Management believes the deferred tax assets will be fully realized in
the future based on the expectation of the reversal of existing
temporary differences, anticipated future earnings, and consideration
of all other available evidence. Accordingly, no valuation allowance is
established.
The amount of income taxes paid (refunded) for the year ended December
31, 1997, the nine months ended December 31, 1996, three months ended
March 31, 1996, and the year ended December 31, 1995 was $64.4 million,
$38.6 million, $(2.4) million and $44.9 million, respectively.
(4) Reinsurance and Claim Reserves
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. Life of Virginia's reinsurance
consists primarily of long-duration contracts that are entered into
with financial institutions and related party reinsurance. Although
these reinsurance agreements contractually obligate the reinsurers to
reimburse the Company, they do not discharge the Company from its
primary liabilities and the Company remains liable to the extent that
the reinsuring companies are unable to meet their obligations.
A summary of reinsurance activity is as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------
Nine months Three months
Year ended ended ended Year ended
December 31, December 31, March 31, December 31,
1997 1996 1996 1995
--------------- --------------- --------------- ---------------
Earned Earned Earned Earned
--------------- --------------- --------------- ---------------
<S> <C>
Direct $ 337.3 210.5 77.2 261.5
Assumed 20.7 6.6 35.0 4.3
Ceded 84.8 62.4 19.8 86.5
- -------------------------------------------------------------------------------------------------------
Net premiums 273.2 154.7 92.4 179.3
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(4) Continued
Due to the nature of the Company's reinsurance contracts, premiums
earned approximate premiums written.
A significant portion of Life of Virginia's ceded premiums relates to
group life and health premiums. Life of Virginia is the primary carrier
for the State of Virginia employees group life and health plan. By
statute, Life of Virginia must reinsure these risks with other Virginia
domiciled companies who wish to participate.
Incurred losses and loss adjustment expenses are net of reinsurance of
$72.7 million, $60.5 million, $17.2 million and $63.1 million for the
year ended December 31, 1997, the nine months ended December 31, 1996,
three months ended March 31, 1996 and the year ended December 31, 1995,
respectively.
In December 1994, Life of Virginia ceded to CICA $406.6 million of its
guaranteed investment contract liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA available for
sale fixed maturities with a fair value of $278.1 million and a cost of
$287.2 million and preferred stock with a fair value of $110.5 million
and a cost of $119.7 million.
In January 1995, Life of Virginia ceded to CICA $600 million of its
single premium deferred annuity liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA available for
sale fixed maturities with a fair value of $436.1 million and book
value of $501.4 million and held to maturity fixed maturities with a
fair value of $81.4 million and a book value of $95.1 million. In
addition, $5.5 million of accrued income related to the assets above
was transferred to CICA. This transaction resulted in a deferred
reinsurance gain of $77.0 million, $24 million of which was recognized
in 1995. Additionally, Life of Virginia recognized a $79.0 million
realized investment loss.
<PAGE>
(4) Continued
In connection with the sale of the Company, the following transactions
occurred effective January 1, 1996: single premium deferred annuity
liabilities reinsured with CICA in 1995 were recaptured, guaranteed
investment contract liabilities reinsured with CICA in 1994 were
recaptured, other lines of CICA insurance business inforce were
assumed, and other related liabilities of CICA were assumed. In
conjunction with the recapture and assumption, CICA transferred to Life
of Virginia assets with a fair value totaling $842.6 million. For the
three months ended March 31, 1996, premiums of $33.9 million, benefits
of $46.7 million, commission expense of $10.2 million and a capital
contribution of $69.3 million as a result of various reinsurance
transactions. The $53 million deferred reinsurance gain remaining at
December 31, 1995 from the January 1995 single premium deferred annuity
cession to CICA was recognized as a capital contribution. The tables
below summarize the assets and liabilities transferred from CICA to the
Company.
<TABLE>
<CAPTION>
Millions Fair Value
- -----------------------------------------------------------------------------
<S> <C>
Assets transferred:
Fixed maturity $ 727.4
Preferred stock 88.2
Policy loans 14.2
Accrued investment income 10.0
Cash 2.8
- -----------------------------------------------------------------------------
Total 842.6
- -----------------------------------------------------------------------------
Liabilities recaptured and assumed:
Single premium deferred annuity 410.5
Guaranteed investment contracts 212.6
Universal life contracts 156.6
Individual traditional contracts 33.2
Other lines of business inforce 19.9
Other liabilities 16.5
- -----------------------------------------------------------------------------
Total $ 849.3
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
(5) Employee Benefits
Savings Plan
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employees participated in a General Electric contributory savings plan.
Provisions made for the savings plan were $.9 million and $.6 million
for the year ended December 31, 1997 and the nine months ended December
31, 1996.
Prior to the acquisition on April 1, 1996, Life of Virginia
participated in Aon's contributory savings plan for the benefit of
salaried and commissioned employees. Provisions made for the savings
plan were $.3 million and $.8 million for the three months ended March
31, 1996, and the year ended December 31, 1995, respectively. This plan
terminated upon the acquisition of Life of Virginia by GE Capital.
Employee Stock Ownership Plan
Prior to the acquisition on April 1, 1996, Life of Virginia
participated in Aon's leveraged ESOP for the benefit of salaried and
certain commissioned employees. Contributions to the ESOP for the three
months ended March 31, 1996 and the year ended December 31, 1995
charged to Life of Virginia's operations amounted to $.1 million and
$.5 million, respectively. This plan terminated upon the acquisition of
Life of Virginia by GE Capital.
Pension Plan
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employees participated in a General Electric contributory defined
benefit pension plan. Generally, benefits are based on the greater of a
formula recognizing career earnings or a formula recognizing length of
service and final average earnings. Benefit provisions are subject to
collective bargaining. General Electric's funding policy is to
contribute amounts sufficient to meet minimum funding requirements as
set forth in employee benefit and tax laws plus such additional amounts
as determined appropriate. The components of net periodic pension cost
and benefit obligations of the General Electric defined benefit plan
are not separately available for Life of Virginia. In connection with
Life of Virginia's participation in the General Electric contributory
defined benefit pension plan a $.6 million and $.4 million expense were
incurred for the year ended December 31, 1997 and the nine months ended
December 31, 1996.
<PAGE>
(5) Continued
Prior to the acquisition on April 1, 1996, Life of Virginia
participated in Aon's non-contributory defined benefit pension plan
providing retirement benefits for salaried employees and certain
commissioned employees based on years of service and salary. Aon's
funding policy was to contribute amounts to the plan sufficient to meet
the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as Aon
determined to be appropriate from time to time. The components of net
periodic pension cost and benefit obligations of the Aon defined
benefit plan were not separately available for Life of Virginia. In
connection with Life of Virginia's participation in the Aon defined
benefit plan, the Company had net pension credits of $1.2 million and
$3.8 million in the three months ended March 31, 1996 and the year
ended December 31, 1995. This plan terminated upon the acquisition of
Life of Virginia by GE Capital.
Postretirement Benefits Other Than Pensions
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employees participated in a General Electric retiree health and life
insurance benefit plan. The plans principally provides health and life
insurance benefits to employees who retire under the General Electric
pension plan with 10 or more years of service. Retirees share in the
cost of their health care benefits. The funding policy for retiree
health benefits is generally to pay covered expenses as they are
incurred. Expenses incurred by Life of Virginia for the year ended
December 31, 1997 and the nine months ended December 31, 1996 for the
retiree health and life insurance benefit plan were $1.9 million and
$1.3 million, respectively.
Prior to the acquisition on April 1, 1996, Aon sponsored two defined
benefit postretirement health and welfare plans in which Life of
Virginia participated that cover both salaried and nonsalaried
employees. One plan provided medical benefits, prior to and subsequent
to Medicare eligibility, and the other provided life insurance
benefits. The postretirement health care plan was contributory, with
retiree contributions adjusted annually; the life insurance plan was
noncontributory. Both plans were funded on a pay-as-you-go basis. These
plans terminated upon the acquisition of Life of Virginia by GE
Capital.
<PAGE>
(6) Lease Commitments
Life of Virginia has noncancelable operating leases for certain office
space, equipment and automobiles. Future minimum rental payments
required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
(millions) Minimum lease payments
- ------------------------------------------------------------------------
<S> <C>
1998 $ 1.1
1999 0.8
2000 0.5
2001 0.3
2002 -
Later years -
- ------------------------------------------------------------------------
Total minimum payments required $ 2.7
- ------------------------------------------------------------------------
</TABLE>
Rental expense for all operating leases for the year ended December 31,
1997, for the nine months ended December 31, 1996, the three months
ended March 31, 1996 and the year ended December 31, 1995 amounted to
$1.3 million, $2.5 million, $.8 million and $3.6 million, respectively.
(7) Related Party Transactions
Life of Virginia pays investment advisory fees and other fees to
affiliates. Amounts incurred for these items aggregated $7.6 million,
$3.2 million, $3.5 million and $5.8 million for the year ended December
31, 1997, the nine months ended December 31, 1996, the three months
ended March 31, 1996 and the year ended December 31, 1995,
respectively. Life of Virginia charges affiliates for certain services
and for the use of facilities and equipment which aggregated $4.6
million, $2.0 million, $1.0 million, and $10.0 million for the year
ended December 31, 1997, the nine months ended December 31, 1996, the
three months ended March 31, 1996, and the year ended December 31,
1995, respectively.
<PAGE>
(7) Continued
At December 31, 1997 and 1996, Life of Virginia held investments in
securities of certain affiliates amounting to $2.6 million. Amounts
included in net investment income related to these holdings totaled
$0.1 million, $0.1 million, $0.2 million and $1.0 million for the year
ended December 31, 1997, for the nine months ended December 31, 1996,
the three months ended March 31, 1996 and the year ended December 31,
1995, respectively.
In January 1995, Life of Virginia dividend 100% of its Globe Life
Insurance Company ("Globe") common stock to CICA, a subsidiary of Aon.
At December 31, 1994, Globe had assets of $954.9 million, liabilities
of $765.7 million and stockholders' equity of $189.2 million. The fair
value of this dividend was $193.3 million.
In 1995, Life of Virginia received from CICA, in the form of a capital
contribution, fixed maturities with a fair value of $45.0 million.
In January 1995, Life of Virginia transferred limited partnership
investments with a fair value of $8.0 million and book value of $7.5
million, common stocks with a fair value of $5.6 million and book value
of $3.4 million, and cash of $6.4 million to pay a $20.0 million
dividend declared but not paid in 1994. A $2.7 million realized
investment gain was recorded on this transfer.
(8) Litigation
Life of Virginia is subject to numerous claims and lawsuits that arise
in the ordinary course of business. In some of these cases the remedies
that may be sought or damages claimed are substantial, including cases
that seek punitive or extraordinary damages. Accruals for these
lawsuits have been provided to the extent that losses are deemed
probable and are estimable. Although the ultimate outcome of these
suits cannot be ascertained and liabilities in indeterminate amounts
may be imposed on Life of Virginia, on the basis of present
information, availability of insurance coverage, and advice received
from counsel, it is the opinion of management that the disposition or
ultimate determination of such claims and lawsuits will not have a
material adverse effect on the consolidated financial position or
results of operations of Life of Virginia.
<PAGE>
(9) Financial Instruments
Interest Rate Risk Management
Life of Virginia used interest rate swap agreements to manage asset and
liability durations relating to its capital accumulation annuity
business. As of December 31, 1995, these swap agreements had the net
effect of lengthening liability durations. Variable rates received on
interest rate swap agreements correlate with crediting rates paid on
outstanding liabilities. The net effect of swap payments is settled
periodically and reported in income. There was no settlement of
underlying notional amounts.
Life of Virginia performed frequent analyses to measure the degree of
correlation associated with its derivative program. Life of Virginia
assessed the adequacy of the correlation analyses results in
determining whether the derivatives qualify for hedge accounting.
Realized gains and losses on derivatives that qualify as hedges were
deferred and reported as an adjustment of the cost basis of the hedged
item. Deferred gains and losses were amortized into income over the
life of the hedged item. The fair value of swap agreements hedging
liabilities were not recognized in the consolidated statements of
financial position.
These interest rate swaps gave rise to credit risks due to possible
non-performance by counterparties. The credit risk was generally
limited to the fair value of those contracts that were favorable to
Life of Virginia. Life of Virginia limited its credit risk by
restricting investments in derivative contracts to a diverse group of
highly rated major financial institutions. Life of Virginia closely
monitored the credit worthiness of, and exposure to, its counterparties
and considered its credit risk to be minimal.
Life of Virginia had no interest rate swaps outstanding at December 31,
1997 and 1996.
During the three months ended March 31, 1996 and the year ended
December 31, 1995 Life of Virginia amortized $.6 million and $1.4
million, respectively, of net deferred losses relating to interest rate
swaps into income.
As of December 31, 1995, the principal swaps have maturities ranging
from September 1999 to October 2000 and variable rates based on five
year treasury rates. These swaps were terminated prior to March 31,
1996 resulting in a $1.1 million gain which was deferred.
<PAGE>
(9) Continued
Other Financial Instruments
Life of Virginia has certain investment commitments to provide
fixed-rate loans. The investment commitments, which would be
collateralized by related properties of the underlying investments,
involve varying elements of credit and market risk. Investment
commitments outstanding at December 31, 1997 and December 31, 1996,
totaled $16.7 million and $1.7 million, respectively.
Fair Value of Financial Instruments
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to
encompass the majority of policy liabilities, various other
non-financial instruments, or other intangible items related to Life of
Virginia's business. Accordingly, care should be exercised in deriving
conclusions about Life of Virginia's business or financial condition
based on the fair value disclosures.
The Company has no derivative financial instruments as defined by SFAS
No. 119 at December 31, 1997, other than mortgage loan commitments of
$67.7 million.
<PAGE>
(9) Continued
The carrying amount and fair value of certain of Life of Virginia's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------------------------
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Fixed maturities and
equity securities
(note 2) $ 5,774.3 5,774.3 5,308.2 5,308.2
Mortgage loans on
real estate 496.2 532.2 585.4 622.6
Policy loans 188.4 188.4 179.5 179.5
Cash, short-term
investments and
receivables 138.6 138.6 186.4 186.4
Assets held in separate accounts 4,066.4 4,066.4 2,762.7 2,762.7
- ------------------------------------------------------------------------------------------------------------
Liabilities:
Investment type
insurance contracts 3,113.8 3,100.7 3,055.0 3,027.6
Commissions and
general expenses 51.1 51.1 46.8 46.8
Liabilities related to separate accounts 4,066.4 4,066.4 2,762.7 2,762.7
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Note 1 regarding the method used to estimate fair values.
<PAGE>
1
(10) Stockholders' Equity
Generally, the capital and surplus of Life of Virginia available for
transfer to the Parent are limited to the amounts that the statutory
capital and surplus exceed minimum statutory capital requirements;
however, payments of the amounts as dividends may be subject to
approval by regulatory authorities. The maximum amount of dividends
which can be paid by the Company without prior approval at December 31,
1997, is $51.8 million.
Statutory net income (loss) and stockholders' equity is summarized
below:
<TABLE>
<CAPTION>
Preacquisition
------------------------------
Nine months Three months
Year ended ended ended
December 31, December 31, March 31, December 31,
(millions) 1997 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Statutory net income $ 73.9 69.7 (8.3) 53.9
Statutory stockholders' equity 522.5 419.1 360.5 364.2
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The National Association of Insurance Commissioners has developed
certain Risk Based Capital (RBC) requirements to help regulators
identify life insurers that may be inadequately capitalized. If
prescribed levels of RBC are not maintained, certain actions may be
required on the part of the Company or its regulators. At December 31,
1997 the Company's Total Adjusted Capital and Authorized Control Level
- RBC were above the calculated minimum regulatory thresholds.
<PAGE>
APPENDIX C
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 0.58%, which
represents the average investment advisory fee of the Funds, and a charge of
0.22%, 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 1997, 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
- -2.10%, 3.90% and 7.90%, respectively.
C-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.
C-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 5% Assumed Hypothetical 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Maximum Charges Return with maximum Charges Return with Current Charges
End Premiums (2)(3) (2)(3) (2)(4)
of Accumulated ------------------------------ ------------------------------ ------------------------------
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- -------- --------- ----------- -------- --------- ----------- --------- --------
<S> <C>
1 52,500 45,414 48,414 141,964 48,381 51,381 141,964 48,381 51,381 141,964
2 55,125 43,090 46,090 141,964 49,063 52,063 141,964 49,801 52,801 141,964
3 57,881 40,699 43,699 141,964 49,681 52,681 141,964 51,259 54,259 141,964
4 60,775 38,231 41,231 141,964 50,227 53,227 141,964 52,758 55,758 141,964
5 63,814 36,174 38,674 141,964 51,191 53,691 141,964 54,798 57,298 141,964
6 67,005 34,008 36,008 141,964 52,058 54,058 141,964 56,881 58,881 141,964
7 70,355 31,710 33,210 141,964 52,810 54,310 141,964 59,008 60,508 141,964
8 73,873 29,253 30,253 141,964 53,424 54,424 141,964 61,179 62,179 141,964
9 77,566 26,601 27,101 141,964 53,874 54,374 141,964 63,397 63,897 141,964
10 81,445 23,719 23,719 141,964 54,129 54,129 141,964 65,662 65,662 141,964
15 103,946 2,298 2,298 141,964 50,404 50,404 141,964 77,154 77,154 141,964
20 132,665 * * * 34,477 34,477 141,964 90,658 90,658 141,964
25 169,318 * * * * * * 106,525 106,525 141,964
30 216,097 * * * * * * 125,169 125,169 141,964
35 275,801 * * * * * * 147,076 147,076 154,430
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep policy in
effect.
(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 or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient Cash
Value.
(3) The values and benefits are shown using the maximum cost of insurance
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 -2.10% AND 3.90%. 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.
C-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
Return with Maximum Charges Return with maximum Charges Return with Current Charges
End Premiums (2)(3) (2)(3) (2)(4)
of Accumulated ------------------------------ ------------------------------- ------------------------------
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- -------- --------- ----------- --------- --------- ----------- --------- --------
<S> <C>
1 52,500 45,414 48,414 141,964 50,359 53,359 141,964 50,359 53,359 141,964
2 55,125 43,090 46,090 141,964 53,245 56,245 141,964 53,944 56,944 141,964
3 57,881 40,699 43,699 141,964 56,288 59,288 141,964 57,771 60,771 141,964
4 60,775 38,231 41,231 141,964 59,502 62,502 141,964 61,859 64,859 141,964
5 63,814 36,174 38,674 141,964 63,403 65,903 141,964 66,730 69,230 141,964
6 67,005 34,008 36,008 141,964 67,506 69,506 141,964 71,912 73,912 141,964
7 70,355 31,710 33,210 141,964 71,828 73,328 141,964 77,397 78,897 141,964
8 73,873 29,253 30,253 141,964 76,386 77,386 141,964 83,213 84,213 141,964
9 77,566 26,601 27,101 141,964 81,205 81,705 141,964 89,386 89,886 141,964
10 81,445 23,719 23,719 141,964 86,311 86,311 141,964 95,948 95,948 141,964
15 103,946 2,298 2,298 141,964 118,666 118,666 141,964 136,712 136,712 158,586
20 132,665 * * * 169,097 169,097 180,934 194,934 194,934 208,579
25 169,318 * * * 242,698 242,698 254,833 279,780 279,780 293,769
30 216,097 * * * 344,621 344,621 361,852 397,878 397,878 417,772
35 275,801 * * * 481,055 481,055 505,107 564,709 564,709 592,945
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep policy in
effect.
(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 or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient Cash
Value.
(3) The values and benefits are shown using the maximum cost of insurance
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 -2.10% AND 7.90%. 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.
C-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
Return with Maximum Charges Return with maximum Charges Return with Current Charges
End Premiums (2)(3) (2)(3) (2)(4)
of Accumulated ------------------------------- ------------------------------- ------------------------------
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- --------- --------
<S> <C>
1 10,500 9,049 9,649 141,964 10,034 10,634 141,964 10,034 10,634 141,964
2 21,525 16,544 17,744 141,964 19,504 20,704 141,964 20,744 21,944 141,964
3 33,101 23,803 25,603 141,964 29,720 31,520 141,964 32,171 33,971 141,964
4 45,256 30,836 33,236 141,964 40,764 43,164 141,964 44,360 46,760 141,964
5 58,019 37,756 40,656 141,964 52,827 55,727 141,964 57,674 60,574 141,964
6 60,920 35,270 37,970 141,964 55,702 58,402 141,964 61,944 64,644 141,964
7 63,966 32,755 35,155 141,964 58,793 61,193 141,964 66,587 68,987 141,964
8 67,164 30,185 32,185 141,964 62,104 64,104 141,964 71,622 73,622 141,964
9 70,523 27,524 29,024 141,964 65,637 67,137 141,964 77,068 78,568 141,964
10 74,049 24,636 25,636 141,964 69,301 70,301 141,964 82,847 83,847 141,964
15 94,507 4,089 4,089 141,964 90,232 90,232 141,964 117,891 117,891 141,964
20 120,618 * * * 120,886 120,886 141,964 168,086 168,086 179,852
25 153,942 * * * 172,254 172,254 180,867 241,247 241,247 253,309
30 196,473 * * * 244,594 244,594 256,823 343,079 343,079 360,233
35 250,755 * * * 341,427 341,427 358,499 486,934 486,934 511,280
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep policy in
effect.
(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 or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient Cash
Value.
(3) The values and benefits are shown using the maximum cost of insurance
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 i 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 -2.10% AND 7.90%. 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.
C-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 6% Assumed Hypothetical
Gross Annual Investment Gross Annual Investment Gross Annual Investment
Return with Maximum Charges Return with maximum Charges Return with Current Charges
End Premiums (2)(3) (2)(3) (2)(4)
of Accumulated ------------------------------- ------------------------------- ------------------------------
Policy At 5% Interest Surrender Cash Death Surrender Cash Death Surrender Cash Death
Year Per Year Value Value Benefit Value Value Benefit Value Value Benefit
- -------- --------------- ----------- --------- --------- ----------- --------- --------- ----------- --------- --------
<S> <C>
1 10,500 8,301 8,901 125,475 9,254 9,854 125,475 9,254 9,854 125,475
2 21,525 14,766 15,966 125,475 17,581 18,781 125,475 19,235 20,435 125,475
3 33,101 20,999 22,799 125,475 26,576 28,376 125,475 30,017 31,817 125,475
4 45,256 27,015 29,415 125,475 36,337 38,737 125,475 41,676 44,076 125,475
5 58,019 32,930 35,830 125,475 47,077 49,977 125,475 54,403 57,303 125,475
6 60,920 29,290 31,990 125,475 48,440 51,140 125,475 58,039 60,739 125,475
7 63,966 25,444 27,844 125,475 49,798 52,198 125,475 61,934 64,334 125,475
8 67,164 21,324 23,324 125,475 51,117 53,117 125,475 66,093 68,093 125,475
9 70,523 16,848 18,348 125,475 52,353 53,853 125,475 70,529 72,029 125,475
10 74,049 11,822 12,822 125,475 53,356 54,356 125,475 75,159 76,159 125,475
15 94,507 * * * 52,139 52,139 125,475 100,872 100,872 125,475
20 120,618 * * * 27,434 27,434 125,475 139,355 139,355 149,110
25 153,942 * * * * * * 196,279 196,279 206,093
30 196,473 * * * * * * 270,590 270,590 284,120
35 250,755 * * * * * * 360,492 360,492 378,517
</TABLE>
- ---------
* Premium in addition to the planned premium is required to keep policy in
effect.
(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 or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient Cash
Value.
(3) The values and benefits are shown using the maximum cost of insurance
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 -2.10% AND 7.90%. 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.
C-6
<PAGE>
APPENDIX D
LIFE OF VIRGINIA SEPARATE ACCOUNT III
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.
* * *
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.
* * *
D-1
<PAGE>
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.)
D-2
<PAGE>
SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1998
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.
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.
<PAGE>
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, 1998
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) Sutherland, Asbill & Brennan LLP
(c) Bruce E. Booker, FSA
(d) KPMG Peat Marwick LLP
(e) Ernst & Young LLP
The following exhibits:
See next page
II-1
<PAGE>
EXHIBITS
1. The following exhibits correspond to those required by paragraph A of the
instructions as to exhibits in Form N-8B-2:
<TABLE>
<S> <C>
1. (1)(a) Resolution of Board of Directors of Life of Virginia authorizing the establishment of Separate
Account III. 13/
(1)(b) Resolution of Board of Directors of Life of Virginia authorizing the addition of Investment Subdivisions
to Separate Account III. 13/
(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. 13/
(1)(d) 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. 13/
(1)(e) 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. 13/
(1)(f) 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. 13/
(1)(g) 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. 13/
(1)(h) Resolution of Board of Directors of Life of Virginia authorizing the establishment of two additional
investment subdivisions of Separate Account III, 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)(i) 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. 11/
(1)(j) Resolution of Board of Directors of Life of Virginia authorizing additional Investment Subdivisions
investing in shares of Capital Appreciation Portfolio of Janus Aspen Series. 11/
(1)(k) Resolution of Board of Directors of Life of Virginia authorizing the additional investment subdivisions
investing in shares U.S. Equity Fund of GE Investment Funds Inc., Growth and Income
Fund of Goldman Sachs Variable Insurance Trust and Mid Cap Equity Fund of Goldman Sachs Variable Income
Trust. 13/
(2) Not Applicable
(3)(a) Underwriting Agreement dated December 12, 1998 between The Life Insurance Company of Virginia and
Capital Brokerage Corporation. 13/
(3)(b) Dealer Sales Agreement dated December 13, 1997. 13/
(3)(c) Product Commission Schedule 13/
(3)(d) Consent of Ernst & Young LLP 13/
(4) Not Applicable
(5)(a) Policy Form 13/
(5)(b) Endorsement to Policy 13/
(5)(b)(i) Endorsement providing Partial Withdrawals 14/
(5)(c) Guarantee Account Rider 12/
(6)(a) Certificate of Incorporation of The Life Insurance Company of Virginia 12/
(6)(b) By-Laws of The Life Insurance Company of Virginia 12/
(7) Not Applicable
(8)(a) Stock Sale Agreement between The Life Insurance Company of Virginia and Life of Virginia Series Fund,
Inc. 12/
(8)(a)(i) Amendments to Stock Sale Agreement between The Life Insurance Company of Virginia and Life of
Virginia Series Fund, Inc. 12/
(8)(b) Participation Agreement among The Life Insurance Company of Virginia, Variable Insurance Products
Fund II and Fidelity Distributors Corporation. 12/
(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/
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
(8)(c) Participation Agreement Among Variable Insurance Products Fund, Fidelity Distributors Corporation and
The Life Insurance Company of Virginia. 12/
(8)(d) Agreement between Oppenheimer Variable Account Funds, Oppenheimer Management Corporation and
The Life Insurance Company of Virginia. 12/
(8)(d)(i) Amendment to Agreement between Oppenheimer Variable Account Funds, Oppenheimer Management
Corporation and The Life Insurance Company of Virginia. 12/
(8)(e) Fund Participation Agreement between Janus Aspen Series and The Life Insurance Company of Virginia. 12/
(8)(f) Fund Participation Agreement between Insurance Management Series, Federated Securities Corp., and The
Life Insurance Company of Virginia. 12/
(8)(g) Fund Participation Agreement between The Alger American Fund, Fred Alger and Company, Inc., and
The Life Insurance Company of Virginia. 12/
(8)(h) Fund Participation Agreement between Variable Insurance Products Fund III and The Life Insurance
Company of Virginia. 11/
(8)(i) Fund Participation Agreement between PBHG Insurance Series Fund, Inc. and The Life Insurance
Company of Virginia. 11/
(9) Services Agreement 12/
(10) Form of Application 12/
(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 13/
(3)(b) Consent of Sutherland, Asbill & Brennan LLP, Outside Counsel 13/
(3)(c) Consent of KPMG Peat Marwick LLP 13/
(3)(d) Consent of Ernst & Young LLP 13/
4. Not Applicable
5. Not Applicable
6. Opinion and Consent of Actuary Bruce E. Booker, Vice President and Actuary of Life of Virginia 13/
7. Power of Attorney dated April 16, 1997. 11/
</TABLE>
- ---------
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.
12/ Incorporated by reference to Post-Effective No. 15 to the Registration
Statement of form S-6 for Life of Virginia Separate Account II, filed with
the Securities and Exchange Commission on May 1, 1998.
13/ Incorporated herein.
14/ To be filed by amendment.
II-3
<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 29 day of April 1998
Life of Virginia Separate Account III
(Seal)The Life Insurance Company of
Virginia
(Depositor)
Attest: /s/ Laura Deusebio
-----------------------------
By: /s/ Selwyn L. Flournoy, Jr.
-----------------------------------
Selwyn L. Flournoy, Jr.
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, The Life
Insurance Company of Virginia certifies that it 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 day of May, 1998.
(Seal)The Life Insurance Company of
Virginia
Attest: /s/ Laura Deusebio
-----------------------------
By: /s/ Selwyn L. Flournoy, Jr.
-----------------------------------
Selwyn L. Flournoy, Jr.
Senior Vice President
Given under my hand this 29 day of April, 1998 in the
City/County of , Commonwealth of Virginia.
/s/ Laura Deusebio
----------------------------------------
Notary Public
My Commission Expires 01/2000
-------------
II-4
<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.
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- --------------------------------- ------
<S> <C> <C>
RONALD V. DOLAN Director, Chairman of the Board
- --------------------------------------
Ronald V. Dolan
SELWYN L. FLOURNOY, JR. Director, Senior Vice President
- --------------------------------------
Selwyn L. Flournoy, Jr.
LINDA L. LANAM Director, Senior Vice President
- --------------------------------------
Linda L. Lanam
ROBERT D. CHINN Director, Senior Vice President
- --------------------------------------
Robert D. Chinn
VICTOR C. MOSES Director
- --------------------------------------
Victor C. Moses
GEOFFREY S. STIFF Director
- --------------------------------------
Geoffrey S. Stiff
</TABLE>
By /s/ SELWYN L. FLOURNOY, JR., pursuant to Power of Attorney executed on
April 16, 1998.
II-5
<PAGE>
EXHIBITS
LIFE OF VIRGINIA SEPARATE ACCOUNT III
<TABLE>
<S> <C>
1. (1)(a) Resolution of Board of Directors of Life of Virginia authorizing the establishment of Separate
Account III.
(1)(b) Resolution of Board of Directors of Life of Virginia authorizing the addition of Investment Subdivisions
to Separate Account III.
(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)(d) 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.
(1)(e) 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 III.
(1)(f) 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.
(1)(g) 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.
(1)(k) Resolution of Board of Directors of Life of Virginia authorizing the additional investment subdivisions
investing in shares U.S. Equity Fund of GE Investment Funds Inc., Growth and Income
Fund of Goldman Sachs Variable Insurance Trust and Mid Cap Equity Fund of Goldman Sachs Variable Income
Trust.
(3)(a) Underwriting Agreement dated December 12, 1998 between The Life Insurance Company of Virginia and
Capital Brokerage Corporation.
(3)(b) Dealer Sales Agreement dated December 13, 1997.
(3)(c) Product Commission Schedule
(5)(a) Policy Form
(5)(b) Endorsement to Policy
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 LLP, Outside Counsel
(3)(c) Consent of KPMG Peat Marwick LLP
(3)(d) Consent of Ernst & Young LLP
6 Opinion and Consent of Bruce E. Booker, Actuary
II-6
</TABLE>
EXHIBIT (1) (a)
Resolution of Board of Directors of Life of Virginia authorizing the
establishment of Separate Account III.
<PAGE>
Resolution: Approval of Separate Account III
BE IT RESOLVED, That 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, hereby establishes a
separate account designated "Life of Virginia Separate Account III"
(hereinafter "Separate Account III") for the following use and purposes, and
subject to such conditions as hereinafter set forth:
FURTHER RESOLVED, That Separate Account III is established for the purpose of
providing for the issuance by the Company of variable flexible premium
adjustable life insurance policies ("Policies"), or other insurance
contracts, and shall constitute a separate account int which are allocated
amounts paid to or held by the Company under such Policies; the form of such
Policies shall be kept on file in the Secretary's Office; and
FURTHER RESOLVED, That the income, gains and losses, whether or not realized,
from assets allocated to Separate Account III shall, in accordance with the
Policies, be credited to or charges against such account without regard to
other income, gains, or losses of the Company; and
FURTHER RESOLVED, That Separate Account III shall be divided into Investment
Subdivisions, each Investment Subdivision in Separate Account II shall invest
in the shares of a designated mutual fund portfolio and net premiums under
the Policies shall be allocated to the eligible Portfolios set forth in the
Policies in accordance with instructions received from owners of the Policies;
and
FURTHER RESOLVED, That the Executive Committee of the Board of Directors
expressly reserves the right to add or remove any Investment Subdivision of
Separate Account III as it may hereafter deem necessary or appropriate; and
FURTHER RESOLVED, That the President, any Senior Vice President, or the
Treasurer, and each of them, with full power to act without the others, be, and
they hereby are, severally authorized to invest such amount or amounts of the
Company's cash in Separate Account III or in any Investment Subdivision thereof
as may be deemed necessary or appropriate to facilitate the
commencement of Separate Account III's operations and/or to meet any
minimum capital requirements under the Investment Company Act of 1940; and
FURTHER RESOLVED, That the President, any Senior Vice President, any
Vice President, or the treasurer, and each of them, with full power to act
without the others, be, and they hereby are, severally authorized to transfer
cash from time to time between the company's general account and Separate
Account III as deemed necessary or appropriate and consistent with the terms of
the Policies; and
FURTHER RESOLVED, That the Executive Committee of the Board of Directors of the
Company reserves the right to change the designation of Separate Account
III hereafter to such other designation as it may deem necessary or
appropriate; and
FURTHER RESOLVED, That the President, any Senior Vice President, and
each of them, with full power to act without the others, with such
assistance from the Company's independent certified public accountants,
legal counsel and independent consultants or others as they may require, be, and
they hereby are, severally authorized and directed to take all action necessary
to: (a) Register Separate Account III as a unit investment trust under the
Investment Company Act of 1940, as amended; (b) Register the Policies in such
amounts, which may be an indefinite amount, under the Securities Act of 1933;
and (c) Take all other actions which are necessary in connection with the
offering of said Policies for sale and the operation of Separate Account III in
order to comply with the Investment Company Act of 1940, the Securities Exchange
Act of 1934, the Securities Act of 1933, and other applicable federal laws,
including the filing of any amendments to registration statements, any
undertakings, and any applications for exemptions from Investment Company
Act of 1940 or other applicable federal laws as the said officers of the
Company shall deem necessary or
<PAGE>
appropriate; and
FURTHER RESOLVED, That the President, any Senior Vice President, or any
Vice President, and each of them, with full power to act without the others,
hereby are severally authorized and empowered to prepare, execute and cause
to be filed with the Securities and Exchange Commission on behalf of Separate
Account III, and by the Company as sponsor and depositor a Form of
Notification of Registration Statement under the Securities Act of 1933
registering the Policies, and any and all amendments to the foregoing on behalf
of Separate Account III and the Company and on behalf of and as
attorneys-in-fact for the principal accounting officer and/or any other officer
of the Company; and
FURTHER RESOLVED, That John J. Palmer, Senior Vice President, and Paul J.
Mason, Esquire, are duly appointed as agents for service under any such
registration statement, duly authorized to receive communications and notices
from the Securities and Exchange Commission with respect thereto; and
FURTHER RESOLVED, That the President, any Senior Vice President, or any
Vice President, and each of them, with full power to act without the
others, hereby is severally authorized on behalf of Separate Account III
and on behalf of the Company to take any and all action that each of them may
deem necessary or advisable in order to offer and sell the Policies,
including any registrations, filings and qualifications both of the
Company, its officers, agents and employees, and of the policies, under
the insurance and securities laws of any of the states of the United States
of America or other jurisdictions, and in connection therewith to prepare,
execute, deliver and file all such applications, reports, covenants,
resolutions, applications for exemptions, consents to service or process
and other papers and instruments as may be required under such laws, and
to take any and all further action which the said officers or legal counsel
of the Company may deem necessary or desirable (including entering into
whatever agreements and contracts may be necessary) in order to maintain such
registrations or qualifications for as long as the said officers or legal
counsel deem it to be in the best interests of Separate Account III and
the Company, and
FURTHER RESOLVED, That the President, any Senior Vice President, or any
Vice President, and each of them, with full power to act without the others,
be, and they hereby are, severally authorized in the names and on behalf of
Separate Account III and the Company to execute and file irrevocable written
consents on the part of Separate Account III and of the Company to be used in
such states wherein such consents to service of process may be requisite under
the insurance of securities laws therein in connection with said registration
or qualification of the Policies and to appoint the appropriate state
official, or such other person as may be allowed by said insurance or
securities laws, agent of Separate Account III and of the Company for the
purpose of receiving and accepting process; and
FURTHER RESOLVED, That the President, any Senior Vice President, or any
Vice President, and each of them, with full power to act without the others,
be, and hereby is, severally authorized to establish procedures under which
the Company will institute procedures for providing voting rights for
owners of the Policies with respect to securities owned by Separate Account
III; and
FURTHER RESOLVED, That the President, any Senior Vice President, and
each of them, with full power to act without the others, is hereby severally
authorized to execute such agreement or agreements as deemed necessary and
appropriate (i) with Life of Virginia Security Sales, Ltd. ("Security Sales")
or other qualified entity under which Security Sales or such other entity
will be appointed principal underwriter and distributor for the Policies and
(ii) with one or more qualified banks or other qualified entities to provide
administrative and/or custodial services in connection with the establishment
and maintenance of Separate Account II and the design, issuance, and
administration of the Policies.
FURTHER RESOLVED, That because it is expected that Separate Account III will
invest solely in the securities issued by a specific mutual fund corporation
registered under the Investment Company
<PAGE>
Act of 1940, the President, any Senior Vice President, or any Vice President,
and each of them, with full power to act without the others, are hereby
severally authorized (i) to instruct legal counsel to incorporate such a mutual
fund corporation and (ii) to execute whatever agreement or agreements as may
be necessary or appropriate to enable such investments to be made.
FURTHER RESOLVED, That the President, any Senior Vice President, or any
Vice President, and each of them, with full power to act without the
others, are hereby severally authorized to execute and deliver such
agreements and other documents and do such acts and things as each of them may
deem necessary or desirable to carry out the foregoing resolutions and the
intent and purposes thereof.
EXHIBIT (1) (b)
Resolution of Board of Directors of Life of Virginia
authorizing the addition of Investment Subdivisions to Separate Account III
<PAGE>
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 III ("Separate Account III") on February 10,
1987; and
WHEREAS, Separate Account III was originally established with twenty investment
subdivisions which invest in the shares of corresponding Portfolios of Life of
Virginia Series Fund, Inc., the American Life/Annuity Series, the Variable
Insurance Products Fund and the Oppenheimer Variable Accounts Funds; and
WHEREAS, The Company wishes to establish additional investment subdivisions of
Separate Account III which will invest in shares of corresponding Portfolios of
the Zero Coupon Bond Fund,
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create the following
additional investment subdivisions of Separate Account III which will invest
in shares of the mutual fund portfolios set forth below:
INVESTMENT SUBDIVISIONS TO BE INVESTED IN
----------------------- -----------------
FIDELITY ZERO COUPON BOND FUND
FID ZERO - 1993 1993 PORTFOLIO
FID ZERO - 1998 1998 PORTFOLIO
FID ZERO - 2003 2003 PORTFOLIO
FURTHER RESOLVED, That the President, any Senior Vice President, or any Vice
President, and each of them, with full power to act without the others, are
hereby severally authorized to execute whatever agreement or agreements as 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, any Senior Vice President, or any 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 of them may deem necessary or desirable to carry
out the foregoing resolutions and the intent and purposes thereof.
EXHIBIT (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
<PAGE>
Resolution: Separate Account III
--------------------
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 III ("Separate Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish two additional investment
subdivisions of Separate Account III which will invest in shares of the Asset
Manager Portfolio of Fidelity's Variable Insurance Products Fund II and the
Balanced portfolio of Neuberger and Berman's Advisers Management Trust; and
NOW, THEREFORE, BE IT RESOLVED, That, the Executive Committee of the Board of
Directors of the Company does hereby establish and create the following
additional investment subdivisions of Separate Account III which will invest
in shares of the mutual fund portfolios set forth below:
INVESTMENT SUBDIVISIONS TO BE INVESTED IN
----------------------- -----------------
Fidelity Variable Insurance Products Fund II:
FID Asset Manager -Asset Manager Portfolio
Neuberger and Berman's Advisers Management Trust:
N & B Balanced -Balanced Portfolio
FURTHER RESOLVED, That the President, any Senior Vice President, or any Vice
President, and each of them, with full power to act without the others, are
hereby severally authorized to execute whatever agreement or agreements as 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, any Senior Vice President, or any 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 of them may deem necessary or desirable to carry
out the foregoing resolutions and the intent and purposes thereof.
*****************************************************************
The undersigned hereby certifies that she is the Assistant Secretary of The Life
Insurance Company of Virginia, a corporation organized and existing under the
laws of the Commonwealth of Virginia; that the foregoing is a true and exact
copy of a resolution adopted by the Executive Committee at a meeting held on the
5th day of September, 1989; that passage of this resolution was in all respects
legal; and that the resolution remains in full force and effect as of this 7th
day of September, 1989.
/s/MARGARET M. PARKER
_______________________________________
Margaret M. Parker, Assistant Secretary
EXHIBIT (1) (d)
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 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 III ("Separate Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish three additional investment
subdivisions of Separate Account III which will invest in shares of the Growth
Portfolio, the Aggressive Growth Portfolio and the Worldwide Growth Portfolio
of the Janus Aspen Series:
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create the following
additional investment subdivisions of Separate Account III which will invest
in shares of the mutual fund portfolios set forth below:
INVESTMENT SUBDIVISION TO BE INVESTED IN
---------------------- -----------------
Janus Aspen Series
JAN Growth Growth Portfolio
JAN Aggressive Growth Aggressive Growth Portfolio
JAN Worldwide Growth Worldwide Growth Portfolio
FURTHER RESOLVED, That the President, or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute whatever agreement or agreements as 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
of them may deem necessary or desirable to carry out the foregoing resolutions
and the intent and purposes thereof.
*******************************
The undersigned hereby certifies that she is the Secretary of The Life Insurance
company of Virginia, a corporation organized and existing under the laws of the
Commonwealth of Virginia; that the foregoing is a true and exact copy of a
resolution adopted by the Executive Committee by Unanimous Consent dated the 3rd
day of September, 1993; that passage of this resolution was in all respects
legal; and that the resolution remains in full force and effect as of this 19th
day of April, 1994.
<PAGE>
/s/LINDA L. LANAM
__________________________
Linda L. Lanam, Secretary
EXHIBIT (1)(e)
Resolution of Board of Directors of Life of Virginia
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE EXECUTIVE COMMITTEE OF
THE BOARD OF DIRECTORS OF
THE LIFE INSURANCE COMPANY OF VIRGINIA
The undersigned, being all of the members of the Executive Committee of the
Board of Directors of The Life Insurance Company of Virginia, a Virginia
corporation, in lieu of a meeting held for the purpose and pursuant to the
provisions of Section 13.1-685 of the Code of Virginia do hereby approve the
following resolutions:
WHEREAS, The Executive Committee of the Board of Directors of The Life Insurance
Company of Virginia ("Company"), pursuant to the provisions of Section 38.2-3113
of the Code of Virginia, adopted resolutions establishing Life of Virginia
Separate Account III ("Separate Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish two additional investment
subdivisions of Separate Account III which will invest in shares of the
Corporate Bond Fund portfolio of the Insurance Management Series and the
Contrafund Portfolio of the Variable Insurance Products Fund II.
NOW, THEREFORE, BE IT RESOLVED. That the Executive Committee of the Board of
Directors of the Company does hereby establish and create the following
additional investment subdivisions of Separate Account III will invest in shares
of the mutual fund portfolios set forth below:
INVESTMENT SUBDIVISION TO BE INVESTED IN
IMS Corporate Bond Insurance Management Series -
Corporate Bond Fund
FID Contrafund Variable Insurance Products Fund II -
Contrafund 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 as 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
of them may deem necessary or desirable to carry out the foregoing resolutions
and the intent and purposes thereof.
/s/WILLIAM D. BALDWIN 11/30/94 /s/ROBERT A. BOWEN 12/1/94
_________________________ _________________________
William D. Baldwin Robert A. Bowen
/s/DANIEL T. COX /s/SELWYN L. FLOURNOY,JR. 11/29/94
_________________________ _________________________
Daniel T. Cox Selwyn L. Flournoy, Jr.
/s/H. GAYLORD HODGES, JR. 11/29/94 /s/LINDA L. LANAM 11/29/94
_________________________ _________________________
H. Gaylord Hodges, Jr. Linda L. Lanam
/s/J. GARNETT NELSON 12/1/94 /s/JOHN J. PALMER 12/4/94
_________________________ _________________________
J. Garnett Nelson John J. Palmer
/s/PAUL E. RUTLEDGE III 11/9/94
_________________________
Paul E. Rutledge III
EXHIBIT 1 (f)
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 III ("Separate Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish two additional investment
subdivisions of Separate Account III which will invest in shares of the
International Equity Portfolio and the Real Estate Securities Portfolio of Life
of Virginia Series Fund, Inc.
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create the following
additional investment subdivisions of Separate Account III which will invest
in shares of the mutual fund portfolios set forth below:
INVESTMENT SUBDIVISION TO BE INVESTED IN
---------------------- -----------------
LOVSF International Equity Life of Virginia Series Fund, Inc. -
International Equity Portfolio
LOVSF Real Estate Securities Life of Virginia Series Fund, Inc. -
Real Estate Securities 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 as 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 executive any such agreement prior to
the date of these resolutions; and
FURTHER RESOLVE, 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
of them may deem necessary or desirable to carry out the foregoing resolutions
and the intent and purposes thereof.
/s/WILLIAM D. BALDWIN 17JAN95 /s/ROBERT A. BOWEN 1/16/95
_______________________________ ___________________________
WILLIAM D. BALDWIN DATE ROBERT A BOWEN DATE
/s/SELWYN L. FLOURNOY, JR. 1/16/95
_______________________________ __________________________________
DANIEL T. COX DATE SELWYN L. FLOURNOY,JR DATE
<PAGE>
/s/H. GAYLORD HODGES, JR. 1/16/95 /s/LINDA L. LANAM 1/16/95
_________________________________ ___________________________
H. GAYLORD HODGES, JR. DATE LINDA L. LANAM DATE
/s/J. GARNETT NELSON 1/16/95 /s/JOHN J. PALMER 1/16/95
_________________________________ ____________________________
J. GARNETT NELSON DATE JOHN J. PALMER DATE
/s/PAUL E. RUTLEDGE III 1/12/95
_________________________________
PAUL E. RUTLEDGE III DATE
EXHIBIT 1 (g)
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 III ("Separate Account III") on February 10, 1987; and
WHEREAS, The Company wishes to establish two additional investment subdivisions
of Separate Account III which will invest in shares of the International Equity
Portfolio and the Real Estate Securities Portfolio of Life of Virginia Series
Fund, Inc.
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create the following
additional investment subdivisions of Separate Account III which will invest in
shares of the mutual fund portfolios set forth below:
INVESTMENT SUBDIVISION TO BE INVESTED IN
LOVSF International Equity Life of Virginia Series
Fund, Inc. - International
Equity Portfolio
LOVSF Real Estate Securities Life of Virginia Series
Fund, Inc. - Real Estate
Securities 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 as 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 executive any such agreement prior to
the date of these resolutions; and
FURTHER RESOLVE, 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
of them may deem necessary or desirable to carry out the foregoing resolutions
and
<PAGE>
the intent and purposes thereof.
/s/ WILLIAM D. BALDWIN 17 JAN 95 /s/ ROBERT A. BOWEN 1/16/95
- ----------------------- -------------------
WILLIAM D. BALDWIN DATE ROBERT A BOWEN DATE
/s/ SELWYN L. FLOURNOY, JR. 1/16/95
- ----------------------- ---------------------------
DANIEL T. COX DATE SELWYN L. FLOURNOY,JR DATE
/s/H. GAYLORD HODGES, JR. 1/16/95 /s/LINDA L. LANAM 1/16/95
- ------------------------- ------------------------
H. GAYLORD HODGES,JR. DATE LINDA L. LANAM DATE
/s/J. GARNETT NELSON 1/16/95 /s/JOHN J. PALMER 1/16/95
- ---------------------- ---------------------
J. GARNETT NELSON DATE JOHN J. PALMER DATE
/s/PAUL E. RUTLEDGE III 1/12/95
- -----------------------
PAUL E. RUTLEDGE III DATE
EXHIBIT (1)(k)
(1)(m) Resolution of Board of Directors of Life of Virginia
authorizing the establishment of three additional investment
subdivisions of Separate Account III, investing in shares
of the U.S. Equity Fund of the GE Investments Funds, Inc.,
Growth and Income Fund of the Goldman Sachs Variable
Insurance Trust Fund and Mid Cap Equity Fund of Goldman Sachs
Variable Insurance Trust Fund. Further a name change for
Oppenheimer Variable Account Fund Capital Appreciation Fund
to Oppenheimer Variable Account Fund Aggressive Growth Fund.12/
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE BOARD OF DIRECTORS OF
THE LIFE INSURANCE COMPANY OF VIRGINIA
The undersigned, being all of the members 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 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 three additional investment
subdivisions of each of the aforesaid separate accounts which will invest in
shares of the U.S. Equity Fund of the GE Investment Funds, Inc., Growth and
Income Fund of the Goldman Sachs Variable Insurance Trust Fund and the Mid Cap
Equity Fund of the Goldman Sachs Variable Insurance Trust Fund
NOW, THEREFORE, BE IT RESOLVED, That the Board of Directors of the Company does
hereby establish and create three 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 Investments Funds, Inc. -
GEI U.S. Equity U.S. Equity Fund
Goldman Sachs Variable Insurance Trust Fund
GEI Growth and Income Growth and Income Fund
GEI Mid Cap Equity Mid Cap Equity Fund
FURTHER RESOLVED, That Oppenheimer Capital Appreciation Fund is now known as
Oppenheimer Aggressive Growth.
INVESTMENT SUBDIVISIONS: TO BE INVESTED IN:
Oppenheimer Variable Account Fund
OPP Aggressive Growth Aggressive Growth
<PAGE>
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 Board of Directors hereby ratifies
the action of any such 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 May 1, 1998.
- -------------------------- ----------------------------
Robert D. Chinn Ronald V. Dolan
- -------------------------- ----------------------------
Selwyn L. Flournoy, Jr. Linda L. Lanam
- -------------------------- ----------------------------
Victor C. Moses Geoffrey S. Stiff
Dated: April 24, 1998
Exhibit (3)(a)
Underwriting Agreement dated December 13, 1997 between
The Life Insurance Company of Virginia and
Capital Brokerage Corporation
<PAGE>
UNDERWRITING AGREEMENT
______________________
AGREEMENT dated December 12, 1997, by and between THE LIFE
INSURANCE COMPANY OF VIRGINIA ("Life of Virginia"), a Virginia corporation, on
its own behalf and on behalf of Life of Virginia Separate Account I, Life of
Virginia Separate Account II, Life of Virginia Separate Account III, and Life of
Virginia Separate Account 4 (the "Separate Accounts"), and CAPITAL BROKERAGE
CORPORATION (doing business in Indiana, Minnesota, New Mexico, and Texas as GE
Capital Brokerage Corporation) ("CBC"), a Washington corporation with its
principal office at 6630 West Broad Street, Post Office Box 26266, Richmond, VA
23261.
W I T N E S S E T H:
WHEREAS, the Separate Accounts are segregated asset accounts
established and maintained by Life of Virginia pursuant to the laws of the
Commonwealth of Virginia for certain variable annuities and variable life
insurance policies to be issued by Life of Virginia (hereinafter referred to as
the "Variable Contracts"), under which income, gains and losses, whether or not
realized, from assets allocated to such Separate Accounts, will be, in
accordance with the Variable Contracts, credited to or charged against such
Separate Accounts without regard to other income, gains or losses of Life of
Virginia;
WHEREAS, Life of Virginia has registered the Separate Accounts
as a unit investment trust-type investment companies under the Investment
Company Act of 1940 (the "1940 Act");
WHEREAS, CBC has registered as a broker-dealer under the
Securities Exchange Act of 1934 (the "1934 Act") and is a member firm of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, Life of Virginia has registered the Variable
Contracts under Securities Act of 1933 (the "1933 Act") and proposes to issue
and sell the Variable Contracts to the public through CBC, acting as the
principal underwriter of the Variable Contracts;
NOW, THEREFORE, in consideration of the mutual agreements made
herein, Life of Virginia and CBC hereby agree as follows:
1. Underwriter.
-----------
(a) Life of Virginia grants to CBC the exclusive right, during
the term of this Agreement, subject to the registration requirements of the 1933
Act and the 1940 Act and the provisions of the 1934 Act, to be the principal
underwriter of the Variable Contracts. CBC agrees to use its best efforts to
distribute the Variable Contracts, and to undertake to provide sales and
services relative to the Variable Contracts and otherwise to perform all duties
and functions necessary and proper for the distribution of the Variable
Contracts. It is the intent of the parties hereto that substantially similar
successor variable deferred annuity contracts hereafter issued by Life of
Virginia in addition to or in substitution for the Variable Contracts shall be
covered by this Agreement so long as this Agreement has not been previously
terminated prior to date of introduction thereof.
(b) To the extent necessary to offer the Variable Contracts,
CBC shall be duly registered or otherwise qualified under the securities laws of
any state or other jurisdiction. All registered representatives of CBC
soliciting applications for the Variable Contracts shall be duly and
appropriately licensed, registered or otherwise qualified for the sale of such
Variable Contracts (and the riders offered in connection therewith) under the
federal securities laws, the state insurance laws and any applicable state
securities laws of each state or other jurisdiction in which such Variable
Contracts may lawfully be sold and in which Life of Virginia is licensed to sell
the Variable Contracts. CBC shall be responsible for the training, supervision,
and control of its own registered representatives for purposes of the Rules of
the NASD and federal and state securities law
<PAGE>
requirements applicable to them in connection with the offer and sale of the
Variable Contracts.
(c) CBC agrees to offer the Variable Contracts for sale in
accordance with the prospectuses therefor then in effect. CBC is not authorized
to give any information or to make any representations concerning the Variable
Contracts other than those contained in the current prospectuses therefor filed
with the Securities and Exchange Commission ("Commission") or in such sales
literature as may be authorized by Life of Virginia.
(d) Payments made in connection with the Variable Contracts
whether premium or otherwise are the exclusive property of Life of Virginia.
Such payments received by CBC shall be held in a fiduciary capacity and shall be
transmitted immediately to Life of Virginia or its designated servicing agent in
accordance with the administrative procedures of Life of Virginia. Life of
Virginia will credit all payments made by or on behalf of Policyowners to their
respective accounts, and will allocate amounts to the investment subdivisions of
the Separate Accounts in accordance with the instructions of Policyowners and
the provisions of the Variable Contracts.
2. Sales and Services Agreement.
----------------------------
CBC is hereby authorized to enter into separate written sales
or services agreements, on such terms and conditions as CBC may determine not
inconsistent with this Agreement, with broker-dealers that are registered as
such under the Securities Exchange Act and are members of the NASD and that
agree to participate in the distribution of the Variable Contracts. All
broker-dealers that agree to participate in the distribution of the Variable
Contracts shall act as independent contractors and nothing herein contained
shall constitute the directors, officers, employees, agents, or registered
representatives of such broker-dealers as employees of CBC or Life of Virginia
for any purpose whatsoever.
3. Suitability.
-----------
Life of Virginia and CBC each wish to ensure that the Variable
Contracts distributed by CBC will be issued to purchasers for whom the Variable
Contracts will be suitable. CBC shall take reasonable steps to ensure that its
own registered representatives shall not make recommendations to an applicant to
purchase a Variable Contract in the absence of reasonable grounds to believe
that the purchase of the Variable Contract is suitable for such applicant under
the NASD Conduct Rules regarding Recommendations to Customers. While not limited
to the following, a determination of suitability shall be based on information
furnished to a registered representative after reasonable inquiry of such
applicant concerning the applicant's financial status, tax status and insurance
and investment objectives and needs.
4. Prospectuses and Promotional Material.
-------------------------------------
Life of Virginia shall furnish CBC with copies of all
prospectuses, statements of additional information, financial statements and
other documents and materials which CBC reasonably requests for use in
connection with the distribution of the Variable Contracts. Life of Virginia
shall have responsibility for the preparation, filing and printing of all
required prospectuses and/or registration statements in connection with the
Variable Contracts, and the payment of all related expenses. CBC and Life of
Virginia shall cooperate fully in the design, drafting and review of sales
promotion materials, and with respect to the preparation of individual sales
proposals related to the sale of the Variable Contracts. CBC shall not use or
distribute any such materials not provided or approved by Life of Virginia.
5. Records and Reports.
-------------------
CBC shall have the responsibility for maintaining records
relating to its registered representatives that are licensed, registered and
otherwise qualified to sell the Variable Contracts and relating to
broker-dealers engaged in the distribution of the Variable Contracts, and shall
provide
<PAGE>
periodic reports thereof to Life of Virginia as requested.
6. Administrative Services.
-----------------------
Life of Virginia agrees to maintain all required books of
account and related financial records on behalf of CBC. All such books of
account and recorded shall be maintained and preserved pursuant to Rule 17a-3
and 17a-4 under the 1934 Act (or the corresponding provisions of any future
Federal securities laws or regulations). In addition, Life of Virginia will
maintain records of all sales commissions paid to registered representatives of
CBC in connection with the sale of the Variable Contracts. All such books and
records shall be maintained by Life of Virginia on behalf of and as agent for
CBC, whose property they are and shall remain for all purposes, and shall at all
times be subject to reasonable periodic, special, or other examination by the
Commission and all other regulatory bodies having jurisdiction. Life of Virginia
also agrees to send to CBC's customers all required confirmations on customer
transactions relating to Variable Contracts. Life of Virginia shall also make
commission and such other disbursements as may be requested by CBC, in
connection with the operations of CBC, for the account and risk of CBC.
7. Compensation.
------------
(a) For the sale of the Variable Contracts, unless otherwise
expressly agreed to in writing by the parties, sales commissions shall be paid
by Life of Virginia, and CBC authorizes such payment, directly to those
registered representatives of CBC who are also agents of Life of Virginia and to
those broker-dealers (or their affiliated insurance agencies) who have entered
into sales agreements with CBC. Such payment shall be made pursuant to the
insurance agent/agency agreement between the agent/agency and Life of Virginia,
and CBC shall not pay any sales commissions itself to such persons upon their
sale of the Variable Contracts.
(b) In recognition of the administrative services to be
rendered by CBC in coordinating the distribution activities required by this
Agreement, Life of Virginia shall pay to CBC such administrative fees as may
be mutually agreed upon in separate writings exchanged from time to time between
Life of Virginia and CBC.
8. Investigation and Proceedings.
-----------------------------
(a) CBC and Life of Virginia agree to cooperate fully in any
insurance regulatory investigation or proceeding or judicial proceeding arising
in connection with the Variable Contracts distributed under this Agreement. CBC
and Life of Virginia further agree to cooperate fully in any securities
regulatory inspection, inquiry, investigation or proceeding or any judicial
proceeding with respect to Life of Virginia or CBC to the extent that such
inspection, inquiry, investigation or proceeding is in connection with the
Variable Contracts distributed under this Agreement. Without limiting the
foregoing:
(i) CBC will be notified promptly of any customer complaint or
notice of any regulatory inspection, inquiry, investigation or proceeding or
judicial proceeding received by Life of Virginia with respect to Life of
Virginia or CBC or any broker-dealer in connection with any Variable Contracts
distributed under this Agreement or any activity in connection with any Variable
Contracts.
(ii) CBC will promptly notify Life of Virginia of any customer
complaint or notice of any regulatory inspection, inquiry, investigation or
proceeding received by CBC with respect to Life of Virginia or CBC or any
broker-dealer in connection with any Variable Contracts distributed under this
Agreement or any activity in connection with any such Variable Contracts.
(b) In the case of any such customer complaint, CBC and Life
of Virginia will cooperate in investigating such complaint and arrive at a
mutually satisfactory response.
9. Termination.
-----------
<PAGE>
This Agreement shall be effective upon its execution and shall
remain in force for a term of one (1) year from the date hereof, and shall
automatically renew from year to year thereafter, unless either party notifies
the other in writing six (6) months prior to the expiration of an annual period.
This Agreement may not be assigned and shall automatically terminate if it is
assigned. Upon termination of this Agreement all authorizations, rights and
obligations shall cease except (i) the obligation to settle accounts hereunder,
including commissions due or to become due and payable on Variable Contracts in
effect at the time of termination or issued pursuant to applications received by
Life of Virginia prior to termination, and (ii) the obligations contained in
Paragraph 8 hereof.
<PAGE>
10. Exclusivity.
-----------
The services of CBC hereunder are not to be deemed exclusive
and CBC shall be free to render similar services to others so long as its
services hereunder are not impaired or interfered with thereby.
11. Regulation.
----------
This Agreement shall be subject to the provisions of the 1940
Act and the 1934 Act and the rules, regulation, and rulings thereunder and of
the NASD, from time to time in effect, including such exemptions from 1940 Act
as the Securities and Exchange Commission may grant. CBC shall submit to all
regulatory and administrative bodies having jurisdiction over the operations of
CBC, Life of Virginia or the Separate Accounts, any information, reports or
other material which any such body by reason of this Agreement may request or
require pursuant to applicable laws or regulations. Without limiting the
generality of the foregoing, CBC shall furnish the Virginia State Corporation
Commission or the Bureau of Insurance thereof with any information or reports
which the Commission or the Bureau of Insurance may request in order to
ascertain whether the variable annuity operations of Life of Virginia are being
conducted in an manner consistent with the Commission's variable annuity
contract regulations and any other applicable law or regulations.
12. Indemnities.
-----------
(a) Life of Virginia agrees to indemnify and hold harmless CBC
and each person who controls or is associated with CBC within the meaning of the
1933 Act or the 1934 Act against any losses, claims, damages or liabilities,
joint or several, to which CBC or such controlling or associated person may
become subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact,
required to be stated therein or necessary to make the statements therein not
misleading, contained:
(i) in the 1933 Act Registration Statements covering the Variable
Contracts or in any related Prospectuses included thereunder, or
(ii) in any written information or sales material authorized for,
and supplied or furnished by Life of Virginia to CBC and its sales
representatives.
Life of Virginia will reimburse CBC and each such controlling person, for any
legal or other expenses reasonably incurred by CBC or such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action covered by this Paragraph 12(a); provided that Life of
Virginia will not be liable in any such case to the extent that such loss,
claim, damage or liability arises out of, or is based upon, an untrue statement
or omission or alleged untrue statement or omission made in reliance upon
information (including, without limitation, negative responses to inquiries)
furnished to Life of Virginia by or on behalf of CBC or its affiliates
specifically for use in the preparation of the said Registration Statements or
any related Prospectuses included therein or any amendment thereto or supplement
thereto. This indemnity agreement will be in addition to any liability which
Life of Virginia may otherwise have, the premises considered.
(b) CBC agrees to indemnify and hold harmless Life of Virginia
and each of its directors (including any person named in the 1933 Act
Registration Statements covering the Variable Contracts, with his/her consent,
as nominee for directorship), each of its officers who signed a Registration
Statement and each person, if any, who controls Life of Virginia within the
meaning of the 1933 Act or the 1934 Act, against any losses, claims, damages or
liabilities to which Life of Virginia and any such director or officer or
controlling person may become subject, under the 1933 Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
<PAGE>
(i) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, contained in the
Registration Statements or in any related Prospectuses included therein, to the
extent, but only to the extent, that such untrue statement or omission or
alleged untrue statement or omission was made in reliance upon information
(including, without limitation, negative responses to inquiries) furnished to
Life of Virginia by or on behalf of CBC or its affiliates as the case may be,
specifically for use in the preparation of the Registration Statements or
related Prospectuses included therein or any amendment thereto or supplement
thereto; or
(ii) any unauthorized use of sales materials or any verbal or
written misrepresentations or any unlawful sales practices concerning the
Variable Contracts by CBC.
CBC will reimburse Life of Virginia and any director or officer or controlling
person Life of Virginia for any legal or other expenses reasonably incurred by
Life of Virginia or such director, officer or controlling person in connection
with investigating or defending any such loss, claim, damage, liability or
action covered by this Paragraph 12(b). This indemnity agreement will be in
addition to any liability which CBC may otherwise have, the premises considered.
(c) After receipt by a party entitled to indemnification
("indemnified party") under this Section 12 of notice of the commencement of any
action, if a claim in respect thereof is to be made against any person obligated
to provide indemnification under this Section 12 ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, and the omission so to
notify the indemnifying party will not relieve it from any liability under this
Section 12, except to the extent that the omission results in a failure of
actual notice to the indemnifying party and such indemnifying party is damaged
solely as a result of the failure to give such notice. In case any such action
is brought against any indemnified party and it notifies an indemnifying party
of the commencement thereof, the indemnified party shall be entitled, to the
extent it may wish, jointly with any other indemnified party similarly notified,
to participate in the defense thereof, with separate counsel. Such participation
shall not relieve such indemnifying party of the obligation to reimburse the
indemnified party for reasonable legal and other expenses incurred by such
indemnified party in defending itself or himself, except for such expenses
incurred after the indemnifying party deposited funds sufficient to effect the
settlement, with prejudice, of the claim in respect of which indemnity is
sought. Any such indemnifying party shall not be liable to any such indemnified
party on account of any settlement of any claim or action effected without the
consent of such indemnifying party.
The indemnity agreements contained in this Section 12 shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of CBC or any controlling person thereof or
by or on behalf of Life of Virginia, (ii) delivery of any Variable Contracts and
payments therefor, or (iii) any termination of this Agreement. A successor by
law of CBC or of any the parties to this Agreement, as the case may be, shall be
entitled to the benefits of the indemnity agreements contained in this Section
12.
13. Severability.
------------
If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise the remainder of this
Agreement shall not be affected thereby.
14. Applicable Law.
--------------
This Agreement shall be construed and enforced in accordance
with and governed by the laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
Attest: By: _____________________________________
_______________________________ Title: __________________________________
Secretary
Date: ___________________________________
CAPITAL BROKERAGE CORPORATION
Attest: By: _____________________________________
_______________________________ Title: __________________________________
Secretary
Date: ___________________________________
Exhibit (3)(B)
Dealer Sales Agreement dated December 12, 1997
<PAGE>
[GE logo] Capital Brokerage Corporation
6630 West Broad Street
Post Office Box 26266
Richmond, VA 23261
The Life Insurance Company of Virginia
BROKER-DEALER SALES AGREEMENT
Name of Broker-Dealer: Address of Broker-Dealer:
- --------------------------------------------------------------------------------
This Agreement is made this ___________ day of ___________________, 19___, by
and between Capital Brokerage Corporation (doing business in Indiana, Minnesota,
New Mexico, and Texas as GE Capital Brokerage Corporation), a Washington
corporation with its principal office as listed above ("Capital Brokerage"), and
______________________
___________________________________________________________________________, a
_________________ corporation with its principal office as listed above
("Broker-Dealer").
In consideration of the mutual benefits to be derived and intending to be
legally bound the parties hereby agree to the following terms and conditions:
SECTION I - DEFINITIONS
1.1 The Life Insurance Company of Virginia ("Life of Virginia") is
a Virginia corporation which has developed certain variable life insurance
policies (hereafter referred to as the "Policies", listed in Schedule A, which
is attached hereto and made part of this Agreement) and certain variable annuity
contracts (hereafter referred to as "Annuities", listed in Schedule B, which is
attached hereto and made part of this Agreement) registered with the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933 (the "1933
Act").
1.2 Capital Brokerage is a Broker-Dealer registered as such under
the Securities Exchange Act of 1934 (the "1934 Act") and a member of the
National Association of Securities Dealers, Inc. ("NASD"). Life of Virginia has
appointed Capital Brokerage as principal underwriter for the Policies and
Annuities.
1.3 Broker-Dealer is registered as a Broker-Dealer under the 1934
Act, is a member of the NASD and is properly licensed and appointed to promote,
offer and sell the Policies and Annuities.
1.4 Registered Representatives are employees of the Broker-Dealer
whom Broker-Dealer wishes to have appointed by Life of Virginia to sell Policies
and Annuities.
2. REPRESENTATIONS AND WARRANTIES OF CAPITAL BROKERAGE
<PAGE>
2.1 Capital Brokerage represents and warrants that:
a. it has full power and authority to enter into this
Agreement and that it has all appropriate licenses to carry on its business and
to market the Policies and the Annuities;
b. the 1933 Act Registration Statements pertaining to the
Policies and the Annuities filed with the SEC have been declared effective;
c. the 1933 Act Registration Statements pertaining to the
Policies and the Annuities comply or will comply in all material respects with
the provisions of the 1933 Act, the 1934 Act, the Investment Company Act of 1940
(the "1940 Act") and the rules and regulations of the SEC; and
d. the 1933 Act Registration Statements do not contain an
untrue statement of a material fact or fail to state a material fact required to
be stated.
2.2 Section 2.1c. shall not apply to statements made in or
omissions from Registration Statements and any related materials, which
statements or omissions were made in reliance upon written statements furnished
by Broker-Dealer.
2.3 Capital Brokerage represents and warrants that it, or an
affiliate of Capital Brokerage, will use its best efforts to obtain insurance
licenses and appointments to allow Registered Representatives to sell the
Policies or the Annuities provided Broker-Dealer cooperates in obtaining such
licenses.
3. REPRESENTATIONS OF BROKER-DEALER
3.1 Broker-Dealer represents and warrants that it has full power
and authority to enter into this Agreement and that it has all appropriate
licenses to carry on its business and to market the Policies and the Annuities.
3.2 Broker-Dealer represents and warrants that it is registered as
a Broker-Dealer under the 1934 Act, is a member in good standing of the NASD, is
bonded as required by all applicable laws and regulations, and that it, or a
subsidiary or affiliate, has all insurance licenses required by the states in
which the Broker-Dealer intends to market the Policies and the Annuities.
3.3 Broker-Dealer represents and warrants that all individuals
recommended for licensing and appointment to sell the Policies and Annuities
will be Registered Representatives who are appropriately registered with the
NASD and who possess or can obtain all required insurance licenses.
3.4 Broker-Dealer further represents and warrants that:
a. it made or will make a thorough and diligent inquiry
and investigation relative to each Registered Representative it seeks to have
appointed to sell the Policies and Annuities including an investigation of the
Registered Representative's identity and business reputation;
b. all Registered Representatives are or will be
personally known to Broker-Dealer, are of good moral character, reliable,
financially responsible and worthy of an insurance license;
c. all examinations, training, and continuing educational
requirements have been or will be met for the NASD and the specific state(s) in
which Registered Representative is requesting an insurance license;
d. if Registered Representative is required to submit to
Life of Virginia a picture or a signature in conjunction with an application for
an insurance license, that any such items forwarded to Life of Virginia will be
those of Registered Representative and any evidence of a securities registration
forwarded to Life of Virginia will be a true copy of the original;
<PAGE>
e. no Registered Representatives will apply for insurance
licenses with Life of Virginia in order to place insurance on their life or
property, the lives or property of their relatives, or property or lives of
their associates;
f. each Registered Representative will receive close and
adequate supervision consistent with the requirements of the NASD, and
Broker-Dealer will review, when necessary, any Policies or Annuities written by
Registered Representative;
g. Broker-Dealer will be responsible for all acts and
omissions of its Registered Representatives within the scope of their
appointment with Life of Virginia or as Registered Representatives;
h. Broker-Dealer will not permit its Registered
Representatives to act as insurance agents until properly trained (including
training in the Policies and Annuities), licensed and appointed nor will
Broker-Dealer pay compensation to any Registered Representative not properly
licensed and appointed to sell the Policies and Annuities;
i. Broker-Dealer will immediately notify Capital
Brokerage and Life of Virginia of any change in the NASD registration or
insurance licensing status of any Registered Representative and will maintain a
list of all Registered Representatives authorized to sell the Policies or the
Annuities;
j. Broker-Dealer agrees to indemnify, defend and hold
Life of Virginia and Capital Brokerage harmless against any losses, claims,
damages, liabilities or expenses, including reasonable attorneys fees, to which
Capital Brokerage or Life of Virginia may be liable to the extent that the
losses, claims, damages, liabilities or expenses, including reasonable attorneys
fees, arise out of allegations that Broker-Dealer or any of its registered
representatives did not have the right or authority to make discretionary
purchases or to make or change a client's asset allocation; and
k. Broker-Dealer, in the conduct of its business selling
Policies and the Annuities, shall observe high standards of commercial honor
and just and equitable principles of trade consistent with the Conduct Rules of
the NASD.
4. SALE OF POLICIES AND ANNUITIES
4.1 Soliciting Applications.
a. Broker-Dealer is hereby authorized by Capital
Brokerage to solicit applications for the purchase of Policies and Annuities
through its Registered Representatives in states where the Broker-Dealer
and its Registered Representatives are appropriately licensed and appointed.
This authorization is non-exclusive and is limited to the states in which
Policies and Annuities have been approved for sale.
b. Broker-Dealer shall have no authority on behalf of
Capital Brokerage or Life of Virginia to:
(1) make, alter or discharge any contract;
(2) waive or modify any terms, conditions or
limitations of any Policy or Annuity;
(3) extend the time for payment of any premiums,
bind Life of Virginia to the reinstatement of any terminated Policy, or accept
notes for payment of premiums;
(4) adjust or settle any claim or commit Life of
Virginia with respect thereto;
<PAGE>
(5) incur any indebtedness or liability, or
expend or contract for the expenditure of funds; or
(6) enter into legal proceedings in connection
with any matter pertaining to Capital Brokerage 's or Life of Virginia's
business without the prior consent of Capital Brokerage or Life of Virginia,
unless Broker-Dealer is named as a party to the proceedings.
c. Broker-Dealer acknowledges that only applications
bearing the signature of a Registered Representative who is on the list of
properly licensed Registered Representatives provided by Broker-Dealer,
according to this Agreement, will be processed by Life of Virginia.
4.2 Suitability.
a. Capital Brokerage wishes to ensure that the Policies
and Annuities solicited by Broker-Dealer through Registered Representatives will
be issued to persons for whom they will be suitable.
b. Broker-Dealer shall take reasonable steps to ensure
that none of its Registered Representatives makes recommendations to any
applicant to purchase a Policy or Annuity in the absence of reasonable grounds
to believe that the purchase is suitable for the applicant under the NASD
Conduct Rules regarding Recommendations to Customers.
c. A determination of suitability for the purchase of a
Policy or Annuity shall include, but not be limited to, a reasonable inquiry of
each applicant concerning the applicant's financial status, tax status, and
insurance and investment objectives and needs.
4.3 Delivery of Prospectus(es) by Broker-Dealer.
a. The current Prospectus(es), the Statement(s) of
Additional Information where required by law, and all Supplements relating to
the Policies and the Annuities shall be delivered by Broker-Dealer to every
applicant seeking to purchase a Policy or Annuity prior to the completion of an
application.
b. Broker-Dealer shall not give any information or make
any representations concerning the Policies or the Annuities, Life of
Virginia or Capital Brokerage unless the information or representations are
contained in the current Prospectus(es) or are contained in sales literature
or advertisements furnished or approved in writing by Life of Virginia and
Capital Brokerage.
4.4 Issuance of Policies or Annuities.
a. Life of Virginia, at its sole discretion, will
determine whether to issue a Policy or an Annuity.
b. Once a Policy or Annuity has been issued:
(1) Life of Virginia will mail it promptly,
accompanied by any required notice of withdrawal rights and any additional
required documents to the individual or entity designated by the Broker-Dealer;
(2) Life of Virginia will confirm to the owner,
with a copy to Broker-Dealer, the allocation of the initial premium under the
Policy or the Annuity; and
(3) Life of Virginia will also notify the owner
of the name of the Broker-Dealer through whom the Policy or the Annuity was
solicited.
<PAGE>
4.5 Life of Virginia will administer all Policies and Annuities
issued according to the terms and conditions set forth in the Policy or Annuity.
4.6 Capital Brokerage or Life of Virginia, at their own expense,
will furnish to Broker-Dealer, in reasonably sufficient quantities, the
following materials:
a. The current Prospectus(es) for the Policies and
Annuities and any underlying mutual funds;
b. Any Prospectus Supplement for the Policies and
Annuities and any underlying mutual funds, including any Statement(s) of
Additional Information if requested by client or required by law;
c. Advertising materials and sales literature approved
for use by Capital Brokerage and Life of Virginia; and
d. Applications for Policies and Annuities.
4.7 Money due Life of Virginia or Capital Brokerage.
a. All money payable in connection with the Policies or
the Annuities whether as premium or otherwise is the property of Life of
Virginia.
b. Money due Life of Virginia and received by the
Broker-Dealer under this Agreement shall be held in a fiduciary capacity and
shall be transmitted immediately to Life of Virginia in accordance with the
administrative procedures of Life of Virginia.
c. Unless express prior written consent to the contrary
is given to Broker-Dealer by Life of Virginia, money due Life of Virginia shall
be forwarded without any deduction or offset for any reason, including by
example, but not limitation, any deduction or offset for compensation claimed by
Broker-Dealer.
d. Unless express prior written consent to the contrary
is given to Broker-Dealer by Life of Virginia, checks or money orders in payment
for Policies or Annuities, shall be drawn to the order of "The Life Insurance
Company of Virginia" or "Life of Virginia."
e. Checks drawn by or money orders purchased by the
Registered Representative will not be accepted by Life of Virginia or Capital
Brokerage.
5. INDEMNIFICATION
5.1 Capital Brokerage agrees to indemnify and hold harmless
Broker-Dealer against any losses, claims, damages, liabilities or expenses,
including reasonable attorneys fees, to which Broker-Dealer may be liable to
the extent that the losses, claims, damages, liabilities or expenses,
including reasonable attorneys fees, arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact or omission
or alleged omission of material fact contained in the 1933 Act Registration
Statement covering the Policies or the Annuities or in the Prospectuses for
the Policies or the Annuities or in any written information or sales
materials authorized and furnished to Broker-Dealer by Capital Brokerage or Life
of Virginia.
5.2 Capital Brokerage will not be liable to the extent that such
loss, claim, damage, liability or expense, including reasonable attorneys' fees,
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon information provided by
Broker-Dealer, including, without limitation, negative responses to inquiries
furnished to Capital Brokerage or Life of Virginia by or on behalf of
Broker-Dealer, specifically for use in the
<PAGE>
preparation of the 1933 Act Registration Statement covering the Policies or the
Annuities or in any related Prospectuses.
5.3 Broker-Dealer agrees to indemnify and hold harmless Capital
Brokerage and Life of Virginia, against any losses, claims, damages, liabilities
or expenses, including reasonable attorney's fees, to which Capital Brokerage,
Life of Virginia and any affiliate, parent, officer, director, employee or agent
may be liable to the extent that the losses, claims, damages, liabilities or
expenses, including reasonable attorneys fees, arise out of or are based upon:
a. Any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission of a material fact contained in
the Registration Statement covering the Policies or the Annuities or related
Prospectuses but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission is made in reliance upon
information, including, without limitation, negative responses to inquiries,
furnished to Capital Brokerage or Life of Virginia by or on behalf of
Broker-Dealer specifically for use in the preparation of the 1933 Act
Registration Statement covering the Policies or the Annuities or in any related
Prospectuses;
b. Any unauthorized use of advertising materials or sales
literature or any verbal or written misrepresentations or any unlawful sales
practices concerning the Policies or the Annuities by Broker-Dealer, its
Registered Representatives or its affiliates; and
c. Claims by Registered Representatives or employees of
Broker-Dealer for commissions or other compensation or remuneration of any type.
5.4 The party seeking indemnification agrees to notify the
indemnifying party within a reasonable time of receipt of a claim or demand. In
the case of a lawsuit, the party seeking indemnification must notify the
indemnifying party within ten (10) calendar days of receipt of written
notification that a lawsuit has been filed.
5.5 Broker-Dealer agrees that Life of Virginia or Capital
Brokerage may negotiate, settle and or pay any claim or demand against them
which arises from:
a. any wrongful act or transaction of Broker-Dealer or
its Registered Representatives. Wrongful act or transaction includes, but is
not limited to, fraud, misrepresentation, deceptive practices, negligence,
errors or omissions;
b. the breach of any provision of this Agreement; or
c. the violation or alleged violation of any insurance or
securities laws.
Upon sufficient proof that the claim or demand arose from the
occurrences listed above, Capital Brokerage or Life of Virginia may request
reimbursement for any amount paid plus any reasonable expenses incurred in
investigating, defending against and/or settling the claim or demand.
Broker-Dealer agrees to reimburse Capital Brokerage or Life of Virginia for
these expenses.
5.6 Broker-Dealer shall immediately notify Capital Brokerage and
Life of Virginia, in writing of any complaint or grievance relating to the
Policies or the Annuities, including, but not limited to any complaint or
grievance arising out of or based on advertising or sales literature approved by
Life of Virginia or the marketing or sale of the Policies or Annuities.
5.7 Broker-Dealer shall promptly furnish all written materials
requested by Capital Brokerage or Life of Virginia in connection with the
investigation of any such complaint and will cooperate in the investigation.
Life of Virginia or Capital Brokerage will notify in a timely manner the
Broker-Dealer of any complaint.
5.8 Broker-Dealer shall immediately notify Capital Brokerage and
Life of Virginia, in writing
<PAGE>
of any state, federal, or self regulatory organization investigation or
examination regarding the marketing and sales practices relating to the Policies
or Annuities or any pending or threatened litigation regarding the marketing and
sales practices relating to the Policies or Annuities.
6. TERMINATION
6.1 This Agreement may be terminated by either Capital Brokerage
or Broker-Dealer at any time, for any reason, upon thirty (30) calendar days
advance written notice delivered to the other party under the terms of Section
10.10 of this Agreement.
6.2 This Agreement will terminate immediately:
a. If the Broker-Dealer is dissolved, liquidated, or
otherwise ceases business operations;
b. If the Broker-Dealer fails, in Capital Brokerage's
sole judgment, to comply with any of its obligations under this Agreement;
c. If the Broker-Dealer ceases to be registered under the
1934 Act or a member in good standing of the NASD; or
d. In the event one party assigns or transfers its rights
or liabilities under this Agreement to any third party without the prior written
consent of the other party.
6.3 The following provisions of the Agreement shall survive
termination:
a. Section One - Definitions
b. Section Two - Representations
c. Section Five - Indemnification
d. Section Nine - Recordkeeping
e. Section Ten - General Provisions, Sub-Section 10 -
Notices
7. COMPENSATION
7.1 Unless otherwise expressly agreed to in writing by the
parties, no compensation shall be payable to Broker-Dealer for its services
under this Agreement. All compensation payable with respect to sales of the
Policies and the Annuities by Broker-Dealer shall be paid in accordance with the
terms of the General Agent Agreement in effect between Life of Virginia and
Broker-Dealer, or a duly licensed subsidiary or affiliate thereof.
8. ADVERTISEMENTS
8.1 Broker-Dealer shall not use any advertisements or sales
literature for the Policies or the Annuities or any advertisements or sales
literature referencing Life of Virginia or Capital Brokerage without prior
written approval of Life of Virginia or Capital Brokerage. This includes
brochures, letters, illustrations, training materials, materials prepared for
oral presentations and all other similar materials.
9. RECORDKEEPING
9.1 Each party agrees to keep all records required by federal and
state laws, to maintain its books, accounts, and records so as to clearly and
accurately disclose the precise nature and details of
<PAGE>
transactions, and to assist one another in the timely preparation of records.
9.2 Each party grants to the other and/or its representatives the
right and power at reasonable times to inspect, check, make extracts from, and
audit each of its books, accounts and records as they relate to this Agreement,
including, but not limited to advertisements and sales materials, for the
purpose of verifying adherence to each of the provisions of this Agreement.
10. GENERAL PROVISIONS
10.1 Effective. This Agreement shall be effective upon execution
by both parties and will remain in effect unless terminated as provided in
Section Six.
10.2 Assignment. This Agreement may not be assigned or transferred
to any third party by either Capital Brokerage or Broker-Dealer without the
other party's prior written consent.
10.3 Governing Law. This Agreement shall be construed in
accordance with the laws of the Commonwealth of Virginia.
10.4 Severability. If any provision of this Agreement shall be
held or rendered invalid by a court decision, state or federal statute,
administrative rule or otherwise, the remainder of this Agreement shall not be
rendered invalid.
10.5 Complete Agreement. The parties declare that, other than the
General Agent's Agreement between Broker-Dealer (or its affiliated insurance
agency) and Life of Virginia (or its affiliated marketing company) there are no
oral or other agreements or understandings between them affecting this Agreement
or relating to the offer or sale of the Policies or the Annuities and that this
constitutes the entire Agreement between the parties.
10.6 Waiver. Forbearance by Capital Brokerage to enforce any of
the terms of this Agreement shall not constitute a waiver of such terms.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Independent contractors. Broker-Dealer is an independent
contractor. Nothing contained in this Agreement shall create, or shall be
construed to create, the relationship of employer and employee between Capital
Brokerage and Broker-Dealer or Broker-Dealer's directors, officers, employees,
agents or Registered Representatives.
10.9 Cooperation. Each party to this Agreement shall cooperate
with the other and with all governmental authorities, including, without
limitation, the SEC, the NASD and any state insurance or securities 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 under this Agreement.
10.10 Notices. All notices, requests, demands and other
communications which must be provided under this Agreement shall be in writing
and shall be deemed to have been given on the date of service if served
personally on the party to whom notice is to be given or on the date of mailing
if sent by United States registered or certified mail, postage prepaid. Notices
should be sent to the parties at the addresses first listed in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized
representatives.
CAPITAL BROKERAGE CORPORATION ______________________________________
(Name of Broker-Dealer)
<PAGE>
- -------------------------------------- --------------------------------------
(Signature) (Signature)
- -------------------------------------- --------------------------------------
(Name) (Name)
- -------------------------------------- --------------------------------------
(Title) (Title)
Tax Identification Number ____________
Date: _________________________________ Date: ________________________________
SCHEDULE A
to
BROKER-DEALER SALES AGREEMENT
VARIABLE LIFE INSURANCE POLICIES:
<PAGE>
SCHEDULE B
to
BROKER-DEALER SALES AGREEMENT
VARIABLE ANNUITY CONTRACTS:
EXHIBIT (3) (c)
---------------
Product Commission Schedule
---------------------------
<PAGE>
Asset Allocation Life cont'd. page 2
LEVEL 1 COMPENSATION
--------------------
<TABLE>
<CAPTION>
OLD SYSTEM NEW SYSTEM
===================================================================================================================================
DISTRIBUTION SYSTEM CAREER CAREER FORTH STOCK- BROKERS CORP. SPECIAL
- ------------------- ------ ------ ----- ------ ------- ----- -------
AGENTS BROKERS BROKERS MARKETS MARKETS
------ ------- ------- ------- -------
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
CONTRACT AC BB FA/FE SB IB CM SP
- -------- ---- ----- ----- ---- ---- ----- ----
CODE
- ----
- -----------------------------------------------------------------------------------------------------------------------------------
FIRST YEAR - 030 040 035 LEVEL 6 040 N/A N/A
- ------------ ---- ----- ---- ------- ----- ----- ----
PATTERN CODE
- ------------
- -----------------------------------------------------------------------------------------------------------------------------------
PAY TYPE/% OF 2.9 4.0 3.3 5.6 4.0
- ------------- ----- ---- ----- -----
PREMIUM
- -------
- -----------------------------------------------------------------------------------------------------------------------------------
RENEWAL YEARS - NOT APPLICABLE
- --------------- ----- ----------
PATTERN CODE
- ------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: The insured pays a "single premium" initially to issue this plan.
However the insured can make additional premium deposits after the initial
payment. Compensation on these additional premiums is covered under the heading
"additional premium payments".
OLD COMP SYSTEM
- ---------------
MFG OVERRIDES:
OVVERRIDES AS A % OF AGENT COMMISSION: STANDARD
ADA ACCOUNT OVVERRIDE: STANDARD
OVERRIDES AS A % OF COLLECTED PREMIUM 0%
(INCLUDE WITH OTHER SINGLE PREMIUM PRODUCTS)
PARTNERS: COMMISSION ALLOWANCE I 2% FYC II 23% FYC 0%
CTAP
PREMIUM ALLOWANCE: 0%
FRANCHISEE OVERRIDES:
PRODUCTION ALLOWANCE: 13.6%
SERVICE ALLOWANCE: N/A
RENEWAL ALLOWANCE: N/A
OVERHEAD ALLOWANCE: NORMAL
NEW BUSINESS CREDIT RATE: 100% OF PRODUCER 1ST-YEAR
COMMISSIONS
ADDITIONAL INFORMATION ABOUT THE PRODUCT, COMMISSIONS, OR
OVERRIDES:
PREMIUMS: The insured pays a "single premium" initially to
issue this plan. However the insured can make additional premium deposits after
the initial payment. Compensation on these additional premiums is covered under
the heading "additional premium payments".
COMMISSIONABLE PREMIUM IS "TOTAL COLLECTED PREMIUM"
FOR PRINTING ON THE COMMISSION STATEMENTS, INCLUDE
UNDER
<PAGE>
THE HEADING
WITH OTHER VUL PRODUCTS.
BASE PLAN INCREASE/DECREASE: (1ST POL. YEAR) N/A
RIDERS ADDED/DELETED (1ST POL. YEAR) N/A
CAN COMMISSIONABLE PREMIUM EXTEND PAST THE FIRST
POLICY YEAR, YES
SEE ADDITIONAL PREMIUM PAYMENTS.
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 schedules of The Life Insurance Company
of Virginia and subsidiaries and Life of Virginia Separate Account III, in the
Post-Effective Amendment No. 19 to the Registration Statement (Form S-6 No.
33-12470) and related Prospectus of Life of Virginia Separate Account III of the
registration of an indefinite amount of securities.
ERNST & YOUNG LLP
Richmond, Virginia
April 27, 1998
EXHIBIT (5)(a)
POLICY FORM--ASSET ALLOCATION LIFE
<PAGE>
FLEXIBLE PREMIUM VARIABLE
LIFE INSURANCE POLICY
* Life insurance proceeds payable at the insured's death
prior to the maturity date.
* Adjustable death benefit
* Flexible premiums payable for the insured's life until
maturity date
* Some benefits reflect investment results
* No dividends
LIFE OF To the Policyowner:
VIRGINIA Please read your policy carefully. This policy is a legal
contract between you and the company. You, the owner, have
rights and benefits described in this policy. We will pay the
cash value, if any, to you on the maturity date if the insured
is living on that date. The insured is named below. The
beneficiary is as named in the attached application, unless
later changed. We will pay the life insurance proceeds on
this policy when we receive due proof that the insured died
while this policy was in effect.
This is a Flexible Premium Variable Life Insurance Policy. We
will allocate net premiums to the Separate Account named in
the policy data pages.
THIS POLICY'S CASH VALUE IN THE SEPARATE ACCOUNT IS BASED ON
THE INVESTMENT EXPERIENCE OF THAT ACCOUNT, AND MAY INCREASE OR
DECREASE DAILY. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT. THE
AMOUNT OF DEATH BENEFIT OR THE DURATION OF THE DEATH BENEFIT
MAY VARY UNDER THE CONDITIONS DESCRIBED ON PAGES 6, 7, AND 8.
THE MAXIMUM LOAN VALUE IS NINETY PERCENT OF THE CASH VALUE ON
THE DATE OF THE LOAN, LESS ANY SURRENDER CHARGE.
Refund Privilege. You may return this policy to our home
office or to our agency within 10 days after its delivery for
a refund. If authorized by state law, the amount of the refund
will equal the sum of all charges deducted from premiums paid,
plus the net premiums allocated to the Separate Account
adjusted by investment gains and losses. Otherwise the amount
of the refund will equal the gross premiums paid.
<PAGE>
For The Life Insurance Company of Virginia
SECRETARY PRESIDENT
THE LIFE INSURANCE
COMPANY OF VIRGINIA
6610 West Broad Street
Richmond, Virginia 23230
FORM P1097A 1/87
POLICY DATA
SCHEDULE OF PREMIUMS
SCHEDULE OF BENEFITS AMOUNT PAYABLE FOR
$5,000.00 1 PAYMENT
LIFE INSURANCE
INITIAL PREMIUM DUE: $5,000.00
ADDITIONAL PREMIUM PAYMENTS MAY BE MADE. SEE POLICY PROVISION ON PAGE 7.
CHARGES:
PREMIUM TAX RECOVERY CHARGE: .20% ANNUALLY (.0167% MONTHLY)
DISTRIBUTION EXPENSE CHARGE .30% ANNUALLY (.0250% MONTHLY)
MORTALITY AND EXPENSE RISK CHARGE: 90% ANNUALLY (.0024769% DAILY)
ADMINISTRATION CHARGE: .40% ANNUALLY (.0010981% DAILY)
TRANSFER CHARGE: $10.00
MAXIMUM POLICY LOAN INTEREST RATE: 6.00% PER ANNUM PAYABLE IN ARREARS
NOTE: IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN
WHERE EITHER NO PREMIUMS ARE PAID FOLLOWING PAYMENT OF THE INITIAL PREMIUM OR
SUBSEQUENT PREMIUMS ARE INSUFFICIENT TO CONTINUE COVERAGE TO SUCH DATE.
<TABLE>
<S><C>
OWNER THE INSURED
INSURED JOHN DOE MALE 35 AGE NEAREST BIRTHDAY
POLICY NUMBER T00000002 STANDARD RATING CLASS
POLICY DATE APRIL 1, 1992 APRIL 1, 2052 MATURITY DATE
</TABLE>
<PAGE>
MONTHLY ANNIVERSARY DAY 1
PLAN FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
$31,512 INSURED'S SPECIFIED AMOUNT
<TABLE>
<S> <C>
POLICY NUMBER: T00000002
SEPARATE ACCOUNT III
INVESTMENT SUBDIVISIONS ARE INVESTED IN
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
FID MONEY MARKET MONEY MARKET PORTFOLIO
FID HIGH INCOME HIGH INCOME PORTFOLIO
FID EQUITY-INCOME EQUITY-INCOME PORTFOLIO
FID GROWTH GROWTH PORTFOLIO
FID OVERSEAS OVERSEAS PORTFOLIO
FID ASSET MANAGER FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
ASSET MANAGER PORTFOLIO
LIFE OF VIRGINIA SERIES FUND, INC.
LOV MONEY MARKET MONEY MARKET PORTFOLIO
LOV BOND BOND PORTFOLIO
LOV COMMON STOCK COMMON STOCK PORTFOLIO
LOV TOTAL RETURN TOTAL RETURN PORTFOLIO
NEUBERGER & BERMAN
N&B BALANCED ADVISERS MANAGEMENT TRUST
BALANCED PORTFOLIO
OPPENHEIMER VARIABLE ACCOUNT FUNDS
OPP MONEY OPPENHEIMER MONEY FUND
OFF HIGH INCOME OPPENHEIMER HIGH INCOME FUND
OPP BOND OPPENHEIMER BOND FUND
OPP CAP APPRECIATION OPPENHEIMER CAPITAL APPRECIATION FUND
OPP GROWTH OPPENHEIMER GROWTH FUND
OPP MULTI STRATEGIES OPPENHEIMER MULTIPLE STRATEGIES FUND
</TABLE>
YOU MAY ALLOCATE YOUR CASH VALUE TO AS MANY AS SEVEN INVESTMENT SUBDIVISIONS.
<PAGE>
CONSULT YOUR PROSPECTUS FOR INVESTMENT DETAILS.
POLICY NUMBER: T000000002
TABLE OF MAXIMUM PREMIUMS
<TABLE>
<CAPTION>
POLICY YEAR MAXIMUM POLICY MAXIMUM
PREMIUM YEAR PREMIUM
<S> <C>
1 5,000.00 31 13,302.10
2 5,000.00 32 13,731.20
3 5,000.00 33 14,160.30
4 5,000.00 34 14,589.40
5 5,000.00 35 15,018.50
6 5,000.00 36 15,447.60
7 5,000.00 37 15,876.70
8 5,000.00 38 16,305.80
9 5,000.00 39 16,734.90
10 5,000.00 40 17,164.00
11 5,000.00 41 17,593.10
12 5,149.20 42 18,022.20
13 5,578.30 43 18,451.30
14 6,007.40 44 18,880.40
15 6,436.50 45 19,309.50
16 6,865.60 46 19,738.60
17 7,294.70 47 20,167.70
18 7,723.80 48 20,596.80
19 8,152.90 49 21,025.90
20 8,582.00 50 21,455.00
21 9,011.10 51 21,884.10
22 9,440.20 52 22,313.20
23 9,869.30 53 22,742.30
24 10,298.40 54 23,171.40
25 10,727.50 55 23,600.50
26 11,156.60 56 24,029.60
27 11,585.70 57 24,458.70
28 12,014.80 58 24,887.80
29 12,443.90 59 25,316.90
30 12,873.00 60 25,746.00
</TABLE>
<PAGE>
POLICY NUMBER: T00000002
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES
PER $1,000
<TABLE>
<CAPTION>
AGE LIFE MONTHLY
RATE
<S> <C>
35 .176030
36 .186890
37 .200260
38 .215300
39 .232850
40 .252080
41 .274660
42 .297240
43 .323180
44 .349960
45 .380100
46 .411100
47 .444620
48 .479830
49 .519250
50 .561210
51 .610750
52 .666210
53 .729280
54 .800820
55 .877480
56 .960980
57 1.047940
58 1.140920
59 1.240780
60 1.351800
61 1.475730
62 1.616010
63 1.775320
64 1.952900
</TABLE>
<PAGE>
POLICY NUMBER: 000000000
TABLE OF GUARANTEED MAXIMUM INSURANCE RATES CONTINUED
PER $1,000
<TABLE>
<CAPTION>
AGE LIFE MONTHLY
RATE
<S> <C>
65 2.148030
66 2.356540
67 2.579400
68 2.816730
69 3.074750
70 3.364960
71 3.695600
72 4.076840
73 4.516510
74 5.008480
75 5.543880
76 6.113680
77 6.710420
78 7.329210
79 7.987160
80 8.710420
81 9.520560
82 10.446960
83 11.504340
84 12.672430
85 13.929080
86 15.250940
87 16.628600
88 18.058300
89 19.546740
90 21.114250
91 22.795180
92 24.656800
93 26.820480
94 29.667820
</TABLE>
<PAGE>
POLICY NUMBER: T00000002
TABLE OF SURRENDER CHARGES
<TABLE>
<CAPTION>
YEARS SURRENDER CHARGE PERCENTAGE *
<S> <C>
1 6
2 6
3 6
4 6
5 5
6 4
7 3
8 2
9 1
YEARS 10 AND LATER 0
</TABLE>
* THE TOTAL OF ALL DISTRIBUTION EXPENSE CHARGES ASSOCIATED WITH A PREMIUM WILL
NOT EXCEED 9.0% OF THAT PREMIUM. ADDITIONALLY THE SURRENDER CHARGE ASSOCIATED
WITH A PREMIUM WILL BE THE LESSER OF (A) AND (B), WHERE:
(A) IS THE SURRENDER CHARGE ASSOCIATED WITH A PREMIUM AS DEFINED
IN THE SURRENDER CHARGE PROVISION, AND
(B) IS THE EXCESS OF 9% OF THAT PREMIUM OVER THE TOTAL OF ALL
DISTRIBUTION EXPENSE CHARGES ASSOCIATED WITH A PREMIUM.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Policy Data....................................................................3
Table of Guaranteed Maximum Insurance Rates....................................4
Introduction...................................................................5
The Owner and the Beneficiary..................................................6
Premium Payments...............................................................7
Death Benefit..................................................................8
Cash Value Benefits............................................................9
Loan Benefits.................................................................10
Separate Account..............................................................10
Optional Payment Plans........................................................13
General Information...........................................................15
</TABLE>
A copy of the application and any riders and endorsements follow page 16.
WORD INDEX
Allocation 7 Optional Payment Plans 13
Annual Statement 16 Owner 6
Beneficiary 6 Ownership Change 6
Beneficiary Change 6 Policy as Collateral 6
Cash Value 9 Policy Debt 10
Contesting the Policy 15 Policy Loan 10
Cost of Insurance 9 Premiums 7
Death Benefit 8 Reinstatement 7
Grace Period 7 Separate Account 10
Investment Subdivisions 11 Suicide 15
Loan Interest 10 Surrender 10
Misstatement of Age
or Sex 15 Surrender Value............... 10
Monthly Deduction 9 Transfers..................... 12
Notices 16 Unit Value.................... 12
INTRODUCTION
This is a flexible premium variable life insurance policy. In return for the
initial premium and the insurance application, we provide certain benefits.
Additional premiums may be paid subject to the Additional Premium Payment
provision in the policy.
The policy provides a death benefit. The death benefit can be paid in a lump sum
or under an Optional Payment Plan.
During the insured's life, the policy has a cash value benefit. This cash value,
less any outstanding policy debt, is in our Separate Account, which is described
on page 11 of this policy. This cash value is the basis for certain benefits you
can use before the insured's death.
We can provide you with a projection of illustrative future life insurance and
cash value proceeds. To receive the projection, send a written request to our
home office. The projection will assume amounts of insurance and other
assumptions specified by you or by us.
The Policy and Its Parts
Policy means this policy with the attached application. We will not use any
statement in the application to deny a claim unless a copy of the application
was attached to this policy at the time of issue.
The policy is a legal contract. It is the entire contract between you and us. An
agent cannot change this contract. Any change to it must be in writing and
approved by us. Only our President or one of our Vice-Presidents can give our
approval. READ YOUR POLICY CAREFULLY.
Dates Used in the Policy
<PAGE>
The policy goes into effect on the policy date. Policy years and anniversaries
for the original Specified Amount and the initial premium are measured from this
date. Years for the increases in Specified Amount are measured from the
effective date of the increase. Years for determining charges related to
additional premiums are measured from the first monthly anniversary day
coincident with or following receipt of additional premium.
The maturity date is the date we pay any cash value, less outstanding policy
debt, if the insured is living. This date is as shown in the policy data pages.
You may request that we pay the cash value in a lump sum, or under an Optional
Payment Plan.
Age
Age on the policy date or on a policy anniversary means the insured's age on his
or her nearest birthday.
Attained age means the insured's age on the policy date plus the number of years
since the policy date.
When This Policy Will Terminate
All coverage under this policy will terminate when:
* you request that coverage terminate and you return this policy;
* the insured dies;
* this policy matures; or
* the grace period ends without sufficient premium being paid.
THE OWNER AND THE BENEFICIARY
The Owner
You have rights in the policy during the insured's lifetime. The policy names
you or someone else as the insured. If you are not the insured, you should name
a contingent owner who will become the owner if you die before the insured. If
you die before the insured and there is no contingent owner, ownership passes to
your estate. Unless a payment plan is chosen, the proceeds payable on surrender
will be paid to you in a lump sum.
The Beneficiary
You can name primary and contingent beneficiaries. Your original beneficiary
choice is shown in the attached application.
Unless a payment plan is chosen, the proceeds payable at the insured's death
will be paid in a lump sum to the primary beneficiary. If no beneficiary
survives the insured, the proceeds will be paid to you or your estate.
You may name more than one primary or contingent beneficiary. If you do, the
proceeds will be paid in equal shares to the survivors in the appropriate
beneficiary class, unless you have requested otherwise.
Changing the Owner or Beneficiary
During the insured's life, you can change the owner. You can also change the
beneficiary during the insured's life if you reserve this right.
How to Change the Owner or Beneficiary. To make a change, send a written request
to our home office. The request and the change must be in a form satisfactory to
us and must be received by
<PAGE>
us. The change will take effect as of the date you sign the request. The change
will be subject to any payment we make before we record the change.
Using the Policy as Collateral for a Loan
This policy can be assigned as collateral security. We must be notified in
writing if you assign the policy. Any payment we make before we record the
assignment at our home office will not be affected. We are not responsible for
the validity of an assignment. Your rights and the rights of a beneficiary may
be affected by an assignment.
PREMIUM PAYMENTS
The initial premium is due on or before the policy date.
Additional Premium Payments
If there is no outstanding policy debt, you may make additional premium
payments. If there is outstanding policy debt, any payment you make will be used
for repaying policy debt. You may make additional premium payments of the
payment:
* is at least $250.00 and in addition to the total of all premiums
previously paid does not exceed the Maximum Premiums shown in the
data pages; or
* is required for an increase in Specified Amount; or
* is required as described in the grace period provision to prevent
termination.
The portion of the cash value in the Separate Account at issue is 1. Whenever an
additional premium is paid, we redetermine this portion. The new portion will be
(a) minus (b), multiplied by (c), where:
(a) is 1;
(b) is the portion for the additional premium causing the
redetermination; and
(c) is the current portion associated with the premium.
If you pay an additional premium the portion of the cash value in the Separate
Account representing the additional premium will be determined on the date the
premium is received. This portion is (a) divided by (b), where:
(a) is the additional premium, and
(b) is the total cash value including the additional premium.
Whenever an additional premium is paid, we will redetermine all portions
associated with prior additional premiums in the same manner as described above
for the portion associated with the initial premium.
When and Where to Pay Premiums
Each premium is payable in advance. Pay each premium to our home office.
Allocation of Premiums
You may allocate premiums to one or more Investment Subdivisions of the Separate
Account. The portion of each premium allocated to any particular Investment
Subdivision must be at least 10%.
We will allocate the initial premium to the LOV Money Market Investment
Subdivision. Upon receipt to our home office in a form satisfactory to us,
signed by the policyowner, indicating that the policyowner has received and
accepted the policy, the cash value in that Investment Subdivision will be
transferred to the other Investment Subdivisions of the Separate Account in
accordance with the premium allocation percentages. For any premium received
after we receive the signed form the premium will be allocated in accordance
with the written instructions of the policyowner. You may change the allocation
of alter premiums at any time, without charge, simply by sending written notice
to us at our home office. The allocation will apply to premiums received after
we record the change. The Refund Privilege is described on the policy cover.
Grace Period
<PAGE>
If the surrender value on a monthly anniversary day is insufficient to cover the
monthly deduction due on that monthly anniversary day, we will allow a 61-day
grace period for payment of a premium sufficient to cover the monthly deduction.
This grace period will begin on the day we mail notice of the sufficient
premium. We will mail notice to you and any assignee of record in our home
office. If such premium is not paid by the end of the grace period, the policy
will terminate without value. The monthly deduction is described in the Cash
Value Benefits section. Coverage continues during the grace period. If the
insured dies during the grace period, the proceeds will be reduced by any
overdue monthly deductions.
How the Policy Can Be Reinstated
During the insured's life, this policy can be reinstated if it terminated
because a grace period ended without sufficient premium being paid. Any
reinstatement must be done within three years from the end of the grace period.
We will not reinstate this policy if it has been surrendered for payment of its
surrender value. To reinstate, send evidence satisfactory to us that the insured
is insurable. The policy will be reinstated on the date we approve the
reinstatement. You will also have to pay a premium sufficient to cover the
monthly deductions for the next two policy months. We may accept a premium
larger than this amount. Any policy debt which existed at the end of the grace
period will be reinstated if it is not paid.
Death Benefit
How We Determine the Death Benefit
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 corridor
percentage.
The corridor percentage depends on the attained age of the insured on the date
of death.
<TABLE>
<CAPTION>
Attained Corridor
Age Percentage Age Percentage
- --- ---------- --- ----------
<S> <C>
40 or 50 185% 61 128% 72
111%
younger 250% 51 178 62 126 73
109
41 243 52 171 63 124 74
107
42 236 53 164 64 122 75
105
43 229 54 157 65 120 through
44 222 55 150 66 119 90
45 215 56 146 67 118 91
104
46 209 57 142 68 117 92
103
47 203 58 138 69 116 93
102
48 197 59 134 70 115 94
101
49 191 60 130 71 113
</TABLE>
The death benefit may be limited if the insured commits suicide. This limitation
is described in the suicide provision.
Proceeds
<PAGE>
Proceeds means the amount payable on surrender or on 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.
Actual Amount of Proceeds. The actual amount of proceeds will be depend on:
* the death benefit as determined above;
* the use of the cash value during the insured's life;
* any increase in the Specified Amount;
* the insured's suicide during the first two policy years; and
* a misstatement of the insured's age or sex.
Interest on Proceeds. Any proceeds that are paid in one lump sum will include
interest from the date of death to the date of payment. Interest will be paid at
a rate set by us, or by law if greater. Interest will not be paid beyond one
year or any longer time set by law.
Increasing the Specified Amount
You may apply for an increase after the first anniversary. To apply for an
increase you must submit an application. The minimum increase in specified
amount allowed is one which requires a $1,000.00 additional premium payment. You
will have to submit evidence satisfactory to us that the insured is insurable.
After an increase is approved, we will require an additional premium payment.
The increase will become effective on the date we receive the required payment.
This date will be shown in a supplemental policy data page.
CASH VALUE BENEFITS
The cash value of the policy is equal to:
(a) the cash value allocated to the Investment Subdivisions of the
Separate Account; plus
(b) the cash value held in the general account to secure a policy
debt.
On the later of the policy date or the date the initial premium is received, the
cash value in each Investment Subdivision is the portion of the initial premium
which has been paid and allocated to that Investment Subdivision, less the
portion of any due and unpaid monthly deductions allocated to the cash value in
that Investment Subdivision, plus the policy's share of investment gains and
losses in that Investment Subdivision. At the end of each valuation period after
such date, the cash value allocated to each Investment Subdivision of the
Separate Account is (a) plus (b) plus (c) minus (d), 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 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;
(d) is cash value transferred out of the Investment Subdivision
during the current valuation period.
In addition, whenever a valuation period includes the monthly anniversary day,
the cash value at the end of such period is reduced by the monthly deduction
allocated to the cash value in the Investment Subdivision for that monthly
anniversary day.
Monthly Deduction
The monthly deduction is a charge made each policy month against the cash value
allocated to the
<PAGE>
Separate Account. There will be charges for the first ten years following a
premium payment for premium tax recovery and distribution expenses. The annual
rate for these charge is shown on the policy data pages. The charges will be (a)
multiplied by (b) multiplied by (c), where:
(a) is the monthly rate for the charges; and
(b) is the total of all portions associated with premiums paid in the
last ten years; and
(c) is the cash value allocated to the Separate Account prior to
taking the monthly deduction.
The monthly deduction will also include a charge for the cost of insurance. The
monthly deduction for a policy month will be allocated among the Investment
Subdivisions of the Separate Account 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. Other allocation
methods may be available upon request.
Cost of Insurance
The guaranteed maximum charge is calculated on each monthly anniversary day.
First, we divide the death benefit by 1.0032737, and then subtract the cash
value. We divide the result by 1000 and multiply that result by the applicable
Cost of Insurance Rate shown in the Table of Guaranteed Maximum Insurance Rates.
Cost of Insurance Charge. The monthly charge is based on the insured's sex,
attained age, policy duration and risk class. The charge is determined by us
according to our expectations of future experience. We can change the charges
from time to time, but they will be more than the guaranteed maximum charge. A
change in charges will apply to all persons of the same age, sex and risk class
and whose policies have been in effect for the same length of time.
Insufficient Surrender Value
On a monthly anniversary day, if the surrender value is not enough to cover the
monthly deduction for that monthly anniversary day, the Grace Period provision
will apply.
Surrender
You can surrender this policy by sending a written request and the policy to our
home office. The surrender must take place during the insured's life.
Amount Payable on Surrender. The amount payable on surrender of this policy is
the cash value on the date we receive your request for surrender in our home
office, less any policy debt and less any surrender charge. The Amount payable
is the Surrender Value.
Surrender Charge
The amount of the surrender charge will be the applicable percentage of the
initial premium and any additional premiums as shown in the Table of Surrender
Charges on the policy data pages. The applicable percentage for each premium is
found next to the years representing the number of full and partially complete
years since the premium payment.
Postponement of Payments
We will usually pay any amounts payable as a result of surrender, or policy
loans within seven days after we receive written request in our home office, in
a form satisfactory to us. We will usually pay any proceeds within seven days
after we receive due proof of death. Payment of any amount payable on surrender,
policy loan or death benefit may be postponed whenever:
* 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 Securities and Exchange Commission;
or
<PAGE>
* the Securities and Exchange Commission by order permits
postponement for the protection of policyowners; or
* an emergency exists, as determined by the Securities and Exchange
Commission, as a result of which disposal of net assets of the
Separate Account.
We have the right to defer payment which is derived from any amount recently
paid to us by check or draft, until we are satisfied the check or draft has been
paid by the bank on which it is drawn.
LOAN BENEFITS
This policy has Loan Benefits that are described below. The amount of
outstanding loans plus accrued interest is called policy debt. Any outstanding
policy debt will be deducted from proceeds payable at the insured's death, or on
surrender.
Making a Policy Loan
After the first policy anniversary, you may obtain a policy loan from us. This
policy is the only security required. The minimum loan amount is $500. The
maximum loan amount is 90% of the cash value on the date of the loan, less any
surrender charge. The available loan amount is the maximum loan amount less any
outstanding policy debt.
Loan Interest
The loan interest rate is shown on the policy data pages.
Interest accrues daily. It is due and payable on each policy anniversary. Any
interest not paid when due will be treated as a new policy loan.
When a policy loan is made, an amount cash value sufficient to secure the loan
is transferred out of the Separate Account and into our general account. You may
tell us how to allocate that cash value among the Investment Subdivisions of the
Separate Account. If you do not, that cash value will be allocated among the
Investment Subdivisions in the same proportion that the policy's cash value n
each Investment Subdivision bears to the total cash value in all Investment
Subdivisions on the date we make the loan. An amount of cash value equal to any
loan interest will also be transferred if the interest is not paid when due.
We will credit interest at an annual rate of not less than 4% for the policy
debt. On each anniversary day, the interest earned since the preceding
anniversary day will be transferred to the Separate Account. Unless you tell us
otherwise, this interest will be allocated to the Investment Subdivisions in the
same manner as loans as deducted.
If the policy debt exceeds the cash value less any surrender charge, you must
pay the excess. We will send you a notice of the amount you must pay. If you do
not pay this amount within 61 days after we send notice, the policy will
terminate without value. We will send the notice to you and to any assignee of
record at our home office.
Any loan transaction will permanently affect the values of this policy.
Repaying Policy Debt
You can repay policy debt in part or in full any time during the insured's life
while this policy is in effect. when a loan repayment is made, cash value in the
general account related to that repayment will be transferred into the Separate
Account. You may tell us how to allocate this cash value among each Investment
Subdivision of the Separate Account. If you do not, we will allocate that amount
among the Investment Subdivisions in the same proportion that premiums are
allocated.
SEPARATE ACCOUNT
The Separate Account named in the policy data pages will be used to support the
operation of this
<PAGE>
policy and certain other variable life insurance policies we may subsequently
offer. We will not allocate assets to the Separate Account to support the
operation of any contracts or policies that are not variable life insurance.
We own the assets in the Separate Account. However, these assets are not part of
our general account. Income, gains and losses, whether or not realized, from
assets allocated to the Separate account will be credited to or charged against
the account without regard to our other income, gains or losses.
The Separate Account is registered with the Securities and Exchange Commission
as a unit investment trust under the Investment Company Act of 1940. The
Separate Account is also subject to laws of the Commonwealth of Virginia which
regulate the operations of insurance companies incorporated in Virginia. The
investment policy of the Separate Account will not be changed without the
approval of the Insurance Commissioner of the Commonwealth of Virginia. The
approval process is on file with Insurance Commissioner of the state in which
this policy was delivered.
The Separate Account is divided into Investment Subdivisions. The Investment
Subdivisions are named in the policy data pages. We reserve the right to remove
any Investment Subdivisions of the Separate Account, or to add new Investment
Subdivisions. Each Investment Subdivisions of the Separate Account will invest
in shares of a mutual fund, or of a portfolio of a series type of mutual fund
named in the data pages. You determine the percentage of premiums which will be
allocated to each Investment Subdivision.
The policyowner will share only the income, gains and losses of the Investment
Subdivisions to which his premium payments have been allocated.
That portion of the assets of the Separate Account which equals the reserves and
other policy liabilities of the policies which are supported by the Separate
Account will not be charged with liabilities arising from any other business we
conduct. We have the right to transfer to our general account any assets of the
Separate Account which are in excess of such reserves and other policy
liabilities.
We also have the right, subject to compliance with applicable law, to make
additions to, deletions from, or substitutions for the shares of a mutual fund
portfolio that are held by the Separate Account or that the Separate Account may
purchase. We reserve the right to eliminate the shares of any portfolio named in
the data pages, and to substitute shares of another portfolio, if the shares of
the portfolio are no longer available for investments, or if in our judgement
further investment in the portfolio should become inappropriate in view of the
purposes of the Separate Account. In the event of any substitution or change, we
may, by appropriate endorsement, make such changes in this and other policies as
may be necessary or appropriate to reflect the substitution or change.
We also reserve the right to transfer assets of the Separate Account, which we
determine to be associated with the class of policies to which this policy
belongs, to another separate account. If this type of transfer is made, the term
Separate Account as used in this policy, shall then mean the Separate Account to
which the assets were transferred.
When permitted by law, we also reserve the right to:
(a) deregister the Separate Account under the direction of a
committee;
(b) manage the Separate Account under the direction of a committee;
(c) restrict or eliminate any voting rights of policyowners, or other
persons who have voting rights as to Separate Account; and
(d) combine the Separate Account with other separate accounts.
We will value the assets of the Separate Account each business day.
If you object to a material change in the Investment policy of the Separate
Account or any Investment Subdivision, you have the right to exchange this
policy for a fixed benefit policy. No evidence of insurability will be required.
We will notify you of the options available, and the
<PAGE>
procedures to follow if you decide to make an exchange. You must make an
exchange within sixty days after the change in investment policy becomes
effective. There will always be one policy available for exchange.
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 subdivision's Unit Value as of the end of the valuation period
during which the transfer is made. Likewise, when amounts are transferred out of
an Investment Subdivision, Units are redeemed in a similar manner.
For each Investment Subdivision, the Unit Value for the first valuation period
was $10.00. The Unit Value for each subsequent period is the Net Investment
Factor for that period, multiplied by the Unit Value for the immediately
preceding period. The Unit Value for a valuation period applies to each day in
the period.
Each valuation period includes a business day and any non-business day or
consecutive non-business days immediately preceding it. Assets are valued at the
close of the business day. A business day is any day the New York Stock Exchange
is open for trading, or any day in which there is a material change in the value
of the assets in the Separate Account.
Each Investment Subdivision has its own Net Investment Factor. In the following
definition, "Assets" refers to the assets in each Investment Subdivision. "Any
amount charged against the Separate Account" refers to those accounts that are
allocated to each Investment Subdivision.
The Net Investment Factor for a valuation period is (a) divided by (b), minus
(c), where:
(a) is (1) the value of the assets at the end of the preceding
valuation period, plus (2) the investment income and capital
gains, unrealized, credited to those assets at the end of 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 the Separate Account for taxes,
or
any amount we set aside during the valuation period as a provision
for taxes attributable to the operation or maintenance of the
Separate Account; and
(b) is the value of the assets at the end of the preceding valuation
period; and
(c) is a factor representing the charge for mortality and expense
risks we assume and an administration charge. The annual rate for
these charges is shown on the policy data pages.
We will value the assets in the Separate Account at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
Transfers
You may transfer amounts among the Investment Subdivisions of the Separate
Account by sending a written request to us at our home office. We reserve the
right to limit the number oftransfers if it is necessary for the policy to
continue to be treated as a life insurance policy by the IRS. The transfer will
be effective as of the end of the valuation period during which we receive your
request at our home office. The first transfer in each calendar month will be
made without a transfer charge. Thereafter, each time amounts are transferred a
transfer charge will be imposed. This transfer charge is shown in the policy
data pages. When we make transfers, the cash value on the date of the transfer
will not be affected by the transfer except to the extent of the transfer
charge. The transfer charge will be taken from the amount transferred.
OPTIONAL PAYMENT PLANS
The proceeds will be paid in one lump sum. Subject to the rules stated below,
any part of the proceeds can be left with us and paid under a payment plan. Any
amount left with us will be transferred to our general account. During the
insured's life, you can choose a plan. A beneficiary
<PAGE>
can choose a plan if you have not chosen one at the insured's death.
There are several important payment plan rules:
* The payee under a plan cannot be a corporation, association or
fiduciary.
* If you change a beneficiary, your plan selection will not longer be
in effect unless you request that it continue.
* A choice or change of a plan must be sent in writing to our home
office.
* The proceeds applied under a plan must be at least $10,000.
* The amount of each payment under a plan must be least $50.
* Payments under Plans 1, 2, 3, or 5 will begin on the date of the
insured's death or on surrender. Payments under Plan 4 will begin
at the end of the first interest period after the date proceeds are
otherwise payable.
Plan 1. Life Income. We will make equal monthly payments 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.
Payments will be according to the table below. Guaranteed amounts payable under
this plan will earn interest at 3% compounded yearly. We 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
we discounted at a yearly rate of 3%. The discounted amounts will be paid in one
sum to the payee's estate unless otherwise provided.
<TABLE>
<CAPTION>
Plan 1 Table
Monthly payment rates for each $1,000 of proceeds under Plan 1.
- -------------------------------------------------------------------------------------------------------------------------------
Male Payee Female Payee Male Payee Female Payee
------------------------- -------------------------- ------------------------- -------------------------
Age of Age of
Payee 10 15 20 10 15 20 Payee 10 15 20 10 15 20
Nearest Years Years Years Years Years Years Nearest Years Years Years Years Years Years
Birthday Certain Certain Certain Certain Certain Certain Birthday Certain Certain Certain Certain Certain Certain
- -------- ------- ------- ------- ------- ------- -------- -------- ------- ------- ------- ------- ------- -------
<S> <C>
20 $3.04 $3.03 $3.03 $2.95 $2.95 $2.95 65 $6.28 $5.76 $5.18 $5.71 $5.41 $5.02
25 3.15 3.15 3.14 3.05 3.04 3.04 66 6.45 5.87 5.23 5.86 5.52 5.08
30 3.30 3.30 3.29 3.17 3.16 3.16 67 6.63 5.97 5.28 6.02 5.63 5.14
35 3.49 3.48 3.46 3.32 3.31 3.30 68 6.81 6.07 5.32 6.19 5.74 5.19
40 3.73 3.71 3.68 3.50 3.49 3.48 69 6.99 6.16 5.36 6.37 5.85 5.24
45 4.04 4.00 3.93 3.75 3.73 3.70 70 7.18 6.26 5.39 6.55 5.96 5.29
50 4.43 4.35 4.23 4.06 4.02 3.97 71 7.37 6.34 5.42 6.73 6.06 5.33
51 4.52 4.43 4.29 4.13 4.09 4.03 72 7.56 6.42 5.44 6.93 6.16 5.37
52 4.62 4.51 4.36 4.20 4.16 4.09 73 7.76 6.50 5.46 7.12 6.26 5.40
53 4.71 4.59 4.42 4.29 4.23 4.15 74 7.95 6.57 5.47 7.32 6.35 5.43
54 4.81 4.68 4.49 4.37 4.31 4.22 75 8.13 6.63 5.49 7.52 6.44 5.45
55 4.92 4.76 4.55 4.46 4.39 4.29 76 8.31 6.68 5.49 7.72 6.51 5.47
56 5.03 4.85 4.62 4.56 4.48 4.36 77 8.48 6.72 5.50 7.92 6.58 5.48
57 5.15 4.95 4.69 4.66 4.57 4.43 78 8.63 6.75 5.50 8.12 6.64 5.49
58 5.27 5.04 4.76 4.77 4.66 4.50 79 8.78 6.78 5.51 8.31 6.69 5.50
59 5.39 5.14 4.82 4.88 4.76 4.58 80 8.91 6.81 5.51 8.49 6.74 5.50
60 5.53 5.24 4.89 5.00 4.86 4.65 81 9.03 6.82 5.51 8.66 6.77 5.51
61 5.67 5.34 4.95 5.13 4.96 4.73 82 9.14 6.84 5.51 8.82 6.80 5.51
62 5.81 5.45 5.01 5.26 5.07 4.80 83 9.23 6.85 5.51 8.96 6.82 5.51
63 5.96 5.55 5.07 5.40 5.18 4.87 84 9.31 6.86 5.51 9.09 6.84 5.51
64 6.12 5.66 5.13 5.55 5.29 4.95 85 & 9.38 6.86 5.51 9.20 6.85 5.51
over
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Values for ages not shown will be furnished upon request.
Plan 2. Income or a Fixed Period. We will make equal periodic payments for a
fixed period, not longer than 30 years. Payments can be annual, semi-annual,
quarterly or monthly. Payments will be made according to the table below.
Guaranteed amounts payable under this plan will earn interest at 3% compounded
yearly. We 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 we will
deduct the amount of interest each remaining payment would have earned had it
not been paid out yearly. The
<PAGE>
discounted amount will be paid in one sum to the payee's estate unless otherwise
provided.
Plan 2 Table
Monthly Payment rates for each $1,000 of proceeds under Plan 2.
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Years 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Payable
- -------------------------------------------------------------------------------------------------------------------------
Monthly $84.47 $42.86 $28.99 $22.06 $17.91 $15.14 $13.16 $11.68 $10.53 $9.61 $8.86 $8.24 $7.71 $7.26 $6.87
Payment
=========================================================================================================================
Years 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Payable
- -------------------------------------------------------------------------------------------------------------------------
Monthly $6.53 $6.23 $5.96 $5.73 $5.51 $5.32 $5.15 $4.99 $4.84 $4.71 $4.59 $4.47 $4.37 $4.27 $4.18
Payment
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Annual, semi-annual or quarterly payments are determined by multiplying the
monthly payment by $11.838, 5.963 or 2.992, respectively.
Plan 3. Income of a Definite Amount. We will make equal periodic payments of a
definite amount. Payments can be annual, semi annual, quarterly or monthly. The
amount paid 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. We may increase the interest rate. If we do, 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.
Plan 4. Interest Income. We will make periodic payments of interest earned from
the proceeds left with us. Payments can be annual, semi-annual, quarterly or
monthly, and will begin at the end of the first period chosen and will earn
interest at 3% compounded yearly. We 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 provide.
Plan 5. Joint Life and Survivor Income. We will make equal monthly payments 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. We 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.
Plan 5 Table
Monthly payment rates for each $1,000 of proceeds under Plan 5.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Male Age Female Age Nearest Birthday
----------------------------------------------------------------------------------------
Nearest Birthday 35 40 45 50 55 60 65 70 75 80 85 & Over
- -----------------------------------------------------------------------------------------------------------
<S> <C>
35 $3.13 $3.21 $3.28 $3.34 $3.38 $3.42 $3.45 $3.47 $3.48 $3.48 $3.49
40 3.18 3.28 3.38 3.47 3.55 3.61 3.66 3.69 3.71 3.72 3.73
45 3.22 3.34 3.47 3.60 3.72 3.82 3.90 3.96 4.00 4.02 4.03
50 3.25 3.39 3.55 3.72 3.90 4.05 4.19 4.29 4.36 4.40 4.42
55 3.27 3.43 3.62 3.83 4.06 4.29 4.50 4.66 4.78 4.86 4.90
60 3.29 3.46 3.66 3.91 4.19 4.50 4.81 5.07 5.28 5.42 5.49
65 3.30 3.48 3.70 3.97 4.30 4.69 5.11 5.50 5.84 6.09 6.22
70 3.30 3.49 3.72 4.01 4.38 4.83 5.36 5.90 6.42 6.83 7.07
75 3.31 3.50 3.73 4.04 4.42 4.92 5.54 6.22 6.93 7.54 7.93
80 3.31 3.50 3.74 4.05 4.45 4.97 5.64 6.41 7.27 8.07 8.61
85 & over 3.31 3.50 3.74 4.05 4.46 4.99 5.69 6.51 7.45 8.36 9.01
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Figures for intermediate ages, for two males or two females will be furnished
upon request.
GENERAL INFORMATION
Limits on Contesting this Policy
We rely on statements in the application for this policy. In the absence of
fraud, they are considered representations and not warranties. We can contest
this 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 the application was attached to this policy when issued
or was made a part of the policy when a change in coverage went
into effect.
With respect to the original Specified Amount, we will not contest this policy
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, we 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.
Suicide
If the insured commits suicide, while sane or insane, within two years of the
policy date, we will limit the death benefit. The limited death benefit will
equal the initial premium plus any additional premiums paid on the policy that
were not required by an increase in coverage.
If the insured commits suicide, while sane or insane, within two years after an
increase in the Specified Amount was effective, we will limit the death benefit
payable with respect to the increase. The death benefit thus limited will equal
the additional premium payment required for the increase.
Exchange Provision
During the first 24 policy months, you have the right to exchange this policy
for a permanent fixed benefit policy. We will not require evidence of
insurability. If you decide to make an exchange, we will notify you of the
policies available for exchange and the procedures to follow. The amount of the
new policy will be the Specified Amount of this policy on the date of exchange.
The new policy will have the same policy date, sex issue age and premium class
as this policy. The new policy will include such riders and incidental benefits
as were included in this policy, if such riders and incidental benefits are
available with the new policy.
The exchange is 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.
Misstatement of Age or Sex
If the insured's age or sex was misstated in the application, the proceeds will
be adjusted. The adjusted proceeds will be the greater of (a) and (b), where:
(a) is the Specified Amount, including any increases in coverage,
which should have been issued at the insured's true age or sex
for the premiums paid to make coverage effective; 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.
<PAGE>
Annual Statement
Within 30 days after each policy anniversary, we will send you an annual
statement. The statement will show the amount of death benefit payable under the
policy, the cash value, 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
This policy does not participate in our divisible surplus. No dividends are
payable.
Written Notice
Any written notice to us should be sent to our home office at 6610 West Broad
Street, Richmond, Virginia 23230. Please include the policy number and the
insured's full name.
Any notice we send you will be sent to your address shown in the application.
You should request an address change form if you move.
Calculation of Values
The maximum cost of insurance rates are based on the Commissioner's 1980
Standard Ordinary Mortality Table.
If the Net Investment Factor is always equivalent to an effective annual
interest rate of 4.5%, the cash values in this policy will always at least equal
the cash values required of an equivalent general account policy by the law
where this policy was delivered. A detailed statement of how we calculate the
values in this policy has been filed with the insurance department where this
policy was delivered.
EXHIBIT (5) (b)
Endorsement to Policy
<PAGE>
ENDORSEMENT
This policy is amended as follows:
The provision, Transfers is deleted in its entirety and replaced with the
following:
Transfers
You may transfer amounts among the Investment Subdivisions of the Separate
Account by sending a written request to us at our Home Office. We reserve the
right to limit the numbers of transfer if it is necessary for the policy to
continue to be treated as a life insurance policy by the IRS. We also reserve
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 Fund in which the Investment Subdivision invests.
The transfer will be effective as of the end of the valuation period during
which we receive your request at our Home Office. the first transfer in each
calendar month will be made without a transfer charge. Thereafter, each time
amounts are transferred a transfer charge will be imposed. This transfer charge
is shown in the policy data pages. When we make transfers the cash value on the
date of the transfer will not be affected by the transfer except to the extent
of the transfer charge. The transfer charge will be taken from the amount
transferred.
For THE LIFE INSURANCE COMPANY OF VIRGINIA
Paul E. Rutledge III
President
April 23, 1998
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
With reference to Post-Effective Amendment No. 19 to Registration Statement File
Number 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 3 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. 19 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
April 27, 1998
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Re: Life of Virginia Separate Account III
Gentlemen:
We hereby consent to the reference to our name under the
caption "Legal Matters" in the Prospectus filed as part of the Post-Effective
Amendment No. 19 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 LLP
By: /s/ Stephen E. Roth
---------------------------
Stephen E. Roth
Consent of Independent Auditors
The Board of Directors
The Life Insurance Company of Virginia:
We consent to the use of our reports for The Life Insurance Company of Virginia
and Life of Virginia Separate Account III included herein (post-effective
amendment no. 19 to Form S-6 of registration no. 33-12470) and to the references
to our firm under the caption "Experts" in the prospectus.
Our report with respect to The Life Insurance Company of Virginia dated January
6, 1998, contains an explanatory paragraph that states effective April 1, 1996,
General Electric Capital Corporation acquired all of the outstanding stock of
The Life Insurance Company of Virginia in a business combination accounted for
as a purchase. As a result of the acquisition, the consolidated financial
information for the periods after the acquisition is presented on a different
cost basis than that for the periods before the acquisition and, therefore, is
not comparable.
/s/ KPMG PEAT MARWICK LLP
---------------------------
KPMG PEAT MARWICK LLP
Richmond, Virginia
April 29, 1998
Exhibit 3(d)
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and "Change
in Auditors" and to the use of our reports dated February 8, 1996, with respect
to the consolidated financial statements and the related financial statement
schedules of The Life Insurance Company of Virginia and subsidiaries and Life of
Virginia Separate Account III, in the Post-Effective Amendment No. 19 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.
ERNST & YOUNG LLP
Richmond, Virginia
April 27, 1998
EXHIBIT 6
Opinion and Consent of Actuary
<PAGE>
April 27, 1998
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Gentlemen:
This opinion is furnished in connection with the registration by The Life
Insurance Company of Virginia of a flexible premium variable life insurance
policy ("Policies") under the Securities Act of 1933. The prospectus included in
Post-Effective Amendment No. 19 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,
Bruce E. Booker, FSA, MAAA
Vice President & Actuary
