Filed Pursuant to Rule 497(e)
File Number 33-12470
PART I
GE Life & Annuity Separate Account III
Prospectus For The
Flexible Premium Variable Life Insurance Policy
Policy Form P1097 1/87
issued by:
GE Life and Annuity Assurance Company
6610 West Broad Street
Richmond, Virginia 23230
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This prospectus describes an individual flexible premium variable life
insurance policy offered by GE Life and Annuity Assurance Company ("we," "us,"
"our," or the "Company"). The Policy provides life insurance protection and
premium flexibility.
We provide a Death Benefit under the Policy. The amount of this benefit will
equal the greater of (l) the Specified Amount, or (2) the Cash Value multiplied
by the applicable corridor percentage. We guarantee that your Death Benefit
will at least equal the Specified Amount so long as your Policy is in force.
Investments (premium payments) may accumulate Cash Value on a variable or fixed
basis, or both. If you choose our variable option, we will invest your premium
payments in Investment Subdivisions of Separate Account III. Each Investment
Subdivision invests in shares of the Funds. We list the Funds, and their
currently available portfolios, below.
JANUS ASPEN SERIES:
Growth Portfolio, Aggressive Growth Portfolio, International Growth
Portfolio, Worldwide Growth Portfolio, Balanced Portfolio, Flexible Income
Portfolio, Capital Appreciation Portfolio
VARIABLE INSURANCE PRODUCTS FUND (VIP):
VIP Equity-Income Portfolio, VIP Overseas Portfolio, VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
VIP II Asset Manager Portfolio, VIP II Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III (VIP III):
VIP III Growth & Income Portfolio, VIP III Growth Opportunities Portfolio
GE INVESTMENTS FUNDS, INC.:
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, Premier Growth Equity Fund
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer Bond Fund/VA, Oppenheimer Aggressive Growth Fund/VA,
Oppenheimer Capital Appreciation Fund/VA, Oppenheimer High Income Fund/VA,
Oppenheimer Multiple Strategies Fund/VA
FEDERATED INSURANCE SERIES:
Federated American Leaders Fund II, Federated Utility Fund II, Federated
High Income Bond Fund II
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio, Alger American Small Capitalization
Portfolio
PBHG INSURANCE SERIES FUND, INC.:
PBHG Growth II Portfolio, PBHG Large Cap Growth Portfolio
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GOLDMAN SACHS VARIABLE INSURANCE TRUST (VIT):
Goldman Sachs Growth and Income Fund, Goldman Sachs Mid Cap Equity Fund
SALOMON BROTHERS VARIABLE SERIES FUND INC.:
Salomon Investors Fund, Salomon Total Return Fund, Salomon Strategic Bond
Fund
Not all of these portfolios may be available in all states or in all
markets.
You bear the investment risk if you allocate your premium payments to Separate
Account III.
If you choose our fixed option, your premium payments will grow at the rate of
at least 4%. We take the investment risk of premium payments allocated to the
Guarantee Account.
Your Policy provides for a Surrender Value. Your Surrender Value will depend
upon your Cash Value.
You may cancel your Policy during the free-look period. Please note that
replacing your existing insurance coverage with the Policy might not be to your
advantage.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
NEITHER THE U.S. GOVERNMENT NOR ANY GOVERNMENTAL AGENCY INSURES OR GUARANTEES
YOUR INVESTMENT IN THE POLICY.
This Prospectus contains information about Separate Account III that you should
know before investing. Please read this Prospectus carefully before investing
and keep it for future reference.
The date of this Prospectus is May 1, 1999.
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TABLE OF CONTENTS
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DEFINITIONS ............................................................... 6
POLICY SUMMARY ............................................................ 8
RISK SUMMARY .............................................................. 12
PORTFOLIO ANNUAL EXPENSE TABLE ............................................ 15
Other Policies ........................................................... 15
GE LIFE AND ANNUITY ASSURANCE COMPANY ..................................... 17
State Regulation ......................................................... 17
SEPARATE ACCOUNT III ...................................................... 17
Changes to Separate Account III .......................................... 18
THE PORTFOLIOS ............................................................ 18
Investment Subdivisions .................................................. 18
Investment and Global Equity ............................................. 19
Specialty................................................................. 19
Small-Cap Stocks.......................................................... 20
Mid-Cap Growth ........................................................... 20
Mid-Cap Value............................................................. 20
Large-Cap Growth.......................................................... 20
Large-Cap Value........................................................... 21
Balanced.................................................................. 22
Global Bonds.............................................................. 23
High-Yield Bonds.......................................................... 23
Domestic Bonds............................................................ 23
Money Market.............................................................. 24
Your Right to Vote Portfolio Shares ...................................... 24
THE GUARANTEE ACCOUNT...................................................... 25
CHARGES AND DEDUCTIONS .................................................... 25
Charges Attributable to Premium Payments ................................. 26
Mortality and Expense Risk Charge ........................................ 26
Administrative Expense Charge............................................. 26
Cost of Insurance ........................................................ 27
Surrender Charge ......................................................... 27
Partial Withdrawal Processing Fee ........................................ 28
Transfer Charge .......................................................... 28
Other Charges ............................................................ 28
Reduction of Charges for Group Sales ..................................... 28
THE POLICY ................................................................ 29
Applying for a Policy .................................................... 29
Owner .................................................................... 30
Beneficiary .............................................................. 30
Changing the Beneficiary ................................................. 30
Canceling a Policy ....................................................... 30
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PREMIUMS .................................................................. 30
General .................................................................. 30
Initial Premium .......................................................... 31
Planned Premium .......................................................... 31
Preferred Funding Risk Class ............................................. 31
Tax Free Exchanges (1035 Exchanges) ...................................... 32
Additional Premium Payments .............................................. 32
Repayment of Outstanding Policy Debt...................................... 32
Allocating Premiums ...................................................... 32
HOW YOUR CASH VALUE VARIES ................................................ 33
Cash Value ............................................................... 33
Surrender Value .......................................................... 33
Investment Subdivision Values ............................................ 33
Unit Values .............................................................. 34
Net Investment Factor..................................................... 34
TRANSFERS ................................................................. 34
General .................................................................. 34
Dollar-Cost Averaging .................................................... 35
Asset Allocation ......................................................... 35
Portfolio Rebalancing .................................................... 36
Transfers by Third Parties ............................................... 36
DEATH BENEFITS ............................................................ 37
Amount of Death Benefit Payable .......................................... 37
Changing the Specified Amount ............................................ 37
SURRENDERS AND PARTIAL WITHDRAWALS ........................................ 38
Surrenders ............................................................... 38
Partial Withdrawals ...................................................... 38
Effect of Partial Withdrawals on Cash Value and Death Benefit Proceeds ... 38
LOANS ..................................................................... 38
General .................................................................. 38
Interest Rate Credited ................................................... 39
Interest Rate Charged .................................................... 39
Repayment of Policy Debt ................................................. 39
Effect of Policy Loans ................................................... 39
TERMINATION ............................................................... 40
Premium to Prevent Termination ........................................... 40
Your Policy will Remain in Effect During the Grace Period ................ 40
Reinstatement ............................................................ 40
PAYMENTS AND TELEPHONE TRANSACTIONS ....................................... 40
Requesting Payments ...................................................... 40
Telephone Transactions ................................................... 41
TAX CONSIDERATIONS ........................................................ 41
Federal Tax Matters ...................................................... 41
Introduction ............................................................. 41
Tax Status of the Policy ................................................. 41
Tax Treatment of Policies -- General ..................................... 42
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Tax Treatment of Modified Endowment Contracts.......... 42
Tax Treatment of Policies That Are Not MECs............ 43
Other Tax Rules Applicable to the Policies............. 44
Income Tax Withholding................................. 44
Taxation Status of the Company ........................ 44
Changes in the Law and Other Considerations ........... 45
OTHER POLICY INFORMATION ............................... 45
Exchange Privilege .................................... 45
Benefits at Maturity................................... 45
Optional Payment Plans ................................ 45
Dividends ............................................. 46
Incontestability ...................................... 46
Suicide Exclusion ..................................... 46
Misstatement of Age or Sex ............................ 46
Written Notice ........................................ 46
Trustee ............................................... 46
Other Changes ......................................... 46
Reports ............................................... 47
Change of Owner ....................................... 47
Using the Policy as Collateral ........................ 47
Reinsurance ........................................... 47
Legal Proceedings ..................................... 47
ADDITIONAL INFORMATION ................................. 48
Sale of the Policies .................................. 48
Legal Matters ......................................... 48
Year 2000 Readiness Disclosure ........................ 48
Experts ............................................... 49
Actuarial Matters ..................................... 49
Financial Statements .................................. 49
Executive Officers and Directors....................... 50
Other Information ..................................... 50
HYPOTHETICAL ILLUSTRATIONS ............................. 50
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
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DEFINITIONS
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We have tried to make this Prospectus as understandable as possible. However,
in explaining how the Policy works, we have had to use certain terms that have
special meanings. We define these terms below.
AGE -- The age on the Insured's birthday nearest the Policy Date or a Policy
Anniversary.
ATTAINED AGE -- The Insured's Age on the Policy Date plus the number of full
years since the Policy Date.
BENEFICIARY -- The person or entity you designate to receive the death benefit
payable at the death of the Insured.
BUSINESS DAY -- For each Investment Subdivision, each day on which the New York
Stock Exchange is open for business except for days that the Investment
Subdivision's corresponding Fund does not value its shares.
CASH VALUE -- The total amount under the Policy in each Investment Subdivision
and the General Account.
FUND -- Any open-end management investment company or unit investment trust in
which Separate Account III invests.
GE LIFE & ANNUITY -- GE Life and Annuity Assurance Company.
GENERAL ACCOUNT -- Assets of GE Life & Annuity other than those allocated to
Separate Account III or any of our other separate accounts.
GUARANTEE ACCOUNT -- Part of our General Account that provides a guaranteed
interest rate for a specified interest rate guarantee period. This account is
not part of and does not depend on the investment performance of Separate
Account III.
HOME OFFICE -- Our offices at 6610 West Broad Street, Richmond, Virginia 23230,
1-804-281-6000.
INITIAL INVESTMENT PERIOD -- The period that commences on the date that
coverage begins under the Policy and ends on the date of receipt at the Home
Office of the Policy Delivery and Acceptance Letter, signed and dated by the
Owner, indicating that the Owner received and accepted the Policy, or if the
Policy is not accepted, when amounts due are refunded, whichever is applicable.
INSURED -- The person upon whose life we issue the Policy.
INVESTMENT SUBDIVISION -- A subdivision of Separate Account III, the assets of
which invest exclusively in a corresponding portfolio of a Fund. Not all
Investment Subdivisions may be available in all states or markets.
MONTHLY ANNIVERSARY DAY -- The same day in each month as the Policy Date.
OPTIONAL PAYMENT PLAN -- A plan under which any part of life insurance proceeds
or Surrender Value proceeds can be used to provide a series of periodic
payments to you or a Beneficiary.
OWNER -- The Owner of the Policy. "You" or "your" refers to the Owner. You may
also name Contingent Owners.
POLICY -- The Policy with any attached application(s), any riders, and
endorsements.
POLICY DATE -- The date as of which we issue the Policy and the date as of
which the Policy becomes effective. We measure Policy Years and Anniversaries
from the Policy Date. The Policy Date is shown on the Policy data pages. If the
Policy Date would otherwise fall on the 29th, 30th or 31st of a month, the
Policy Date will be the 28th.
POLICY DEBT -- The amount of outstanding loans plus accrued interest.
4
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POLICY MONTH -- A one-month period beginning on a Monthly Anniversary Day and
ending on the day immediately preceding the next Monthly Anniversary Day.
PROCEEDS -- The amount payable upon surrender of the Policy or the death of the
Insured. We will reduce your Proceeds by outstanding Policy Debt and any due
and unpaid monthly deductions to determine the death benefit payable under the
Policy.
SEPARATE ACCOUNT III -- GE Life & Annuity Separate Account III, the segregated
asset account of GE Life & Annuity to which you allocate premiums.
SPECIFIED AMOUNT -- An amount we use in determining the insurance coverage on
an Insured's life.
SURRENDER VALUE -- The amount we pay you when you surrender the Policy. It is
equal to Cash Value less Policy Debt and less any applicable surrender charge.
UNIT VALUE -- A unit of measure we use to calculate the Cash Value for each
Investment Subdivision.
VALUATION PERIOD -- The period that starts at the close of regular trading on
the New York Stock Exchange on any Business Day and continues to the end of the
next Business Day.
5
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POLICY SUMMARY
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PREMIUMS
o You select a premium payment plan. Your initial premium and the amount of
any planned premium will be shown in your Policy's data pages. The minimum
first year planned premium is $5,000. SEE Premiums.
o Premium amounts depend on the Insured's Age, sex (where applicable), risk
class, and Specified Amount selected. SEE Premiums.
o You may make additional premium payments, within limits. SEE Premiums.
o Under certain circumstances, you may have to pay extra premiums to prevent
termination. SEE Premium to Prevent Termination.
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ALLOCATION OF PREMIUMS
o You allocate your premiums among up to seven of the Investment Subdivisions
of Separate Account III at any given time. You may also allocate premiums
to the Guarantee Account. Allocations to the Guarantee Account count as
one of the seven allocations we permit under the Policy. Until l) the date
we approve the application, 2) the date we receive all necessary forms
(including any subsequent amendments to your application), and 3) the date
we receive the entire initial premium, we will place any premiums you pay
in a non-interest bearing account. We will then allocate any portion of
your initial premium designated for the Guarantee Account to the Guarantee
Account and any portion of your initial premium designated for the
Investment Subdivisions to the Investment Subdivision investing in the
Money Market Fund of the GE Investments Funds (the "Money Market
Investment Subdivision") during the Initial Investment Period. At the end
of the Initial Investment Period, we will transfer this amount to the
Investment Subdivisions you designated in your application. SEE Allocating
Premiums for rules and limits.
o The Investment Subdivisions invest in corresponding portfolios of the
following Funds:
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1 If we issued your Policy before November 14, 1995, please see Appendix A for
a description of certain features of your Policy.
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JANUS ASPEN SERIES OPPENHEIMER VARIABLE ACCOUNT FUNDS
Growth Portfolio Oppenheimer Bond Fund/VA
Aggressive Growth Portfolio Oppenheimer Aggressive Growth
International Growth Portfolio Fund/VA
Worldwide Growth Portfolio Oppenheimer Capital Appreciation
Balanced Portfolio Fund/VA
Flexible Income Portfolio Oppenheimer High Income Fund/VA
Capital Appreciation Portfolio Oppenheimer Multiple Strategies
VARIABLE INSURANCE PRODUCTS FUND Fund/VA
VIP Equity-Income Portfolio FEDERATED INSURANCE SERIES
VIP Overseas Portfolio Federated American Leaders Fund II
VIP Growth Portfolio Federated Utility Fund II
VARIABLE INSURANCE PRODUCTS FUND II Federated High Income Bond Fund II
VIP II Asset Manager Portfolio THE ALGER AMERICAN FUND
VIP II Contrafund Portfolio Alger American Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND III Alger American Small Capitalization
VIP III Growth & Income Portfolio Portfolio
VIP III Growth Opportunities Portfolio PBHG INSURANCE SERIES FUND, INC.
GE INVESTMENTS FUNDS, INC. PBHG Growth II Portfolio
S&P 500 Index Fund PBHG Large Cap Growth Portfolio
Money Market Fund GOLDMAN SACHS VARIABLE INSURANCE TRUST
Total Return Fund Growth and Income Fund
International Equity Fund Mid Cap Value Fund
Real Estate Securities Fund SALOMON BROTHERS VARIABLE SERIES FUNDS INC.
Global Income Fund Investors Fund
Value Equity Fund Total Return Fund
Income Fund Strategic Bond Fund
U.S. Equity Fund
Premier Growth Equity Fund
SEE Investment Subdivisions.
Not all of these portfolios may be available in all states or in all markets.
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DEDUCTIONS FROM ASSETS
o Each Fund deducts management fees and other expenses from its assets.
o We deduct a daily mortality and expense risk charge at a current effective
annual rate of .90% from assets in the Investment Subdivisions.
o We deduct a daily administrative expense charge at a current effective
annual rate of .40% from your assets in the Investment Subdivisions and
the Guarantee Account.
o We make a monthly deduction from your Cash Value for 1) the cost of
insurance; 2) the premium tax charge (deducted monthly during the first
ten years following each premium payment 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); and 3) the distribution
expense charge (deducted monthly during the first ten years following each
premium payment at a rate 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).
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CASH VALUE
o Cash Value equals the total amount in each Investment Subdivision and the
General Account.
o Cash Value serves as the starting point for calculating certain values under
a Policy, such as your Proceeds. Cash Value varies from day to day to
reflect investment experience of the Investment Subdivisions, charges
deducted and other Policy transactions (such as Policy loans, transfers,
and partial withdrawals). SEE How Your Cash Value Varies.
o You can transfer Cash Value among the Investment Subdivisions and the
Guarantee Account (subject to certain restrictions). A $10 transfer charge
applies to each transfer made after the first transfer in a calendar
month. SEE Transfers for rules and limits. Policy loans reduce the amount
available for allocations and transfers.
o There is no minimum guaranteed Cash Value. Your Policy will terminate if the
Surrender Value is too low to cover the monthly deduction (i.e., the
premium tax and distribution expense charges, if applicable, and the cost
of insurance charge) and the grace period expires without a sufficient
payment. SEE Premium to Prevent Termination.
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CASH BENEFITS
o You may take a Policy loan for up to 90% of the difference between Cash
Value and any Surrender Charges, minus any Policy Debt. SEE Loans.
o In each Policy Year after the first (but before the maturity date), you
may make one partial withdrawal from your Policy. The maximum amount
you may withdraw is that amount of Cash Value which exceeds the sum of
the premiums paid and outstanding Policy Debt. A processing fee equal
to the lesser of $25 or 2% of the amount of the partial withdrawal
will apply to each partial withdrawal, but no surrender charge will
apply. SEE Partial Withdrawal.
o While the Insured is alive, you can surrender your Policy at any time for
its Surrender Value (Cash Value minus Policy Debt and minus any
applicable surrender charge). A surrender charge will apply within
nine years of any premium payment. SEE Surrenders and Surrender Charge.
o You may choose from a variety of payment options. SEE Requesting
Payments.
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DEATH BENEFITS
o We offer a death benefit. The amount of the benefit is the greater of
Specified Amount or the Cash Value multiplied by the applicable
corridor percentage. SEE Amount of Death Benefit Payable.
o A death benefit is payable as a lump sum or under a variety of payment
options.
o You may change the Specified Amount. SEE Changing the Specified Amount
for rules and limits.
o During the grace period, your Policy will remain in effect subject to
certain provisions. SEE Your Policy Will Remain in Effect During the
Grace Period.
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RISK SUMMARY
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INVESTMENT RISK Your Cash Value is subject to the risk that investment
performance will be unfavorable and that your Cash
Value will decrease. Because we continue to deduct
charges from Cash Value, if investment results are
sufficiently unfavorable and/or if the interest rates
we credit are too low, the Surrender Value of your
Policy may fall to zero. In that case, the Policy will
terminate without value and insurance coverage will no
longer be in effect, unless you make an additional
payment sufficient to prevent a termination during the
61-day grace period. On the other hand, if investment
experience is sufficiently favorable and you have kept
the Policy in force for a substantial time, you may be
able to draw upon Cash Value, through partial
withdrawals and Policy loans.
RISK OF LAPSE If the Surrender Value of your Policy is too low to pay
the monthly deductions when due, the Policy will be in
default and a grace period will begin. There is a risk
that if withdrawals, loans, and monthly deductions
reduce your Surrender Value to too low an amount and/or
if the investment experience of your selected
Investment Subdivisions is unfavorable, then your
Policy could lapse. In that case, you will have a
61-day grace period to make a sufficient payment. If
you do not make a sufficient payment before the grace
period ends, your Policy will terminate without value,
insurance coverage will no longer be in effect, and you
will receive no benefits. After termination, you may
reinstate your Policy within three years subject to
certain conditions.
TAX RISKS We intend for the Policy to satisfy the definition of
a "life insurance contract" under section 7702 of the
Internal Revenue Code of 1986, as amended (the "Code").
In general, earnings under the Policy will not be taxed
until a distribution is made from the Policy. In
addition, death benefits generally will be excludable
from income. In the case of a Policy that is considered
a "modified endowment contract," special rules apply
and a 10% penalty tax may be imposed on distributions,
including loans. SEE Tax Treatment of Modified
Endowment Contracts. You should consult a qualified tax
advisor in all tax matters involving your Policy.
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LIMITS ON PARTIAL You may make one partial withdrawal each Policy Year
WITHDRAWALS after the first Policy Year (but before the maturity
date).
You may withdraw an amount up to the amount of Cash
Value which exceeds the sum of premiums paid and
outstanding Policy Debt. We will assess a processing
fee on the withdrawal.
Partial withdrawals will reduce your Cash Value and
death benefit Proceeds. Federal income taxes and a
penalty tax may apply to partial withdrawals.
EFFECTS OF A Policy loan, whether or not repaid, will affect Cash
POLICY LOANS Value over time because we transfer the amount of the
loan from the Investment Subdivisions and/or the
Guarantee Account to the General Account and hold it as
collateral. We then credit a fixed interest rate to the
loan collateral. As a result, the loan collateral does
not participate in the investment results of the
Investment Subdivisions and does not participate in the
interest credited to the Guarantee Account. The longer
the loan is outstanding, the greater the effect is
likely to be. Depending on the investment results of
the Investment Subdivisions and the extent, if any, of
the difference in the interest rates credited to the
Guarantee Account and the General Account, the effect
could be favorable or unfavorable. A Policy loan also
reduces the death benefit Proceeds.
A Policy loan could make it more likely that a Policy
would terminate. There is a risk if the loan reduces
your Surrender Value to too low an amount and
investment experience is unfavorable, that the Policy
will lapse, resulting in adverse tax consequences. You
must submit a sufficient payment during the grace
period to avoid the Policy's termination without value
and the end of insurance
coverage.
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COMPARISON WITH OTHER The Policy is similar in many ways to universal life
INSURANCE POLICIES insurance. As with universal life insurance:
o the Owner pays premiums for insurance coverage
on the Insured;
o the Policy provides for the accumulation of
Surrender Value that is payable if the Owner
surrenders the Policy during the Insured's
lifetime;
o and the Surrender Value may be substantially
lower than the premiums paid.
However, the Policy differs from universal life
insurance in that it permits you to place your premium
in the Investment Subdivisions. The amount and
duration of life insurance protection and of the
Policy's Cash Value will vary with the investment
performance of the Investment Subdivisions you select.
The Surrender Value of your Policy may decrease if the
investment performance of the Investment Subdivisions
to which you allocate Cash Value is sufficiently
adverse. If the Surrender Value becomes insufficient
to cover charges when due, the Policy will
terminate without value after a grace period.
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PORTFOLIO ANNUAL EXPENSE TABLE
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This table describes the portfolio fees and expenses during the time that you
own the Policy. These fees and expenses are shown as a percentage of net assets
for the year ended December 31, 1998. The prospectus for each Fund contains more
detail concerning a Fund's fees and expenses.
PORTFOLIO ANNUAL EXPENSES
Annual expenses of the portfolios of the Funds for the year ended December 31,
1998 (as a percentage of each portfolio's average net assets):
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MANAGEMENT FEES OTHER EXPENSES
(AFTER FEE WAIVER (AFTER REIMBURSEMENT- TOTAL ANNUAL
AS APPLICABLE) AS APPLICABLE) EXPENSES
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PORTFOLIO
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INTERNATIONAL AND GLOBAL EQUITY
Janus Aspen Worldwide Growth Portfolio1 .65 .07 .72
Janus Aspen International Growth Portfolio1 .66 .20 .86
VIP Overseas Portfolio2 .74 .15 .89
GE International Equity Fund 1.00 .15 1.15
SPECIALTY
GE Real Estate Securities Fund .85 .14 .99
SMALL-CAP STOCKS
Oppenheimer Aggressive Growth Fund/VA .69 .02 .71
Alger American Small Capitalization Portfolio .85 .04 .89
MID-CAP GROWTH
Janus Aspen Aggressive Growth Portfolio .72 .03 .75
Goldman Sachs VIT Mid Cap Value Fund*5 .80 .15 .95
PBHG Growth II Portfolio9 .51 .69 1.20
MID-CAP VALUE
GE Value Equity Fund** .65 .10 .75
LARGE-CAP GROWTH
Janus Aspen Growth Portfolio1 .65 .03 .68
Janus Aspen Capital Appreciation Portfolio1 .70 .22 .92
VIP II Contrafund Portfolio3 .59 .07 .66
VIP Growth Portfolio2 .59 .07 .66
VIP III Growth & Income Portfolio4 .49 .11 .60
Oppenheimer Capital Appreciation Fund/VA .72 .03 .75
GE Premier Growth Equity Fund .65 .17 .82
Alger American Growth Portfolio .75 .04 .79
PBHG Large Cap Growth Portfolio9 .32 .78 1.10
LARGE-CAP VALUE
VIP Equity-Income Portfolio2 .49 .08 .57
VIP III Growth Opportunities Portfolio4 .59 .11 .70
GE U.S. Equity Fund .55 .14 .69
GE S&P 500 Index Fund .35 .10 .45
Federated Utility Fund II8 .68 .25 .93
Federated American Leaders Fund II8 .74 .14 .88
Goldman Sachs VIT Growth and Income Fund5 .75 .15 .90
Salomon Investors Fund6 .70 .30 1.00
BALANCED
Janus Aspen Balanced Portfolio .72 .02 .74
VIP II Asset Manager Portfolio3 .54 .09 .63
Oppenheimer Multiple Strategies Fund/VA .72 .04 .76
GE Total Return Fund .50 .13 .63
</TABLE>
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MANAGEMENT FEES OTHER EXPENSES
(AFTER FEE WAIVER (AFTER REIMBURSEMENT- TOTAL ANNUAL
AS APPLICABLE) AS APPLICABLE) EXPENSES
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Salomon Total Return Fund6 .80 .20 1.00
GLOBAL BOND
GE Global Income Portfolio .60 .22 .82
HIGH-YIELD BONDS
Janus Aspen Flexible Income Portfolio .65 .08 .73
Oppenheimer High Income Fund/VA .74 .04 .78
Federated High Income Bond Fund II .60 .18 .78
DOMESTIC BONDS
Oppenheimer Bond Fund/VA .72 .02 .74
GE Income Fund .50 .14 .64
Salomon Strategic Bond Fund6 .75 .25 1.00
MONEY MARKET
GE Money Market Fund7 .25 .12 .37
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Not all portfolios may be available in all states or markets.
* These expenses are estimated due to the portfolio being in existence for
less than 10 months.
** Although past practice reflects investments within the mid cap range, the
portfolio is not restricted on the capitalizations of the companies in which
it can invest.
1 Absent reimbursements, the total annual expenses of the portfolios of the
Janus Aspen Series during 1998 would have been .75% for Growth Portfolio,
.95% for International Growth Portfolio, .74% for Worldwide Growth
Portfolio, and .97% for Capital Appreciation Portfolio.
2 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Absent these reductions and credits, the total
annual expenses of the portfolios of the Variable Insurance Products Fund
during 1998 would have been .58% for VIP Equity-Income Portfolio, .91% for
VIP Overseas Portfolio and .68% for VIP Growth Portfolio.
3 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Absent these reductions and credits, the total
annual expenses of the portfolios of the Variable Insurance Products Fund
II during 1998 would have been .64% for VIP II Asset Manager Portfolio and
.70% for VIP II Contrafund Portfolio.
4 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds, or FMR on behalf of
certain funds, have entered into arrangements with their custodian whereby
credits realized as a result of uninvested cash balances were used to
reduce custodian expenses. Absent these reductions and credits, the total
annual expenses of the portfolios of the Variable Insurance Products Fund
III during 1998 would have been .61% for VIP III Growth & Income Portfolio
and .71% for VIP III Growth Opportunities Portfolio.
5 Goldman Sachs Asset Management has voluntarily agreed to reduce or limit
certain other expenses (excluding management fees, taxes, interest,
brokerage fees, litigation, indemnification and other extraordinary
expenses) to the extent such expenses exceed 0.15% of each Fund's respective
average daily net assets. The investment adviser may modify or discontinue
any of the limitations set forth above in the future at its discretion.
Absent reimbursements, the total annual expenses during 1998 would have been
2.69% for Growth and Income Fund and 4.79% for Mid Cap Value Fund.
6 Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of Salomon Brothers Variable Series Fund during 1998 would
have been 2.07% for Investors Fund, 2.90% for Total Return Fund and 1.79%
for Strategic Bond Fund.
7 GE Investment Management Incorporated currently serves as investment adviser
to GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.)
and has voluntarily agreed to waive a portion of the fee payable by the
Fund. Absent this fee waiver, the total annual expenses of the GE Money
Market Fund would have been .59%.
8 Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of the Federated Insurance Series during 1998 would have been
.89% for Federated American Leaders Fund II and 1.00% for Federated Utility
Fund II.
9 Absent certain fee waivers or reimbursements, the total annual expenses of
the portfolios of PBHG Insurance Series Fund, Inc. would have been 1.54% for
PBHG Growth II Portfolio and 1.53% for PBHG Large Cap Growth Portfolio.
2
<PAGE>
The expense information regarding the portfolios was provided by those Funds. We
have not independently verified this information. We cannot guarantee that the
reimbursements or fee waivers provided by certain of the Funds will continue.
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.
- --------------------------------------------------------------------------------
GE LIFE AND ANNUITY ASSURANCE COMPANY
- --------------------------------------------------------------------------------
We are a stock life insurance company operating under a charter granted by the
Commonwealth of Virginia on March 21, 1871. We are principally engaged in the
offering of life insurance and annuity policies. We are admitted to do business
in 49 states and the District of Columbia. Our principal offices are at 6610
West Broad Street, Richmond, Virginia 23230. Before January 1, 1999, our name
was The Life Insurance Company of Virginia.
General Electric Capital Assurance Company ("GE Capital Assurance"), an
indirect wholly-owned subsidiary of General Electric Capital Corporation ("GE
Capital"), owns a majority of our capital stock. GE Financial Assurance
Holdings, Inc., a direct wholly-owned subsidiary of GE Capital, owns the
remainder. GE Capital, a New York corporation, is a diversified financial
services company whose subsidiaries consist of specialty insurance, equipment
management, and commercial and consumer financing businesses. GE Capital's
indirect parent, General Electric Company, founded more than one hundred years
ago by Thomas Edison, is the world's largest manufacturer of jet engines,
engineering plastics, medical diagnostic equipment and large electric power
generation equipment.
GNA Corporation, a direct wholly-owned subsidiary of GE Financial Assurance
Holdings, Inc., directly owns the stock of Capital Brokerage Corporation (the
principal underwriter for the Policies and a broker/dealer registered with the
U.S. Securities and Exchange Commission).
We are a member of the Insurance Marketplace Standards Association ("IMSA"). We
may use the IMSA membership logo and language in our advertisements, as
outlined in IMSA's Marketing and Graphics Guidelines. Companies that belong to
IMSA subscribe to a set of ethical standards covering various aspects of sales
and service for individually sold life insurance and annuities.
STATE REGULATION
We are subject to regulation by the State Corporation Commission of the
Commonwealth of Virginia. We file an annual statement with the Virginia
Commissioner of Insurance on or before March l of each year covering our
operations and reporting on our financial condition as of December 31 of the
preceding year. Periodically, the Commissioner of Insurance examines our
liabilities and reserves and those of Separate Account III and assesses their
adequacy, and a full examination of our operations is conducted by the State
Corporation Commission, Bureau of Insurance of the Commonwealth of Virginia, at
least every five years.
We are also subject to the insurance laws and regulation of other states within
which we are licensed to operate.
3
<PAGE>
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT III
- --------------------------------------------------------------------------------
We established GE Life & Annuity Separate Account III as a separate investment
account on February 10, 1987. Separate Account III currently has forty-one
Investment Subdivisions available under the Policy. Each Investment Subdivision
invests exclusively in shares representing an interest in a separate
corresponding portfolio of one of the eleven Funds described below.
The assets of Separate Account III belong to us. However, we may not charge the
assets in Separate Account III attributable to the Policies with liabilities
arising out of any other business which we may conduct. If Separate Account
III's assets exceed the required reserves and other liabilities, we may
transfer the excess to our General Account. Income and both realized and
unrealized gains or losses from the assets of Separate Account III are credited
to or charged against Separate Account III without regard to the income, gains
or losses arising out of any other business we may conduct.
Separate Account III is registered with the SEC 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 SEC does not involve supervision of the management or
investment practices or policies of Separate Account III by the SEC.
CHANGES TO SEPARATE ACCOUNT III
Separate Account III may include other Investment Subdivisions that are not
available under the Policy. We may substitute another investment subdivision or
insurance company separate account under the Policy if, in our judgment,
investment in an Investment Subdivision should no longer be possible or becomes
inappropriate to the purposes of the Policies, or if investment in another
investment subdivision or insurance company separate account is in the best
interest of Owners. No substitution may take place without notice to Owners and
prior approval of the SEC and insurance regulatory authorities, to the extent
required by the 1940 Act and applicable law.
We may also, where permitted by law:
o create new separate accounts;
o combine separate accounts, including Separate Account III;
o transfer assets of Separate Account III, which we determine to be
associated with the class of Policies to which this Policy belongs, to
another separate account;
o add new Investment Subdivisions to or remove Investment Subdivisions from
Separate Account III or combine Investment Subdivisions;
o make the Investment Subdivisions available under other policies we
issue;
o add new Funds or remove existing Funds;
o substitute new Funds for any existing Fund which we determine is no
longer appropriate in light of the purposes of the Separate Account;
o deregister Separate Account III under the 1940 Act; and
o operate Separate Account III under the direction of a committee or in
another form.
- --------------------------------------------------------------------------------
THE PORTFOLIOS
- --------------------------------------------------------------------------------
You decide the Investment Subdivisions to which you direct premiums. You may
change your premium allocation without penalty or charges. There is a separate
Investment Subdivision which corresponds to each portfolio of a Fund offered in
this Policy.
4
<PAGE>
Each Fund is registered with the Securities and Exchange Commission as an
open-end management investment company under the 1940 Act. The assets of each
portfolio are separate from other portfolios of a Fund and each portfolio has
separate investment objectives and policies. As a result, each portfolio
operates as a separate portfolio and the investment performance of one
portfolio has no effect on the investment performance of any other portfolio.
Before choosing an Investment Subdivision to allocate your premiums and Cash
Value, carefully read the prospectus for each Fund, along with this Prospectus.
We summarize the investment objectives of each portfolio below. There is no
assurance that any of the portfolios will meet these objectives.
The investment objectives and policies of certain portfolios are similar to the
investment objectives and policies of other portfolios that may be managed by
the same investment adviser or manager. The investment results of the
portfolios, however, may be higher or lower than the results of such other
portfolios. There can be no assurance, and no representation is made, that the
investment results of any of the portfolios will be comparable to the
investment results of any other portfolio, even if the other portfolio has the
same investment adviser or manager, or if the other portfolio has a similar
name.
INVESTMENT SUBDIVISIONS
We offer you a choice from among 41 Investment Subdivisions, each of which
invests in an underlying portfolio of one of the Funds. You may invest in up to
seven Investment Subdivisions at any one time. Allocations to the Guarantee
Account count as one of the seven allocations we permit under the Policy.
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE(1) ADVISER, AS APPLICABLE)
- ---------------------------------- -------------------------------------------------------------- ------------------------
INTERNATIONAL AND GLOBAL EQUITY
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JANUS ASPEN SERIES Seeks long-term capital growth in a manner consistent Janus Capital
Worldwide Growth Portfolio with the preservation of capital. Pursues this objective by Corporation
investing in a diversified portfolio of common stocks of
foreign and domestic issuers of all sizes. Normally invests
in at least five different countries including the United
States.
- -------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long-term growth of capital. Pursues this objective Janus Capital
International Growth Portfolio primarily through investments in common stocks of Corporation
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.
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks long-term growth of capital by investing at least Fidelity
PRODUCTS FUND 65% of total assets in foreign securities, primarily in Management &
VIP Overseas Portfolio common stocks. Research
Company
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing long-term growth of capital by GE Investment
International Equity Fund investing primarily in foreign equity and equity-related Management
securities which the Adviser believes have long-term Incorporated
potential for capital growth.
- -------------------------------------------------------------------------------------------------------------------------
SPECIALTY
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing maximum total return through GE Investment
Real Estate Securities Fund current income and capital appreciation by investing Management
primarily in securities of U.S. issuers that are principally Incorporated
engaged in or related to the real estate industry including (Subadvised by
those that own significant real estate assets. The portfolio Seneca Capital
will not invest directly in real estate. Management,
L.L.C.)
- -------------------------------------------------------------------------------------------------------------------------
SMALL-CAP STOCKS
- -------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks to achieve capital appreciation by investing in Oppenhei-
FUNDS "growth-type" companies. merFunds, Inc.
Aggressive Growth Fund/VA
(formerly known as Aggressive
Growth Fund)
- -------------------------------------------------------------------------------------------------------------------------
THE ALGER AMERICAN FUND Seeks long-term capital appreciation by focusing on Fred Alger
Alger American Small small, fast-growing companies that offer innovative Management,
Capitalization Portfolio products, services or technologies to a rapidly expanding Inc.
marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small
capitalization companies. A small capitalization company
is one that has a market capitalization within the range of
the Russell 2000 Growth Index or the S&P(R) Small Cap
600 Index.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
1 Standard and Poor's, together with the Funds, determined these categories.
17
<PAGE>
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE ADVISER, AS APPLICABLE)
- ---------------------------------- ------------------------------------------------------------- ------------------------
MID-CAP GROWTH
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
JANUS ASPEN SERIES Non-diversified portfolio pursuing long-term growth of Janus Capital
Aggressive Growth Portfolio capital. Pursues this objective by normally investing at Corporation
least 50% of its assets in equity securities issued by
medium-sized companies.
- -------------------------------------------------------------------------------------------------------------------------
GOLDMAN SACHS VARIABLE Seeks long-term capital appreciation, primarily through Goldman Sachs
INSURANCE TRUST (VIT) equity securities of companies with public stock market Asset
Mid Cap Value Fund capitalizations within the range of the market Management
(formerly known as Mid Cap capitalization of companies constituting the Russell
Equity Fund) Midcap Index at the time of investment (currently
between $400 million and $16 billion).
- -------------------------------------------------------------------------------------------------------------------------
PBHG INSURANCE SERIES FUND Seeks to achieve capital appreciation by investing at least Pilgrim Baxter &
PBHG Growth II Portfolio 65% of its total assets in the growth securities (primarily Associates, Ltd.
common stocks) of small and medium sized companies
(market capitalization or annual revenues between $500
million and $10 billion) that, in the adviser's opinion,
have an outlook for strong earnings growth and capital
appreciation potential.
- -------------------------------------------------------------------------------------------------------------------------
MID-CAP VALUE
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing long term growth of capital by GE Investment
Value Equity Fund investing primarily in common stock and other equity Management
securities of companies that the investment adviser Incorporated
believes are undervalued by the marketplace at the time (Subadvised by
of purchase and that offer the potential for above-average NWQ Investment
growth of capital. Although the current portfolio reflects Management
investments primarily within the mid cap range, the Fund Company)
is not restricted to investments within any particular
capitalization and may in the future invest a majority of
its assets in another capitalization range.
- -------------------------------------------------------------------------------------------------------------------------
LARGE-CAP GROWTH
- -------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long-term capital growth consistent with the Janus Capital
Growth Portfolio preservation of capital and pursues its objective by Corporation
investing in common stocks of companies of any size.
Emphasizes larger, more established issuers.
- -------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long-term growth of capital. Pursues this objective Janus Capital
Capital Appreciation Portfolio by investing primarily in common stocks of companies of Corporation
any size.
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks long-term capital appreciation by investing mainly Fidelity
PRODUCTS FUND II in common stocks and in securities of companies whose Management &
VIP II Contrafund Portfolio value is believed to have not been fully recognized by the Research
public. This fund invests in domestic and foreign issuers. Company
This fund also invests in "growth" stocks or "value"
stocks or both.
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks capital appreciation by investing primarily in Fidelity
PRODUCTS FUND common stocks of companies believed to have Management &
VIP Growth Portfolio above-average growth potential. Research
Company
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks high total return through a combination of current Fidelity
PRODUCTS FUND III income and capital appreciation by investing a majority of Management &
VIP III Growth & Income assets in common stocks with a focus on those that pay Research
Portfolio current dividends and show potential for capital Company
appreciation.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE ADVISER, AS APPLICABLE)
- ----------------------------------- ------------------------------------------------------------ ------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks capital appreciation from investments in securities Oppenhei-
FUNDS of well-known and established companies. Such securities merFunds, Inc.
Capital Appreciation Fund/VA generally have a history of earnings and dividends and
(formerly known as Oppenheimer are issued by seasoned companies (having an operating
Growth Fund) history of at least five years, including predecessors).
Current income is a secondary consideration in the
selection of the Capital Appreciation Fund's portfolio
securities.
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GE INVESTMENTS FUNDS Objective of providing long-term growth of capital as GE Investment
Premier Growth Equity Fund well as future (rather than current) income by investing Management
primarily in growth-oriented equity securities. Incorporated
- -------------------------------------------------------------------------------------------------------------------------
THE ALGER AMERICAN FUND Seeks long-term capital appreciation by focusing on Fred Alger
Alger American Growth Portfolio growing companies that generally have broad product Management,
lines, markets, financial resources and depth of Inc.
management. Under normal circumstances, the portfolio
invests primarily in the equity securities of large
companies. The portfolio considers a large company to
have a market capitalization of $1 billion or greater.
- -------------------------------------------------------------------------------------------------------------------------
PBHG INSURANCE SERIES FUND Seeks long term growth of capital by investing at least Pilgrim Baxter &
PBHG Large Cap Growth 65% of its total assets in growth securities (primarily Associates, Ltd.
Portfolio common stocks) of large capitalization companies (market
capitalization over $1 billion) that, in the adviser's
opinion, have an outlook for strong earnings growth and
capital appreciation potential.
- -------------------------------------------------------------------------------------------------------------------------
LARGE-CAP VALUE
- --------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks reasonable income and will consider the potential Fidelity
PRODUCTS FUND for capital appreciation. The fund also seeks a yield, Management &
VIP Equity-Income Portfolio which exceeds the composite yield on the securities Research
comprising the S&P 500 by investing primarily in Company
income-producing equity securities and by investing in
domestic and foreign issuers.
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks to provide capital growth by investing primarily in Fidelity
PRODUCTS FUND III common stock and other types of securities, including Management &
VIP III Growth Opportunities bonds, which may be lower-quality debt securities. Research
Portfolio Company
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing long-term growth of capital GE Investment
U.S. Equity Fund through investments primarily in equity securities of U.S. Management
companies. Incorporated
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing capital appreciation and GE Investment
S&P 500 Index Fund(2) accumulation of income that corresponds to the Management
investment return of the Standard & Poor's 500 Incorporated
Composite Stock Price Index through investment in (Subadvised by
common stocks comprising the Index. State Street
Global Advisers)
- -------------------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES Seeks high current income and moderate capital Federated
Utility Fund II appreciation by investing primarily in equity and debt Investment
securities of utility companies. Management
Company
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------
2 "Standard & Poor's," "S&P," and "S&P 500" are trademarks of The McGraw-
Hill Companies, Inc. and have been licensed for use by GE Investment Management
Incorporated. The S&P 500 Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation or
warranty, express or implied, regarding the advisability of investing in this
Fund or the Policy.
19
<PAGE>
<TABLE>
<CAPTION>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE ADVISER, AS APPLICABLE)
- ---------------------------------- --------------------------------------------------------------- ------------------------
<S> <C> <C>
FEDERATED INSURANCE SERIES Seeks long-term growth of capital with a secondary Federated
American Leaders Fund II objective of providing income. Seeks to achieve its Investment
objective by investing, under normal circumstances, at Management
least 65% of its total assets in common stock of "blue Company
chip" companies.
- -------------------------------------------------------------------------------------------------------------------------
GOLDMAN SACHS VARIABLE Seeks long-term capital growth and growth of income, Goldman Sachs
INSURANCE TRUST (VIT) primarily through equity securities that are considered to Asset
Growth and Income Fund have favorable prospects for capital appreciation and/or Management
dividend-paying ability.
- -------------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE Seeks long-term growth of capital with current income as Salomon
SERIES FUNDS a secondary objective, primarily through investments in Brothers Asset
Investors Fund common stocks of well-known companies. Management Inc
- -------------------------------------------------------------------------------------------------------------------------
BALANCED
- -------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks long term growth of capital. Pursues this objective Janus Capital
Balanced Portfolio consistent with the preservation of capital and balanced Corporation
by current income. 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.
- -------------------------------------------------------------------------------------------------------------------------
FIDELITY VARIABLE INSURANCE Seeks high total return with reduced risk over the Fidelity
PRODUCTS FUND II long-term by allocating assets among stocks, bonds and Management &
VIP II Asset Manager Portfolio short-term and money market instruments. Research
Company
- -------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks total investment return (which includes current Oppenhei-
FUNDS income and capital appreciation in the values of its merFunds, Inc.
Multiple Strategies Fund/VA shares) from investments in common stocks and other
(formerly known as Multiple equity securities, bonds and other debt securities, and
Strategies Fund) "money market" securities.
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing the highest total return, composed GE Investment
Total Return Fund of current income and capital appreciation, as is Management
consistent with prudent investment risk by investing in Incorporated
common stock, bonds and money market instruments, the
proportion of each being continuously determined by the
investment adviser.
- -------------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE Seeks to obtain above-average income by primarily Salomon
SERIES FUNDS investing in a broad variety of securities, including stocks, Brothers Asset
Total Return Fund fixed-income securities and short-term obligations. Management Inc
- -------------------------------------------------------------------------------------------------------------------------
GLOBAL BONDS
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing high total return, emphasizing GE Investment
Global Income Fund current income and, to a lesser extent, capital Management
appreciation. The Fund seeks to achieve this objective by Incorporated
investing primarily in foreign and domestic
income-bearing debt securities and other foreign and
domestic income bearing instruments.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ADVISER (AND SUB-
INVESTMENT SUBDIVISION INVESTMENT OBJECTIVE ADVISER, AS APPLICABLE)
- ---------------------------------- -------------------------------------------------------------- ------------------------
HIGH-YIELD BONDS
- --------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES Seeks maximum total return consistent with preservation Janus Capital
Flexible Income Portfolio of capital. Total return is expected to result from a Corporation
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.
- -------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks high current income from investments in high yield Oppenhei-
FUNDS fixed income securities, including unrated securities or merFunds, Inc.
High Income Fund/VA high-risk securities in lower rating categories. These
(formerly known as High Income securities may be considered speculative. This Fund may
Fund) 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.
- -------------------------------------------------------------------------------------------------------------------------
FEDERATED INSURANCE SERIES Seeks high current income by investing primarily in a Federated
High Income Bond Fund II diversified portfolio of professionally managed Advisers
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 and their high yield
potential are described in the prospectus for the Federated
Insurance Series, which should be read carefully before
investing.
- -------------------------------------------------------------------------------------------------------------------------
DOMESTIC BONDS
- -------------------------------------------------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT Seeks high level of current income and capital, and Oppenhei-
FUNDS growth when consistent with its primary objective. Under merFunds, Inc.
Bond Fund/VA normal conditions this fund will invest at least 65% of its
(formerly known as Bond Fund) total assets in investment grade debt securities.
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing maximum income consistent with GE Investment
Income Fund prudent investment management and preservation of Management
capital by investing primarily in income-bearing debt Incorporated
securities and other income bearing instruments.
- -------------------------------------------------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE Seeks high level of current income with capital Salomon
SERIES FUNDS appreciation as a secondary objective, through a globally Brothers Asset
Strategic Bond Fund diverse portfolio of fixed-income investments, including Management Inc
lower-rated fixed income securities commonly known as
junk bonds.
- -------------------------------------------------------------------------------------------------------------------------
MONEY MARKET
- -------------------------------------------------------------------------------------------------------------------------
GE INVESTMENTS FUNDS Objective of providing highest level of current income as GE Investment
Money Market Fund is consistent with high liquidity and safety of principal by Management
investing in various types of good quality money market Incorporated
securities.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Not all of these portfolios may be available in all states or markets.
We will purchase shares of the portfolios at net asset value and direct them to
the appropriate Investment Subdivisions of Separate Account III. We will redeem
sufficient shares of the appropriate portfolios at net asset value to pay
surrender/partial withdrawal proceeds or for other purposes described in the
Policy. We automatically reinvest all dividends and capital gain distributions
of the portfolios in shares of the distributing portfolios at their net asset
value on the date of distribution. In other words, we do not pay portfolio
dividends or portfolio distributions out to Owners at additional units, but
instead reflect them in unit values.
Shares of the portfolios of the Funds are not sold directly to the general
public. They are sold to us, and they may also be sold to other insurance
companies that issue variable annuity and variable life insurance policies. In
addition, they may be sold to retirement plans.
When a Fund sells shares in any of its portfolios both to variable annuity and
to variable life insurance separate accounts, it engages in mixed funding. When
a Fund sells shares in any of its portfolios to separate accounts of
unaffiliated life insurance companies, it engages in shared funding.
Each Fund may engage in mixed and shared funding. Therefore, due to differences
in redemption rates or tax treatment, or other considerations, the interests of
various shareholders participating in a Fund could conflict. A Fund's Board of
Directors will monitor for the existence of any material conflicts, and
determine what action, if any, should be taken. SEE the Prospectuses for the
Funds.
We have entered into agreements with either the investment adviser or
distributor of each of the Funds under which the adviser or distributor pays us
a fee ordinarily based upon an annual average percentage of the average
aggregate net amount we have invested on behalf of Account III and other
separate accounts. These percentages differ, and some investment advisers or
distributors pay us a greater percentage than other advisors or distributors.
These agreements reflect administrative services we provide.
YOUR RIGHT TO VOTE PORTFOLIO SHARES
As required by law, we will vote the portfolio shares held in Separate Account
III at meetings of the shareholders of the Funds. The voting will be done
according to the instructions of Owners who have interests in any Investment
Subdivisions which invest in the portfolios of the Funds. If the 1940 Act or any
regulation under it should be amended, and if as a result we determine that we
are permitted to vote the portfolios' shares in our own right, we may elect to
do so.
10
<PAGE>
We will determine the number of votes which you have the right to cast by
applying your percentage interest in an Investment Subdivision to the total
number of votes attributable to the Investment Subdivision. In determining the
number of votes, we will recognize fractional shares.
We will vote portfolio shares of a class held in an Investment Subdivision for
which we received no timely instructions in proportion to the voting
instructions which we received for all Policies participating in that
Investment Subdivision. We will apply voting instructions to abstain on any
item to be voted on a pro-rata basis to reduce the number of votes eligible to
be cast.
Whenever a Fund calls a shareholders meeting, each person having a voting
interest in an Investment Subdivision will receive proxy material, reports and
other materials relating to the portfolio. Since each portfolio may engage in
shared funding, other persons or entities besides the Company may vote
portfolio shares. SEE Investment Subdivisions.
- --------------------------------------------------------------------------------
THE GUARANTEE ACCOUNT
- --------------------------------------------------------------------------------
Due to certain exemptive and exclusionary provisions of the federal securities
laws, we have not registered interests in the Guarantee Account under the
Securities Act of 1933 (the "1933 Act"), and we have not registered either the
Guarantee Account or our General Account as an investment company under the
1940 Act. Accordingly, neither the interests in the Guarantee Account, nor our
General Account are generally subject to regulation under the 1933 Act and the
1940 Act. Disclosures relating to the interests in 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 of
statements made in a registration statement.
You may allocate some or all of your premium payments and transfer some or all
of your Cash Value to the Guarantee Account. We credit the portion of the Cash
Value allocated to the Guarantee Account with interest (as described below).
Cash Value in the Guarantee Account is subject to some, but not all, of the
charges we assess in connection with the Policy. SEE Charges and Deductions.
Each time you allocate premium payments or transfer Cash Value to the Guarantee
Account, we establish an interest rate guarantee period. For each interest rate
guarantee period, we guarantee an interest rate for a year. At the end of an
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.
The initial interest rate guarantee period for any allocation will be one year.
Subsequent interest rate guarantee periods will each be one year. We determine
the interest rates in our sole discretion. The determination made will be
influenced by, but not necessarily correspond to, interest rates available on
fixed income investments which we may acquire with the amounts we receive as
premium payments or transfers of Cash Value under the Policies. You will have
no direct or indirect interest in these investments. We also will consider
other factors in determining interest rates for a guarantee period including,
but not limited to, regulatory and tax requirements, sales commissions, and
administrative expenses borne by us, general economic trends, and competitive
factors. Amounts you allocate to the Guarantee Account will not share in the
investment performance of our General Account, or any portion thereof. WE
CANNOT PREDICT OR GUARANTEE THE LEVEL OF INTEREST RATES IN FUTURE GUARANTEE
PERIODS. HOWEVER, THE INTEREST RATES FOR ANY INTEREST GUARANTEE PERIOD WILL BE
AT LEAST THE GUARANTEED INTEREST RATE SHOWN IN YOUR POLICY.
11
<PAGE>
- --------------------------------------------------------------------------------
CHARGES AND DEDUCTIONS
- --------------------------------------------------------------------------------
This section describes the charges and deductions we make under the Policy to
compensate for the services and benefits we provide, costs and expenses we
incur, and risks we assume. The services and benefits we provide include:
o the partial withdrawal, surrender, Policy loan and death benefits under the
Policy;
o investment options, including premium allocations, dollar-cost averaging,
asset allocation and portfolio rebalancing programs;
o administration of various elective options under the Policy; and
o the distribution of various reports to Owners.
The costs and expenses we incur include:
o those associated with underwriting applications and increases in
Specified Amount;
o various overhead and other expenses associated with providing the
services and benefits provided by the Policy;
o sales and marketing expenses; and
o other costs of doing business, such as federal, state and local premium
and other taxes and fees.
The risks we assume include:
o that insureds may live for a shorter period of time than estimated,
resulting in the payment of greater death benefits than expected; and
o that the costs of providing the services and benefits under the Policies
will exceed the charges deducted.
We may profit from any charges deducted, such as the mortality and expense risk
charge. We may use any such profits for any purpose, including payment of
distribution expenses.
CHARGES ATTRIBUTABLE TO PREMIUM PAYMENTS
During the first ten years following each premium payment, we deduct a monthly
premium tax charge equal to an annual rate of .20% of that portion of the
Policy's Cash Value in Separate Account III attributable to each premium
payment, and a monthly distribution expense charge equal to an annual rate of
.30% of that portion of the Policy's Cash Value in Separate Account III
attributable to each premium payment. These charges are deducted
proportionately from your assets in each Investment Subdivision. These charges
are not deducted from Cash Value in the Guarantee Account. The sum of the
cumulative distribution expense charges previously deducted, attributable to a
particular premium payment, will never exceed 9% of that premium.
MORTALITY AND EXPENSE RISK CHARGE
We currently deduct a daily charge of .0024769% from each Investment
Subdivision. This corresponds to an effective annual rate of 0.90% of net
assets. This charge is not deducted from your assets in the Guarantee Account.
We will not increase this charge for the duration of your Policy. This charge
is factored into the net investment factor.
The mortality risk we assume 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 we assume 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.
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<PAGE>
ADMINISTRATIVE EXPENSE CHARGE
We deduct a daily administrative expense charge of .0010981% from each
Investment Subdivision. The effective annual rate of this charge is .40% and is
factored into the net investment factor. We also deduct an administrative
expense charge daily from the Cash Value in the Guarantee Account at an
effective annual rate of .40%.
COST OF INSURANCE
We deduct a cost of insurance charge each month. The cost of insurance is a
significant charge under your Policy because it is the primary charge for the
death benefit we provide you. The cost of insurance charge depends on a number
of factors (Age, gender, Policy duration, and risk class) that cause the charge
to vary from Policy to Policy and from Monthly Anniversary Day to Monthly
Anniversary Day. We will determine the risk class (and therefore the rates)
separately for the initial Specified Amount and for any increase in Specified
Amount that requires evidence of insurability.
We calculate the cost of insurance on each Monthly Anniversary Day based on
your net amount at risk. We determine your net amount at risk by the following
formula:
LIFE INSURANCE PROCEEDS
------------------------ - Cash Value
1.0032737
To determine your cost of insurance for a particular Policy Month, we divide
your net amount at risk by 1000 and multiply that result by the applicable cost
of insurance rate.
On those Monthly Anniversary Days on which a Policy qualifies for the Preferred
Funding Risk Class (see Premiums below), 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 our 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
Benefits) may cause the cost of insurance charge to increase.
The cost of insurance rate for the Insured is based on his or her Age, sex and
applicable risk class. We currently place Insureds in the following risk
classes when we issue the Policy, based on our underwriting: a male or female
or unisex risk class where appropriate under applicable law (currently
including the State of Montana). The original risk class applies to the initial
Specified Amount. If an increase in Specified Amount is approved, a different
risk class may apply to the increase, based on the Insured's circumstances at
the time of the increase.
We may change the cost of insurance rates from time to time at our sole
discretion, but we guarantee that the cost of insurance rates we charge will
never exceed the maximum rates shown in your Policy. These rates are based on
the Commissioners' 1980 Standard Ordinary Mortality Tables. The maximum cost of
insurance rates are based on the Insured's age nearest birthday at the start of
the Policy Year. Modifications to cost of insurance rates are made for risk
classes other than standard. The rates we currently charge are, at most ages,
lower than the maximum permitted under the Policies, and depend on our
expectation of future experience with respect to interest, mortality, expenses,
persistency, and taxes. A change in rates will apply to all persons of the same
Age, sex (where applicable), and risk class and whose Policies have been in
effect for the same length of time. We deduct the cost of insurance charge
proportionately from your assets in the Investment Subdivisions and/or the
Guarantee Account.
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<PAGE>
SURRENDER CHARGE
If you fully surrender your Policy within nine years of a premium payment, we
will deduct a surrender charge. The total surrender charge will equal the sum
of the surrender charges, if any, attributable to the premium payments you made
under the Policy before the surrender. For purposes of this charge, we deem all
premium payments you make during a Policy Year to be made on the first day of a
Policy Year; therefore, one year elapses on each Policy Anniversary. We
calculate a surrender charge as a percentage of the premium. We show the
schedule of these charges below:
<TABLE>
<CAPTION>
POLICY YEARS SINCE SURRENDER CHARGE
PREMIUM PAYMENT PERCENTAGE
- -------------------- -----------------
<S> <C>
0-1 6%
2 6%
3 6%
4 6%
5 5%
6 4%
7 3%
8 2%
9 1%
10 and later 0%
</TABLE>
We also will limit the surrender charge so 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 a 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 that premium that have been deducted. We will deduct this
surrender charge, along with any outstanding Policy Debt, from your Cash Value
to determine the amount payable upon surrender.
We do not assess a surrender charge for partial withdrawals, but do assess a
processing fee.
PARTIAL WITHDRAWAL PROCESSING FEE
We deduct a partial withdrawal processing fee on partial withdrawals you make.
The fee equals the lesser of $25 or 2% of the amount withdrawn and will be
deducted from the amount of the withdrawal. We will take the fee
proportionately from the Investment Subdivisions and/or the Guarantee Account
from which you withdraw Cash Value.
TRANSFER CHARGE
We assess a $10 transfer charge for each transfer after the first transfer you
make in any calendar month. We take this charge from the amount you transfer.
For purposes of assessing this charge, we consider each transfer request one
transfer, regardless of the number of Investment Subdivisions affected by the
transfer. Multiple transfers within the same Valuation Period are also
considered one transfer for this purpose.
OTHER CHARGES
If you request a projection of illustrative future life insurance under the
Policy and Policy values, we reserve the right to charge a maximum fee of $25
for the cost of preparing the projection.
There are deductions from and expenses paid out of the assets of each portfolio
that are more fully described in each Fund's prospectus.
14
<PAGE>
REDUCTION OF CHARGES FOR GROUP SALES
We may reduce charges and/or deductions for sales of the Policies to a trustee,
employer or similar entity representing a group or to members of the group
where such sales result in savings of sales or administrative expenses. We will
base these discounts on the following:
1. THE SIZE OF THE GROUP. Generally, the sales expenses for each individual
owner for a larger group are less than for a smaller group because more
Policies can be implemented with fewer sales contacts and less
administrative cost.
2. THE TOTAL AMOUNT OF PREMIUM PAYMENTS TO BE RECEIVED FROM A GROUP. Per
Policy sales and other expenses are generally proportionately less on
larger premium payments than on smaller ones.
3. THE PURPOSE FOR WHICH THE POLICIES ARE PURCHASED. Certain types of plans
are more likely to be stable than others. Such stability reduces the
number of sales contacts and administrative and other services required,
reduces sales administration and results in fewer Policy terminations. As
a result, our sales and other expenses are reduced.
4. THE NATURE OF THE GROUP FOR WHICH THE POLICIES ARE BEING PURCHASED.
Certain types of employee and professional groups are more likely to
continue Policy participation for longer periods than are other groups
with more mobile membership. If fewer Policies are terminated in a given
group, our sales and other expenses are reduced.
5. OTHER CIRCUMSTANCES. There may be other circumstances of which we are
not presently aware, which could result in reduced sales expenses.
If, after we consider the factors listed above, we determine that a group
purchase would result in reduced sales expenses, we may reduce the charges
and/or deductions for each group. Reductions in these charges and/or deductions
will not be unfairly discriminatory against any person, including the affected
Owners and all other owners of policies funded by Separate Account III.
- --------------------------------------------------------------------------------
THE POLICY
- --------------------------------------------------------------------------------
APPLYING FOR A POLICY
To purchase a Policy, you must complete an application and you or your
registered representative must submit it to us at our Home Office. You also
must pay an initial premium of a sufficient amount. SEE Premiums, below. The
minimum first year planned premium is $5,000. You can submit your initial
premium with your application or at a later date. (If you submit your initial
premium with your application, please remember that we will place your premium
in a non-interest bearing account for a certain amount of time. SEE Allocating
Premium.) Coverage generally becomes effective as of the Policy Date.
Generally, we will issue a Policy covering an Insured up to Age 75 if evidence
of insurability satisfies our underwriting rules. (If the Insured is over age
60, however, your premium plan options may be limited.) Required evidence of
insurability may include, among other things, a medical examination of the
Insured. We may, in our sole discretion, issue a Policy covering an Insured
over Age 75. We may reject an application for any lawful reason.
If you do not pay the full first premium with your application, the insurance
will become effective on the effective date. This date is the date that you pay
your premium and that we deliver your Policy. All persons proposed for
insurance must be insurable on the Policy Date.
If you pay the full first premium with your application, we may give you a
conditional receipt. This means that, subject to our underwriting requirements
and subject to a maximum limitation, your insurance will become effective on
the effective date we specified in the conditional receipt. This effective date
will be the latest of (i) the date of completion of the application, (ii) the
date of completion of all medical exams
15
<PAGE>
and tests we require, and (iii) the policy date you requested when that date is
later than the date you completed your application.
If we issued your Policy before November 14, 1995, please see Appendix A for a
description of certain features of your Policy that differ from the Policies
described in this prospectus.
OWNER
You have rights in the Policy during the Insured's lifetime. If you die before
the Insured and there is no contingent Owner, ownership will pass to your
estate.
BENEFICIARY
You designate the primary Beneficiaries and contingent Beneficiaries when you
apply for the Policy. You may name one or more primary Beneficiaries or
contingent Beneficiaries. We will pay the proceeds in equal shares to the
survivors in the appropriate Beneficiary class, unless you request otherwise.
Unless an optional payment plan is chosen, we will pay the death Proceeds in a
lump sum to the primary Beneficiary(ies). If the primary Beneficiary(ies) dies
before the Insured, we will pay the proceeds to the contingent
Beneficiary(ies). If there is no surviving Beneficiary(ies) we will pay the
proceeds to you or your estate.
CHANGING THE BENEFICIARY
If you reserve the right, you may change the Beneficiary during the Insured's
life. To make this change, please write our Home Office. The request and the
change must be in a form satisfactory to us and we must actually receive the
request. The change will take effect as of the date you signed the request.
CANCELING A POLICY
You may cancel a Policy during the "free-look period" by returning it to us at
our Home Office, or to the agent who sold it. The free-look period expires 10
days after you receive the Policy or within 45 days after you sign Part I of
the application, whichever is later. The free-look period is longer if required
by state law. If you decide to cancel the Policy during the free-look period,
we will treat the Policy as if it had never been issued. Within seven calendar
days after we receive the returned Policy, we will refund an amount equal to
the sum of:
o the total amount of monthly deductions made against Cash Value and any
charges deducted from premiums paid; plus
o Cash Value on the date we (or our agent) receive the returned Policy.
If any state law prohibits the calculation above, we will refund the total of
all premiums paid for the Policy, or other amounts as required under state law.
- --------------------------------------------------------------------------------
PREMIUMS
- --------------------------------------------------------------------------------
GENERAL
We will usually credit your initial premium payment to the Policy on the later
of the date we approve your application and the date we receive your payment.
We will credit any subsequent premium payment to the Policy on the Business Day
we receive it at our Home Office.
The total premiums you pay may not exceed guideline premium limitations for
life insurance set forth in the Code and shown in your Policy. We may reject
any premium, or any portion of a premium, that would result in the Policy being
disqualified as life insurance under the Code. We will refund any rejected
premium along with any interest it accrued. For your convenience, we will
monitor Policies and will attempt to
16
<PAGE>
notify you on a timely basis if your Policy is in jeopardy of becoming a
Modified Endowment Contract ("MEC") under the Code. SEE Tax Considerations.
INITIAL PREMIUM
The initial premium is due on the Policy Date. Your initial premium will be
shown in your Policy's data pages. If the Insured is over age 60, the initial
premium must equal the total planned premium.
PLANNED PREMIUMS
Your Policy's data pages will show the amount of the planned premium. 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 applicable), 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
<TABLE>
<CAPTION>
AGE MALE FEMALE
------ ----------- -----------
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
POLICY YEAR TOTAL PREMIUMS
------------- --------------------------------------
(AS A % OF THE TOTAL PLANNED PREMIUM)
<S> <C>
1 20%
2 40%
3 60%
4 80%
5+ 100%
</TABLE>
TAX FREE EXCHANGES (1035 EXCHANGES)
We will accept as part of your initial premium money from one contract that
qualified for a tax-free exchange under Section 1035 of the Code. If you
contemplate such an exchange, you should consult a competent tax advisor to
learn the potential tax effects of such a transaction.
17
<PAGE>
ADDITIONAL PREMIUM PAYMENTS
Although the Policy can operate as a single premium policy, you may make
additional premium payments under certain circumstances, so long as there is no
outstanding Policy Debt. If there is Policy Debt outstanding, we will consider
any payment (other than an initial or planned premium payment) we receive to be
repayment of that debt. Should any such payment exceed the amount of Policy
Debt outstanding, we will treat the amount in excess of Policy Debt as an
additional premium payment. The circumstances under which you can make
additional premium payments are listed below:
(1) Increases in Specified Amount -- After the first Policy Year, you may
request an increase in Specified Amount. (See Changing the Specified
Amount). If your request is approved, we will require you to make an
additional premium payment in order for the increase to become effective.
(2) In Order to Prevent Termination -- 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 termination, you
must make a payment during the grace period sufficient to cover the
monthly deduction. We will mail you a notice stating the minimum payment
you must make to prevent termination. You may make an additional premium
payment in an amount greater than that required to prevent termination as
long as the total of all premium payments, immediately after the payment
to prevent termination, is less than the maximum premiums limitation
shown in your Policy's data pages.
(3) At Your Discretion -- You may make additional premium payments at your
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 your Policy's 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, you
normally will not be able to make discretionary additional premium
payments during the early years of the Policy.
If you make a discretionary additional premium payment that causes the
total amount of premiums paid under the Policy to exceed the maximum
premiums limitation, we 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 you. Thereafter, we
will not accept any discretionary additional premium payments until
allowed by the maximum premiums limitation.
REPAYMENT OF OUTSTANDING POLICY DEBT
If there is any outstanding Policy Debt on the date we receive a payment (other
than an initial or planned premium payment), we will treat the payment first as
a repayment of outstanding Policy Debt. (SEE Repayment of Policy Debt.)
ALLOCATING PREMIUMS
When you apply for a Policy, you specify the percentage of your premium we
allocate to each Investment Subdivision and to the Guarantee Account. You may
only direct your premiums and Cash Value to seven Investment Subdivisions at
any given time. Allocations to the Guarantee Account count as one of the seven
allocations we permit under the Policy. You can change the allocation
percentages at any time by writing or calling our Home Office. The change will
apply to all premiums we receive with or after we receive your instructions.
Premium allocations must be in percentages totaling 100%, and each allocation
percentage must at least be 10% of the premium.
18
<PAGE>
Until we approve your application, receive all necessary forms (including any
subsequent amendments to the application), and receive the entire initial
premium, we will place any premiums you pay into a non-interest bearing
account. We will then allocate your premium during the Initial Investment
Period as specified below.
Once we approve your application, receive all necessary forms (including any
subsequent amendments to the application), and receive the entire initial
premium, we will transfer your premium from the non-interest bearing account.
At that point, we will tranfer any portion of the initial premium you
designated for the Guarantee Account to the Guarantee Account, and we will
transfer any portion of the initial premium you designated for the Investment
Subdivisions to the Investment Subdivision investing in the Money Market Fund
of the GE Investments Funds (the "Money Market Investment Subdivision"). Once
allocated, your Policy's Cash Value designated for the Investment Subdivisions
will remain in the Money Market Investment Subdivision until the end of the
Initial Investment Period. At the end of the Initial Investment Period, we will
transfer this amount to the Investment Subdivisions you designated in your
application. (The Initial Investment Period ends either on the date we receive
at our Home Office a form satisfactory to us and signed by you that you have
received and accepted the Policy, or if the Policy is not accepted, when all
amounts due are refunded.)
- --------------------------------------------------------------------------------
HOW YOUR CASH VALUE VARIES
- --------------------------------------------------------------------------------
CASH VALUE
The Cash Value is the entire amount we hold under your Policy for you. The Cash
Value serves as a starting point for calculating certain values under a Policy.
It is the sum of the total amount under the Policy in each Investment
Subdivision, the amount held in the Guarantee Account, and the Cash Value held
in the General Account to secure Policy Debt. SEE Loans. We determine Cash
Value first on your Policy Date (or on the date we receive your initial premium
payment, if later) and after that on each Business Day. Your Cash Value will
vary to reflect the performance of the Investment Subdivisions to which you
have allocated amounts and interest we credit to the Guarantee Account, and
also will vary to reflect Policy Debt, charges for monthly deduction, mortality
and expense risk and administrative expense charges, transfers, partial
withdrawals, Policy loan interest, and Policy loan repayments. Your Cash Value
may be more or less than the premiums you paid.
SURRENDER VALUE
The Surrender Value on a Business Day is the Cash Value reduced by both any
surrender charge and any Policy Debt.
INVESTMENT SUBDIVISION VALUES
On any Business Day, the value of an Investment Subdivision equals the number
of Investment Subdivision units we credit to the Policy multiplied by the Unit
Value for that day. When you make allocations to an Investment Subdivision,
either by premium allocation, transfer of Cash Value, transfer of loan interest
from the General Account, or repayment of a Policy loan, we credit your Policy
with units in that Investment Subdivision. We determine the number of units by
dividing the amount allocated, transferred or repaid to the Investment
Subdivision by the Investment Subdivision's Unit Value for the Business Day
when we effect the allocation, transfer or repayment.
The number of units we credit to a Policy will decrease whenever we take the
allocated portion of the monthly deduction, you take a Policy loan or a partial
withdrawal from the Investment Subdivision, you transfer an amount from the
Investment Subdivision, you take a partial withdrawal from the Investment
Subdivision, or you surrender the Policy.
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<PAGE>
UNIT VALUES
We arbitrarily set the unit value for each Investment Subdivision at $10 when
we established the Investment Subdivision. After that, an Investment
Subdivision's Unit Value varies to reflect the investment experience of the
underlying portfolio, and may increase or decrease from one Business Day to the
next. We determine Unit Value, after an Investment Subdivisions operations
begin, by multiplying the net investment factor for that Valuation Period by
the Unit Value for the immediately preceding period.
NET INVESTMENT FACTOR
The net investment factor for a Valuation Period is (a) divided by (b), minus
(c), where:
(a) is the result of:
1. the value of the assets at the end of the preceding Valuation Period;
PLUS
2. the investment income and capital gains, realized or 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 in the Investment Subdivision at the end of
the preceding Valuation Period; and
(c) is a charge no greater than .0035750% for each day in the Valuation
Period. This corresponds to 1.30% per year of the net assets of that
Investment Subdivision for mortality and expense risks and administrative
expenses.
- --------------------------------------------------------------------------------
TRANSFERS
- --------------------------------------------------------------------------------
GENERAL
You may transfer all or a portion of your Cash Value between and among the
Investment Subdivisions of Separate Account III and the Guarantee Account
subject to certain conditions. Transfers among the Investment Subdivisions of
Separate Account III and from an Investment Subdivision to a Guarantee Account
are made as of the end of the Valuation Period that the transfer request is
received at our Home Office. Transfers to, from, or among the Investment
Subdivisions of Separate Account III may be postponed under certain
circumstances. See Requesting Payments.
Transfers from any particular allocation of a Guarantee Account to an
Investment Subdivision are restricted. You may make such transfers only during
the 30 day period beginning with the end of the preceding guarantee period
applicable to that particular allocation. We also may limit the amount which
may be transferred from the Guarantee Account to the Investment Subdivisions,
but we will not limit it to less than 25% of the original allocation, plus any
accrued interest on that allocation remaining in the Guarantee Account.
Further, we restrict certain transfers from an Investment Subdivision to the
Guarantee Account. You may not make any transfers from an Investment
Subdivision to the Guarantee Account during the six month period following the
transfer of any amount from the Guarantee Account to any Investment
Subdivision.
We reserve the right to limit the number of transfers if it is necessary for
the Policy to continue to be treated as a life insurance policy by the Internal
Revenue Service. We may not honor a transfer request: (i) if any of the
Investment Subdivisions that would be affected by the transfer is unable to
purchase or redeem shares of the Fund in which the Investment Subdivision
invests; (ii) if the transfer is a result of
20
<PAGE>
more than one trade involving the same Investment Subdivision within a 30 day
period; (iii) if the transfer would adversely affect Unit Values; or (iv) if
the transfer would adversely affect any portfolio affected by the transfer. We
also may not honor transfers made by third parties. (See Transfers by Third
Parties.)
When thinking about a transfer of Cash Value, you should consider the inherent
risk involved. Frequent transfers based on short-term expectations may increase
the risk that a transfer will be made at an inopportune time. We reserve the
right to modify, restrict, suspend or eliminate the transfer privileges,
including telephone transfer privileges, at any time, for any reason. There is
a charge after the first transfer made in a calendar month. SEE Transfer
Charge.
DOLLAR-COST AVERAGING
The dollar-cost averaging program permits you to systematically transfer on a
monthly or quarterly basis a set dollar amount from the Investment Subdivision
investing in the Money Market Fund of the GE Investments Funds (the "Money
Market Investment Subdivision") and/or the Guarantee Account (if we issued your
Policy on or after May 1, 1995) to any combination of other Investment
Subdivisions (as long as the total number of Investment Subdivisions used does
not exceed the maximum number allowed under the Policy). The dollar-cost
averaging method of investment is designed to reduce the risk of making
purchases only when the price of units is high, but you should carefully
consider your financial ability to continue the program over a long enough
period of time to purchase units when their value is low as well as when it is
high. Dollar-cost averaging does not assure a profit or protect against a loss.
You may participate in the dollar-cost averaging program by selecting the
program on your application, completing a dollar-cost averaging agreement, or
calling our Home Office. To use the dollar-cost averaging program, you must
transfer at least $100 from the Money Market Investment Subdivision and/or the
Guarantee Account (if applicable) to any other Investment Subdivision. If any
transfer would leave less than $100 in the Money Market Investment Subdivision
or the Guarantee Account, we will transfer the entire amount. Once elected,
dollar-cost averaging remains in effect from the date we receive your request
until the value of the Investment Subdivision or Guarantee Account from which
transfers are being made is depleted, or until you cancel the program by
written request or by telephone if we have your telephone authorization on
file.
There is no additional charge for dollar-cost averaging, and we do not consider
a transfer under this program a transfer for purposes of assessing a transfer
charge, nor for calculating any limit on the maximum number of transfers we may
impose for a calendar year. We reserve the right to discontinue or modify the
dollar-cost averaging program at any time and for any reason.
ASSET ALLOCATION
You may select from five asset allocation model portfolios offered by us, or
you may use a model offered by us as a guide to help you develop your own asset
allocation program. The models designed by us are as follows:
<TABLE>
<CAPTION>
Model Investment and Risk Profile
------- ----------------------------
<S> <C>
1 Income
2 Enhanced Income
3 Growth & Income
4 Growth
5 Aggressive Growth
</TABLE>
If you elect to participate in the asset allocation program, we will
automatically allocate all premium payments among the Investment Subdivisions
indicated by the model and the Funds within the model you select. The models do
not include allocation to the Guarantee Account. Although you may use only one
model at a time, you may elect to change your selection as your tolerance for
risk, needs, and/or objectives change.
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<PAGE>
You may use a questionnaire that we offer to determine the model that best
meets your risk tolerance and time horizons. Asset allocation does not
guarantee a profit or protect against a loss.
Because each Investment Subdivision performs differently over time, your
portfolio mix may vary from its initial allocations. You may elect to have the
portfolios automatically rebalanced under our portfolio rebalancing program,
described below.
From time to time, we will review the models and may find that allocation
percentages among the Investment Subdivisions or even some of the Investment
Subdivisions within a particular model need to be changed. We will send you
notice that such a change has been made. Unless you elect to participate in the
new allocation model you will remain in your current designated allocation
model. This change will not be made automatically.
There is no additional charge for the asset allocation program. We reserve the
right to discontinue offering this program at any time and for any reason.
PORTFOLIO REBALANCING
Once you allocate your money among the Investment Subdivisions, the performance
of each Investment Subdivision may cause your allocation to shift. You may
instruct us to automatically rebalance (on a quarterly, semi-annual or annual
basis) your Cash Value to return to the percentages specified in your
allocation instructions. The program does not include allocations to the
Guarantee Account. You may elect to participate in the portfolio rebalancing
program at any time by completing the portfolio rebalancing agreement. Your
percentage allocations must be in whole percentages and be at least 10%.
Subsequent changes to your percentage allocations may be made at any time by
writing or calling our Home Office. Once elected, portfolio rebalancing remains
in effect from the date we receive your request until you instruct us to
discontinue portfolio rebalancing. There is no additional charge for using
portfolio rebalancing, and we do not consider a portfolio rebalancing transfer
a transfer for purposes of assessing a transfer charge, nor for calculating any
limit on the maximum number of transfers we may impose for a calendar year. We
reserve the right to discontinue or modify the portfolio rebalancing program at
any time and for any reason. Portfolio rebalancing does not guarantee a profit
or protect against a loss.
TRANSFERS BY THIRD PARTIES
As a general rule and as a convenience to you, we allow you to give a third
party the right to effect transfers on your behalf. However, when the same
third party mades transfers for many Owners, the result can be simultaneous
transfers involving large amounts of Cash Value. Such transfers can disrupt the
orderly management of the portfolios underlying the Policy, can result in higher
costs to Owners, and are generally not compatible with the long-range goals of
Owners. We believe that such simultaneous transfers effected by such third
parties are not in the best interests of all shareholders of the Funds
underlying the Policies, and the managements of those Funds share this position.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties who make transfers on behalf of
multiple owners, we may not honor such transfers. Also, we will institute
procedures to assure that the transfer requests that we receive have, in fact,
been made by the Owners in whose names they are submitted. These procedures
will not, however, prevent Owners from making their own transfer requests.
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DEATH BENEFITS
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As long as the Policy remains in force, we will pay the death benefit upon
receipt at our Home Office of satisfactory proof of the Insured's death. SEE
Requesting Payments. We will pay the death benefit to the Beneficiary.
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<PAGE>
AMOUNT OF DEATH BENEFIT PAYABLE
The amount of death benefit payable equals:
o the greater of: 1) the Specified Amount; or 2) Cash Value multiplied by the
applicable corridor percentage as determined using the table of
percentages shown below;
o MINUS any Policy Debt on that date; and
o MINUS the amount of any due and unpaid monthly deductions, if the date of
death occurred during a grace period.
Under certain circumstances, we may further adjust the amount of the death
benefit payable. SEE Incontestability and Misstatement of Age or Sex.
We determine the Specified Amount and Cash Value on the date of the Insured's
death. The corridor percentage is 250% until attainment of Age 40 and
declines after that as the Insured's Attained Age increases. If the table of
percentages currently in effect becomes inconsistent with any federal income
tax laws and/or regulations, we reserve the right to change the table.
<TABLE>
<CAPTION>
TABLE OF PERCENTAGES OF CASH VALUE
- --------------------------------------------------------------------------------
ATTAINED CORRIDOR ATTAINED CORRIDOR ATTAINED CORRIDOR
AGE PERCENTAGE AGE PERCENTAGE AGE PERCENTAGE
- ---------- ------------ ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
0-40 250% 54 157% 68 117%
41 243% 55 150% 69 116%
42 236% 56 146% 70 115%
43 229% 57 142% 71 113%
44 222% 58 138% 72 111%
45 215% 59 134% 73 109%
46 209% 60 130% 74 107%
47 203% 61 128% 75-90 105%
48 197% 62 126% 91 104%
49 191% 63 124% 92 103%
50 185% 64 122% 93 102%
51 178% 65 120% 94 101%
52 171% 66 119%
53 164% 67 118%
</TABLE>
CHANGING THE SPECIFIED AMOUNT
After the first Policy year, you may increase the Specified Amount, provided
you have paid the total planned premium for the original Specified Amount. To
make a change, you must send a written request and the Policy to our Home
Office. Any change in the Specified Amount may affect the cost of insurance
rate and the net amount at risk, both of which may change your cost of
insurance. SEE Cost of Insurance. Any change in the Specified Amount will
affect the maximum premiums limitation.
To apply for an increase, you must complete a supplemental application and
submit evidence of insurability satisfactory to us. When you request the
increase, the Insured must be of the same risk class as at the time we issued
the Policy. Any approved increase will become effective on the date shown in
the supplemental Policy data page.
For an increase in the Specified Amount to become effective, you must make an
additional premium payment. This payment will depend upon the amount of the
increase requested and the Attained Age, sex (where appropriate), and risk
class of the Insured. The required additional premium payment will be the
lesser of (a) or (b), where (a) is the increase in the single premium due to
the increase in the Specified Amount and (b) is the maximum limitation allowed
immediately after the increase in Specified Amount, less the total
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<PAGE>
premiums paid to date. The minimum increase in Specified Amount that we will
allow is one which requires a $1,000 additional premium payment.
A partial withdrawal will reduce 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 your Specified Amount may have federal tax consequences. SEE Tax
Considerations.
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SURRENDERS AND PARTIAL WITHDRAWALS
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SURRENDERS
You may cancel and surrender your Policy at any time before the Insured dies.
The Policy will terminate on the Business Day we receive your request at our
Home Office, and you will not be able to reinstate it.
We will pay you the Surrender Value in a lump sum unless you make other
arrangements. You will incur a surrender charge if you surrender your Policy
within 9 Policy Years of any premium payment. A surrender may have adverse tax
consequences. (SEE Tax Considerations.)
PARTIAL WITHDRAWALS
After the first Policy Year, you may make one partial withdrawal each Policy
Year (until the maturity date). You may withdraw up to the amount of your Cash
Value which exceeds the sum of the premiums paid and outstanding Policy Debt.
We will deduct a processing fee from each partial withdrawal. SEE Partial
Withdrawal Processing Fee. No surrender charge will apply.
When you request a partial withdrawal, you can direct how we deduct the
withdrawal from your Cash Value. If you provide no directions, we will deduct
the partial withdrawal first from the Investment Subdivisions on a pro-rata
basis, in proportion to the Cash Value in each Investment Subdivision. We will
deduct any remaining amount from the Guarantee Account, starting with the
amounts that have been in the Guarantee Account for the longest period of time.
EFFECT OF PARTIAL WITHDRAWALS ON CASH VALUE AND DEATH BENEFIT PROCEEDS
A partial withdrawal will reduce the Cash Value by the amount of the partial
withdrawal. A partial withdrawal will reduce the death benefit Proceeds by the
amount which the partial withdrawal amount would purchase if paid as a single
premium on the date of the withdrawal.
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<PAGE>
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LOANS
- --------------------------------------------------------------------------------
GENERAL
You may borrow up to the following amount:
o 90% of the difference between your Cash Value at the end of the Valuation
Period during which we received your loan request and any surrender
charges on the date of the loan;
o LESS any outstanding Policy Debt.
You may request Policy loans by writing our Home Office. The minimum loan
amount is $500.
When we make a loan, we transfer an amount equal to the loan proceeds from your
Cash Value in Separate Account III and the Guarantee Account to our General
Account and hold it as "collateral" for the loan. If you do not direct an
allocation for this transfer, we will make it first on a pro-rata basis from
each Investment Subdivision in which you have invested; then we will take the
amount from the amounts you allocated to the Guarantee Account starting with
the amounts that have been in the Guarantee Account for the longest period of
time. We will pay interest at an annual rate of at least 4% on the amount
transferred to the General Account.
INTEREST RATE CREDITED
Currently, we credit 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. We credit an annual rate of 4% to that part
of the General Account Cash Value in excess of the above amount. For purposes
of crediting these two rates of interest, we will use the Cash Value as
calculated on the preceding Monthly Anniversary Day. We reserve the right to
decrease, at our discretion, the rate of interest we credit to any portion of
General Account Cash Value to an 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 and/or the Guarantee
Account. Absent written instructions, we will allocate this amount among the
Investment Subdivisions and/or the Guarantee Account in the same manner as
Policy loans are allocated.
INTEREST RATE CHARGED
We will charge interest daily on any outstanding Policy loan at a maximum
effective annual rate of 6%. Interest is due and payable at the end of each
Policy Year while a Policy loan is outstanding. If, on any Policy Anniversary,
you have not paid interest accrued since the last Policy Anniversary, we add
the amount of the interest to the loan and this becomes part of your
outstanding Policy Debt. Absent written instruction, we transfer the interest
due first on a pro-rata basis from each Investment Subdivision in which you
have invested; then we will take the remaining interest due from the amounts
you allocated to the Guarantee Account, starting with the amounts that have
been in the Guarantee Account for the longest period of time.
REPAYMENT OF POLICY DEBT
You may repay all or part of your Policy Debt at any time while the Insured is
living and the Policy is in force. We will treat any payments by you (other
than initial or planned premiums) first as the repayment of any outstanding
Policy Debt. We will treat the portion of the payment in excess of any
outstanding Policy Debt as an additional premium payment. SEE Premiums.
When you repay a loan, we transfer an amount equal to the repayment from our
General Account to Separate Account III and/or the Guarantee Account and
allocate it as you directed when you repaid the loan. If you provide no
directions, we will allocate the amount according to your standing instructions
for premium allocations.
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<PAGE>
You must send loan repayments to our Home Office. We will credit the repayments
as of the date we receive them.
EFFECT OF POLICY LOANS
A Policy loan affects the Policy, because we reduce the death benefit Proceeds
and Surrender Value under the Policy by the amount of any outstanding loan plus
interest you owe on the loan. Repaying the loan causes the death benefit
Proceeds and Surrender Value to increase by the amount of the repayment. As
long as a loan is outstanding, we hold an amount equal to the loan as
collateral. This amount is not affected by Separate Account III's investment
performance or the interest we credit on the Guarantee Account. Amounts
transferred from Separate Account III as collateral will affect the Cash Value
because we credit such amounts with an interest rate we declare rather than a
rate of return reflecting the investment performance of Separate Account III.
There are risks involved in taking a Policy loan, a few of which include the
potential for a Policy to lapse if projected earnings, taking into account
outstanding loans, are not achieved. A Policy loan may also have possible
adverse tax consequences that could occur if a Policy lapses with loans
outstanding. SEE Tax Considerations.
We will notify you if the sum of your loans plus any interest you owe on the
loans is more than the Cash Value less applicable surrender charges. If you do
not submit a sufficient payment within 61 days from the date of the notice,
your Policy may terminate.
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TERMINATION
- --------------------------------------------------------------------------------
PREMIUM TO PREVENT TERMINATION
Generally, if on a Monthly Anniversary Day, the Surrender Value of your Policy
is too low to cover the monthly deduction, a Policy will be in default and a
grace period will begin. In that case, we will mail you notice of the premium
necessary to prevent your Policy from terminating. You will have a 61-day grace
period from the date we mail the notice to make the required premium payment.
So long as there is outstanding Policy Debt, we will treat that portion of any
sufficient payment received during the grace period that is less than or equal
to the amount of the Policy Debt as a repayment of Policy Debt and not as an
additional premium payment. If we treat a payment as a repayment of outstanding
Policy Debt, we will transfer the amount of Cash Value held in our General
Account (as security for that part of the Policy Debt being repaid) into
Separate Account III and/or the Guarantee Account, which increases the
Surrender Value of the Policy, thereby preventing termination.
YOUR POLICY WILL REMAIN IN EFFECT DURING THE GRACE PERIOD
If the Insured should die during the grace period before you pay the required
premium, the death benefit will still be payable to the Beneficiary, although
we will reduce the amount of the death benefit Proceeds by the amount of any
due and unpaid monthly deductions and by any outstanding Policy Debt. If you
have not paid the required premium before the grace period ends, your Policy
will terminate. It will have no value and no benefits will be payable. However,
you may reinstate your Policy under certain circumstances.
REINSTATEMENT
If you have not surrendered your Policy and it is before the Maturity Date, you
may reinstate your Policy within three years after termination, subject to
compliance with certain conditions, including the payment of a necessary
premium and submission of satisfactory evidence of insurability. See your
Policy for further information. Any Policy Debt that existed at the end of the
grace period will be reinstated if not paid. On the date of reinstatement, the
Cash Value less any outstanding Policy Debt will be allocated to the Investment
Subdivisions of Separate Account III and/or the Guarantee Account.
26
<PAGE>
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PAYMENTS AND TELEPHONE TRANSACTIONS
- --------------------------------------------------------------------------------
REQUESTING PAYMENTS
You may send your written requests for payment to our Home Office or give them
to one of our authorized agents. We will ordinarily pay any Proceeds, loan
proceeds or surrender or partial withdrawal proceeds in a lump sum within seven
days after receipt at our Home Office of all the documents required for such a
payment. Other than the death benefit Proceeds, which we determine as of the
date of the Insured's death, the amount we pay is as of the date our Home
Office receives all required documents. We may pay your death benefit Proceeds
in a lump sum or under an optional payment plan. SEE Optional Payment Plans.
Any death benefit Proceeds that we pay in one lump sum will include interest
from the date of death to the date of payment. We will pay interest at a rate
we set, or a rate set by law if greater. The minimum interest rate which we may
pay is 2.5%. We will not pay interest beyond one year or any longer time set by
law. We will reduce death benefit Proceeds by any outstanding Policy Debt and
any due and unpaid monthly deductions.
We may delay making a payment or processing a transfer request if:
o the disposal or valuation of Separate Account III's assets is not
reasonably practicable because the New York Stock Exchange is closed for
other than a regular holiday or weekend, trading is restricted by the SEC,
or the SEC declares that an emergency exists; or
o the SEC by order permits postponement of payment to protect our Policy
Owners.
We also may defer making payments attributable to a check that has not cleared
the bank on which it is drawn. We reserve the right to defer payments from the
Guarantee Account for up to six months. We will not defer payments if the law
requires us to pay earlier, or if the amount payable is to be used to pay
premiums on policies with us.
TELEPHONE TRANSACTIONS
You may make certain requests under the Policy by telephone provided you sent
us written authorization at our Home Office. These include requests for
transfers, changes in premium allocation designations, dollar-cost averaging
changes and changes in the portfolio rebalancing program. Our Home Office will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include, among others, requiring
some form of personal identification prior to acting upon instructions received
by telephone, providing written confirmation of such transactions, and/or tape
recording of telephone instructions. Your request for telephone transactions
authorizes us to record telephone calls. If we do not follow reasonable
procedures, we may be liable for any losses due to unauthorized or fraudulent
instructions. However, if we follow reasonable procedures, we will not be
liable for any losses due to unauthorized or fraudulent instructions.
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TAX CONSIDERATIONS
- --------------------------------------------------------------------------------
FEDERAL TAX MATTERS
INTRODUCTION
This part of the Prospectus discusses the Federal income tax treatment of the
Policy. The Federal income tax treatment of the Policy is complex and sometimes
uncertain. The Federal income tax rules may vary with your particular
circumstances.
This discussion is general and is not intended as tax advice. It does not
address all of the Federal income tax rules that may affect you and your
Policy. This discussion also does not address Federal estate or gift
27
<PAGE>
tax consequences, or state or local tax consequences, associated with a Policy.
As a result, you should always consult a tax advisor about the application of
tax rules to your individual situation.
TAX STATUS OF THE POLICY
Federal income tax law generally grants favorable treatment to life insurance:
the proceeds paid on the death of the insured are excluded from the gross
income of the beneficiary, and the Owner is not taxed on increases in the cash
value unless amounts are distributed while the Insured is alive. For this
treatment to apply to your Policy, the premiums paid for your Policy must not
exceed a limit established by the tax law. An increase or decrease in the
Policy's Specified Amount may change this premium limit.
We will monitor the premiums paid for your Policy to keep them within the tax
law's limit. However, for your Policy to receive favorable tax treatment as
life insurance, two other requirements must be met:
o The investments of Separate Account III must be "adequately diversified"
in accordance with Internal Revenue Service ("IRS") regulations; and
o your right to choose particular investments for a Policy must be
limited.
INVESTMENTS IN SEPARATE ACCOUNT III MUST BE DIVERSIFIED. The IRS has issued
regulations that prescribe standards for determining whether the investments of
Separate Account III, including the assets of the Funds in which Separate
Account III invests, are "adequately diversified." If Separate Account III
fails to comply with these diversification standards, you could be required to
pay tax currently on the excess of the Cash Value over the premiums paid for
the Policy.
Although we do not control the investments of all of the Funds (the Company
only indirectly controls those of GE Investments Funds, Inc., through an
affiliated company), we expect that the Funds will comply with the IRS
regulations so that Separate Account III will be considered "adequately
diversified."
RESTRICTIONS ON THE EXTENT TO WHICH YOU CAN DIRECT THE INVESTMENT OF CASH
VALUES. Federal income tax law limits your right to choose particular
investments for the Policy. The U.S. Treasury Department stated in 1986 that it
expected to issue guidance clarifying those limits, but it has not yet done so.
Thus, the nature of the limits is currently uncertain. As a result, your right
to allocate Cash Values among the Funds may exceed those limits. If so, you
would be treated as the owner of a portion of the assets of Separate Account
III and thus subject to current taxation on the income and gains from those
assets.
The Company does not know what limits may be set forth in any guidance that the
Treasury Department may issue, or whether any such limits will apply to
existing Policies. The Company therefore reserves the right to modify the
Policy without your consent to attempt to prevent the tax law from considering
you to own a portion of the assets of Separate Account III.
NO GUARANTEES REGARDING TAX TREATMENT: The Company makes no guarantees
regarding the tax treatment of any Policy or of any transaction involving a
Policy. However, the remainder of this discussion assumes that your Policy will
be treated as a life insurance contract for Federal income tax purposes and
that the tax law will not impose tax on any increase in your Cash Value until
there is a distribution from your Policy.
TAX TREATMENT OF POLICIES -- GENERAL
DEATH PROCEEDS AND CASH VALUE INCREASES: A Policy's treatment as life insurance
for Federal income tax purposes generally has the following results:
o Death Proceeds are excludable from the gross income of the Beneficiary.
o You are not taxed on increases in the Cash Value unless amounts are
distributed from the Policy while the Insured is alive.
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<PAGE>
o The taxation of amounts distributed while the Insured is alive -- and,
in particular, partial surrenders and loans -- depends upon whether your
Policy is a "modified endowment contract." A partial surrender occurs when
you receive less than the total amount of the Policy's Surrender Value;
receipt of the entire Surrender Value is a full surrender. The term
"modified endowment contract," or "MEC," is defined below.
TAX TREATMENT OF MODIFIED ENDOWMENT CONTRACTS
DEFINITION OF A "MODIFIED ENDOWMENT CONTRACT:" A Policy will be classified as a
MEC if either of the following is true:
o If premiums are paid more rapidly than allowed by a "7-pay test" under
the tax law. At your request, we will let you know the amount of premium
that may be paid for your Policy in any year that will avoid MEC treatment
under the 7-pay test.
o If the Policy is received in exchange for another policy that is a MEC.
In most cases, this Policy will constitute a MEC.
TAX TREATMENT OF DISTRIBUTIONS, INCLUDING LOANS, FROM MECS: If a Policy is
classified as a MEC, the following special rules apply:
o A partial surrender will be taxable to you to the extent that the Cash
Value exceeds your "investment in the contract," as defined below.
o A full surrender and any maturity benefits paid will be taxable to the
extent the amount received plus Policy Debt exceeds your investment in the
contract.
o A loan from the Policy (together with any unpaid interest included in
Policy Debt), and the amount of any assignment or pledge of the Policy,
will be taxed in the same manner as a partial surrender.
o A penalty tax of 10% will be imposed on the amount of any full or
partial surrender, loan and unpaid loan interest included in Policy Debt,
assignment, or pledge on which you must pay tax. However, the penalty tax
does not apply to a distribution made:
(1) after you attain age 59 1/2,
(2) because you have become disabled, within the meaning of the tax law,
or
(3) in substantially equal periodic payments over your life or life
expectancy (or over the joint lives or life expectancies of you and
your beneficiary, within the meaning of the tax law).
You will be taxed on income from this Policy at ordinary income tax rates, not
at lower capital gains tax rates. Your "investment in the contract" generally
equals the total of the premiums paid for your Policy plus the amount of any
loan that was includible in your income, reduced by any amounts you previously
received from the Policy that you did not include in your income.
SPECIAL RULES IF YOU OWN MORE THAN ONE MEC: All MECs that we (or any of our
affiliates) issue to you within the same calendar year will be combined to
determine the amount of any distribution from the Policy that will be taxable
to you.
INTERPRETATIVE ISSUES: The tax law's rules relating to MECs are complex and
open to considerable variation in interpretation. You should consult your tax
advisor before making any decisions regarding changes in coverage under or
distributions from your Policy.
TAX TREATMENT OF POLICIES THAT ARE NOT MECS
PARTIAL AND FULL SURRENDERS AND MATURITY PROCEEDS: If your Policy is not a MEC,
you will generally pay tax on the amount of a partial surrender only to the
extent it exceeds your investment in the contract.
29
<PAGE>
Similarly, full surrenders and maturity proceeds are taxable to the extent the
amount received plus Policy Debt exceeds your investment in the contract.
LOANS: A loan received under a non-MEC Policy (i.e., Policy Debt) normally will
be treated as your indebtedness. Hence, so long as the Policy remains in force,
you will generally not be taxed on any part of a Policy loan. However, it is
possible that you could have additional income for tax purposes if any of your
Policy loan is attributable to Cash Value in excess of premium payments made.
If your Policy terminates (by a full surrender or by a lapse) while the Insured
is alive, you will be taxed on the amount (if any) by which the Policy Debt
plus any amount received in cash exceeds your investment in the contract.
OTHER TAX RULES APPLICABLE TO THE POLICIES
SPECIAL RULE FOR CERTAIN CASH DISTRIBUTIONS IN THE FIRST 15 POLICY YEARS:
During the first 15 years after your Policy is issued, if we distribute cash to
you and reduce the death Proceeds (E.G., by decreasing the Policy's Specified
Amount) at the same time, you may be required to pay tax on all or part of the
cash payment, even if it is less than your investment in the contract. This
also may occur if we distribute cash to you up to two years before the Proceeds
are reduced, or if the cash payment is made in anticipation of the reduction.
However, you will not be required to pay tax on more than the amount by which
your Cash Value exceeds your investment in the contract.
LOAN INTEREST: Generally, interest paid on Policy Debt or other indebtedness
related to the Policy will not be tax deductible, except in the case of certain
indebtedness under a Policy covering a "key person." A tax advisor should be
consulted before taking any Policy loan.
LOSS OF INTEREST DEDUCTION WHERE POLICIES ARE HELD BY OR FOR THE BENEFIT OF
CORPORATIONS, TRUSTS, ETC. If an entity (such as a corporation or a trust, not
a individual) purchases a Policy or is the beneficiary of a Policy issued after
June 8, 1997, a portion of the interest on indebtedness unrelated to the Policy
may not be deductible by the entity. However, this rule does not apply to a
Policy owned by an entity engaged in a trade or business which covers the life
of an individual who is:
o a 20 percent owner of the entity, or
o an officer, director, or employee of the trade or business,
at the time first covered by the Policy. Entities that are considering
purchasing the Policy, or that will be beneficiaries under a Policy, should
consult a tax advisor.
OPTIONAL PAYMENT PLANS: If death Proceeds under the Policy are paid under one
of the optional payment plans, the Beneficiary will be taxed on a portion of
each payment (at ordinary income tax rates). The Company will notify the
Beneficiary annually of the taxable amount of each payment. However, if the
death Proceeds are held by the Company under Optional Payment Plan 4 (interest
income), the Beneficiary will be taxed on the interest income as it is
credited.
OTHER CONSIDERATIONS: The right to exchange the Policy for a permanent fixed
benefit policy (see "Exchange Privilege"), the right to change Owners (see
"Change of Owner"), and changes reducing future amounts of death Proceeds may
have tax consequences depending upon the circumstances of each exchange or
change.
INCOME TAX WITHHOLDING
We may be required to withhold and pay to the IRS a part of the taxable portion
of each distribution made under a Policy. However, in many cases, the recipient
may elect not to have any amounts withheld. You are responsible for payment of
all taxes and early distribution penalties, regardless of whether you request
that no taxes be withheld or if we do not withhold a sufficient amount of
taxes. At the time you request a distribution from the Policy, we will send you
forms that explain the withholding requirements.
30
<PAGE>
TAX STATUS OF THE COMPANY
Under existing Federal income tax law, we do not expect to incur any Federal
income tax liability on the income or gains in Separate Account III. Based upon
this expectation, we do not impose a charge for Federal income taxes. If
Federal income tax law changes and we are required to pay taxes on some or all
of the income and gains earned by Separate Account III, we may impose a charge
for those taxes.
We may also incur state and local taxes, in addition to premium taxes for which
a deduction from premiums is currently made. At present, these taxes are not
significant. If there is a material change in state or local tax laws, we may
impose a charge for any taxes attributable to Separate Account III.
CHANGES IN THE LAW AND OTHER CONSIDERATIONS
This discussion is based on our understanding of the Federal income tax law
existing on the date of this Prospectus. Congress, the IRS, and the courts may
modify these laws at any time, and may do so retroactively. Any person
concerned about the tax implications of ownership of a Policy should consult a
competent tax advisor.
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OTHER POLICY INFORMATION
- --------------------------------------------------------------------------------
EXCHANGE PRIVILEGE
During the first 24 Policy Months, you may convert the Policy to a permanent
fixed benefit Policy. The amount of your new policy will be the Specified
Amount of this Policy on the date of the exchange. We will base premiums on the
same Age at issue and risk classification of the Insured as the existing
Policy. The conversion will be subject to an equitable adjustment in payments
and Cash Value to reflect variances, if any, in the payments and Cash Value
under the existing Policy and the new Policy. SEE your Policy for further
information.
BENEFITS AT MATURITY
If your Policy is in effect at the maturity date, we will pay you your Policy's
Cash Value less any outstanding Policy Debt. This is your Policy's maturity
value. We may pay benefits at maturity in a lump sum or under an optional
payment plan. The maturity date is shown in your Policy.
OPTIONAL PAYMENT PLANS
The Policy currently offers the following five optional payment plans as
alternatives to the payment of a death benefit Proceeds or Surrender Value in a
lump sum:
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. If the payee dies before the end of the guaranteed period, we will
discount the amount of remaining payments for the minimum period at a yearly
rate of 3%. We will pay the discounted amounts in one sum to the payee's estate
unless otherwise provided.
PLAN 2 -- INCOME FOR 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. If the payee dies, we will discount the amount of the
remaining guaranteed payments to the date of the payee's death at a yearly rate
of 3%. We will pay the discounted amount in one sum to the payee's estate
unless otherwise provided.
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 we pay 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. If the payee dies, we will pay the
amount of the remaining proceeds with earned interest in one sum to the payee's
estate unless otherwise provided.
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<PAGE>
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. If the payee
dies, we will pay the amount of remaining proceeds and any earned but unpaid
interest in one sum to the payee's estate unless otherwise provided.
PLAN 5 -- JOINT LIFE AND SURVIVOR INCOME. We will make equal monthly payments
to two payees for a guaranteed minimum of l0 years. Each payee must be at least
35 years old when payments begin. Payments will continue as long as either
payee is living. If both payees die before the end of the minimum period, we
will discount the amount of the remaining payments for the 10 year period at a
yearly rate of 3%. We will pay the discounted amount in one sum to the
survivor's estate unless otherwise provided.
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.
You may select an optional payment plan in your application or by writing our
Home Office. We will transfer any amount left with us for payment under an
optional payment plan to our General Account. Payments under an optional payment
plan will not vary with the investment performance of Separate Account III
because they are forms of fixed-benefit annuities. Amounts allocated to an
optional payment plan will earn interest of at least 3.0% compounded annually.
Certain conditions and restrictions apply to payments received under an optional
payment plan. For further information, please review your Policy or contact one
of our authorized agents.
DIVIDENDS
The Policy is non-participating. We will not pay dividends on the Policy.
INCONTESTABILITY
The Policy limits our right to contest the Policy as issued or as increased,
except for material misstatements contained in the application or a
supplemental application, after it has been in force during the Insured's
lifetime for a minimum period, generally for two years from the Policy Date or
effective date of the increase.
SUICIDE EXCLUSION
If the Insured commits suicide while sane or insane within two years of the
Policy Date, we will limit the death benefit Proceeds we pay under the Policy
to all premiums paid (other than those required for an increase in Specified
Amount and those applied to repay Policy Debt), less outstanding Policy Debt
and less amounts paid upon partial withdrawal of the Policy.
If the Insured commits suicide while sane or insane within two years after the
effective date of an increase in the Specified Amount, we will limit the death
benefit Proceeds with respect to the increase. The death benefit thus limited
will equal the additional premium payment required for the increase.
MISSTATEMENT OF AGE OR SEX
We will adjust the Proceeds if you misstated the Insured's Age or sex in your
application.
WRITTEN NOTICE
You should send any written notice to us at our Home Office. The notice should
include the Policy number and the Insured's full name. We will send any notice
to the address shown in the application unless an appropriate address change
form has been filed with us.
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<PAGE>
TRUSTEE
If you name a trustee as the Owner or Beneficiary of the Policy and the trustee
subsequently exercises ownership rights or claims benefits thereunder, we will
have no obligation to verify that a trust is in effect or that the trustee is
acting within the scope of his/her authority. Payment of Policy benefits to the
trustee will release us from all obligations under the Policy to the extent of
the payment. When we make a payment to the trustee, we will have no obligation
to ensure that such payment is applied according to the terms of the trust
agreement.
OTHER CHANGES
At any time, we may make such changes in the Policy as are necessary to assure
compliance at all times with the definition of life insurance prescribed by the
Code:
o to make the Policy, our operations, or the operation of Separate Account
III to conform with any law or regulation issued by any government agency
to which they are subject; or
o to reflect a change in the operation of Separate Account III, if allowed
by the Policy.
Only the President or Vice President of GE Life & Annuity has the right to
change the Policy. No agent has the authority to change the Policy or waive any
of its terms. An officer of GE Life & Annuity must sign all endorsements,
amendments, or riders to be valid.
REPORTS
We maintain records and accounts of all transactions involving the Policy,
Separate Account III and Policy Debt. Within 30 days after each Policy
Anniversary, we will send you a report showing information about your Policy.
The report will show:
o Specified Amount;
o the Cash Value in each Investment Subdivision and the Guarantee Account;
o the Surrender Value;
o Policy Debt; and
o premiums paid and charges made during the Policy Year.
We also will send you an annual and a semi-annual report for each Fund
underlying an Investment Subdivision to which you have allocated Cash Value, as
required by the 1940 Act. In addition, when you pay premiums (other than by
pre-authorized checking account deduction), or if you take out a Policy loan,
make transfers or make partial withdrawals, you will receive a written
confirmation of these transactions.
CHANGE OF OWNER
You may change the Owner of the Policy by sending a written request on a form
satisfactory to us to our Home Office while the Insured is alive and the Policy
is in force. The change will take effect the date you sign the written request,
but the change will not affect any action we have taken before we receive the
written request. A change of Owner does not change the Beneficiary designation.
USING THE POLICY AS COLLATERAL
You can assign the Policy as collateral security. You must notify us in writing
if you assign the Policy. Any payments we made before the assignment will not
be affected. We are not responsible for the validity of an assignment. An
assignment may affect your rights and the rights of the Beneficiary.
REINSURANCE
We intend to reinsure a portion of the risks assumed under the Policies.
33
<PAGE>
LEGAL PROCEEDINGS
GE Life & Annuity, like all other companies, is involved in lawsuits, including
class action lawsuits. In some class action and other lawsuits involving
insurance companies, substantial damages have been sought and/or material
settlement payments have been made. Although the outcome of any litigation
cannot be predicted with certainty, GE Life & Annuity 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 Separate Account III.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
SALE OF THE POLICIES
Our licensed life insurance agents sell the Policies. These agents 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 Corporation
does business in Indiana, Minnesota, New Mexico, and Texas as GE Capital
Brokerage Corporation.)
Capital Brokerage Corporation, a Washington corporation, located at 6630 W.
Broad Street, Richmond, Virginia 23230, is registered with the SEC under the
Securities Exchange Act of 1934 as a broker-dealer and 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 we issue. However, Capital Brokerage Corporation has
not retained any amounts for acting as principal underwriter of these other
policies.
Our writing agents 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 also may be eligible to receive certain bonuses and allowances, as well
as retirement plan credits, based on commissions earned. Our field management
receives compensation which we may base in part 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 our field management and writing
agents.
LEGAL MATTERS
The legal matters in connection with the Policy described in this prospectus
have been passed on by Patricia L. Dysart, Associate General Counsel and
Assistant Vice President of GE Life & Annuity. Sutherland Asbill & Brennan LLP
of Washington, D.C. has provided advice on matters relating to the federal
securities laws.
YEAR 2000 READINESS DISCLOSURE
Like all financial services providers, we use computer systems that may be
affected by Year 2000 date data processing issues and we rely on service
providers, including banks, custodians, administrators, and investment managers
that may also be affected. In addition, to the extent the Funds invest in
securities of issuers located in foreign countries, the Funds may be affected
not only in the United States, but also in foreign countries. (Please see the
Funds' prospectuses for more information.) Therefore, we have been engaged in a
process to evaluate and develop plans to have our computer systems and critical
applications ready to process Year 2000 date data and to correct or replace
systems and applications with Year 2000 issues. Moreover, we have confirmed
that our service providers are also so engaged, and we are monitoring these
other service providers (particularly those that are critical to our business)
for emerging Year 2000 date data issues.
We have devoted, and will continue to devote, substantial resources to this
effort. In 1998, we spent $2.4 million dollars on this effort, and we have
budgeted an additional $1.8 million dollars on this effort in
34
<PAGE>
1999. Remedial and other actions we have taken include inventorying our
computer systems, applications and interfaces, assessing ways we might be
impacted by Year 2000 issues, and developing a range of solutions specific to
particular situations and implementing appropriate solutions. Most of the
systems, applications and interfaces that were identified as having Year 2000
issues have already been replaced with different hardware or software or
upgraded to new or other releases of software which is Year 2000 ready. We have
also developed a business continuity plan and have completed testing the plan.
It is difficult to predict with precision whether the outcome of these efforts
will be completely successful. However, as of the date of this Prospectus, we
do not anticipate that you will experience negative effects on your investment,
or on the services provided in connection therewith, as a result of the
Company's Year 2000 transition implementation. We have completed our efforts
with respect to our critical applications, and therefore we believe that our
critical applications are substantially Year 2000 capable. With respect to our
non-critical applications, our goal is to be substantially Year 2000 capable on
or about June 1999. However, there can be no assurance that our efforts will be
totally successful, or that interaction with other service providers will not
impair our ability to provide uninterrupted and complete services to you.
If we are not successful in our Year 2000 transition or implementation, or if
interaction with our service providers is impaired, it is possible that we
could encounter difficulty and/or delays in calculating unit values, redeeming
units, delivering account statements and providing other information,
communication and servicing to our policyholders. In light of our past and
current efforts to address this issue, we do not consider the likelihood of
this possibility to be very high.
EXPERTS
The consolidated balance sheets of The Life Insurance Company of Virginia, now
known as GE Life and Annuity Assurance Company, and subsidiary as of December
31, 1998 and 1997, and the related consolidated statements of income and
comprehensive income, shareholders' interest and cash flows for the years then
ended, the nine months ended December 31, 1996 and the preacquisition
three months ended March 31, 1996, and the statements of assets and
liabilities of Life of Virginia Separate Account III, now known as GE Life &
Annuity Separate Account III, as of December 31, 1998 and the related
statements of operations and changes in net assets for each of the years or
lesser periods in the three year period then ended have been included herein
and in the registration statement in reliance upon the reports of KPMG 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 LLP dated January 22, 1999, with respect to the consolidated
financial statements of The Life Insurance Company of Virginia, now known as GE
Life and Annuity Assurance Company, and subsidiary contains an explanatory
paragraph that states that 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.
ACTUARIAL MATTERS
Actuarial matters included in this prospectus have been examined by Bruce E.
Booker, an actuary of GE Life & Annuity, whose opinion we filed as an exhibit
to the registration statement.
FINANCIAL STATEMENTS
You should distinguish the consolidated financial statements of Life of
Virginia, now GE Life & Annuity, and subsidiary included in this prospectus
from the financial statements of Separate Account III. Please consider the
financial statements of Life of Virginia, now GE Life & Annuity, only as
bearing on our ability to meet our obligations under the Policies. You should
not consider the consolidated financial statements of Life
35
<PAGE>
of Virginia, now GE Life & Annuity, and subsidiary as affecting the investment
performance of the assets held in Separate Account III.
EXECUTIVE OFFICERS AND DIRECTORS
We are managed by a board of directors. The following table sets forth the
name, address and principal occupations during the past five years of each of
our executive officers and directors.
<TABLE>
<CAPTION>
NAME AND POSITION(S)
WITH GE LIFE & ANNUITY* PRINCIPAL OCCUPATIONS LAST FIVE YEARS
- ------------------------- --------------------------------------------------------------------------------------
<S> <C>
Ronald V. Dolan Director, Chairman of the Board, GE Life & Annuity since 1997; President and Chief
Executive Officer of First Colony Life Insurance Company 1992-1997
Pamela S. Schutz President, GE Life & Annuity since 9/98; President of The Harvest Life Insurance
Company 9/97-7/98; President, GE Capital Realty Group 2/78-5/97
Selwyn L. Flournoy, Jr. Director, GE Life & Annuity since 5/89; Senior Vice President, GE Life & Annuity,
since 1980; Chief Financial Officer 1980-1998
Robert D. Chinn Director, GE Life & Annuity, since 1997; Senior Vice President --
Agency, GE Life & Annuity, since 1/92 Victor C. Moses Director, GE Life
& Annuity, since 5/96; Director of GNA since April, 1994; Senior Vice
President, Business Development and Chief Actuary of GNA since May,
1993.
Geoffrey S. Stiff Senior Vice President, GE Life & Annuity 3/99; Director, GE Life &
Annuity, since 5/96; Vice President, GE Life & Annuity 5/96-3/99;
Director of GNA since April, 1994; Senior Vice President, Chief
Financial Officer and Treasurer of GNA since May, 1993; Senior Vice
President, Controller and Treasurer of GNA Investors Trust since 1993.
Richard P. McKenney Manager of Finance since 10/96, GE Financial Assurance/GE Life and Annuity
Assurance Company; Chief Financial Officer since 10/98
Jerry G. Overman Treasurer, GE Life and Annuity Assurance Company since 1979
Kelly L. Groh Vice President and Controller/Sr. Finance Analyst, GE Life and Annuity Assurance
Company since 3/96
</TABLE>
- ----------
* Prior to 1999, GE Life & Annuity was known as Life of Virginia.
The principal business address of each person listed, unless otherwise
indicated, is GE Life and Annuity Assurance Company, 6610 W. Broad Street,
Richmond, Virginia 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 is GNA Corporation, Two Union
Square, 601 Union Street, Seattle, WA 98101.
OTHER INFORMATION
We have filed a Registration Statement filed with the SEC, under the Securities
Act of 1933 as amended, for the Policies being offered here. This Prospectus
does not contain all the information in the Registration Statement, its
amendments and exhibits. Please refer to the Registration Statement for further
information about Separate Account III, the Company, and the Policies offered.
Statements in this Prospectus about the content of Policies and other legal
instruments are summaries. For the complete text of those Policies and
instruments, please refer to those documents as filed with the SEC and
available on the SEC's website at http://www.sec gov.
36
<PAGE>
- --------------------------------------------------------------------------------
HYPOTHETICAL ILLUSTRATIONS
- --------------------------------------------------------------------------------
37
<PAGE>
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 third, fourth, fifth and
sixth illustrations show an annual premium of $10,000 payable for five years,
with no further premiums. The specified insurance amount for the first four
illustrations is $141,964. Because the fifth and sixth illustrations show 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. GE Life & Annuity 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 12%. The Death Benefits,
Cash Values and Surrender Values would be different from those shown if the
gross annual investment rates of return averaged 0%, 6% or 12%, over a period of
years, but fluctuated above and below those averages for individual Policy
years.
The illustration columns using the cost of insurance charges currently deducted
by GE Life & Annuity assume those current cost of insurance charges are
continued for the entire period indicated. Although GE Life & Annuity 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 GE Life &
Annuity, the charges could be increased or decreased, based upon its estimate
of expected mortality. Thus, the values in the 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 0.65%,
which represents the average investment advisory fee of the Funds, and a charge
of 0.15%, which represents the average annual other expenses of the Funds.
38
<PAGE>
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 1998, 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 GE Life & Annuity to an Investment Subdivision for
assuming mortality and expense risks and administrative expenses, which is
equivalent to a charge at an annual rate of l.30% of the net assets of the
Investment Subdivision. After deduction of these amounts, the illustrated gross
annual investment rates of return of 0%, 6% and 12% correspond to approximate
net annual rates of -2.10%, 3.90% and 9.90%, respectively.
The annual expenses used for all the funds in these illustrations are net of
certain reimbursements and fee waivers by the Funds' investment advisors. GE
Life & Annuity cannot guarantee that the reimbursements and fee waivers 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. GE Life & Annuity
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 GE Life & Annuity is
not currently making such charges. However, such charges may be made in the
future and, in that event, the gross annual investment rate of return would
have to exceed 0%, 6% or 12% by an amount sufficient to cover the tax charges
in order to produce the death benefits and Cash Values illustrated. (SEE
Federal Tax Matters.)
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, GE Life & Annuity will provide a comparable illustration based
upon the proposed Insured's age, sex, where appropriate, and risk class and the
proposed premium payments.
39
<PAGE>
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 6% ASSUMED HYPOTHETICAL 12% ASSUMED HYPOTHETICAL
GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
PREMIUMS RETURN WITH MAXIMUM RETURN WITH MAXIMUM RETURN WITH MAXIMUM
END ACCUMULATED CHARGES (2)(3) CHARGES (2)(3) CHARGES (2)(3)
OF AT 5% ------------------------------ ------------------------------ ----------------------------------
POLICY INTEREST SURRENDER CASH DEATH SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------- ------------ ----------- -------- --------- ----------- -------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 44,744 47,744 141,964 47,712 50,712 141,964 50,681 53,681 141,964
2 55,125 42,430 45,430 141,964 48,364 51,364 141,964 54,659 57,659 141,964
3 57,881 40,048 43,048 141,964 48,949 51,949 141,964 58,968 61,968 141,964
4 60,775 37,588 40,588 141,964 49,460 52,460 141,964 63,648 66,648 141,964
5 63,814 35,538 38,038 141,964 50,386 52,886 141,964 69,245 71,745 141,964
6 67,005 33,378 35,378 141,964 51,212 53,212 141,964 75,307 77,307 141,964
7 70,355 31,086 32,586 141,964 51,919 53,419 141,964 81,891 83,391 141,964
8 73,873 28,633 29,633 141,964 52,486 53,486 141,964 89,065 90,065 141,964
9 77,566 25,984 26,484 141,964 52,883 53,383 141,964 96,908 97,408 141,964
10 81,445 23,104 23,104 141,964 53,081 53,081 141,964 105,519 105,519 141,964
15 103,946 1,652 1,652 141,964 48,920 48,920 141,964 164,192 164,192 190,462
20 132,665 * * * 32,176 32,176 141,964 256,631 256,631 274,595
25 169,318 * * * * * * 403,757 403,757 423,945
30 216,097 * * * * * * 628,458 628,458 659,881
35 275,801 * * * * * * 961,635 961,635 1,009,717
</TABLE>
* Premium in addition to the planned premium is required to keep the 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.
40
<PAGE>
(2) The values and benefits are as of the end of the year shown. They assume
that no Policy loans or withdrawals have been made. Excessive loans or
withdrawals may cause this Policy to lapse because of insufficient account
value.
(3) The values and benefits are shown using the maximum expense charges and
cost of insurance rates allowable under the Policy. Accordingly, if the assumed
hypothetical gross annual investment return were earned, the values and
benefits of an actual Policy with the listed specifications could never be less
than those shown, and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6%, AND 12% SHOWN
ABOVE CORRESPOND TO NET ANNUAL RATES OF -2.1%, 3.9%, AND 9.9%. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL INVESTMENT RATE OF RETURN AVERAGES 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY GE LIFE & ANNUITY OR THE FUNDS THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
41
<PAGE>
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 6% ASSUMED HYPOTHETICAL 12% ASSUMED HYPOTHETICAL
GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
PREMIUMS RETURN WITH CURRENT RETURN WITH CURRENT RETURN WITH CURRENT
END ACCUMULATED CHARGES (2)(3) CHARGES (2)(3) CHARGES (2)(3)
OF AT 5% ------------------------------ ------------------------------- -------------------------------------
POLICY INTEREST SURRENDER CASH DEATH SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------- ------------ ----------- -------- --------- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 52,500 45,414 48,414 141,964 48,381 51,381 141,964 51,348 54,348 141,964
2 55,125 43,878 46,878 141,964 49,801 52,801 141,964 56,079 59,079 141,964
3 57,881 42,392 45,392 141,964 51,259 54,259 141,964 61,235 64,235 141,964
4 60,775 40,952 43,952 141,964 52,758 55,758 141,964 66,866 69,866 141,964
5 63,814 40,058 42,558 141,964 54,798 57,298 141,964 73,522 76,022 141,964
6 67,005 39,208 41,208 141,964 56,881 58,881 141,964 80,758 82,758 141,964
7 70,355 38,401 39,901 141,964 59,008 60,508 141,964 88,605 90,105 141,964
8 73,873 37,635 38,635 141,964 61,179 62,179 141,964 97,132 98,132 141,964
9 77,566 36,910 37,410 141,964 63,397 63,897 141,964 106,419 106,919 141,964
10 81,445 36,223 36,223 141,964 65,662 65,662 141,964 116,567 116,567 142,212
15 103,946 31,613 31,613 141,964 77,154 77,154 141,964 183,325 183,325 212,657
20 132,665 27,590 27,590 141,964 90,658 90,658 141,964 286,537 286,537 306,594
25 169,318 24,078 24,078 141,964 106,525 106,525 141,964 450,809 450,809 473,349
30 216,097 21,014 21,014 141,964 125,169 125,169 141,964 702,759 702,759 737,896
35 275,801 18,340 18,340 141,964 147,076 147,076 154,430 1,093,358 1,093,358 1,148,026
</TABLE>
(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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although GE Life & Annuity anticipates
deducting these charges for the forseeable future, THESE CHARGES ARE NOT
GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF GE LIFE & ANNUITY.
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 or
expense charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6%, AND 12% SHOWN
ABOVE CORRESPOND TO NET ANNUAL RATES OF -2.1%, 3.9%, AND 9.9%. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL INVESTMENT RATE OF RETURN AVERAGES 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY GE LIFE & ANNUITY OR THE FUNDS THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE>
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 6% ASSUMED HYPOTHETICAL 12% ASSUMED HYPOTHETICAL
GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
PREMIUMS RETURN WITH MAXIMUM RETURN WITH MAXIMUM RETURN WITH MAXIMUM
END ACCUMULATED CHARGES (2)(3) CHARGES (2)(3) CHARGES (2)(3)
OF AT 5% ------------------------------- ------------------------------- ------------------------------
POLICY INTEREST SURRENDER CASH DEATH SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------- ------------ ----------- --------- --------- ----------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 7,768 8,368 141,964 8,322 8,922 141,964 8,878 9,478 141,964
2 21,525 15,281 16,481 141,964 16,918 18,118 141,964 18,623 19,823 141,964
3 33,101 22,557 24,357 141,964 25,813 27,613 141,964 29,344 31,144 141,964
4 45,256 29,606 32,006 141,964 35,035 37,435 141,964 41,164 43,564 141,964
5 58,019 36,540 39,440 141,964 44,713 47,613 141,964 54,323 57,223 141,964
6 60,920 34,066 36,766 141,964 44,972 47,672 141,964 58,467 61,167 141,964
7 63,966 31,562 33,962 141,964 45,190 47,590 141,964 63,027 65,427 141,964
8 67,164 28,999 30,999 141,964 45,341 47,341 141,964 68,037 70,037 141,964
9 70,523 26,344 27,844 141,964 45,394 46,894 141,964 73,536 75,036 141,964
10 74,049 23,460 24,460 141,964 45,213 46,213 141,964 79,475 80,475 141,964
15 94,507 2,861 2,861 141,964 38,607 38,607 141,964 119,123 119,123 141,964
20 120,618 * * * 16,182 16,182 141,964 186,112 186,112 199,140
25 153,942 * * * * * * 292,810 292,810 307,450
30 196,473 * * * * * * 455,766 455,766 478,554
35 250,755 * * * * * * 697,391 697,391 732,261
</TABLE>
* Premium in addition to the planned premium is required to keep the 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 account
value.
(3) The values and benefits are shown using the maximum expense charges and
cost of insurance rates allowable under the Policy. Accordingly, if the assumed
hypothetical gross annual investment return were earned, the values and
benefits of an actual Policy with the listed specifications could never be less
than those shown, and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6%, AND 12% SHOWN
ABOVE CORRESPOND TO NET ANNUAL RATES OF -2.1%, 3.9%, AND 9.9%. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL INVESTMENT RATE OF RETURN AVERAGES 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY GE LIFE & ANNUITY OR THE FUNDS THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE>
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 6% ASSUMED HYPOTHETICAL 12% ASSUMED HYPOTHETICAL
GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
PREMIUMS RETURN WITH CURRENT RETURN WITH CURRENT RETURN WITH CURRENT
END ACCUMULATED CHARGES (2)(3) CHARGES (2)(3) CHARGES (2)(3)
OF AT 5% ------------------------------- ------------------------------- ------------------------------
POLICY INTEREST SURRENDER CASH DEATH SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------- ------------ ----------- --------- --------- ----------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,049 9,649 141,964 9,640 10,240 141,964 10,232 10,832 141,964
2 21,525 17,759 18,959 141,964 19,527 20,727 141,964 21,364 22,564 141,964
3 33,101 26,142 27,942 141,964 29,665 31,465 141,964 33,472 35,272 141,964
4 45,256 34,210 36,610 141,964 40,061 42,461 141,964 46,641 49,041 141,964
5 58,019 42,232 45,132 141,964 51,010 53,910 141,964 61,276 64,176 141,964
6 60,920 41,000 43,700 141,964 52,699 55,399 141,964 67,057 69,757 141,964
7 63,966 39,914 42,314 141,964 54,530 56,930 141,964 73,424 75,824 141,964
8 67,164 38,972 40,972 141,964 56,502 58,502 141,964 80,421 82,421 141,964
9 70,523 38,172 39,672 141,964 58,619 60,119 141,964 88,098 89,598 141,964
10 74,049 37,414 38,414 141,964 60,779 61,779 141,964 96,423 97,423 141,964
15 94,507 33,179 33,179 141,964 71,886 71,886 141,964 151,136 151,136 175,317
20 120,618 28,957 28,957 141,964 84,467 84,467 141,964 236,225 236,225 252,761
25 153,942 25,271 25,271 141,964 99,251 99,251 141,964 371,654 371,654 390,236
30 196,473 22,055 22,055 141,964 116,622 116,622 141,964 579,365 579,365 608,333
35 250,755 19,248 19,248 141,964 137,033 137,033 143,885 901,381 901,381 946,450
</TABLE>
(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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although GE Life & Annuity anticipates
deducting these charges for the forseeable future, THESE CHARGES ARE NOT
GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF GE LIFE & ANNUITY.
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 or
expense charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6%, AND 12% SHOWN
ABOVE CORRESPOND TO NET ANNUAL RATES OF -2.1%, 3.9%, AND 9.9%. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL INVESTMENT RATE OF RETURN AVERAGES 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY GE LIFE & ANNUITY OR THE FUNDS THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE>
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 6% ASSUMED HYPOTHETICAL 12% ASSUMED HYPOTHETICAL
GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
PREMIUMS RETURN WITH MAXIMUM RETURN WITH MAXIMUM RETURN WITH MAXIMUM
END ACCUMULATED CHARGES (2)(3) CHARGES (2)(3) CHARGES (2)(3)
OF AT 5% ------------------------------- ------------------------------- ------------------------------
POLICY INTEREST SURRENDER CASH DEATH SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------- ------------ ----------- --------- --------- ----------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 6,725 7,325 125,475 7,249 7,849 125,475 7,774 8,374 125,475
2 21,525 13,195 14,395 125,475 14,713 15,913 125,475 16,298 17,498 125,475
3 33,101 19,430 21,230 125,475 22,429 24,229 125,475 25,691 27,491 125,475
4 45,256 25,445 27,845 125,475 30,435 32,835 125,475 36,091 38,491 125,475
5 58,019 31,354 34,254 125,475 38,874 41,774 125,475 47,759 50,659 125,475
6 60,920 27,704 30,404 125,475 37,713 40,413 125,475 50,194 52,894 125,475
7 63,966 23,843 26,243 125,475 36,297 38,697 125,475 52,792 55,192 125,475
8 67,164 19,703 21,703 125,475 34,554 36,554 125,475 55,548 57,548 125,475
9 70,523 15,201 16,701 125,475 32,396 33,896 125,475 58,453 59,953 125,475
10 74,049 10,140 11,140 125,475 29,619 30,619 125,475 61,406 62,406 125,475
15 94,507 * * * 2 2 125,475 77,098 77,098 125,475
20 120,618 * * * * * * 100,014 100,014 125,475
25 153,942 * * * * * * 148,840 148,840 156,282
30 196,473 * * * * * * 224,924 224,924 236,171
35 250,755 * * * * * * 328,474 328,474 344,897
</TABLE>
* Premium in addition to the planned premium is required to keep the 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 account
value.
(3) The values and benefits are shown using the maximum expense charges and
cost of insurance rates allowable under the Policy. Accordingly, if the assumed
hypothetical gross annual investment return were earned, the values and
benefits of an actual Policy with the listed specifications could never be less
than those shown, and in some cases may be greater than those shown.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6%, AND 12% SHOWN
ABOVE CORRESPOND TO NET ANNUAL RATES OF -2.1%, 3.9%, AND 9.9%. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL INVESTMENT RATE OF RETURN AVERAGES 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY GE LIFE & ANNUITY OR THE FUNDS THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
45
<PAGE>
VARIABLE LIFE INSURANCE
<TABLE>
<S> <C> <C>
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>
<TABLE>
<CAPTION>
0% ASSUMED HYPOTHETICAL 6% ASSUMED HYPOTHETICAL 12% ASSUMED HYPOTHETICAL
GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT GROSS ANNUAL INVESTMENT
PREMIUMS RETURN WITH CURRENT RETURN WITH CURRENT RETURN WITH CURRENT
END ACCUMULATED CHARGES (2)(3) CHARGES (2)(3) CHARGES (2)(3)
OF AT 5% ------------------------------- ------------------------------- ------------------------------
POLICY INTEREST SURRENDER CASH DEATH SURRENDER CASH DEATH SURRENDER CASH DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------- ------------ ----------- --------- --------- ----------- --------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 8,301 8,901 125,475 8,873 9,473 125,475 9,445 10,045 125,475
2 21,525 16,362 17,562 125,475 18,063 19,263 125,475 19,833 21,033 125,475
3 33,101 24,198 25,998 125,475 27,596 29,396 125,475 31,276 33,076 125,475
4 45,256 31,817 34,217 125,475 37,494 39,894 125,475 43,893 46,293 125,475
5 58,019 39,332 42,232 125,475 47,888 50,788 125,475 57,927 60,827 125,475
6 60,920 37,500 40,200 125,475 48,950 51,650 125,475 63,075 65,775 125,475
7 63,966 35,621 38,021 125,475 49,996 52,396 125,475 68,722 71,122 125,475
8 67,164 33,656 35,656 125,475 50,995 52,995 125,475 74,914 76,914 125,475
9 70,523 31,557 33,057 125,475 51,914 53,414 125,475 81,713 83,213 125,475
10 74,049 29,175 30,175 125,475 52,616 53,616 125,475 89,097 90,097 125,475
15 94,507 3,774 3,774 125,475 46,391 46,391 125,475 136,970 136,970 158,885
20 120,618 * * * 3,879 3,879 125,475 208,714 208,714 223,324
25 153,942 * * * * * * 322,243 322,243 338,355
30 196,473 * * * * * * 486,970 486,970 511,319
35 250,755 * * * * * * 711,161 711,161 746,719
</TABLE>
* Premium in addition to the planned premium is required to keep the 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 account
value.
(3) The values and benefits are shown using the expense charges and cost of
insurance rates currently in effect. Although GE Life & Annuity anticipates
deducting these charges for the forseeable future, THESE CHARGES ARE NOT
GUARANTEED AND COULD BE RAISED AT THE DISCRETION OF GE LIFE & ANNUITY.
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 or
expense charges were increased.
THE HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN SHOWN ABOVE AND
ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE DEEMED A
REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF RETURN.
ACTUAL INVESTMENT RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL
DEPEND ON A NUMBER OF FACTORS, INCLUDING PREVAILING INTEREST RATES, RATES OF
INFLATION, AND THE ALLOCATIONS MADE BY AN OWNER AMONG THE INVESTMENT OPTIONS.
THE GROSS HYPOTHETICAL INVESTMENT RATES OF RETURN OF 0%, 6%, AND 12% SHOWN
ABOVE CORRESPOND TO NET ANNUAL RATES OF -2.1%, 3.9%, AND 9.9%. THE DEATH
BENEFIT AND CASH VALUE FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF THE
ACTUAL INVESTMENT RATE OF RETURN AVERAGES 0%, 6%, AND 12% OVER A PERIOD OF
YEARS, BUT FLUCTUATED ABOVE OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE BY GE LIFE & ANNUITY OR THE FUNDS THAT
THESE HYPOTHETICAL INVESTMENT RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR
OR SUSTAINED OVER ANY PERIOD OF TIME.
46
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
LIFE OF VIRGINIA SEPARATE ACCOUNT III
TABLE OF CONTENTS
DECEMBER 31, 1998
PAGE
-----
Independent Auditors' Report ................... A-3
Financial Statements:
Statements of Assets and Liabilities .......... A-4
Statements of Operations ...................... A-11
Statements of Changes in Net Assets ........... A-21
Notes to Financial Statements .................. A-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
Policyholders
Life of Virginia Separate Account III
and
The 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, Income and U.S. Equity 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 PBHG Growth
II Portfolios; the Janus Aspen Series -- Aggressive Growth, Growth,
Worldwide Growth, Balanced, Flexible Income, International Growth and
Capital Appreciation Portfolios; and the Goldman Sachs Variable
Insurance Trust Fund -- Growth and Income, and Mid Cap Equity Funds) as
of December 31, 1998 and the related statements of operations and
changes in net assets for the aforementioned funds and the GE
Investments Funds, Inc. Government Securities Fund; the Oppenheimer
Variable Account Money Fund; the Variable Insurance Products Fund --
Money Market and High Income Portfolios; and the Neuberger & Berman
Advisers Management Trust -- Balanced, Bond and Growth Portfolios, of
Life of Virginia Separate Account III for each of the years or lesser
periods in the three year period 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.
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, 1998, 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 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, 1998 and the results of their operations and changes
in their net assets for each of the years or lesser periods in the three
year period then ended in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Richmond, Virginia
February 12, 1999
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
-------------------------------------------------------------
S&P 500 MONEY TOTAL INTERNATIONAL
INDEX MARKET RETURN EQUITY
FUND FUND FUND FUND
ASSETS --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment in GE Investments Funds, Inc., at fair value
(note 2):
S&P 500 Index Fund (262,906 shares;
cost -- $5,771,156).......................................... $ 6,233,508 -- -- --
Money Market Fund (11,242,128 shares;
cost -- $11,242,128)......................................... -- 11,242,128 -- --
Total Return Fund (122,092 shares;
cost -- $1,726,565).......................................... -- -- 1,789,863 --
International Equity Fund (26,863 shares;
cost -- $345,138)............................................ -- -- -- 319,402
Real Estate Securities Fund (61,643 shares;
cost -- $935,562)............................................ -- -- -- --
Global Income Fund (2,709 shares;
cost -- $27,899)............................................. -- -- -- --
Value Equity Fund (39,257 shares;
cost -- $528,175)............................................ -- -- -- --
Income Fund (119,139 shares; cost of $1,455,472)............... -- -- -- --
U.S. Equity Fund (366 shares; cost $11,012).................... -- -- -- --
Receivable for units sold ...................................... -- 198,856 231 --
----------- ---------- --------- -------
TOTAL ASSETS ................................................ 6,233,508 11,440,984 1,790,094 319,402
----------- ---------- --------- -------
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. 13,115 602,160 2,542 19,163
Payable for units withdrawn .................................... 140,870 -- -- --
----------- ---------- --------- -------
TOTAL LIABILITIES ........................................... 153,985 602,160 2,542 19,163
----------- ---------- --------- -------
Net assets attributable to variable life policyholders ......... $ 6,079,523 10,838,824 1,787,552 300,239
=========== ========== ========= =======
Outstanding units .............................................. 140,437 692,577 59,645 20,749
=========== ========== ========= =======
Net asset value per unit ....................................... $ 43.29 15.65 29.97 14.47
=========== =========== ========== ========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
(CONTINUED)
-------------------------
REAL ESTATE GLOBAL
SECURITIES INCOME
FUND FUND
ASSETS ------------- -----------
<S> <C> <C>
Investment in GE Investments Funds, Inc., at fair value
(note 2):
S&P 500 Index Fund (262,906 shares;
cost -- $5,771,156).......................................... -- --
Money Market Fund (11,242,128 shares;
cost -- $11,242,128)......................................... -- --
Total Return Fund (122,092 shares;
cost -- $1,726,565).......................................... -- --
International Equity Fund (26,863 shares;
cost -- $345,138)............................................ -- --
Real Estate Securities Fund (61,643 shares;
cost -- $935,562)............................................ $ 712,358 --
Global Income Fund (2,709 shares;
cost -- $27,899)............................................. -- 28,521
Value Equity Fund (39,257 shares;
cost -- $528,175)............................................ -- --
Income Fund (119,139 shares; cost of $1,455,472)............... -- --
U.S. Equity Fund (366 shares; cost $11,012).................... -- --
Receivable for units sold ...................................... -- --
--------- ------
TOTAL ASSETS ................................................ 712,358 28,521
--------- ------
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. 5,517 36
Payable for units withdrawn .................................... -- --
--------- ------
TOTAL LIABILITIES ........................................... 5,517 36
--------- ------
Net assets attributable to variable life policyholders ......... $ 706,841 28,485
========= ======
Outstanding units .............................................. 47,312 2,483
========= ======
Net asset value per unit ....................................... $ 14.94 11.47
========= =======
<CAPTION>
GE INVESTMENTS FUNDS, INC. (CONTINUED)
---------------------------------------
VALUE U.S.
EQUITY INCOME EQUITY
FUND FUND FUND
ASSETS ------------ -------------- -----------
<S> <C> <C> <C>
Investment in GE Investments Funds, Inc., at fair value
(note 2):
S&P 500 Index Fund (262,906 shares;
cost -- $5,771,156).......................................... -- -- --
Money Market Fund (11,242,128 shares;
cost -- $11,242,128)......................................... -- -- --
Total Return Fund (122,092 shares;
cost -- $1,726,565).......................................... -- -- --
International Equity Fund (26,863 shares;
cost -- $345,138)............................................ -- -- --
Real Estate Securities Fund (61,643 shares;
cost -- $935,562)............................................ -- -- --
Global Income Fund (2,709 shares;
cost -- $27,899)............................................. -- -- --
Value Equity Fund (39,257 shares;
cost -- $528,175)............................................ 532,724 -- --
Income Fund (119,139 shares; cost of $1,455,472)............... -- 1,470,171 --
U.S. Equity Fund (366 shares; cost $11,012).................... -- -- 11,255
Receivable for units sold ...................................... 1,652 -- --
------- --------- ------
TOTAL ASSETS ................................................ 534,376 1,470,171 11,255
------- --------- ------
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. 1,668 2,862 1,093
Payable for units withdrawn .................................... -- 260 --
------- --------- ------
TOTAL LIABILITIES ........................................... 1,668 3,122 1,093
------- --------- ------
Net assets attributable to variable life policyholders ......... 532,708 1,467,049 10,162
======= ========= ======
Outstanding units .............................................. 38,490 137,493 952
======= ========= ======
Net asset value per unit ....................................... 13.84 10.67 10.67
======== ========== =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT
FUNDS
------------------------------
CAPITAL
BOND APPRECIATION
FUND FUND
ASSETS --------------- --------------
<S> <C> <C>
Investment in Oppenheimer Variable Account Funds,
at fair value (note 2):
Bond Fund (201,259 shares; cost -- $2,458,255)................. $ 2,479,515 --
Capital Appreciation Fund (145,202 shares;
cost -- $5,897,978).......................................... -- 6,509,425
Growth Fund (130,689 shares; cost -- $4,333,754)............... -- --
High Income Fund (748,152 shares;
cost -- $8,219,409)..........................................
Multiple Strategies Fund (190,787 shares;
cost -- $3,121,234).......................................... -- --
Receivable from affiliate ..................................... -- 22,545
Receivable for units sold ..................................... 7,506 --
----------- ---------
TOTAL ASSETS ................................................ 2,487,021 6,531,970
----------- ---------
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. 13,416 8,732
Payable for units withdrawn .................................... -- 24,554
----------- ---------
TOTAL LIABILITIES ........................................... 13,416 33,286
----------- ---------
Net assets attributable to variable life policyholders ......... $ 2,473,605 6,498,684
=========== =========
Outstanding units .............................................. 106,851 176,259
=========== =========
Net asset value per unit ....................................... $ 23.15 36.87
=========== ==========
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
--------------------------------------------
HIGH MULTIPLE
GROWTH INCOME STRATEGIES
FUND FUND FUND
ASSETS -------------- -------------- --------------
<S> <C> <C> <C>
Investment in Oppenheimer Variable Account Funds,
at fair value (note 2):
Bond Fund (201,259 shares; cost -- $2,458,255)................. -- -- --
Capital Appreciation Fund (145,202 shares;
cost -- $5,897,978).......................................... -- -- --
Growth Fund (130,689 shares; cost -- $4,333,754)............... 4,792,364 -- --
High Income Fund (748,152 shares;
cost -- $8,219,409).......................................... 8,244,634
Multiple Strategies Fund (190,787 shares;
cost -- $3,121,234).......................................... -- -- 3,252,924
Receivable from affiliate ..................................... 137,978 4,235 --
Receivable for units sold ..................................... 2,064,446 -- 471
--------- --------- ---------
TOTAL ASSETS ................................................ 6,994,788 8,248,869 3,253,395
--------- --------- ---------
LIABILITIES
Accrued expenses payable to affiliate (note 3) ................. 5,971 9,985 5,073
Payable for units withdrawn .................................... -- 2,077,629 --
--------- --------- ---------
TOTAL LIABILITIES ........................................... 5,971 2,087,614 5,073
--------- --------- ---------
Net assets attributable to variable life policyholders ......... 6,988,817 6,161,255 3,248,322
========= ========= =========
Outstanding units .............................................. 187,368 193,022 118,293
========= ========= =========
Net asset value per unit ....................................... 37.30 31.92 27.46
========== ========== ==========
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
-----------------------------------------------
EQUITY-
INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS ---------------- --------------- --------------
<S> <C> <C> <C>
Investment in Variable Insurance Products Fund, at fair value (note 2):
Equity -- Income Portfolio (664,659 shares; cost -- $14,237,287).......... $ 16,895,621 -- --
Growth Portfolio (300,426 shares; cost -- $11,816,014).................... -- 13,480,127 --
Overseas Portfolio (251,510 shares; cost -- $4,783,827)................... -- -- 5,042,784
Receivable for units sold ................................................. -- 130 --
------------ ---------- ---------
TOTAL ASSETS ........................................................... 16,895,621 13,480,257 5,042,784
------------ ---------- ---------
LIABILITIES
Accrued expenses payable to affiliate (note 3) ............................ 24,419 22,742 34,286
Payable for units withdrawn ............................................... 45,269 -- 1,974
------------ ---------- ---------
TOTAL LIABILITIES ...................................................... 69,688 22,742 36,260
------------ ---------- ---------
Net assets attributable to variable life policyholders .................... $ 16,825,933 13,457,515 5,006,524
============ ========== =========
Outstanding units ......................................................... 466,221 291,541 240,006
============ ========== =========
Net asset value per unit .................................................. $ 36.09 46.16 20.86
============ =========== ==========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND II
--------------------------------
ASSET
MANAGER CONTRAFUND
PORTFOLIO PORTFOLIO
ASSETS ---------------- ---------------
<S> <C> <C>
Investment in Variable Insurance Products Fund II, at fair value
(note 2):
Asset Manager Portfolio (571,650 shares;
cost -- $8,684,598)............................................. $ 10,381,159 --
Contrafund Portfolio (456,973 shares; cost -- $9,156,256)......... 11,168,410
Investment in Variable Insurance Products Fund III, at fair
value (note 2):
Growth & Income Portfolio (62,378 shares;
cost -- $904,305)............................................... -- --
Growth Opportunities Portfolio (28,242 shares;
cost -- $531,813)............................................... -- --
Receivable for units sold ......................................... 602 26,319
------------ ----------
TOTAL ASSETS ................................................... 10,381,761 11,194,729
------------ ----------
LIABILITIES
Accrued expenses payable to affiliate (note 3) .................... 33,831 17,505
Payable for units withdrawn ....................................... -- --
------------ ----------
TOTAL LIABILITIES .............................................. 33,831 17,505
------------ ----------
Net assets attributable to variable life policyholders ............ $ 10,347,930 11,177,224
============ ==========
Outstanding units ................................................. 376,015 427,427
============ ==========
Net asset value per unit .......................................... $ 27.52 26.15
============ ==========
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND III
-----------------------------
GROWTH & GROWTH
INCOME OPPORTUNITIES
PORTFOLIO PORTFOLIO
ASSETS -------------- --------------
<S> <C> <C>
Investment in Variable Insurance Products Fund II, at fair value
(note 2):
Asset Manager Portfolio (571,650 shares;
cost -- $8,684,598)............................................. -- --
Contrafund Portfolio (456,973 shares; cost -- $9,156,256)......... -- --
Investment in Variable Insurance Products Fund III, at fair
value (note 2):
Growth & Income Portfolio (62,378 shares;
cost -- $904,305)............................................... 1,007,398 --
Growth Opportunities Portfolio (28,242 shares;
cost -- $531,813)............................................... -- 646,169
Receivable for units sold ......................................... -- --
--------- -------
TOTAL ASSETS ................................................... 1,007,398 646,169
--------- -------
LIABILITIES
Accrued expenses payable to affiliate (note 3) .................... 2,201 1,866
Payable for units withdrawn ....................................... -- --
--------- -------
TOTAL LIABILITIES .............................................. 2,201 1,866
--------- -------
Net assets attributable to variable life policyholders ............ 1,005,197 644,303
========= =======
Outstanding units ................................................. 63,540 42,641
========= =======
Net asset value per unit .......................................... 15.82 15.11
========= ========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FEDERATED INVESTORS
INSURANCE SERIES
-------------------------------------------
HIGH
AMERICAN INCOME
LEADERS BOND UTILITY
FUND II FUND II FUND II
ASSETS --------------- -------------- ------------
<S> <C> <C> <C>
Investment in Federated Investors Insurance
Series, at fair value (note 2):
American Leaders Fund II (48,004 shares;
cost $925,846).......................... $ 1,040,734 -- --
High Income Bond Fund II (103,662
shares; cost $1,137,446)................ -- 1,131,985
Utility Fund II (34,595 shares; cost
$451,952)............................... -- -- 528,269
Investment in Alger American Fund, at fair
value (note 2):
Small Cap Portfolio (68,735 shares; cost
$2,646,898)............................. -- -- --
Growth Portfolio (62,855 shares; cost
$2,787,627)............................. -- -- --
Investment in PBHG Insurance Series Fund,
at fair value (note 2): ..................
PBHG Large Cap Growth Portfolio (3,394
shares; cost $40,380)................... -- -- --
PBHG Growth II Portfolio (11,982 shares;
cost $124,222)..........................
Receivable for units sold ................. 150 -- --
----------- --------- -------
TOTAL ASSETS ........................... 1,040,884 1,131,985 528,269
----------- --------- -------
LIABILITIES
Accrued expenses payable to affiliate
(note 3) ................................. 2,299 2,462 1,699
Payable for units withdrawn ............... -- -- --
----------- --------- -------
TOTAL LIABILITIES ...................... 2,299 2,462 1,699
----------- --------- -------
Net assets attributable to variable life
policyholders ............................ $ 1,038,585 1,129,523 526,570
=========== ========= =======
Outstanding units ......................... 61,968 74,067 27,861
=========== ========= =======
Net asset value per unit .................. $ 16.76 15.25 18.90
=========== ========== ========
<CAPTION>
PBHG INSURANCE
ALGER AMERICAN SERIES FUND
----------------------------- ------------------------
PBHG
SMALL LARGE CAP PBHG
CAP GROWTH GROWTH GROWTH II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Investment in Federated Investors Insurance
Series, at fair value (note 2):
American Leaders Fund II (48,004 shares;
cost $925,846).......................... -- -- -- --
High Income Bond Fund II (103,662
shares; cost $1,137,446)................
Utility Fund II (34,595 shares; cost
$451,952)............................... -- -- -- --
Investment in Alger American Fund, at fair
value (note 2):
Small Cap Portfolio (68,735 shares; cost
$2,646,898)............................. 3,022,287 -- -- --
Growth Portfolio (62,855 shares; cost
$2,787,627)............................. -- 3,345,134 -- --
Investment in PBHG Insurance Series Fund,
at fair value (note 2): ..................
PBHG Large Cap Growth Portfolio (3,394
shares; cost $40,380)................... -- -- 52,401 --
PBHG Growth II Portfolio (11,982 shares;
cost $124,222).......................... 139,355
Receivable for units sold ................. 2,517 4,979 -- --
--------- --------- ------ -------
TOTAL ASSETS ........................... 3,024,804 3,350,113 52,401 139,355
--------- --------- ------ -------
LIABILITIES
Accrued expenses payable to affiliate
(note 3) ................................. 2,518 4,561 16,706 1,362
Payable for units withdrawn ............... -- -- -- --
--------- --------- ------ -------
TOTAL LIABILITIES ...................... 2,518 4,561 16,706 1,362
--------- --------- ------ -------
Net assets attributable to variable life
policyholders ............................ 3,022,286 3,345,552 35,695 137,993
========= ========= ====== =======
Outstanding units ......................... 249,982 171,128 2,362 12,126
========= ========= ====== =======
Net asset value per unit .................. 12.09 19.55 15.11 11.38
========== ========== ======= ========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
----------------------------------------------
AGGRESSIVE WORLDWIDE
GROWTH GROWTH GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS --------------- -------------- ---------------
<S> <C> <C> <C>
Investment in Janus Aspen Series,
at fair value (note 2):
Aggressive Growth Portfolio
(100,752 shares;
cost -- $2,362,322)...................... $ 2,779,743 -- --
Growth Portfolio (266,304 shares;
cost -- $5,131,723)...................... -- 6,268,803 --
Worldwide Growth Portfolio
(386,227 shares;
cost -- $9,451,759)...................... -- -- 11,235,329
Balanced Portfolio (226,585
shares; cost -- $3,863,437).............. -- -- --
Flexible Income Portfolio (36,259
shares; cost -- $428,786)................ -- -- --
International Growth Portfolio
(143,362 shares;
cost -- $2,827,850)...................... -- -- --
Capital Appreciation Portfolio
(46,288 shares;
cost -- $866,820)........................
Investment in Goldman Sachs
Variable Insurance Trust Fund,
at fair value (note 2):
Growth and Income Fund
(507 shares; cost -- $5,246)............. -- -- --
Mid Cap Equity Fund
(9,388 shares; cost -- $80,260).......... -- -- --
Receivable from affiliate .................. 38,714 -- --
Receivable for units sold .................. -- 195 --
----------- --------- ----------
TOTAL ASSETS ............................ 2,818,457 6,268,998 11,235,329
----------- --------- ----------
LIABILITIES
Accrued expenses payable to affiliate
(note 3) .................................. 4,331 8,950 14,807
Payable for units withdrawn ................ 39,837 -- 20,210
----------- --------- ----------
TOTAL LIABILITIES ....................... 44,168 8,950 35,017
----------- --------- ----------
Net assets attributable to variable life
policyholders ............................. $ 2,774,289 6,260,048 11,200,312
=========== ========= ==========
Outstanding units .......................... 123,521 263,803 471,394
=========== ========= ==========
Net asset value per unit ................... $ 22.46 23.73 23.76
=========== ========== ===========
<CAPTION>
JANUS ASPEN SERIES
--------------------------------------------------------
FLEXIBLE INTERNATIONAL CAPITAL
BALANCED INCOME GROWTH APPRECIATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS -------------- ----------- --------------- -------------
<S> <C> <C> <C> <C>
Investment in Janus Aspen Series,
at fair value (note 2):
Aggressive Growth Portfolio
(100,752 shares;
cost -- $2,362,322)...................... -- -- -- --
Growth Portfolio (386,227 shares;
cost -- $9,451,759)...................... -- -- -- --
Worldwide Growth Portfolio
(386,227 shares;
cost -- $9,451,759)...................... -- -- -- --
Balanced Portfolio (226,585
shares; cost -- $3,863,437).............. 5,098,156 -- -- --
Flexible Income Portfolio (36,259
shares; cost -- $428,786)................ -- 437,285 -- --
International Growth Portfolio
(143,362 shares;
cost -- $2,827,850)...................... -- -- 3,049,316 --
Capital Appreciation Portfolio
(46,288 shares;
cost -- $866,820)........................ 922,990
Investment in Goldman Sachs
Variable Insurance Trust Fund,
at fair value (note 2):
Growth and Income Fund
(507 shares; cost -- $5,246)............. -- -- -- --
Mid Cap Equity Fund
(9,388 shares; cost -- $80,260).......... -- -- -- --
Receivable from affiliate .................. -- -- -- 11,776
Receivable for units sold .................. -- -- -- --
--------- ------- --------- -------
TOTAL ASSETS ............................ 5,098,156 437,285 3,049,316 934,766
--------- ------- --------- -------
LIABILITIES
Accrued expenses payable to affiliate
(note 3) .................................. 7,715 1,199 3,711 1,329
Payable for units withdrawn ................ 5,495 -- 2,199 5,578
--------- ------- --------- -------
TOTAL LIABILITIES ....................... 13,210 1,199 5,910 6,907
--------- ------- --------- -------
Net assets attributable to variable life
policyholders ............................. 5,084,946 436,086 3,043,406 927,859
========= ======= ========= =======
Outstanding units .......................... 261,302 32,471 192,621 47,461
========= ======= ========= =======
Net asset value per unit ................... 19.46 13.43 15.80 19.55
========== ======== ========== ========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF ASSETS AND LIABILITIES, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GOLDMAN SACHS
VARIABLE INSURANCE
TRUST FUND
----------------------------
GROWTH AND MID CAP
INCOME FUND EQUITY FUND
ASSETS ------------- ------------
<S> <C> <C>
Investment in Janus Aspen Series, at fair value (note 2):
Aggressive Growth Portfolio (100,752 shares; cost -- $2,362,322)..................... -- --
Growth Portfolio (266,304 shares; cost -- $5,131,723)................................ -- --
Worldwide Growth Portfolio (386,227 shares; cost -- $9,451,759)...................... -- --
Balanced Portfolio (226,585 shares; cost -- $3,863,437).............................. -- --
Flexible Income Portfolio (36,259 shares; cost -- $428,786)..........................
International Growth Portfolio (143,362 shares; cost -- $2,827,850).................. -- --
Capital Appreciation Portfolio (46,288 shares; cost -- $866,820).....................
Investment in Goldman Sachs Variable Insurance Trust Fund, at fair value (note 2):
Growth and Income Fund (507 shares; cost -- $5,246).................................. $ 5,295 --
Mid Cap Equity Fund (9,388 shares; cost -- $80,260).................................. -- 80,456
Receivable from affiliate ............................................................ -- --
Receivable for units sold ............................................................ -- --
------- ------
TOTAL ASSETS ...................................................................... 5,295 80,456
------- ------
LIABILITIES
Accrued expenses payable to affiliate (note 3) ....................................... 6 187
Payable for units withdrawn .......................................................... -- --
------- ------
TOTAL LIABILITIES ................................................................. 6 187
------- ------
Net assets attributable to variable life policyholders ............................... $ 5,289 80,269
======= ======
Outstanding units .................................................................... 598 9,377
======= ======
Net asset value per unit ............................................................. $ 8.85 8.56
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
--------------------------------------------------------------------------
S&P 500 GOVERNMENT
INDEX SECURITIES
FUND FUND
----------------------------------------- ------------------------------
PERIOD YEAR
ENDED ENDED
YEAR ENDED DECEMBER 31, DECEMBER 11, DECEMBER 31,
1998 1997 1996 1997 1996
------------- --------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ............................ $ 231,479 83,460 652,254 -- 77,670
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ......... 62,371 30,270 15,181 9,821 10,265
---------- ------ ------- ----- ------
Net investment income (expense) ................. 169,108 53,190 637,073 (9,821) 67,405
---------- ------ ------- ------ ------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) ....................... 398,018 125,533 70,710 2,596 4,093
Unrealized appreciation (depreciation) on
investments .................................. 497,472 337,547 (460,582) 46,607 (68,909)
---------- ------- -------- ------ -------
Net realized and unrealized gain (loss) on
investments .................................... 895,490 463,080 (389,872) 49,203 (64,816)
---------- ------- -------- ------ -------
Increase in net assets from operations .......... $1,064,598 516,270 247,201 39,382 2,589
========== ======= ======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC. (CONTINUED)
------------------------------------------------------------------------
MONEY MARKET TOTAL RETURN
FUND FUND
-------------------------------------- ---------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
----------- ------------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends .............................. $667,640 524,091 500,346 91,033 228,688 387,179
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ........... 165,220 134,484 131,290 22,215 20,274 16,395
-------- ------- ------- ------ ------- -------
Net investment income (expense) ................... 502,420 389,607 369,056 68,818 208,414 370,784
-------- ------- ------- ------ ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) ......................... (2,104) (256,503) 137,112 4,509 1,710 37,094
Unrealized appreciation (depreciation) on
investments .................................... 2,104 287,655 (89,338) 183,805 26,729 (292,293)
-------- -------- ------- ------- ------- --------
Net realized and unrealized gain (loss) on
investments ...................................... -- 31,152 47,774 188,314 28,439 (255,199)
-------- -------- ------- ------- ------- --------
Increase in net assets from operations ............ $502,420 420,759 416,830 257,132 236,853 115,585
======== ======== ======= ======= ======= ========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
(CONTINUED)
-----------------------------------
INTERNATIONAL
EQUITY FUND
-----------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
---------- ----------- ------------
<S> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... $16,301 86,245 46,694
Expenses -- Mortality and expense risk charges ...........
and administrative expenses (note 3) ................... 4,237 11,206 5,198
------- ------ ------
Net investment income ..................................... 12,064 75,039 41,496
------- ------ ------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) ................................. 1,173 146,386 19,981
Unrealized appreciation (depreciation) on
investments ............................................ 5,854 (6,150) (29,424)
------- ------- -------
Net realized and unrealized gain (loss) on
investments .............................................. 7,027 140,236 (9,443)
------- ------- -------
Increase (decrease) in net assets from operations ......... $19,091 215,275 32,053
======= ======= =======
<CAPTION>
GE INVESTMENTS FUNDS, INC.
(CONTINUED)
-----------------------------------
REAL ESTATE
SECURITIES FUND
-----------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ------------ ---------
<S> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... 54,408 111,357 14,330
Expenses -- Mortality and expense risk charges ...........
and administrative expenses (note 3) ................... 11,845 10,398 1,294
------ ------- ------
Net investment income ..................................... 42,563 100,959 13,036
------ ------- ------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) ................................. (76,333) 142,744 3,590
Unrealized appreciation (depreciation) on
investments ............................................ (155,043) (97,672) 29,513
-------- ------- ------
Net realized and unrealized gain (loss) on
investments .............................................. (231,376) 45,072 33,103
-------- ------- ------
Increase (decrease) in net assets from operations ......... (188,813) 146,031 46,139
======== ======= ======
</TABLE>
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC. (CONTINUED)
------------------------------------------------------------
GLOBAL INCOME FUND VALUE EQUITY FUND
------------------------------ -----------------------------
PERIOD FROM PERIOD FROM
YEAR SEPTEMBER 15, YEAR JUNE 17,
ENDED 1997 TO ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ............. $1,611 684 15,311 2,631
Expenses -- Mortality
and expense risk
charges and adminis-
trative expenses
(note 3) ...................... 292 19 7,471 710
------ --- ------ -----
Net investment income ............ 1,319 665 7,840 1,921
------ --- ------ -----
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss) ........ 11 -- 1,355 208
Unrealized appreciation
(depreciation) on
investments ................... 1,291 (669) 2,571 1,977
------ ---- ------ -----
Net realized and unrealized
gain (loss) on
investments ..................... 1,302 (669) 3,926 2,185
------ ---- ------ -----
Increase (decrease) in net
assets from operations .......... $2,621 (4) 11,766 4,106
====== ====== ====== =====
<CAPTION>
GE INVESTMENTS FUNDS, INC. (CONTINUED)
-----------------------------------------------
INCOME FUND U.S. EQUITY FUND
----------------------------- -----------------
PERIOD FROM PERIOD FROM
YEAR DECEMBER 12, MAY 5, 1998
ENDED 1997 TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
-------------- -------------- -----------------
<S> <C> <C> <C>
Investment income:
Income -- Dividends ............. 82,066 3,329 289
Expenses -- Mortality
and expense risk
charges and adminis-
trative expenses
(note 3) ...................... 18,068 733 39
------ ----- ---
Net investment income ............ 63,998 2,596 250
------ ----- ---
Net realized and unrealized
gain (loss) on
investments:
Net realized gain (loss) ........ 9,720 (2,508) 89
Unrealized appreciation
(depreciation) on
investments ................... 13,245 1,454 243
------ ------ ---
Net realized and unrealized
gain (loss) on
investments ..................... 22,965 (1,054) 332
------ ------ ---
Increase (decrease) in net
assets from operations .......... 86,963 1,542 582
====== ====== ===
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
------------------------------------------------------------------------
MONEY FUND BOND FUND
------------------------------ ---------------------------------------
PERIOD YEAR
ENDED ENDED
DECEMBER 11, DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1998 1997 1996
-------------- ------------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ............................ $7,779 12,118 58,921 128,635 106,583
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ......... 1,958 2,973 44,412 21,914 22,427
------ ------ ------ ------- -------
Net investment income ........................... 5,821 9,145 14,509 106,721 84,156
------ ------ ------ ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain .............................. -- -- 140,916 11,410 31,061
Unrealized appreciation (depreciation) on
investments .................................. -- -- (22,639) 14,947 (44,892)
------ ------ ------- ------- -------
Net realized and unrealized gain (loss) on
investments .................................... -- -- 118,277 26,357 (13,831)
------ ------ ------- ------- -------
Increase in net assets from operations .......... $5,821 9,145 132,786 133,078 70,325
====== ====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS (CONTINUED)
--------------------------------------------------------------------
CAPITAL APPRECIATION FUND GROWTH FUND
--------------------------------- ----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------- --------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends .......................... $ 188,573 271,809 216,310 381,828 137,266 100,033
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ....... 92,177 80,784 58,271 56,132 39,859 18,585
---------- ------- ------- ------- ------- -------
Net investment income ......................... 96,396 191,025 158,039 325,696 97,407 81,448
---------- ------- ------- ------- ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain ............................ 1,139,675 362,326 207,037 779,763 211,799 104,773
Unrealized appreciation (depreciation) on
investments ................................ (392,601) 69,894 284,866 (197,508) 311,259 101,309
---------- ------- ------- -------- ------- -------
Net realized and unrealized gain (loss) on
investments .................................. 747,074 432,220 491,903 582,255 523,058 206,082
---------- ------- ------- -------- ------- -------
Increase in net assets from operations ........ $ 843,470 623,245 649,942 907,951 620,465 287,530
========== ======= ======= ======== ======= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS (CONTINUED)
-----------------------------------------------------------------------
HIGH INCOME FUND MULTIPLE STRATEGIES FUND
------------------------------------ ----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------- ------------ --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ............................ $ 268,182 395,329 317,982 196,071 204,231 161,518
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ......... 83,415 56,210 39,512 42,195 36,789 29,130
---------- ------- ------- ------- ------- -------
Net investment income ........................... 184,767 339,119 278,470 153,876 167,442 132,388
---------- ------- ------- ------- ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) ....................... (157,587) 180,406 57,827 353,554 34,009 53,160
Unrealized appreciation (depreciation) on
investments .................................. 402 (53,341) 72,516 (372,624) 206,122 106,953
---------- ------- ------- -------- ------- -------
Net realized and unrealized gain (loss) on
investments .................................... (157,185) 127,065 130,343 (19,070) 240,131 160,113
---------- ------- ------- -------- ------- -------
Increase in net assets from operations .......... $ 27,582 466,184 408,813 134,806 407,573 292,501
========== ======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
----------------------------------------------------------
MONEY MARKET PORTFOLIO HIGH INCOME PORTFOLIO
----------------------------- ----------------------------
PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ........................................... $91,625 75,804 105,638 201,481
Expenses -- Mortality and expense risk charges and
administrative expenses (note 3) ............................ 10,228 18,807 15,435 20,933
------- ------ ------- -------
Net investment income .......................................... 81,397 56,997 90,203 180,548
------- ------ ------- -------
Net realized and unrealized gain (loss) on investments:
Net realized gain (loss) ...................................... -- -- 185,532 (17,100)
Unrealized appreciation (depreciation) on investments ......... -- -- (92,552) 27,229
------- ------ ------- -------
Net realized and unrealized gain on investments ................ -- -- 92,980 10,129
------- ------ ------- -------
Increase in net assets from operations ......................... $81,397 56,997 183,183 190,677
======= ====== ======= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND (CONTINUED)
--------------------------------------------------------------------------
EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO
-------------------------------------- -----------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------- ----------- ------------ ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ......................... $1,007,037 1,283,339 413,062 1,413,289 315,208 461,083
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .................................. 217,902 186,346 140,373 156,899 121,040 101,913
---------- --------- ------- --------- ------- -------
Net investment income ........................ 789,135 1,096,993 272,689 1,256,390 194,168 359,170
---------- --------- ------- --------- ------- -------
Net realized and unrealized gain (loss) on
investments:
Net realized gain (loss) .................... 1,283,354 1,197,816 500,603 1,619,202 1,766,746 536,491
Unrealized appreciation (depreciation) on
investments ............................... (494,927) 1,016,128 539,174 667,154 (282,336) 31,232
---------- --------- ------- --------- --------- -------
Net realized and unrealized gain on
investments ................................. 788,427 2,213,944 1,039,777 2,286,356 1,484,410 567,723
---------- --------- --------- --------- --------- -------
Increase in net assets from operations ....... $1,577,562 3,310,937 1,312,466 3,542,746 1,678,578 926,893
========== ========= ========= ========= ========= =======
</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,
1998 1997 1996 1998 1997 1996
------------- ------------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ........................... $ 351,924 506,300 176,637 1,219,238 1,006,221 555,062
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .................................... 62,196 73,250 81,887 131,037 120,291 107,941
---------- ------- ------- --------- --------- -------
Net investment income (expense) ................ 289,728 433,050 94,750 1,088,201 885,930 447,121
---------- ------- ------- --------- --------- -------
Net realized and unrealized gain (loss) on
investments: ..................................
Net realized gain (loss) ...................... (178,639) 801,884 517,315 252,067 187,349 168,152
Unrealized appreciation (depreciation) on
investments ................................. 349,052 (489,713) (15,497) (67,659) 534,401 400,455
---------- -------- ------- --------- --------- -------
Net realized and unrealized gain on
investments ................................... 170,413 312,171 501,818 184,408 721,750 568,607
---------- -------- ------- --------- --------- -------
Increase in net assets from operations ......... $ 460,141 745,221 596,568 1,272,609 1,607,680 1,015,728
========== ======== ======= ========= ========= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE
PRODUCTS FUND II (CONTINUED)
---------------------------------------
CONTRAFUND PORTFOLIO
---------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Investment income:
Income -- Dividends ........... $ 458,019 150,006 15,826
Expenses -- Mortality and
expense risk charges
and administrative
expenses (note 3) ........... 110,295 81,691 38,668
---------- ------- ------
Net investment income
(expense) ..................... 347,724 68,315 (22,842)
---------- ------- -------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) ...... 1,254,204 268,831 100,260
Unrealized appreciation
(depreciation) on
investments ................. 648,485 823,917 476,601
---------- ------- -------
Net realized and unrealized
gain on investments ........... 1,902,689 1,092,748 576,861
---------- --------- -------
Increase in net assets from
operations .................... $2,250,413 1,161,063 554,019
========== ========= =======
<CAPTION>
VARIABLE INSURANCE
PRODUCT FUND III
----------------------------------------------------------
GROWTH & INCOME GROWTH OPPORTUNITIES
PORTFOLIO PORTFOLIO
----------------------------- ----------------------------
PERIOD FROM PERIOD FROM
YEAR MAY 16, YEAR MAY 16,
ENDED 1997 TO ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ........... 1,681 -- 18,246 --
Expenses -- Mortality and
expense risk charges
and administrative
expenses (note 3) ........... 10,395 1,712 5,891 1,910
------ ----- ------ -----
Net investment income
(expense) ..................... (8,714) (1,712) 12,355 (1,910)
------ ------ ------ ------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) ...... 100,071 6,219 15,522 876
Unrealized appreciation
(depreciation) on
investments ................. 91,779 11,314 75,120 39,235
------- ------ ------ ------
Net realized and unrealized
gain on investments ........... 191,850 17,533 90,642 40,111
------- ------ ------ ------
Increase in net assets from
operations .................... 183,136 15,821 102,997 38,201
======= ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
----------------------------------------------------------------------------------------
BALANCED BOND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------- ----------------------------- ----------------------------
PERIOD YEAR PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996 1997 1996
-------------- -------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends .............. $ 123,193 293,957 36,455 67,433 64,488 68,654
Expenses -- Mortality and
expense risk charges
and administrative expenses
(note 3) ....................... 24,999 24,806 6,443 9,529 9,747 9,845
---------- ------- ------ ------ ------ ------
Net investment income ............. 98,194 269,151 30,012 57,904 54,741 58,809
---------- ------- ------ ------ ------ ------
Net realized and unrealized gain
(loss) on investments: ...........
Net realized gain (loss) ......... 315,380 13,816 (3,318) (5,135) 150,610 5,513
Unrealized depreciation on
investments .................... (146,827) (182,324) (1,629) (34,909) (55,310) (6,856)
---------- -------- ------ ------- ------- ------
Net realized and unrealized gain
(loss) on investments ............ 168,553 (168,508) (4,947) (40,044) 95,300 (1,343)
---------- -------- ------ ------- ------- ------
Increase in net assets from
operations ....................... $ 266,747 100,643 25,065 17,860 150,041 57,466
========== ======== ====== ======= ======= ======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FEDERATED INVESTORS INSURANCE SERIES
----------------------------------------------------------------------------------------------
AMERICAN LEADERS HIGH INCOME UTILITY
FUND II BOND FUND II FUND II
------------------------------------ ------------------------------ --------------------------
PERIOD FROM
SEPTEMBER 5,
YEAR ENDED DECEMBER 1996 TO
31, DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996 1998 1997 1996
---------- ----------- ------------- ------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ...... $ 42,271 1,480 96 62,046 45,217 36,032 28,948 12,197 6,514
Expenses -- Mortality
and expense risk
charges and
administrative
expenses (note 3) ...... 11,035 3,437 60 17,967 10,943 5,378 6,146 3,837 2,042
-------- ----- -- ------ ------ ------ ------ ------ -----
Net investment income
(expense) ................ 31,236 (1,957) 36 44,079 34,274 30,654 22,802 8,360 4,472
-------- ------ -- ------ ------ ------ ------ ------ -----
Net realized and
unrealized gain on
investments:
Net realized gain
(loss) ................. (4,077) 11,788 19 85,989 5,827 1,726 25,956 11,484 9,190
Unrealized
appreciation
(depreciation) on
investments ............ 58,884 53,148 2,855 (90,012) 55,167 27,920 8,478 50,092 5,651
-------- ------ ----- ------- ------ ------ ------ ------ -----
Net realized and
unrealized gain (loss)
on investments ........... 54,807 64,936 2,874 (4,023) 60,994 29,646 34,434 61,576 14,841
-------- ------ ----- ------- ------ ------ ------ ------ ------
Increase in net assets
from operations .......... $ 86,043 62,979 2,910 40,056 95,268 60,300 57,236 69,936 19,313
======== ====== ===== ======= ====== ====== ====== ====== ======
</TABLE>
<PAGE>
LIFE OF VIRGINIA
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
--------------------------------------
SMALL CAP PORTFOLIO
--------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------- ------------ -----------
<S> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... $ 207,517 42,941 3,785
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ................... 21,533 18,711 10,887
----------- ------ ------
Net investment income (expense) ........................... 185,984 24,230 (7,102)
----------- ------ ------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ................................. (361,335) 155,266 (13,977)
Unrealized appreciation (depreciation)
on investments ......................................... 411,856 (23,084) (18,580)
----------- ------- -------
Net realized and unrealized gain (loss)
on investments ........................................... 50,521 132,182 (32,557)
----------- ------- -------
Increase (decrease) in net assets from operations ......... $ 236,505 156,412 (39,659)
=========== ======= =======
<CAPTION>
ALGER AMERICAN FUND
------------------------------------
GROWTH PORTFOLIO
------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... 360,690 15,712 14,003
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ................... 31,716 21,426 7,612
------- ------ ------
Net investment income (expense) ........................... 328,974 (5,714) 6,391
------- ------ ------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ................................. 342,335 121,886 (8,548)
Unrealized appreciation (depreciation)
on investments ......................................... 332,102 195,886 27,545
------- ------- ------
Net realized and unrealized gain (loss)
on investments ........................................... 674,437 317,772 18,997
------- ------- ------
Increase (decrease) in net assets from operations ......... 1,003,411 312,058 25,388
========= ======= ======
</TABLE>
<TABLE>
<CAPTION>
PBHG INSURANCE SERIES FUND
----------------------------------------------------------------
PBHG LARGE CAP
GROWTH PORTFOLIO PBHG GROWTH II PORTFOLIO
------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
YEAR JULY 22, YEAR MAY 22,
ENDED 1997 TO ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ...................................... $ -- -- -- --
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ................... 1,340 205 1,328 540
-------- --- ----- ---
Net investment income (expense) ........................... (1,340) (205) (1,328) (540)
-------- ---- ------ ----
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) ................................. 12,396 (1) 36,908 1,296
Unrealized appreciation (depreciation)
on investments ......................................... 11,365 656 15,978 (846)
-------- ------ ------ -----
Net realized and unrealized gain (loss)
on investments ........................................... 23,761 655 52,886 450
-------- ------ ------ -----
Increase (decrease) in net assets from operations ......... $ 22,421 450 51,558 (90)
======== ====== ====== =====
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO GROWTH PORTFOLIO
--------------------------------------- --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------ ------------ ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ........................... $ -- -- 16,844 336,326 112,727 59,031
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .................................... 31,583 28,915 23,442 67,687 49,779 27,643
--------- ------ ------ ------- ------- ------
Net investment income (expense) ................ (31,583) (28,915) (6,598) 268,639 62,948 31,388
--------- ------- ------ ------- ------- ------
Net realized and unrealized gain
on investments: ...............................
Net realized gain ............................. 678,326 192,226 267,683 870,857 243,734 132,138
Unrealized appreciation
(depreciation) on investments ................. 307,545 99,444 (112,622) 434,354 376,858 144,223
--------- ------- -------- ------- ------- -------
Net realized and unrealized gain
on investments ................................ 985,871 291,670 155,061 1,305,211 620,592 276,361
--------- ------- -------- --------- ------- -------
Increase in net assets from operations ......... $ 954,288 262,755 148,463 1,573,850 683,540 307,749
========= ======= ======== ========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JANUS ASPEN SERIES (CONTINUED)
---------------------------------------------------------------------
WORLDWIDE GROWTH PORFOLIO BALANCED PORTFOLIO
------------------------------------ --------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------- ------------ --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ........................... $ 398,345 114,020 59,279 183,223 54,275 10,644
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .................................... 132,642 91,422 40,177 53,807 15,089 4,138
---------- ------- ------ ------- ------ ------
Net investment income (expense) ................ 265,703 22,598 19,102 129,416 39,186 6,506
---------- ------- ------ ------- ------ ------
Net realized and unrealized gain
on investments: ...............................
Net realized gain ............................. 1,535,984 457,649 156,316 75,042 16,368 3,534
Unrealized appreciation
(depreciation) on investments ................. 417,036 666,571 498,790 1,021,865 172,861 38,227
---------- ------- ------- --------- ------- ------
Net realized and unrealized gain
on investments ................................ 1,953,020 1,124,220 655,106 1,096,907 189,229 41,761
---------- --------- ------- --------- ------- ------
Increase in net assets from operations ......... $2,218,723 1,146,818 674,208 1,226,323 228,415 48,267
========== ========= ======= ========= ======= ======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF OPERATIONS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES (CONTINUED)
-------------------------------------------------------------------------
FLEXIBLE INCOME PORTFOLIO INTERNATIONAL GROWTH PORTFOLIO
------------------------------- ---------------------------------------
PERIOD FROM
JUNE 5,
1996 TO
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, DECEMBER 31,
1998 1997 1996 1998 1997 1996
---------- -------- ------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Income -- Dividends ..................... $23,382 12,042 9,499 62,083 13,292 2,339
Expenses -- Mortality and expense risk
charges and administrative expenses
(note 3) .............................. 4,450 2,246 1,046 31,407 19,234 1,253
------- ------ ----- ------ ------ -----
Net investment income (expense) ......... 18,932 9,796 8,453 30,676 (5,942) 1,086
------- ------ ----- ------ ------ -----
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) ................ 2,524 3,107 111 171,620 145,208 2,328
Unrealized appreciation
(depreciation) on investments ......... 3,399 4,489 585 158,124 45,943 17,399
------- ------ ----- ------- ------- ------
Net realized and unrealized gain
(loss) on investments ................... 5,923 7,596 696 329,744 191,151 19,727
------- ------ ----- ------- ------- ------
Increase (decrease) in net assets
from operations ......................... $24,855 17,392 9,149 360,420 185,209 20,813
======= ====== ===== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
GOLDMAN SACHS
VARIABLE INSURANCE
JANUS ASPEN SERIES (CONTINUED) TRUST FUND
------------------------------- ------------------------------
CAPITAL GROWTH AND MID CAP
APPRECIATION INCOME EQUITY
PORTFOLIO FUND FUND
------------------------------- -------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
MAY 22, OCTOBER 6, JUNE 25,
YEAR ENDED 1997 TO 1998 TO 1998 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1998
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Investment income:
Income -- Dividends ............................ $ 555 37 48 662
Expenses -- Mortality and expense risk charges
and administrative expenses (note 3) ......... 6,271 112 11 237
-------- --- -- ---
Net investment income (expense) ................ (5,716) (75) 37 425
-------- --- -- ---
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) ....................... 225,641 (7,519) 58 (16)
-------- ------ -- ---
Unrealized appreciation
(depreciation) on investments ................ 56,754 (582) 49 196
-------- ------ -- ---
Net realized and unrealized gain
(loss) on investments .......................... 282,395 (8,101) 107 180
-------- ------ --- ---
Increase (decrease) in net assets
from operations ................................ $276,679 (8,176) 144 605
======== ====== === ===
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
----------------------------------------------------------------------
S&P 500 INDEX FUND GOVERNMENT SECURITIES FUND
----------------------------------------- ----------------------------
PERIOD YEAR
ENDED ENDED
YEAR ENDED DECEMBER 31, DECEMBER 11, DECEMBER 31,
1998 1997 1996 1997 1996
------------- ------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) ..................... $ 169,108 53,190 637,073 (9,821) 67,405
Net realized gain (loss) ......................... 398,018 125,533 70,710 2,596 4,093
Unrealized appreciation (depreciation) on
investments .................................... 497,472 337,547 (460,582) 46,607 (68,909)
---------- ------- -------- ------ -------
Increase in net assets from operations ............ 1,064,598 516,270 247,201 39,382 2,589
---------- ------- -------- ------ -------
From capital transactions:
Net premiums ..................................... 364,101 29,621 -- 13,143 --
Loan interest .................................... (1,758) (472) (45) (455) (35)
Transfers (to) from the general account of
Life of Virginia:
Death benefits ................................. (26,898) (1,802) (70,983) -- --
Surrenders ..................................... (122,586) (50,594) (8,805) (262,974) (27,170)
Loans .......................................... (8,955) (10,019) (23,690) (23,924) (1,574)
Cost of insurance and administrative
expense (note 3) .............................. (54,690) (24,852) (12,093) (8,334) (8,533)
Transfer gain (loss) and transfer fees ......... 190,048 (2,909) (3,844) (3,207) (829)
Transfers (to) from the Guarantee Account
(note 1) ....................................... 156,285 33,241 40,800 288 (3,299)
Interfund transfers .............................. 1,318,239 1,154,053 531,241 (529,174) 12,746
---------- --------- -------- -------- -------
Increase (decrease) in net assets from capital
transactions ..................................... 1,813,786 1,126,267 452,581 (814,637) (28,694)
---------- --------- -------- -------- -------
Increase (decrease) in net assets ................. 2,878,384 1,642,537 699,782 (775,255) (26,105)
Net assets at beginning of year ................... 3,201,139 1,558,602 858,820 775,255 801,360
---------- --------- -------- -------- -------
Net assets at end of year ......................... $6,079,523 3,201,139 1,558,602 -- 775,255
========== ========= ========= ======== =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENT FUNDS, INC. (CONTINUED)
------------------------------------------------
MONEY MARKET FUND
------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------------- ---------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) ............. $ 502,420 389,607 369,056
Net realized gain (loss) ................. (2,104) (256,503) 137,112
Unrealized appreciation
(depreciation) on investments .......... 2,104 287,655 (89,338)
------------ -------- -------
Increase in net assets from
operations ............................... 502,420 420,759 416,830
------------ -------- -------
From capital transactions:
Net premiums ............................. 10,323,239 14,800,378 21,281,538
Loan interest ............................ 15,680 25,356 843
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... (9,663) -- (30,581)
Surrenders ............................. (492,391) (81,503) (292,797)
Loans .................................. (1,044,167) (259,694) (1,123,153)
Cost of insurance and
administrative expense
(note 3) .............................. (149,692) (124,687) (120,240)
Transfer gain (loss) and
transfer fees ......................... 3,729 (135,353) (46,805)
Transfers (to) from the Guarantee
Account (note 1) ....................... (57,398) (32,069) (480,716)
Interfund transfers ...................... (9,507,257) (13,250,370) (15,451,140)
------------ ----------- -----------
Increase (decrease) in net assets from
capital transactions ..................... (917,920) 942,058 3,736,949
------------ ----------- -----------
Increase (decrease) in net assets ......... (415,500) 1,362,817 4,153,779
Net assets at beginning of year ........... 11,254,324 9,891,507 5,737,728
------------ ----------- -----------
Net assets at end of year ................. $ 10,838,824 11,254,324 9,891,507
============ =========== ===========
<CAPTION>
GE INVESTMENT FUNDS, INC. (CONTINUED)
-----------------------------------------
TOTAL RETURN FUND
-----------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (loss) ............. 68,818 208,414 370,784
Net realized gain (loss) ................. 4,509 1,710 37,094
Unrealized appreciation
(depreciation) on investments .......... 183,805 26,729 (292,293)
------- ------- --------
Increase in net assets from
operations ............................... 257,132 236,853 115,585
------- ------- --------
From capital transactions:
Net premiums ............................. 13,446 37,415 --
Loan interest ............................ (107) 77 (130)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... -- (122,969) --
Surrenders ............................. (163,264) (9,555) (105,824)
Loans .................................. (33,631) (31,550) --
Cost of insurance and
administrative expense
(note 3) .............................. (17,774) (16,232) (13,237)
Transfer gain (loss) and
transfer fees ......................... 643 (3,467) 1,607
Transfers (to) from the Guarantee
Account (note 1) ....................... 10,426 45,496 40,576
Interfund transfers ...................... 52,057 134,091 264,670
-------- -------- --------
Increase (decrease) in net assets from
capital transactions ..................... (138,204) 33,306 187,662
-------- -------- --------
Increase (decrease) in net assets ......... 118,928 270,159 303,247
Net assets at beginning of year ........... 1,668,624 1,398,465 1,095,218
--------- --------- ---------
Net assets at end of year ................. 1,787,552 1,668,624 1,398,465
========= ========= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC. (CONTINUED)
-----------------------------------------------------------------------------
INTERNATIONAL EQUITY FUND REAL ESTATE SECURITIES FUND
--------------------------------------- -------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------ ------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income ............................ $ 12,064 75,039 41,496 42,563 100,959 13,036
Net realized gain (loss) ......................... 1,173 146,386 19,981 (76,333) 142,744 3,590
Unrealized appreciation (depreciation) on
investments .................................... 5,854 (6,150) (29,424) (155,043) (97,672) 29,513
--------- ------- ------- -------- ------- ------
Increase (decrease) in net assets from
operations ....................................... 19,091 215,275 32,053 (188,813) 146,031 46,139
--------- ------- ------- -------- ------- ------
From capital transactions:
Net premiums ..................................... 1,056 1,056 -- 41,531 62,904 9,377
Loan interest .................................... (50) (12) -- (188) -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ................................. -- -- -- -- -- --
Surrenders ..................................... -- -- 750 (2,915) -- --
Loans .......................................... 3,954 1,860 -- (15,423) (16,740) --
Cost of insurance and administrative
expense (note 3) .............................. (3,955) (9,446) (4,299) (11,347) (9,178) (1,186)
Transfer gain (loss) and transfer fees ......... 26,258 (16,723) 320 1,201 (5,456) (277)
Transfers (to) from the Guarantee Account
(note 1) ....................................... 25,276 -- -- 35,000 3,269 --
Interfund transfers .............................. (28,632) (727,513) 551,175 (222,532) 661,463 173,587
--------- -------- ------- -------- ------- -------
Increase (decrease) in net assets from capital
transactions ..................................... 23,907 (750,778) 547,946 (174,673) 696,262 181,501
--------- -------- ------- -------- ------- -------
Increase (decrease) in net assets ................. 42,998 (535,503) 579,999 (363,486) 842,293 227,640
Net assets at beginning of period ................. 257,241 792,744 212,745 1,070,327 228,034 394
--------- -------- ------- --------- ------- -------
Net assets at end of year ......................... $ 300,239 257,241 792,744 706,841 1,070,327 228,034
========= ======== ======= ========= ========= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC. (CONTINUED)
-----------------------------------------------------------
GLOBAL INCOME FUND VALUE EQUITY FUND
------------------------------ ----------------------------
PERIOD FROM
PERIOD FROM JUNE 17,
SEPTEMBER 15, 1997
YEAR ENDED 1997 TO YEAR ENDED TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- --------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income .............................................. $1,319 665 7,840 1,921
Net realized gain (loss) ........................................... 11 -- 1,355 208
Unrealized appreciation (depreciation) on investments .............. 1,291 (669) 2,571 1,977
------- ----- ----- -----
Increase (decrease) in net assets from operations .................. 2,621 (4) 11,766 4,106
------- ------- ------ -----
From capital transactions:
Net premiums ....................................................... -- -- 19,404 4,596
Loan interest ...................................................... -- -- (1,009) --
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................................... -- -- -- --
Surrenders ....................................................... -- -- -- --
Loans ............................................................ -- -- (1,441) --
Cost of insurance and administrative expense (note 3) ............ (264) (18) (5,910) (615)
Transfer gain (loss) and transfer fees ........................... (3) -- (39,597) 360
Transfers (to) from the Guarantee Account (note 1) ................. -- -- -- --
Interfund transfers ................................................ 12,432 13,721 297,789 243,259
-------- ------- ------- -------
Increase (decrease) in net assets from capital transactions ......... 12,165 13,703 269,236 247,600
-------- ------- ------- -------
Increase (decrease) in net assets ................................... 14,786 13,699 281,002 251,706
Net assets at beginning of period ................................... 13,699 -- 251,706 --
-------- ------- ------- -------
Net assets at end of year ........................................... $28,485 13,699 532,708 251,706
======= ======= ======= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC. (CONTINUED)
--------------------------------------------------------
INCOME FUND U.S. EQUITY FUND
------------------------------------ -----------------
YEAR PERIOD FROM PERIOD FROM
ENDED DECEMBER 12, 1997 MAY 5, 1998
DECEMBER 31, TO DECEMBER 31, TO DECEMBER 31,
1998 1997 1998
-------------- ------------------- -----------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income .............................................. $ 63,998 2,596 250
Net realized gain (loss) ........................................... 9,720 (2,508) 89
Unrealized appreciation (depreciation) on investments .............. 13,245 1,454 243
---------- ------ ---
Increase (decrease) in net assets from operations .................. 86,963 1,542 582
---------- ------ ---
From capital transactions:
Net premiums ....................................................... -- -- --
Loan interest ...................................................... (3,764) -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................... -- -- --
Surrenders ....................................................... (2,594) -- --
Loans ............................................................ (21,862) (2,396) --
Cost of insurance and administrative expense (note 3) ............ (15,101) (742) (30)
Transfer gain (loss) and transfer fees ........................... (703) (202) (108)
Transfers (to) from the Guarantee Account (note 1) ................. 7,872 -- --
Interfund transfers ................................................ 196,041 1,221,995 9,718
---------- --------- -----
Increase (decrease) in net assets from capital transactions ......... 159,889 1,218,655 9,580
---------- --------- -----
Increase (decrease) in net assets ................................... 246,852 1,220,197 10,162
Net assets at beginning of period ................................... 1,220,197 -- --
---------- --------- ------
Net assets at end of year ........................................... $1,467,049 1,220,197 10,162
========== ========= ======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
----------------------------------------------------------------------
MONEY FUND BOND FUND
---------------------------- -----------------------------------------
PERIOD YEAR
ENDED ENDED
DECEMBER 11, DECEMBER 31, YEAR ENDED DECEMBER 31,
1997 1996 1998 1997 1996
-------------- ------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income ............................ $ 5,821 9,145 14,509 106,721 84,156
Net realized gain ................................ -- -- 140,916 11,410 31,061
Unrealized appreciation (depreciation) on
investments .................................... -- -- (22,639) 14,947 (44,892)
---------- ----- ------- ------- -------
Increase in net assets from operations ............ 5,821 9,145 132,786 133,078 70,325
---------- ----- ------- ------- -------
From capital transactions:
Net premiums ..................................... -- -- 63,953 12,401 --
Loan interest .................................... -- (247) 1,867 224 (240)
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................. -- -- -- -- --
Surrenders ..................................... -- -- (80,793) -- (19,035)
Loans .......................................... -- (7,000) (717) (20,518) (46,361)
Cost of insurance and administrative expense
(note 3) ...................................... (1,618) (2,228) (29,054) (17,321) (18,368)
Transfer gain (loss) and transfer fees ......... 26 (1,331) (48,553) 4,175 5,246
Transfers (to) from the Guarantee Account
(note 1) ....................................... -- -- 8,443 10,164 9,597
Interfund transfers .............................. (160,456) (178,397) (1,102,223) 1,749,977 49,462
---------- -------- ---------- --------- -------
Increase (decrease) in net assets from capital
transactions ..................................... (162,048) (189,203) (1,187,077) 1,739,102 (19,699)
---------- -------- ---------- --------- -------
Increase (decrease) in net assets ................. (156,227) (180,058) (1,054,291) 1,872,180 50,626
Net assets at beginning of year ................... 156,227 336,285 3,527,896 1,655,716 1,605,090
---------- -------- ---------- --------- ---------
Net assets at end of year ......................... $ -- 156,227 2,473,605 3,527,896 1,655,716
========== ======== ========== ========= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(CONTINUED)
-----------------------------------------
CAPITAL APPRECIATION FUND
-----------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- ------------ ------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income ............................ $ 96,396 191,025 158,039
Net realized gain ................................ 1,139,675 362,326 207,037
Unrealized appreciation (depreciation) on
investments .................................... (392,601) 69,894 284,866
------------- ------- -------
Increase in net assets from operations ............ 843,470 623,245 649,942
------------- ------- -------
From capital transactions:
Net premiums ..................................... 106,960 160,331 --
Loan interest .................................... 7,156 (478) (1,349)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (235,363) (5,632) (22,921)
Loans .......................................... (644,066) (76,259) (37,406)
Cost of insurance and administrative
expense (note 3) .............................. (81,387) (69,581) (48,816)
Transfer gain (loss) and transfer fees ......... (865,659) (10,950) 6,558
Transfers from the Guarantee Account
(note 1) ....................................... 7,563 86,490 38,369
Interfund transfers .............................. 515,285 786,921 1,391,680
------------- ------- ---------
Increase (decrease) in net assets from
capital transactions ............................. (1,189,511) 870,842 1,326,115
------------- ------- ---------
Increase (decrease) in net assets ................. (346,041) 1,494,087 1,976,057
Net assets at beginning of year ................... 6,844,725 5,350,638 3,323,128
------------- --------- ---------
Net assets at end of year ......................... $ 6,498,684 6,844,725 5,299,185
============= ========= =========
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
(CONTINUED)
-----------------------------------------
GROWTH FUND
-----------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income ............................ 325,696 97,407 81,448
Net realized gain ................................ 779,763 211,799 104,773
Unrealized appreciation (depreciation) on
investments .................................... (197,508) 311,259 101,309
-------- ------- -------
Increase in net assets from operations ............ 907,951 620,465 287,530
-------- ------- -------
From capital transactions:
Net premiums ..................................... 130,707 136,857 --
Loan interest .................................... (2,818) (1,570) (58)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (143,689) -- (5,002)
Loans .......................................... (119,579) (52,908) (31,288)
Cost of insurance and administrative
expense (note 3) .............................. (46,695) (33,074) (15,042)
Transfer gain (loss) and transfer fees ......... 130,682 5,703 5,414
Transfers from the Guarantee Account
(note 1) ....................................... 58,430 67,111 22,600
Interfund transfers .............................. 2,177,306 1,239,168 515,014
--------- --------- -------
Increase (decrease) in net assets from
capital transactions ............................. 2,184,344 1,361,287 491,638
--------- --------- -------
Increase (decrease) in net assets ................. 3,092,295 1,981,752 779,168
Net assets at beginning of year ................... 3,896,522 1,914,770 1,135,602
--------- --------- ---------
Net assets at end of year ......................... 6,988,817 3,896,522 1,914,770
========= ========= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS (CONTINUED)
-------------------------------------------------------------------------------
HIGH INCOME FUND MULTIPLE STRATEGIES FUND
--------------------------------------- ---------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------- ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income ......................... $ 184,767 339,119 278,470 153,876 167,442 132,388
Net realized gain (loss) ...................... (157,587) 180,406 57,827 353,554 34,009 53,160
Unrealized appreciation (depreciation)
on investments .............................. 402 (53,341) 72,516 (372,624) 206,122 106,953
---------- ------- ------- -------- ------- -------
Increase in net assets from operations ......... 27,582 466,184 408,813 134,806 407,573 292,501
---------- ------- ------- -------- ------- -------
From capital transactions:
Net premiums .................................. 11,471 94,743 8,422 1,000 12,358 23,572
Loan interest ................................. (1,733) (628) (50) (877) (722) (207)
Transfers (to) from the general
account of Life of Virginia:
Death benefits .............................. (45,936) -- -- (18,545) (2,000) (60,123)
Surrenders .................................. (576,832) (9,092) (4,708) (140,865) -- (212,502)
Loans ....................................... (34,516) (29,617) (37,253) (50,344) 8,746 (9,140)
Cost of insurance and
administrative expense (note 3) ............ (62,108) (45,518) (32,765) (31,968) (29,942) (23,520)
Transfer gain (loss) and transfer
fees ....................................... (53,899) 32,059 4,282 6,332 356 789
Transfers from the Guarantee Account
(note 1) .................................... 28,238 -- -- 29,334 23,966 4,000
Interfund transfers ........................... 191,267 2,226,116 1,526,214 108,424 447,254 240,604
---------- --------- --------- -------- ------- --------
Increase (decrease) in net assets from
capital transactions .......................... (544,048) 2,268,063 1,464,142 (97,509) 460,016 (36,527)
---------- --------- --------- -------- ------- --------
Increase (decrease) in net assets .............. (516,466) 2,734,247 1,872,955 37,297 867,589 255,974
Net assets at beginning of year ................ 6,677,721 3,943,474 2,070,519 3,211,025 2,343,436 2,087,462
---------- --------- --------- --------- --------- ---------
Net assets at end of year ...................... $6,161,255 6,677,721 3,943,474 3,248,322 3,211,025 2,343,436
========== ========= ========= ========= ========= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
------------------------------------------------------------------
MONEY MARKET PORTFOLIO HIGH INCOME PORTFOLIO
------------------------------- --------------------------------
PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............... $ 81,397 56,997 90,203 180,548
Net realized gain (loss) ...................... -- -- 185,532 (17,100)
Unrealized appreciation (depreciation)
on investments .............................. -- -- (92,552) 27,229
------------ ------ ------- -------
Increase in net assets from operations ......... 81,397 56,997 183,183 190,677
------------ ------ ------- -------
From capital transactions:
Net premiums .................................. -- -- -- --
Loan interest ................................. (8,013) 720 6 (361)
Transfers (to) from the general
account of Life of Virginia:
Death benefits .............................. -- -- -- (59,986)
Surrenders .................................. (11,729) (129,716) (163,901) (136,277)
Loans ....................................... (17,933) (17,326) (6,459) (1,885)
Cost of insurance and
administrative expense ..................... (8,075) (14,528) (11,738) (16,160)
Transfer gain (loss) and transfer
fees ....................................... (66,375) (2,554) (44,309) 4,523
Transfers from the Guarantee Account
(note 1) .................................... -- 5,528 -- --
Interfund transfers ........................... (1,079,728) (1,016,677) (1,280,202) (873,671)
------------ ---------- ---------- --------
Increase (decrease) in net assets from
capital transactions .......................... (1,191,853) (1,174,553) (1,506,603) (1,083,817)
------------ ---------- ---------- ----------
Increase (decrease) in net assets .............. (1,110,456) (1,117,556) (1,323,420) (893,140)
Net assets at beginning of year ................ 1,110,456 2,228,012 1,323,420 2,216,560
------------ ---------- ---------- ----------
Net assets at end of year ...................... $ -- 1,110,456 -- 1,323,420
============ ========== ========== ==========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND (CONTINUED)
---------------------------------------------
EQUITY-INCOME PORTFOLIO
---------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- -------------- --------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income
(expense) .............................. $ 789,135 1,096,993 272,689
Net realized gain (loss) ................. 1,283,354 1,197,816 500,603
Unrealized appreciation
(depreciation) on investments .......... (494,927) 1,016,128 539,174
----------- --------- -------
Increase in net assets from
operations ............................... 1,577,562 3,310,937 1,312,466
----------- --------- ---------
From capital transactions:
Net premiums ............................. 146,903 215,369 77,436
Loan interest ............................ (10,898) (5,772) (6,953)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... (61,020) (18,249) (92,711)
Surrenders ............................. (222,133) (71,914) (373,251)
Loans .................................. (402,392) (121,271) (215,646)
Cost of insurance and
administrative expense ................ (167,638) (151,529) (114,634)
Transfer gain (loss) and transfer
fees .................................. 15,304 58,911 41,116
Transfers (to) from the Guarantee
Account (note 1) ....................... 122,727 112,723 127,788
Interfund transfers ...................... (202,161) 311,215 3,056,657
----------- --------- ---------
Increase (decrease) in net assets from
capital transactions ..................... (781,308) 329,483 2,499,802
----------- --------- ---------
Increase (decrease) in net assets ......... 796,254 3,640,420 3,812,268
Net assets at beginning of year ........... 16,029,679 12,389,259 8,576,991
----------- ---------- ---------
Net assets at end of year ................. $16,825,933 16,029,679 12,389,259
=========== ========== ==========
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
(CONTINUED)
-----------------------------------------
GROWTH PORTFOLIO
-----------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------------- ------------- ------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income
(expense) .............................. 1,256,390 194,168 359,170
Net realized gain (loss) ................. 1,619,202 1,766,746 536,491
Unrealized appreciation
(depreciation) on investments .......... 667,154 (282,336) 31,232
--------- --------- -------
Increase in net assets from
operations ............................... 3,542,746 1,678,578 926,893
--------- --------- -------
From capital transactions:
Net premiums ............................. 50,433 78,875 27,587
Loan interest ............................ (17,111) (3,060) (3,910)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... (24,255) (1,634) (73,221)
Surrenders ............................. (572,105) (28,946) (32,373)
Loans .................................. (532,091) (153,343) (43,837)
Cost of insurance and
administrative expense ................ (123,718) (99,653) (83,276)
Transfer gain (loss) and transfer
fees .................................. 177,115 26,694 14,043
Transfers (to) from the Guarantee
Account (note 1) ....................... 100,312 44,630 135,064
Interfund transfers ...................... 463,637 44,400 1,429,513
--------- --------- ---------
Increase (decrease) in net assets from
capital transactions ..................... (477,783) (92,037) 1,369,590
--------- --------- ---------
Increase (decrease) in net assets ......... 3,064,963 1,586,541 2,296,483
Net assets at beginning of year ........... 10,392,552 8,806,011 6,509,528
---------- --------- ---------
Net assets at end of year ................. 13,457,515 10,392,552 8,806,011
========== ========== =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND (CONTINUED)
-------------------------------------------------
OVERSEAS PORTFOLIO
-------------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------- --------------- ---------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................................... $ 289,728 433,050 94,750
Net realized gain (loss) ........................................... (178,639) 801,884 517,315
Unrealized appreciation (depreciation) on investments .............. 349,052 (489,713) (15,497)
---------- -------- -------
Increase in net assets from operations .............................. 460,141 745,221 596,568
---------- -------- -------
From capital transactions:
Net premiums ....................................................... 19,010 12,810 10,673
Loan interest ...................................................... (1,529) (2,436) (326)
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................... (30,475) -- (10,056)
Surrenders ....................................................... (214,745) (26,126) (99,794)
Loans ............................................................ (93,248) (140,934) (49,140)
Cost of insurance and administrative expense (note 3) ............ (47,188) (59,162) (67,126)
Transfer gain (loss) and transfer fees ........................... 66,028 (12,801) 30,035
Transfers (to) from Guarantee Account (note 1) ..................... (8,627) 61,472 47,987
Interfund transfers ................................................ 294,585 (1,392,016) (2,098,908)
---------- ---------- ----------
Increase (decrease) in net assets from capital transactions ......... (16,189) (1,559,193) (2,236,655)
---------- ---------- ----------
Increase (decrease) in net assets ................................... 443,952 (813,972) (1,640,087)
Net assets at beginning of period ................................... 4,562,572 5,376,544 7,016,631
---------- ---------- ----------
Net assets at end of period ......................................... $5,006,524 4,562,572 5,376,544
========== ========== ==========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
-------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO CONTRAFUND PORTFOLIO
-------------------------------------------- ----------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
--------------- ------------ --------------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ........... $ 1,088,201 885,930 447,121 347,724 68,315 (22,842)
Net realized gain (loss) .................. 252,067 187,349 168,152 1,254,204 268,831 100,260
Unrealized appreciation (depreciation)
on investments .......................... (67,659) 534,401 400,455 648,485 823,917 476,601
----------- ------- ------- --------- ------- -------
Increase in net assets from operations ..... 1,272,609 1,607,680 1,015,728 2,250,413 1,161,063 554,019
----------- --------- --------- --------- --------- -------
From capital transactions:
Net premiums .............................. 2,300 98,687 -- 177,753 171,916 139,592
Loan interest ............................. (7,000) (4,946) (3,433) (6,910) (3,288) (465)
Transfers (to) from the general account
of Life of Virginia:
Death benefits .......................... (41,112) (149,074) -- (24,991) (1,797) (20,796)
Surrenders .............................. (325,417) (8,956) (497,465) (22,516) (9,456) (35,592)
Loans ................................... (241,371) (97,092) (368,309) (85,784) (118,554) (41,285)
Cost of insurance and administrative
expense (note 3) ....................... (101,341) (98,131) (86,595) (94,295) (72,675) (34,864)
Transfer gain (loss) and transfer
fees ................................... (13,045) 397 2,356 59,824 34,177 58,463
Transfers (to) from Guarantee Account
(note 1) ................................ 69,851 33,707 1,000 84,180 150,028 105,233
Interfund transfers ....................... 156,323 (59,803) (122,445) 989,747 1,827,255 2,524,438
----------- --------- --------- --------- --------- ---------
Increase (decrease) in net assets from
capital transactions ...................... (500,812) (285,211) (1,074,891) 1,077,008 1,977,606 2,694,724
----------- --------- ---------- --------- --------- ---------
Increase (decrease) in net assets .......... 771,797 1,322,469 (59,163) 3,327,421 3,138,669 3,248,743
Net assets at beginning of period .......... 9,576,133 8,253,664 8,312,827 7,849,803 4,711,134 1,462,391
----------- --------- ---------- --------- --------- ---------
Net assets at end of period ................ $10,347,930 9,576,133 8,253,664 11,177,224 7,849,803 4,711,134
=========== ========= ========== ========== ========= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND III
----------------------------------------------------------------
GROWTH & INCOME PORTFOLIO GROWTH OPPORTUNITIES PORTFOLIO
------------------------------- ------------------------------
PERIOD FROM PERIOD FROM
YEAR MAY 16, YEAR MAY 16,
ENDED 1997 TO ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............... $ (8,714) (1,712) 12,355 (1,910)
Net realized gain (loss) ...................... 100,071 6,219 15,522 876
Unrealized appreciation (depreciation)
on investments .............................. 91,779 11,314 75,120 39,235
---------- ------ ------ ------
Increase in net assets from operations ......... 183,136 15,821 102,997 38,201
---------- ------ ------- ------
From capital transactions:
Net premiums .................................. 23,295 12,486 39,535 18,354
Loan interest ................................. (393) -- (134) --
Transfers (to) from the general
account of Life of Virginia:
Death benefits .............................. -- -- -- --
Surrenders .................................. -- -- -- --
Loans ....................................... (3,183) -- -- --
Cost of insurance and
administrative expense (note 3) ............ (7,686) (1,616) (5,140) (1,627)
Transfer gain (loss) and transfer
fees ....................................... 28,249 10,283 1,640 (20)
Transfers (to) from Guarantee
Account (note 1) ............................ 13,857 -- 8,711 2,963
Interfund transfers ........................... 357,477 373,471 145,247 293,576
---------- ------- ------- -------
Increase (decrease) in net assets from
capital transactions .......................... 411,616 394,624 189,859 313,246
---------- ------- ------- -------
Increase (decrease) in net assets .............. 594,752 410,445 292,856 351,447
Net assets at beginning of period .............. 410,445 -- 351,447 --
---------- ------- ------- -------
Net assets at end of period .................... $1,005,197 410,445 644,303 351,447
========== ======= ======= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
------------------------------
BALANCED PORTFOLIO
------------------------------
PERIOD YEAR
ENDED ENDED
DECEMBER 11, DECEMBER 31,
1997 1996
--------------- --------------
<S> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income .................. $ 98,194 269,151
Net realized gain (loss) ............... 315,380 13,816
Unrealized appreciation
(depreciation) on
investments .......................... (146,827) (182,324)
------------- --------
Increase in net assets from
operations ............................. 266,747 100,643
------------- --------
From capital transactions:
Net premiums ........................... -- --
Loan interest .......................... (669) (657)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ....................... -- --
Surrenders ........................... (19,398) (27,861)
Loans ................................ (4,103) (34,817)
Cost of insurance and
administrative expense
(note 3) ............................ (19,558) (20,292)
Transfer gain (loss) and
transfer fees ....................... 669 5,371
Interfund transfers .................... (2,096,250) (79,871)
------------- --------
Decrease in net assets from capital
transactions ........................... (2,139,309) (158,127)
------------- --------
Decrease in net assets .................. (1,872,562) (57,484)
Net assets at beginning of year ......... 1,872,562 1,930,046
------------- ---------
Net assets at end of year ............... $ -- 1,872,562
============= =========
<CAPTION>
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
----------------------------------------------------------
BOND PORTFOLIO GROWTH PORTFOLIO
----------------------------- ----------------------------
PERIOD YEAR PERIOD YEAR
ENDED ENDED ENDED ENDED
DECEMBER 11, DECEMBER 31, DECEMBER 11, DECEMBER 31,
1997 1996 1997 1996
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income .................. 30,012 57,904 54,741 58,809
Net realized gain (loss) ............... (3,318) (5,135) 150,610 5,513
Unrealized appreciation
(depreciation) on
investments .......................... (1,629) (34,909) (55,310) (6,856)
------ ------- ------- ------
Increase in net assets from
operations ............................. 25,065 17,860 150,041 57,466
------ ------- ------- ------
From capital transactions:
Net premiums ........................... -- -- -- --
Loan interest .......................... (2,301) 258 (894) (1,215)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ....................... -- -- -- --
Surrenders ........................... -- (43,768) -- --
Loans ................................ 53,065 (55,969) (7,618) --
Cost of insurance and
administrative expense
(note 3) ............................ (5,054) (7,634) (7,810) (7,938)
Transfer gain (loss) and
transfer fees ....................... (38,185) (5,840) (1,185) (482)
Interfund transfers .................... (670,024) (163,478) (881,910) (74,169)
-------- -------- -------- -------
Decrease in net assets from capital
transactions ........................... (662,499) (276,431) (899,417) (83,804)
-------- -------- -------- -------
Decrease in net assets .................. (637,434) (258,571) (749,376) (26,338)
Net assets at beginning of year ......... 637,434 896,005 749,376 775,714
-------- -------- -------- -------
Net assets at end of year ............... -- 637,434 -- 749,376
======== ======== ======== =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FEDERATED INVESTORS INSURANCE SERIES
------------------------------------------
AMERICAN LEADERS FUND II
------------------------------------------
PERIOD FROM
SEPTEMBER 5,
1996 TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Increase in net assets
From operations:
Net investment income (expense) ................. $ 31,236 (1,957) 36
Net realized gain (loss) ........................ (4,077) 11,788 19
Unrealized appreciation (depreciation)
on investments ................................ 58,884 53,148 2,855
---------- -------- -----
Increase in net assets from operations ........... 86,043 62,979 2,910
---------- -------- -----
From capital transactions:
Net premiums .................................... 96,517 92,480 --
Loan interest ................................... (225) (3) --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ................................ -- -- --
Surrenders .................................... -- -- --
Loans ......................................... (12,883) 205 --
Cost of insurance and administrative
expense (note 3) ............................. (11,161) (3,145) (65)
Transfer gain (loss) and transfer fees ........ 2,778 1,084 (1,522)
Transfers (to) from the Guarantee Account
(note 1) ...................................... 16,071 5,323 300
Interfund transfers ............................. 343,685 341,074 16,140
---------- -------- ------
Increase (decrease) in net assets from capital
transactions .................................... 434,782 437,018 14,853
---------- -------- ------
Increase (decrease) in net assets ................ 520,825 499,997 17,763
Net assets at beginning of period ................ 517,760 17,763 --
---------- -------- ------
Net assets at end of period ...................... $1,038,585 517,760 17,763
========== ======== ======
<CAPTION>
FEDERATED INVESTORS INSURANCE SERIES
------------------------------------------
HIGH INCOME BOND FUND II
------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- ------------- ------------
<S> <C> <C> <C>
Increase in net assets
From operations:
Net investment income (expense) ................. 44,079 34,274 30,654
Net realized gain (loss) ........................ 85,989 5,827 1,726
Unrealized appreciation (depreciation)
on investments ................................ (90,012) 55,167 27,920
------- ------ ------
Increase in net assets from operations ........... 40,056 95,268 60,300
------- ------ ------
From capital transactions:
Net premiums .................................... 28,358 43,594 --
Loan interest ................................... (409) (1,353) --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ................................ -- -- --
Surrenders .................................... -- -- --
Loans ......................................... (14,686) (11,473) (40,000)
Cost of insurance and administrative
expense (note 3) ............................. (14,411) (8,961) (4,447)
Transfer gain (loss) and transfer fees ........ 706 (359) 100
Transfers (to) from the Guarantee Account
(note 1) ...................................... 6,031 5,441 (6,742)
Interfund transfers ............................. (1,149,736) 1,432,858 571,170
---------- --------- -------
Increase (decrease) in net assets from capital
transactions .................................... (1,144,147) 1,459,747 520,081
---------- --------- -------
Increase (decrease) in net assets ................ (1,104,091) 1,555,015 580,381
Net assets at beginning of period ................ 2,233,614 678,599 98,218
---------- --------- -------
Net assets at end of period ...................... 1,129,523 2,233,614 678,599
========== ========= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
FEDERATED INVESTORS INSURANCE SERIES
(CONTINUED)
----------------------------------------
UTILITY FUND II
----------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Increase in net assets
From operations:
Net investment income (expense) .................................... $ 22,802 8,360 4,472
Net realized gain (loss) ........................................... 25,956 11,484 9,190
Unrealized appreciation (depreciation) on investments .............. 8,478 50,092 5,651
--------- ------ -----
Increase in net assets from operations .............................. 57,236 69,936 19,313
--------- ------ ------
From capital transactions:
Net premiums ....................................................... 21,133 -- --
Loan interest ...................................................... (807) (55) (110)
Transfers (to) from the general account of Life of Virginia:
Death benefits ................................................... -- -- --
Surrenders ....................................................... -- -- --
Loans ............................................................ (18,860) (34,631) (2,022)
Cost of insurance and administrative expense (note 3) ............ (5,595) (3,486) (1,683)
Transfer gain (loss) and transfer fees ........................... 690 2,314 (364)
Transfers (to) from the Guarantee Account (note 1) ................. -- 10,521 3,000
Interfund transfers ................................................ 79,433 107,029 130,977
--------- ------- -------
Increase (decrease) in net assets from capital transactions ......... 75,994 81,692 129,798
--------- ------- -------
Increase (decrease) in net assets ................................... 133,230 151,628 149,111
Net assets at beginning of period ................................... 393,340 241,712 92,601
--------- ------- -------
Net assets at end of period ......................................... $ 526,570 393,340 241,712
========= ======= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
---------------------------------------------------------------------------------
SMALL CAP PORTFOLIO GROWTH PORTFOLIO
---------------------------------------- ----------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1998 1997 1996 1998 1997 1996
------------- ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) ............ $ 185,984 24,230 (7,102) 328,974 (5,714) 6,391
Net realized gain (loss) ................... (361,335) 155,266 (13,977) 342,335 121,886 (8,548)
Unrealized appreciation (depreciation)
on investments ........................... 411,856 (23,084) (18,580) 332,102 195,886 27,545
---------- ------- ------- ------- ------- ------
Increase (decrease) in net assets from
operations ................................. 236,505 156,412 (39,659) 1,003,411 312,058 25,388
---------- ------- ------- --------- ------- ------
From capital transactions:
Net premiums ............................... 53,010 88,579 22,914 49,615 23,449 11,882
Loan interest .............................. (394) 2 68 (929) (449) (11,178)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ........................... (13,545) -- (11,290) (19,533) -- --
Surrenders ............................... (70,773) (1,243) (40,820) (43,795) (4,963) (716)
Loans .................................... 22,480 (51,090) (33,607) (69,736) (60,475) (10,642)
Cost of insurance and
administrative expense (note 3) ......... (19,635) (17,890) (10,161) (27,911) (20,884) (7,424)
Transfer gain (loss) and transfer
fees .................................... 68,756 (6,935) 5,384 30,431 (16,706) 9,692
Transfers (to) from the Guarantee
Account (note 1) ......................... 23,461 72,126 929 35,331 25,127 5,392
Interfund transfers ........................ 1,262,264 148,081 863,942 631,892 147,496 1,228,789
---------- ------- ------- --------- ------- ---------
Increase (decrease) in net assets from
capital transactions ....................... 1,325,624 231,630 797,359 585,365 92,595 1,225,795
---------- ------- ------- --------- ------- ---------
Increase in net assets ...................... 1,562,129 388,042 757,700 1,588,776 404,653 1,251,183
Net assets at beginning of period ........... 1,460,157 1,072,115 314,415 1,756,776 1,352,123 100,940
---------- --------- ------- --------- --------- ---------
Net assets at end of period ................. $3,022,286 1,460,157 1,072,115 3,345,552 1,756,776 1,352,123
========== ========= ========= ========= ========= =========
</TABLE>
<PAGE>
IFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PBHG INSURANCE SERIES FUND
----------------------------------------------------------
PBHG LARGE CAP GROWTH
PORTFOLIO PBHG GROWTH II PORTFOLIO
----------------------------- ----------------------------
PERIOD FROM PERIOD FROM
YEAR JULY 22, YEAR MAY 22,
ENDED 1997 TO ENDED 1997 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1997
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................................... $ (1,340) (205) (1,328) (540)
Net realized gain (loss) ........................................... 12,396 (1) 36,908 1,296
Unrealized appreciation (depreciation) on investments .............. 11,365 656 15,978 (846)
--------- ------ ------ -----
Increase (decrease) in net assets from operations ................... 22,421 450 51,558 (90)
--------- ------ ------ -----
From capital transactions:
Net premiums ....................................................... -- -- 3,717 4,615
Loan interest ...................................................... -- -- (58) --
Transfers (to) from the general account of Life of
Virginia:
Death benefits ................................................... -- -- -- --
Surrenders ....................................................... (3,629) -- -- --
Loans ............................................................ (817) -- -- --
Cost of insurance and administrative expense
(note 3) ........................................................ (2,407) (134) (1,168) (460)
Transfer gain (loss) and transfer fees ........................... (2,844) 53 (36,339) 1,309
Transfers (to) from the Guarantee Account (note 1) ................. -- 3,269 25,929 2,518
Interfund transfers ................................................ (8,883) 28,216 2,248 84,214
--------- ------- ------- ------
Increase (decrease) in net assets from capital transactions ......... (18,580) 31,404 (5,671) 92,196
--------- ------- ------- ------
Increase in net assets .............................................. 3,841 31,854 45,887 92,106
Net assets at beginning of period ................................... 31,854 -- 92,106 --
--------- ------- ------- ------
Net assets at end of period ......................................... $ 35,695 31,854 137,993 92,106
========= ======= ======= ======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
----------------------------------------
AGGRESSIVE GROWTH PORTFOLIO
----------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ (31,583) (28,915) (6,598)
Net realized gain ................................ 678,326 192,226 267,683
Unrealized appreciation (depreciation)
on investments ................................. 307,545 99,444 (112,622)
---------- ------- --------
Increase in net assets from operations ............ 954,288 262,755 148,463
---------- ------- --------
From capital transactions:
Net premiums ..................................... 42,148 60,192 3,031
Loan interest .................................... (1,997) (77) (266)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (9,219) (318) (48,757)
Loans .......................................... (24,856) (68,184) (2,874)
Cost of insurance and administrative
expense (note 3) .............................. (25,282) (24,702) (20,310)
Transfer gain (loss) and transfer fees ......... (164,381) 43,699 (3,623)
Transfers (to) from the Guarantee
Account (note 1) ............................... 8,345 34,546 10,008
Interfund transfers .............................. (793,229) 503,885 (61,164)
---------- ------- --------
Increase (decrease) in net assets from
capital transactions ............................. (968,471) 549,041 (123,955)
---------- ------- --------
Increase (decrease) in net assets ................. (14,183) 811,796 24,508
Net assets at beginning of period ................. 2,788,472 1,976,676 1,952,168
---------- --------- ---------
Net assets at end of period ....................... $2,774,289 2,788,472 1,976,676
========== ========= =========
<CAPTION>
JANUS ASPEN SERIES
----------------------------------------
GROWTH PORTFOLIO
----------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. 268,639 62,948 31,388
Net realized gain ................................ 870,857 243,734 132,138
Unrealized appreciation (depreciation)
on investments ................................. 434,354 376,858 144,223
------- ------- -------
Increase in net assets from operations ............ 1,573,850 683,540 307,749
--------- ------- -------
From capital transactions:
Net premiums ..................................... 64,698 100,831 24,787
Loan interest .................................... (5,496) (600) (1,074)
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (103,135) (11,331) (24,314)
Loans .......................................... (159,214) (101,750) (75,374)
Cost of insurance and administrative
expense (note 3) .............................. (55,256) (43,347) (23,158)
Transfer gain (loss) and transfer fees ......... 16,223 594 435
Transfers (to) from the Guarantee
Account (note 1) ............................... 18,355 84,063 65,687
Interfund transfers .............................. 305,817 1,105,318 1,204,517
--------- --------- ---------
Increase (decrease) in net assets from
capital transactions ............................. 81,992 1,133,778 1,171,506
--------- --------- ---------
Increase (decrease) in net assets ................. 1,655,842 1,817,318 1,479,255
Net assets at beginning of period ................. 4,604,206 2,786,888 1,307,633
--------- --------- ---------
Net assets at end of period ....................... 6,260,048 4,604,206 2,786,888
========= ========= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES (CONTINUED)
------------------------------------------
WORLDWIDE GROWTH PORTFOLIO
------------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------------- ------------ -------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ 265,703 22,598 19,102
Net realized gain ................................ 1,535,984 457,649 156,316
Unrealized appreciation (depreciation) on
investments .................................... 417,036 666,571 498,790
----------- ------- -------
Increase in net assets from operations ............ 2,218,723 1,146,818 674,208
----------- --------- -------
From capital transactions:
Net premiums ..................................... 276,172 334,686 (533)
Loan interest .................................... (3,134) (933) 95,498
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. (68,985) (1,737) --
Surrenders ..................................... (104,833) (5,393) (27,186)
Loans .......................................... (97,145) (74,934) (15,174)
Cost of insurance and administrative
expense (note 3) .............................. (110,038) (79,593) (34,706)
Transfer gain (loss) and transfer fees ......... 12,636 14,879 685
Transfers (to) from the Guarantee
Account (note 1) ............................... (12,929) 109,443 43,645
Interfund transfers .............................. 863,455 1,831,317 2,870,698
----------- --------- ---------
Increase (decrease) in net assets from
capital transactions ............................. 755,199 2,127,735 2,932,927
----------- --------- ---------
Increase (decrease) in net assets ................. 2,973,922 3,274,553 3,607,135
Net assets at beginning of period ................. 8,226,390 4,951,837 1,344,702
----------- --------- ---------
Net assets at end of period ....................... $11,200,312 8,226,390 4,951,837
=========== ========= =========
<CAPTION>
JANUS ASPEN SERIES (CONTINUED)
--------------------------------------
BALANCED PORTFOLIO
--------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ------------- -----------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. 129,416 39,186 6,506
Net realized gain ................................ 75,042 16,368 3,534
Unrealized appreciation (depreciation) on
investments .................................... 1,021,865 172,861 38,227
--------- ------- ------
Increase in net assets from operations ............ 1,226,323 228,415 48,267
--------- ------- ------
From capital transactions:
Net premiums ..................................... 20,390 32,001 --
Loan interest .................................... (4,091) (48) 53,887
Transfers (to) from the general account
of Life of Virginia:
Death benefits ................................. (18,660) -- --
Surrenders ..................................... (5,329) (2,416) --
Loans .......................................... (78,415) 26,990 (1,996)
Cost of insurance and administrative
expense (note 3) .............................. (43,371) (13,436) (3,985)
Transfer gain (loss) and transfer fees ......... 989 606 (851)
Transfers (to) from the Guarantee
Account (note 1) ............................... 46,495 41,217 45,923
Interfund transfers .............................. 395,097 2,601,676 457,706
--------- --------- -------
Increase (decrease) in net assets from
capital transactions ............................. 313,105 2,686,590 550,684
--------- --------- -------
Increase (decrease) in net assets ................. 1,539,428 2,915,005 598,951
Net assets at beginning of period ................. 3,545,518 630,513 31,562
--------- --------- -------
Net assets at end of period ....................... 5,084,946 3,545,518 630,513
========= ========= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
JANUS ASPEN SERIES (CONTINUED)
-------------------------------------
FLEXIBLE INCOME PORTFOLIO
-------------------------------------
YEAR ENDED DECEMBER 31,
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. $ 18,932 9,796 8,453
Net realized gain (loss) ......................... 2,524 3,107 111
Unrealized appreciation (depreciation) on
investments .................................... 3,399 4,489 585
--------- ----- -----
Increase (decrease) in net assets from
operations ....................................... 24,855 17,392 9,149
--------- ------ -----
From capital transactions:
Net premiums ................................... 5,245 21,946 (18)
Loan interest .................................. (324) (28) --
Transfers (to) from the general
account of Life of Virginia:
Death benefits ................................. -- -- --
Surrenders ..................................... (52,087) -- --
Loans .......................................... 21,183 (30,720) (4,791)
Cost of insurance and administrative
expense (note 3) .............................. (3,675) (1,977) (963)
Transfer gain (loss) and transfer fees ......... (208) (429) (200)
Transfers (to) from the Guarantee
Account (note 1) ............................... 85 3,243 --
Interfund transfers .............................. 269,008 3,106 149,346
--------- ------- -------
Increase (decrease) in net assets from
capital transactions ............................. 239,227 (4,859) 143,374
--------- ------- -------
Increase in net assets ............................ 264,082 12,533 152,523
Net assets at beginning of period ................. 172,004 159,471 6,948
--------- ------- -------
Net assets at end of period ....................... $ 436,086 172,004 159,471
========= ======= =======
<CAPTION>
JANUS ASPEN SERIES (CONTINUED)
-----------------------------------------
INTERNATIONAL GROWTH PORTFOLIO
-----------------------------------------
PERIOD FROM
JUNE 5,
1996 TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .................. 30,676 (5,942) 1,086
Net realized gain (loss) ......................... 171,620 145,208 2,328
Unrealized appreciation (depreciation) on
investments .................................... 158,124 45,943 17,399
------- ------- ------
Increase (decrease) in net assets from
operations ....................................... 360,420 185,209 20,813
------- ------- ------
From capital transactions:
Net premiums ................................... 36,145 60,001 --
Loan interest .................................. (617) (1,662) --
Transfers (to) from the general
account of Life of Virginia:
Death benefits ................................. (11,677) -- --
Surrenders ..................................... (60,448) -- --
Loans .......................................... 4,516 (10,000) --
Cost of insurance and administrative
expense (note 3) .............................. (24,306) (16,021) (958)
Transfer gain (loss) and transfer fees ......... 59,856 12,507 58
Transfers (to) from the Guarantee
Account (note 1) ............................... 77,727 122,804 10,500
Interfund transfers .............................. 813,972 1,044,932 359,635
------- --------- -------
Increase (decrease) in net assets from
capital transactions ............................. 895,168 1,212,561 369,235
------- --------- -------
Increase in net assets ............................ 1,255,588 1,397,770 390,048
Net assets at beginning of period ................. 1,787,818 390,048 --
--------- --------- -------
Net assets at end of period ....................... 3,043,406 1,787,818 390,048
========= ========= =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
STATEMENTS OF CHANGES IN NET ASSETS, CONTINUED
DECEMBER 31, 1998
<TABLE>
<CAPTION>
GOLDMAN SACHS VARIABLE
INSURANCE
JANUS ASPEN SERIES (CONTINUED) TRUST FUND
------------------------------- ------------------------------
GROWTH AND MID CAP
CAPITAL APPRECIATION PORTFOLIO INCOME FUND EQUITY FUND
------------------------------- -------------- -------------
PERIOD FROM PERIOD FROM PERIOD FROM
YEAR MAY 22, OCTOBER 6, JUNE 25,
ENDED 1997 TO 1998 TO 1998 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998 1998
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) .......................... $ (5,716) (75) 37 425
Net realized gain (loss) ................................. 225,641 (7,519) 58 (16)
Unrealized appreciation (depreciation) on
investments ............................................ 56,754 (582) 49 196
--------- ------ -- ---
Increase (decrease) in net assets from operations ......... 276,679 (8,176) 144 605
--------- ------ --- ---
From capital transactions:
Net premiums ........................................... 12,000 -- -- --
Loan interest .......................................... -- -- -- --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ......................................... -- -- -- --
Surrenders ............................................. -- -- -- --
Loans .................................................. (37,337) -- -- --
Cost of insurance and administrative expense
(note 3) .............................................. (8,261) (181) (10) (279)
Transfer gain (loss) and transfer fees ................. (4,436) (24) 63 116
Transfers (to) from the Guarantee Account
(note 1) ............................................... -- -- -- --
Interfund transfers ...................................... 677,289 20,306 5,092 79,827
--------- ------ ----- ------
Increase (decrease) in net assets from capital
transactions ............................................. 639,255 20,101 5,145 79,664
--------- ------ ----- ------
Increase in net assets .................................... 915,934 11,925 5,289 80,269
Net assets at beginning of period ......................... 11,925 -- -- --
--------- ------ ----- ------
Net assets at end of period ............................... $ 927,859 11,925 5,289 80,269
========= ====== ===== ======
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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. 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 Company. The remaining 20% is owned
by GE Financial Assurance Holdings, Inc. General Electric Capital Assurance
Company and GE Financial Assurance Holdings, Inc. are indirect, wholly-owned
subsidiaries of General Electric Capital Corporation ("GE Capital"). GE
Capital, a diversified financial services company, is a wholly-owned subsidiary
of General Electric Company (GE), a New York corporation. Prior to April 1,
1996, Life of Virginia was an indirect wholly-owned subsidiary of Aon
Corporation (Aon).
In October 1998, three new investment subdivisions were added to the
Account. The Investors Fund, Strategic Bond Fund, and the Total Return Fund
each invest solely in a designated portfolio of the Salomon Brothers Variable
Series Fund. All designated portfolios described above are series type mutual
funds.
In May 1998, three new investment subdivisions were added to the Account.
The U.S. Equity Fund invests solely in a designated portfolio of the GE
Investments Funds, Inc. The Growth and Income, and Mid Cap Equity Funds each
invest solely in a designated portfolio of the Goldman Sachs Variable Insurance
Trust Fund. All designated portfolios described above are series type mutual
funds.
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.
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 Portfolio -- Variable Shares of Money Market Fund -- GE Investments
Insurance Products Fund Funds, Inc.
Shares of Money Fund -- Oppenheimer Variable Shares of Money Market Fund -- GE Investments
Account Funds Funds, Inc.
Shares of Government Securities Fund -- GE Shares of Income Fund -- GE Investments Funds, Inc.
Investments Funds, Inc.
Shares of Bond Portfolio -- Neuberger & Berman Shares of Income Fund -- GE Investments Funds, Inc.
Advisers Management Trust
Shares of High Income Portfolio -- Variable Shares of High Income Fund -- Oppenheimer Variable
Insurance Products Fund Account Funds
Shares of Growth Portfolio -- Neuberger & Berman Shares of Growth Portfolio -- Variable Insurance
Advisers Management Trust Products Fund
Shares of Balanced Portfolio -- Neuberger & Shares of Balanced Portfolio -- Janus Aspen Series
Berman Advisers Management Trust
</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.
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
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(1) DESCRIPTION OF ENTITY -- Continued
new subdivision, the American Leaders Fund II, invests solely in a designated
portfolio of the Federated Investors Insurance Series, 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
(A) 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.
The aggregate cost of the investments acquired and the aggregate proceeds
of investments sold, for the year or period ended December 31, 1998, were:
<TABLE>
<CAPTION>
COST OF PROCEEDS
SHARES FROM
FUND/PORTFOLIO ACQUIRED SHARES SOLD
- ------------------------------------- --------------- --------------
<S> <C> <C>
GE Investments Funds, Inc.:
S&P 500 Index ...................... $ 27,218,449 25,079,333
Money Market ....................... 264,936,313 265,566,838
Total Return ....................... 378,075 445,895
International Equity ............... 1,059,286 1,020,330
Real Estate Securities ............. 448,245 581,063
Global Income ...................... 14,054 544
Value Equity ....................... 6,058,766 5,781,494
Income ............................. 436,325 271,027
U.S. Equity ........................ 25,071 14,149
Oppenheimer Variable Account Funds:
Bond ............................... 29,944,577 31,105,031
Capital Appreciation ............... 52,671,648 53,748,619
Growth ............................. 12,723,537 12,402,066
High Income ........................ 34,470,779 32,744,079
Multiple Strategies ................ 4,786,911 4,720,639
Variable Insurance Products Fund:
Equity-Income ...................... 9,090,858 8,840,402
Growth ............................. 111,621,940 110,781,654
Overseas ........................... 16,515,111 16,227,529
Variable Insurance Products Fund II:
Asset Manager ...................... 2,526,675 1,924,064
Contrafund ......................... 13,766,933 12,248,577
Variable Insurance Products Fund III:
Growth and Income .................. 6,255,114 5,850,535
Growth Opportunities ............... 341,093 137,283
Federated Investors Insurance Series:
American Leaders II ................ 831,620 362,093
High Income Bond II ................ 4,254,817 5,354,145
Utility II ......................... 338,932 236,489
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
COST OF PROCEEDS
SHARES FROM
FUND/PORTFOLIO ACQUIRED SHARES SOLD
- --------------------------------------- ------------- ------------
<S> <C> <C>
Alger American Fund:
Small Cap ............................ $ 5,870,967 4,352,529
Growth ............................... 6,196,569 5,270,632
PBHG Insurance Series Fund:
PBHG Large Cap Growth ................ 4,106,152 4,109,381
PBHG Growth II ....................... 2,556,295 2,560,662
Janus Aspen Series:
Aggressive Growth .................... 9,329,303 10,202,804
Growth ............................... 8,188,817 7,824,471
Worldwide Growth ..................... 10,623,313 9,541,416
Balanced ............................. 998,549 507,678
Flexible Income ...................... 362,164 103,470
International Growth ................. 13,627,793 12,681,934
Capital Appreciation ................. 28,579,287 27,950,648
Goldman Sachs Variable Insurance Trust:
Growth and Income .................... 6,855 1,667
Mid Cap Equity ....................... 80,916 640
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
(B) CAPITAL TRANSACTIONS
The increase (decrease) of outstanding units from capital transactions for
the years or lesser periods ended December 31, 1998, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
GE INVESTMENTS FUNDS, INC.
---------------------------
S&P 500 GOVERNMENT
INDEX SECURITIES
FUND FUND
------------ --------------
<S> <C> <C>
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 --
-------- ---------
Net premiums ........................................... 10,503 --
Loan interest .......................................... (51) --
Transfers (to) from the general account of
Life of Virginia:
Death benefits ....................................... (776) --
Surrenders ........................................... (3,536) --
Loans ................................................ (258) --
Cost of insurance and administrative expense ......... (1,578) --
Transfers (to) from the Guarantee Account .............. 4,508 --
Interfund transfers .................................... 38,024 --
-------- ---------
Net increase (decrease) in units from capital
transactions ........................................... 46,836 --
-------- ---------
Units outstanding at December 31, 1998 .................. 140,437 --
======== =========
<CAPTION>
GE INVESTMENTS FUNDS, INC.
---------------------------------------------
MONEY TOTAL INTERNATIONAL
MARKET RETURN EQUITY
FUND FUND FUND
--------------- -------------- --------------
<S> <C> <C> <C>
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
---------- -------- ---------
Net premiums ........................................... 618,502 457 (63)
Loan interest .......................................... 939 (4) 3
Transfers (to) from the general account of
Life of Virginia:
Death benefits ....................................... (579) -- --
Surrenders ........................................... (29,501) (5,534) --
Loans ................................................ (62,560) (1,140) (230)
Cost of insurance and administrative expense ......... (8,969) (602) 231
Transfers (to) from the Guarantee Account .............. (3,439) 353 (1,473)
Interfund transfers .................................... (569,612) 1,764 1,669
---------- -------- ---------
Net increase (decrease) in units from capital
transactions ........................................... (55,219) (4,706) 137
---------- -------- ---------
Units outstanding at December 31, 1998 .................. 692,577 59,645 20,749
========== ======== =========
</TABLE>
<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 U.S.
SECURITIES INCOME EQUITY INCOME EQUITY
FUND FUND FUND FUND FUND
------------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
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 --
------ ------ ------ ------- ----
Net premiums ...................................................... 2,573 -- 1,214 1 --
Loan interest ..................................................... (12) -- (63) (366) --
Transfers (to) from the general account of Life of Virginia:
Death benefits .................................................. -- -- -- -- --
Surrenders ...................................................... (181) -- -- (252) --
Loans ........................................................... (955) -- (90) (2,123) --
Cost of insurance and administrative expense .................... (703) (25) (370) (1,466) (3)
Transfers (to) from the Guarantee Account ......................... 2,167 -- -- 764 --
Interfund transfers ............................................... (13,779) 1,172 18,643 19,037 955
------- ------ ------ ------- ----
Net increase (decrease) in units from capital transactions ......... (10,890) 1,147 19,334 15,595 952
------- ------ ------ ------- ----
Units outstanding at December 31, 1998 ............................. 47,312 2,483 38,490 137,493 952
======= ====== ====== ======= ====
</TABLE>
<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> <C> <C>
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 adminis-
trative 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 adminis-
trative 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 from
capital transactions ................ (10,387) 79,329 28,510
------- -------- -------
Units outstanding at December 31, 1997 -- 160,651 205,918
------- --------- -------
Net premiums ........................ -- 3,023 9,796
Loan interest ....................... -- 88 655
Transfers (to) from the general
account of Life of Virginia:
Death benefits .................... -- -- --
Surrenders ........................ -- (3,818) (21,555)
Loans ............................. -- (34) (58,985)
Cost of insurance and adminis-
trative expense .................. -- (1,373) (7,454)
Transfers (to) from the Guarantee
Account ........................... -- 399 693
Interfund transfers ................. -- (52,085) 47,191
------- --------- -------
Net increase (decrease) in units from
capital transactions ................ -- (53,800) (29,659)
------- --------- -------
Units outstanding at December 31, 1998 -- 106,851 176,259
======= ========= =======
<CAPTION>
OPPENHEIMER VARIABLE ACCOUNT FUNDS
------------------------------------------------------------------
HIGH MULTIPLE MONEY HIGH
GROWTH INCOME STRATEGIES MARKET INCOME
FUND FUND FUND PORTFOLIO PORTFOLIO
----------- -------------- -------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1995 57,586 80,911 105,534 153,233 101,444
------ ------- -------- ------- -------
Net premiums ........................ 789 -- 1,018 -- --
Loan interest ....................... (21) (6) (9) 49 (17)
Transfers (to) from the general
account of Life of Virginia:
Death benefits .................... -- -- (2,597) -- (2,625)
Surrenders ........................ (351) (561) (9,180) (8,837) (5,963)
Loans ............................. (573) (3,511) (395) (1,180) (82)
Cost of insurance and adminis-
trative expense .................. (747) (1,688) (1,016) (990) (707)
Transfers (to) from the Guarantee
Account ........................... 587 2,536 173 377 --
Interfund transfers ................. 21,301 57,787 10,394 (69,258) (38,231)
------ -------- -------- ------- -------
Net increase (decrease) in units from
capital transactions ................ 20,985 54,557 (1,612) (79,839) (47,625)
------ -------- -------- ------- -------
Units outstanding at December 31, 1996 78,571 135,468 103,922 73,394 53,819
------ --------- -------- ------- -------
Net premiums ........................ 4,979 3,036 515 -- --
Loan interest ....................... (57) (20) (30) (523) --
Transfers (to) from the general
account of Life of Virginia:
Death benefits .................... -- -- (83) -- --
Surrenders ........................ -- (291) -- (765) (6,032)
Loans ............................. (1,925) (949) 364 (1,169) (238)
Cost of insurance and adminis-
trative expense .................. (1,203) (1,459) (1,248) (526) (432)
Transfers (to) from the Guarantee
Account ........................... 2,441 -- 999 -- --
Interfund transfers ................. 45,075 71,340 18,636 (70,411) (47,117)
------ --------- -------- ------- -------
Net increase (decrease) in units from
capital transactions ................ 49,310 71,657 19,153 (73,394) (53,819)
------ --------- -------- ------- -------
Units outstanding at December 31, 1997 127,881 207,125 123,075 -- --
------- --------- -------- ------- -------
Net premiums ........................ 3,787 331 45 -- --
Loan interest ....................... (82) (50) (40) -- --
Transfers (to) from the general
account of Life of Virginia:
Death benefits .................... -- (1,322) (854) -- --
Surrenders ........................ (4,162) (16,597) (6,487) -- --
Loans ............................. (3,464) (993) (2,318) -- --
Cost of insurance and adminis-
trative expense .................. (1,353) (1,787) (1,472) -- --
Transfers (to) from the Guarantee
Account ........................... 1,693 812 1,351 -- --
Interfund transfers ................. 63,068 5,503 4,993 -- --
------- --------- -------- ------- -------
Net increase (decrease) in units from
capital transactions ................ 59,487 (14,103) (4,782) -- --
------- --------- -------- ------- -------
Units outstanding at December 31, 1998 187,368 193,022 118,293 -- --
======= ========= ======== ======= =======
</TABLE>
<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
-----------------------------------------
EQUITY-
INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- -------------
<S> <C> <C> <C>
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 from capital transactions ......... 11,106 (10,062) (72,429)
------- ------- --------
Units outstanding at December 31, 1997 ............................. 489,456 310,040 243,467
------- ------- --------
Net premiums ...................................................... 4,285 1,424 799
Loan interest ..................................................... (318) (483) (64)
Transfers (to) from the general account of Life of Virginia:
Death benefits .................................................. (1,780) (685) (1,283)
Surrenders ...................................................... (6,479) (16,160) (9,040)
Loans ........................................................... (11,737) (15,030) (3,925)
Cost of insurance and administrative expense .................... (4,890) (3,495) (1,986)
Transfers (to) from the Guarantee Account ......................... 3,580 2,834 (363)
Interfund transfers ............................................... (5,896) 13,096 12,401
------- ------- --------
Net increase (decrease) in units from capital transactions ......... (23,235) (18,499) (3,461)
------- ------- --------
Units outstanding at December 31, 1998 ............................. 466,221 291,541 240,006
======= ======= ========
</TABLE>
<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 FUND II PRODUCTS FUND III
-------------------------- ----------------------------
ASSET GROWTH & GROWTH
MANAGER CONTRAFUND INCOME OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
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 from capital transactions ......... (10,367) 102,051 33,181 28,619
------- ------- ------ ------
Units outstanding at December 31, 1997 ............................. 395,218 385,172 33,181 28,619
------- ------- ------ ------
Net premiums ...................................................... 92 7,384 1,845 2,945
Loan interest ..................................................... (276) (287) (31) (10)
Transfers (to) from the general account of Life of Virginia:
Death benefits .................................................. (1,619) (1,038) -- --
Surrenders ...................................................... (12,811) (935) -- --
Loans ........................................................... (9,503) (3,564) (252) --
Cost of insurance and administrative expense .................... (3,990) (3,917) (609) (383)
Transfers (to) from the Guarantee Account ......................... 2,750 3,497 1,097 649
Interfund transfers ............................................... 6,154 41,115 28,309 10,821
------- ------- ------ ------
Net increase (decrease) in units from capital transactions ......... (19,203) 42,255 30,359 14,022
------- ------- ------ ------
Units outstanding at December 31, 1998 ............................. 376,015 427,427 63,540 42,641
======= ======= ====== ======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
FEDERATED INVESTORS
ADVISERS MANAGEMENT TRUST INSURANCE SERIES
------------------------------------- ------------------------------------------
AMERICAN HIGH
BALANCED BOND GROWTH LEADERS INCOME BOND UTILITY
PORTFOLIO PORTFOLIO PORTFOLIO FUND II FUND II FUND II
------------- ----------- ----------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at December 31, 1995 ......... 124,279 75,868 54,860 -- 8,274 7,584
------- ------ ------ ---- ----- --------
Net premiums .................................. -- -- -- -- -- --
Loan interest ................................. 10 (344) (23) -- -- (9)
Transfers (to) from the general account
of Life of Virginia:
Death benefits .............................. -- -- -- -- -- --
Surrenders .................................. (1,611) -- (964) -- -- --
Loans ....................................... (2,060) -- (1,204) -- (3,262) (162)
Cost of insurance and administrative
expense .................................... (281) (2,251) (702) (6) (363) (134)
Transfers (to) from the Guarantee
Account ..................................... -- -- -- 29 (550) 240
Interfund transfers ........................... (6,017) (21,032) (2,763) 1,583 46,581 10,466
------- ------- ------ ------- ------ ---------
Net increase (decrease) in units from
capital transactions .......................... (9,959) (23,627) (5,656) 1,606 42,406 10,401
------- ------- ------ ------- ------ ---------
Units outstanding at December 31, 1996 ......... 114,320 52,241 49,204 1,606 50,680 17,985
------- ------- ------ ------- ------ ---------
Net premiums ................................ -- -- -- 7,266 2,919 --
Loan interest ............................... (36) (192) (49) -- (91) (4)
Transfers (to) from the general
account of Life of Virginia:
Death benefits .............................. -- -- -- -- -- --
Surrenders .................................. (1,036) -- -- -- -- --
Loans ....................................... (219) 4,440 (417) 16 (768) (2,368)
Cost of insurance and administrative
expense .................................... (1,045) (423) (428) (247) (600) (238)
Transfers (to) from the Guarantee
Account ..................................... -- -- -- 418 364 719
Interfund transfers ........................... (111,984) (56,066) (48,310) 26,797 95,909 7,319
-------- ------- ------- ------- ------ ---------
Net increase (decrease) in units from
capital transactions .......................... (114,320) (52,241) (49,204) 34,250 97,733 5,428
-------- ------- ------- ------- ------ ---------
Units outstanding at December 31, 1997 ......... -- -- -- 35,856 148,413 23,413
-------- ------- ------- ------- ------- ---------
Net premiums .................................. -- -- -- 5,835 1,842 1,248
Loan interest ................................. -- -- -- (14) (27) (48)
Transfers (to) from the general account
of Life of Virginia:
Death benefits .............................. -- -- -- -- -- --
Surrenders .................................. -- -- -- -- -- --
Loans ....................................... -- -- -- (779) (954) (1,114)
Cost of insurance and administrative
expense .................................... -- -- -- (675) (936) (330)
Transfers (to) from the Guarantee
Account ..................................... -- -- -- 971 392 --
Interfund transfers ........................... -- -- -- 20,774 (74,663) 4,692
-------- ------- ------- ------- ------- ---------
Net increase (decrease) in units from
capital transactions .......................... -- -- -- 26,112 (74,346) 4,448
-------- ------- ------- ------- ------- ---------
Units outstanding at December 31, 1998 ......... -- -- -- 61,968 74,067 27,861
======== ======= ======= ======= ======= =========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
ALGER AMERICAN PBHG INSURANCE
FUND SERIES FUND
------------------------- --------------------------
LARGE CAP
SMALL CAP GROWTH GROWTH GROWTH II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Units outstanding at December 31, 1995 ............................. 33,520 10,482 -- --
------ ------ --- ---
Net premiums ...................................................... 2,249 1,125 -- --
Loan interest ..................................................... 7 -- -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits .................................................. (1,108) (1,058) -- --
Surrenders ...................................................... (4,005) (68) -- --
Loans ........................................................... (3,297) (1,007) -- --
Cost of insurance and administrative expense .................... (997) (702) -- --
Transfers (to) from the Guarantee Account ......................... 91 510 -- --
Interfund transfers ............................................... 84,755 116,263 -- --
------ ------- --- ---
Net increase (decrease) in units from capital transactions ......... 77,695 115,063 -- --
------ ------- --- ---
Units outstanding at December 31, 1996 ............................. 111,215 125,545 -- --
------- ------- --- ---
Net premiums ...................................................... 9,853 1,256 -- 439
Loan interest ..................................................... -- (24) -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits .................................................. -- -- -- --
Surrenders ...................................................... (138) (266) -- --
Loans ........................................................... (5,683) (3,238) -- --
Cost of insurance and administrative expense .................... (1,990) (1,118) (11) (44)
Transfers (to) from the Guarantee Account ......................... 8,023 1,345 283 239
Interfund transfers ............................................... 16,471 7,897 2,446 8,006
------- ------- ----- ------
Net increase (decrease) in units from capital transactions ......... 26,536 5,852 2,718 8,640
------- ------- ----- ------
Units outstanding at December 31, 1997 ............................. 137,751 131,397 2,718 8,640
------- ------- ----- ------
Net premiums ...................................................... 4,733 3,551 (1) 424
Loan interest ..................................................... (35) (66) -- (7)
Transfers (to) from the general account of Life of Virginia:
Death benefits .................................................. (1,209) (1,398) -- --
Surrenders ...................................................... (6,320) (3,136) (82) --
Loans ........................................................... 2,007 (4,993) (18) --
Cost of insurance and administrative expense .................... (1,753) (1,998) (54) (133)
Transfers (to) from the Guarantee Account ......................... 2,095 2,530 -- 2,947
Interfund transfers ............................................... 112,713 45,241 (201) 255
------- ------- ------ -------
Net increase (decrease) in units from capital transactions ......... 112,231 39,731 (356) 3,486
------- ------- ------ -------
Units outstanding at December 31, 1998 ............................. 249,982 171,128 2,362 12,126
======= ======= ====== =======
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
JANUS ASPEN SERIES
---------------------------------------
AGGRESSIVE
GROWTH GROWTH WORLD WIDE
PORTFOLIO PORTFOLIO PORTFOLIO
-------------- ----------- ------------
<S> <C> <C> <C>
Units outstanding at December 31, 1995 136,420 104,527 110,584
-------- ------- -------
Net premiums ............................. (657) (2,168) 4,425
Loan interest ............................ -- 190 (192)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... -- -- --
Surrenders ............................. -- 34,885 (4,341)
Loans .................................. 24 2,056 (13,458)
Cost of insurance and
administrative expense ................ 49 14,531 (4,135)
Transfers (to) from the Guarantee
Account ................................ (559) (7,160) 11,729
Interfund transfers ...................... (5,574) 43,761 215,068
-------- ------- -------
Net increase (decrease) in units from
capital transactions ..................... (6,717) 86,095 209,096
-------- ------- -------
Units outstanding at December 31, 1996 129,703 190,622 319,680
-------- ------- -------
Net premiums ............................. 4,146 6,158 19,120
Loan interest ............................ (5) (37) (53)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... -- -- (99)
Surrenders ............................. (22) (692) (308)
Loans .................................. (4,697) (6,214) (4,281)
Cost of insurance and
administrative expense ................ (1,702) (2,647) (4,547)
Transfers (to) from the Guarantee
Account ................................ 2,380 5,134 6,252
Interfund transfers ...................... 34,709 67,507 104,621
--------- ------- -------
Net increase (decrease) in units from
capital transactions ..................... 34,809 69,209 120,705
--------- ------- -------
Units outstanding at December 31, 1997 164,512 259,831 440,385
--------- ------- -------
Net premiums ............................. 2,149 3,907 11,534
Loan interest ............................ (102) (332) (131)
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... -- -- (2,881)
Surrenders ............................. (470) (6,229) (4,378)
Loans .................................. (1,267) (9,616) (4,057)
Cost of insurance and
administrative expense ................ (1,289) (3,337) (4,595)
Transfers (to) from the Guarantee
Account ................................ 425 1,109 (540)
Interfund transfers ...................... (40,437) 18,470 36,057
--------- ------- -------
Net increase (decrease) in units from
capital transactions ..................... (40,991) 3,972 31,009
--------- ------- -------
Units outstanding at December 31, 1998 123,521 263,803 471,394
========= ======= =======
<CAPTION>
JANUS ASPEN SERIES
-------------------------------------------------------------
FLEXIBLE INTERNATIONAL CAPITAL
BALANCED INCOME GROWTH APPRECIATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
Units outstanding at December 31, 1995 2,972 662 -- --
------ --- -- --
Net premiums ............................. 1,590 -- -- --
Loan interest ............................ (9) (2) -- --
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... -- -- -- --
Surrenders ............................. (452) -- -- --
Loans .................................. (253) (448) -- --
Cost of insurance and
administrative expense ................ (578) (90) (87) --
Transfers (to) from the Guarantee
Account ................................ 726 -- 951 --
Interfund transfers ...................... 47,770 13,978 32,559 --
-------- -------- ------ --
Net increase (decrease) in units from
capital transactions ..................... 48,794 13,438 33,423 --
-------- -------- ------ --
Units outstanding at December 31, 1996 51,766 14,100 33,423 --
-------- -------- ------ --
Net premiums ............................. 2,260 1,522 4,872 --
Loan interest ............................ (3) (2) (135) --
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... -- -- -- --
Surrenders ............................. (171) -- -- --
Loans .................................. 1,907 (2,130) (812) --
Cost of insurance and
administrative expense ................ (949) (137) (1,301) (9)
Transfers (to) from the Guarantee
Account ................................ 2,912 225 9,973 --
Interfund transfers ...................... 183,798 215 84,860 959
-------- -------- ------ -----
Net increase (decrease) in units from
capital transactions ..................... 189,754 (307) 97,457 950
-------- -------- ------ -----
Units outstanding at December 31, 1997 241,520 13,793 130,880 950
-------- -------- ------- -----
Net premiums ............................. 1,293 409 2,672 867
Loan interest ............................ (259) (25) (46) --
Transfers (to) from the general
account of Life of Virginia:
Death benefits ......................... (1,183) -- (863) --
Surrenders ............................. (338) (4,063) (4,468) --
Loans .................................. (4,970) 1,652 334 (2,698)
Cost of insurance and
administrative expense ................ (2,749) (287) (1,797) (597)
Transfers (to) from the Guarantee
Account ................................ 2,947 7 5,745 --
Interfund transfers ...................... 25,041 20,985 60,164 48,939
-------- -------- ------- --------
Net increase (decrease) in units from
capital transactions ..................... 19,782 18,678 61,741 46,511
-------- -------- ------- --------
Units outstanding at December 31, 1998 261,302 32,471 192,621 47,461
======== ======== ======= ========
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
<TABLE>
<CAPTION>
GOLDMAN SACHS
VARIABLE INSURANCE
TRUST FUND
-----------------------
GROWTH AND MID CAP
INCOME EQUITY
FUND FUND
------------ --------
<S> <C> <C>
Units outstanding at December 31, 1995 ............................. -- --
-- --
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 ............................................... -- --
-- --
Net increase (decrease) in units from capital transactions ......... -- --
-- --
Units outstanding at December 31, 1996 ............................. -- --
-- --
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 ............................................... -- --
-- --
Net increase (decrease) in units from capital transactions ......... -- --
-- --
Units outstanding at December 31, 1997 ............................. -- --
-- --
Net premiums ...................................................... -- --
Loan interest ..................................................... -- --
Transfers (to) from the general account of Life of Virginia:
Death benefits .................................................. -- --
Surrenders ...................................................... -- --
Loans ........................................................... -- --
Cost of insurance and administrative expense .................... -- (33)
Transfers (to) from the Guarantee Account ......................... -- --
Interfund transfers ............................................... 598 9,410
--- -----
Net increase (decrease) in units from capital transactions ......... 598 9,377
--- -----
Units outstanding at December 31, 1998 ............................. 598 9,377
=== =====
</TABLE>
(C) 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. Under existing federal income tax law,
no taxes are payable on the investment income or on the capital gains of the
Account.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT III
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
(D) 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 (M&E) risk that Life of Virginia assumes. This
M&E 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 serves as
principal underwriter for variable life insurance policies and variable
annuities 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.
(4) SUBSEQUENT EVENT
Effective January 1, 1999, The Life Insurance Company of Virginia merged
with The Harvest Life Insurance Company to form GE Life and Annuity Assurance
Company. Concurrently, the Account changed its name to GE Life & Annuity
Separate Account III. Neither of those events have an impact on net assets or
unit values.
<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, 1998 and 1997,
and the related consolidated statements of income and comprehensive income,
shareholders' interest, and cash flows for the years then ended, and the nine
months ended December 31, 1996. We have also audited the pre-acquisition
statements of income and comprehensive income, shareholders' interest 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.
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, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended, the
nine months ended December 31, 1996 and the pre-acquisition three months ended
March 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective April
1, 1996, General Electric Capital Corporation acquired all of the outstanding
stock of The Life Insurance Company of Virginia in a business combination
accounted for as a purchase. As a result of the acquisition, the consolidated
financial information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, is not comparable.
/s/ KPMG LLP
Richmond, Virginia
January 22, 1999
<PAGE>
<TABLE>
<CAPTION>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in millions, except per share amounts)
December 31,
------------
ASSETS 1998 1997
- ------ ---------- ----------
<S> <C> <C>
Investments:
Fixed maturities available-for-sale, at fair value $ 6,077.2 $ 5,622.6
Equity securities available-for-sale, at fair value:
Common stocks 6.1 9.6
Preferred stocks, non-redeemable 48.3 95.1
Investment in subsidiary 2.6 2.6
Mortgage loans, net of valuation allowance of $20.0 and $17.2
at December 31, 1998 and 1997, respectively 528.1 496.2
Policy loans 198.3 188.4
Real estate owned 2.5 6.9
Other invested assets 130.8 49.5
----- ----
Total investments 6,993.9 6,470.9
------- -------
Cash 9.6 0.2
Accrued investment income 122.8 123.1
Deferred acquisition costs 242.0 165.0
Intangible assets 390.0 449.7
Reinsurance recoverable 15.3 8.7
Deferred income tax asset 41.1 57.4
Other assets 42.5 23.3
Separate account assets 5,528.7 4,066.4
------- -------
Total assets $ 13,385.9 $ 11,364.7
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in millions, except per share amounts)
<TABLE>
<CAPTION>
December 31,
------------
LIABILITIES AND SHAREHOLDERS' INTEREST 1998 1997
---- ----
Liabilities:
<S> <C> <C>
Future annuity and contract benefits $ 6,455.3 $ 5,889.8
Liability for policy and contract claims 119.6 83.0
Other policyholder liabilities 86.4 75.2
Accounts payable and accrued expenses 108.8 101.0
Separate account liabilities 5,528.7 4,066.4
------- -------
Total liabilities 12,298.8 10,215.4
-------- --------
Shareholders' interest:
Net unrealized investment gains 49.8 74.3
-------- --------
Accumulated non-owner changes in equity 49.8 74.3
Preferred stock, Series A ($1,000 par value,
$1,000 redemption and liquidation value; 200,000
authorized, 120,000 shares issued and outstanding) 120.0 -
Common stock ($1,000 par value, 50,000
authorized, 4,000 shares issued and outstanding) 4.0 4.0
Common stock declared but not issued ($1,000
par value, 18,641 shares declared, 50,000 authorized) 18.6 -
Additional paid-in capital 917.6 925.9
Retained earnings (22.9) 145.1
----- -----
Total shareholders' interest 1,087.1 1,149.3
------- -------
Total liabilities and shareholders' interest $ 13,385.9 $ 11,364.7
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Preacquisition
--------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net investment income $ 482.7 $ 472.5 $ 334.4 $ 112.0
Net realized investment gains 26.3 13.3 6.0 9.0
Premiums 99.9 104.4 65.4 60.0
Cost of insurance 128.5 127.2 78.3 28.9
Variable product fees 60.8 44.4 23.1 5.9
Other income 17.6 18.5 11.6 4.5
--- ---- ---- ---
Total revenues 815.8 780.3 518.8 220.3
----- ----- ----- -----
Benefits and expenses:
Interest credited 329.6 323.4 226.0 76.1
Benefits & other changes in policy reserves 172.4 160.8 100.4 89.9
Commissions 99.2 117.3 78.5 35.7
General expenses 98.5 77.5 49.6 15.3
Amortization of intangibles, net 49.0 59.6 50.1 0.6
Change in deferred acquisition costs, net (76.2) (101.5) (71.7) (16.2)
Interest expense 2.0 - - -
--- ----- ----- -----
Total benefits and expenses 674.5 637.1 432.9 201.4
----- ----- ----- -----
Income before income taxes 141.3 143.2 85.9 18.9
Provision for income taxes 50.7 52.2 31.8 7.0
---- ---- ---- ---
Net income 90.6 91.0 54.1 11.9
---- ---- ---- ----
Other comprehensive income, net of tax:
Unrealized gains (losses) on securities, net (24.5) 54.9 19.4 (91.2)
----- ---- ---- -----
Comprehensive income (loss) $ 66.1 $ 145.9 $ 73.5 $ (79.3)
====== ======= ====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INTEREST
(Dollar amounts in millions, except share amounts)
<TABLE>
<CAPTION>
Common Stock
Declared
Preferred Stock Common Stock but not Issued
--------------- ------------ --------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1995 - $ - 4,000 $ 4.0 - $ -
Comprehensive income:
Net income - - - - - -
Other comprehensive income, net of tax
Unrealized loss on securities, net - - - - - -
------ ------ ------ ------ ------ ------
Total comprehensive income - - - - - -
Capital contribution from parents - - - - - -
------ ------ ------ ------ ------ ------
BALANCES AT MARCH 31, 1996 - - 4,000 4.0 - -
Comprehensive income:
Net income - - - - - -
Other comprehensive income, net of tax
Unrealized gain on securities, net - - - - - -
------ ------ ------ ------ ------ ------
Total comprehensive income - - - - - -
Adjustment to reflect purchase method - - - - - -
------ ------ ------ ------ ------ ------
BALANCES AT DECEMBER 31, 1996 - - 4,000 4.0 - -
Comprehensive income:
Net income - - - - - -
Other comprehensive income, net of tax
Unrealized gain on securities, net - - - - - -
------ ------ ------ ------ ------ ------
Total comprehensive income - - - - - -
Adjustment to reflect purchase method - - - - - -
------ ------ ------ ------ ------ ------
BALANCES AT DECEMBER 31, 1997 - - 4,000 4.0 - -
Comprehensive income:
Net income - - - - - -
Other comprehensive income, net of tax
Unrealized loss on securities, net - - - - - -
------ ------ ------ ------ ------ ------
Total comprehensive income - - - - - -
Cash dividend declared and paid - - - - - -
Preferred stock dividend 120,000 120.0 - - - -
Common stock dividend declared but not issued - - - - 18,641 18.6
Adjustment to reflect purchase method - - - - - -
------ ------ ------ ------ ------ ------
BALANCES AT DECEMBER 31, 1998 120,000 $120.0 4,000 $ 4.0 18,641 $ 18.6
======= ====== ===== ===== ====== ======
Accumulated
Additional Non-owner Retained Total
Paid-In Changes Earnings Shareholders'
Capital in Equity (Deficit) Interest
------- --------- --------- --------
BALANCES AT DECEMBER 31, 1995 $749.1 $103.1 $(34.3) $ 821.9
Comprehensive income:
Net income - - 11.9 11.9
Other comprehensive income, net of tax
Unrealized loss on securities, net - (91.2) - (91.2)
------- --------- -------- --------
Total comprehensive income - (91.2) 11.9 (79.3)
Capital contribution from parents 69.3 - - 69.3
------- --------- -------- ---------
BALANCES AT MARCH 31, 1996 818.4 11.9 (22.4) 811.9
Comprehensive income:
Net income - - 54.1 54.1
Other comprehensive income, net of tax
Unrealized gain on securities, net - 19.4 - 19.4
------- --------- -------- --------
Total comprehensive income - 19.4 54.1 73.5
Adjustment to reflect purchase method 109.7 (11.9) 22.4 120.2
------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1996 928.1 19.4 54.1 1,005.6
Comprehensive income:
Net income - - 91.0 91.0
Other comprehensive income, net of tax
Unrealized gain on securities, net - 54.9 - 54.9
------- --------- -------- -------
Total comprehensive income - 54.9 91.0 145.9
Adjustment to reflect purchase method (2.2) - - (2.2)
------- --------- -------- ---------
BALANCES AT DECEMBER 31, 1997 925.9 74.3 145.1 1,149.3
Comprehensive income:
Net income - - 90.6 90.6
Other comprehensive income, net of tax
Unrealized loss on securities, net - (24.5) - (24.5)
------- --------- -------- -------
Total comprehensive income - (24.5) 90.6 66.1
Cash dividend declared and paid - - (120.0) (120.0)
Preferred stock dividend - - (120.0) -
Common stock dividend declared but not issued - - (18.6) -
Adjustment to reflect purchase method (8.3) - - (8.3)
------- --------- -------- --------
BALANCES AT DECEMBER 31, 1998 $ 917.6 $ 49.8 $ (22.9) $1,087.1
======== ========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Preacquisition
--------------
Nine months Three months
ended ended
Years ended December 31, December 31, March 31,
1998 1997 1996 1996
---- ---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C> <C>
Net income $ 90.6 $ 91.0 $ 54.1 $ 11.9
------ ------ ------ ------
Adjustments to reconcile net income to net cash by
operating activities:
Cost of insurance and surrender fees (169.6) (168.8) (89.3) (32.5)
Increase in future policy benefits 420.4 405.0 277.8 (4.9)
Net realized investment gains (26.3) (13.3) (6.0) (9.0)
Amortization of investment premiums and discounts 1.9 7.2 6.5 0.7
Amortization of intangibles 49.5 59.6 50.1 0.6
Deferred income tax expense (benefit) 29.5 (12.6) (7.9) 10.8
Change in certain assets and liabilities:
Decrease (increase) in:
Accrued investment income 0.3 (5.3) (37.6) 4.1
Deferred acquisition costs (76.2) (101.5) (71.7) (16.2)
Other assets, net (19.2) (9.3) 28.5 (55.9)
Increase (decrease) in:
Policy and contract claims 30.8 37.0 29.9 4.6
Other policyholder liabilites 11.3 (3.6) 71.4 9.8
Accounts payable and accrued expenses 24.7 (99.9) (15.7) 87.5
---- ----- ----- ----
Total adjustments 277.1 94.5 236.0 (0.4)
----- ---- ----- ----
Net cash provided by operating activities 367.7 185.5 290.1 11.5
----- ----- ----- ----
Cash flows from investing activities:
Proceeds from investment securities and other invested assets 1,901.6 788.6 1,123.1 299.5
Principal collected on mortgage loans 116.5 87.1 46.4 8.3
Purchase of investment securities and other invested assets (2,410.4) (1,115.7) (1,280.5) (169.2)
Mortgage loan originations and increase in policy loan balance (161.0) (13.7) (23.7) (40.4)
------ ----- ----- -----
Net cash provided by (used in) investing activities (553.3) (253.7) (134.7) 98.2
------ ------ ------ ----
Cash flows from financing activities:
Proceeds from issue of investment contracts 2,224.8 1,894.2 1,098.5 301.9
Redemption and benefit payments on investment contracts (1,909.8) (1,874.6) (1,304.0) (358.8)
Cash dividend to shareholders (120.0) - - (40.0)
Capital contribution - - 2.8
--- --- --- ---
Net cash provided by (used in) financing activities 195.0 19.6 (205.5) (94.1)
----- ---- ------ -----
Net increase (decrease) in cash and cash equivalents 9.4 (48.6) (50.1) 15.6
Cash and cash equivalents at beginning of year 0.2 48.8 98.9 83.3
--- ---- ---- ----
Cash and cash equivalents at end of year $ 9.6 $ 0.2 $ 48.8 $ 98.9
===== ===== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The accompanying consolidated financial statements include the
historical operations and accounts of The Life Insurance Company of Virginia and
its subsidiary, Assigned Settlements Inc. (collectively the "Company" or "Life
of Virginia"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
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" or "GECA"). On December
31, 1996, the remaining 20% was contributed to GE Financial Assurance Holdings,
Inc. ("GEFAHI"). GECA is an indirect wholly-owned subsidiary of GEFAHI.
(b) Basis of Presentation
The accompanying consolidated financial statements have been prepared
on the basis of generally accepted accounting principles ("GAAP") for insurance
companies, which vary in several respects from accounting practices prescribed
or permitted by the Insurance Commissioner of the state where the Company is
domiciled. The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and related disclosures. Actual results could differ from those
estimates.
Certain prior year amounts have been reclassified to conform to current
year presentation.
(c) Products
The Company primarily sells variable annuities and universal life
insurance to customers throughout most of the United States. The Company
distributes variable annuities primarily through intermediaries such as
stockbrokers and universal life insurance primarily through career agents and
independent brokers. The Company is also engaged in the sale of traditional
individual and group life products and guaranteed investment contracts.
Approximately 21%, 29%, and 31% of premium and annuity consideration collected,
in 1998, 1997, and 1996, respectively, came from customers residing in the South
Atlantic region of the United States, and approximately 28%, 13%, and 9% of
premium and annuity consideration collected, in 1998, 1997, and 1996,
respectively, came from customers residing in the Mid-Atlantic region of the
United States.
Although the Company markets its products through numerous
distributors, approximately 23%, 22%, and 21% of the Company's sales in 1998,
1997, and 1996,
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
respectively, have been through two specific national stockbrokerage firms. Loss
of all or a substantial portion of the business provided by these stockbrokerage
firms 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.
(d) 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
$921.6 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 shareholders' equity of
$109.7 (net of purchase accounting adjustments of $8.3 and $2.2 in 1998 and
1997, respectively), reflecting the application of the purchase method of
accounting. The Company's consolidated financial statements subsequent to April
1, 1996 reflect this new basis of accounting.
All amounts for periods ended before April 1, 1996 are labeled
"Preacquisition" and are based on the preacquisition historical costs in
accordance with generally accepted accounting principles. The periods ending
after such date are based on fair values at April 1, 1996 (which becomes the new
cost basis) and subsequent costs in accordance with the purchase method of
accounting.
(e) Revenues
Investment income is recorded when earned. Realized investment gains
and losses are calculated on the basis of specific identification. Premiums on
long-duration insurance products are recognized as earned when due or, in the
case of life contingent immediate annuities, when the contracts are issued.
Premiums received under annuity contracts without significant mortality risk and
premiums received on universal life products are not reported as revenues but as
future annuity and contract benefits. Cost of insurance is charged to universal
life policyholders based upon at risk amounts, and is recognized as revenue when
due. Variable product fees are charged to variable annuity and variable life
policyholders based upon the daily net assets of the policyholders' account
values, and are recognized as revenue when charged.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
Other income consists primarily of surrender charges on certain policies.
Surrender charges are recognized as income when the policy is surrendered.
(f) Statements of Cash Flows
Certificates and other time deposits are classified as short-term
investments on the consolidated balance sheets and considered cash equivalents
on the consolidated statements of cash flows.
(g) Investments
The Company has designated its fixed maturities (bonds, notes,
mortgage-backed securities, and redeemable preferred stock) and equity
securities (common and non-redeemable preferred stock) as available-for-sale.
The fair value for fixed maturities and equity securities is based on individual
quoted market prices, where available. For fixed maturities not actively traded,
fair values are estimated using values obtained from independent pricing
services or, in the case of private placements, are estimated by discounting
expected future cash flows using a current market rate applicable to the credit
quality, call features and maturity of the investments, as applicable.
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 shareholders' interest and, accordingly,
have no effect on net income but are shown as a component of other comprehensive
income (loss). Unrealized losses that are considered other than temporary are
recognized in earnings through an adjustment to the amortized cost basis of the
underlying securities. 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
and comprehensive income. In general, the Company ceases to accrue investment
income when interest or dividend payments are in arrears.
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. Realized gains and losses are accounted for on the
specific identification method.
Mortgage loans and policy loans are carried at their unpaid principal
balance, net of allowances for estimated uncollectible amounts. Short-term
investments are carried at amortized cost which approximates fair value. Equity
securities are carried at fair value. Investments in limited partnerships are
accounted for under the equity method of accounting. Real estate is
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
carried generally at cost less accumulated depreciation. Other long-term
investments are carried generally at amortized cost.
Under certain securities lending transactions, the Company requires the
borrower provide collateral, consisting primarily of cash and government
securities, on a daily basis, in amounts equal to or exceeding 102% of the
market value of the applicable securities loaned.
(h) Deferred Acquisition Costs
Acquisition costs include costs and expenses which vary with and are
primarily related to the acquisition of insurance and investment contracts.
Deferred acquisition costs include first-year commissions in excess of
recurring renewal commissions, certain solicitation and printing costs, and
certain support costs such as underwriting and policy issue expenses. For
investments and universal life type contracts, amortization is based on the
present value of anticipated gross profits from investments, interest credited,
surrender and other policy charges, and mortality and maintenance expenses.
Amortization is adjusted retroactively when current or estimates of future gross
profits to be realized are revised. For other long-duration insurance contracts,
the acquisition costs are amortized in relation to the estimated benefit
payments or the present value of expected future premiums.
Deferred acquisition costs are reviewed to determine if they are
recoverable from future income, including investment income, and, if not
considered recoverable, are charged to expense.
(i) Intangible Assets
Present Value of Future Profits-In conjunction with the acquisition of
the Company, a portion of the purchase price was assigned to the right to
receive future gross profits arising from existing insurance and investment
contracts. This intangible asset, called present value of future profits (PVFP),
represents the actuarially determined present value of the projected future cash
flows from the acquired policies.
Goodwill-Goodwill is amortized over a period of 20 years on the
straight-line method. Goodwill in excess of associated expected operating cash
flows is considered to be impaired and is written down to fair value. No such
write-downs have occurred.
(j) Federal Income Taxes
Pursuant to the acquisition on April 1, 1996, GE Capital, and AON, 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.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
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.
(k) Reinsurance
Premium revenue, benefits, underwriting, acquisition and insurance
expenses are reported net of the amounts relating to reinsurance ceded to other
companies. Amounts due from reinsurers for incurred future claims are reflected
in the reinsurance recoverable asset. The cost of reinsurance is accounted for
over the terms of the related treaties using assumptions consistent with those
used to account for the underlying reinsured policies.
(l) Future Annuity and Contract Benefits
Future annuity and contract benefits consist of the liability for
investment contracts, insurance contracts and accident and health contracts.
Investment contract liabilities are generally equal to the policyholder's
current account value. The liability for insurance and accident and health
contracts is calculated based upon actuarial assumptions as to mortality,
morbidity, interest, expense and withdrawals, with experience adjustments for
adverse deviation where appropriate.
(m) Liability for Policy and Contract Claims
The liability for policy and contract claims represents the amount
needed to provide for the estimated ultimate cost of settling claims relating to
insured events that have occurred on or before the end of the respective
reporting period. The estimated liability includes requirements for future
payments of (a) claims that have been reported to the insurer, and (b) claims
related to insured events that have occurred but that have not been reported to
the insurer as of the date the liability is estimated.
(n) Separate Account Assets and Liabilities
The separate account assets and liabilities represent funds held for
the exclusive benefit of the variable annuity and variable life contract owners.
The Company receives mortality risk fees and administration charges from the
variable mutual fund portfolios. The separate account assets are carried at fair
value and are equivalent to the liabilities that represent the policyholders'
equity in those assets.
The Company has periodically transferred capital to the separate
accounts to provide for the initial purchase of investments in new mutual fund
portfolios. As of December 31, 1998, approximately $41.8 of the Company's other
invested assets related to its capital investments in the separate accounts.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
(o) INTEREST RATE RISK MANAGEMENT
As a matter of policy, the Company does not engage in derivatives
trading, market-making or other speculative activities.
The Company uses interest rate floors primarily to minimize risk on
investment contracts with minimum guaranteed interest rates. The Company
requires all interest rate floors to be designated and accounted for as hedges
of specific assets, liabilities or committed transactions; resulting payments
and receipts are recognized contemporaneously with effects of hedged
transactions. A payment or receipt arising from early termination of an
effective hedge is accounted for as an adjustment to the basis of the hedged
transaction.
Instruments used as hedges must be effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract. Accordingly, changes in market values of hedged
instruments must be highly correlated with changes in market values of
underlying hedges items both at inception of the hedge and over the life of the
hedge contract. Any instrument designated but ineffective as a hedge is marked
to market and recognized in operations immediately.
(2) INVESTMENTS
(a) General
<TABLE>
<CAPTION>
The sources of investment income of the Company were as follows:
Preacquisition
--------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Fixed maturities $ 415.3 $ 399.5 $ 276.9 $ 93.6
Equity securities 4.9 7.3 8.7 4.2
Mortgage loans 46.5 48.3 41.3 13.5
Policy loan interest 14.0 13.3 9.6 2.9
Other investments 6.7 9.0 3.3 0.1
------------- ------------- -------------- --------------
Gross investment income 487.4 477.4 339.8 114.3
Investment expenses (4.7) (4.9) (5.4) (2.3)
------------- ------------- -------------- --------------
Net investment income $ 482.7 $ 472.5 $ 334.4 $ 112.0
============= ============= ============== ==============
</TABLE>
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
Sales proceeds and gross realized investment gains and losses resulting
from the sales of investment securities available-for-sale were as follows:
<TABLE>
<CAPTION>
Preacquisition
--------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales proceeds $ 1,232.5 $ 387.1 $ 818.4 $ 262.9
============== =============== ============== ==============
Gross realized investment:
Gains 40.0 18.2 10.0 10.8
Losses (13.7) (4.9) (4.0) (1.8)
-------------- --------------- -------------- --------------
Net realized investment gains $ 26.3 $ 13.3 $ 6.0 $ 9.0
============== =============== ============== ==============
</TABLE>
The additional proceeds from the investments presented in the
consolidated statements of cash flows result from principal collected on
mortgage-backed securities, maturities, calls and sinking payments.
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 shareholders' interest as of December 31, are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
Net unrealized gains on available-for-sale investment securities before
adjustments:
Fixed maturities $ 112.5 $ 154.5
Equity securities 5.5 14.6
Other invested assets 2.3 6.4
------------- --------------
Subtotal 120.3 175.5
------------- --------------
Adjustments to the present value of future profits and deferred acquisition costs: (43.7) (61.2)
Deferred income taxes (26.8) (40.0)
------------- --------------
Net unrealized gains on available-for-sale investment securities: $ 49.8 $ 74.3
============= ==============
</TABLE>
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
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.
At December 31, the amortized cost, gross unrealized gains and losses,
and fair values of the Company's fixed maturities and equity securities
available-for-sale were as follows:
<TABLE>
<CAPTION>
Gross Gross
1998 Amortized unrealized unrealized Fair
- -------------
cost gains losses value
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. government and agencies $ 36.7 $ 1.3 $ (0.1) $ 37.9
States and municipal 1.6 0.4 - 2.0
Non-U.S. government 3.0 - (0.4) 2.6
U.S. corporate 3,765.9 126.7 (51.8) 3,840.8
Non-U.S. corporate 291.6 5.9 (7.2) 290.3
Mortgage-backed 1,865.9 47.3 (9.6) 1,903.6
----------- ----------- ---------- -----------
Total fixed maturities 5,964.7 181.6 (69.1) 6,077.2
Common stocks and non-redeemable preferred stocks 48.9 5.8 (0.3) 54.4
----------- ----------- ---------- -----------
Total available-for-sale securities $ 6,013.6 $ 187.4 $ (69.4) $ 6,131.6
=========== =========== ========== ===========
Gross Gross
1997 Amortized unrealized unrealized Fair
- ------------
cost gains losses value
------------ ---------- ---------- ------------
Fixed maturites:
U.S. government and agencies $ 44.3 $ 1.3 $ - $ 45.6
State and municipal 1.8 0.3 - 2.1
Non-U.S. government - - - -
U.S. corporate 3,362.1 120.6 (8.1) 3,474.6
Non-U.S. corporate 200.1 6.5 (0.3) 206.3
Mortgage-backed 1,859.8 39.6 (5.4) 1,894.0
------------ ---------- ---------- ------------
Total fixed maturities 5,468.1 168.3 (13.8) 5,622.6
Common stocks and non-redeemable preferred stocks 90.1 14.6 - 104.7
------------ ---------- ---------- ------------
Total available-for-sale securities $5,558.2 $ 182.9 $ (13.8) $ 5,727.3
============ ========== ========== ============
</TABLE>
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
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.
1998
-------------------------
Amortized Fair
Cost Value
----------- ------------
Due in one year or less $ 119.6 $ 120.2
Due one year through five years 1,895.0 1,941.1
Due five years through ten years 1,299.4 1,304.5
Due after ten years 784.8 807.8
----------- ------------
Subtotals 4,098.8 4,173.6
Mortgage-backed securities 1,865.9 1,903.6
----------- ------------
Totals $ 5,964.7 $ 6,077.2
=========== ============
As required by law, the Company has investments on deposit with
governmental authorities and banks for the protection of policyholders of $4.0
and $4.7 as of December 31, 1998 and 1997, respectively.
As of December 31, 1998, approximately 26.6% and 14.8% 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.
As of December 31, 1998, the Company did not hold any fixed maturity
securities which exceeded 10% of shareholders' interest.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
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>
1998 1997
------------------------- --------------------------
Fair Fair
value Percent value Percent
------------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Agencies and treasuries $ 270.5 4.5 % $ 308.4 5.5 %
AAA/Aaa 1,518.7 25.0 1,464.5 26.0
AA/Aa 376.6 6.2 320.4 5.7
A/A 1,201.4 19.8 1,101.4 19.6
BBB/Baa 1,762.2 29.0 1,862.3 33.1
BB/Ba 378.3 6.2 306.8 5.5
B/B 187.4 3.1 76.7 1.4
Not rated 382.1 6.2 182.1 3.2
------------ ---------- ------------ -----------
Totals $ 6,077.2 100.0 % $ 5,622.6 100.0 %
============ ========== ============ ===========
</TABLE>
Bonds with ratings 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.
(b) Mortgage and Real Estate Portfolio
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, 1998:
Mortgage Real Estate
------------ ------------
South Atlantic 38.4 % 100.0 %
Pacific 16.3 -
East North Central 14.7 -
West South Central 10.8 -
Mountain 10.5 -
Other 9.3 -
------------ ------------
Totals 100.0 % 100.0 %
============ ============
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
Type distribution as of December 31, 1998:
Mortgage Real Estate
------------- ------------
Office Building 23.6 % - %
Retail 23.3 100.0
Industrial 22.4 -
Apartments 21.2 -
Other 9.5 -
------------- ------------
Totals 100.0 % 100.0 %
============= ============
"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 definitions, the Company has two types of "impaired" loans
as of December 31, 1998 and 1997: 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 ($11.3
and $23.0, respectively). There was no allowance for losses on these loans as of
December 31, 1998 and 1997. Average investment in impaired loans during 1998 and
1997 was $20.0 and $23.0 and interest income earned on these loans while they
were considered impaired was $1.8 and $2.0 for the years ended 1998 and 1997,
respectively. There were no impaired loans nor related interest income earned on
such loans in 1996.
The following table shows the activity in the allowance for losses
during the years ended December 31:
1998 1997
--------------- ---------------
Balance on January 1 $ 17.2 $ 20.8
Provision charged to operations 1.1 1.1
Amounts written off, net of recoveries 1.7 (4.7)
--------------- ---------------
Balance at December 31 $ 20.0 $ 17.2
=============== ===============
The allowance for losses on mortgage loans at December 31, 1998 and
1997 represented 3.6% and 3.4% of gross mortgage loans, respectively.
The Company had $5.6 and $6.4 of non-income producing mortgage loan
investments as of December 31, 1998 and December 31, 1997, respectively.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
(3) Deferred Acquisition Costs
<TABLE>
<CAPTION>
Activity impacting deferred policy acquisition costs was as follows:
Preacquisition
----------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Unamortized balance - beginning of period $ 173.2 $ 71.7 $ - $ 363.9
Costs deferred 93.6 112.3 74.9 22.2
Amortization, net (17.4) (10.8) (3.2) (6.0)
--------------- --------------- --------------- ----------------
Unamortized balance - end of period 249.4 173.2 71.7 380.1
Cumulative effect of net unrealized
investment (gains) losses (7.4) (8.2) (1.4) 17.9
--------------- --------------- --------------- ----------------
Recorded balance $ 242.0 $ 165.0 $ 70.3 $ 398.0
=============== =============== =============== ================
</TABLE>
(4) Intangibles
(a) Present Value of Future Profits (PVFP)
As of April 1, 1996, Life of Virginia established an intangible asset
that 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, net of accreted interest, in a manner similar to the
amortization of deferred acquisition costs. Interest accretes at rates credited
to policyholders on underlying contracts. Recoverability of PVFP is evaluated
periodically by comparing the current estimate of expected future gross profits
to the unamortized asset balance. If such a comparison indicates that the
expected gross profits will not be sufficient to recover PVFP, the difference is
charged to expense.
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.
PVFP is 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 shareholders' interest, net of applicable income
tax. The components of PVFP are as follows:
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
<TABLE>
<CAPTION>
Preacquisition
----------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
------------ ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Unamortized bal. - beginning of period $ 385.7 $ 438.9 $ - $ 32.6
Purchase accounting adjustments - - 484.0 -
Interest accrued at 6.25%, 6.75% and 6.25%
for 1998, 1997, and 1996, respectively 24.0 28.4 22.4 0.5
Amortization (70.4) (81.6) (67.5) (1.1)
------------ ------------- ------------- ----------------
Unamortized balance - end of period 339.3 385.7 438.9 32.0
Cumulative effect of net unrealized
investment (gains) losses (36.3) (53.1) (19.7) -
------------ ------------- ------------- ----------------
Recorded balance $ 303.0 $ 332.6 $ 419.2 $ 32.0
============ ============= ============= ================
</TABLE>
The estimated percentage of the December 31, 1998 balance, before the
effect of unrealized investment gains or losses, to be amortized over each of
the next five years is as follows:
1999 11.4 %
2000 8.3
2001 7.3
2002 6.0
2003 5.0
(b) Goodwill
At December 31, 1998 and 1997, total unamortized goodwill was $87.0 and
$117.1, respectively, which is shown net of accumulated amortization and
adjustments of $41.4 and $13.2 for the years ended December 31, 1998 and 1997,
respectively. Goodwill amortization was $2.6, $6.4, and $5.0 for the years
ending December 31, 1998 and 1997, and for the nine month period ending December
31, 1996, respectively. Cumulative adjustments to goodwill totaled $(27.6),
($1.9) and $11.2 for the years ending December 31, 1998 and 1997, and for the
nine month period ending December 31, 1996, respectively. Adjustments relate
primarily to the settlement of purchase price with AON.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
(5) 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.
In order to limit to amount of loss retention, certain policy risks are
reinsured with other insurance companies. The maximum of individual ordinary
life insurance normally retained by the Company on any one life policy is $1.
The Company does not have significant reinsurance contracts with any one
reinsurer that could have a material impact on its results of operations.
A summary of reinsurance activity is as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Direct $ 333.0 $ 321.3 $ 94.7 $ 73.7
Assumed 19.2 20.7 59.0 35.0
Ceded (123.8) (110.4) (10.0) (19.8)
--------------- --------------- --------------- ---------------
Net premiums earned $ 228.4 $ 231.6 $ 143.7 $ 88.9
--------------- --------------- --------------- ---------------
Percentage of amount assumed to net 8% 9% 41% 39%
=============== =============== =============== ===============
</TABLE>
Due to the nature of the Company's reinsurance contracts, premiums
earned approximate premiums written. The above premium amounts include cost of
insurance charges on universal life policies.
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
$82.3, $72.7, $60.5, and $17.2 for the years ended December 31, 1998 and 1997,
the nine months ended December 31, 1996, and the three months ended March 31,
1996, respectively.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
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. For the three
months ended March 31, 1996, premiums of $33.9, benefits of $46.7, commission
expense of $10.2 and a capital contribution of $69.3 as a result of various
reinsurance transactions.
(6) Future Annuity and Contract Benefits
(a) Investment Contracts
Investment contracts are broadly defined to include contracts without
significant mortality or morbidity risk. Payments received from sales of
investment contracts are recognized by providing a liability equal to the
current account value of the policyholder's contracts. Interest rates credited
to investment contracts are guaranteed for the initial policy term with renewal
rates determined as necessary by management.
(b) Insurance Contracts
Insurance contracts are broadly defined to include contracts with
significant mortality and/or morbidity risk. The liability for future benefits
of insurance contracts is the present value of such benefits based on mortality,
morbidity, and other assumptions which were appropriate at the time the policies
were issued or acquired. These assumptions are periodically evaluated for
potential premium deficiencies. Reserves for cancelable accident and health
insurance are based upon unearned premiums, claims incurred but not reported,
and claims in the process of settlement. This estimate is based on the
experience of the insurance industry and the Company, adjusted for current
trends. Any changes in the estimated liability are reflected in income as the
estimates are revised.
<PAGE>
The following chart summarizes the major assumptions underlying the
Company's recorded liabilities for future annuity and contract benefits:
<TABLE>
<CAPTION>
Mortality/
Withdrawal Morbidity Interest Rate December 31,
----------------------------
Assumption Assumption Assumption 1998 1997
-------------- --------------- -------------- ------------ -------------
<S> <C> <C>
Investment Contracts N/A N/A N/A $ 4,463.3 $ 3,951.4
Limited-payment Contracts None (a) 3.8-9.3% 14.4 14.0
Traditional life insurance contracts Company (b) 7.2% 369.0 363.7
Experience
Universal life-type contracts N/A N/A N/A 1,605.7 1,557.4
Accident & Health Company (c) 7.2% 2.9 3.3
Experience
------------ -------------
Total future annuity and contract benefits $ 6,455.3 $ 5,889.8
============ =============
</TABLE>
a) Either the United States Population Table, 1983 Group Annuitant Mortality
Table or 1983 Individual Annuitant Mortality Table.
b) Principally modifications of the 1965-70 or 1975-80 Select and Ultimate
Tables.
c) The 1958 Commissioner's Standard Ordinary Table and 1964 modified and 1987
Commissioner's Disability Tables.
(7) Income Taxes
Beginning April 1, 1996, Life of Virginia and its subsidiary have been
included in the life insurance company consolidated federal income tax return of
GECA 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
income taxes nor entitled to recoveries related to those periods.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
The total provision for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
Preacquisition
---------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Current federal income tax provision (benefit) $ 19.9 $ 62.4 $ 38.1 $ (3.6)
Deferred federal income tax provision (benefit) 28.7 (12.4) (7.6) 10.3
------------- -------------- --------------- ---------------
Subtotal-federal provision 48.6 50.0 30.5 6.7
Current state income tax provision (benefit) 1.3 2.4 1.6 (0.2)
Deferred state income tax provision (benefit) 0.8 (0.2) (0.3) 0.5
------------- -------------- --------------- ---------------
Subtotal-state provision 2.1 2.2 1.3 0.3
------------- -------------- --------------- ---------------
Total income tax provision $ 50.7 $ 52.2 $ 31.8 $ 7.0
============= ============== =============== ===============
</TABLE>
The reconciliation of the federal statutory rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Preacquisition
-----------------
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Statutory U.S. federal income tax rate 35.0 % 35.0 % 35.0 % 35.0 %
State income tax 0.5 0.5 0.5 0.5
Non-deductible goodwill amortization 0.7 1.6 2.0 0.0
Other, net (0.3) (0.6) (0.5) 1.5
------------- --------------- --------------- ---------------
Effective rate 35.9 % 36.5 % 37.0 % 37.0 %
============= =============== =============== ===============
</TABLE>
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
The components of the net deferred income tax asset (liability) at
December 31 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Assets:
Insurance reserve amounts $ 147.1 $ 142.9
Deferred acquisition costs - 11.8
Other 5.9 24.5
----------------- -----------------
Total deferred tax assets 153.0 179.2
----------------- -----------------
Liabilities:
Net unrealized investment gains on investment securities 26.8 40.0
Investments 3.5 2.7
Present value of future profits 67.1 79.1
Deferred acquisition costs 14.5 -
----------------- -----------------
Total deferred tax liabilities 111.9 121.8
----------------- -----------------
Net deferred income tax asset $ 41.1 $ 57.4
================= =================
</TABLE>
Based on an analysis of the Company's tax position, management believes
it is more likely than not that the results of future operations and
implementation of tax planning strategies will generate sufficient taxable
income enabling the Company to realize remaining deferred tax assets.
Accordingly, no valuation allowance for deferred tax assets is deemed necessary.
The Company paid (refunded) $19.2, $64.4, $38.6, and $(2.4), for
federal and state income taxes for the year ended December 31, 1998, 1997, the
nine months ended December 31, 1996, and three months ended March 31, 1996,
respectively.
(8) Related Party Transactions
Life of Virginia pays investment advisory fees and other fees to
affiliates. Amounts incurred for these items aggregated $11.5, $11.9, $3.2, and
$3.5 for the years ended December 31, 1998 and 1997, the nine months ended
December 31, 1996, and the three months ended March 31, 1996, respectively. Life
of Virginia charges affiliates for certain services and for the use of
facilities and equipment which aggregated $19.1, $4.6, $2.0, and $1.0, for the
years ended December 31, 1998 and 1997, the nine months ended December 31, 1996,
and the three months ended March 31, 1996, respectively.
Life of Virginia pays interest on outstanding amounts under a credit
funding agreement with GNA Corporation, the parent company of GECA. Interest
expense under this agreement was $2.0 and $0.0 with outstanding borrowings of
$53.9 and $0.0 as of December 31, 1998 and 1997, respectively.
At December 31, 1998 and 1997, Life of Virginia held investments in
securities of certain affiliates amounting to $2.6. Amounts included in net
investment income related to these holdings totaled $0.1, $0.1, $0.1, and $0.2
for the years ended December 31, 1998 and 1997, for the nine months ended
December 31, 1996, and the three months ended March 31, 1996, respectively.
During 1998, Life of Virginia sold $18.5 of third-party preferred stock
investments to an affiliate. This resulted in a gain on sale of $3.9, which is
included in net realized investment gains.
<PAGE>
(9) Commitments and Contingencies
(a) Mortgage Loan Commitments
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 as of December 31,
1998 and 1997, totaled $72.0 and $16.7, respectively.
(B) Guaranty Association Assessments
The Company is required by law to participate in the guaranty
associations of the various states in which they do business. The state guaranty
associations ensure payment of guaranteed benefits, with certain restrictions,
to policyholders of impaired or insolvent insurance companies by assessing all
other companies involved in similar lines of business.
There are currently several unrelated insurance companies which had
substantial amounts of annuity business in the process of liquidation or
rehabilitation. The Company paid assessments of $2.9, $3.8, $0.2 and $1.4 to
various state guaranty associations during 1998, 1997, the nine month period
ended December 31, 1996, and the three month period ended March 31, 1996,
respectively. At December 31, 1998 and 1997, accounts payable and accrued
expenses include $15.4 and $18.2, respectively, related to estimated future
payments.
(c) Leases
The Company has noncancelable operating leases for certain office
space, equipment and automobiles. Rental expense for all operating leases for
the years ended December 31, 1998 and 1997, for the nine months ended December
31, 1996, and the three months ended March 31, 1996 amounted to $1.4, $1.3,
$2.5, and $0.8, respectively.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
Future minimum commitments under operating leases that have initial or
remaining noncancelable lease terms in excess of one year at December 31, 1998
are summarized as follows:
Minimum lease payments
1999 $ 1.2
2000 0.8
2001 0.5
2002 0.3
2003 -
Later years -
-----
Total minimum payments required $ 2.8
=====
(d) Litigation
There is no pending litigation to which the Company is a party
or of which any of the Company's property is the subject which management
believes will have an adverse material impact on the Company's financial
condition or results of operations. In addition, there are no legal
proceedings contemplated by any governmental authorities against the Company of
which management has any knowledge.
(10) Fair Value of Financial Instruments
The Company has adopted SFAS No. 119, Disclosures About Derivative
Financial Instruments and Fair Value of Financial Instruments. This statement
requires disclosures about the amounts, nature and terms of derivative financial
instruments and modifies existing disclosure requirements for other financial
instruments.
The Company has no derivative financial instruments as defined by SFAS
No. 119 as of December 31, 1998 other than mortgage loan commitments of $77.2
and interest rate floors of $17.2. The notional value of the interest rate
floors at December 31, 1998 was $1,800 and the floors expire from September 2003
to October 2003.
The fair values of financial instruments presented in the applicable
notes to the Company's consolidated financial statements are estimates of the
fair values at a specific point in time using available market information and
valuation methodologies considered appropriate by management. These estimates
are subjective in nature and involve uncertainties and significant judgment in
the interpretation of current market data. Therefore, the fair values presented
are not necessarily indicative of amounts the Company could realize or settle
currently. The Company does not necessarily intend to dispose of or liquidate
such instruments prior to maturity.
Financial instruments that, as a mater of accounting policy, are reflected
in the accompanying consolidated financial statements at fair value are not
included in the following disclosures. Such items include fixed maturities,
equity securities and certain other invested assets. The carrying value of
policy loans and short-term investments approximate fair value at both
December 31, 1998 and 1997.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions, except per share amounts)
At December 31, the carrying amounts and fair value of the Company's
financial instruments were as follows:
1998 1997
------------------ -------------------
Carrying Fair Carrying Fair
amount value amount value
------------------ -------------------
Mortgage Loans $528.1 $590.1 $496.2 $532.2
Investment type insurance contracts 4,463.3 4,462.6 3,951.4 3,909.0
Interest rate floors 17.2 12.5 -- --
The fair value of mortgage loans is estimated by discounting the
estimated future cash flows using interest rates applicable to current loan
origination, adjusted for credit risk.
The estimated fair value of investment contracts is the amount payable
on demand (cash surrender value) for deferred annuities and the net present
value based on interest rates currently offered on similar contracts for
non-life contingent immediate annuities. Fair value disclosures are not required
for insurance contracts.
(11) Restrictions On Dividends
Insurance companies are restricted by states as to the aggregate amount
of dividends they may pay to their parent in any consecutive twelve-month period
without regulatory approval. Generally, dividends may be paid out of earned
surplus without approval with thirty days prior written notice within certain
limits. The limits are generally based on 10% of the prior year surplus (net of
adjustments in some cases) and prior year statutory income (net gain from
operations, net income adjusted for realized capital gains, or net investment
income). Dividends in excess of the prescribed limits or the Company's earned
surplus require formal state insurance commission approval. The maximum dividend
payout which may be made without prior approval in 1999 is $47.9.
On December 3, 1998, the Company received approval from the
Commonwealth of Virginia for, and declared, a dividend payable in cash,
preferred stock and/or common stock at the election of each shareholder. GEFAHI
elected to receive cash and preferred stock and GECA elected to receive common
stock. A cash dividend of $120 was paid and a Series A preferred stock dividend
of $120 was issued to GEFAHI on December 15, 1998. The Series A preferred stock
has a par value of $1,000 per share, is redeemable at par at the Company's
election, and is not subject to call penalties. Dividends on the preferred stock
are cumulative and payable semi-annually at the annual rate of 8.0% of the par
value. The Series A preferred stock is not convertible into any other security
of the Company, and the holders thereof have no voting rights except with
respect to any proposed changes in the preferences and special rights of such
stock. GECA will receive its dividend in the form of 18,641 shares of newly
issued common stock in 1999.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
(12) Supplementary Financial Data
The Company files financial statements with state insurance regulatory
authorities and the National Association of Insurance Commissioners (NAIC) that
are prepared on an accounting basis prescribed by such authorities (statutory
basis). Statutory accounting practices differ from generally accepted accounting
principles (GAAP) in several respects, causing differences in reported net
income and shareholders' interest. Permitted statutory accounting practices
encompass all accounting practices not so prescribed but that have been
specifically allowed by state insurance authorities. The Company has no
significant permitted accounting practices.
Statutory net income and statutory capital and surplus is summarized
below:
<TABLE>
<CAPTION>
Preacquisition
Nine months Three months
Year ended Year ended ended ended
December 31, December 31, December 31, March 31,
1998 1997 1996 1996
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Statutory net income $ 52.2 $ 73.9 $ 69.7 $ (8.3)
Statutory capital and surplus $ 481.1 $ 522.5 $ 419.1 $ 360.5
</TABLE>
The NAIC adopted Risk Based Capital (RBC) requirements to evaluate the
adequacy of statutory capital and surplus in relation to risks associated with
(i) asset quality, (ii) insurance risk, (iii) interest rate risk, and (iv) other
business factors. The RBC formula is designated as an early warning tool for the
states to identify possible under-capitalized companies for the purpose of
initiating regulatory action. In the course of operations, the Company
periodically monitors its RBC level. At December 31, 1998 and 1997, the Company
exceeded the minimum required RBC levels.
(13) Operating Segment Information
At year-end 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 131, Disclosures About Segments of an Enterprise and
Related Information, which requires segment data to be measured and analyzed on
a basis that is consistent with how business activities are reported internally
to management. Life of Virginia and its affiliated companies, which are
subsidiaries of GEFAHI, conduct operations through two business segments: (1)
Wealth Accumulation and Transfer, comprised of products intended to increase the
policyholder's wealth, transfer wealth to beneficiaries or provide a means for
replacing the income of the insured in the event of premature death, and (2)
Wealth and Lifestyle Protection, comprised of products intended to protect
accumulated wealth and income from the financial drain of unforeseen events. As
Life of Virginia sells primarily variable annuity and universal life policies,
it operates in the Wealth Accumulation and Transfer Segment. Accordingly, no
segment data is provided.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
(14) Accounting Pronouncements Not Yet Adopted
During 1998, The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. This Statement requires that,
upon adoption, all derivative instruments (including certain derivative
instruments embedded in other contracts) be recognized in the balance sheet at
fair value, and that changes in such fair values be recognized in earnings
unless specific hedging criteria are met. Changes in the values of derivatives
that meet these hedging criteria will ultimately offset related earnings effects
of the hedged items; effects of certain changes in fair value are recorded in
equity pending recognition in earnings. As required in SFAS No. 133, the Company
will adopt the Statement by January 1, 2000. The impact of adoption will be
determined by several factors, including the specific hedging instruments in
place and their relationships to hedged items, as well as market conditions.
Management has not estimated the effects of adoption as it believes that such
determination will not be meaningful until closer to the adoption date.
In December 1997, the American Institute of Certified Public
Accountants issued a new Statement of Position (SOP) 97-3, Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments. This SOP
provides guidance on accounting by insurance and other enterprises for
guaranty-fund and certain other insurance related assessments. The SOP requires
enterprises to recognize (1) a liability for assessments when (a) an assessment
has been asserted or information available prior to issuance of the financial
statements indicates it is probable that an assessment will be asserted, (b) the
underlying cause of the asserted or probable assessment has occurred on or
before the date of the financial statements, and (c) the amount of the loss can
be reasonably estimated and (2) an asset for an amount when it is probable that
a paid or accrued assessment will result in an amount that is recoverable from
premium tax offsets or policy surcharges from in-force policies. This SOP is
effective for financial statements for fiscal years beginning after December 15,
1998 and will be reported in a manner similar to a cumulative effect of a change
in accounting principle in the initial year of adoption. As a result of the
adoption of this SOP, the Company expects to record an asset of approximately
$4, net of tax.
(15) Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), Reporting Comprehensive Income. This
statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Comprehensive income includes all changes in equity from non-owner sources,
investments by and distributions to owners are excluded. Prior year consolidated
financial statements have been restated to conform to the requirements of SFAS
130.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
Components of other comprehensive income and related tax effects are
shown below:
<TABLE>
<CAPTION>
Year Ended
----------
December 31, 1998 December 31, 1997
---------------------------- ------------------------------
Before-Tax Tax Net-of-Tax Before-Tax Tax Net-of-Tax
Amount Effect Amount Amount Effect Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period $ (11.4) $ 4.0 $ (7.4) $ 97.7 $ (34.2) $ 63.5
Less: reclassification adjustment for gains
realized in net income (26.3) 9.2 (17.1) (13.3) 4.7 (8.6)
----- --- ----- ----- --- ----
Net unrealized gains (losses) on securities (37.7) 13.2 (24.5) 84.4 (29.5) 54.9
----- ---- ----- ---- ----- ----
Total other comprehensive income (loss) $ (37.7) $ 13.2 $ (24.5) $ 84.4 $ (29.5) $ 54.9
======= ====== ======= ====== ======= ======
Preacquisition
--------------
Nine Months Ended Three Months Ended
----------------- ------------------
December 31, 1996 March 31, 1996
------------------------------------- --------------------------------------
Before-Tax Tax Net-of-Tax Before-Tax Tax Net-of-Tax
Amount Effect Amount Amount Effect Amount
------ ------ ------ ------ ------ ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period $ 35.8 $ (12.5) $ 23.3 $ (131.3) $ 46.0 $ (85.3)
Less: reclassification adjustment for gains
realized in net income (6.0) 2.1 (3.9) (9.0) 3.1 (5.9)
---- --- ---- ---- --- ----
Net unrealized gains (losses) on securities 29.8 (10.4) 19.4 (140.3) 49.1 (91.2)
---- ----- ---- ------ ---- -----
Total other comprehensive income (loss) $ 29.8 $ (10.4) $ 19.4 $ (140.3) $ 49.1 $ (91.2)
====== ======= ====== ======== ====== =======
</TABLE>
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(Dollar amounts in millions)
Components of accumulated non-owner changes in equity are shown below:
<TABLE>
<CAPTION>
Adjustment Accumulated
Unrealized To Reflect Non-owner
Gains (losses) Purchase Changes in
on Securities Method Equity
--------------- ------------- ----------------
Preacquisition
- ---------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995 $ 103.1 $ - $ 103.1
Changes for the three months ended March 31, 1996 (91.2) - (91.2)
--------------- ------------- ----------------
Balance March 31, 1996 11.9 - 11.9
Postacquisition
- ---------------
Changes for the nine months ended December 31, 1996 19.4 (11.9) 7.5
--------------- ------------- ----------------
Balance December 31, 1996 31.3 (11.9) 19.4
Changes for the year ended December 31, 1997 54.9 - 54.9
--------------- ------------- ----------------
Balance December 31, 1997 86.2 (11.9) 74.3
Changes for the year ended December 31, 1998 (24.5) - (24.5)
--------------- ------------- ----------------
Balance December 31, 1998 $ 61.7 $ (11.9) $ 49.8
=============== ============= ================
</TABLE>
(16) Subsequent Event
Effective January 1, 1999, The Harvest Life Insurance Company
("Harvest") merged into The Life Insurance Company of Virginia with the merged
Company renamed GE Life and Annuity Assurance Company ("GELAAC"). Harvest's
former parent, Federal Home Life Insurance Company ("FHLIC"), will receive
common stock of GELAAC in exchange for its interest in Harvest. FHLIC is an
indirect wholly-owned subsidiary of GEFAHI. Following are the proforma results
of operations for the Company for the year ended December 31, 1998 and 1997 as
if Harvest had been a part of Life of Virginia as of January 1, 1997.
Proforma Results
------------------------------------------
as of or for the year ending December 31,
------------------------------------------
1998 1997
-------------------- --------------------
Total assets $ 14,785.4 $ 12,735.2
Revenues 939.1 974.4
Net income 105.8 107.3
