As filed with the Securities and Exchange Commission on May 1, 1997
Registration No. 33-76334
Registration No. 811-5343
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
Registration Statement Under the Securities Act of 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 7 X
For Registration Under the Investment Company Act of 1940
Amendment No. 15 X
Life of Virginia Separate Account 4
(Exact Name of Registrant)
The Life Insurance Company of Virginia
(Name of Depositor)
6610 W. Broad Street
Richmond, Virginia 23230
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (804) 281-6000
J. Neil McMurdie
Associate Counsel and Assistant Vice President
The Life Insurance Company of Virginia
6610 W. Broad Street
Richmond, Virginia 23230
(Name and address of Agent for Service)
Copy to:
Stephen E. Roth, Esquire
Sutherland, Asbill & Brennan, L.L.P.
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2404
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
X on May 1, 1997 pursuant to paragraph (b) of Rule 485
60 days after filing pursuant to paragraph (a) of Rule 485
on pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of securities. The Registrant filed the
24f-2 Notice for the fiscal year ended December 31, 1996 on February 28, 1997.
<PAGE>
Cross Reference Sheet
Pursuant to Rule 481
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required by Form N-4
PART A
<TABLE>
<S> <C>
Item of Form N-4........................................................Prospectus Caption
1. Cover Page.................................................................Cover Page
2. Definitions...............................................................Definitions
3. Synopsis...........................................................Summary, Fee Table
4. Condensed Financial Information.........Financial Information; Total Return and Yield
5. General
(a) Depositor..................................The Life Insurance Company of Virginia
(b) Registrant..............................................................Account 4
(c) Portfolio Company.......................................................The Funds
(d) Fund Prospectus.........................................................The Funds
(e) Voting Rights...........................................Voting Rights and Reports
(f) Administrators................................................................N/A
6. Deductions and Expenses
(a) General...........................................Charges and Deductions; Summary
(b) Sales Load %...............................................Sales Charges; Summary
(c) Special Purchase Plan.........................................................N/A
(d) Commissions..........................................Distribution of the Policies
(e) Expenses-Registrant............................Charges Against Account 4; Summary
(f) Fund Expenses............................................The Funds; Other Charges
(g) Organizational Expenses.......................................................N/A
7. Contracts
(a) Persons with Rights..........Summary; The Policy; Distributions Under the Policy;
...................Income Payments; Voting Rights and Reports; General Provisions
(b) (i) Allocation of Purchase Payments..............Allocation of Premium Payments
(ii) Transfers.......................................Transfers; Transfer Charges
(iii) Exchanges...............................................................N/A
(c) Changes.....................Additions, Deletions or Substitutions of Investments;
.............................................................Changes by the Owner
(d) Inquiries...............................Cover page; Summary; (SAI) Written Notice
8. Annuity Period............Income Payments; Transfers; (SAI) Transfer of Annuity Units
9. Death Benefit....................Death Provisions; Death Benefit; Payment of Benefits
10. Purchases and Contract Value
(a) Purchases.................Purchasing the Policies; Accumulation of Account Value;
......................................................Value of Accumulation Units
(b) Valuation.............................................Value of Accumulation Units
(c) Daily Calculation.....................................Value of Accumulation Units
(d) Underwriter..........................................Distribution of the Policies
11. Redemptions
(a) - By Owners........................................Surrenders; Partial Surrenders
- By Annuitant.............................................Optional Payment Plans
(b) Texas ORP.....................Restrictions on Distributions From Certain Policies
(c) Check Delay............................................Payment Under the Policies
(d) Lapse.........................................................................N/A
(e) Free Look................................Examination of Policy (Refund Privilege)
</TABLE>
<PAGE>
<TABLE>
<S><C>
12. Taxes.............................................................Federal Tax Matters
13. Legal Proceedings...................................................Legal Proceedings
14. Table of Contents for the Statement of
Additional Information..........Statement of Additional Information Table of Contents
</TABLE>
PART B
<TABLE>
<S><C>
Item of Form N-4............................................................Part B Caption
15. Cover Page.................................................................Cover Page
16. Table of Contents...................................................Table of Contents
17. General Information and History................The Life Insurance Company of Virginia
18. Services
(a) Fees and Expenses of Registrant...............................................N/A
(b) Management Contracts..........................................................N/A
(c) Custodian.....................................................................N/A
Independent Public Accountant.............................................Experts
(d) Assets of Registrant..........................................................N/A
(e) Affiliated Persons............................................................N/A
(f) Principal Underwriter..................................Transfer of Annuity Units;
....................................................Distribution of the Policies
19. Purchase of Securities Being Offered........(Prospectus) Distribution of the Policies
Offering Sales Load...............................................................N/A
20. Underwriters................................(Prospectus) Distribution of the Policies
21. Calculation of Performance Data................Calculation of Total Return and Yield;
..................................................(Prospectus) Yield and Total Return
22. Annuity Payments.........................................(Prospectus) Income Payments
23. Financial Statements.............................................Financial Statements
</TABLE>
PART C -- OTHER INFORMATION
<TABLE>
<S><C>
Item of Form N-4............................................................Part C Caption
24. Financial Statements and Exhibits...................Financial Statements and Exhibits
(a) Financial Statements............................(a) Financial Statements
(b) Exhibits....................................................(b) Exhibits
25. Directors and Officers of the Depositor.....................Directors and Officers of
.....................................................................Life of Virginia
26. Persons Controlled By or Under Common Control with the
Depositor or Registrant...........Persons Controlled By or In Common Control with the
..............................................................Depositor or Registrant
27. Number of Contractowners.......................................Number of Policyowners
28. Indemnification.......................................................Indemnification
29. Principal Underwriters.........................................Principal Underwriters
30. Location of Accounts and Records.....................Location of Accounts and Records
31. Management Services...............................................Management Services
32. Undertakings.............................................................Undertakings
Signature Page.............................................................Signatures
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
PROSPECTUS FOR THE
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
FORM P1143 4/94
Offered by
THE LIFE INSURANCE COMPANY OF
VIRGINIA 6610 West Broad Street,
Richmond, Virginia 23230
(804) 281-6000
This Prospectus describes the above-named individual flexible premium variable
deferred annuity policy ("Policy") issued by The Life Insurance Company of
Virginia ("Life of Virginia"). The Policy is designed to help individuals in
long-term financial planning and provides for the accumulation of capital on a
tax-deferred basis for retirement or other long-term purposes. The Policy may be
used in connection with retirement plans, some of which may qualify for
favorable federal income tax treatment under the Internal Revenue Code.
The Premium Payments are placed in Life of Virginia Separate Account 4
("Account 4"). Premium payments from other flexible premium variable deferred
annuity policies issued by Life of Virginia are also placed in Account 4. The
Owner allocates premiums among selected Investment Subdivision(s) of Account 4.
Each Investment Subdivision of Account 4 will invest solely in a designated
investment portfolio that is part of a series-type investment company ("Fund").
Currently, there are nine such Funds with 34 portfolios available under this
Policy. The Funds and their currently available portfolios are on the following
page.
This Prospectus must be read along with the current prospectuses for the Funds.
This Prospectus sets forth the basic information that a prospective investor
should know before investing. A Statement of Additional Information containing
more detailed information about the Policy and Account 4 is available free by
writing Life of Virginia at the address above or by calling (800) 352-9910. The
Statement of Additional Information, which has the same date as this Prospectus,
has been filed with the Securities and Exchange Commission and is incorporated
herein by reference. The Table of Contents of the Statement of Additional
Information is included at the end of this Prospectus.
Please Read This Prospectus Carefully And Retain It For Future Reference
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SHARES IN THE FUNDS AND INTERESTS IN THE POLICIES ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, A BANK, AND THE SHARES AND INTERESTS ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY.
The Date of This Prospectus Is May 1, 1997
<PAGE>
VARIABLE INSURANCE PRODUCTS FUND:
VIP Equity-Income Portfolio, VIP Growth Portfolio and VIP Overseas Portfolio
VARIABLE INSURANCE PRODUCTS FUND II:
VIP Asset Manager Portfolio and VIP Contrafund Portfolio
VARIABLE INSURANCE PRODUCTS FUND III:
VIP Growth & Income Portfolio* and VIP Growth Opportunities Portfolio*
GE INVESTMENTS FUNDS, INC.:
Money Market Fund, Government Securities Fund, S&P 500 Index Fund, Total
Return Fund, International Equity Fund, Real Estate Securities Fund, Global
Income Fund* and Value Equity Fund*.
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Oppenheimer High Income Fund, Oppenheimer Bond Fund, Oppenheimer Capital
Appreciation Fund, Oppenheimer Multiple Strategies Fund and Oppenheimer Growth
Fund.
JANUS ASPEN SERIES:
Growth Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio,
International Growth Portfolio, Balanced Portfolio, Flexible Income Portfolio,
and Capital Appreciation Portfolio*
FEDERATED INSURANCE SERIES:
Federated Utility Fund II, Federated High Income Bond Fund II, and Federated
American Leaders Fund II
THE ALGER AMERICAN FUND:
Alger American Growth Portfolio and Alger American Small Capitalization
Portfolio
PBHG INSURANCE SERIES FUND, INC.
Growth II Portfolio* and Large Cap Growth Portfolio*
* The Growth & Income Portfolio and Growth Opportunities Portfolio for Variable
Insurance Products Fund III, Global Income Fund and the Value Equity Fund for
GE Investments Funds, Inc., the Capital Appreciation Portfolio for Janus Aspen
Series, and Growth II Portfolio and Large Cap Growth Portfolio for PBHG
Insurance Series Fund, Inc. are not currently available to California
Policyowners.
2
<PAGE>
TABLE OF CONTENTS
Page
----
Definitions.............................................................. 5
Fee Table................................................................ 7
Summary..................................................................15
Financial Information....................................................17
The Life Insurance Company of Virginia and Life of Virginia
Separate Account 4......................................................19
The Life Insurance Company of Virginia.................................19
Account 4..............................................................19
Additions, Deletions, or Substitutions of Investments..................19
The Funds................................................................20
Variable Insurance Products Fund.......................................20
Variable Insurance Products Fund II....................................20
Variable Insurance Products Fund III...................................20
GE Investments Funds, Inc..............................................21
Oppenheimer Variable Account Funds.....................................22
Janus Aspen Series.....................................................22
Federated Insurance Series.............................................23
The Alger American Fund................................................23
PBHG Insurance Series Fund, Inc........................................23
Resolving Material Conflicts.............................................24
Total Return and Yields..................................................24
The Policy...............................................................25
Purchasing the Policies................................................25
Allocation of Premium Payments.........................................26
Accumulation of Account Value..........................................26
Value of Accumulation Units............................................26
Transfers..............................................................27
Telephone Transfers....................................................27
Dollar-Cost Averaging..................................................27
Portfolio Rebalancing..................................................28
Powers of Attorney.....................................................28
Examination of Policy (Refund Privilege)...............................28
Distributions Under the Policy...........................................29
Surrender..............................................................29
Systematic Withdrawals.................................................29
Death Provisions.......................................................30
Restrictions on Distributions from Certain Policies....................32
Charges and Deductions...................................................32
Charges Against Account 4..............................................32
Policy Maintenance Charge..............................................33
Annual Death Benefit Charge............................................33
Sales Charges..........................................................33
Transfer Charges.......................................................34
Premium Taxes..........................................................35
Other Taxes............................................................35
Other Charges..........................................................35
Reduction of Charges for Group Sales...................................35
Income Payments..........................................................35
Monthly Income Benefit.................................................35
Determination of Monthly Income Benefits...............................36
Optional Payment Plans.................................................36
Federal Tax Matters......................................................38
Introduction...........................................................38
Non-Qualified Policies.................................................38
Qualified Policies.....................................................40
IRA Policies...........................................................40
Simplified Employee Pension Plans......................................41
SIMPLE IRAs............................................................41
3
<PAGE>
TABLE OF CONTENTS (CONT.)
Page
----
Section 403(b) Annuities...............................................42
Deferred Compensation Plans of State and Local Government
and Tax-Exempt Organizations..........................................43
Other Qualified Retirement Plans.......................................43
Legal and Tax Advice for Qualified Plans...............................43
Direct Rollover and Mandatory Withholding Requirements.................43
Federal Income Tax Withholding.........................................43
General Provisions.......................................................44
The Owner..............................................................44
The Annuitant..........................................................44
The Beneficiary........................................................44
Changes by the Owner...................................................44
Evidence of Death, Age, Sex or Survival................................44
Joint Policy...........................................................44
Payment Under The Policies.............................................44
Distribution of the Policies.............................................45
Voting Rights and Reports................................................45
Legal Proceedings........................................................46
Statement of Additional Information Table of Contents....................47
4
<PAGE>
DEFINITIONS
ACCOUNT VALUE -- The value of the Policy equal to the Account Value allocated
to the Investment Subdivisions of Account 4.
ACCOUNT 4 -- Life of Virginia Separate Account 4, a separate investment
account established by Life of Virginia to receive and invest premiums paid
under the Policies, and other variable annuity policies issued by Life of
Virginia.
ACCUMULATION UNIT -- An accounting unit of measure used in calculating the
Account Value prior to the Maturity Date.
ADDITIONAL PREMIUM PAYMENT -- Any Premium Payment made after the initial
Premium Payment.
ANNUITANT -- The Annuitant is the person named in the Policy upon whose age
and, where appropriate, sex Monthly Income Benefits are determined.
ANNUITY UNIT -- An accounting unit of measure used in the calculation of the
amount of the second and each subsequent Variable Income Payment.
BUSINESS DAY -- Any day that the New York Stock Exchange is open for business
and any other day in which there is a material change in the value of the assets
in Account 4.
CODE -- The Internal Revenue Code of 1986, as amended.
DEATH BENEFIT -- The optional benefit provided under a Policy upon the death
of an Annuitant prior to the Maturity Date.
DESIGNATED BENEFICIARY(IES) -- The person(s) designated in the Policy who is
alive (or in existence for non-natural designations) on the date of an Owner's,
Joint Owner's or Annuitant's death and who will be treated as the sole owner of
the Policy following such a death.
DUE PROOF OF DEATH -- Proof of death that is satisfactory to Life of Virginia.
Such proof may consist of the following if acceptable to Life of Virginia:
(a) A certified copy of the death certificate; or
(b) A certified copy of the decree of a court of competent jurisdiction as to
the finding of death.
FIXED INCOME PAYMENTS -- Payments made pursuant to an optional payment plan
the value of which are fixed and guaranteed by Life of Virginia.
FUNDS -- The mutual funds designated as eligible investments for Account 4.
GENERAL ACCOUNT-- The assets of Life of Virginia that are not segregated in
any of the separate investment accounts of Life of Virginia.
HOME OFFICE -- The principal offices of The Life Insurance Company of Virginia
at 6610 West Broad Street, Richmond, Virginia 23230.
INCOME PAYMENT -- One of a series of payments made under either a Monthly
Income Benefit or one of the optional payment plans.
INVESTMENT SUBDIVISION -- A subdivision of Account 4, each of which invests
exclusively in shares of a designated portfolio of one of the Funds. All
investment subdivisions may not be available in all states.
JOINT OWNER -- Joint Owners own the Policy equally. If one Joint Owner dies,
the surviving Joint Owner has a right of survivorship to the Policy.
IRA POLICY -- An individual retirement annuity policy that receives favorable
federal income tax treatment under Section 408 of the Code.
5
<PAGE>
MATURITY DATE -- The date stated in the Policy on which Income Payments are
scheduled to commence, if the Annuitant is living on that date.
MATURITY VALUE -- The Surrender Value of the Policy on the date immediately
preceding the Maturity Date.
MONTHLY INCOME BENEFIT -- The monthly amounts payable to the Owner beginning
on the Maturity Date if the Annuitant is still living.
NET INVESTMENT FACTOR -- An index applied to measure the investment
performance of an Investment Subdivision from one Valuation Period to the next.
NON-QUALIFIED POLICY-- Policies not sold or used in connection with retirement
plans receiving favorable federal income tax treatment under the Code.
OWNER -- The person or persons (in the case of Joint Owners) entitled to
receive Income Payments after the Maturity Date. The Owner is also entitled to
the ownership rights stated in the Policy during the lifetime of the Annuitant.
The original Owner is named in the Policy.
POLICY -- The variable annuity policy issued by Life of Virginia and described
in this Prospectus. The term "Policy" or "Policies" includes the Policy
described in this Prospectus, a policy application, any supplemental
applications, any endorsements and riders.
POLICY DATE -- Generally, the first date on which the application, if attached
to the Policy, was signed or the initial premium was received and accepted by
Life of Virginia at its Home Office.
PREMIUM PAYMENT(S) -- An amount paid to Life of Virginia by the Owner or on
the Owner's behalf as consideration for the benefits provided by the Policy.
QUALIFIED POLICIES -- Policies used in connection with retirement plans which
receive favorable federal income tax treatment under the Code.
SURRENDER VALUE -- The Account Value less any applicable surrender charge.
VALUATION PERIOD -- The period between the close of business on a Business Day
and the close of business on the next succeeding Business Day.
VARIABLE INCOME PAYMENTS -- Payments made pursuant to a payment plan and which
fluctuate based on the investment performance of Investment Subdivisions
selected by the Owner.
6
<PAGE>
FEE TABLE
OWNER TRANSACTION EXPENSES:
Sales Charge on Premium Payments none
Maximum Contingent Deferred Sales Charge
(as a percentage of premium payments) 6.00%
Other surrender fees none
Transfer charge
First transfer each month none
Subsequent transfers $10.00
ANNUAL EXPENSES:
(as a percentage of account value)
Mortality and expense risk charge 1.25%
Administrative Expense Charge .15%
Total Annual Expenses 1.40%
=====
OTHER ANNUAL EXPENSES:
Annual Policy Maintenance Charge $25.00
Maximum Annual Death Benefit Charge
(as a percentage of average benefit amount) .35%*
* IF ELECTIVE DEATH BENEFIT APPLIES.
VARIABLE INSURANCE PRODUCTS FUND ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Equity-
Income Growth Overseas
Portfolio Portfolio Portfolio
--------- --------- ---------
<S><C>
Management Fees 0.51% 0.61% 0.76%
Other Expenses (after any expense reimbursement) 0.07% 0.08% 0.17%
----- ----- -----
Total Fund Annual Expenses 0.58% 0.69% 0.93%
===== ===== =====
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND II ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Asset
Manager Contrafund
Portfolio Portfolio
--------- ----------
<S><C>
Management Fees 0.64% 0.61%
Other Expenses (after any expense reimbursement) 0.10% 0.13%
----- -----
Total Fund Annual Expenses 0.74% 0.74%
===== =====
</TABLE>
VARIABLE INSURANCE PRODUCTS FUND III ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Growth & Growth
Income Opportunities
Portfolio Portfolio
--------- -------------
<S><C>
Management Fees 0.50% 0.61%
Other Expenses (after any expense reimbursement) 0.20% 0.16%
----- -----
Total Fund Annual Expenses 0.70% 0.77%
===== =====
</TABLE>
7
<PAGE>
GE INVESTMENTS FUNDS, INC. ANNUAL EXPENSES
(as a % of average net assets)
<TABLE> Real
<CAPTION> Money Government S&P 500 Total International Estate
Market Securities Index Return Equity Securities
Fund Fund Fund Fund Fund Fund
------ ----------- ------- ------ ------------- ----------
<S><C>
Management Fees (after fee waiver) .10% .50% .35% .50% 1.00% .85%
Other Expenses (after any expense reimbursements) .05% .17% .13% .10% .50% .22%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses .15% .67% .48% .60% 1.50% 1.07%
==== ==== ==== ==== ===== =====
</TABLE>
Global Value
Income Equity
Fund * Fund *
------ -------
Management Fees (after fee waiver) .60% .65%
Other Expenses (after any expense reimbursements) .30% .26%
---- ----
Total Fund Annual Expenses .90% .91%
==== ====
* Global Income Fund and Value Equity Fund had not yet commenced operations as
of December 31, 1996.
OPPENHEIMER VARIABLE ACCOUNT FUNDS ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Opp. Opp. Opp.
High Opp. Capital Multiple Opp.
Income Bond Appreciation Strategies Growth
Fund Fund Fund Fund Fund
------ ---- ------------ ----------- ------
<S><C>
Management Fees .75% .75% .72% .73% .75%
Other Expenses .06% .04 .03% .04% .04%
---- --- ---- ---- ----
Total Fund Annual Expenses .81% .78% .75% .77% .79%
==== ==== ==== ==== ====
</TABLE>
JANUS ASPEN SERIES ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Aggressive Worldwide International
Growth Growth Growth Growth Balanced
Portfolio Portfolio Portfolio Portfolio Portfolio
--------- ----------- --------- ------------- ---------
<S><C>
Management Fees(after any fee waivers/reductions) .65% .72% .66% .05% .79%
Other Expenses (after any expense reimbursements) .04% .04% .14% 1.21% .15%
---- ---- ---- ----- ----
Total Fund Annual Expenses .69% .76% .80% 1.26% .94%
==== ==== ==== ===== =====
</TABLE>
Flexible Capital
Income Appreciation
Portfolio Portfolio*
--------- ------------
Management Fees .65% .75%
Other Expenses (after any expense reimbursements) .19% .30%
---- ----
Total Fund Annual Expenses .84% 1.05%
==== =====
* Capital Appreciation Portfolio had not yet commenced operations as of
December 31, 1996.
FEDERATED INSURANCE SERIES ANNUAL EXPENSES
(as a % of average net assets)
<TABLE>
<CAPTION>
Federated
Federated Federated American
Utility High Income Leaders
Fund II Bond Fund II Fund II
--------- ------------- ------------
<S><C>
Management Fees (after fee waiver) 0.24% 0.00% .53%
Other Expenses (after any expense reimbursement) 0.61% 0.80% .32%
------ ----- -----
Total Fund Annual Expenses 0.85% 0.80% 0.85%
====== ===== =======
</TABLE>
8
<PAGE>
THE ALGER AMERICAN FUND ANNUAL EXPENSES
(as a % of average net assets)
Alger Alger
American American
Growth Small Capitalization
Portfolio Portfolio
--------- --------------------
Management Fees 0.75% 0.85%
Other Expenses 0.04% 0.03%
----- -----
Total Expenses 0.79% 0.88%
===== =====
PBHG INSURANCE SERIES FUND, INC. ANNUAL EXPENSES
(as a % of average net assets)
Growth II Large Cap Growth
Portfolio * Portfolio *
----------- ----------------
[S][C]
Management Fees 0.85% 0.72%
Other Expenses 0.30% 0.38%
----- -----
Total Expenses 1.15% 1.10%
===== =====
* Growth II Portfolio and Large Cap Growth Portfolio had not commenced
operations as of December 31, 1996.
The purpose of these tables is to assist the Owner in understanding the
various costs and expenses that an Owner will bear, directly and indirectly.
Except as noted below, the Tables reflect charges and expenses of Account 4 as
well as the underlying Funds for the most recent fiscal year. For more
information on the charges described in these Tables see Charges and Deductions
and the Prospectuses for the underlying Funds which accompany this Prospectus.
In addition to the expenses listed above, premium taxes varying from 0 to 3.5%
may be applicable.
The expense information regarding the Funds was provided by those Funds. The
Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable
Insurance Products Fund III, Oppenheimer Variable Account Funds, Janus Aspen
Series, Federated Insurance Series, The Alger American Fund, PBHG Insurance
Series Fund, Inc. and their investment advisers are not affiliated with Life of
Virginia. While Life of Virginia has no reason to doubt the accuracy of these
figures provided by these non-affiliated Funds, Life of Virginia has not
independently verified such information. The annual expenses listed for all the
Funds are net of certain reimbursements by the Funds' investment advisers. Life
of Virginia cannot guarantee that the reimbursements will continue.
Absent reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund during 1996 would have been 0.56% for
Equity-Income Portfolio, 0.67% for Growth Portfolio and O.92% for Overseas
Portfolio.
Absent reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund II during 1996 would have been 0.73% for Asset
Manager Portfolio and 0.71% for Contrafund Portfolio.
Absent reimbursements, the total annual expenses of the portfolios of the
Variable Insurance Products Fund III during 1996 would have been 0.76% for
Growth Opportunities Portfolio.
GE Investment Management Incorporated currently serves as investment adviser
to GE Investments Funds, Inc. (formerly Life of Virginia Series Fund, Inc.).
Prior to May 1, 1997, Aon Advisors, Inc. served as investment adviser to this
Fund and had agreed to reimburse the Fund for certain expenses of each of the
Fund's portfolios. Absent certain fee waivers or reimbursements, the total
annual expenses of the portfolios of GE Investments Funds, Inc. during 1996
would have been 0.48% for S&P 500 Index Fund, 0.67% for Government Securities
Fund, 0.55% for Money Market Fund, 0.60% for Total Return Fund, 1.07% for Real
Estate Securities Fund, 1.56% for International Equity Fund. The Other Expenses
for the Global Income Fund and the Value Equity Fund are estimates by the Fund
since these portfolios were recently organized and have no operating history,
and actual expenses may be greater or less than those shown.
Absent reimbursements, the total annual expenses of the portfolios of the
Janus Aspen Series during 1996 would have been .83% for Growth Portfolio, .83%
for Aggressive Growth Portfolio, 0.91% for Worldwide Growth Portfolio, 2.21% for
International Growth Portfolio, and 1.07% for Balanced Portfolio. The Other
Expenses listed for the Capital Appreciation Portfolio of Janus Aspen Series are
estimates provided by the Fund because the portfolio had not yet commenced
operations as of December 31, 1996. The
9
<PAGE>
total expenses absent fee waivers are estimated to be 1.30%
Absent certain fee waivers or reimbursements, the total annual expenses of the
portfolios of the Federated Insurance Series during 1996 would have been 1.36%
for Federated Utility Fund II, 1.39% for Federated High Income Bond Fund II, and
1.07% for Federated American Leaders Fund II.
The Other Expenses listed for the Growth II Portfolio and Large Cap Growth
Portfolio of PBHG Insurance Series Fund, Inc. are estimates provided by the Fund
because the portfolios were recently organized and have a brief operating
history. Actual expenses may be greater or less than those shown.
10
<PAGE>
EXAMPLES: A Policyowner would pay the following expense on a $1,000 investment,
assuming a 5% annual return on assets and the charges and expenses reflected in
the Fee Table above (including the elective death benefit rider):
1. If you surrender* your Policy at the end of the applicable period:
Subdivision Investing In: 1 Year 3 Years 5 Years 10 Years
Variable Insurance Products Fund
Equity-Income Portfolio 80.05 134.53 171.14 283.72
Growth Portfolio 81.09 137.66 176.68 294.81
Overseas Portfolio 83.36 144.45 188.66 318.55
Variable Insurance Products Fund II
Asset Manager Portfolio 81.57 139.08 179.19 299.80
Contrafund Portfolio 81.57 139.08 179.19 299.80
Variable Insurance Products Fund III
Growth Opportunities Portfolio 81.85 139.93 180.69 302.79
Growth & Income Portfolio 81.19 137.95 177.18 295.81
GE Investments Funds, Inc.
S&P 500 Index Fund 79.11 131.68 166.08 273.52
International Equity Fund 88.74 160.37 215.51 372.49
Real Estate Securities Fund 84.69 148.39 195.41 332.11
Total Return Fund 80.24 135.10 172.15 285.74
Government Securities Fund 80.90 137.09 175.68 292.80
Money Market Fund 75.93 121.80 147.97 233.56
Value Equity Fund 83.17 143.89 187.67 316.59
Global Income Fund 83.08 143.61 187.17 315.61
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund 82.23 141.06 182.69 306.75
Oppenheimer Bond Fund 81.94 140.21 181.19 303.78
Oppenheimer Capital Appreciation Fund 81.66 139.36 179.69 300.80
Oppenheimer Growth Fund 82.04 140.49 181.69 304.77
Oppenheimer Multiple Strategies Fund 81.85 139.93 180.69 302.79
Janus Aspen Series
Balanced Portfolio 83.46 144.73 189.16 319.52
Flexible Income Portfolio 82.51 141.91 184.19 309.72
Growth Portfolio 81.09 137.66 176.68 294.81
Aggressive Growth Portfolio 81.75 139.65 180.19 301.79
Worldwide Growth Portfolio 82.13 140.78 182.19 305.76
International Growth Portfolio** 86.47 153.71 204.34 350.19
Capital Appreciation Portfolio 84.50 147.82 194.46 330.18
Federated Insurance Series
Utility Fund II 82.61 142.19 184.68 310.70
High Income Bond Fund II 82.13 140.78 182.19 305.76
American Leaders Fund II 82.61 142.19 184.68 310.70
The Alger American Fund
Small Capitalization Portfolio 82.89 143.04 186.18 313.65
Growth Portfolio 82.04 140.49 181.69 304.77
PBHG Insurance Series Funds, Inc.
PBHG Growth II Portfolio 85.44 150.63 199.18 339.77
PBHG Large Cap Growth Portfolio 84.97 149.23 196.82 334.99
* surrender includes annuitization for a period of less than 5 years
**Figures for the International Growth Portfolio of the Janus Asxpen Series
reflect an expense limit of 1.25% of average net assets, which became effective
on June 3, 1996.
11
<PAGE>
2. If you annuitize at the end of the applicable period, or do not surrender*:
Subdivision Investing In: 1 Year 3 Years 5 Years 10 Years
Variable Insurance Products Fund
Equity-Income Portfolio 24.67 76.30 131.14 283.72
Growth Portfolio 25.77 79.62 136.68 294.81
Overseas Portfolio 28.17 86.81 148.66 318.55
Variable Insurance Products Fund II
Asset Manager Portfolio 26.27 81.12 139.19 299.80
Contrafund Portfolio 26.27 81.12 139.19 299.80
Variable Insurance Products Fund III
Growth Opportunities Portfolio 26.57 82.02 140.69 302.79
Growth & Income Portfolio 25.87 79.92 137.18 295.81
GE Investments Funds, Inc.
S&P 500 Index Fund 23.67 73.28 126.08 273.52
International Equity Fund 33.85 103.70 176.52 372.49
Real Estate Securities Fund 29.57 90.99 155.58 332.11
Total Return Fund 24.87 76.90 132.15 285.74
Government Securities Fund 25.57 79.01 135.68 292.80
Money Market Fund 20.31 62.81 107.97 233.56
Value Equity Fund 27.97 86.22 147.67 316.59
Global Income Fund 27.87 85.92 147.17 315.61
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund 26.97 83.22 142.69 306.75
Oppenheimer Bond Fund 26.67 82.32 141.19 303.78
Oppenheimer Capital Appreciation Fund 26.37 81.42 139.69 300.80
Oppenheimer Growth Fund 26.77 82.62 141.69 304.77
Oppenheimer Multiple Strategies Fund 26.57 82.02 140.69 302.79
Janus Aspen Series
Balanced Portfolio 28.27 87.11 149.16 319.52
Flexible Income Portfolio 27.27 84.12 144.19 309.72
Growth Portfolio 25.77 79.62 136.68 294.81
Aggressive Growth Portfolio 26.47 81.72 140.19 301.79
Worldwide Growth Portfolio 26.87 82.92 142.19 305.76
International Growth Portfolio** 31.46 96.63 164.89 350.19
Capital Appreciation Portfolio 29.37 90.39 154.59 330.18
Federated Insurance Series
Utility Fund II 27.37 84.42 144.68 310.70
High Income Bond Fund II 26.87 82.92 142.19 305.76
American Leaders Fund II 27.37 84.42 144.68 310.70
The Alger American Fund
Small Capitalization Portfolio 27.67 85.32 146.18 313.65
Growth Portfolio 26.77 82.62 141.69 304.77
PBHG Insurance Series Funds, Inc.
PBHG Growth II Portfolio 30.37 93.37 159.51 339.77
PBHG Large Cap Growth Portfolio 29.87 91.88 157.05 334.99
* Surrender includes annuitization for a period of less than 5 years
**Figures for the International Growth Portfolio of the Janus Asxpen Series
reflect an expense limit of 1.25% of average net assets, which became effective
on June 3, 1996.
12
<PAGE>
EXAMPLES: A Policyowner would pay the following expense on a $1,000 investment,
assuming a 5% annual return on assets and the charges and expenses reflected in
the Fee Table above (excluding the elective death benefit rider):
1. If you surrender* your Policy at the end of the applicable period:
<TABLE>
<CAPTION>
Subdivision Investing In: 1 Year 3 Years 5 Years 10 Years
<S> <C>
Variable Insurance Products Fund
Equity-Income Portfolio 76.68 124.05 151.86 241.04
Growth Portfolio 77.73 127.19 157.46 252.37
Overseas Portfolio 80.00 134.02 169.55 276.63
Variable Insurance Products Fund II
Asset Manager Portfolio 78.20 128.62 159.99 257.48
Contrafund Portfolio 78.20 128.62 159.99 257.48
Variable Insurance Products Fund III
Growth Opportunities Portfolio 78.48 129.47 161.50 260.53
Growth & Income Portfolio 77.82 127.48 157.96 253.39
GE Investments Funds, Inc.
S&P 500 Index Fund 75.73 121.18 146.75 230.62
International Equity Fund 85.38 150.04 197.43 331.78
Real Estate Securities Fund 81.32 137.98 176.54 290.49
Total Return Fund 76.87 124.62 152.88 243.11
Government Securities Fund 77.54 126.63 156.44 250.32
Money Market Fund 72.59 111.64 129.69 195.45
Value Equity Fund 79.81 133.46 168.55 274.63
Global Income Fund 79.71 133.17 168.05 273.63
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund 78.86 130.62 163.52 264.58
Oppenheimer Bond Fund 78.58 129.76 162.01 261.54
Oppenheimer Capital Appreciation Fund 78.30 128.91 160.49 258.49
Oppenheimer Growth Fund 78.67 130.04 162.51 262.55
Oppenheimer Multiple Strategies Fund 78.48 129.47 161.50 260.53
Janus Aspen Series
Balanced Portfolio 80.09 134.30 170.05 277.63
Flexible Income Portfolio 79.15 131.47 165.03 267.60
Growth Portfolio 77.73 127.19 157.46 252.37
Aggressive Growth Portfolio 78.39 129.19 161.00 259.51
Worldwide Growth Portfolio 78.77 130.33 163.02 263.57
International Growth Portfolio** 83.12 143.33 185.94 308.97
Capital Appreciation Portfolio 81.13 137.42 175.54 288.52
Federated Insurance Series
Utility Fund II 79.24 131.75 165.54 268.61
High Income Bond Fund II 78.77 130.33 163.02 263.57
American Leaders Fund II 79.24 131.75 165.54 268.61
The Alger American Fund
Small Capitalization Portfolio 79.52 132.61 167.04 271.63
Growth Portfolio 78.67 130.04 162.51 262.55
PBHG Insurance Series Funds, Inc.
PBHG Growth II Portfolio 82.08 140.24 180.51 298.32
PBHG Large Cap Growth Portfolio 81.61 138.83 178.03 293.43
</TABLE>
* Surrender includes annuitization for a period of less than 5 years
**Figures for the International Growth Portfolio of the Janus Asxpen Series
reflect an expense limit of 1.25% of average net assets, which became effective
on June 3, 1996.
13
<PAGE>
2. If you annuitize at the end of the applicable period, or do not surrender*:
<TABLE>
<CAPTION>
Subdivision Investing In: 1 Year 3 Years 5 Years 10 Years
<S><C>
Variable Insurance Products Fund
Equity-Income Portfolio 21.10 65.18 111.86 241.04
Growth Portfolio 22.21 68.51 117.46 252.37
Overseas Portfolio 24.61 75.75 129.55 276.63
Variable Insurance Products Fund II
Asset Manager Portfolio 22.71 70.02 119.99 257.48
Contrafund Portfolio 22.71 70.02 119.99 257.48
Variable Insurance Products Fund III
Growth Opportunities Portfolio 23.01 70.93 121.50 260.53
Growth & Income Portfolio 22.31 68.82 117.96 253.39
GE Investments Funds, Inc.
S&P 500 Index Fund 20.10 62.14 106.75 230.62
International Equity Fund 30.30 92.73 157.68 331.78
Real Estate Securities Fund 26.01 79.95 136.54 290.49
Total Return Fund 21.30 65.78 112.88 243.11
Government Securities Fund 22.01 67.91 116.44 250.32
Money Market Fund 16.78 52.03 89.69 195.45
Value Equity Fund 24.41 75.15 128.55 274.63
Global Income Fund 24.31 74.85 128.05 273.63
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund 23.41 72.14 123.52 264.58
Oppenheimer Bond Fund 23.11 71.23 122.01 261.54
Oppenheimer Capital Appreciation Fund 22.81 70.33 120.49 258.49
Oppenheimer Growth Fund 23.21 71.53 122.51 262.55
Oppenheimer Multiple Strategies Fund 23.01 70.93 121.50 260.53
Janus Aspen Series
Balanced Portfolio 24.71 76.05 130.05 277.63
Flexible Income Portfolio 23.71 73.04 125.03 267.60
Growth Portfolio 22.21 68.51 117.46 252.37
Aggressive Growth Portfolio 22.91 70.63 121.00 259.51
Worldwide Growth Portfolio 23.31 71.84 123.02 263.57
International Growth Portfolio** 27.91 85.62 145.94 308.97
Capital Appreciation Portfolio 25.81 79.35 135.54 288.52
Federated Insurance Series
Utility Fund II 23.81 73.34 125.54 268.61
High Income Bond Fund II 23.31 71.84 123.02 263.57
American Leaders Fund II 23.81 73.34 125.54 268.61
The Alger American Fund
Small Capitalization Portfolio 24.11 74.25 127.04 271.63
Growth Portfolio 23.21 71.53 122.51 262.55
PBHG Insurance Series Funds, Inc.
PBHG Growth II Portfolio 26.81 82.34 140.51 298.32
PBHG Large Cap Growth Portfolio 26.31 80.85 138.03 293.43
* Surrender includes annuitization for a period of less than 5 years
**Figures for the International Growth Portfolio of the Janus Asxpen Series
reflect an expense limit of 1.25% of average net assets, which became effective
on June 3, 1996.
14
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY OF PROSPECTUS INFORMATION SHOULD BE READ IN CONJUNCTION
WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE POLICY
The Policy allows the Owner to accumulate funds on a tax-deferred basis based
on the investment experience of the assets underlying the Policy. After the
Maturity Date, this Policy also permits Variable Income Payments to be made
based upon either the investment performance of the selected Investment
Subdivisions of Account 4 or Fixed Income Payments based upon the guarantees of
Life of Virginia. The Policy may be purchased on a non-tax qualified basis
(i.e., a Non-Qualified Policy) or it can be purchased with the proceeds from
certain retirement or savings plans qualifying for favorable federal income tax
treatment (i.e., a Qualified Policy).
The Owner can allocate premiums among up to ten Investment Subdivisions.
Before the Maturity Date, the Account Value depends on the investment experience
of the selected Investment Subdivisions; therefore, before Income Payments
begin, the Owner bears the entire investment risk under this Policy. The payee
will bear the investment risk after Income Payments begin with respect to
Variable Income Payments.
In addition, under Policies sold through certain distribution systems, Owners
can allocate premiums or transfer amounts from the Investment Subdivisions to a
Guarantee Account. Contributions and/or transfers to the Guarantee Account
become part of the General Account of Life of Virginia.
PREMIUM PAYMENTS
Except for certain group sales, an initial Premium Payment of at least $5,000
is required. Additional Premium Payments of at least $500 for Non-Qualified
Policies or $100 for Qualified Policies or $50 for IRA Policies generally may be
made any time before Income Payments begin. (See Purchasing the Policies.)
Except as stated under Refund Privilege, Premium Payments are allocated among
the Investment Subdivisions (or, if applicable, a guarantee account) in
accordance with the Owner's written instructions. Premium payments may be
allocated among up to ten Investment Subdivisions at any one time (however, at
any point in time, Account Value may not be invested in more than ten Investment
Subdivisions). The minimum allocation permitted is 1% of each Premium Payment
but not less than $100.00. The Owner may, by written request, change the
allocation of subsequent Premium Payments. In states that require a return of
Premium Payments as a refund privilege, initial Premium Payments will be placed
in the Investment Subdivision that invests in the Money Market Fund of the GE
Investments Funds, Inc. (See Allocation of Premium Payments.)
TRANSFERS
Before Income Payments begin the Owner may transfer amounts among the
Investment Subdivisions that are available at the time the transfer is
requested. Currently, there is no limit on the number of transfers that may be
made; however, Life of Virginia reserves the right to impose such a limit in the
future. The first transfer in each calendar month will be made without a
transfer charge. Thereafter, each time amounts are transferred, a transfer
charge of $10 will be imposed. (See Transfers.) Life of Virginia may not honor
transfers made by third parties holding multiple powers of attorney. (See Powers
of Attorney.)
After Variable Income Payments begin, the payee may transfer Annuity Units
among the available Investment Subdivisions once each calendar year. No transfer
charge will be imposed on such transfers.
FULL AND PARTIAL SURRENDERS
Full or partial surrenders may be made any time before Income Payments begin
provided that the surrender is for at least $500 and that the surrender will not
reduce the Account Value to below $5,000. (See Surrender.) Amounts surrendered
will generally be subject to a surrender charge (also known as a contingent
deferred sales charge). (See Sales Charges.)
CHARGES AND DEDUCTIONS
To cover the costs of administering the Policies, Life of Virginia deducts a
daily charge at an effective annual rate of .15% of the average daily net assets
in Account 4 attributable to the policies, and an annual policy maintenance
charge of $25 from the Account Value attributable to each Policy. The annual
charge is made at the earlier of 1) next policy anniversary, or 2) surrender.
Life of Virginia does not deduct any sales charge from Premium Payments;
however, it may deduct a surrender charge (also referred
15
<PAGE>
to as a contingent deferred sales charge). (See Sales Charges -- Surrender
Charge.) A surrender charge is deducted from full surrenders and certain partial
surrenders that occur within six years of any Premium Payments. If there is a
full surrender of the Policy during the first four years following a Premium
Payment, a maximum surrender charge equal to 6% of the amount surrendered will
be imposed. Thereafter, the charge decreases 2% per year, so that no surrender
charge, or portion thereof, is ever attributable to a Premium Payment made more
than six years prior to the date of a full surrender.
Similarly, a surrender charge may be imposed on certain partial surrenders
where the Account Value surrendered is attributable to a Premium Payment made
within the last six years. The charge is calculated by multiplying (1) the
surrender charge percentage, described above and (2) the lesser of (a) the
amount surrendered attributable to the Premium Payment and (b) the premium paid,
less the total of all surrender amounts previously deemed to reduce that Premium
Payment. The first partial surrender in a policy year is not subject to the
charge if the amount of that surrender is 10% of the Account Value, or less.
A daily charge at an effective annual rate of 1.25% of the average daily net
assets in Account 4 attributable to the Policies is imposed against those assets
to compensate Life of Virginia for mortality and expense risks assumed by it.
(See Charges Against Account 4.)
Life of Virginia may deduct a charge for any premium taxes incurred. Any
applicable premium tax may be deducted from either the premium paid or from
proceeds (including benefits for surrender, maturity and death). (See Premium
Taxes.)
In the event that the Owner elects to purchase a Guaranteed Minimum Death
Benefit Rider (See Elective Guaranteed Minimum Death Benefit Rider), a charge
will be made each year for expenses related to the Death Benefit under the
Rider, not exceeding .35% of the average Guaranteed Minimum Death Benefit during
the prior year. (See Annual Death Benefit Charge.)
INCOME PAYMENTS
Beginning on the Maturity Date, if the Annuitant is living on that date, the
Owner may receive Monthly Income Benefits based upon either the investment
performance of the selected Investment Subdivisions or the guarantees of Life of
Virginia. The amount of the Monthly Income Benefits will depend on: (1) the
Maturity Value; (2) the amount of any applicable state and/or local premium tax;
(3) the Annuitant's sex, where appropriate, and age on the Maturity Date; and
(4) the optional payment plan chosen.
With respect to Monthly Income Benefits and any Income Payments derived from
Death Benefit or Surrender Value proceeds, the Owner may select from a number of
optional payment plans including Income Payments for the life of an Annuitant
(or a different or additional person, depending upon the benefit payable) with a
guaranteed number of Income Payments. (See Optional Payment Plans.)
DEATH PROVISIONS
Subject to a number of distribution rules, certain benefits and other policy
options are available to certain persons on the death of an Owner, Joint Owner
or Annuitant prior to the Maturity Date while the Policy is in force. (See
Distributions Under the Policy Death Provisions.) Owners may also elect to
purchase a Guaranteed Minimum Death Benefit Rider. (See Elective Guaranteed
Minimum Death Benefit Rider.)
REFUND PRIVILEGE
The Owner has 10 days after the Policy is received to examine the Policy and
return it for a refund. Unless state law requires that Premium Payments be
returned as the refund, the amount of the refund will equal the Account Value
(without reduction of any surrender charges). If state law requires that Premium
Payments be returned, the amount of the refund will equal the greater of (1) the
Account Value (without reduction by any surrender charges) plus any amount
deducted from the Premium Payments prior to allocation to Account 4 and (2) the
Premium Payments made. In certain states the Owner may have more than 10 days to
return the policy for a refund. (See Examination of Policy (Refund Privilege).)
QUESTIONS
Any questions about the Policy or the Funds in which the subdivisions invest
will be answered by Life of Virginia's Home Office. All inquiries can be
addressed to Life of Virginia, Variable Products Department, 6610 W. Broad
Street, Richmond, VA 23230; if by phone, call (800) 352-9910.
16
<PAGE>
FINANCIAL INFORMATION
Financial statements for Account 4 and consolidated financial statements for
Life of Virginia (as well as the auditors' reports thereon) are in the Statement
of Additional Information.
CONDENSED FINANCIAL INFORMATION
The Accumulation Unit Values and the number of accumulation units outstanding
for each Investment Subdivision for the periods shown are as follows:
</TABLE>
<TABLE>
<CAPTION>
Accumulation Accumulation No. of Accumulation Accumulation No. of
Unit Values Unit Values Units Unit Values Unit Values Units
as of as of as of as of as of as of
FUNDS 1/01/96 12/31/96 12/31/96 1/3/95 12/31/95 12/31/95
------- -------- -------- ------ -------- --------
<S><C>
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income 25.62 28.87 7,041,867 19.56 25.62 3,119,975
Growth 27.93 31.58 3,026,574 21.27 27.93 1,525,015
Overseas 16.82 18.78 1,557,443 15.82 16.82 829,371
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager 17.87 20.20 2,248,519 15.70 17.87 1,469,667
Contrafund@@ 13.88 16.60 5,493,999 - 13.88 2,007,948
VARIABLE INSURANCE PRODUCTS FUND III
Growth and Income++ - - - - - -
Growth Opportunities++ - - - - - -
GE INVESTMENTS FUNDS, INC.
Money Market 13.35 13.88 3,893,379 13.01 13.35 1,508,360
Government Securities 16.60 16.59 276,196 14.61 16.60 153,756
S&P 500 Index 24.52 30.11 1,262,502 18.58 24.52 400,009
Total Return 22.27 24.29 659,251 17.94 22.27 252,584
International Equity@@ 10.61 11.51 332,403 - 10.61 47,044
Real Estate Securities@@ 11.59 15.57 428,969 - 11.59 34,477
Global Income++ - - - - - -
Value Equity++ - - - - - -
OPPENHEIMER VARIABLE ACCOUNT FUNDS
High Income 24.31 27.63 1,715,755 20.83 24.31 561,144
Bond 18.35 18.96 707,097 16.17 18.35 275,480
Capital Appreciation 27.31 32.37 2,121,294 21.25 27.31 582,579
Growth 23.81 29.40 1,091,602 17.97 23.81 423,764
Multiple Strategies 19.60 22.32 748,002 17.66 19.60 256,681
JANUS ASPEN SERIES
Growth 13.41 15.66 4,882,922 10.48 13.41 1,875,640
Aggressive Growth 16.95 18.04 2,662,051 13.53 16.95 1,251,004
Worldwide Growth 14.91 11.67 682,605 11.91 14.91 1,227,070
International Growth++ - 18.97 5,146,187 - - -
Balanced@@ 10.62 12.17 992,496 - 10.62 73,538
Flexible Income@@ 10.48 11.29 325,169 - 10.48 36,272
Capital Appreciation++ - - - - - -
FEDERATED INSURANCE SERIES
Federated Utility II@@ 12.20 13.41 1,130,433 - 12.20 463,476
Federated High Income Bond II@@ 11.86 13.37 809,989 - 11.86 123,152
Federated American Leaders II - 11.05 265,832 - - -
THE ALGER AMERICAN FUND
AA Growth@@ 9.63 10.76 2,962,177 - 9.63 312,011
AA Small Capitalization@@ 9.38 9.63 3,568,152 - 9.38 401,258
PBHG INSURANCE SERIES FUND, INC.
Growth II++ - - - - - -
Large Cap Growth++ - - - - - -
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Accumulation Accumulation No. of
Unit Values Unit Values Units
as of as of as of
FUNDS 7/21/94 12/31/94 12/31/94
------- -------- --------
<S><C>
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income 18.71 19.23 276,392
Growth 19.45 20.92 141,845
Overseas 16.18 15.55 197,672
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager 15.80 15.50 450,885
GE INVESTMENTS FUNDS, INC.
Money Market 12.61 12.79 75,600
Government Securities 14.47 14.38 889
S&P 500 Index 17.96 18.27 10,408
Total Return 17.15 17.65 12,498
OPPENHEIMER VARIABLE ACCOUNT FUNDS
High Income 20.99 20.49 77,818
Bond 16.08 15.90 11,655
Capital Appreciation 19.39 20.90 68,052
Growth 16.88 17.67 12,276
Multiple Strategies 16.27 16.38 26,302
JANUS ASPEN SERIES
Growth 10.30 10.44 159,068
Aggressive Growth 11.51 13.48 169,799
Worldwide Growth 11.63 11.87 117,700
</TABLE>
++ Unit Values are not shown for the Investment Subdivisions investing in these
portfolios as they were not available to Account 4 Owners during the periods
shown.
@@ Accumulation Unit Values as of 1/3/95 are not shown for the Investment
Subdivisions investing in these portfolios as they were not available to Account
4 Owners at that time.
18
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
AND LIFE OF VIRGINIA SEPARATE ACCOUNT 4
THE LIFE INSURANCE COMPANY OF VIRGINIA
The Life Insurance Company of Virginia is a stock life insurance company
operating under a charter granted by the Commonwealth of Virginia on March 21,
1871. Eighty percent of the capital stock of Life of Virginia is owned by
General Electric Capital Assurance Corporation. The remaining 20% is owned by GE
Life Insurance Group, Inc. General Electric Capital Assurance Corporation and GE
Life Insurance Group, Inc. are indirectly, wholly-owned subsidiaries of General
Electric Capital Corporation ("GE Capital"). GE Capital, a New York corporation,
is a diversified financial services company. GE Capital subsidiaries consist of
commercial and industrial specialized, mid-market and indirect consumer
financing businesses. GE Capital's 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-sized electric power generation equipment.
Life of Virginia is principally engaged in the offering of life insurance
policies and ranks among the twenty-five (25) largest stock life insurance
companies in the United States in terms of business in force. Life of Virginia
is admitted to do business in forty-nine (49) states and the District of
Columbia. The principal offices of Life of Virginia are at 6610 W. Broad Street,
Richmond, Virginia 23230.
ACCOUNT 4
Life of Virginia Separate Account 4 was established by Life of Virginia as a
separate investment account on August 19, 1987. Account 4 currently has 80
investment subdivisions, 34 of which are available under the Policy. Premiums
are allocated in accordance with the instructions of the Owner among up to 10 of
the 34 investment subdivisions available under this Policy. Each of these
investment subdivision invests exclusively in an investment portfolio of one of
the nine Funds described below.
The assets of Account 4 are the property of Life of Virginia. Income and both
realized and unrealized gains or losses from the assets of Account 4 are
credited to or charged against the Account without regard to the income, gains,
or losses arising out of any other business Life of Virginia may conduct.
Although the assets in Account 4 attributable to the Policies are not chargeable
with liabilities arising out of any other business which Life of Virginia may
conduct, all obligations arising under the policies, including the promise to
make Income Payments, are general corporate obligations of Life of Virginia.
Furthermore, the assets of Account 4 are available to cover the liabilities of
Life of Virginia's General Account to the extent that the assets of Account 4
exceed its liabilities arising under the Policies supported by it.
Account 4 is registered with the Securities and Exchange Commission (the
"Commission") as a unit investment trust under the Investment Company Act of
1940 (the "1940 Act") and meets the definition of a Separate Account under the
Federal Securities Laws. Registration with the Commission, however, does not
involve supervision of the management or investment practices or policies of
Account 4 by the Commission.
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
Life of Virginia reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for the shares of
the Fund portfolios that are held by Account 4 or that Account 4 may purchase.
Life of Virginia also reserves the right to establish additional Investment
Subdivisions of Account 4, each of which would invest in a separate portfolio of
a Fund, or in shares of another investment company, with a specified investment
objective. One or more Investment Subdivisions may also be eliminated if, in the
sole discretion of Life of Virginia, marketing, tax, or investment conditions
warrant.
If deemed by Life of Virginia to be in the best interests of persons having
voting rights under the Policies, and, if permitted by law, Life of Virginia may
deregister Account 4 under the 1940 Act in the event such registration is no
longer required; manage Account 4 under the direction of a committee; or combine
Account 4 with other Life of Virginia separate accounts. To the extent permitted
by applicable law, Life of Virginia may also transfer the assets of Account 4
associated with the Policies to another separate account. In addition, Life of
Virginia may, when permitted by law, restrict or eliminate any voting rights of
Owners or other persons who have voting rights as to Account 4.
19
<PAGE>
THE FUNDS
Account 4 currently invests in nine series-type mutual funds. Each of the
Funds currently available under the Policy is a registered open-end, diversified
investment company of the series-type.
Each Investment Subdivision invests exclusively in a designated investment
portfolio of one of the Funds. The assets of each such portfolio are separate
from other portfolios of that Fund and each portfolio has separate investment
objectives and policies. As a result, each portfolio operates as a separate
investment portfolio and the investment performance of one portfolio has no
effect on the investment performance of any other portfolio. Some of the Funds
may, in the future, create additional portfolios.
Each of the Funds sells its shares to Account 4 in accordance with the terms
of a participation agreement between the Fund and Life of Virginia. The
termination provisions of those agreements vary. A summary of these termination
provisions may be found in the Statement of Additional Information. Should an
agreement between Life of Virginia and a Fund terminate, the Account may not be
able to purchase additional shares of that Fund. In that event, Owners will no
longer be able to allocate Account Values or Premium Payments to Investment
Subdivisions investing in portfolios of that Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to Account 4 despite the fact
that the participation agreement between the Fund and Life of Virginia has not
been terminated. Should a Fund or a portfolio of a Fund decide not to sell its
shares to Life of Virginia, Life of Virginia will be unable to honor Owner
requests to allocate their account values or premium payments to Investment
Subdivisions investing in shares of that Fund or portfolio.
Certain Investment Subdivisions invest in portfolios that have similar
investment objectives and/or policies; therefore, before choosing Investment
Subdivisions, carefully read the individual prospectuses for the Funds, along
with this prospectus.
VARIABLE INSURANCE PRODUCTS FUND
Variable Insurance Products Fund has three portfolios that are currently
available under this Policy: VIP Equity-Income Portfolio, VIP Growth Portfolio,
and VIP Overseas Portfolio.
VIP EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities, the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
VIP GROWTH PORTFOLIO seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although its investments are not restricted to
any one type of security. Capital appreciation may also be found in other types
of securities, including bonds and preferred stocks.
VIP OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. The Portfolio provides a means for investors
to diversify their own portfolios by participating in companies and economies
outside of the United States.
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund.
VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund II has two portfolios that are currently
available under this Policy: VIP Asset Manager Portfolio and VIP Contrafund
Portfolio.
VIP ASSET MANAGER PORTFOLIO seeks high total return with reduced risk over the
long-term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
VIP CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in
equity securities of companies believed to be undervalued or out-of-favor.
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund II.
VARIABLE INSURANCE PRODUCTS FUND III
Variable Insurance Products Fund III has two portfolios that are currently
available under this Policy: VIP Growth & Income Portfolio and VIP Growth
Opportunities Portfolio. THE VIP GROWTH & INCOME PORTFOLIO AND THE VIP GROWTH
OPPORTUNITIES PORTFOLIO ARE NOT CURRENTLY AVAILABLE IN CONNECTION WITH POLICIES
ISSUED TO CALIFORNIA POLICYOWNERS.
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VIP GROWTH & INCOME PORTFOLIO seeks high total return through a combination of
current income and capital appreciation by investing mainly in equity
securities.
VIP GROWTH OPPORTUNITIES PORTFOLIO seeks capital growth by investing primarily
in common stock and securities convertible to common stock.
Fidelity Management & Research Company serves as investment adviser to
Variable Insurance Products Fund III.
GE INVESTMENTS FUNDS, INC.
GE Investments Funds, Inc. (GE Investments Funds) has eight portfolios that
are currently available under this Policy: Money Market Fund, Government
Securities Fund, S&P 500 Index Fund, Total Return Fund, International Equity
Fund, Real Estate Securities Fund, Global Income Fund and Value Equity Fund. THE
GLOBAL INCOME FUND AND THE VALUE EQUITY FUND ARE NOT CURRENTLY AVAILABLE IN
CONNECTION WITH POLICIES ISSUED TO CALIFORNIA POLICYOWNERS.
MONEY MARKET FUND has the investment objective of providing the highest level
of current income as is consistent with high liquidity and safety of principal
by investing in high quality money market securities.
GOVERNMENT SECURITIES FUND has the investment objective of seeking high
current income and protection of capital through investments in intermediate and
long-term debt instruments issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
S&P 500 INDEX FUND(1) has the investment objective of providing capital
appreciation and accumulation of income that corresponds to the investment
return of the Standard & Poor's 500 Composite Stock Price Index, through
investment in common stocks traded on the New York Stock Exchange and the
American Stock Exchange, to a limited extent, in the over-the-counter markets.
TOTAL RETURN FUND has the investment objective of providing the highest total
return, composed of current income and capital appreciation, as is consistent
with prudent investment risk by investing in common stocks, bonds and money
market instruments, the proportion of each being continuously determined by the
investment adviser.
INTERNATIONAL EQUITY FUND has the investment objective of providing long-term
capital appreciation. The portfolio seeks to achieve its objective by investing
primarily in equity and equity-related securities of companies that are
organized outside of the U.S. or whose securities are principally traded outside
of the U.S.
REAL ESTATE SECURITIES FUND has the investment objective of providing maximum
total return through current income and capital appreciation. The portfolio
seeks to achieve its objective by investing primarily in securities of U.S.
issuers that are principally engaged in or related to the real estate industry
including those that own significant real estate assets. The portfolio will not
invest directly in real estate.
- -----------------------------
(1)"Standard and Poor's", "S&P", and "S&P 500" are trademarks of McGraw-Hill
Companies, Inc. and have been licensed for use by GE Investment Management
Incorporated. The S&P 500 Index Fund is not sponsored, endorsed, sold or
promoted by Standard & Poor's, and Standard & Poor's makes no representation or
warranty, express or implied, to the investors in this Fund or any member of the
public regarding the advisability of investing in this Fund or in securities
generally or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Fund is the licensing of certain
trademarks and trade names of S&P and of the S&P 500 Index which is determined,
composed and calculated by S&P without regard to the Fund. S&P has no obligation
to take the needs of the Fund or the investors in the Fund into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the prices or composition
of the Fund or the timing of the issuance or sale of the shares of the Fund.
S&P does not guarantee the accuracy and/or the completeness of the S&P 500
Index or any data included therein and S&P shall have no liability for any
errors, omissions, or interruptions therein. S&P makes no warranty, express or
implied, as to the results to be obtained by the Fund, investors in the Fund, or
any other person or entity from the use of the S&P 500 Index or any data
included therein. S&P makes no express or implied warranties, and expressly
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the S&P 500 Index or any data included therein. Without
limiting any of the foregoing, in no event shall S&P have any liability for any
special, punitive, indirect or consequential damages (including lost profits),
even if notified of the possibility of such damages.
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GLOBAL INCOME FUND has the investment objective of high total return,
emphasizing current income and, to a lesser extent, capital appreciation. The
portfolio seeks to achieve these objectives by investing primarily in
income-bearing debt securities and other income-bearing instruments of U.S. and
foreign issuers.
VALUE EQUITY FUND has the investment objective of providing long-term capital
appreciation. The portfolio seeks to achieve this objective by investing
primarily in common stock and other equity securities that are undervalued by
the market and offer above-average capital appreciation potential.
GE Investment Management Incorporated serves as investment adviser to GE
Investments Funds.
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Variable Account Funds has five portfolios that are currently
available under this Policy: Oppenheimer High Income Fund, Oppenheimer Bond
Fund, Oppenheimer Capital Appreciation Fund, Oppenheimer Growth Fund, and
Oppenheimer Multiple Strategies Fund.
OPPENHEIMER HIGH INCOME FUND seeks a high level of current income from
investment in high yield fixed income securities, including unrated securities
or high risk securities in the lower rating categories. These securities may be
considered to be speculative. THIS FUND MAY HAVE SUBSTANTIAL HOLDINGS OF
LOWER-RATED DEBT SECURITIES OR "JUNK" BONDS. The risks of investing in junk
bonds are described in the prospectus for the Oppenheimer Variable Account
Funds, which should be read carefully before investing.
OPPENHEIMER BOND FUND primarily seeks a high level of current income from
investment in high yield fixed income securities rated "Baa" or better by
Moody's or "BBB" or better by Standard & Poor's. Secondarily, it seeks capital
growth when consistent with its primary objective.
OPPENHEIMER CAPITAL APPRECIATION FUND seeks to achieve capital appreciation by
investing in "growth-type" companies.
OPPENHEIMER GROWTH FUND seeks to achieve capital appreciation by investing in
securities of well-known established companies.
OPPENHEIMER MULTIPLE STRATEGIES FUND seeks a total investment return (which
includes current income and capital appreciation in the value of its shares)
from investments in common stocks and other equity securities, bonds and other
debt securities, and "money market" securities.
Oppenheimer Funds, Inc. serves as investment adviser to Oppenheimer Variable
Accounts Funds.
JANUS ASPEN SERIES
The Janus Aspen Series currently has seven portfolios that are currently
available under this Policy: Growth Portfolio, Aggressive Growth Portfolio,
Worldwide Growth Portfolio, International Growth Portfolio, Balanced Portfolio,
Flexible Income Portfolio, and Capital Appreciation Portfolio. THE CAPITAL
APPRECIATION PORTFOLIO IS NOT CURRENTLY AVAILABLE IN CONNECTION WITH POLICIES
ISSUED TO CALIFORNIA POLICYOWNERS.
GROWTH PORTFOLIO has the investment objective of long-term capital growth in a
manner consistent with the preservation of capital. The Growth Portfolio is a
diversified portfolio that pursues its objective by investing in common stocks
of companies of any size. Generally, this Portfolio emphasizes larger, more
established issuers.
AGGRESSIVE GROWTH PORTFOLIO has the investment objective of long-term growth
of capital. The Aggressive Growth Portfolio is a non-diversified portfolio that
will seek to achieve its objective by normally investing at least 50% of its
equity assets in securities issued by medium-sized companies.
WORLDWIDE GROWTH PORTFOLIO has the investment objective of long-term growth of
capital in a manner consistent with the preservation of capital. The Worldwide
Growth Portfolio will seek to achieve its objective by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of all
sizes. The Portfolio normally invests in issuers from at least five different
countries including the United States.
INTERNATIONAL GROWTH PORTFOLIO has the investment objective of long-term
growth of capital. The International Growth Portfolio will seek to achieve its
objective primarily through investments in common stocks of issuers located
outside the United States. The Portfolio normally invests at least 65% of its
total assets in securities of issuers from at least five different countries,
excluding the United States.
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BALANCED PORTFOLIO has the investment objective of seeking long-term growth of
capital, consistent with the preservation of capital and balanced by current
income. The Portfolio normally invests 40-60% of its assets in securities
selected primarily for their growth potential and 40-60% of its assets in
securities selected primarily for their income potential.
FLEXIBLE INCOME PORTFOLIO has the investment objective of seeking to obtain
maximum total return, consistent with preservation of capital. Total return is
expected to result from a combination of income and capital appreciation. The
Portfolio pursues its objective primarily by investing in any type of
income-producing securities. THIS PORTFOLIO MAY HAVE SUBSTANTIAL HOLDINGS OF
LOWER-RATED DEBT SECURITIES OR "JUNK" BONDS. The risks of investing in junk
bonds are described in the prospectus for Janus Aspen Series, which should be
read carefully before investing.
CAPITAL APPRECIATION PORTFOLIO has the investment objective of seeking
long-term growth of capital by investing primarily in common stocks of companies
of any size.
Janus Capital Corporation serves as investment adviser to Janus Aspen Series.
FEDERATED INSURANCE SERIES
The Federated Insurance Series has three portfolios that are currently
available under this Policy: Federated Utility Fund II, Federated High Income
Bond Fund II and Federated American Leaders Fund II.
FEDERATED UTILITY FUND II has the investment objective of high current income
and moderate capital appreciation. The Federated Utility Fund II will seek to
achieve its objective by investing primarily in equity and debt securities of
utility companies.
FEDERATED HIGH INCOME BOND FUND II has the investment objective of high
current income. The Federated High Income Bond Fund II will seek to achieve its
objective by investing primarily in a diversified portfolio of professionally
managed fixed-income securities. THE FIXED-INCOME SECURITIES IN WHICH THE FUND
INTENDS TO INVEST ARE LOWER-RATED CORPORATE DEBT OBLIGATIONS, COMMONLY REFERRED
TO AS "JUNK BONDS". The risks of these securities are described in the
prospectus for the Federated Insurance Series, which should be read carefully
before investing.
FEDERATED AMERICAN LEADERS FUND II has the primary investment objective of
long-term growth of capital, and a secondary objective of providing income. The
Federated American Leaders Fund II will seek to achieve its objective by
investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue chip" companies.
Federated Advisers serves as investment adviser to Federated Insurance Series.
THE ALGER AMERICAN FUND
The Alger American Fund has two portfolios that are currently available under
this Policy: Alger American Small Capitalization Portfolio and Alger American
Growth Portfolio.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital
appreciation. Except during temporary defensive periods, the Portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase of the securities, have total market capitalization within the
range of companies included in the Russell 2000 Growth Index or the S&P Small
Cap 600 Index, updated quarterly. Both indexes are broad indexes of small
capitalization stocks. The Portfolio may invest up to 35% of its total assets in
equity securities of companies that, at the time of purchase, have total market
capitalization outside this combined range and in excess of that amount (up to
100% of its assets) during temporary defensive periods.
ALGER AMERICAN GROWTH PORTFOLIO has the investment objective of long-term
capital appreciation. Except during temporary defensive periods, this Portfolio
invests at least 65% of its total assets in equity securities of companies that,
at the time of purchase, have a total market capitalization of $1 billion or
greater.
Fred Alger Management, Inc. serves as the investment manager to Alger American
Fund.
PBHG INSURANCE SERIES FUND, INC.
PBHG Insurance Series Fund, Inc. (PBHG Insurance Series Fund) has two
portfolios that are currently available under this Policy: Growth II Portfolio
and Large Cap Growth Portfolio. THE GROWTH II PORTFOLIO AND THE LARGE CAP
GROWTH PORTFOLIO ARE NOT CURRENTLY AVAILABLE IN CONNECTION WITH POLICIES ISSUED
TO CALIFORNIA POLICYOWNERS.
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GROWTH II PORTFOLIO seeks long-term capital appreciation by investing in
equity securities of small and medium sized companies (market capitalization of
up to $4 billion) which have an outlook for strong earnings growth and
significant capital appreciation.
LARGE CAP GROWTH PORTFOLIO seeks long-term capital appreciation by investing
primarily in equity securities of larger capitalization companies (market
capitalization of greater than $1 billion) which have an outlook for strong
growth in earnings and potential for capital appreciation.
Pilgrim Baxter & Associates, Ltd. serves as the Investment Adviser to PBHG
Insurance Series Fund, Inc.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES
AND POLICIES OF ANY OF THE FUNDS WILL BE ACHIEVED.
Life of Virginia currently is compensated by an affiliate(s) of each of the
Funds based upon an annual percentage of the average assets held in the Fund by
Life of Virginia. These percentage amounts, which vary by Fund, are intended to
reflect administrative and other services provided by Life of Virginia to the
Fund and/or affiliate(s).
More detailed information concerning the investment objectives and policies of
the Funds and their investment advisory services and charges can be found in the
current prospectuses for the Funds which accompany or precede this Prospectus
and the Funds' current statements of additional information. A current
prospectus for each Fund can be obtained by writing or calling Life of Virginia
at its Home Office. The prospectus for each Fund should be read carefully before
any decision is made concerning the allocation of Premium Payments or transfers
among the Investment Subdivisions.
RESOLVING MATERIAL CONFLICTS
The Funds are used as investment vehicles for both variable life insurance and
variable annuity policies issued by Life of Virginia. In addition, all of the
Funds, are also available to registered separate accounts of insurance companies
other than Life of Virginia offering variable annuity and variable life
policies. As a result, there is a possibility that an irreconcilable material
conflict may arise between the interests of Owners owning Policies whose account
values are allocated to Account 4 and of Owners owning policies whose Account
Values are allocated to one or more other separate accounts investing in any one
of the Funds.
In addition, Janus Aspen Series, GE Investments Funds and The Alger American
Fund may sell shares to certain retirement plans. As a result, there is a
possibility that a material conflict may arise between the interests of Owners
generally or certain classes of Owners, and such retirement plans or
participants in such retirement plans.
In the event of a material conflict, Life of Virginia will take any necessary
steps, including removing Account 4 assets from the Fund, to resolve the matter.
See the individual Fund Prospectus for additional details.
TOTAL RETURN AND YIELDS
From time to time, Life of Virginia may advertise total return and/or yield
for the Investment Subdivisions. THESE FIGURES ARE BASED ON HISTORICAL EARNINGS
AND DO NOT INDICATE OR PROJECT FUTURE PERFORMANCE. Each Investment Subdivision
may, from time to time, advertise performance relative to certain performance
rankings and indices compiled by independent organizations. More detailed
information as to the calculation of performance information appears in the
Statement of Additional Information.
Total returns and yields for the Investment Subdivision are based on the
investment performance of the corresponding investment portfolios of the Funds.
Each portfolio's performance in part reflects its expenses. See the Prospectuses
for the Funds.
Total return for an Investment Subdivision refers to quotations made assuming
that an investment under a Policy has been held in that Investment Subdivision
for various periods of time including, but not limited to, a period measured
from the date the Investment Subdivision commenced operations. When an
Investment Subdivision has been in operation for one, five, and ten years,
respectively, the total return for these periods will be provided.
An average annual total return quotation represents the average annual
compounded rate of return that would equate a hypothetical initial investment of
$1,000 (as of the first day of the period for which the total return quotation
is provided) to the redemption value of that investment (as of the last day of
the period). Such quotations show the average annual percentage change in the
value of a hypothetical investment during the periods specified. The
standardized version of average annual total return reflects all historical
investment results, less all charges and deductions applied against the
Investment Subdivision (including any surrender charge that would apply if an
Owner terminated the Policy at the end of each period indicated, but excluding,
charges for the Guaranteed Minimum Death Benefit Rider, and any deductions for
premium taxes).
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In addition to the standardized version described above, total return
performance quotations computed on non-standard bases may be used in
advertisements. For example, average annual total return information may be
presented, computed on the same basis as described above, except deductions will
not include sales or administrative charges. Average annual total returns that
exclude sales or administrative expenses, or both, will be greater than
standardized average annual total returns for comparable periods. Life of
Virginia may from time to time disclose average annual and/or cumulative total
return in other non-standard formats.
The yield of a "money market" Investment Subdivision refers to the income
generated by an investment in that Investment Subdivision over a specified
seven-day period, which is then annualized. Yield is calculated by assuming that
the income generated for that seven-day period is generated each seven-day
period over a 52-week period. The effective yield is calculated similarly but
the income earned by an investment in that money market Subdivision is assumed
to be reinvested each period. The effective yield will be slightly higher than
the yield because of the compounding effect of this assumed reinvestment.
The yield of an Investment Subdivision (other than a "money market"
Subdivision) refers to the income generated by an investment in that Investment
Subdivision over a specified 30-day (or one-month) period. The income generated
over the period is assumed to be generated and reinvested each month for six
months. The resulting semi-annual yield is then doubled.
Life of Virginia may from time to time also disclose yield, standard total
returns, and non-standard total returns for periods prior to the date of
inception of the Investment Subdivisions.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of performance data, please refer to the
Statement of Additional Information.
In advertising and sales literature, the performance of each Investment
Subdivision may be compared to the performance of other variable annuity issuers
in general or to the performance of particular types of variable annuities
investing in mutual funds, or investment portfolios of mutual funds with
investment objectives similar to each of the Investment Subdivisions. Lipper
Analytical Services, Inc. ("Lipper") and the Variable Annuity Research Data
Service ("VARDS") are independent services which monitor and rank the
performance of variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis.
Lipper's rankings include variable life insurance issuers as well as variable
annuity issuers. VARDS rankings compare only variable annuity issuers. The
performance analyses prepared by Lipper and VARDS each rank such issuers on the
basis of total return, assuming reinvestment of distributions, but do not take
sales charges, redemption fees, or certain expense deductions at the separate
account level into consideration. In addition, VARDS prepares risk adjusted
rankings, which consider the effects of market risk on total return performance.
This type of ranking provides data as to which funds provide the highest total
return within various categories of funds defined by the degree of risk inherent
in their investment objectives.
Advertising and sales literature may also compare the performance of each
Investment Subdivision to various widely recognized indices. One such index is
the Standard & Poor's 500 Composite Stock Price Index, a measure of stock market
performance. This unmanaged index does not consider tax consequences or the
expense of operating or managing an investment portfolio, and may not consider
reinvestment of income dividends.
Life of Virginia may also report other information including the effect of
tax-deferred compounding on an Investment Subdivision's investment returns, or
returns in general, which may be illustrated by tables, graphs, or charts. All
income and capital gains derived from the Investment Subdivisions' investments
in the Funds are reinvested on a tax-deferred basis.
THE POLICY
The Policy is an individual flexible premium variable deferred annuity policy.
The rights and benefits of the Policy are described below and in the Policies.
There may be differences in your Policy because of requirements of the state
where your Policy is issued. Any such differences will be included in your
Policy.
PURCHASING THE POLICIES
Individuals wishing to purchase a Policy must apply through an authorized
registered agent. The minimum initial Premium Payment required under the Policy
is $5,000. However, in certain cases where Policies are being offered to members
of a group of individuals, Life of Virginia may agree to waive the $5,000
initial premium requirement. Acceptance of a request for a Policy and acceptance
of Premium Payments are subject to Life of Virginia's rules, and Life of
Virginia reserves the right to reject any request for a Policy and any initial
Premium Payment for any lawful reason and in a manner that does not unfairly
discriminate against similarly situated purchasers.
If Life of Virginia is unable to issue a Policy due to incomplete information
regarding the applicant, the initial Premium Payment
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will be credited to the Policy within two Valuation Periods after the later of
receipt of the information needed to issue the Policy or receipt of the initial
Premium Payment by Life of Virginia at its Home Office. If the initial Premium
Payment cannot be credited within five Business Days after receipt by Life of
Virginia, Life of Virginia will contact the applicant, explain the reason for
the delay, and refund the initial Premium Payment immediately, unless the
applicant specifically consents to Life of Virginia retaining the initial
Premium Payment until the required information is made complete. If Life of
Virginia retains the initial Premium Payment, it will be credited within two
Valuation Periods after the necessary requirements are fulfilled.
The Owner may make Additional Premium Payments before the earliest of (1) the
date which is ten years preceding the Maturity Date, (2) the date the Annuitant
attains age 86 and (3) the date Income Payments begin. Subject to applicable
state requirements, Additional Premium Payments must be for $500 or more if the
Policy is a Non-Qualified Policy, $50 or more if the Policy is an IRA Policy,
and $100 or more if the Policy is a Qualified Policy other than an IRA Policy.
Additional Premium Payments made under Qualified Policies are limited to
proceeds from certain qualified plans. Additional Premium Payments are credited
as of the next close of business (on a Business Day) following receipt of the
payment at the Home Office.
"Policy Years" for the initial Premium Payment are measured from the Policy
Date. With regard to the determination of charges attributable to Additional
Premium Payments, however, "years" are measured from the date of receipt of the
Additional Premium Payment by Life of Virginia at its Home Office. (See Sales
Charges.)
ALLOCATION OF PREMIUM PAYMENTS
The Owner, by written instructions, allocates Premium Payments among the
Investment Subdivisions. The Owner may allocate Premium Payments totally to one
Investment Subdivision of Account 4, or partially to any one of the available
Investment Subdivisions; however, at any time, the Account Value may not be
invested in more than 10 Investment Subdivisions. Allocations of less than 1% of
any Premium Payment, or less than $100, to any one Investment Subdivision are
not permitted.
In those states which require that Premium Payments be returned during the
right to examine Policy period (see Examination of Policy (Refund Privilege).),
during an initial period commencing on the date the initial Premium Payment is
credited to the Policy, Premium Payments will be placed in the Investment
Subdivision that invests exclusively in the Money Market Fund of the GE
Investments Funds. The Premium Payments will remain in that subdivision until
the earlier of 15 calendar days from the date the initial Premium Payment is
credited to the Policy or, if the Policy is not accepted by the Owner, when all
amounts due are refunded. At the end of the 15-day period, the Account Value at
that time, and all subsequent Premium Payments, will be allocated among the
Investment Subdivisions in accordance with the Owner's instructions.
The Owner may change the allocation of subsequent Premium Payments at any
time, without charge, by sending acceptable written notice to Life of Virginia
at its Home Office. The allocation will apply to any Premium Payments received
after Life of Virginia records the change. The Account Value will vary with the
investment performance of the Investment Subdivisions the Owner selects, and the
Owner bears the entire investment risk for the Account Value in any particular
Investment Subdivision. The allocation of Premium Payments will affect not only
the Account Value prior to the Maturity Date, but it may also affect the Death
Benefit payable upon the Annuitant's death. The Owner should periodically review
his allocation of Account Value in light of market conditions and overall
financial planning requirements.
ACCUMULATION OF ACCOUNT VALUE
The Policy provides for an accumulation of Account Value prior to the Maturity
Date. The Account Value equals the sum of the values of the amounts allocated
under the Policy to each Investment Subdivision. Account Value will be
determined on a daily basis and will reflect a number of factors, including
Premium Payments, partial surrenders, transfers, charges assessed in connection
with the Policy, and the investment performance of the shares purchased by the
Investment Subdivisions to which the Account Value is allocated. There is no
guaranteed minimum Account Value.
On the date the initial Premium Payment is received and accepted by Life of
Virginia, the Account Value equals the initial Premium Payment. Thereafter,
prior to the Maturity Date, the Account Value in each Investment Subdivision is
determined by multiplying the number of Accumulation Units in that Investment
Subdivision credited to the Policy by the current value of an Accumulation Unit
for that Investment Subdivision. The number of Accumulation Units is increased
by any Additional Premium Payments and any transfers into that Investment
Subdivision and decreased by the policy maintenance charge, the Annual Death
Benefit Charge any transfers out of that Investment Subdivision, and any full or
partial surrenders.
VALUE OF ACCUMULATION UNITS
The Accumulation Units of each Investment Subdivision are valued separately.
The value of Accumulation Units will change each Valuation Period according to
the investment performance of the shares purchased by each Investment
Subdivision and the deduction of certain charges from Account 4.
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For each Investment Subdivision, the value of an Accumulation Unit for the
first Valuation Period was $10. The value of an Accumulation Unit in an
Investment Subdivision for each subsequent Valuation Period equals the value of
the Accumulation Unit as of the immediately preceding Valuation Period,
multiplied by the Net Investment Factor for that Investment Subdivision for the
Valuation Period for which the Accumulation Unit Value is being calculated. The
Net Investment Factor is a number representing the change in the value of
Investment Subdivision assets on successive Business Days due to investment
income, realized or unrealized capital gains or losses, deductions for taxes, if
any, and deductions for the mortality and expense risk charge and administrative
expense charge.
The value of an Accumulation Unit for a Valuation Period is the same for each
day in the period.
TRANSFERS
Before Income Payments begin, the Owner may transfer amounts among and between
the Investment Subdivisions that are available at the time of the request by
sending a written request to the Home Office. Telephone transfers are subject to
Life of Virginia's administrative requirements. All transfers will be effective
as of the end of the Valuation Period during which the written or telephone
request is received at the Home Office.
Currently, there is no limit to the number of transfers that may be made;
however, Life of Virginia reserves the right to limit, upon written notice, the
number of transfers to twelve each calendar year or, if it is necessary in order
that the Policy will continue to receive annuity treatment by the Internal
Revenue Service, a lower number.
The first transfer in each calendar month will be made without charge.
Thereafter, each time a transfer is made, a transfer charge of $10 will be
deducted from the amount transferred. The transfer charge is Life of Virginia's
estimate of the average actual cost of present and future typical transfers.
Once a Policy is issued, the amount of the transfer charge is guaranteed for the
life of the Policy.
If the amount of Account Value remaining in an Investment Subdivision after
the transfer is less than $100, Life of Virginia will transfer the amount
remaining in addition to the amount requested. Life of Virginia will not allow a
transfer into any Investment Subdivision unless the Account Value of that
Investment Subdivision after the transfer is at least $100.
After Income Payments begin, if Variable Income Payments are being made,
Annuity Units may be transferred among the Investment Subdivisions at the
payee's request once each calendar year. No transfer charge will be imposed on
such transfers. The transfer will be effective as of the end of the Valuation
Period during which Life of Virginia receives written request at its Home
Office. The Income Payment amount on the date of the transfer will not be
affected by the transfer, although subsequent Variable Income Payments will
reflect the investment experience of the selected Investment Subdivisions.
If the number of Annuity Units remaining in an Investment Subdivision after a
transfer is less than 1, then this unit will also be transferred. In addition,
transfers are only permitted into an Investment Subdivision if, after the
transfer, the number of Annuity Units of that Investment Subdivision is at least
1.
Where permitted by state law, Life of Virginia reserves the right to refuse to
execute any transfer, whether requested before or after income payments begin,
if any of the Investment Subdivisions that would be affected by the transfer are
unable to purchase or redeem shares of the mutual funds in which they invest.
TELEPHONE TRANSFERS
Life of Virginia permits telephone transfers and may be liable for losses
resulting from unauthorized or fraudulent telephone transfers if it fails to
employ reasonable procedures to confirm that the telephone instructions that it
receives are genuine. Therefore, Life of Virginia will employ means to prevent
unauthorized or fraudulent telephone requests, such as sending written
confirmation, recording telephone requests, and/or requesting other identifying
information. In addition, Life of Virginia may require written authorization
before allowing Owners to make telephone transfers.
To request a telephone transfer, Owners should call Life of Virginia's
Telephone Transfer Line at 800-772-3844. Life of Virginia will record all
telephone transfer requests. Transfer requests received prior to the close of
the New York Stock Exchange will be executed that business day at that day's
prices. Requests received after that time will be executed on the next business
day at that day's prices.
DOLLAR-COST AVERAGING
Owners may elect to have Life of Virginia automatically transfer specified
amounts from one of certain designated Investment Subdivisions of Account 4 to
any other available Investment Subdivision(s) on a monthly or quarterly basis.
This privilege is intended
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to permit Owners to utilize "Dollar-Cost Averaging," a long-term investment
method that provides for regular level investments over a period of time. Life
of Virginia makes no representations or guarantees that Dollar-Cost Averaging
will result in a profit or protect against loss.
Owners must complete the Dollar-Cost Averaging section of the application or a
Dollar-Cost Averaging Agreement or call Life of Virginia's Telephone Transfer
Line at 800-772-3844 in order to participate in the Dollar-Cost Averaging
program. Currently, the Investment Subdivision available to allocate money for
the purpose of Dollar-Cost Averaging is the Money Market Fund of the GE
Investments Funds. Money may be allocated to this subdivision as initial
premium, additional premium or in the form of a transfer from other Investment
Subdivisions within Account 4. Any amount allocated must conform to the minimum
amount and percentage requirements, (see Purchasing the Policies, and Allocation
of Premium Payments.) The minimum transfer amount permitted by the Dollar-Cost
Averaging program is $100.
Dollar-Cost Averaging will continue until the entire Account Value in the
subdivision designated for Dollar-Cost Averaging is depleted. Prior to that
time, the Owner may discontinue Dollar-Cost Averaging by sending Life of
Virginia a written cancellation notice. Owners may initiate or make changes to
their Dollar-Cost Averaging program by calling Life of Virginia's Telephone
Transfer Line at 800-772-3844. Also, Life of Virginia reserves the right to
discontinue Dollar-Cost Averaging upon 30 days written notice to the Owner.
PORTFOLIO REBALANCING
Owners may elect to have Life of Virginia automatically transfer amounts on a
quarterly, semi-annual or annual basis to maintain a specified percentage of
Account Value in each of two or more Investment Subdivisions designated by the
Owner. This privilege is intended to permit owners to use "Portfolio
Rebalancing," a strategy that maintains over time the Owner's desired allocation
percentage in the designated Investment Subdivisions. The percentage of Account
Value in each of the Investment Subdivisions may shift from the Premium Payment
allocation percentage due to the performance of the Investment Subdivisions.
Life of Virginia makes no representations or guarantees that Portfolio
Rebalancing will result in a profit or protect against loss.
Owners must complete the Portfolio Rebalancing agreement to participate in the
Portfolio Rebalancing program. Owners may designate the Investment Subdivisions
and specify the rebalancing percentages in the agreement. The specified
percentages must be in whole percentages and must be at least 1%. The date that
a rebalancing transfer is effected is measured from the Policy Date, or other
date selected at the sole discretion of Life of Virginia, based on the
rebalancing frequency chosen by an Owner. Account Value must be allocated to
each of the designated Investment Subdivisions for rebalancing to become
effective.
Portfolio Rebalancing is offered free of charge and will continue as long as
there is Account Value in each of the designated Investment Subdivisions. Prior
to that time, Owners may discontinue rebalancing by sending Life of Virginia a
written cancellation notice. Owners may make changes to their Portfolio
Rebalancing program by calling Life of Virginia's Telephone Transfer Line at
800-772-3844. Portfolio Rebalancing transfers are not included for the purpose
of determining any transfer charge. Owners should consider the possible effects
of electing other automatic programs such as Dollar-Cost Averaging and
Systematic Withdrawals concurrent with Portfolio Rebalancing. Life of Virginia
reserves the right to exclude Investment Subdivisions from Portfolio
Rebalancing. Life of Virginia also reserves the right to discontinue Portfolio
Rebalancing upon 30 days written notice to the Owner.
POWERS OF ATTORNEY
As a general rule and as a convenience to Owners, Life of Virginia allows the
use of powers of attorney whereby Owners give third parties the right to effect
account value transfers on behalf of the Owners. However, when the same third
party possesses powers of attorney executed by many Owners, the result can be
simultaneous transfers involving large amounts of Account Value. Such transfers
can disrupt the orderly management of the Funds, can result in higher costs to
Owners, and are generally not compatible with the long-range goals of purchasers
of the Policies. Life of Virginia believes that such simultaneous transfers
effected by such third parties are not in the best interests of all shareholders
of the Funds and this position is shared by the managements of those Funds.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple powers of
attorney, Life of Virginia may not honor such powers of attorney and has
instituted or will institute procedures to assure that the transfer requests
that it receives have, in fact, been made by the Owners in whose names they are
submitted. However, these procedures will not prevent Owners from making their
own Account Value transfer requests.
EXAMINATION OF POLICY (REFUND PRIVILEGE)
The Owner may examine the Policy and return it for refund within 10 days after
it is received. Unless state law requires that Premium Payments be returned as
the refund, the amount of the refund will equal the Account Value with any
adjustments required by applicable law or regulation on the date Life of
Virginia receives the Policy. If state law requires that Premium Payments be
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returned, the amount of the refund will equal the greater of (1) the Account
Value (without reduction by any surrender charges) plus any amount deducted from
the Premium Payments prior to allocation to Account 4 or (2) the Premium
Payments made. In certain states the Owner may have more than 10 days to return
the policy for a refund. An Owner wanting a refund should return the Policy to
Life of Virginia at its Home Office.
DISTRIBUTIONS UNDER THE POLICY
SURRENDER
The Owner may make a full or partial surrender of the Policy at any time
before Income Payments begin by sending a written request to Life of Virginia at
its Home Office. The Policy must be submitted with a request for a full
surrender.
Life of Virginia will not permit a partial surrender that is less than $500 or
that reduces the Account Value of the Policy to less than $5,000. In the event
that a partial surrender request would reduce the Account Value to less than
$5,000, Life of Virginia will surrender only that amount of Account Value that
would reduce the remaining Account Value to $5,000 and deduct any surrender
charge from the amount surrendered.
The amount payable on full surrender of the Policy is the Surrender Value at
the end of the Valuation Period during which the request is received. The
Surrender Value equals the Account Value on the date Life of Virginia receives a
request for surrender less any applicable surrender charge. (See Surrender
Charge.) Any premium tax paid by Life of Virginia which has not been previously
deducted may also be deducted from the Surrender Value, as will any applicable
Annual Death Benefit Charge and the Policy Maintenance Charge. (See Annual Death
Benefit Charge, and Policy Maintenance Charge.) The Surrender Value may be paid
in a lump sum or under one of the optional payment plans specified in the
Policy. (See Optional Payment Plans.) Proceeds will generally be paid within
seven days of receipt of a request for a surrender. Postponement of payments may
occur in certain circumstances. (See Payment Under the Policies.)
Upon partial surrender, the Owner may indicate, in writing, from which
Investment Subdivisions the Account Value is to be transferred. If no such
written instruction is received with the partial surrender request, the Account
Value transferred out will be transferred from the Investment Subdivisions in
the same proportion that the Account Value in each Investment Subdivision bears
to the total Account Value on the date Life of Virginia receives the written
request. A portion of the Policy's surrender charge may be assessed at the time
a partial surrender is made. Any applicable surrender charge will be deducted
from the amount surrendered. (See Surrender Charge.)
Full and partial surrenders may have federal tax consequences. (See Federal
Tax Matters.)
SYSTEMATIC WITHDRAWALS.
The Owner may elect in writing to make a series of partial surrenders in equal
installments, adding up, in a 12 month period beginning with the date of the
first payment, to an amount not to exceed 10% of the Account Value as of the
effective date of the partial surrender ("Systematic Withdrawals"). Systematic
Withdrawals will be available only if no partial surrender has occurred during
the policy year of the election of Systematic Withdrawals. If a Systematic
Withdrawal program is discontinued, a new program may not be instituted until
the next policy year. A surrender charge will not be imposed on Systematic
Withdrawals. A surrender charge will however be applied to any additional
surrender(s) made during the time Systematic Withdrawal payments are being made,
unless all surrender charges have expired, (see Surrender Charge). Systematic
Withdrawal payments count as partial surrenders with reduced charges. (See
Reduced Charges on Certain Surrenders).
Systematic Withdrawals will be made from any Investment Subdivisions to which
Account Value is allocated. Withdrawals will be made from each of the designated
Investment Subdivisions in the same proportion that the Account Value in each
Investment Subdivision bears to the total Account Value in all Investment
Subdivisions from which the withdrawals are to be made. At any time while
Systematic Withdrawals are being made, each of the designated Investment
Subdivisions from which withdrawals are being made must count as one of the ten
Investment Subdivisions to which the Account Value of the policy may be
allocated at any one time (see Allocation of Premium Payments).
After a series of Systematic Withdrawals has begun, the frequency and/or
amount of payments may be changed upon request by the Owner, subject to the
following rules:
1) only one such change may be requested in a calendar quarter;
2) if the maximum amount was not elected at the time the current series of
Systematic Withdrawals was initiated, the remaining payments may be
increased;
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3) the total amount to be withdrawn during that 12-month period, including
amounts already paid, remains limited to 10% of the Account Value at the
time the current series of Systematic Withdrawals was initiated; and
4) if the current series of Systematic Withdrawals is discontinued, any
remaining payments in the current 12-month period will be paid in a lump
sum on request.
Systematic Withdrawals may be discontinued at any time by the Owner(s) by
notifying Life of Virginia in writing or by calling the Telephone Transfer Line
at 800-772-3844. Life of Virginia reserves the right to discontinue Systematic
Withdrawals upon 30 days written notice to Owners. Otherwise, payments will
continue until the earlier of (i) the date on which a Systematic Withdrawal
reduces the Account Value for the entire policy below $5,000, or (ii) the date
on which the total Account Value in all Investment Subdivisions designated for
Systematic Withdrawals is insufficient to provide further payments on the mode
in effect.
If any Systematic Withdrawal would be or becomes less than $50, Life of
Virginia reserves the right to reduce the frequency of payments to an interval
that would result in each payment being at least $50. Life of Virginia also
reserves the right to prohibit simultaneous Systematic Withdrawals and
Dollar-Cost Averaging, (see Dollar-Cost Averaging). Additional rules regarding
Systematic Withdrawals, available payment modes, and instructions for electing
this option are available upon request.
THE AMOUNT OF EACH SYSTEMATIC WITHDRAWAL SHOULD BE CONSIDERED AS A
DISTRIBUTION AND TAXED IN THE SAME MANNER AS A PARTIAL SURRENDER OF THE POLICY.
HOWEVER, THERE IS SOME UNCERTAINTY REGARDING THE TAX TREATMENT OF SYSTEMATIC
WITHDRAWALS, AND IT IS POSSIBLE THAT ADDITIONAL AMOUNTS MAY BE INCLUDIBLE IN
INCOME. IN ADDITION, A 10% PENALTY TAX MAY, SUBJECT TO CERTAIN EXCEPTIONS, BE
IMPOSED ON ANY AMOUNTS INCLUDIBLE IN INCOME DUE TO SYSTEMATIC WITHDRAWALS. IT IS
UNCERTAIN WHETHER SYSTEMATIC WITHDRAWALS WOULD QUALIFY FOR AN EXCEPTION TO THIS
PENALTY TAX FOR A SERIES OF SUBSTANTIALLY EQUAL PERIODIC PAYMENTS MADE OVER THE
LIFE (OR LIFE EXPECTANCY) OF THE RECIPIENT OR THE JOINT LIVES (OR JOINT LIFE
EXPECTANCIES) OF THE RECIPIENT AND HIS OR HER BENEFICIARY. FOR MORE INFORMATION,
SEE THE "FEDERAL TAX MATTERS" DISCUSSION OF TAXATION OF SYSTEMATIC WITHDRAWALS.
DEATH PROVISIONS
Prior to the Maturity Date, if an Owner, Joint Owner, or Annuitant dies while
the Policy is in force, the Designated Beneficiary will be treated as the sole
owner of the Policy, subject to the distribution rules set forth below. A Death
Benefit may be payable to the Designated Beneficiary upon receipt by Life of
Virginia of Due Proof of Death satisfactory to Life of Virginia. The Designated
Beneficiary is determined by identifying the first person named in the following
list who is alive or in existence on the date of death:
(1) Owner
(2) Joint Owner
(3) Beneficiary
(4) Contingent Beneficiary
(5) Owner's estate
If Joint Owners both survive, they become the Designated Beneficiary together.
In such cases, for purposes of the distribution rules discussed below, each
Designated Beneficiary will be treated separately with respect to each
Designated Beneficiary's portion of the Policy.
Even if the Designated Beneficiary is treated as the sole owner of this
Policy, the death of the Designated Beneficiary will not be treated as the death
of an Owner for purposes of the Death Benefit provisions below, nor will such
death increase the time during which any required distributions from the Policy
may be made.
After the Maturity Date (including after income payments begin), if an Owner,
Joint Owner, Annuitant, or Designated Beneficiary dies while the Policy is in
force, payments that are already being made under the Policy will be made at
least as rapidly as under the method of distribution in effect at the time of
such death, notwithstanding any other provision of the Policy.
DEATH BENEFIT AT DEATH OF ANNUITANT. For Policies issued before May 1, 1997
(unless a later date is required by applicable state regulation), if the
Annuitant was age 80 or younger on the Policy Date, and dies prior to the
Maturity Date while the Policy is in force, the Designated Beneficiary may elect
a Death Benefit within 90 days of the date of such death.
During the first six Policy years, the Death Benefit will be the greater of: (1)
the total premiums paid, reduced by any applicable premium tax and any partial
surrenders plus their applicable surrender charge, and (2) the Account Value on
the date Life of Virginia receives Due Proof of Death. During subsequent six
year periods, the Death Benefit will be the greater of: (1) the Death Benefit on
the last day of the previous six year period, plus any premiums paid since then,
reduced by any applicable premium tax and any partial surrenders plus their
applicable surrender charges since then, and (2) the Account Value on the date
Due Proof of Death is received.
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If the request for payment of the Death Benefit occurs more than 90 days after
the date of the Annuitant's death, and/or if the deceased Annuitant was age 81
or older on the Policy Date, the Surrender Value will be payable instead of the
Death Benefit.
For Policies issued on or after May 1, 1997 (but not until the necessary
endorsement to the contract is approved under applicable state law), if the
Annuitant dies before Income Payments begin, the Designated Beneficiary may
elect to surrender the Policy for a Death Benefit by notifying Life of Virginia
of such election within 90 days of the date of the Annuitant's death. (This
election may not be available in all states.) If notification occurs more than
90 days after the date of the Annuitant's death, the Surrender Value will be
payable instead of the Death Benefit.
The Death Benefit will be the greater of (1) the minimum death benefit
(described below); or (2) the Account Value on the date Life of Virginia
received Due Proof of Death of the Annuitant. During the first six Policy Years,
or if the Annuitant was age 81 or older on the Policy Date, the minimum death
benefit is the total of premiums paid, less adjustments for any partial
surrenders. During any subsequent six year period if the Annuitant was age 80 or
younger on the Policy Date, the minimum death benefit will be the Death Benefit
on the last day of the previous six year period, plus any premiums paid since
that day, less adjustments for any partial surrenders since that day.
Once the necessary endorsement is approved in the applicable state, Life of
Virginia will issue the endorsement to the contract and this Death Benefit will
be effective after that date. Until then the previously described death benefit
will apply.
Without regard to when a Policy is issued, if the Death Benefit is elected and
paid, the Policy will terminate and Life of Virginia will have no further
obligation under the Policy.
In lieu of payment of the Death Benefit, the Designated Beneficiary may elect to
continue the Policy after the Annuitant's death, provided that the distribution
rules (described below) do not require distribution of the entire value of the
Policy.
If the Designated Beneficiary is eligible and elects to continue the
Policy, the Account Value on the date Life of Virginia received Due Proof
of Death of the Annuitant will be set equal to the Death Benefit on that
date. Any increase in the Account Value will be allocated to the Investment
Subdivisions using the premium allocation in effect at that time. If the
Policy is continued after death of the Annuitant, any Death Benefit payable
subsequently (at the death of the new Annuitant) will be based on the new
Annuitant's age on the Policy Date, rather than the age of the previously
deceased Annuitant.
If the Designated Beneficiary is not eligible to continue the Policy, the
Account Value on the date we receive Due Proof of Death of the Annuitant
will be set equal to the Death Benefit on that date and the distribution
rules will govern payment of proceeds.
Surrender charges will apply if the Policy is surrendered more than 90 days
after death of the Annuitant, without regard to whether or not the Account
Value was increased.
ELECTIVE GUARANTEED MINIMUM DEATH BENEFIT RIDER. If an Annuitant dies prior to
the Maturity Date while the Guaranteed Minimum Death Benefit Rider is in effect,
the Designated Beneficiary may elect the Death Benefit described below within 90
days of the date of such death. If this Death Benefit is paid, the Policy will
terminate, and Life of Virginia will have no further obligation under the
Policy. THE GUARANTEED MINIMUM DEATH BENEFIT RIDER MAY NOT BE AVAILABLE IN ALL
STATES OR MARKETS.
The Death Benefit under the Guaranteed Minimum Death Benefit Rider will be the
greater of: (1) the Death Benefit described above under "Death Benefit at Death
of Annuitant," and (2) the greater of (A) the Guaranteed Minimum Death Benefit,
and (B) the Account Value of the Policy on the date Life of Virginia receives
proof of the Annuitant's death, or, if later, the date of the request. The
Guaranteed Minimum Death Benefit is, on the Policy Date, equal to the premium
paid. At the end of each Valuation Period after such date, the Guaranteed
Minimum Death Benefit is the lesser of: (1) the total of all premiums received,
multiplied by two, less the amount of any partial surrenders made prior to or
during that Valuation Period; or (2) the Guaranteed Minimum Death Benefit at the
end of the preceding Valuation Period, increased as specified below, plus any
additional premium payments during the current Valuation Period and less any
partial surrenders plus their applicable surrender charges during the current
Valuation Period.
The amount of the increase for the Valuation Period will be calculated by
applying a factor to the Guaranteed Minimum Death Benefit at the end of the
preceding Valuation Period. Until the anniversary on which the Annuitant attains
age 80, the factor is determined for each Valuation Period at an effective
annual rate of 6%, except that with respect to amounts invested in certain
Investment Subdivisions shown in the Policy, the increase factor will be
calculated as the lesser of: (1) the Net Investment Factor for the Valuation
Period, minus one, and (2) a factor for the Valuation Period equivalent to an
effective annual rate of 6%. Currently, these subdivisions include only the
money market Investment Subdivisions. With respect to amounts invested in the
Guarantee Account, Item (1) above is replaced with a factor for the Valuation
Period equivalent to the credited rate(s) applicable to such amounts.
If the Guaranteed Minimum Death Benefit Rider has been elected, it is
effective on the Policy Date and will remain in effect while the Policy is in
force and before income payments begin, or until the Policy Anniversary
following the date of receipt of the Owner's request to terminate the rider.
There will be a charge made each year for expenses related to the Death Benefit
available under the
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terms of the Guaranteed Minimum Death Benefit Rider. (SEE Annual Death Benefit
Charge). Amounts payable under the Guaranteed Minimum Death Benefit Rider are
subject to the distributions rules described below.
DISTRIBUTION RULES. The Code requires that if an Owner dies before the
Maturity Date, the entire value of the Policy must generally be distributed
within five years of the date of the Owner's death. In the case of Joint Owners,
this requirement applies if either of the Joint Owners dies before the Maturity
Date. The following distribution rules are designed to comply with these Code
requirements, and are applicable upon the death of an Owner or Joint Owner,
including the death of an Annuitant who is also an Owner. These distribution
rules will not apply upon the death of an Annuitant, if the Annuitant was not
also an Owner of the Policy, all Owners of the Policy are natural persons, and a
Contingent Annuitant survives. Even if no Contingent Annuitant is alive on the
death of the Annuitant, if the Owner is a natural person, that Owner will be the
Contingent Annuitant. Therefore, on the death of the Annuitant, the distribution
rules apply only if (1) the Annuitant was an Owner, or (2) any Owner was not a
natural person.
Prior to the Maturity Date, if the Designated Beneficiary is not the surviving
spouse of the deceased Owner, Joint Owner or Annuitant, then the Surrender Value
or the applicable Death Benefit will be paid in one lump sum to, or for the
benefit of, the Designated Beneficiary. Instead of receiving a lump sum
distribution, however, the Designated Beneficiary may elect: (1) to receive the
Surrender Value at any time during the five year period following the death of
the Owner, Joint Owner, or Annuitant by partially or totally surrendering the
Policy; or (2) to apply the entire Surrender Value (or applicable Death Benefit)
under optional payment plan 1 or 2 (described beginning on p. 35), with the
first payment to the Designated Beneficiary being made within one year after the
date of death of the Owner, Joint Owner, or Annuitant, and with payments being
made over the life of the Designated Beneficiary or over a period not exceeding
the Designated Beneficiary's life expectancy.
If the entire Surrender Value has not been paid to the Designated Beneficiary
by the end of this five year period following the date of death of the Owner,
Joint Owner, or Annuitant, and payments have not begun in accordance with (2)
above, then, in accordance with Code requirements and (1) above, Life of
Virginia will terminate the Policy at the end of that five year period and will
pay the Surrender Value to, or for the benefit of, the Designated Beneficiary.
After this, there will be no remaining value in the Policy. If the Designated
Beneficiary dies before all required payments have been made, Life of Virginia
will make any remaining payments to any person named in writing by the
Designated Beneficiary. Otherwise, Life of Virginia will pay the Designated
Beneficiary's estate.
Rather than the distribution rules described above, special rules apply if the
Designated Beneficiary is the surviving spouse of the deceased Owner, Joint
Owner, or Annuitant. In these cases, the surviving spouse may continue the
Policy as the Owner. In addition, that person will also become the Annuitant if
the deceased was the Annuitant, there is no surviving Contingent Annuitant, and
the Policy has not been surrendered for one of the Death Benefits described
above available upon the Annuitant's death. On the surviving spouse's death, the
entire interest in the Policy will be paid within five years of such spouse's
death to the Designated Beneficiary named by the surviving spouse (and if no
Designated Beneficiary has been named, such payment will be made to the
surviving spouse's estate).
RESTRICTIONS ON DISTRIBUTIONS FROM CERTAIN POLICIES
Section 830.105 of the Texas Government Code permits participants in the TEXAS
OPTIONAL RETIREMENT PROGRAM (ORP) to withdraw their interest in a variable
annuity contract issued under the ORP only upon (1) termination of employment in
the Texas public institutions of higher education, (2) retirement, (3) death, or
(4) the participant's attainment of age 70 1/2. Accordingly, before any amounts
may be distributed from the contract, proof must be furnished to Life of
Virginia that one of these four events has occurred.
Similar restrictions apply to variable annuity contracts used as funding
vehicles for Code Section 403(b) retirement plans. Section 403(b) of the Code
provides for tax-deferred retirement savings plans for employees of certain
non-profit and educational organizations. In accordance with the requirements of
section 403(b), any Policy used for a 403(b) plan will prohibit distributions of
(i) elective contributions made in years beginning after December 31, 1988, (ii)
earnings on those distributions and (iii) earnings on amounts attributable to
elective contributions held as of the end of the last year beginning before
January 1, 1989. However, distributions of such amounts will be allowed upon
death of the employee, attainment of age 59-1/2, separation from service,
disability, or financial hardship, except that income attributable to elective
contributions may not be distributed in the case of hardship.
CHARGES AND DEDUCTIONS
CHARGES AGAINST ACCOUNT 4
MORTALITY AND EXPENSE RISK CHARGE. A charge will be deducted from each
Investment Subdivision to compensate Life of Virginia for certain mortality and
expense risks assumed in connection with the Policies. The charge will be
deducted daily and equals .003446% for each day in a Valuation Period. The
effective annual rate of this charge, which is compounded daily, is 1.25% of the
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average daily net assets of Account 4. Life of Virginia guarantees that this
charge of 1.25% will never increase.
The mortality risk assumed by Life of Virginia arises from its contractual
obligation to make Income Payments to each payee regardless of how long all
payees or any individual payee may live. Although Variable Income Payments will
vary in accordance with the investment performance of the shares purchased by
each Investment Subdivision, they will not be affected by the mortality
experience of persons receiving such payments or of the general population. This
assures each payee that neither the longevity of fellow payees nor an
improvement in life expectancy generally will have an adverse effect on the
Variable Income Payments received under the Policy. Mortality risk also arises
from the possibility that the Death Benefit will be greater than the Account
Value.
The expense risk assumed is that expenses incurred in issuing and
administering the Policies will be greater than estimated and, therefore, will
exceed the expense charge limits set by the Policies.
ADMINISTRATIVE EXPENSE CHARGE. A charge will be deducted from each Investment
Subdivision to compensate Life of Virginia for certain administrative expenses
incurred in connection with the Policies. The charge will be deducted daily and
equals .000411% for each day in a Valuation Period. The effective annual rate of
this charge, which is compounded daily, is .15% of the average daily net assets
of Account 4.
POLICY MAINTENANCE CHARGE
A charge of $25 will be deducted annually from the Account Value of each
Policy to compensate Life of Virginia for certain administrative expenses
incurred in connection with the Policies. The charge will be deducted at each
anniversary and at surrender. Life of Virginia will waive this charge if the
Account Value exceeds $75,000 at the time the charge is due. The policy
maintenance charge will compensate Life of Virginia for issuance, processing,
start-up and on-going administration expenses. These expenses include the cost
of processing applications, establishing Policy records, premium collection,
recordkeeping, processing Death Benefit claims, full or partial surrenders,
transfers, and reporting and overhead costs. Once a Policy is issued, the amount
of the Policy Maintenance Charge is guaranteed for the life of the Policy.
The annual Policy Maintenance Charge will be allocated among the Investment
Subdivisions in the same proportion that the Policy's Account Value in each
Investment Subdivision bears to the total Account Value in all Investment
Subdivisions at the time the charge is made. Other allocation methods may be
available upon request.
ANNUAL DEATH BENEFIT CHARGE
There will be a charge made each year for expenses related to the Death
Benefit available under the terms of the Guaranteed Minimum Death Benefit rider.
Life of Virginia deducts this charge through the cancellation of accumulation
units at each anniversary and at surrender to compensate it for the increased
risks associated with providing the enhanced Death Benefit. The charge at full
surrender will be a pro-rata portion of the annual charge. Life of Virginia
guarantees that this charge will never exceed an annual rate of .35% of the
prior year's average Guaranteed Minimum Death Benefit.
SALES CHARGES
Life of Virginia incurs certain sales and other distribution expenses when the
Policies are issued. The majority of these expenses consist of commissions paid
for sales of these Policies; however, other distribution expenses are incurred
in connection with the printing of prospectuses, conducting seminars and other
marketing, sales, and promotional activities. To recover a portion of these
expenses, a surrender charge (also referred to as a contingent deferred sales
charge) is imposed on full and certain partial surrenders.
Set forth below is a general discussion of the amount and nature of the
charge, followed by a more technical explanation of how the charge is
calculated.
SURRENDER CHARGE. Surrender charges (also referred to as a contingent deferred
sales charge) will be imposed on full and partial surrenders that occur within
six years of any Premium Payments. Surrender charges are made to cover certain
expenses relating to the sale of the Policy, including commissions to registered
representatives and other promotional expenses. Surrender charges also apply to
proceeds received upon maturity if the Maturity Date occurs within six years of
receipt of a Premium Payment.
Surrender charges are deducted from the amount surrendered. All or part of the
amount surrendered may be subject to charge. Any amount subject to charge is
considered a surrender of Premium Payments. Surrender charges are determined
using the assumption that Premium Payments are surrendered on a first-in
first-out basis, up to the amount surrendered. For each such Premium Payment,
the charge is a percentage of the Premium Payment (or portion thereof)
surrendered. The charge is calculated separately for each Premium Payment at the
time it is surrendered, as specified in the table below.
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<TABLE>
<CAPTION>
Number of Full Years
Between the Date of Surrender Charge as a
Receipt of Premium Percentage of Premium
Payment and Date of Surrender Payment Surrendered
----------------------------- ---------------------
<S><C>
less than 1 6%
1 6%
2 6%
3 6%
4 4%
5 2%
6 or more 0%
</TABLE>
After all Premium Payments have been surrendered, any remaining Account Value
may be surrendered. Surrender charges do not apply after all Premium Payments
have been surrendered.
REDUCED CHARGES ON CERTAIN SURRENDERS. No surrender charge applies to the
first surrender of the policy year, if the amount surrendered is not more than
10% of the Account Value at the end of the Valuation Period during which the
surrender request is received. If the first surrender of the policy year is a
full surrender, or a partial surrender of more than 10% of the Account Value, no
surrender charge will apply to a portion of the amount surrendered equal to 10%
of the Account Value. Any remaining portion of the amount surrendered may be
subject to surrender charges, as described above. The amount subject to charge
will not exceed the amount surrendered.
WAIVED SURRENDER CHARGES FOR CERTAIN PAYMENT PLANS. Surrender charges
otherwise applicable will be waived if and to the extent that proceeds are not
distributed in a lump sum and are applied to optional payment plans 1, 2 (for a
period of five or more years) or 5.
WAIVER OF SURRENDER CHARGES IN THE EVENT OF HOSPITAL OR NURSING FACILITY
CONFINEMENT. Surrender charges arising from a full surrender or one or more
partial surrenders occurring before income payments begin will be waived if:
An Annuitant is, or has been confined to a state licensed or legally
operated hospital or inpatient nursing facility for at least 30 consecutive
days; and
Such confinement begins at least one year after the policy date; and
An Annuitant was age 80 or younger on the policy date; and
The request for the full or partial surrender, together with proof of such
confinement is received in the Home Office of Life of Virginia while the
Annuitant is confined or within 90 days after discharge from the facility.
For purposes of this provision, Annuitant means either the Annuitant, Joint
Annuitant or Final Annuitant, whichever is applicable.
The waiver of surrender charges in the event of hospital or nursing facility
confinement may not be available in all states or all markets.
TRANSFER CHARGES
The Owner may transfer amounts among the Investment Subdivisions. Currently,
there is no limit on the number of transfers that may be made; however, Life of
Virginia reserves the right to impose such a limit in the future before Income
Payments begin. Also, where permitted by state law, Life of Virginia reserves
the right to refuse to execute any transfer if any of the Investment
Subdivisions that would be affected by the transfer are unable to purchase or
redeem shares of the mutual funds in which they invest.
The first transfer in each calendar month will be made without charge.
Thereafter, each time amounts are transferred during that calendar month, a
transfer charge of $10 will be deducted from the amount transferred to
compensate Life of Virginia for the costs in making the transfer. No transfer
charge is imposed on transfers occurring after Income Payments begin.
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PREMIUM TAXES
Life of Virginia may deduct a charge for any premium taxes incurred. The
premium tax rates incurred by Life of Virginia currently range from 0 to 3.5%.
Any applicable premium tax charge may be deducted from either the premium paid
or from proceeds, (including benefits for surrender, maturity and death).
OTHER TAXES
Under present laws, Life of Virginia will incur state and local taxes (other
than premium or similar taxes) in several states. At present, Life of Virginia
is not making a charge for these taxes but it reserves the right to charge for
such taxes.
Because of its current status under the Code, Life of Virginia does not expect
to incur any federal income tax liability that would be chargeable to Account 4.
Based upon this expectation, no charge is being made currently to Account 4 for
federal income taxes. If, however, Life of Virginia determines that such taxes
may be incurred, it may assess a charge for those taxes from Account 4.
OTHER CHARGES
Because Account 4 purchases shares of the Funds, the net assets of each
Investment Subdivision will reflect the investment advisory fee and other
expenses incurred by the investment portfolio of the Fund in which the
Investment Subdivision invests. For more information concerning these charges,
read the individual Fund prospectuses.
REDUCTION OF CHARGES FOR GROUP SALES
The surrender charge may be reduced for sales of the Policies to a trustee,
employer or similar entity representing a group or to members of the group where
such sales result in savings of expenses incurred by Life of Virginia in
connection with the sale of the Policies. The entitlement to such a reduction in
such charge will be determined by Life of Virginia based on the following
factors:
(1) THE SIZE OF THE GROUP. Generally, the sales expenses for each individual
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
purchase payments than on smaller ones.
(3) THE PURPOSE FOR WHICH THE POLICIES ARE PURCHASED. Certain types of plans
are more likely to be stable than others. Such stability reduces the number
of sales contacts and administrative and other services required, reduces
sales administration and results in fewer Policy terminations. As a result,
sales and other expenses can be reduced.
(4) THE NATURE OF THE GROUP FOR WHICH THE POLICIES ARE BEING PURCHASED.
Certain types of employee and professional groups are more likely to continue
Policy participation for longer periods than are other groups with more
mobile membership. If fewer Policies are terminated in a given group, Life of
Virginia's sales and other expenses are reduced.
(5) There may be other circumstances of which Life of Virginia is not
presently aware which could result in reduced sales expenses.
Reductions in this charge will not be unfairly discriminatory against any
person including the affected owners and all other owners of the Policies.
Additional information about charge reductions is available from Life of
Virginia at its Home Office.
INCOME PAYMENTS
MONTHLY INCOME BENEFIT
Life of Virginia will pay a Monthly Income Benefit to the Owner beginning on
the Maturity Date if the Annuitant is still living. The Monthly Income Benefit
will be paid in the form of Variable Income Payments similar to those described
in Optional Payment Plan 1, Life Income with 10 Years Certain (automatic payment
plan), using the sex and settlement age of the Annuitant instead of the payee,
unless another election is made by the Owner.
Under the Life Income with 10 Years Certain plan, if the Annuitant lives
longer than ten years, payments will continue for his or her life. If the
Annuitant dies before the end of ten years, the remaining payments for the ten
year period will be discounted at the same rate used to calculate the monthly
income. If the remaining payments are Variable Income Payments, the amount of
each
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<PAGE>
payment to be discounted will be assumed equal to the value of the payment
amount on the date we receive Due Proof of Death. This discounted amount will be
paid in one sum. The Policy does not specify a maximum maturity age or latest
maturity date unless state law requires it.
Unless a different date is requested, the Maturity Date is the Policy
anniversary that the Annuitant reaches age 90. The Owner may change the Maturity
Date to any date at least 10 years after the date of the most recent premium
payment by sending Life of Virginia written notice before the Maturity Date then
in effect. The Policy does not specify a maximum maturity age or latest maturity
date unless state law requires it.
During the lifetime of the Annuitant and prior to the Maturity Date, however,
the Owner, or the Designated Beneficiary upon the Owner's death, may elect by
written notice to the Home Office, to receive proceeds in a lump sum or under
one of the optional payment plans described below. (If the election is being
made by the Designated Beneficiary, only available plans may be chosen.
Income payments will be made monthly unless the Owner elects quarterly,
semi-annual or annual payments by written request to Life of Virginia.
Certain states prohibit the use of actuarial tables that distinguish between
men and women in determining benefits for annuity polices issued on the lives of
residents. Therefore, policies offered by this Prospectus on the lives of
residents of those states have annuity income payments which are based on
actuarial tables that do not differentiate on the basis of sex.
DETERMINATION OF MONTHLY INCOME BENEFITS
The Maturity Value will be equal to the Surrender Value on the date
immediately preceding the Maturity Date.
The initial Monthly Income Benefit under the automatic payment plan will be
calculated by multiplying (a) times (b) divided by (c) where: (a) is the monthly
payment per $1,000, shown under the optional payment plans for Life Income with
10 Years Certain, using the sex and settlement age of the Annuitant instead of
the payee, on the Maturity Date; (b) is the Maturity Value less any premium
taxes paid by Life of Virginia that were not recouped previously by a premium
tax charge; and (c) is $1,000. (See Optional Payment Plans for information about
subsequent variable income payments.)
If at the time Income Payments begin, the Owner has not provided Life of
Virginia with a written election not to have federal income taxes withheld, Life
of Virginia must by law withhold such taxes from the taxable portion of such
Income Payments and remit that amount to the federal government. Also, in some
other circumstances, Life of Virginia may withhold taxes. (See Direct Rollover
and Mandatory Withholding Requirements, and Federal Income Tax Withholding,.) In
addition, any proceeds applied under an optional payment plan are subject to the
imposition of a premium tax charge in those states which impose such a tax upon
annuitization, or deduction of the deferred premium tax in those states which
impose such a tax on Life of Virginia for premiums received. (See Premium
Taxes.)
OPTIONAL PAYMENT PLANS
Proceeds payable on the Maturity Date will be paid as described in the Monthly
Income Benefit section. Death and surrender proceeds will be paid in one sum.
Subject to the rules stated below, and to the Death Benefit and distribution
rules stated above, however, any part of death or surrender proceeds can be left
with us and paid under a payment plan. (For the tax treatment of surrender
proceeds and death benefits, see Taxation of Partial and Full Surrenders, and
Taxation of Death Benefit Proceeds.) Any proceeds left with us will be applied
to calculate the amount of the income. During the Annuitant's life, the Owner
may choose a payment plan. If a Beneficiary is changed, then the payment plan
selection is no longer in effect unless a request to continue it is made. The
Designated Beneficiary can choose a plan at the death of the Annuitant if one
has not been chosen.
Optional payment plans can provide either Fixed Income Payments or Variable
Income Payments as selected by the Owner or the payee. There are currently five
optional payment plans available. Optional payment plans 1 through 5 can be used
to provide Fixed Income Payments while only optional payment plans 1 and 5 are
available to provide Variable Income Payments. A plan and the form of the Income
Payments may be designated in the application or by notifying Life of Virginia
in writing at its Home Office. If the payee is not a natural person, consent of
Life of Virginia is required prior to selecting a plan.
The effect of choosing a Fixed Income Payment is that the minimum amount of
each Income Payment will be calculated on the date the first Income Payment is
made and will not change. If Fixed Income Payments are chosen, the proceeds will
be transferred to the General Account of Life of Virginia on the date the Income
Payments begin. Fixed Income Payments will be fixed in amount and duration on
that date, based on current rates for the optional payment plan chosen and, if
applicable, the age and sex of the payee. The current rates for optional payment
plans are based on interest, mortality and expense assumptions made by Life of
Virginia. The current rates may change from time to time but will never be less
than the guaranteed minimum rate described and shown in the Policy form. For
further information, the Owner should contact Life of Virginia at its Home
Office.
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<PAGE>
If the Owner, (or the Designated Beneficiary) elects to receive Variable
Income Payments under the applicable optional payment (Plan 1 or Plan 5), the
proceeds may be allocated among up to ten Investment Subdivisions. The first
Variable Income Payment is determined by the rate for the optional payment plan
chosen and the amount of proceeds applied to the plan. The dollar amount of
subsequent Income Payments will reflect the investment experience of the
selected Investment Subdivisions and is determined by means of Annuity Units.
The number of Annuity Units for an Investment Subdivision will be determined
when Income Payments begin and will remain fixed unless transferred. (See
Transfers.) The number of Annuity Units for an Investment Subdivision is (a)
divided by (b) where: (a) is the portion of the first Income Payment allocated
to an Investment Subdivision; and (b) is the Annuity Unit Value for that
Investment Subdivision seven days before the first Income Payment is due. For
subsequent payments, the Income Payment amount for an Investment Subdivision is
the number of Annuity Units for that Investment Subdivision times the Annuity
Unit Value for that Investment Subdivision seven days before the payment is due.
For each Investment Subdivision, the Annuity Unit Value for the first
Valuation Period was $10. The Annuity Unit Value for each subsequent Valuation
Period is (a) times (b) times (c) where: (a) is the Net Investment Factor for
that period (see Statement of Additional Information -- Net Investment Factor.);
(b) is the Annuity Unit Value for the immediately preceding Valuation Period;
and (c) is the investment result adjustment factor.
The investment result adjustment factor recognizes an assumed interest rate of
3% per year used in determining the amounts of the Income Payments. This means
that if the net investment experience of the Investment Subdivision to which the
Annuity Units apply for a given month exceeds the monthly equivalent of 3% per
year, the monthly payment will be greater than the previous payment. If the net
investment experience for such Subdivision is less than the monthly equivalent
of 3% per year, the monthly payment will be less than the previous monthly
payment.
Payments under Plans 1,2,3 or 5 will begin on the date we receive proof of
death, on surrender, or on the policy's Maturity Date. Payments under Plan 4
will begin at the end of the first interest period after the date Proceeds are
otherwise payable. Plan 4 is not available under Qualified Policies.
Under all of the optional payment plans, if any payment made more frequently
than annually would be or becomes less than $100, Life of Virginia reserves the
right to reduce the frequency of payments to an interval that would result in
each payment being at least $100. If the annual payment payable is less than
$20, Life of Virginia will pay the Surrender Value in a lump sum. Upon making
such a payment, Life of Virginia will have no future obligation under the
Policy.
The fixed income options are shown below. Variable income options, if
applicable, have the same initial payment as the corresponding fixed option.
PLAN 1 -- LIFE INCOME WITH PERIOD CERTAIN. Equal monthly payments will be
made for a guaranteed minimum period. If the payee lives longer than the
minimum period, payments will continue for his or her life. The minimum
period can be 10, 15 or 20 years. Guaranteed amounts payable under this plan
will earn interest at 3% compounded yearly. Life of Virginia may increase the
interest rate and the amount of any payment. If the payee dies before the end
of the guaranteed period, the amount of remaining payments for the minimum
period will be discounted at the same rate used in calculating Income
Payments. "Discounted" means Life of Virginia will deduct the amount of
interest each remaining payment would have earned had it not been paid out
early. The discounted amounts will be paid in one sum to the payee's estate
unless otherwise provided.
PLAN-2 -- INCOME FOR A FIXED PERIOD. Equal periodic payments will be made
for a fixed period not longer than 30 years. Payments can be annual,
semi-annual, quarterly, or monthly. Guaranteed amounts payable under this
plan will earn interest at 3% compounded yearly. Life of Virginia may
increase the interest and the amount of any payment. If the payee dies, the
amount of the remaining guaranteed payments will be discounted to the date of
the payee's death at the same rate used in calculating Income Payments. The
discounted amount will be paid in one sum to the payee's estate unless
otherwise provided.
PLAN 3 -- INCOME OF A DEFINITE AMOUNT. Equal periodic payments of a
definite amount will be paid. Payments can be annual, semi-annual, quarterly,
or monthly. The amount paid each year must be at least $120 for each $1,000
of proceeds. Payments will continue until the Proceeds are exhausted. The
last payment will equal the amount of any unpaid proceeds. If Fixed Income
Payments are made under this plan, unpaid Proceeds will earn interest at 3%
compounded yearly. Life of Virginia may increase the interest rate; if the
interest rate is increased, the payment period will be extended. If the payee
dies, the amount of the remaining proceeds with earned interest will be paid
in one sum to his or her estate unless otherwise provided.
PLAN 4 -- INTEREST INCOME. Periodic payments of interest earned from the
proceeds left with Life of Virginia will be paid. Payments can be annual,
semi-annual, quarterly, or monthly, and will begin at the end of the first
period chosen. Proceeds will earn interest at 3% compounded yearly. Life of
Virginia may increase the interest rate and the amount of any payment. If the
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<PAGE>
payee dies, the amount of remaining proceeds and any earned but unpaid
interest will be paid in one sum to his or her estate unless otherwise
provided. This plan is not available under Qualified Policies.
PLAN 5 -- JOINT LIFE AND SURVIVOR INCOME. Equal monthly payments will be
made to two payees for a guaranteed minimum of 10 years. Each payee must be
at least 35 years old when payments begin. Payments will continue as long as
either payee is living. If Fixed Income Payments are made under this Plan,
the guaranteed amount payable under this plan will earn interest at 3%
compounded yearly. Life of Virginia may increase the interest rate and the
amount of any payment. If both payees die before the end of the minimum
period, the amount of the remaining payments for the 10-year period will be
discounted at the same rate used in calculating Income Payments. The
discounted amount will be paid in one sum to the survivor's estate unless
otherwise provided.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion is general in nature and is not intended as tax
advice. The federal income tax consequences associated with the purchase of a
Policy are complex, and the application of the pertinent tax rules to a
particular person may vary according to facts peculiar to that person.
This discussion is based on the law, regulations, and interpretations existing
on the date of this prospectus. These authorities, however, are subject to
change by Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or other local tax consequences
associated with the purchase of a Policy. In addition, LIFE OF VIRGINIA MAKES NO
GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE, OR LOCAL -- OF ANY
POLICY OR OF ANY TRANSACTION INVOLVING A POLICY.
NON-QUALIFIED POLICIES
PREMIUM PAYMENTS. A purchaser of a Policy that does not qualify for the
special tax treatment discussed below in connection with Policies used as
individual retirement annuities or used with other qualified retirement plans
may not deduct or exclude from gross income the amount of the premiums paid. In
this discussion, such a Policy is called a "Non-Qualified Policy".
TAX DEFERRAL DURING ACCUMULATION PERIOD. In general, until distributions are
made or deemed to be made from a Non-Qualified Policy (as discussed below), an
Owner who is a natural person is not taxed on increases in the Account Value
resulting from the investment experience of Account 4. However, this rule
applies only if (1) the investments of Account 4 are "adequately diversified" in
accordance with Treasury Department regulations, and (2) Life of Virginia,
rather than the Owner, is considered the owner of the assets of Account 4 for
federal tax purposes.
(1) DIVERSIFICATION REQUIREMENTS. Treasury Department regulations prescribe
the manner in which the investments of a separate account such as Account 4
are to be "adequately diversified." Any failure of Account 4 to comply with
the requirements of these regulations would cause each Owner to be taxable
currently on the increase in the Account Value.
Account 4, through the Funds, intends to comply with the diversification
requirements prescribed by the Treasury Department regulations. Although Life
of Virginia does not control the investments of the Funds (other than the GE
Investments Funds), it has entered into agreements regarding participation in
the Funds which require the Funds to be operated in compliance with the
requirements prescribed by the Treasury Department.
(2) OWNERSHIP TREATMENT. In certain circumstances, variable contract owners
may be considered the owners, for federal tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includible in the
variable contract owners' gross income annually as earned. The Internal
Revenue Service (the "Service") has stated in published rulings that a
variable contract owner will be considered the owner of separate account
assets if the owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury
Department has announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset [i.e. separate] account may cause the
investor, rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular sub-accounts [of a
separate account] without being treated as owners of the underlying assets."
As of the date of this prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in
certain respects from, those addressed by the Service in rulings in which it
was determined that contract owners were not owners of separate account
assets. For example, the Owner of
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<PAGE>
this Policy has the choice of more Funds to which to allocate premiums and
Account Values, and may be able to reallocate more frequently, than in such
rulings. These differences could result in an Owner being considered, under
the standard of those rulings, the owner of the assets of Account 4. To
ascertain the tax treatment of its Owners, Life of Virginia requested, with
regard to a policy similar to this Policy, a ruling from the Service that it,
and not its Owners, is the owner of the assets of Account 4 for federal
income tax purposes. The Service informed Life of Virginia that it will not
rule on the request until issuance of the promised guidance referred to in
the preceding paragraph. Because Life of Virginia does not know what
standards will be set forth in regulations or revenue rulings which the
Treasury Department has stated it expects to be issued, Life of Virginia has
reserved the right to modify its practices to attempt to prevent the Owner
from being considered the owner of the assets of Account 4. Frequently, if
the Service or the Treasury Department sets forth a new position which is
adverse to taxpayers, the position is applied on a prospective basis only.
Thus, if the Service or the Treasury Department were to issue regulations or
a ruling which treated an Owner as the owner of the assets of Account 4, that
treatment might apply only on a prospective basis. However, if the ruling or
regulations were not considered to set forth a new position, an Owner might
retroactively be determined to be the owner of the assets of Account 4.
An Owner who is not a natural person -- that is, an entity such as a
corporation or a trust -- generally is taxable currently on the annual increase
in the Account Value of a Non-Qualified Policy, unless an exception to this
general rule applies. Exceptions exist for, among other things, an Owner which
is not a natural person but which holds the Policy as an agent for a natural
person. The following discussion applies to Policies owned by natural persons.
In addition, if the Policy's Maturity Date occurs at a time when the Annuitant
is at an advanced age, such as over age 85, it is possible that the Owner will
be taxable currently on the annual increase in the Account Value.
TAXATION OF PARTIAL AND FULL SURRENDERS. A distribution is made from a
Non-Qualified Policy upon the Policy's partial or full surrender. Any amount so
distributed upon a partial surrender is includible in income to the extent that
the Account Value immediately before the partial surrender exceeds the
"investment in the contract" at that time. The amount distributed upon a full
surrender is includible in income to the extent that the Policy's Surrender
Value exceeds the investment in the contract at the time of surrender. For these
purposes, the investment in the contract at any time equals the total of the
Premium Payments made for a Policy to that time, less any amounts previously
received from the Policy which were not included in income.
If an Owner transfers a Policy without adequate consideration to a person
other than the Owner's spouse (or to a former spouse incident to divorce), the
Owner will be taxed on the difference between his or her Account Value and the
investment in the contract at the time of transfer. In such case, the
transferee's investment in the contract will be increased to reflect the
increase in the transferor's income.
In addition, the Policy provides a Death Benefit that in certain circumstances
may exceed the greater of the Premium Payments and the Account Value. As
described elsewhere in this Prospectus, Life of Virginia imposes certain charges
with respect to the Death Benefit. It is possible that some portion of those
charges could be treated for federal tax purposes as a partial surrender of the
Policy.
All non-qualified annuity contracts which are issued after October 21, 1988 by
Life of Virginia or any of its affiliates with the same person designated as the
Owner within the same calendar year will be aggregated and treated as one
contract for purposes of determining any tax on distributions.
The foregoing rules will apply to amounts distributed in connection with the
Waiver of Surrender Charges in the Event of Hospital or Nursing Facility
Confinement.
TAXATION OF ANNUITY PAYMENTS. Amounts may be distributed from a Non-Qualified
Policy as payments under one of the five optional payment plans. In the case of
optional payment plans other than Plan 4 (Interest Income), typically a portion
of each payment is includible in income when it is distributed. Normally, the
portion of a payment includible in income equals the excess of the payment over
the exclusion amount. The exclusion amount, in the case of Variable Income
Payments under Plans 1 and 5, is the amount determined by dividing the
"investment in the contract" allocated to that plan for the Policy when the
payments begin to be made (as defined above), adjusted for any period-certain or
refund feature, by the number of payments expected to be made (determined by
Treasury Department regulations). Also, in the case of Fixed Income Payments
under Plans 1, 2, 3, and 5, the exclusion amount is the amount determined by
multiplying the payment by the ratio of such investment in the contract
allocated to that plan, adjusted for any period-certain or refund feature, to
the Policy's "expected return" (determined under Treasury Department
regulations). However, payments which are received after the investment in the
contract has been fully recovered -- i.e., after the sum of the excludable
portions of the payments equal the investment in the contract -- will be fully
includible in income. On the other hand, should the payments cease because of
the death of the Annuitant before the investment in the contract has been fully
recovered, the Annuitant (or, in certain cases, the Designated Beneficiary) is
allowed a deduction for the unrecovered amount.
If certain amounts such as the Death Benefit or Guaranteed Minimum Death
Benefit become payable in a lump sum from a Policy, it is possible that such
amounts might be viewed as constructively received and thus subject to tax, even
though not actually received.
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A lump sum will not be constructively received if it is applied under an
optional payment plan within 60 days after the date on which it becomes payable.
(Any optional payment plan selected must comply with applicable minimum
distribution requirements imposed by the Code.)
In the case of Plan 4, the proceeds left with Life of Virginia are considered
distributed for tax purposes at the time Plan 4 takes effect, and are taxed in
the same manner as a full surrender of the Policy, as described above. The
periodic interest payments are includible in the recipient's income when they
are paid or made available. In addition, if amounts are applied under Plan 3
when the payee is at an advanced age, such as age 80 or older, it is possible
that such amounts would be treated in a manner similar to that under Plan 4.
TAXATION OF SYSTEMATIC WITHDRAWALS. In the case of Systematic Withdrawals,
described on page 28, the amount of each withdrawal should be considered as a
distribution and taxed in the same manner as a partial surrender of the Policy,
as described above. However, there is some uncertainty regarding the tax
treatment of Systematic Withdrawals, and it is possible that additional amounts
may be includible in income.
TAXATION OF DEATH BENEFIT PROCEEDS. Amounts may be distributed before the
Maturity Date from a Non-Qualified Policy because of the death of the Owner, a
Joint Owner, or the Annuitant. Such Death Benefit Proceeds are includible in the
income of the recipient as follows: (1) if distributed in a lump sum, they are
taxed in the same manner as a full surrender of the Policy, as described above
(substituting the Death Benefit Proceeds for the Surrender Value), or (2) if
distributed under an optional payment plan, they are taxed in the same manner as
annuity payments, as described above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. Subject to certain exceptions, a
penalty tax is also imposed on the foregoing distributions from a Non-Qualified
Policy, equal to 10 percent of the amount of the distribution that is includible
in income. The exceptions provide, however, that this penalty tax does not apply
to distributions made (1) on or after the recipient attains age 59-1/2, (2)
because the recipient has become disabled (as defined in the tax law), (3) on or
after the death of the Owner, or if such Owner is not a natural person, on or
after the death of the primary annuitant under the Policy (as defined in the tax
law), or (4) as part of a series of substantially equal periodic payments over
the life (or life expectancy) of the recipient or the joint lives (or life
expectancies) of the recipient and his or her designated beneficiary (as defined
in the tax law). In the case of Systematic Withdrawals, it is uncertain whether
such distributions will qualify for exception (4) above. If Systematic
Withdrawals did qualify for this exception, any modification of the Systematic
Withdrawals could result in certain adverse tax consequences. In addition, a
transfer between Investment Subdivisions may result in payments not qualifying
for exception (4) above.
ASSIGNMENTS. An assignment or pledge of (or an agreement to assign or pledge)
a Non-Qualified Policy is taxed in the same manner as a partial surrender, as
described above, to the extent of the value of the Policy so assigned or
pledged. The investment in the contract is increased by the amount includible as
income with respect to such assignment or pledge, though it is not affected by
any other amount in connection with the assignment or pledge (including its
release).
QUALIFIED POLICIES
The following sections describe tax considerations of Policies used as
Individual Retirement Annuities or other qualified retirement plans ("Qualified
Policies"). Life of Virginia does not currently offer all of the types of
Qualified Policies described, and may not offer them in the future. Prospective
purchasers of Qualified Policies should therefore contact Life of Virginia's
Home Office to ascertain the availability of Qualified Policies at any given
time.
IRA POLICIES
PREMIUM PAYMENTS. A Policy that meets certain requirements set forth in the
tax law may be used as an individual retirement annuity (i.e., an "IRA Policy").
Both the amount of the Premium Payments that may be paid, and the tax deduction
that the Owner may claim for such Premium Payments, are limited under an IRA
Policy.
In general, the Premium Payments that may be made for any IRA Policy for any
year are limited to the lesser of $2,000 or 100 percent of the individual's
earned income for the year. Also, with respect to an individual who has less
income than his or her spouse, Premium Payments may be made by that individual
to an IRA Policy to the extent of the lesser of (1) $2,000, or (2) the sum of
(i) the compensation includible in such individual's gross income for the
taxable year and (ii) the compensation includible in the gross income of the
individual's spouse for the taxable year reduced by the amount allowed as a
deduction for IRA contributions to such spouse. An excise tax is imposed on IRA
contributions that exceed the law's limits.
The deductible amount of the Premium Payments made for an IRA Policy for any
taxable year is limited to the amount of the Premium Payments that may be paid
for the Policy for that year. Furthermore, a single person who is an active
participant in a qualified retirement plan (that is, a qualified pension,
profit-sharing, or annuity plan, a simplified employee pension plan, a "SIMPLE"
retirement account, or a "section 403(b)" annuity plan, as discussed below) and
who has adjusted gross income in excess of $35,000
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may not deduct Premium Payments, and such a person with adjusted gross income
between $25,000 and $35,000 may deduct only a portion of such payments. Also,
married persons who file a joint return, one of whom is an active participant in
a qualified retirement plan, and who have adjusted gross income in excess of
$50,000 may not deduct Premium Payments, and those with adjusted gross income
between $40,000 and $50,000 may deduct only a portion of such payments. Married
persons filing separately may not deduct Premium Payments if either the taxpayer
or the taxpayer's spouse is an active participant in a qualified retirement
plan.
In applying these and other rules applicable to an IRA Policy, all individual
retirement accounts and annuities owned by an individual are treated as one
contract, and all amounts distributed during any taxable year are treated as one
distribution.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Until distributions are made from an
IRA Policy, increases in the Account Value of the Policy are not taxed.
IRA Policies generally may not provide life insurance coverage, but they may
provide a death benefit that equals the greater of the premiums paid and the
contract value. The Policy provides a Death Benefit that in certain
circumstances may exceed the greater of the Premium Payments and the Account
Value. It is possible that the Policy's Death Benefit provisions could be viewed
as violating the prohibition on investment in life insurance contracts with the
result that the policy would not be viewed as satisfying the requirements of an
IRA Policy.
TAXATION OF DISTRIBUTIONS AND ROLLOVERS. If all Premium Payments made to an
IRA Policy were deductible, all amounts distributed from the Policy are included
in the recipient's income when distributed. However, if nondeductible Premium
Payments were made to an IRA Policy (within the limits allowed by the tax law),
a portion of each distribution from the Policy typically is included in income
when it is distributed. In such a case, any amount distributed as an annuity
payment or in a lump sum upon death or a full surrender is taxed as described
above in connection with such a distribution from a Non-Qualified Policy,
treating as the investment in the contract the sum of the nondeductible Premium
Payments at the end of the taxable year in which the distribution commences or
is made (less any amounts previously distributed that were excluded from
income). Also in such a case, any amount distributed upon a partial surrender is
partially includible in income. The includible amount is the excess of the
distribution over the exclusion amount which in turn equals the distribution
multiplied by the ratio of the investment in the contract to the Account Value.
In any event, subject to the direct rollover and mandatory withholding
requirements (discussed below) amounts may be "rolled over" from a qualified
retirement plan to an IRA Policy (or from one individual retirement annuity or
individual retirement account to an IRA Policy) without incurring tax if certain
conditions are met. Only certain types of distributions from qualified
retirement plans or individual retirement annuities may be rolled over.
PENALTY TAXES. Subject to certain exceptions, a penalty tax is also imposed on
distributions from an IRA Policy equal to 10 percent of the amount of the
distribution includible in income. (Amounts rolled over from an IRA Policy
generally are excludable from income.) The exceptions provide, however, that
this penalty tax does not apply to distributions made (1) on or after age
59-1/2, (2) on or after death or because of disability (as defined in the tax
law), or (3) as part of a series of substantially equal periodic payments over
the life (or life expectancy) of the recipient or the joint lives (or joint life
expectancies) of the recipient and his or her designated beneficiary (as defined
in the tax law). In addition to the foregoing, failure to comply with a minimum
distribution requirement will result in the imposition of a penalty tax of 50
percent of the amount by which a minimum required distribution exceeds the
actual distribution from an IRA Policy. Under this requirement, distributions of
minimum amounts from an IRA Policy as specified in the tax law must commence by
April 1 of the calendar year following the calendar year in which the Annuitant
attains age 70-1/2, or when he or she retires, whichever is later. Further,
after 1988, such distributions generally must begin by April 1 of the calendar
year in which the employee attains age 70-1/2 regardless of whether he or she
has retired.
SIMPLIFIED EMPLOYEE PENSION PLANS
An employer may use a Policy to establish for an employee an individual
retirement annuity plan known as a "simplified employee pension plan" (or
"SEP"), if certain requirements set forth in the tax law are satisfied. Premium
Payments may be made into a Policy used in a SEP generally in accordance with
the rules applicable to individual retirement annuities, though with expanded
contribution limits. Such payments are deductible by the employer and are not
includible in the income of the employee. The taxation of distributed amounts
generally follows the rules applicable to individual retirement annuities. As
discussed above (see IRA Policies), there is some uncertainty regarding the
proper characterization of the Policy's Death Benefit provisions for purposes of
certain tax rules governing IRAs (which would include SEP IRAs). Employers
intending to use the Policy in connection with a SEP should seek competent tax
advice.
SIMPLE IRAS
Section 408(p) of the Code permits certain small employers to establish
"SIMPLE retirement accounts," including SIMPLE IRAs, for their employees. Under
SIMPLE IRAs, certain deductible contributions are made by both employees and
employers. SIMPLE
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IRAs are subject to various requirements, including limits on the amounts that
may be contributed, the persons who may be eligible, and the time when
distributions may commence. As discussed above (see IRA Policies), there is some
uncertainty regarding the proper characterization of the Policy's Death Benefit
provisions for purposes of certain tax rules governing IRAs (which would include
SIMPLE IRAs). Employers intending to use the Policy in connection with a SIMPLE
retirement account should seek competent tax advice.
SECTION 403(B) ANNUITIES
PREMIUM PAYMENTS. Premiums paid for a Policy on behalf of an employee by a
public educational institution or certain other tax-exempt employers are not
included in the employee's income if the Policy meets certain requirements set
forth in the tax law. There are a number of limitations on contributions to a
"Section 403(b) Policy". For example, Premium Payments made as elective
deferrals through a salary reduction agreement with an employee generally are
limited to $9,500 per year (or, if greater, $7,000 per year as adjusted by the
Service for cost of living increases). (Note that contributions to certain other
qualified retirement plans, such as Section 401(k) plans or to SEP plans, by the
Owner may reduce these limits on elective deferrals.) Other limitations may be
more restrictive.
In applying these and other rules applicable to a Section 403(b) Policy, that
Policy and all similar contracts purchased by the same employer for the same
employee are treated as one contract.
TAX DEFERRAL DURING ACCUMULATION PERIOD. Until distributions are made from a
Section 403(b) Policy, increases in the Account Value are not taxed.
Purchasers should consider that the Policy provides a Death Benefit that in
certain circumstances may exceed the greater of the Premium Payments and the
Account Value. It is possible that such Death Benefit could be characterized as
an incidental death benefit. If the Death Benefit were so characterized, this
could result in currently taxable income to purchasers. In addition, there are
limitations on the amount of incidental death benefits that may be provided
under a Section 403(b) Policy. Even if the Death Benefit under the Policy were
characterized as an incidental death benefit, it is unlikely to violate those
limits unless the purchaser also purchases a life insurance contract as part of
his or her Section 403(b) Policy.
TAXATION OF DISTRIBUTIONS AND ROLLOVERS. If no portion of the premiums paid
into a Section 403(b) Policy were includible in the employee's income, all
amounts distributed from the Policy are included in the recipient's income when
distributed. However, if Premium Payments were made to a Section 403(b) Policy
which were includible in the employee's income, a portion of each distribution
from the Policy typically is included in income when it is distributed. In such
a case, any amount distributed as an annuity payment or in a lump sum upon death
or a full surrender is taxed as described above in connection with such a
distribution from a Non-Qualified Policy, treating as the investment in the
contract the sum of the Premium Payments made into the Policy which were not
excluded from income as of the time the distribution commences or is made (less
any amounts previously distributed that were excluded from income). Also in such
a case, any amount distributed upon a partial surrender is partially includible
in income. The includible amount is the excess of the distribution over the
exclusion amount, which in turn equals the distribution multiplied by the ratio
of the investment in the contract to the Account Value.
In any event, subject to the direct rollover and mandatory withholding
requirements (discussed below), amounts may be rolled over from a Section 403(b)
Policy (or similarly qualifying contract) to another Section 403(b) Policy (or
similarly qualifying contract) or to an individual retirement account or
individual retirement annuity without incurring tax if certain conditions are
met. Only certain types of distributions may be rolled over.
Beginning in 1989, a Section 403(b) Policy is required to prohibit
distributions of amounts attributable to elective deferrals and earnings thereon
(made under a salary reduction agreement) prior to age 59-1/2, separation from
service, death or disability. Distributions of elective deferrals (but not any
income earned thereon) may nonetheless be permitted in the case of hardship.
PENALTY TAXES. Subject to certain exceptions, a penalty tax is also imposed on
distributions from a Section 403(b) Policy equal to 10 percent of the amount of
the distribution includible in income. (Amounts rolled over from a Section
403(b) Policy generally are excludable from income, although various withholding
requirements may nonetheless apply to such amounts, as discussed below). The
exceptions provide, however, that this penalty tax does not apply to
distributions made (1) on or after age 59-1/2, (2) on or after death or because
of disability (as defined in the tax law), (3) as part of a series of
substantially equal periodic payments beginning after the employee separates
from service and made over the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and his or her
designated beneficiary (as defined in the tax law), or (4) after separation from
service after attainment of age 55.
In addition to the foregoing, failure to comply with a minimum distribution
requirement will result in the imposition of a penalty tax of 50 percent of the
amount by which a minimum required distribution exceeds the actual distribution
from a Section 403(b) Policy. Under this requirement, distributions of minimum
amounts specified by the tax law must generally commence by April 1
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of the calendar year following the calendar year in which the employee attains
age 70-1/2, or when he or she retires, whichever is later.
DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT
ORGANIZATIONS
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current taxes. The employees must be participants in an eligible deferred
compensation plan. Generally, a Policy purchased by a state or local government
or a tax-exempt organization will not be treated as an annuity contract for
federal income tax purposes. Those who intend to use the Policies in connection
with such plans should seek competent tax advice.
OTHER QUALIFIED RETIREMENT PLANS
PREMIUM PAYMENTS. Premium Payments made by an employer for a Policy used in
connection with a pension, profit-sharing, or annuity plan qualified under
section 401 or 403(a) of the Code are deductible by the employer within certain
limits. Such payments are also excludable from the income of the employee within
certain limits.
TAX DEFERRAL AND TAXATION OF DISTRIBUTIONS. The deferral of taxation on
Account Value increases and the tax treatment of distributed amounts (including
the penalty tax) described above in the case of IRA Policies and Section 403(b)
Policies generally applies with respect to amounts held under or distributed
from Policies used in connection with other qualified retirement plans. For
Policies and amounts distributed therefrom to be eligible for such treatment,
certain requirements specified in the tax law must be satisfied.
The Policy provides a Death Benefit that in certain circumstances may exceed
the greater of the Premium Payments and the Account Value. It is possible that
such Death Benefit could be characterized as an incidental death benefit. There
are limitations on the amount of incidental death benefits that may be provided
under pension and profit sharing plans. In addition, the cost of providing such
benefits may be currently includible in income.
LEGAL AND TAX ADVICE FOR QUALIFIED PLANS
The requirements of the tax law applicable to qualified retirement plans, and
the tax treatment of amounts held and distributed under such plans, are quite
complex. Accordingly, a prospective purchaser of a Policy to be used in
connection with any such plan should seek competent legal and tax advice
regarding the suitability of the Policy for the situation involved, the
applicable requirements, and the treatment of the rights and benefits under a
Policy so used.
DIRECT ROLLOVER AND MANDATORY WITHHOLDING REQUIREMENTS
If a Policy is used in connection with a pension, profit-sharing, or annuity
plan qualified under sections 401(a) or 403(a) of the Code, or is a Section
403(b) Policy, any "eligible rollover distribution" from the Policy will be
subject to direct rollover and mandatory withholding requirements. An eligible
rollover distribution generally is any taxable distribution from a qualified
pension plan under section 401(a) of the Code, qualified annuity plan under
section 403(a) of the Code, or section 403(b) annuity or custodial account,
excluding certain amounts (such as minimum distributions required under section
401(a)(9) of the Code and distributions which are part of a "series of
substantially equal periodic payments" made for the life or a specified period
of 10 years or more). Under these requirements, withholding at a rate of 20
percent will be imposed on any eligible rollover distribution received from the
Policy. Unlike withholding on certain other amounts distributed from the Policy,
discussed below, the recipient cannot elect out of withholding with respect to
an eligible rollover distribution. However, this 20 percent withholding will not
apply if, instead of receiving the eligible rollover distribution, the plan
participant elects to have it directly transferred to certain qualified
retirement plans. Prior to receiving an eligible rollover distribution, the plan
participant will receive notice (from the plan administrator or Life of
Virginia) explaining generally the direct rollover and mandatory withholding
requirements and how to avoid the 20 percent withholding by electing a direct
transfer.
FEDERAL INCOME TAX WITHHOLDING
Amounts distributed from a Policy, to the extent includible in income under
the federal tax laws, are subject to federal income tax withholding. Life of
Virginia will withhold and remit a portion of such amounts to the U.S.
Government unless properly notified by the Owner or other payee, at or before
the time of the distribution, that he or she chooses not to have any amounts
withheld. In some instances, however, Life of Virginia may be required to
withhold amounts. (See the discussion above regarding withholding requirements
applicable to distributions from various qualified retirement plans including
Section 403(b) policies.)
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GENERAL PROVISIONS
THE OWNER
The Owner or Joint Owners are designated in the policy. (Joint Owners own the
Policy equally with the right of survivorship.) The Owner or Joint Owners may
exercise all of the rights and privileges under the Policy, subject to the
rights of any beneficiary named irrevocably, and any assignee under an
assignment filed with Life of Virginia. Disposition of the Policy is subject to
the Policy's death provisions (see Death Provisions). If the Owner dies before
the Annuitant, the Designated Beneficiary will become the sole owner of the
Policy following such a death, subject to the distribution rules in the Policy's
death provisions. If the Owner does not name a Joint Owner or a Primary
Beneficiary or Contingent Beneficiary, or if a Joint Owner or Primary
Beneficiary or Contingent Beneficiary is not living (or in existence for
purposes of non-natural designations) at the Owner's death, ownership will pass
to the Owner's estate. The Designated Beneficiary, for purposes of the required
distribution rules of Section 72(s) of the Code, will receive the required
distribution if the Owner dies prior to the Maturity Date. The required
distribution is more fully described in Death Provisions.
THE ANNUITANT
The Policy names the Owner or someone else as the Annuitant. A Contingent
Annuitant also may be named. If no Contingent Annuitant has been named, the
Owner shall be treated as the Contingent Annuitant at the death of the
Annuitant. Life of Virginia reserves the right to restrict the election of the
Contingent Annuitant to conform to its administrative procedures and within the
restrictions of federal and state law. At the death of the Annuitant prior to
the Maturity Date, the Contingent Annuitant, if any, may become the Annuitant in
certain circumstances (see Death Provisions).
THE BENEFICIARY
One or more Primary and Contingent Beneficiary(ies) may be designated by the
Owner in an application or in a written request. If changed, the Primary
Beneficiary or Contingent Beneficiary is as shown in the latest change filed
with Life of Virginia.
CHANGES BY THE OWNER
Prior to the Maturity Date and during the Annuitant's life, the Owner or Joint
Owner may be changed by written request to the Home Office if this right is
reserved. Such changes may give rise to taxable income and a 10% penalty tax.
(See Taxation of Partial and Full Surrenders.) The Primary Beneficiary,
Contingent Beneficiary and Contingent Annuitant may also be changed if this
right is reserved.
To make a change, a written request must be sent to Life of Virginia at its
Home Office. The request and the change must be in a form satisfactory to Life
of Virginia and must actually be received by the Company. The change will take
effect as of the date the request is signed by the Owner. The change will be
subject to any payment made before the change is recorded by Life of Virginia.
EVIDENCE OF DEATH, AGE, SEX OR SURVIVAL
Life of Virginia will require proof of death before it acts on Policy
provisions relating to the death of the Owner or other person(s). Life of
Virginia may also require proof of the age, sex or survival of any person or
persons before acting on any applicable Policy provision.
JOINT POLICY
The Policy may be purchased as a Joint Policy. In making this selection, the
Owner must name an Annuitant and Contingent Annuitant. The Owner must also
relinquish any right to change the Contingent Annuitant. An additional
Contingent Annuitant may not be named if the Annuitant or Contingent Annuitant
dies before the Maturity Date.
Under a Joint Policy, if both the Annuitant and Contingent Annuitant are alive
at the Maturity Date, proceeds will be paid in the form of Variable Income
Payments under Optional Payment Plan 5, Joint Life and Survivor Income, using
the sexes, if permitted, and ages nearest birthday of the Annuitant and
Contingent Annuitant. If only one is surviving at the Maturity Date, then
proceeds will be paid in the form of Variable Income Payments under Optional
Payment Plan 1, Life Income with 10 Years Certain, using the sex, if permitted,
and settlement age of such survivor.
PAYMENT UNDER THE POLICIES
Life of Virginia will usually pay any amounts payable as a result of full or
partial surrender within seven days after it receives a written request at its
Home Office in a form satisfactory to it. Life of Virginia will usually pay any
Death Benefit within seven days
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after it receives Due Proof of Death. Amounts payable as a result of full or
partial surrender, death of the Annuitant or the Maturity Date may be postponed
whenever: (i) the New York Stock Exchange is closed other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is restricted as
determined by the Commission; or (ii) the Commission by order permits
postponement for the protection of Owners; or (iii) an emergency exists, as
determined by the Commission, as the result of which disposal of securities is
not reasonably practicable or it is not reasonably practicable to determine the
value of the net assets of Account 4.
Payments under a Policy which are derived from any amount paid to Life of
Virginia by check or draft may be postponed until such time as Life of Virginia
is satisfied that the check or draft has cleared the bank upon which it is
drawn.
If, at the time the Owner makes a full or partial surrender request, he or she
has not provided Life of Virginia with a written election not to have federal
income taxes withheld, Life of Virginia must by law withhold such taxes and
remit that amount to the federal government. Moreover, the Code provides that a
10% penalty will be imposed on certain early surrenders. (See Federal Tax
Matters.)
Any Death Benefit proceeds that are paid in one lump sum will include interest
from the date of receipt of Due Proof of Death to the date of payment. Interest
will be paid at a rate set by Life of Virginia, or by law if greater. The
minimum interest rate which will be paid is 2.5%. Interest will not be paid
beyond one year or any longer time set by applicable law.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by individuals who, in addition to being licensed to
sell variable annuity policies for Life of Virginia, are also registered
representatives of Forth Financial Securities Corporation, the principal
underwriter of the Policies, or of broker-dealers who have entered into written
sales agreements with the principal underwriter. Forth Financial Securities
Corporation, an affiliate of Life of Virginia, is a Virginia corporation located
at 6610 W. Broad St., Richmond, Virginia 23230. Forth Financial Securities
Corporation is registered with the Commission under the Securities Exchange Act
of 1934 as a broker-dealer and is a member of the National Association of
Securities Dealers, Inc. Forth Financial Securities Corporation also serves as
principal underwriter for variable life insurance policies issued by Life of
Virginia. However, no amounts have been retained by Forth Financial Securities
Corporation for acting as principal underwriter of the Life of Virginia
policies.
Writing agents of Life of Virginia will receive commissions based on a
commission schedule and rules. Commissions depend on the premiums paid. The
agent will receive a commission of 3% of the initial premium paid and any
Additional Premium Payments.
Agents may also be eligible to receive certain bonuses and allowances, as well
as retirement plan credits, based on commissions earned. Field management of
Life of Virginia receives compensation which may be based 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 the field
management and writing agents of Life of Virginia.
VOTING RIGHTS AND REPORTS
To the extent required by law, Life of Virginia will vote the Funds' shares
held in Account 4 at regular and special shareholder meetings of the Funds, in
accordance with instructions received from persons having voting interests in
Account 4. If, however, the 1940 Act or any regulation thereunder should be
amended or if the present interpretation thereof should change, and as a result,
Life of Virginia determines that it is permitted to vote Fund shares in its own
right, it may elect to do so.
Before Income Payments begin, the Owner exercises the voting rights under the
Policy. After Income Payments begin, the person receiving the Income Payments
has the voting interests. Before Income Payments begin, the number of votes
which each Owner has the right to instruct will be determined for a portfolio by
dividing a Policy's Account Value in the subdivision investing in that portfolio
by the net asset value per share of the portfolio. Fractional shares will be
counted. After Income Payments begin, the number of votes after the first Income
Payment is received will be determined by dividing the reserve for such Policy
allocated to the Investment Subdivision by the net asset value per share of the
corresponding portfolio. After Income Payments begin, the reserves attributable
to a Policy decrease as the reserves allocated to the Investment Subdivision
decrease. Fractional shares will be counted.
The number of votes which the Owner has the right to instruct will be
determined as of the date coincident with the date established by a particular
Fund for determining shareholders eligible to vote at the meeting of that Fund.
Voting instructions will be solicited by written communications prior to such
meeting in accordance with procedures established by that Fund.
The Funds serve as investment vehicles for variable life insurance policies
sold by Life of Virginia as well as for other variable life insurance and
variable annuity policies sold by insurers other than Life of Virginia and
funded through other separate investment
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accounts. Persons owning all such other policies as well as the persons
receiving income payments under all such other policies will enjoy similar
voting rights. Life of Virginia will vote Fund shares held in Account 4 as to
which no timely instructions are received, and Fund shares held in Account 4
that it owns as a consequence of accrued charges under the Policies and other
variable annuity policies supported by Account 4, in proportion to the voting
instructions which are received with respect to all policies funded through
Account 4. Each person having a voting interest will receive proxy materials,
reports and other materials relating to the appropriate portfolio.
LEGAL PROCEEDINGS
There are no legal proceedings to which Account 4 is a party or to which the
assets of the Account are subject. Neither Life of Virginia nor Forth Financial
Securities Corporation is involved in any litigation that is of material
importance in relation to its total assets or that refers to Account 4.
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<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
----
<S><C>
The Life Insurance Company of Virginia......................................................... 3
The Policies................................................................................... 3
Transfer of Annuity Units.................................................................... 3
Net Investment Factor........................................................................ 3
Termination of Participation Agreements........................................................ 4
Calculation of Performance Data................................................................ 4
Money Market Investment Subdivisions......................................................... 4
Other Investment Subdivisions................................................................ 5
Federal Tax Matters.............................................................................9
Taxation of Life of Virginia..................................................................9
IRS Required Distributions....................................................................9
General Provisions............................................................................. 9
Using the Policies as Collateral............................................................. 9
Non-Participating............................................................................ 9
Misstatement of Age or Sex................................................................... 9
Incontestability.............................................................................10
Annual Statement.............................................................................10
Written Notice...............................................................................10
Distribution of the Policies...................................................................10
Legal Developments Regarding Employment-Related Benefit Plans..................................10
Additions, Deletions, or Substitutions.........................................................10
State Regulation of Life of Virginia...........................................................11
Legal Matters..................................................................................11
Experts........................................................................................11
Change in Auditors.............................................................................11
Financial Statements...........................................................................11
</TABLE>
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SUPPLEMENT TO PROSPECTUS
DATED MAY 1, 1997
FOR LIFE OF VIRGINIA SEPARATE ACCOUNT 4
GENERAL INFORMATION
Contributions and/or transfers to a Guarantee Account, as described below,
become part of the General Account of Life of Virginia. Because of exemptive and
exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 (the "1933 Act"), and the General
Account is not registered as an investment company under the Investment Company
Act of 1940 (the "1940 Act"). Accordingly, neither the General Account nor any
interests therein are subject to the provisions of the 1933 Act or the 1940 Act,
and the information in this supplement has not been reviewed by the staff of the
Securities and Exchange Commission. Disclosure regarding a Guarantee Account and
the General Account, however, may be subject to certain generally applicable
provisions of the federal securities laws relating to the accuracy and
completeness of statements made in prospectuses.
THE GUARANTEE ACCOUNT
The Owner may allocate premium payments to the Guarantee Account(s) or
transfer amounts between the Guarantee Account(s) and the Investment
Subdivisions of Account 4. Upon maturity or surrender of the Policy, any amount
in a Guarantee Account is added to the Account Value in the Separate Account,
and, after deduction of any applicable surrender charge, is paid in a lump sum,
or applied under an optional payment plan (See Income Payments).
Amounts allocated or transferred to a Guarantee Account earn interest at the
interest rate in effect for that Guarantee Account at the time of such
allocation. Each period for which a particular interest rate is guaranteed with
respect to a particular allocation is the INTEREST RATE GUARANTEE PERIOD. With
respect to each amount allocated, the interest rate in effect at the time of
allocation will be credited from the date of allocation to the end of the
interest rate guarantee period. At the end of the interest rate guarantee
period, a new interest rate will become effective, and a new interest rate
guarantee period will commence with respect to the portion of the account value
represented by that particular allocation. Life of Virginia currently offers
more than one choice of interest rate guarantee periods.
The guaranteed minimum interest rate for allocations to a Guarantee Account is
either 3% or 4% per year, as disclosed in the Guarantee Account rider(s)
attached to your Policy. A higher rate of interest may be credited. Any interest
credited in excess of the guaranteed interest rate will be determined at the
sole discretion of Life of Virginia. Life of Virginia has no obligation to
credit an interest rate in excess of the guaranteed interest rate.
CHARGES
The Mortality and Expense Risk and Administrative Expense charges are not
deducted from the Guarantee Account. Such charges are borne solely by Account 4.
The Annual Policy Maintenance Charge and the Annual Death Benefit Charge, if
applicable, will be deducted from the Guarantee Account if there is no account
value in the Account 4. If there is insufficient account value in the Account 4
at the time the charges are deducted, the excess of these charges over the
amount deducted from Account 4 will be deducted from the Guarantee Account. (See
Policy Maintenance Charge.).
Surrender charges apply to account values allocated to the Guarantee Account
in the same manner in which these charges apply to account values allocated to
Account 4.
TRANSFERS
The Owner may transfer amounts between the Guarantee Account and the
Investment Subdivisions of Account 4. Transfers will be effective on the date
the Owner's transfer request is received by Life of Virginia. With respect to
transfers between the Guarantee Account and the Investment Subdivisions of
Account 4, the following restrictions may be imposed:
Transfers from any particular allocation to the Guarantee Account to
subdivisions of Account 4 may be made only during the 30 day period beginning
with the end of the preceding interest rate guarantee period applicable to
that particular allocation. Life of Virginia may limit the amount which may
be transferred to the subdivisions. For any particular allocation to the
Guarantee Account, the limited amount will not be less than (a) any accrued
interest on that allocation, plus (b) 25% of the original amount of that
allocation.
48
<PAGE>
No transfers from any subdivision of Account 4 to the Guarantee Account may
be made during the six month period following the transfer of any amount from
the Guarantee Account to any subdivisions of Account 4.
In all other respects, the rules and charges applicable to transfers between
the various Investment Subdivisions of Account 4 will apply to transfers
involving the Guarantee Account.
DOLLAR-COST AVERAGING
For policies issued on or after November 14, 1994, as an alternative to the
Dollar-Cost Averaging program described on p. 27, Owners may elect to have Life
of Virginia automatically transfer specified amounts from the Guarantee Account
to any available Investment Subdivision on a monthly or quarterly basis. To make
the election, Owners must complete the Dollar-Cost Averaging section of the
application or a Dollar-Cost Averaging Agreement. Money may be allocated to the
Guarantee Account as an initial or subsequent premium or in the form of a
transfer of Account Value from one or more Investment Subdivisions. Such
allocations must comply with all applicable minimum amount and percentage
requirements (see Purchasing the Policies and Allocation of Premium Payments) as
well as rules applicable to transfers to the Guarantee Account. Apart from
automatic transfers under the Dollar-Cost Averaging Agreement, all rules
regarding transfers from the Guarantee Account will apply.
Owners may designate the amount of value under the policy allocated to the
Guarantee Account that is subject to the dollar-cost averaging program. Life of
Virginia reserves the right to limit the amount of each automatic transfer to
10% per month of the amount so designated.
Automatic transfers from the Guarantee Account, as described above, will be
made on a first-in-first-out basis until the entire value of the designated
amount in the Guarantee Account is depleted. Prior to that time, an Owner may
discontinue such automatic transfers by sending Life of Virginia a written
notice. Life of Virginia reserves the right to discontinue or modify the
alternative Dollar-Cost Averaging program at any time for any reason on 30 days
written notice to the Owner.
SURRENDERS
Surrenders may be made from the Guarantee Account in addition to Account 4.
(See Distributions Under the Policy.) If a partial surrender is requested, the
Owner may specify the accounts from which the deduction should be made. If no
account is specified, the amount of the partial surrender will be deducted first
from the Investment Subdivisions of the Separate Account on a pro-rata basis, in
proportion to the Account Value in Account 4. Any amount remaining will be
deducted from the Guarantee Account. Deductions from the Guarantee Account will
be taken from the amounts (including interest credited to such amounts) which
have been in the Guarantee Account for the longest period of time.
DEFERRAL OF PAYMENT
Life of Virginia may defer payment of any amount from the Guarantee Account
for up to six months. Payment will not be deferred if applicable law requires
earlier payment, or if the amount payable is to be used to pay premiums on
policies in force with the company.
THE GUARANTEE ACCOUNT MAY NOT BE AVAILABLE IN ALL STATES OR MARKETS
Dated May 1, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
49
<PAGE>
SUPPLEMENT DATED MAY 1, 1997
TO PROSPECTUS DATED MAY 1, 1997
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Policy Form P1143 4/94
Prior to November 23, 1995, Policyowners could allocate Premiums Payments and
Account Value to six Investment Subdivisions which are now closed to new
investment (the "Closed Investment Subdivisions"). Although no new allocations
can be made to the Closed Investment Subdivisions, existing allocations of
Account Value will be permitted to remain there. Alternatively, Policyowners may
transfer amounts from the Closed Investment Subdivisions to other Investment
Subdivisions currently available under the Policy. This supplement contains
information about the investment objective, adviser, and expenses of these
Closed Investment Subdivisions and their underlying portfolios. For more
information about the portfolios, see the individual prospectus for each
portfolio.
THE FUNDS
Oppenheimer Variable Account Funds ("OVAF")
Oppenheimer Money Fund seeks the maximum current income from investments in
"money market" securities consistent with low capital risk and the maintenance
of liquidity.
Oppenheimer Funds, Inc. ("OFI") serves as investment adviser to the OVAF.
Variable Insurance Products Fund ("VIPF")
Money Market Portfolio seeks high current income while maintaining a stable
share price by investing in a broad range of money market securities.
High Income Portfolio seeks high current income by investing mainly in
high-yielding, high-risk debt securities, with an emphasis on lower-quality
securities.
Fidelity Management & Research Company ("FMR") serves as investment advisor to
the VIPF.
Neuberger & Berman Advisers Management Trust
Each portfolio of the Advisers Management Trust invests all of its net
investable assets in its corresponding series of Advisers Managers Trust.
Balanced Portfolio has the investment objective of providing long-term capital
growth and reasonable current income without undue risk to principal. Its
corresponding series, AMT Balanced Investments, has the same investment
objective.
Limited Maturity Bond Portfolio has the investment objective of providing the
highest current income consistent with low risk to principal and liquidity; and
secondarily, total return. Its corresponding series, AMT Limited Maturity Bond
Investments, has the same investment objective.
Growth Portfolio has the investment objective of seeking capital appreciation
without regard to income. Its corresponding series, AMT Growth Investments, has
the same investment objective.
Neuberger & Berman Management Incorporated provides investment management
services to Advisers Managers Trust.
THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES
AND POLICIES OF ANY OF THE FUNDS WILL BE ACHIEVED.
More detailed information concerning the investment objectives and policies of
the Funds and the investment advisory services and charges can be found in the
current prospectuses for the Funds. A prospectus for each Fund can be obtained
by writing or calling Life of Virginia's Home Office. The prospectus for each
Fund should be read carefully before any decision is made concerning the
allocation of premium payments or transfers among the investment subdivisions.
<PAGE>
FEE TABLE
The purpose of this table is to assist the Owner in understanding the various
costs and expenses that a Owner will bear, directly and indirectly. The Table
reflects charges and expenses of the portfolios for the most recent fiscal year.
For more information on the charges described in these Tables see the individual
prospectus for each portfolio.
Variable Insurance Products Fund Annual Expenses
(as a % of average net assets)
Money High
Market Income
Portfolio Portfolio
Management Fees 0.21% 0.59%
Other Expenses (after any expense reimbursement) 0.09% 0.12%
----- -----
Total Fund Annual Expenses 0.30% 0.71%
Neuberger & Berman Advisers Management Trust Annual Expenses
(as a % of average net assets)
<TABLE>
<CAPTION>
Limited
Balanced Growth Maturity Bond
Portfolio Portfolio Portfolio
<S> <C>
Annual Operating Expenses 0.85% 0.83% 0.65%
Other Expenses (after any expense reimbursement) 0.24% 0.09% 0.13%
----- ----- -----
Total Fund Annual Expenses 1.09% 0.92% 0.78%
</TABLE>
Oppenheimer Variable Account Funds Annual Expenses
(as a % of average net assets)
Opp.
Money
Fund
Management Fees .45%
Other Expenses .04%
----
Total Fund Annual Expenses .49%
EXAMPLES: A Policyowner would pay the following expense on a $1,000 investment,
assuming a 5% annual return on assets and the charges and expenses reflected in
the Fee Table above (including the elective death benefit rider):
1. If you surrender* your Policy at the end of the applicable period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C>
Variable Insurance Products Fund
Money Market Portfolio $77.35 $126.11 $155.62 $249.09
High Income Portfolio 81.28 138.23 177.69 296.81
Neuberger & Berman Advisers Management Trust
Balanced Portfolio 84.88 148.94 196.35 334.03
Growth Portfolio 83.27 144.17 188.16 317.57
Limited Maturity Bond Portfolio 81.94 140.21 181.19 303.78
Oppenheimer Variable Account Funds
Oppenheimer Money Fund 79.15 131.52 165.22 268.42
</TABLE>
<PAGE>
* surrender includes annuitization over a period of less than 5 years
2. If you annuitize at the end of the applicable period, or do not surrender*:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C>
Variable Insurance Products Fund
Money Market Portfolio $21.81 $67.37 $115.62 $249.09
High Income Portfolio 25.97 80.22 137.69 296.81
Neuberger & Berman Advisers Management Trust
Balanced Portfolio 29.77 91.58 156.56 334.03
Growth Portfolio 28.07 86.52 148.16 317.57
Limited Maturity Bond Portfolio 26.67 82.32 141.19 303.78
Oppenheimer Variable Account Funds
Oppenheimer Money Fund 23.92 73.71 126.22 268.42
</TABLE>
* surrender includes annuitization over a period of less than 5 years
EXAMPLES: A Policyowner would pay the following expense on a $1,000 investment,
assuming a 5% annual return on assets and the charges and expenses reflected in
the Fee Table above (excluding the elective death benefit rider):
1. If you surrender* your Policy at the end of the applicable period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C>
Variable Insurance Products Fund
Money Market Portfolio $74.02 $115.99 $137.48 $211.59
High Income Portfolio 77.92 127.77 158.47 254.42
Neuberger & Berman Advisers Management Trust
Balanced Portfolio 81.51 138.55 177.53 292.45
Growth Portfolio 79.09 133.74 169.05 275.63
Limited Maturity Bond Portfolio 78.58 129.76 162.01 261.54
Oppenheimer Variable Account Funds
Oppenheimer Money Fund 75.83 121.47 147.26 231.67
</TABLE>
* surrender includes annuitization over a period of less than 5 years
2. If you annuitize at the end of the applicable period, or do not surrender*:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C>
Variable Insurance Products Fund
Money Market Portfolio $18.29 $56.64 $97.48 $211.59
High Income Portfolio 22.41 69.12 118.47 254.42
Neuberger & Berman Advisers Management Trust
Balanced Portfolio 26.21 80.55 137.53 292.45
Growth Portfolio 23.11 71.23 122.01 261.54
Limited Maturity Bond Portfolio 22.81 70.33 120.49 258.49
Oppenheimer Variable Account Funds
Oppenheimer Money Fund 20.20 62.44 107.26 231.67
</TABLE>
* surrender includes annuitization over a period of less than 5 years
<PAGE>
For purposes of these examples, the $25 Annual Policy Maintenance Charge has
been translated into an assumed charge at an annual rate of 0.10% of Account
Value. The actual amount of the policy maintenance charge attributable to a
$1,000 investment will depend on the amount of the total investment in the
Policy.
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
ASSUMED 5% ANNUAL RETURN IS HYPOTHETICAL; PAST OR FUTURE ANNUAL RETURNS MAY BE
GREATER OR LESS THAN THE ASSUMED AMOUNT.
THE LIFE INSURANCE COMPANY OF VIRGINIA
6610 West Broad Street
Richmond, Virginia 23230
(804) 281-6000
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
SEPARATE ACCOUNT 4
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
FLEXIBLE PREMIUM VARIABLE DEFERRED ANNUITY POLICY
FORM P1143 4/94
OFFERED BY
THE LIFE INSURANCE COMPANY OF VIRGINIA
(A VIRGINIA STOCK CORPORATION)
6610 W. BROAD STREET
RICHMOND, VIRGINIA 23230
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the above-named Flexible Premium Variable Deferred
Annuity Policy ("Policy") offered by The Life Insurance Company of Virginia. You
may obtain a copy of the Prospectus dated May 1, 1997 by calling (800) 352-9910,
or writing to The Life Insurance Company of Virginia, 6610 W. Broad Street,
Richmond, Virginia 23230. Terms used in the current Prospectus for the Policy
are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS
NOT A PROSPECTUS AND SHOULD BE READ ONLY
IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY.
Dated May 1, 1997
1
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S><C>
The Life Insurance Company of Virginia............................................................................. 3
The Policies....................................................................................................... 3
Transfer of Annuity Units........................................................................................ 3
Net Investment Factor............................................................................................ 3
Termination of Participation Agreements............................................................................ 4
Calculation of Performance Date.................................................................................... 4
Money Market Investment Subdivisions............................................................................. 4
Other Investment Subdivisions.................................................................................... 5
Federal Tax Matters.................................................................................................9
Taxation of Life of Virginia......................................................................................9
IRS Required Distributions....................................................................................... 9
General Provisions................................................................................................. 9
Using the Policies as Collateral................................................................................. 9
Non-Participating................................................................................................ 9
Misstatement of Age or Sex....................................................................................... 9
Incontestability.................................................................................................10
Annual Statement.................................................................................................10
Written Notice...................................................................................................10
Distribution of the Policies.......................................................................................10
Legal Developments Regarding Employment-Related Benefit Plans......................................................10
Additions, Deletions, or Substitutions of Investments..............................................................10
State Regulation of Life of Virginia...............................................................................11
Legal Matters......................................................................................................11
Experts............................................................................................................11
Change in Auditors.................................................................................................11
Financial Statements...............................................................................................11
</TABLE>
2
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
The Life Insurance Company of Virginia ("Life of Virginia") has operated as a
stock life insurance company since March 21, 1871 under a charter granted by the
Commonwealth of Virginia and has done business continuously since that time as
"The Life Insurance Company of Virginia."
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 Life
Insurance Group, Inc. General Electric Capital Assurance Company and GE Life
Insurance Group, Inc. are indirectly, wholly-owned subsidiaries of GE Capital.
GE Capital is a diversified financial services company. GE Capital's
subsidiaries consist of commercial and industrial specialized, mid-market and
indirect consumer financing businesses. GE Capital's 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-sized electric power generation equipment.
GNA Corporation indirectly owns the stock of Forth Financial Securities
Corporation (a broker/dealer registered with the Commission, which acts as
principal underwriter for the Policies).
THE POLICIES
TRANSFER OF ANNUITY UNITS
Upon the Owner's request, Annuity Units may be transferred once per calendar
year from the Investment Subdivision in which they are currently held. However,
where permitted by state law, Life of Virginia reserves the right to refuse to
execute any transfer if any of the Investment Subdivisions that would be
affected by the transfer are unable to purchase or redeem shares of the mutual
funds in which the Investment Subdivisions invest. The amount of the increase in
the number of Annuity Units for the Investment Subdivision to which the transfer
is made is (a) times (b) divided by (c) where: (a) is the number of Annuity
Units for the Investment Subdivision in which the Annuity Units are currently
held; (b) is the Annuity Unit Value for the Investment Subdivision in which the
Annuity Units are currently held; and (c) is the Annuity Unit Value for the
Investment Subdivision to which the transfer is made.
If the number of Annuity Units remaining in an Investment Subdivision after
the transfer is less than 1, Life of Virginia will transfer the amount remaining
in addition to the amount requested. Life of Virginia will not transfer into any
Investment Subdivision unless the number of Annuity Units of that Investment
Subdivision after the transfer is at least 1. The amount of the Income Payment
as of the date of the transfer will not be affected by the transfer.
NET INVESTMENT FACTOR
The Net Investment Factor measures investment performance of the Investment
Subdivisions of Account 4 during a Valuation Period. Each Investment Subdivision
has its own Net Investment Factor for a Valuation Period. The Net Investment
Factor of an Investment Subdivision available under the policies for a Valuation
Period is (a) divided by (b) minus (c) where:
(a) is (1) the value of the net assets of that Investment Subdivision at the
end of the preceding Valuation Period, plus (2) the investment income and
capital gains, realized or unrealized, credited to the net assets of that
Investment Subdivision during the Valuation Period for which the Net
Investment Factor is being determined, minus (3) the capital losses,
realized or unrealized, charged against those assets during the Valuation
Period, minus (4) any amount charged against that Investment Subdivision
for taxes, or any amount set aside during the Valuation Period by Life of
Virginia as a provision for taxes attributable to the operation or
maintenance of that Subdivision; and
(b) is the value of the net assets of that Investment Subdivision at the end
of the preceding Valuation Period; and
(c) is a charge no greater than .003857% for each day in the Valuation Period.
This corresponds to 1.25% and 0.15% per year of the net assets of that
Investment Subdivision for mortality and expense risks, and for
administrative expenses, respectively.
The value of the assets in Account 4 will be taken at their fair market value
in accordance with generally accepted accounting practices and applicable laws
and regulations.
3
<PAGE>
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares to
Account 4 contain varying provisions regarding termination. The following
summarizes those provisions:
Variable Insurance Products Fund, Variable Insurance Products Fund II and
Variable Insurance Products Fund III. ("the Fund") These agreements provide for
termination (1) on one year's advance notice by either party, (2) at Life of
Virginia's option if shares of the Fund are not reasonably available to meet
requirements of the policies, (3) at the option of either party if certain
enforcement proceedings are instituted against the other, (4) upon vote of the
policyowners to substitute shares of another mutual fund, (5) at Life of
Virginia's option if shares of the Fund are not registered, issued, or sold in
accordance with applicable laws, if the Fund ceases to qualify as a regulated
investment company under the Code, (6) at the option of the Fund or its
principal underwriter if it determines that Life of Virginia has suffered
material adverse changes in its business or financial condition or is the
subject of material adverse publicity, (7) at the option of Life of Virginia if
the Fund has suffered material adverse changes in its business or financial
condition or is the subject of material adverse publicity, or (8) at the option
of the Fund or its principal underwriter if Life of Virginia decides to make
another mutual fund available as a funding vehicle for its policies.
Oppenheimer Variable Account Funds. This agreement may be terminated by the
parties on six months' advance written notice.
Janus Aspen Series. This agreement may be terminated by the parties on six
months' advance written notice.
Federated Insurance Series. This agreement may be terminated by any of the
parties on 180 days written notice to the other parties.
The Alger American Fund. This agreement may be terminated at the option of any
party upon six months' written notice to the other parties, unless a shorter
time is agreed to by the parties.
PBHG Insurance Series Fund, Inc. This agreement may be terminated at the option
of any party upon six months' written notice to the other parties, unless a
shorter time is agreed to by the parties.
GE Investments Funds, Inc. has entered into a Stock Sale Agreement with Life of
Virginia pursuant to which the Fund sells its shares to Separate Account 4.
CALCULATION OF PERFORMANCE DATA
From time to time, Life of Virginia may disclose total return, yield, and
other performance data for the Investment Subdivisions pertaining to the
Policies. Such performance data will be computed, or accompanied by performance
data computed, in accordance with the standards defined by the Securities and
Exchange Commission.
The calculations of yield, total return, and other performance data do not
reflect the effect of any premium tax that may be applicable to a particular
Policy. Premium taxes currently range from 0% to 3.5% of premium based on the
rules of the state in which the Policy is sold.
"MONEY MARKET" INVESTMENT SUBDIVISIONS
From time to time, advertisements and sales literature may quote the yield of
one or more of the "money market" Investment Subdivisions for a seven-day
period, in a manner which does not take into consideration any realized or
unrealized gains or losses on shares of the corresponding money market
investment portfolio or on its portfolio securities. This current annualized
yield is computed by determining the net change (exclusive of unrealized gains
and losses on the sale of securities and unrealized appreciation and
depreciation) at the end of the seven-day period in the value of a hypothetical
account under a Policy having a balance of one unit in that "money market"
Investment Subdivision at the beginning of the period, dividing such net change
in account value by the value of the account at the beginning of the period to
determine the base period return, and annualizing the result on a 365-day basis.
The net change in account value reflects: 1) net income from the investment
portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the Policy which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the policy
maintenance charge, administrative expense charge, annual death benefit charge
and the mortality and expense risk charge. For purposes of calculating current
yields for a Policy, an average per unit policy maintenance charge is used.
Current Yield will be calculated according to the following formula:
Current Yield = ((NCP - ES)/UV) X (365/7)
where:
NCP = the net change in the value of the investment portfolio (exclusive
of realized gains or losses on the sale of securities and
4
<PAGE>
unrealized appreciation and depreciation) for the seven-day period
attributable to a hypothetical account having a balance of one
Investment Subdivision unit.
ES = per unit expenses of the hypothetical account for the seven-day
period.
UV = the unit value on the first day of the seven-day period.
The current yields for the "money market" Investment Subdivisions of Account 4
available under the policy, based on the seven-day period ending December 31,
1996 were:
Variable Insurance Products Fund* 3.74%
Oppenheimer Variable Account Funds* 2.81%
GE Investments Funds, Inc. 3.41%
The effective yield of a "money market" Investment Subdivision determined on a
compounded basis for the same seven-day period may also be quoted. The effective
yield is calculated by compounding the base period return according to the
following formula:
Effective Yield = (1 + ((NCP - ES)/UV))365/7 - 1
where:
NCP = the net change in the value of the investment portfolio (exclusive
of realized gains or losses on the sale of securities and
unrealized appreciation and depreciation) for the seven-day period
attributable to a hypothetical account having a balance of one
Investment Subdivision unit.
ES = per unit expenses of the hypothetical account for the seven-day
period.
UV = the unit value for the first day of the seven-day period.
The effective yields for the "money market" Investment Subdivisions of Account
4 available under the policy, based on the seven-day period ending December 31,
1996 were:
Variable Insurance Products Fund* 3.81%
Oppenheimer Variable Account Funds* 2.85%
GE Investments Funds, Inc. 3.47%
The yield on amounts held in a "money market" Investment Subdivision normally
will fluctuate on a daily basis. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates of
return. A "money market" Investment Subdivision's actual yield is affected by
changes in interest rates on money market securities, average portfolio maturity
of the Investment Subdivision's corresponding money market investment portfolio,
the types and quality of portfolio securities held by that investment portfolio,
and that investment portfolio's operating expenses. Because of the charges and
deductions imposed under the Policy, the yield for a "money market" Investment
Subdivision will be lower than the yield for its corresponding "money market"
investment portfolio.
Yield calculations do not take into account the Surrender Charge under the
Policy, a maximum of 6% of each Premium Payment made during the six years prior
to a full or partial surrender, or charges for GMDB rider.
OTHER INVESTMENT SUBDIVISIONS
Total Return. Sales literature or advertisements may quote total return,
including average annual total return for one or more of the Investment
Subdivisions for various periods of time including 1 year, 5 years and 10 years,
or from inception if any of those periods are not available.
Average annual total return for a period represents the average annual
compounded rate of return that would equate an initial investment of $1,000
under a Policy to the redemption value of that investment as of the last day of
the period. The ending date for each period for which total return quotations
are provided will be for the most recent practicable, considering the type and
media of the communication, and will be stated in the communication.
For periods that begin before the Policy was available, performance data will
be based on the performance of the underlying portfolios, with the level of
Account 4 and policy charges currently in effect.
* These Investment Subdivisions are closed to new investment.
5
<PAGE>
Average annual total return will be calculated using Investment Subdivision
unit values and deductions for the policy maintenance charge, annual death
benefit charge and the surrender charge as described below:
1. Life of Virginia calculates unit value for each Valuation Period based on
the performance of the Investment Subdivision's underlying investment
portfolio (after deductions for Fund expenses, the administrative expense
charge, and the mortality and expense risk charge).
2. The policy maintenance charge is $25 per year, deducted at the beginning of
each Policy Year after the first. For purposes of calculating average
annual total return, an average policy maintenance charge (currently 0.1%
of account value attributable to the hypothetical investment) is used.
3. The surrender charge will be determined by assuming a surrender of the
Policy at the end of the period. Average annual total return for periods of
six years or less will therefore reflect the deduction of a surrender
charge.
4. Total return does not consider GMDB charges.
5. Total return will then be calculated according to the following formula:
TR = (ERV/P)1/N - 1
where:
TR = the average annual total return for the period.
ERV = the ending redeemable value (reflecting deductions as described
above) of the hypothetical investment at the end of the period.
P = a hypothetical single investment of $1,000.
N = the duration of the period (in years).
6
<PAGE>
1. Total Return for the currently available Investment Subdivisions is as
follows:
<TABLE>
<CAPTION>
For the 1-year For the 5-year From the Date
period ended period ended of Inception to Date of
Subdivision 12/31/96 12/31/96 12/31/96 Inception
<S><C>
VIPF
Equity-Income 6.56% 15.77% 12.88% 05/02/88
Overseas 5.51% 6.89% 7.42% 05/02/88
Growth 6.98% 12.95% 14.06% 05/02/88
VIPF II
Asset Manager 6.88% 9.03% 10.05% 10/01/89
Contrafund 13.48% 9.03% 26.49% 01/04/95
VIPF III
Growth and Income N/A N/A N/A 05/01/97
Growth Opportunities N/A N/A N/A 05/01/97
GE Investments Funds, Inc.
Money Market -1.78% 1.80% 3.74% 05/02/88
Government Securities -5.52% 3.29% 5.89% 05/02/88
S&P 500 Index 16.57% 13.84% 13.42% 05/02/88
Total Return 3.08% 9.95% 10.66% 05/02/88
International Equity 2.46% N/A 5.19% 05/01/95
Real Estate Securities 28.12% N/A 27.06% 05/01/95
Global Income N/A N/A N/A 05/01/97
Value Equity N/A N/A N/A 05/01/97
Oppenheimer Variable Account Funds
Multiple Strategies 7.55% 9.45% 9.74% 05/02/88
Capital Appreciation 12.41% 14.48% 14.38% 05/02/88
Growth 17.32% 14.03% 13.16% 05/02/88
High Income 7.52% 12.66% 12.68% 05/02/88
Bond -2.36% 5.42% 7.81% 05/02/88
Janus Aspen Series
Growth 10.67% N/A 13.06% 09/13/93
Aggressive Growth 0.58% N/A 18.21% 09/13/93
Worldwide Growth 21.09% N/A 20.09% 09/13/93
International Growth 26.68% N/A 10.54%++
Balanced 8.43% N/A 12.16% 10/02/95
Flexible Income 1.74% N/A 5.34% 10/02/95
Capital Appreciation N/A N/A N/A 05/01/97
Federated Insurance Series
High Income Bond II 6.59% N/A 12.92% 01/04/95
Utility II 3.95% N/A 13.14% 01/04/95
American Leaders II 13.74% N/A 4.40%++ 01/04/95
The Alger American Fund
Alger American Growth 5.64% 14.42% 1.27 10/02/95
Alger American Small Capitalization -2.93% 8.79 -7.33% 10/02/95
PBHG Insurance Series Fund, Inc.
Growth II N/A N/A N/A 05/01/97
Large Cap Growth N/A N/A N/A 05/01/97
</TABLE>
7
<PAGE>
2. Total Return for the closed Investment Subdivisions is as follows:
<TABLE>
<CAPTION>
For the 1-year For the 5-year From the Date
period ended period ended of Inception to Date of
Subdivision 12/31/96 12/31/96 12/31/96 Inception
<S><C>
VIPF
VIP High Income 6.31% 12.75% 10.28% 05/02/88
VIP Money Market -1.79% 2.24% 4.27% 05/02/88
OVAF Money -2.05% 2.14% 4.25%
N&B Balanced -0.41% 5.77% 6.81 10/01/89
N&B Limited Maturity Bond -2.81% N/A 3.30% 05/01/92
N&B Growth 1.69% N/A 8.56% 05/01/92
</TABLE>
The Funds have provided the price information for the Portfolios, including the
Portfolio price information used to calculate the total returns of the
Investment Subdivisions for periods prior to the inception of the Investment
Subdivisions. Variable Insurance Products Fund, Variable Insurance Products Fund
II, Variable Insurance Products Fund III, Oppenheimer Variable Account Funds,
Janus Aspen Series, Federated Insurance Series, The Alger American Fund, PBHG
Insurance Series Fund, Inc., and Advisers Management Trust are not affiliated
with Life of Virginia. While Life of Virginia has no reason to doubt the
accuracy of the figures provided by these nonaffiliated Funds, Life of Virginia
has not independently verified such information.
Other Performance Data
Life of Virginia may disclose cumulative total return in conjunction with the
standard format described above. The cumulative total return will be calculated
using the following formula:
CTR = (ERV/P) - 1
where:
CTR = the cumulative total return for the period.
ERV = the ending redeemable
value (reflecting
deductions as described
above) of the hypothetical
investment at the end of
the period.
P = a hypothetical single investment of $1,000.
Sales literature may also quote cumulative and/or average annual total return
that does not reflect the surrender charge. This is calculated in exactly the
same way as average annual total return, except that the ending redeemable value
of the hypothetical investment is replaced with an ending value for the period
that does not take into account any charges on withdrawn amounts.
Other non-standard quotations of Investment Subdivision performance may also
be used in sales literature. Such quotations will be accompanied by a
description of how they were calculated.
Life of Virginia may also disclose yield, standard total return, and
non-standard total return for the Investment Subdivisions, including such
disclosure for periods prior to the date of inception of Account 4. For such
periods, performance data for the Investment Subdivisions will be calculated
based on the performance of the corresponding investment portfolios of the Funds
and the assumption that the Investment Subdivisions were in existence for the
same periods as those indicated for the investment portfolios, with the level of
Account 4 and Policy charges that are currently in effect.
8
<PAGE>
FEDERAL TAX MATTERS
TAXATION OF LIFE OF VIRGINIA
Life of Virginia does not expect to incur any federal income tax liability
attributable to investment income or capital gains retained as part of the
reserves under the Policies. (See Federal Tax Matters section of the
prospectus.) Based upon these expectations, no charge is being made currently to
Account 4 for federal income taxes which may be attributable to the Account.
Life of Virginia will periodically review the question of a charge to Account 4
for federal income taxes related to the Account. Such a charge may be made in
future years if Life of Virginia believes that it may incur federal income
taxes. This might become necessary if the tax treatment of Life of Virginia is
ultimately determined to be other than what Life of Virginia currently believes
it to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in Life of Virginia's
tax status. In the event that Life of Virginia should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Policies, the Account Value would be correspondingly adjusted
by any provision or charge for such taxes.
Life of Virginia may also incur state and local taxes (in addition to premium
taxes) in several states. At present, these taxes, with the exception of premium
taxes, are not significant. If there is a material change in applicable state or
local tax laws causing an increase in taxes other than premium taxes (for which
Life of Virginia currently imposes a charge), charges for such taxes
attributable to Account 4 may be made.
IRS REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
section 72(s) of the Code requires any Non-Qualified Policy to provide that (a)
if any Owner dies on or after the Maturity Date but prior to the time the entire
interest in the Policy has been distributed, the remaining portion of such
interest will be distributed at least as rapidly as under the method of
distribution being used as of the date of that Owner's death; and (b) if any
Owner dies prior to the Maturity Date, the entire interest in the Policy will be
distributed (1) within five years after the date of that Owner's death, or (2)
as Income Payments which will begin within one year of that Owner's death and
which will be made over the life of the Owner's "designated beneficiary" or over
a period not extending beyond the life expectancy of that beneficiary. The
"designated beneficiary" generally is the person who will be treated as the sole
owner of the Policy following the death of the Owner, Joint Owner or, in certain
circumstances, the Annuitant. However, if the "designated beneficiary" is the
surviving spouse of the decedent, these distribution rules will not apply until
the surviving spouse's death (and this spousal exception will not again be
available). If any Owner is not an individual, the death of the Annuitant will
be treated as the death of an Owner for purposes of these rules.
The Non-Qualified Policies contain provisions which are intended to comply
with the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Life of Virginia intends
to review such provisions and modify them if necessary to assure that they
comply with the requirements of Code section 72(s) when clarified by regulation
or otherwise.
Other rules may apply to Qualified Policies.
GENERAL PROVISIONS
USING THE POLICIES AS COLLATERAL
A Non-Qualified Policy can be assigned as collateral security. Life of
Virginia must be notified in writing if a Policy is assigned. Any payment made
before the assignment is recorded at Life of Virginia's Home Office will not be
affected. Life of Virginia is not responsible for the validity of an assignment.
An Owner's rights and the rights of a Beneficiary may be affected by an
assignment.
A Qualified Policy may not be sold, assigned, transferred, discounted, pledged
or otherwise transferred except under such conditions as may be allowed under
applicable law.
NON-PARTICIPATING
The Policy is non-participating. No dividends are payable.
MISSTATEMENT OF AGE OR SEX
If an Annuitant's age or sex was misstated on the policy data page, any policy
benefits or proceeds, or availability thereof, will be determined using the
correct age and sex.
9
<PAGE>
INCONTESTABILITY
Life of Virginia will not contest the Policy.
ANNUAL STATEMENT
Within 30 days after each policy anniversary, Life of Virginia will send the
Owner an annual statement. The statement will show the Account Value and
Surrender Value as of the Policy anniversary. The statement will also show
Premium Payments made and charges made during the policy year.
WRITTEN NOTICE
Any written notice should be sent to Life of Virginia at its Home Office at
6610 West Broad Street, Richmond, Virginia 23230. The policy number and the
Annuitant's full name must be included.
Life of Virginia will send all notices to the Owner at the last known address
on file with the company.
DISTRIBUTION OF THE POLICIES
Forth Financial Securities Corporation, the principal underwriter of the
Policies, is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934 as a broker-dealer and is member of the National
Association of Securities Dealers, Inc.
The Policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws that have entered into
agreements with Forth Financial Securities Corporation. The offering is
continuous and Forth Financial Securities Corporation does not anticipate
discontinuing the offering of the Policies. However, Life of Virginia does
reserve the right to discontinue the offering of the Policies.
LEGAL DEVELOPMENTS REGARDING EMPLOYMENT-RELATED BENEFIT PLANS
On July 6, 1983, the Supreme Court held in Arizona Governing Committee for Tax
Deferred Annuity v. Norris, 463 U.S. 1073 (1983), that optional annuity benefits
provided under an employee's deferred compensation plan could not, under Title
VII of the Civil Rights Act of 1964, vary between men and women on the basis of
sex. The Policy contains guaranteed annuity purchase rates for certain optional
payment plans that distinguish between men and women. Accordingly, employers and
employee organizations should consider, in consultation with legal counsel, the
impact of Norris, and Title VII generally, on any employment-related insurance
or benefit program for which a Policy may be purchased.
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
Life of Virginia reserves the right, subject to compliance with applicable
law, to make additions to, deletions from, or substitutions for the shares of
the Fund portfolios that are held by Account 4 or that Account 4 may purchase.
If the shares of a portfolio are no longer available for investment or if in its
judgment further investment in any portfolio should become inappropriate in view
of the purposes of Account 4, Life of Virginia reserves the right to eliminate
the shares of any of the portfolios of the Funds and to substitute shares of
another portfolio or of another open-end, registered investment company. Life of
Virginia will not substitute any shares attributable to an Owner's Account Value
in Account 4 without notice and prior approval of the Commission, to the extent
required by the 1940 Act or other applicable law. Nothing contained herein shall
prevent Account 4 from purchasing other securities for other series or classes
of policies or from permitting a conversion between portfolios or classes of
policies on the basis of requests made by Owners.
Life of Virginia also reserves the right to establish additional Investment
Subdivisions of Account 4, each of which would invest in a separate portfolio of
a Fund, or in shares of another investment company, with a specified investment
objective. New Investment Subdivisions may be established when, in the sole
discretion of Life of Virginia, marketing, tax or investment conditions warrant,
and any new Investment Subdivisions may be made available to existing Owners on
a basis to be determined by Life of Virginia. One or more Investment
Subdivisions may also be eliminated if, in the sole discretion of Life of
Virginia, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Life of Virginia may, by
appropriate endorsement, make such changes in these and other policies as may be
necessary or appropriate to reflect such substitution or change. If deemed by
Life of Virginia to be in the best interests of persons having voting rights
under the Policies, and, if permitted by law, Life of Virginia may deregister
Account 4 under the 1940 Act in the event such registration is no longer
required; manage Account 4 under the direction of a committee; or combine
Account 4 with other Life of Virginia separate accounts. To the extent permitted
by applicable law, Life of Virginia may
10
<PAGE>
also transfer the assets of Account 4 associated with the Policies to another
separate account. In addition, Life of Virginia may, when permitted by law,
restrict or eliminate any voting rights of Owners or other persons who have
voting rights as to Account 4.
STATE REGULATION OF LIFE OF VIRGINIA
Life of Virginia, a stock life insurance company organized under the laws of
Virginia, is subject to regulation by the State Corporation Commission of the
Commonwealth of Virginia. An annual statement is filed with the Virginia
Commissioner of Insurance on or before March 1 of each year covering the
operations and reporting on the financial condition of Life of Virginia as of
December 31 of the preceding year. Periodically, the Commissioner of Insurance
examines the liabilities and reserves of Life of Virginia and Account 4 and
certifies their adequacy, and a full examination of Life of Virginia's
operations is conducted by the State Corporation Commission, Bureau of Insurance
of the Commonwealth of Virginia at least once every five years.
In addition, Life of Virginia is subject to the insurance laws and regulations
of other states within which it is licensed to operate. Generally, the Insurance
Department of any other state applies the laws of the state of domicile in
determining permissible investments. Presently, Life of Virginia is licensed to
do business in the District of Columbia and all states, except New York.
LEGAL MATTERS
Sutherland, Asbill & Brennan, L.L.P. of Washington, D.C. has provided advice
on certain legal matters relating to federal securities laws applicable to the
issue and sale of the Policies described in this Prospectus. J. Neil McMurdie,
Associate Counsel and Assistant Vice President of Life of Virginia, has provided
advice on certain legal matters pertaining to the Policy, including the validity
of the Policy and Life of Virginia's right to issue the Policies under Virginia
insurance law.
EXPERTS
KPMG Peat Marwick LLP
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries as of December 31, 1996 and for the nine months ended
December 31, 1996 and the preacquisition three month period ended March 31, 1996
and the financial statements of Life of Virginia Separate Account 4 as of
December 31, 1996 and for the year or periods then ended have been included
herein and in the registration statement in reliance upon the reports of KPMG
Peat Marwick LLP, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
Ernst & Young LLP
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries at December 31, 1995 and for each of the two years in
the period ended December 31, 1995 and the statements of operations and
statements of changes in net assets of Life of Virginia Separate Account 4 for
each of the two years or periods ended December 31, 1995, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
CHANGE IN AUDITORS
Subsequent to the acquisition of Life of Virginia by GNA Corporation on April
1, 1996, Life of Virginia selected KPMG Peat Marwick LLP to be its auditor.
Accordingly, Life of Virginia's principal auditors has changed for the year
ending December 31, 1996, from Ernst & Young LLP, to KPMG Peat Marwick LLP. The
former auditors were dismissed and KPMG Peat Marwick LLP was retained because
KPMG Peat Marwick LLP is the auditor for GE Capital, GNA Corporation's parent.
This change of auditors was approved by the members of Life of Virginia's Board
of Directors.
Neither KPMG Peat Marwick LLP nor Ernst & Young LLP's reports on the financial
statements contains any adverse opinion or a disclaimer of opinion, or was
qualified or modified as to uncertainty, audit scope or accounting principles.
Furthermore, there were no disagreements with either on any matter of accounting
principle or practice, financial statement disclosure or auditing scope or
procedure which would have caused them to make reference to the subject matter
of the disagreement in connection with their reports.
FINANCIAL STATEMENTS
This Statement of Additional Information contains financial statements for
Life of Virginia Separate Account 4 as of December 31, 1996, and for each of the
three years in the period then ended.
The consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries included herein should be distinguished from the
financial statements of Account 4 and should be considered only as bearing on
the ability of Life of Virginia to meet its obligations under the Policy.
Such consolidated financial statements of The Life Insurance Company of
Virginia and subsidiaries should not be considered as bearing on the investment
performance of the assets held in Account 4.
11
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Table of Contents
Year ended December 31, 1996
================================================================================
PAGE
Independent Auditors' Report................................................ 1
Financial Statements:
Statements of Assets and Liabilities.................................3
Statements of Operations.............................................9
Statements of Changes in Net Assets.................................19
Notes to Financial Statements...............................................29
================================================================================
<PAGE>
[KPMG PEAT MARWICK LLP LETTERHEAD]
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
REPORT OF INDEPENDENT AUDITORS
Policyholders
Life of Virginia Separate Account 4
and Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of assets and liabilities of Life of
Virginia Separate Account 4 (the Account) (comprising, the Life of Virginia
Series Fund, Inc.--Common Stock Index, Government Securities, Money Market,
Total Return, International Equity and Real Estate Securities Portfolios; the
Oppenheimer Variable Account Fund--Money, Bond, Capital Appreciation, Growth,
High Income and Multiple Strategies Funds; the Variable Insurance Products
Fund--Money Market, High Income, Equity-Income, Growth and Overseas Portfolios;
the Variable Insurance Products Fund II--Asset Manager and Contrafund
Portfolios; the Advisers Management Trust--Balanced, Bond and Growth Portfolios;
the Federated Investors Insurance Series--American Leaders, High Income Bond and
Utility Funds II; the Alger American--Small Cap and Growth Portfolios; and the
Janus Aspen Series--Aggressive Growth, Growth, Worldwide Growth, Balanced,
Flexible Income and International Growth Portfolios) as of December 31, 1996 and
the related statements of operations and changes in net assets for the year or
periods then ended. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The accompanying statements of
operations and changes in net assets of Life of Virginia Separate Account 4 for
the years or periods ended December 31, 1995 and 1994, were audited by other
auditors, whose report thereon dated February 8, 1996 expressed an unqualified
opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996, by correspondence with
the underlying mutual funds. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
1
<PAGE>
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
portfolios constituting Life of Virginia Separate Account 4 as of December 31,
1996 and the results of their operations and changes in their net assets for the
year or period then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwich LLP
February 11, 1997
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
Policyholders
Life of Virginia Separate Account 4
and Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying statements of operations and changes in net
assets for each of the two years in the period ended December 31, 1995 for the
Life of Virginia Series Fund, Inc. Common Stock Index, Government Securities,
Money Market and Total Return portfolios, the Oppenheimer Variable Account Funds
portfolios, the Variable Insurance Products Fund portfolios, the Variable
Insurance Products Fund II Asset Manager portfolio, the Advisers Management
Trust portfolios, and for the period from May 23, 1995 (date of inception) to
December 31, 1995 for the Life of Virginia Series Fund, Inc. International
Equity portfolio, for the period from May 2, 1995 (date of inception) to
December 31, 1995 for the Life of Virginia Series Fund, Inc. Real Estate
Securities portfolio, for the period from January 5, 1995 (date of inception) to
December 31, 1995 for the Variable Insurance Products Fund II Contrafund
portfolio, for the period from February 3, 1995 (date of inception) to December
31, 1995 for the Insurance Management Series Corporate Bond portfolio, for the
period from January 27, 1995 (date of inception) to December 31, 1995 for the
Insurance Management Series Utility portfolio, for the years ended December 31,
1995 and 1994 and for the period from September 13, 1993 (date of inception) to
December 31, 1993 for the Janus Aspen Aggressive Growth, Growth, and Worldwide
Growth portfolios, for the period from October 11, 1995 (date of inception) to
December 31, 1995 for the Janus Aspen Balanced portfolio, for the period from
October 13, 1995 (date of inception) to December 31, 1995 for the Janus Aspen
Flexible Income portfolio, for the period from October 3, 1995 (date of
inception) to December 31, 1995 for the Alger American Small Cap portfolio and
for the period from October 4, 1995 (date of inception) to December 31, 1995 for
the Alger American Growth portfolio. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
<PAGE>
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and changes in net assets for
the periods described in the first paragraph of each of the respective
portfolios constituting Life of Virginia Separate Account 4, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Richmond, Virginia
February 8, 1996
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
===========================================================================================================
Life of Virginia Series Fund, Inc.
-------------------------------------------------------------
Common Government Money Total
Stock Index Securities Market Return
Assets Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------
<S><C>
Investment in Life of Virginia Series
Fund, Inc., at fair value (note 2):
Common Stock Index Portfolio (2,131,438
shares; cost - $46,217,621) $ 32,269,964 - - -
Government Securities Portfolio (1,235,517
shares; cost - $12,798,597) - 11,811,538 - -
Money Market Portfolio (9,637,636 shares;
cost - $103,877,167) - - 100,038,662 -
Total Return Portolio (1,906,688 shares;
cost - $29,142,790) - - - 24,272,138
International Equity Portfolio
1,557,616 shares; cost - $16,854,215) - - - -
Real Estate Securities Portfolio
(1,722,003 shares; cost - $19,188,197) - - - -
Dividend receivable 23,435,279 1,309,648 5,204,323 9,319,880
Receivable from affiliate (note 3) 37,318 1,073 68,067 48,704
Receivable for units sold 140,775 11,880 327,754 -
- -----------------------------------------------------------------------------------------------------------
Total assets 55,883,336 13,134,139 105,638,806 33,640,722
===========================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 11,608 2,997 26,073 7,252
Payable for units withdrawn 3,277 1,172 15,425,560 39,009
- -----------------------------------------------------------------------------------------------------------
Total liabilities 14,885 4,169 15,451,633 46,261
===========================================================================================================
Net assets $ 55,868,451 13,129,970 90,187,173 33,594,461
===========================================================================================================
Analysis of net assets:
For variable deferred annuity policies $ 55,868,451 13,129,970 90,187,173 33,594,461
Attributable to The Life Insurance Company
of Virginia - - - -
- -----------------------------------------------------------------------------------------------------------
Net assets $ 55,868,451 13,129,970 90,187,173 33,594,461
===========================================================================================================
Outstanding units: Type I (note 2) 580,257 504,597 2,549,159 708,065
===========================================================================================================
Net asset value per unit: Type I $ 30.77 16.94 14.18 24.83
===========================================================================================================
Outstanding units: Type II (note 2) 1,262,502 276,196 3,893,379 659,251
===========================================================================================================
Net asset value per unit: Type II $ 30.11 16.59 13.88 24.29
===========================================================================================================
</TABLE>
1
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
===========================================================================================================
Life of Virginia Series Fund, Inc.
-------------------------------------------------------------
International Real Estate
Equity Securities
Assets Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Investment in Life of Virginia Series
Fund, Inc., at fair value (note 2):
Common Stock Index Portfolio (2,131,438
shares; cost - $46,217,621) $ - -
Government Securities Portfolio (1,235,517
shares; cost - $12,798,597) - -
Money Market Portfolio (9,637,636 shares;
cost - $103,877,167) - -
Total Return Portolio (1,906,688 shares;
cost - $29,142,790) - -
International Equity Portfolio
1,557,616 shares; cost - $16,854,215) 16,868,976 -
Real Estate Securities Portfolio
(1,722,003 shares; cost - $19,188,197 - 24,297,462
Dividend receivable 1,056,063 1,627,291
Receivable from affiliate (note 3) - -
Receivable for units sold 14,480 57,027
- -----------------------------------------------------------------------------------------------------------
Total assets 17,939,519 25,981,780
===========================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 38,349 106,080
Payable for units withdrawn 26 164,353
- -----------------------------------------------------------------------------------------------------------
Total liabilities 38,375 270,433
===========================================================================================================
Net assets $ 17,901,144 25,711,347
===========================================================================================================
Analysis of net assets:
For variable deferred annuity policies $ 6,211,202 9,881,935
Attributable to The Life Insurance Company
of Virginia 11,689,942 15,829,412
- -----------------------------------------------------------------------------------------------------------
Net assets $ 17,901,144 25,711,347
===========================================================================================================
Outstanding units: Type I (note 2) 207,412 204,919
===========================================================================================================
Net asset value per unit: Type I $ 11.50 15.63
===========================================================================================================
Outstanding units: Type II (note 2) 332,403 428,969
===========================================================================================================
Net asset value per unit: Type II $ 11.51 15.57
===========================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
===========================================================================================================
Oppenheimer Variable Account Fund
-------------------------------------------------------------
Capital
Money Bond Appreciation Growth
Assets Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------
<S><C>
Investment in Oppenheimer Variable
Account Funds, at fair value (note 2):
Money Fund (2,716,513 shares;
cost - $2,716,513) $ 2,716,513 -- -- --
Bond Fund (2,720,745 shares;
cost - $31,197,660) -- 31,642,265 -- --
Capital Appreciation Fund
(4,108,154 shares; cost - $133,957,044) -- -- 159,026,631 --
Growth Fund (2,488,187 shares;
cost - $56,104,503) -- -- -- 67,778,215
High Income Fund (7,704,733
shares; cost - $83,087,026) -- -- -- --
Multiple Strategies Fund
(3,464,713 shares; cost - $47,836,811) -- -- -- --
Receivable from affiliate (note 3) 34,795 3,974 -- --
Receivable for units sold -- 5,271 306,641 129,828
- -----------------------------------------------------------------------------------------------------------
Total assets 2,751,308 31,651,510 159,333,272 67,908,043
===========================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 627 7,650 435,623 40,248
Payable for units withdrawn 5 4,919 53,468 8,426
- -----------------------------------------------------------------------------------------------------------
Total liabilities 632 12,569 489,091 48,674
===========================================================================================================
Net assets for variable deferred annuity
policies $ 2,750,676 31,638,941 158,844,181 67,859,369
===========================================================================================================
Outstanding units: Type I (note 2) 162,505 941,269 2,726,055 1,190,622
===========================================================================================================
Net asset value per unit: Type I $ 14.80 19.37 33.08 30.04
===========================================================================================================
Outstanding units: Type II (note 2) 23,868 707,097 2,121,294 1,091,602
===========================================================================================================
Net asset value per unit: Type II $ 14.48 18.96 32.37 29.40
===========================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
=============================================================================================
Oppenheimer Variable Account Fund
-------------------------------------------------
High Multiple
Income Strategies
Assets Fund Fund
- ---------------------------------------------------------------------------------------------
<S><C>
Investment in Oppenheimer Variable
Account Funds, at fair value (note 2):
Money Fund (2,716,513 shares;
cost - $2,716,513) - -
Bond Fund (2,720,745 shares;
cost - $31,197,660) - -
Capital Appreciation Fund
(4,108,154 shares; cost - $133,957,044) - -
Growth Fund (2,488,187 shares;
cost - $56,104,503) - -
High Income Fund (7,704,733
shares; cost - $83,087,026) 85,753,676 -
Multiple Strategies Fund
(3,464,713 shares; cost - $47,836,811) - 54,153,468
Receivable from affiliate (note 3) 62,906 -
Receivable for units sold 4,948 56,944
- ---------------------------------------------------------------------------------------------
Total assets 85,821,530 54,210,412
=============================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 21,263 73,554
Payable for units withdrawn 37,630 17,946
- ---------------------------------------------------------------------------------------------
Total liabilities 58,893 91,500
=============================================================================================
Net assets for variable deferred annuity
policies 85,762,637 54,118,912
=============================================================================================
Outstanding units: Type I (note 2) 1,358,227 1,640,662
=============================================================================================
Net asset value per unit: Type I 28.24 22.81
=============================================================================================
Outstanding units: Type II (note 2) 1,715,755 748,002
=============================================================================================
Net asset value per unit: Type II 27.63 22.32
=============================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
=============================================================================================
Variable Insurance Products Fund
-----------------------------------------------
Money High Equity-
Market Income Income
Assets Portfolio Portfolio Portfolio
- ---------------------------------------------------------------------------------------------
<S><C>
Investment in Variable Insurance Products
Fund, at fair value (note 2):
Money Market Portfolio (22,001,350 shares;
cost - $22,001,350) 22,001,350 -- --
High Income Portfolio (1,986,368 shares;
cost - $22,054,714) -- 24,869,322 --
Equity-Income Portfolio (19,267,440 shares;
cost - $338,638,261) -- -- 405,194,259
Growth Portfolio (8,071,281 shares;
cost - $209,433,139) -- -- --
Overseas Portfolio (5,698,984 shares;
cost - $92,284,455) -- -- --
Accrued interest income 103,152 -- --
Receivable from affiliate -- -- 126,153
Receivable for units sold -- -- 77,690
- ---------------------------------------------------------------------------------------------
Total assets $ 22,104,502 24,869,322 405,398,102
=============================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate
(note 3) 117,120 67,294 99,500
Payable for units withdrawn 3,734 927 --
- ---------------------------------------------------------------------------------------------
Total liabilities 120,854 68,221 99,500
=============================================================================================
Net assets for variable deferred
annuity policies $ 21,983,648 24,801,101 405,298,602
=============================================================================================
Outstanding units: Type I (note 2) 1,193,173 731,930 6,847,454
=============================================================================================
Net asset value per unit: Type I $ 14.82 24.11 29.50
=============================================================================================
Outstanding units: Type II (note 2) 296,609 303,275 7,041,867
=============================================================================================
Net asset value per unit: Type II $ 14.50 23.59 28.87
=============================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
==========================================================================================================
Variable Insurance
------------------------------------------
Growth Overseas
Assets Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------
<S><C>
Investment in Variable Insurance Products
Fund, at fair value (note 2):
Money Market Portfolio (22,001,350 shares;
cost - $22,001,350) - -
High Income Portfolio (1,986,368 shares;
cost - $22,054,714) - -
Equity-Income Portfolio (19,267,440 shares;
cost - $338,638,261) - -
Growth Portfolio (8,071,281 shares;
cost - $209,433,139) 251,339,690 -
Overseas Portfolio (5,698,984 shares;
cost - $92,284,455) 107,368,867
Accrued interest income - -
Receivable from affiliate 48,303 -
Receivable for units sold 263,458 85,315
- ----------------------------------------------------------------------------------------------------------
Total assets 251,651,451 107,454,182
==========================================================================================================
Liabilities
- ----------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 60,313 116,786
Payable for units withdrawn 45,771 2,143
- ----------------------------------------------------------------------------------------------------------
Total liabilities 106,084 118,929
==========================================================================================================
Net assets for variable deferred annuity policies 251,545,367 107,335,253
==========================================================================================================
Outstanding units: Type I (note 2) 4,831,665 4,069,123
==========================================================================================================
Net asset value per unit: Type I 32.28 19.19
==========================================================================================================
Outstanding units: Type II (note 2) 3,026,574 1,557,443
==========================================================================================================
Net asset value per unit: Type II 31.58 18.78
==========================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
=========================================================================================================================
Variable Insurance
Products Fund II Advisers Management Trust
-----------------------------------------------------------------
Asset
Manager Contrafund Balanced
Assets Portfolio Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------------
<S><C>
Investment in Variable Insurance Products
Fund II, at fair value (note 2):
Asset Manager Portfolio (25,784,849 shares;
cost - $369,444,622) $ 436,537,500 -- --
Contrafund Portfolio (8,610,261 shares;
cost - $121,091,296) -- 142,585,929 --
Investment in Advisers Management Trust,
at fair value (note 2):
Balanced Portfolio (1,937,087 shares;
cost - $28,336,586) -- -- 30,838,421
Bond Portfolio (697,791 shares;
cost - $9,780,434) -- -- --
Growth Portfolio (408,170 shares;
cost - $9,642,393) -- -- --
Receivable from affiliate (note 3) -- 50,092 928
Receivable for units sold 172,962 266,662 --
- -------------------------------------------------------------------------------------------------------------------------
Total assets 436,710,462 142,902,683 30,839,349
=========================================================================================================================
Liabilities
- -------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 798,134 35,990 6,833
Payable for units withdrawn 74,159 -- 70,052
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 872,293 35,990 76,885
=========================================================================================================================
Net assets $435,838,169 142,866,693 30,762,464
=========================================================================================================================
Analysis of net assets:
For variable deferred annuity policies $435,838,169 142,866,693 30,220,971
Attributable to The Life Insurance Company of Virginia -- -- 541,493
- -------------------------------------------------------------------------------------------------------------------------
Net assets $435,838,169 142,866,693 30,762,464
=========================================================================================================================
Outstanding units: Type I (note 2) $ 18,979,975 3,097,501 1,684,576
=========================================================================================================================
Net asset value per unit: Type I 20.57 16.68 16.56
=========================================================================================================================
Outstanding units: Type II (note 2) 2,248,519 5,493,999 142,952
=========================================================================================================================
Net asset value per unit: Type II $ 20.20 16.60 16.26
=========================================================================================================================
</TABLE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
===========================================================================================================
Advisers Management Trust
------------------------------------------------------
Bond Growth
Assets Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------
<S><C>
Investment in Variable Insurance Products
Fund II, at fair value (note 2):
Asset Manager Portfolio (25,784,849 shares;
cost - $369,444,622) - -
Contrafund Portfolio (8,610,261 shares;
cost - $121,091,296) - -
Investment in Advisers Management Trust,
at fair value (note 2):
Balanced Portfolio (1,937,087 shares;
cost - $28,336,586) - -
Bond Portfolio (697,791 shares;
cost - $9,780,434) 9,803,959 -
Growth Portfolio (408,170 shares;
cost - $9,642,393) - 10,522,634
Receivable from affiliate (note 3) - -
Receivable for units sold - -
- -----------------------------------------------------------------------------------------------------------
Total assets 9,803,959 10,522,634
===========================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 72,385 18,458
Payable for units withdrawn 9,537 2,080
- -----------------------------------------------------------------------------------------------------------
Total liabilities 81,922 20,538
===========================================================================================================
Net assets 9,722,037 10,502,096
===========================================================================================================
Analysis of net assets:
For variable deferred annuity policies 9,722,037 10,502,096
Attributable to The Life Insurance Company of Virginia - -
- -----------------------------------------------------------------------------------------------------------
Net assets 9,722,037 10,502,096
===========================================================================================================
Outstanding units: Type I (note 2) 539,602 531,306
===========================================================================================================
Net asset value per unit: Type I 12.24 15.34
===========================================================================================================
Outstanding units: Type II (note 2) 257,629 155,136
===========================================================================================================
Net asset value per unit: Type II 12.10 15.16
===========================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
=======================================================================================================================
Federated Investors
Insurance Series Alger American
------------------------------------------- ------------------------
American High Small
Leaders Income Bond Utility Cap Growth
Assets Fund II Fund II Fund II Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Investments in Federated Investors Insurance Series,
at fair value (note 2):
American Leaders Fund II
(244,220 shares; cost -- $3,564,748) $3,726,794 -- -- -- --
High Income Bond Fund II
(1,334,922 shares; cost -- $13,219,202) -- 13,669,604 -- -- --
Utility Fund II (1,908,872 shares --
cost -- $20,516,233) -- -- 22,543,781 -- --
Investment in Alger American,
at fair value (note 2):
Small Cap Portfolio (1,153,425 shares;
cost -- $47,292,583) -- -- -- 47,186,598 --
Growth Portfolio (1,306,751 shares;
cost -- $42,609,173) -- -- -- -- 44,860,766
Receivable from affiliate (note 3) -- 4,012 14,387 3,285 --
Receivable for units sold 49,516 -- -- 124,620 119,332
- -----------------------------------------------------------------------------------------------------------------------
Total assets 3,776,310 13,673,616 22,558,168 47,314,503 44,980,098
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 1,292 3,523 5,708 12,103 32,762
Payable for units withdrawn -- 10 43,750 48 226,943
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 1,292 3,533 49,458 12,151 259,705
=======================================================================================================================
Net assets for variable deferred annuity policies $3,775,018 13,670,083 22,508,710 47,302,352 44,720,393
=======================================================================================================================
Oustanding units: Type I (note 2) 75,662 211,506 545,223 1,339,653 1,190,674
=======================================================================================================================
Net asset value per unit: Type I $ 11.07 13.43 13.48 9.66 10.79
=======================================================================================================================
Outstanding units: Type II (note 2) 265,832 809,989 1,130,433 3,568,152 2,962,177
=======================================================================================================================
Net asset value per unit: Type II $ 11.05 13.37 13.41 9.63 10.76
=======================================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Assets and Liabilities, Continued
<TABLE>
<CAPTION>
===================================================================================================================================
Janus Aspen Series
-------------------------------------------------------------------------------
Aggressive Worldwide Flexible International
Growth Growth Growth Balanced Income Growth
Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Investment in Janus Aspen Series,
at fair value (note 2):
Aggressive Growth Portfolio
(4,598,027 shares; cost -- $74,046,345) $83,868,015 -- -- -- -- --
Growth Portfolio (9,768,429
shares; cost -- $128,050,160) -- 151,508,330 -- -- -- --
Worldwide Growth Portfolio
(9,124,593 shares; cost -- $149,893,458) -- -- 177,382,089 -- -- --
Balanced Portfolio (1,113,921
shares; cost -- $15,494,087) -- -- -- 16,452,616 -- --
Flexible Income Portfolio
(445,638 shares; cost -- $4,942,310) -- -- -- -- 5,008,969 --
International Growth Portfolio
(845,209 shares; cost -- $12,700,072) -- -- -- -- -- 13,286,688
Receivable from affiliate (note 3) 51,355 -- 9,823 7,937 353 66
Receivable for units sold 94,296 296,313 123,604 12,798 257 228,679
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 84,013,666 151,804,643 177,515,516 16,473,351 5,009,579 13,515,433
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued expenses payable to affiliate (note 3) 19,750 108,071 42,618 4,193 1,253 3,255
Payable for units withdrawn 30,379 -- 62,200 9,444 7 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 50,129 108,071 104,818 13,637 1,260 3,255
===================================================================================================================================
Net assets for variable deferred anuity policies $83,963,537 151,696,572 177,410,698 16,459,714 5,008,319 13,512,178
===================================================================================================================================
Outstanding units: Type I (note 2) 1,975,818 4,764,409 4,170,807 358,807 118,020 474,438
===================================================================================================================================
Net asset value per unit: Type I $ 18.19 15.79 19.13 12.21 11.33 11.69
===================================================================================================================================
Outstanding units: Type II (note 2) 2,662,051 4,882,922 5,146,187 992,496 325,169 682,605
===================================================================================================================================
Net asset value per unit: Type II $ 18.04 15.66 18.97 12.17 11.29 11.67
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
Common
Stock Index
Portfolio
---------------------------------------
Year ended December 31,
1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $ 23,435,279 411,769 91,337
Expenses -- Mortality and expense
risk charges (note 3) 492,403 139,329 58,672
- -------------------------------------------------------------------------------------------------------------------
Net investment income 22,942,876 272,440 32,665
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) 1,510,464 345,068 (65,078)
Unrealized appreciation (depreciation)
on investments (16,204,375) 2,539,788 (8,702)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (14,693,911) 2,884,856 (73,780)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations $ 8,248,965 3,157,296 (41,115)
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
Government
Securities Money Market
Portfolio Portfolio
-------------------------------- ----------------------------------
Year ended December 31, Year ended December
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends 1,309,648 565,524 238,661 5,204,323 1,098,198 222,610
Expenses -- Mortality and expense
risk charges (note 3) 143,919 83,929 67,780 980,270 144,841 72,014
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 1,165,729 481,595 170,881 4,224,053 953,357 150,596
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) (68,248) (20,275) (401,286) 1,686,452 312,501 56,347
Unrealized appreciation (depreciation)
on investments (995,503) 567,616 (216,822) (2,984,484) (757,472) (36,981)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (1,063,751) 547,341 (618,108) (1,298,032) (444,971) 19,366
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 101,978 1,028,936 (447,227) 2,926,021 508,386 169,962
===============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
Total Return
Portfolio
----------------------------------
Year ended December 31,
1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends 9,319,880 1,576,466 461,727
Expenses -- Mortality and expense
risk charges (note 3) 357,589 187,419 162,211
- ----------------------------------------------------------------------------------------------------------
Net investment income 8,962,291 1,389,047 299,516
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) 614,446 308,073 52,519
Unrealized appreciation (depreciation)
on investments (6,827,262) 1,987,241 (190,731)
- ----------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (6,212,816) 2,295,314 (138,212)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 2,749,475 3,684,361 161,304
==========================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Life of Virginia Series
Fund, Inc. (continued)
---------------------------------------------------------------------
International Real Estate
Equity Securities
Portfolio Portfolio
Period from Period from
-------------------------------- --------------------------------
May 23, May 2,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
<S> <C>
Investment income:
Income -- Dividends $ 1,056,063 31,010 1,627,291 670,339
Expenses -- Mortality and expense
risk charges (note 3) 56,953 4,298 49,030 2,663
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 999,110 26,712 1,578,261 667,676
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain 86,537 646 299,159 24,928
Unrealized appreciation (depreciation)
on investments (11,119) 25,880 4,059,521 1,049,744
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 75,418 26,526 4,358,680 1,074,672
- ---------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 1,074,528 53,238 5,936,941 1,742,348
=================================================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
--------------------------------------------------------------------------
Money Bond
Fund Fund
------------------------------ ----------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $ 175,537 303,556 246,677 1,774,226 1,222,079 858,801
Expenses -- Mortality and
expense risk charges (note 3) 40,663 64,415 70,775 336,825 220,766 160,466
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 134,874 239,141 175,902 1,437,401 1,001,313 698,335
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) -- -- -- 106,242 53,120 (47,152)
Unrealized appreciation (depreciation)
on investments -- -- -- (442,815) 1,654,610 (1,076,673)
- -----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments -- -- -- (336,573) 1,707,730 (1,123,825)
- -----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 134,874 239,141 175,902 1,100,828 2,709,043 (425,490)
=============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
----------------------------------------------------------------------
Capital
Appreciation Growth
Fund Fund
---------------------------------------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends 6,069,096 331,803 4,077,084 3,110,376 393,011 110,209
Expenses -- Mortality and
expense risk charges (note 3) 1,506,102 868,053 517,863 599,846 265,718 130,807
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 4,562,994 (536,250) 3,559,221 2,510,530 127,293 (20,598)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain (loss) 6,301,279 1,666,666 (295,786) 1,959,742 739,151 156,193
Unrealized appreciation (depreciation)
on investments 7,478,382 18,977,772 (5,974,329) 5,568,726 5,287,316 (131,358)
- -----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 13,779,661 20,644,438 (6,270,115) 7,528,468 6,026,467 24,835
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 18,342,655 20,108,188 (2,710,894) 10,038,998 6,153,760 4,237
=======================================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
---------------------------------------------------------------------------
High Multiple
Income Strategies
Fund Fund
----------------------- -----------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $ 6,387,294 3,582,283 1,862,474 3,343,955 2,521,297 1,498,286
Expenses -- Mortality and
expense risk charges (note 3) 825,956 471,932 239,523 571,993 410,701 315,765
- ------------------------------------------------------------------------------------------------------------------------
Net investment income 5,561,338 3,110,351 1,622,951 2,771,962 2,110,596 1,182,521
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) 763,575 (105,319) (231,920) 701,256 353,442 173,683
Unrealized appreciation
(depreciation) on investments 2,079,281 2,497,291 (2,323,932) 2,786,345 3,750,075 (2,203,089)
- ------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 2,842,856 2,391,972 (2,555,852) 3,487,601 4,103,517 (2,029,406)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 8,404,194 5,502,323 (932,901) 6,259,563 6,214,113 (846,885)
========================================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Variable Insurance Products Fund
------------------------------------------------------------------------------
High
Money Market Income
Portfolio Portfolio
-------------------------------------------------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $ 1,655,033 3,320,468 2,051,133 2,780,632 1,144,671 798,967
Expenses -- Mortality and
expense risk charges (note 3) 382,911 699,880 540,987 332,922 297,241 135,458
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 1,272,122 2,620,588 1,510,146 2,447,710 847,430 663,509
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) -- -- -- 479,085 425,760 (100,779)
Unrealized appreciation
(depreciation) on investments -- -- -- 308,688 2,702,738 (890,395)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments -- -- -- 787,773 3,128,498 (991,174)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 1,272,122 2,620,588 1,510,146 3,235,483 3,975,928 (327,665)
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
-----------------------------------------------------------------------------
Equity-
Income Growth
Portfolio Portfolio
-----------------------------------------------------------------------------
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $ 12,605,854 10,037,638 4,675,559 13,903,188 567,790 4,043,602
Expenses -- Mortality and
expense risk charges (note 3) 4,253,036 2,138,272 902,437 2,834,086 1,696,933 943,085
- -------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 8,352,818 7,899,366 3,773,122 11,069,102 (1,129,143) 3,100,517
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) 9,394,625 4,284,587 284,694 9,229,819 7,510,176 424,903
Unrealized appreciation
(depreciation) on investments 23,601,942 37,953,951 (106,600) 6,990,625 29,804,134 (3,300,969)
- -------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 32,996,567 42,238,538 178,094 16,220,444 37,314,310 (2,876,066)
- -------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 41,349,385 50,137,904 3,951,216 27,289,546 36,185,167 224,451
===================================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Variable Insurance Products Fund
Overseas
Portfolio
----------------------------------
Year ended December 31,
1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $ 2,309,161 644,375 196,613
Expenses -- Mortality and expense
risk charges (note 3) 1,245,263 999,548 750,229
- ---------------------------------------------------------------------------------------------------
Net investment income (expense) 1,063,898 (355,173) (553,616)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain 2,693,770 734,798 810,922
Unrealized appreciation (depreciation)
on investments 7,585,836 6,428,977 (1,667,636)
- ---------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 10,279,606 7,163,775 (856,714)
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations $ 11,343,504 6,808,602 (1,410,330)
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
------------------------------------------------------------
Asset
Manager Contrafund
Portfolio Portfolio
Period from
January 5,
Year ended 1995 to
Year ended December 31, December 31, December 31,
1996 1995 1994 1996 1995
<S> <C>
Investment income:
Income -- Dividends $ 27,801,550 9,085,957 15,691,643 634,656 784,088
Expenses -- Mortality and expense risk
charges (note 3) 4,059,911 4,926,810 4,653,566 1,322,883 323,922
- ----------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 23,741,639 4,159,147 11,038,077 (688,227) 460,166
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain 7,507,674 1,958,733 275,628 2,738,082 905,255
Unrealized appreciation (depreciation)
on investments 23,008,153 55,306,129 (40,761,110) 17,275,767 4,218,866
- ----------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 30,515,827 57,264,862 (40,485,482) 20,013,849 5,124,121
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations $ 54,257,466 61,424,009 (29,447,405) 19,325,622 5,584,287
============================================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Advisers Management Trust
Balanced Bond
Portfolio Portfolio
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $ 5,226,886 748,770 1,202,168 1,231,424 958,338 708,775
Expenses -- Mortality and expense
risk charges (note 3) 381,777 385,789 345,231 151,484 210,707 234,710
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 4,845,109 362,981 856,937 1,079,940 747,631 474,065
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) 419,822 895,552 369,206 (136,701) 45,793 (487,357)
Unrealized appreciation (depreciation)
on investments (3,501,201) 5,264,633 (2,580,253) (646,673) 816,276 (236,796)
- ----------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (3,081,379) 6,160,185 (2,211,047) (783,374) 862,069 (724,153)
- ----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations $ 1,763,730 6,523,166 (1,354,110) 296,566 1,609,700 (250,088)
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Advisers Management Trust
Growth
Portfolio
Year ended December 31,
1996 1995 1994
<S> <C>
Investment income:
Income -- Dividends $1,152,528 246,676 813,202
Expenses -- Mortality and
expense risk charges (note 3) 146,484 127,144 73,324
- -----------------------------------------------------------------------------
Net investment income 1,006,044 119,532 739,878
- -----------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) 315,046 242,067 (88,698)
Unrealized appreciation (depreciation)
on investments (363,320) 1,957,190 (1,043,018)
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (48,274) 2,199,257 (1,131,716)
- -----------------------------------------------------------------------------
Increase (decrease) in net assets from
operations $ 957,770 2,318,789 (391,838)
=============================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Federated Investors Insurance
Series
American High Income
Leaders Bond Utility
Fund II Fund II Fund II
Period from Period from
Period from February 3, January 27,
May 6, 1996 to Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31, December 31,
1996 1996 1995 1996 1995
<S> <C>
Investment income:
Income -- Dividends $ 15,977 579,337 45,272 766,616 223,744
Expenses -- Mortality and
expense risk charges (note 3) 12,003 87,381 6,392 243,314 61,497
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (expense) 3,974 491,956 38,880 523,302 162,247
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) 29,680 31,769 3,368 336,527 90,613
Unrealized appreciation
(depreciation) on investments 162,046 424,014 26,388 1,113,241 914,307
- ---------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 191,726 455,783 29,756 1,449,768 1,004,920
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations $ 195,700 947,739 68,636 1,973,070 1,167,167
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Alger American
Small
Cap Growth
Portfolio Portfolio
Period from Period from
October 3, October 4,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
<S> <C>
Investment income:
Income -- Dividends 105,411 -- 668,828 --
Expenses -- Mortality and
expense risk charges (note 3) 414,206 9,745 358,846 6,776
- -------------------------------------------------------------------------------------------------
Net investment income (expense) (308,795) (9,745) 309,982 (6,776)
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments:
Net realized gain (loss) (122,299) (20,417) 315,644 (2,380)
Unrealized appreciation
(depreciation) on investments (80,937) (25,048) 2,224,353 27,240
- -------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (203,236) (45,465) 2,539,997 24,860
- -------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations (512,031) (55,210) 2,849,979 18,084
=================================================================================================
</TABLE>
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Janus Aspen Series
Aggressive
Growth Growth
Portfolio Portfolio
Year ended Year ended
December 31, December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Investment income:
Income - Dividends $ 755,467 701,550 143,307 3,316,849 1,774,926 109,722
Expenses - Mortality and expense risk charges (note 3) 880,271 464,496 102,376 1,496,337 686,203 258,877
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (expense) (124,804) 237,054 40,931 1,820,512 1,088,723 (149,155)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain 3,422,984 1,735,504 117,926 4,286,543 1,220,855 141,619
Unrealized appreciation (depreciation) on investments 109,555 7,840,280 1,778,397 11,457,707 11,886,046 75,874
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3,532,539 9,575,784 1,896,323 15,744,250 13,106,901 217,493
- ---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations $ 3,407,735 9,812,838 1,937,254 17,564,762 14,195,624 68,338
=================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Series
Worldwide
Growth
Portfolio
Year ended
December 31,
1996 1995 1994
<S> <C>
Investment income:
Income - Dividends 2,094,632 225,282 3,147
Expenses - Mortality and expense risk charges (note 3) 1,418,611 477,320 204,215
- ------------------------------------------------------------------------------------------------
Net investment income (expense) 676,021 (252,038) (201,068)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments:
Net realized gain 5,069,677 439,501 1,394,128
Unrealized appreciation (depreciation) on investments 18,944,795 9,549,318 (1,349,019)
- ------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 24,014,472 9,988,819 45,109
- ------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 24,690,493 9,736,781 (155,959)
================================================================================================
</TABLE>
17
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Operations, Continued
<TABLE>
<CAPTION>
Janus Aspen Series (continued)
Flexible International
Balanced Income Growth
Portfolio Portfolio Portfolio
Period from Period from Period from
October 11, October 13, May 3, 1996
Year ended 1995 to Year ended 1995 to to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
<S> <C>
Investment income:
Income - Dividends $ 283,521 12,299 288,802 20,133 54,433
Expenses - Mortality and expense risk
charges (note 3) 113,425 2,009 40,424 980 45,378
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income 170,096 10,290 248,378 19,153 9,055
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments:
Net realized gain 122,576 9,364 4,524 29 187,391
Unrealized appreciation (depreciation)
on investments 920,620 37,909 68,898 (2,240) 586,615
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1,043,196 47,273 73,422 (2,211) 774,006
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations $ 1,213,292 57,563 321,800 16,942 783,061
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
Common Government
Stock Index Securities
Portfolio Portfolio
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 22,942,876 272,440 32,665 1,165,729 481,595 170,881
Net realized gain (loss) 1,510,464 345,068 (65,078) (68,248) (20,275) (401,286)
Unrealized appreciation
(depreciation) on investments (16,204,375) 2,539,788 (8,702) (995,503) 567,616 (216,822)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 8,248,965 3,157,296 (41,115) 101,978 1,028,936 (447,227)
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 18,225,715 7,357,078 1,724,390 3,734,757 1,619,783 2,890,849
Transfers (to) from the general account of Life of
Virginia:
Death benefits (77,864) (143,652) (10,380) (76,802) (44,216) (14,693)
Surrenders (1,079,082) (306,506) (177,818) (492,750) (500,706) (213,354)
Cost of insurance and administrative expense
(note 3) (45,091) (22,813) (14,229) (21,731) (17,040) (17,841)
Transfer gain (loss) and transfer fees (note 3) 7,463 (8,822) (1,218) 8,420 (9,439) 1,433
Transfers (to) from the Guarantee Account (note 1) 3,139,208 695,771 (20,371) 135,548 60,927 (424,053)
Interfund transfers 5,665,381 5,341,899 396,185 (65,339) 2,038,922 (797,830)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 25,835,730 12,912,955 1,896,559 3,222,103 3,148,231 1,424,511
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 34,084,695 16,070,251 1,855,444 3,324,081 4,177,167 977,284
Net assets at beginning of year 21,783,756 5,713,505 3,858,061 9,805,889 5,628,722 4,651,438
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $55,868,451 21,783,756 5,713,505 13,129,970 9,805,889 5,628,722
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life of Virginia Series Fund, Inc.
Money Market Total Return
Portfolio Portfolio
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 4,224,053 953,357 150,596 8,962,291 1,389,047 299,516
Net realized gain (loss) 1,686,452 312,501 56,347 614,446 308,073 52,519
Unrealized appreciation
(depreciation) on investments (2,984,484) (757,472) (36,981) (6,827,262) 1,987,241 (190,731)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 2,926,021 508,386 169,962 2,749,475 3,684,361 161,304
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 153,728,177 52,511,585 26,435,513 8,515,814 4,777,568 4,226,681
Transfers (to) from the general account of Life of
Virginia:
Death benefits (781,386) (4,954) (19,063) (153,153) (184,615) (42,532)
Surrenders (8,255,412) (2,099,100) (2,204,998) (946,894) (685,070) (477,463)
Cost of insurance and administrative expense
(note 3) (78,769) (17,072) (30,941) (51,588) (40,610) (34,693)
Transfer gain (loss) and transfer fees (note 3) 28,173 52,426 11,405 (69,616) 5,627 25,934
Transfers (to) from the Guarantee Account (note 1) 4,298,099 4,957,966 (2,851,523) 919,901 401,449 (436,022)
Interfund transfers (93,981,321) (30,878,764) (17,423,556) 75,151 2,419,115 92,268
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 54,957,561 24,522,087 3,916,837 8,289,615 6,693,464 3,354,173
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 57,883,582 25,030,473 4,086,799 11,039,090 10,377,825 3,515,477
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at beginning of year 32,303,591 7,273,118 3,186,319 22,555,371 12,177,546 8,662,069
Net assets at end of year $90,187,173 32,303,591 7,273,118 33,594,461 22,555,371 12,177,546
==================================================================================================================================
</TABLE>
19
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
Life of Virginia Series
Fund, Inc. (continued)
International Real Estate
Equity Securities
Portfolio Portfolio
Period from Period from
May 23, May 2,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 999,110 26,712 1,578,261 667,676
Net realized gain 86,537 646 299,159 24,928
Unrealized appreciation (depreciation) on investments (11,119) 25,880 4,059,521 1,049,744
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 1,074,528 53,238 5,936,941 1,742,348
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 2,563,735 332,761 2,949,990 301,414
Transfers (to) from the general account of Life of Virginia:
Death benefits (3,522) (2,053) -- (1,392)
Surrenders (103,501) (1,796) (41,760) (1,136)
Cost of insurance and administrative expense (note 3) (6,060) (661) (3,136) (286)
Transfer gain and transfer fees (note 3) (92,027) 1,565 (107,856) 1,212
Capital contribution 10,925,561 -- -- 10,000,000
Transfers from the Guarantee Account (note 1) 557,466 101,612 539,647 70,614
Interfund transfers 1,263,184 1,237,114 4,063,439 261,308
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 15,104,836 1,668,542 7,400,324 10,631,734
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 16,179,364 1,721,780 13,337,265 12,374,082
Net assets at beginning of period 1,721,780 -- 12,374,082 --
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 17,901,144 1,721,780 25,711,347 12,374,082
==================================================================================================================================
</TABLE>
20
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
Money
Fund
Year ended December 31,
1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 134,874 239,141 175,902
Net realized gain (loss) -- -- --
Unrealized appreciation (depreciation) on investments -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 134,874 239,141 175,902
- ----------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 1,000 1,236,189 7,678,267
Transfers (to) from the general account of Life of Virginia:
Death benefits (25,650) -- --
Surrenders (248,877) (534,163) (546,418)
Cost of insurance and administrative expense (note 3) (7,741) (12,911) (18,965)
Transfer gain (loss) and transfer fees (note 3) (6,711) (10,807) 17,648
Transfers (to) from the Guarantee Account (note 1) (72,686) (522,980) (386,202)
Interfund transfers (1,858,335) (3,724,005) (1,087,392)
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (2,219,000) (3,568,677) 5,656,938
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (2,084,126) (3,329,536) 5,832,840
Net assets at beginning of year 4,834,802 8,164,338 2,331,498
- ----------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 2,750,676 4,834,802 8,164,338
============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
Bond
Fund
Year ended December 31,
1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $1,437,401 1,001,313 698,335
Net realized gain (loss) 106,242 53,120 (47,152)
Unrealized appreciation (depreciation) on investments (442,815) 1,654,610 (1,076,673)
- --------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,100,828 2,709,043 (425,490)
- --------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 6,447,661 3,897,393 5,611,237
Transfers (to) from the general account of Life of Virginia:
Death benefits (255,232) (103,070) (186,474)
Surrenders (1,174,644) (1,044,752) (413,064)
Cost of insurance and administrative expense (note 3) (47,633) (43,224) (37,823)
Transfer gain (loss) and transfer fees (note 3) 15,212 (70,035) (16,223)
Transfers (to) from the Guarantee Account (note 1) 1,424,034 277,812 (532,602)
Interfund transfers 1,248,636 1,434,738 385,204
- --------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 7,658,034 4,348,862 4,810,255
- --------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 8,758,862 7,057,905 4,384,765
Net assets at beginning of year 22,880,079 15,822,174 11,437,409
- --------------------------------------------------------------------------------------------------------
Net assets at end of year $31,638,941 22,880,079 15,822,174
========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
Capital
Appreciation Growth
Fund Fund
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 4,562,994 (536,250) 3,559,221 2,510,530 127,293 (20,598)
Net realized gain (loss) 6,301,279 1,666,666 (295,786) 1,959,742 739,151 156,193
Unrealized appreciation
(depreciation) on investments 7,478,382 18,977,772 (5,974,329) 5,568,726 5,287,316 (131,358)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from operations 18,342,655 20,108,188 (2,710,894) 10,038,998 6,153,760 4,237
- ------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 35,523,585 13,056,769 33,580,537 15,322,231 8,623,363 3,884,748
Transfers (to) from the general
account of Life of Virginia:
Death benefits (577,949) (315,870) (93,328) (246,052) (11,683) (9,773)
Surrenders (5,679,609) (3,725,572) (995,422) (1,802,707) (531,276) (515,377)
Cost of insurance and administrative
expense (note 3) (237,053) (179,980) (140,228) (79,593) (49,718) (33,196)
Transfer gain (loss) and
transfer fees (note 3) (234,268) (110,449) (217,849) (9,390) (2,381) (9,445)
Transfers (to) from the
Guarantee Account (note 1) 5,093,547 910,511 (361,814) 2,323,647 807,793 (99,892)
Interfund transfers 16,982,928 899,125 5,252,436 8,265,699 5,644,624 703,654
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 50,871,181 10,534,534 37,024,332 23,773,835 14,480,722 3,920,719
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 69,213,836 30,642,722 34,313,438 33,812,833 20,634,482 3,924,956
Net assets at beginning of year 89,630,345 58,987,623 24,674,185 34,046,536 13,412,054 9,487,098
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $158,844,181 89,630,345 58,987,623 67,859,369 34,046,536 13,412,054
==============================================================================================================================
</TABLE>
21
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
Oppenheimer Variable Account Fund
High Multiple
Income Strategies
Fund Fund
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 5,561,338 3,110,351 1,622,951 2,771,962 2,110,596 1,182,521
Net realized gain (loss) 763,575 (105,319) (231,920) 701,256 353,442 173,683
Unrealized appreciation
(depreciation) on investments 2,079,281 2,497,291 (2,323,932) 2,786,345 3,750,075 (2,203,089)
- ------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 8,404,194 5,502,323 (932,901) 6,259,563 6,214,113 (846,885)
- ------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 22,356,655 11,530,804 16,369,336 8,520,761 4,566,130 10,981,087
Transfers (to) from the general
account of Life of Virginia:
Death benefits (693,092) (69,961) (55,784) (389,751) (183,215) (122,743)
Surrenders (2,655,530) (1,461,891) (757,957) (2,097,537) (1,641,635) (903,275)
Cost of insurance and administrative
expense (note 3) (100,320) (73,580) (62,628) (104,392) (93,990) (83,415)
Transfer gain (loss) and transfer
fees (note 3) (25,953) 144,255 (34,514) (27,395) (65,699) (24,108)
Tranfers (to) from the Guarantee
Account (note 1) 3,777,050 1,497,477 (523,877) 1,507,791 282,847 (564,250)
Interfund transfers 9,730,803 2,860,809 (888,148) 198,943 787,704 1,327,916
- ------------------------------------------------------------------------------------------------------------------------
Increase in net assets from
capital transactions 32,389,613 14,427,913 13,046,428 7,608,420 3,652,142 10,611,212
- ------------------------------------------------------------------------------------------------------------------------
Increase in net assets 40,793,807 19,930,236 12,113,527 13,867,983 9,866,255 9,764,327
Net assets at beginning of year 44,968,830 25,038,594 12,925,067 40,250,929 30,384,674 20,620,347
- ------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 85,762,637 44,968,830 25,038,594 54,118,912 40,250,929 30,384,674
========================================================================================================================
</TABLE>
22
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
Variable Insurance Products Fund
Money Market
Portfolio
Year ended December 31,
1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 1,272,122 2,620,588 1,510,146
Net realized gain (loss) -- -- --
Unrealized appreciation (depreciation) on investments -- -- --
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,272,122 2,620,588 1,510,146
- --------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 117,921 36,176,530 79,067,408
Transfers (to) from the general account of Life of Virginia:
Death benefits (458,667) 103,982 (1,460,159)
Surrenders (2,213,343) (4,660,173) (3,367,219)
Cost of insurance and administrative expense (note 3) (65,257) (121,073) (146,671)
Transfer gain (loss) and transfer fees (note 3) (204,381) 49,754 (20,591)
Transfers (to) from the Guarantee Account (note 1) (661,457) (141,309) (6,872,564)
Interfund transfers (23,959,305) (47,938,008) (25,417,768)
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (27,444,489) (16,530,297) 41,782,436
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (26,172,367) (13,909,709) 43,292,582
Net assets at beginning of year 48,156,015 62,065,724 18,773,142
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 21,983,648 48,156,015 62,065,724
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
High
Income
Portfolio
Year ended December 31,
1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 2,447,710 847,430 663,509
Net realized gain (loss) 479,085 425,760 (100,779)
Unrealized appreciation (depreciation) on investments 308,688 2,702,738 (890,395)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 3,235,483 3,975,928 (327,665)
- ----------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums (248,987) 7,262,170 8,930,853
Transfers (to) from the general account of Life of Virginia:
Death benefits (33,131) (117,911) (23,586)
Surrenders (1,859,776) (953,927) (317,616)
Cost of insurance and administrative expense (note 3) (54,571) (51,018) (36,445)
Transfer gain (loss) and transfer fees (note 3) (14,545) (10,918) (47,417)
Transfers (to) from the Guarantee Account (note 1) (109,624) 860,461 (281,733)
Interfund transfers (7,008,575) 4,509,566 (116,753)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (9,329,209) 11,498,423 8,107,303
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (6,093,726) 15,474,351 7,779,638
Net assets at beginning of year 30,894,827 15,420,476 7,640,838
- ----------------------------------------------------------------------------------------------------------------
Net assets at end of year $24,801,101 30,894,827 15,420,476
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund
Equity--
Income Growth
Portfolio Portfolio
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 8,352,818 7,899,366 3,773,122 11,069,102 (1,129,143) 3,100,517
Net realized gain (loss) 9,394,625 4,284,587 284,694 9,229,819 7,510,176 424,903
Unrealized appreciation
(depreciation) on investments 23,601,942 37,953,951 (106,600) 6,990,625 29,804,134 (3,300,969)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 41,349,385 50,137,904 3,951,216 27,289,546 36,185,167 224,451
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 91,217,558 63,044,040 43,319,748 40,351,417 35,842,400 38,436,463
Transfers (to) from the
general account of Life of Virginia:
Death benefits (2,317,929) (623,306) (890,708) (1,395,457) (338,418) (266,922)
Surrenders (12,923,609) (7,390,359) (1,798,386) (8,362,725) (5,531,711) (2,014,772)
Cost of insurance and
administrative expense (note 3) (565,181) (384,060) (224,723) (441,506) (345,393) (244,798)
Transfer gain (loss) and
transfer fees (note 3) (81,577) (128,097) 45,914 (243,398) 13,309 (94,035)
Transfers (to) from the
Guarantee Account (note 1) 14,669,920 8,592,478 (707,930) 7,334,280 3,842,828 (241,053)
Interfund transfers 12,688,430 43,164,815 13,086,320 (3,259,632) 18,922,427 6,890,505
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from capital transactions 102,687,612 106,275,511 52,830,235 33,982,979 52,405,442 42,465,388
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 144,036,997 156,413,415 56,781,451 61,272,525 88,590,609 42,689,839
Net assets at beginning of year 261,261,605 104,848,190 48,066,739 190,272,842 101,682,233 58,992,394
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $405,298,602 261,261,605 104,848,190 251,545,367 190,272,842 101,682,233
===================================================================================================================================
</TABLE>
23
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
Variable Insuracne Products Fund
Overseas
Portfolio
Year ended December 31,
1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 1,063,898 (355,173) (553,616)
Net realized gain 2,693,770 734,798 810,922
Unrealized appreciation (depreciation) on investments 7,585,836 6,428,977 (1,667,636)
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 11,343,504 6,808,602 (1,410,330)
- ---------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 11,020,984 10,634,049 47,044,690
Transfers (to) from the general account of Life of Virginia:
Death benefits (528,522) (556,976) (171,446)
Surrenders (3,972,175) (3,063,268) (1,164,675)
Cost of insurance and administrative expense (note 3) (214,759) (208,318) (185,276)
Transfer gain (loss) and transfer fees (note 3) (85,300) (53,050) 2,802
Transfers (to) from Gurantee Account (note 1) 3,116,987 590,771 (114,884)
Interfund transfers (4,620,473) (7,084,976) 12,111,215
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions 4,716,742 258,232 57,522,426
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 16,060,246 7,066,834 56,112,096
Net assets at beginning of period 91,275,007 84,208,173 28,096,077
- ---------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 107,335,253 91,275,007 84,208,173
=====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Variable Insurance Products Fund II
Asset
Manager Contrafund
Portfolio Portfolio
Period from
January 5,
Year ended 1995 to
Year ended December 31, December 31, December 31,
1996 1995 1994 1996 1995
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $23,741,639 4,159,147 11,038,077 (688,227) 460,166
Net realized gain 7,507,674 1,958,733 275,628 2,738,082 905,255
Unrealized appreciation (depreciation) on investments 23,008,153 55,306,129 (40,761,110) 17,275,767 4,218,866
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 54,257,466 61,424,009 (29,447,405) 19,325,622 5,584,287
- -----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 15,580,792 21,217,331 210,283,774 41,520,289 26,666,752
Transfers (to) from the general account of Life of Virginia:
Death benefits (3,090,108) (2,849,779) (1,132,025) (569,391) (17,699)
Surrenders (23,863,347) (23,760,769) (13,957,293) (3,409,236) (676,614)
Cost of insurance and administrative expense (note 3) (1,159,170) (1,245,010) (1,320,021) (139,550) (42,327)
Transfer gain (loss) and transfer fees (note 3) (2,150,299) (305,606) (598,560) (6,491) (28,134)
Transfers (to) from Gurantee Account (note 1) 2,112,849 (7,015,144) (6,414,358) 8,894,897 4,851,438
Interfund transfers (31,512,425) (58,702,053) 7,913,872 15,486,630 25,426,220
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (44,081,708) (72,661,030) 194,775,389 61,777,148 56,179,636
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 10,175,758 (11,237,021) 165,327,984 81,102,770 61,763,923
Net assets at beginning of period 425,662,411 436,899,432 271,571,448 61,763,923 --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $435,838,169 425,662,411 436,899,432 142,866,693 61,763,923
===================================================================================================================================
</TABLE>
24
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
Advisors Management Trust
Balanced
Portfolio
Year ended December 31,
1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 4,845,109 362,981 856,937
Net realized gain (loss) 419,822 895,552 369,206
Unrealized appreciation (depreciation) on investments (3,501,201) 5,264,633 (2,580,253)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 1,763,730 6,523,166 (1,354,110)
- -----------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums -- 2,535,815 4,905,972
Transfers (to) from the general account of Life of Virginia:
Death benefits (191,199) (153,937) (222,647)
Surrenders (2,074,244) (1,503,514) (850,409)
Cost of insurance and administrative expense (note 3) (82,124) (88,114) (87,021)
Transfer gain (loss) and transfer fees (note 3) (12,205) 7,049 (6,823)
Transfers (to) from the Guarantee Account (note 1) (37,694) (134,229) (303,659)
Interfund transfers (3,810,712) (2,179,193) (1,980,780)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from capital transactions (6,208,178) (1,516,123) 1,454,633
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (4,444,448) 5,007,043 100,523
Net assets at beginning of year 35,206,912 30,199,869 30,099,346
- -----------------------------------------------------------------------------------------------------------------------
Net assets at end of year $ 30,762,464 35,206,912 30,199,869
======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Advisors Management Trust
Bond Growth
Portfolio Portfolio
Year ended December 31, Year ended December 31,
1996 1995 1994 1996 1995 1994
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $1,079,940 747,631 474,065 1,006,044 119,532 739,878
Net realized gain (loss) (136,701) 45,793 (487,357) 315,046 242,067 (88,698)
Unrealized appreciation
(depreciation) on investments (646,673) 816,276 (236,796) (363,320) 1,957,190 (1,043,018)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets from operations 296,566 1,609,700 (250,088) 957,770 2,318,789 (391,838)
- ------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums -- 4,761,820 26,294,787 4,370 2,833,430 2,626,919
Transfers (to) from the general
account of Life of Virginia:
Death benefits (225,838) (7,505) (95,897) (56,431) (78,819) (9,898)
Surrenders (366,908) (522,591) (440,989) (415,296) (251,354) (120,880)
Cost of insurance and administrative
expense (note 3) (24,278) (37,167) (59,746) (25,172) (23,723) (17,468)
Transfer gain (loss) and
transfer fees (note 3) (9,665) (23,158) (26,596) (10,420) (697) 4,278
Transfers (to) from the
Guarantee Account (note 1) (92,797) 798,511 (1,028,597) (14,970) 36,976 (65,829)
Interfund transfers (5,700,964) (9,447,152) (16,482,327) (3,652,818) 1,961,133 (1,243,094)
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
capital transactions (6,420,450) (4,477,242) 8,160,635 (4,170,737) 4,476,946 1,174,028
- ------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets (6,123,884) (2,867,542) 7,910,547 (3,212,967) 6,795,735 782,190
Net assets at beginning of year 15,845,921 18,713,463 10,802,916 13,715,063 6,919,328 6,137,138
- ------------------------------------------------------------------------------------------------------------------------------
Net assets at end of year $9,722,037 15,845,921 18,713,463 10,502,096 13,715,063 6,919,328
==============================================================================================================================
</TABLE>
25
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
Federated Investors Insurance
Series
American High Income
Leaders Bond Utility
Fund II Fund II Fund II
Period from Period from
Period from February 3, January 27,
May 6, 1996 to Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31, December 31,
1996 1996 1995 1996 1995
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 3,974 491,956 38,880 523,302 162,247
Net realized gain (loss) 29,680 31,769 3,368 336,527 90,613
Unrealized appreciation (depreciation)
on investments 162,046 424,014 26,388 1,113,241 914,307
- ---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
from operations 195,700 947,739 68,636 1,973,070 1,167,167
- ---------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 2,249,062 4,468,263 1,448,946 7,032,730 4,723,697
Transfers (to) from the general
account of Life of Virginia:
Death benefits -- (42,084) -- (172,666) --
Surrenders (28,376) (428,701) (12,805) (708,499) (150,715)
Cost of insurance and administrative
expense (note 3) (522) (5,233) (601) (25,376) (7,470)
Transfer gain (loss) and
transfer fees (note 3) 4,221 (43) 5,535 11,752 (650)
Transfers from the Guarantee
Account (note 1) 146,563 670,397 200,240 1,313,211 982,260
Interfund transfers 1,208,370 6,113,878 235,916 830,436 5,539,763
- --------------------------------------------------------------------------------------------------------------------
Increase in net assets from
capital transactions 3,579,318 10,776,477 1,877,231 8,281,588 11,086,885
- --------------------------------------------------------------------------------------------------------------------
Increase in net assets 3,775,018 11,724,216 1,945,867 10,254,658 12,254,052
Net assets at beginning of period -- 1,945,867 -- 12,254,052 --
- --------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 3,775,018 13,670,083 1,945,867 22,508,710 12,254,052
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Alger American
Small
Cap Growth
Portfolio Portfolio
Period from Period from
October 3, October 4,
Year ended 1995 to Year ended 1995 to
December 31, December 31, December 31, December 31,
1996 1995 1996 1995
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ (308,795) (9,745) 309,982 (6,776)
Net realized gain (loss) (122,299) (20,417) 315,644 (2,380)
Unrealized appreciation (depreciation) on investments (80,937) (25,048) 2,224,353 27,240
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations (512,031) (55,210) 2,849,979 18,084
- --------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 25,934,981 3,369,922 21,518,317 2,632,716
Transfers (to) from the general account of Life of Virginia:
Death benefits (167,439) -- (22,815) --
Surrenders (837,016) (18,166) (539,265) (4,789)
Cost of insurance and administrative expense (note 3) (32,819) (1,420) (26,996) (895)
Transfer gain (loss) and transfer fees (note 3) (18,410) 7,625 (32,858) 1,883
Transfers from the Guarantee Account (note 1) 5,067,731 298,188 3,628,084 (47,006)
Interfund transfers 10,297,239 3,969,177 11,823,073 2,922,881
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 40,244,267 7,625,326 36,347,540 5,504,790
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 39,732,236 7,570,116 39,197,519 5,522,874
Net assets at beginning of period 7,570,116 -- 5,522,874 --
- --------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $47,302,352 7,570,116 44,720,393 5,522,874
================================================================================================================================
</TABLE>
26
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
======================================================================================================
Janus Aspen Series
--------------------------------------
Aggressive
Growth
Portfolio
--------------------------------------
Year ended
December 31,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ (124,804) 237,054 40,931
Net realized gain 3,422,984 1,735,504 117,926
Unrealized appreciation (depreciation) on investments 109,555 7,840,280 1,778,397
- ------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 3,407,735 9,812,838 1,937,254
- ------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 17,880,226 16,756,982 11,040,719
Transfers (to) from the general account of Life of Virginia:
Death benefits (394,284) (86,506) (46,281)
Surrenders (2,851,517) (1,216,524) (143,136)
Cost of insurance and administrative expense (note 3) (112,813) (73,928) (27,618)
Transfer gain (loss) and transfer fees (note 3) (40,003) 38,529 16,650
Transfers (to) from the Guarantee Account (note 1) 3,328,781 2,434,875 (194,133)
Interfund transfers 8,025,078 7,553,096 5,460,535
- ------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 25,835,468 25,406,524 16,106,736
- ------------------------------------------------------------------------------------------------------
Increase in net assets 29,243,203 35,219,362 18,043,990
Net assets at beginning of year 54,720,334 19,500,972 1,456,982
- ------------------------------------------------------------------------------------------------------
Net assets at end of year $ 83,963,537 54,720,334 19,500,972
======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================
Janus Aspen Series
-----------------------------------------
Growth
Portfolio
---------------------------------------
Year ended
December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 1,820,512 1,088,723 (149,155)
Net realized gain 4,286,543 1,220,855 141,619
Unrealized appreciation (depreciation) on investments 11,457,707 11,886,046 75,874
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 17,564,762 14,195,624 68,338
- ---------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 35,456,497 20,907,687 23,804,072
Transfers (to) from the general account of Life of Virginia:
Death benefits (483,092) (292,563) (88,205)
Surrenders (3,747,509) (1,304,563) (335,606)
Cost of insurance and administrative expense (note 3) (199,595) (125,440) (70,249)
Transfer gain (loss) and transfer fees (note 3) (208,664) (42,445) (30,507)
Transfers (to) from the Guarantee Account (note 1) 7,027,293 2,397,459 (64,235)
Interfund transfers 11,381,396 14,146,981 5,733,375
- ---------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 49,226,326 35,687,116 28,948,645
- ---------------------------------------------------------------------------------------------------------
Increase in net assets 66,791,088 49,882,740 29,016,983
Net assets at beginning of year 84,905,484 35,022,744 6,005,761
- ---------------------------------------------------------------------------------------------------------
Net assets at end of year $151,696,572 84,905,484 35,022,744
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
==========================================================================================================
Janus Aspen Series
------------------------------------------
Worldwide
Growth
Portfolio
---------------------------------------
Year ended
December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income (expense) $ 676,021 (252,038) (201,068)
Net realized gain 5,069,677 439,501 1,394,128
Unrealized appreciation (depreciation) on investments 18,944,795 9,549,318 (1,349,019)
- ----------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 24,690,493 9,736,781 (155,959)
- ----------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 45,862,046 14,202,159 17,754,295
Transfers (to) from the general account of Life of Virginia:
Death benefits (407,146) (146,748) (74,067)
Surrenders (2,394,900) (1,173,774) (321,790)
Cost of insurance and administrative expense (note 3) (172,873) (87,512) (53,600)
Transfer gain (loss) and transfer fees (note 3) (183,599) (23,608) (34,313)
Transfers (to) from the Guarantee Account (note 1) 8,313,366 1,874,804 40,818
Interfund transfers 42,049,450 7,110,222 7,084,163
- ----------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 93,066,344 21,755,543 24,395,506
- ----------------------------------------------------------------------------------------------------------
Increase in net assets 117,756,837 31,492,324 24,239,547
Net assets at beginning of year 59,653,861 28,161,537 3,921,990
- ----------------------------------------------------------------------------------------------------------
Net assets at end of year $ 177,410,698 59,653,861 28,161,537
==========================================================================================================
</TABLE>
27
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Statements of Changes in Net Assets, Continued
<TABLE>
<CAPTION>
==================================================================================================================================
Janus Aspen Series (continued)
--------------------------------------------------------------------
Flexible International
Balanced Income Growth
Portfolio Portfolio Portfolio
-------------------------- -------------------------- -----------
Period from Period from Period from
October 11, October 13, May 3, 1996
Year ended 1995 to Year ended 1995 to to
December 31, December 31, December 31, December 31, December 31,
1996 1995 1996 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Increase (decrease) in net assets
From operations:
Net investment income $ 170,096 10,290 248,378 19,153 9,055
Net realized gain 122,576 9,364 4,524 29 187,391
Unrealized appreciation (depreciation) on investments 920,620 37,909 68,898 (2,240) 586,615
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from operations 1,213,292 57,563 321,800 16,942 783,061
- ----------------------------------------------------------------------------------------------------------------------------------
From capital transactions:
Net premiums 8,643,527 619,039 2,591,080 312,671 4,654,797
Transfers (to) from the general account of Life of Virginia:
Death benefits (37,496) - - -
Surrenders (271,087) (61,992) (29,518) (451) (51,116)
Cost of insurance (note 3) (7,301) (379) (2,717) (111) (3,441)
Transfer gain (loss) and transfer fees (note 3) 5,413 (240) (413) 179 3,766
Transfer (to) from the Guarantee Account (note 1) 1,091,622 210,233 345,536 41,646 935,954
Interfund transfers 3,850,513 1,147,007 992,086 419,589 7,189,157
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets from capital transactions 13,275,191 1,913,668 3,896,054 773,523 12,729,117
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets 14,488,483 1,971,231 4,217,854 790,465 13,512,178
Net assets at beginning of period 1,971,231 - 790,465 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period $ 16,459,714 1,971,231 5,008,319 790,465 13,512,178
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Notes to Financial Statements
December 31, 1996
==============================================================================
(1) DESCRIPTION OF ENTITY
Life of Virginia Separate Account 4 (the Account) is a separate
investment account established in 1987 by The Life Insurance Company
of Virginia (Life of Virginia) under the laws of the Commonwealth of
Virginia. The Account operates as a unit investment trust under the
Investment Company Act of 1940. The Account is used to fund certain
benefits for flexible premium variable deferred annuity life
insurance policies issued by Life of Virginia. As of April 1, 1996,
Life of Virginia is a wholly-owned subsidiary of GNA Corporation,
which is a wholly-owned subsidiary of General Electric Capital
Corporation. Prior to April 1, 1996, Life of Virginia was an
indirect wholly-owned subsidiary of Aon Corporation (Aon).
In May 1996, two new investment subdivisions were added to the
Account, for both Type I and II policies. One of these subdivisions,
the International Growth Portfolio, invests solely in a designated
portfolio of the Janus Aspen Series, a series type mutual fund. The
other new subdivision, the American Leaders Fund II, invests solely
in a designated portfolio of the Federated Investors Insurance
Series, a series type mutual fund. During 1995, nine new investment
subdivisions were added to the Account, for both Type I and Type II
policies. The Utility Fund II and High Income Bond Fund II each
invests solely in a designated portfolio of the Federated Investors
Insurance Series, a series type mutual fund. The Contrafund
Portfolio invests solely in a designated portfolio of the Variable
Insurance Products Fund II, a series type mutual fund. The
International Equity Portfolio and the Real Estate Securities
Portfolio each invests solely in a designated portfolio of Life of
Virginia Series Fund, Inc., a series type mutual fund. The Balanced
Portfolio and Flexible Income Portfolio each invests solely in a
designated portfolio of the Janus Aspen Series, a series type mutual
fund. The Growth Portfolio and Small Cap Portfolio each invests
solely in a designated portfolio of the Alger American Fund, a
series type mutual fund.
In November 1995, six subdivisions were closed to new money for both
Type I and Type II policies. For each policy type, three of these
subdivisions, the Balanced Portfolio, Bond Portfolio, and Growth
Portfolio each invests solely in a designated portfolio of the
Advisers Management Trust, a series type mutual fund. The fourth and
fifth closed subdivisions, the Money Market Portfolio and High
Income Portfolio, each invests solely in a designated portfolio of
the Variable Insurance Products Fund, a series type mutual fund. The
sixth closed subdivision, the Money Fund invests solely in a
designated portfolio of the Oppenheimer Variable Account Funds, a
series type mutual fund.
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 in effect at the time of
such transfer and remain in effect for one year, after which a new
rate may be declared.
(continued)
29
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Notes to Financial Statements
===========================================================================
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNIT CLASSES
There are two unit classes included in the Account. Type I units are
sold under policy form P1140 and P1141. Type II units are sold under
policy forms P1142, P1142N and P1143. Type II unit sales began in
the third quarter of 1994.
INVESTMENTS
Investments are stated at fair value which is based on the
underlying net asset value per share of the respective portfolios or
funds. Purchases and sales of investments are recorded on the trade
date. Realized gains and losses on investments are determined on the
average cost basis. The units and unit values are disclosed as of
the last business day in the applicable year or period.
The aggregate cost of investments acquired and the aggregate
proceeds of investments sold, for the year or period ended December
31, 1996 were:
<TABLE>
<CAPTION>
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
- -----------------------------------------------------------------------------------------
<S> <C>
Life of Virginia Series Fund, Inc.:
Common Stock Index $ 36,692,341 11,432,318
Government Securities 10,166,532 7,107,213
Money Market 391,196,364 320,815,562
Total Return 14,983,042 6,885,672
International Equity 17,478,593 2,392,057
Real Estate Securities 9,552,202 1,984,313
Oppenheimer Variable Account Fund:
Money 409,499 2,486,649
Bond 16,439,807 7,336,076
Capital Appreciation 88,810,248 33,430,618
Growth 38,577,404 12,290,558
High Income 69,670,128 31,594,537
Multiple Strategies 17,675,982 7,308,232
Variable Insurance Products Fund:
Money Market 5,800,488 32,080,726
High Income 3,660,044 10,528,929
Equity-Income 181,615,544 70,351,272
Growth 107,512,949 62,292,603
Overseas 34,150,165 28,339,524
Variable Insurance Products Fund II:
Asset Manager 61,300,567 81,645,379
Contrafund 90,161,281 29,333,769
- -----------------------------------------------------------------------------------------
</TABLE>
(continued)
30
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Notes to Financial Statements
===============================================================================
(2) CONTINUED
Cost of Proceeds
Shares from
Fund/Portfolio Acquired Shares Sold
- -------------------------------------------------------------------------------
Advisers Management Trust:
Balanced 5,655,090 6,936,160
Bond 1,830,648 7,157,297
Growth 1,244,527 4,399,296
Federated Investors Insurance Series:
American Leaders 3,953,558 418,490
High Income Bond 14,357,897 3,076,071
Utility 15,642,812 6,776,198
Alger American:
Small Cap 61,955,161 22,013,976
Growth 50,723,947 13,854,932
Janus Aspen Series:
Aggressive Growth 46,001,651 20,237,777
Growth 77,939,677 26,907,321
Worldwide Growth 123,483,783 29,699,308
Balanced 16,888,386 3,423,052
Flexible Income 5,308,689 1,139,810
International Growth 15,855,069 3,342,387
- -------------------------------------------------------------------------------
FEDERAL INCOME TAXES
The Account is not taxed separately because the operations of the
Account are part of the total operations of Life of Virginia. Life
of Virginia is taxed as a life insurance company under the Internal
Revenue Code (the Code). Life of Virginia is included in the General
Electric Capital Assurance Company consolidated federal income tax
return. The Account will not be taxed as a regulated investment
company under subchapter M of the Code. Under existing federal
income tax law, no taxes are payable on the investment income or on
the capital gains of the Account.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the
reporting period. Actual results could differ from those estimates.
(continued)
31
<PAGE>
LIFE OF VIRGINIA SEPARATE ACCOUNT 4
Notes to Financial Statements
================================================================================
(3) RELATED PARTY TRANSACTIONS
Net premiums transferred from Life of Virginia to the Account
represent gross premiums recorded by Life of Virginia on its
flexible premium variable deferred annuity products, less deductions
retained as compensation for premium taxes. For policies issued on
or after May 1, 1993, the deduction for premium taxes will be
deferred until surrender. For Type I policies, during the first ten
years following a premium payment, a .20% charge is deducted monthly
from the policy Account values to reimburse Life of Virginia for
certain distribution expenses. In addition, a charge is imposed on
full and certain partial surrenders that occur within six years of
any premium payment (seven years for certain Type II policies) to
cover certain expenses relating to the sale of a policy. Subject to
certain limitations, the charge equals 6% (or less) of the premium
surrendered, depending on the time between premium payment and
surrender.
Life of Virginia will deduct a charge of $30 per year and $25 plus
.15% per year from the policy account values for certain
administrative expenses incurred for policy Type I and Type II,
respectively. For Type II policies, the $25 charge may be waived if
the account value is greater than $75,000. In addition, Life of
Virginia charges the Account 1.15% and 1.25% on policy Type I and
Type II, respectively, for the mortality and expense risk that Life
of Virginia assumes. Administrative expenses as well as mortality
and risk charges are deducted daily and reflect the effective annual
rates.
Gains or losses resulting from the processing time between the
crediting of an initial premium and the investment of that premium
are charged to Life of Virginia. In addition, any such gain or loss
resulting from the processing time between a request for policy
surrender and the sale of the underlying shares is also charged to
Life of Virginia.
Life of Virginia Series Fund, Inc. (the Fund) is an open-end
diversified management investment company whose shares are sold
to Life of Virginia's Separate Accounts.
Forth Financial Securities Corporation (FFSC), a wholly-owned
subsidiary of GNA Corporation, acts as principal underwriter (as
defined in The Investment Company Act of 1940) of the Account's
policies pursuant to an agreement with Life of Virginia.
Aon Advisors, Inc. (Investment Advisor), a wholly-owned subsidiary
of Aon, serves as investment advisor to the Fund and provides
portfolio management, investment advice, and related administrative
services for the Fund. As compensation for its services, the
Investment Advisor is paid an investment advisory fee by the Fund
based on the average daily net assets at an effective annual rate of
.35% for the Common Stock Index Portfolio, .50% for the Government
Securities, Money Market and Total Return Portfolios, 1.00% for the
International Equity Portfolio and .85% for the Real Estate
Securities Portfolio. Effective July 1, 1994, the investment advisor
agreed to waive a portion of the advisory fee for the Money Market
Portfolio such that the effective annual rate is .10%.
Certain officers and directors of Life of Virginia are also officers
and directors of FFSC and the Fund.
===============================================================================
32
<PAGE>
[KPMG logo]
THE LIFE INSURANCE COMPANY OF
VIRGINIA AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
[KPMG PEAT MARWICK LETTERHEAD]
Suite 1900
1021 East Cary Street
Richmond, VA 23219-4023
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated balance sheets of The Life
Insurance Company of Virginia (an indirect wholly-owned subsidiary of General
Electric Capital Corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the nine months ended December 31, 1996. We have also audited the
preacquisition statements of income, stockholders' equity and cash flows for the
three months ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The accompanying
financial statements of the Life Insurance Company of Virginia as of and for the
years ended December 31, 1995 and 1994, were audited by other auditors whose
report, dated February 8, 1996 on those financial statements included an
explanatory paragraph that described the change in the company's method of
accounting for certain investments.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Life
Insurance Company of Virginia and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for the nine month period ended
December 31, 1996 and the preacquisition three month period ended March 31, 1996
in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, effective April
1, 1996, General Electric Capital Corporation acquired all of the outstanding
stock of The Life Insurance Company of Virginia in a business combination
accounted for as a purchase. As a result of the acquisition, the consolidated
financial information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and,
therefore, is not comparable.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
January 15, 1997
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
Board of Directors
The Life Insurance Company of Virginia
We have audited the accompanying consolidated statement of financial position of
The Life Insurance Company of Virginia and subsidiaries as of December 31, 1995,
and the related consolidated statements of income, stockholder's equity, and
cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Life Insurance
Company of Virginia and subsidiaries at December 31, 1995, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 1 and 2, the Company changed its method of accounting for
certain investments in 1994.
/s/ Ernst & Young LLP
Richmond, Virginia
February 8, 1996
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(in millions)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Preacquisition
ASSETS 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Investments:
Fixed maturities:
Available for sale - at fair value; (amortized cost:
December 31, 1996 - $5,102.2; 1995 - $4,267.2) $ 5,142.7 4,411.0
Equity securities - at fair value
Common stocks (cost: December 31, 1996 - $31.6; 1995 - $31.5) 34.7 35.4
Preferred stocks (cost: December 31, 1996 - $123.5; 1995 - $102.2) 130.8 121.5
Mortgage loans on real estate (net of reserve for losses:
December 31, 1996 - $20.8; 1995 - $23.6) 585.4 592.5
Real estate (net of accumulated depreciation: December 31, 1996 -
$4.4; 1995 - $5.6) 19.4 36.6
Policy loans 179.5 151.7
Short-term investments 42.4 81.7
- --------------------------------------------------------------------------------------------------------------------
Total investments 6,134.9 5,430.4
- --------------------------------------------------------------------------------------------------------------------
Cash 6.4 1.6
Receivables:
Premiums and other 21.0 13.5
Accrued investment income 116.6 72.3
Receivable from affiliates, net - 558.4
- --------------------------------------------------------------------------------------------------------------------
Total receivables 137.6 644.2
Deferred policy acquisition costs 70.3 363.9
Goodwill (net of accumulated amortization: December 31, 1996 - $5.0) 125.4 -
Present value of future profits
(net of accumulated amortization: December 31, 1996 - $45.2; 419.2 32.6
1995 - $32.5)
Property and equipment at cost
(net of accumulated depreciation: December 31, 1996 - $1.7; 1.7 3.7
1995 - $18.4)
Deferred income tax benefit 72.9 -
Other assets 12.3 65.9
Assets held in separate accounts 2,762.7 2,019.6
- --------------------------------------------------------------------------------------------------------------------
Total assets 9,743.4 8,561.9
====================================================================================================================
</TABLE>
2
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1996 and 1995
(in millions, except share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Preacquisition
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
Policy liabilities:
Future policy benefits $ 518.3 472.4
Policy and contract claims 69.1 31.7
Unearned and advance premiums 0.1 0.3
Other policyholder funds 5,094.4 5,013.9
- --------------------------------------------------------------------------------------------------------------------
Total policy liabilities 5,681.9 5,518.3
General liabilities:
Payable to affiliate, net 8.8 -
Commissions and general expenses 46.8 12.8
Current income taxes 45.4 9.5
Deferred income taxes - 75.5
Other liabilities 192.2 104.3
Liabilities related to separate accounts 2,762.7 2,019.6
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 8,737.8 7,740.0
- --------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $1,000 par value:
Authorized, issued and outstanding: 4,000 shares 4.0 4.0
Paid-in additional capital 928.1 749.1
Net unrealized investment gains 19.4 103.1
Retained earnings (deficit) 54.1 (34.3)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,005.6 821.9
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 9,743.4 8,561.9
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Income
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Preacquisition
-----------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
REVENUE
Premiums and policy fees $ 154.7 92.4 179.3 218.8
Separate account fees 23.1 5.9 17.7 11.3
Net investment income (note 2) 334.4 112.0 402.1 490.6
Realized investment gains (losses) (note 2) 6.0 9.0 (76.5) (25.8)
Other income 0.6 1.0 2.8 8.5
- -----------------------------------------------------------------------------------------------------------------------------
Total revenue earned 518.8 220.3 525.4 703.4
- -----------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Benefits to policyholders 326.4 166.0 372.9 477.1
Commissions and general expenses 53.2 28.8 43.7 75.7
Amortization of intangibles 50.1 0.6 3.2 5.1
Amortization of deferred policy acquisition costs 3.2 6.0 39.3 57.1
- -----------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 432.9 201.4 459.1 615.0
INCOME BEFORE INCOME TAX 85.9 18.9 66.3 88.4
Provision for income tax (note 3)
Current expense (benefit) 39.7 (3.8) 37.9 21.0
Deferred expense (benefit) (7.9) 10.8 (10.8) (5.7)
- -----------------------------------------------------------------------------------------------------------------------------
31.8 7.0 27.1 15.3
NET INCOME (LOSS) $ 54.1 11.9 39.2 73.1
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Preacquisition
----------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK
$1,000 par value common stock, authorized,
issued and outstanding 4,000 in 1996,
1995 and 1994)
Balance at beginning and end of period $ 4.0 4.0 4.0 4.0
PAID-IN ADDITIONAL CAPITAL
Balance at beginning of period 818.4 749.1 704.1 704.1
Adjustment to reflect purchase method (note 1) 109.7 - - -
Capital contribution from parent (notes 4, 7) - 69.3 45.0 -
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 928.1 818.4 749.1 704.1
NET UNREALIZED INVESTMENT GAINS (LOSSES)
Balance at beginning of period 11.9 103.1 (97.5) 23.6
Adjustment to reflect purchase method
(note 1) (11.9) - - -
Effect of change in accounting principles
at January 1 (note 2) - - - 25.1
Net unrealized investment gains (losses) 19.4 (91.2) 200.6 (146.2)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 19.4 11.9 103.1 (97.5)
NET FOREIGN EXCHANGE GAINS (LOSSES)
Balance at beginning of period - - (3.0) (2.3)
Net foreign exchange gains (losses) - - 3.0 (0.7)
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period - - - (3.0)
RETAINED EARNINGS (DEFICIT)
Balance at beginning of period (22.4) (34.3) 159.8 126.7
Adjustment to reflect purchase method
(note 1) 22.4 - - -
Net income 54.1 11.9 39.2 73.1
Dividends to stockholder - - (40.0) (40.0)
Stock dividend to affiliate (note 7) - - (193.3) -
- -------------------------------------------------------------------------------------------------------------------
Balance at end of period 54.1 (22.4) (34.3) 159.8
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity at end of period $ 1,005.6 811.9 821.9 767.4
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the periods from April 1, 1996 to December 31, 1996 and from January 1, 1996
to March 31, 1996, and the years ended December 31, 1995 and 1994 (in millions)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Preacquisition
-------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 54.1 11.9 39.2 73.1
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Change in policy liabilities 53.5 (32.8) 114.2 331.4
Change in accrued investment income (37.6) 4.1 (2.1) 1.8
Deferred policy acquisition costs (74.9) (22.2) (76.1) (91.8)
Amortization of deferred policy acquisition costs 3.2 6.0 39.3 57.1
Amortization of intangibles 50.1 0.6 3.2 5.1
Other amortization and depreciation 7.3 1.4 (1.2) 2.3
Premiums and operating receivables, commissions and general
expenses, income taxes, other assets and other liabilities 77.8 22.9 (65.7) (139.7)
Realized investment (gains) losses (6.0) (9.0) 76.5 25.8
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 127.5 (17.1) 127.3 265.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Sale (purchase) of short-term investments - net 49.4 (10.1) (18.8) (0.3)
Sale or maturity of investments
Fixed maturities - held to maturity:
Maturities - - 3.9 50.8
Calls and prepayments - - 60.9 727.5
Sales - - - -
Fixed maturities - available for sale
Maturities 201.5 46.1 35.0 50.4
Calls and prepayments 353.5 101.0 58.6 269.1
Sales 452.0 115.8 1,700.3 444.7
All other investments 177.3 44.9 124.6 231.1
Purchase of investments:
Fixed maturities - held to maturity - - - (734.0)
Fixed maturities - available for sale (1,279.5) (144.1) (1,950.7) (1,018.5)
All other investments (39.5) (65.5) (183.5) (357.1)
Sale (purchase) of property and equipment - (0.2) (0.8) (1.8)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities (85.3) 87.9 (170.5) (338.1)
Cash flows from financing activities:
Capital contribution - 2.8 - -
Cash dividends to stockholder - (40.0) (6.0) (20.0)
Change in cash overdrafts (12.7) 28.8 - -
Interest sensitive life, annuity and investment contract deposits 1,275.4 301.9 1,059.5 1,455.5
Interest sensitive life, annuity and investment contract withdrawals (1,305.6) (358.8) (1,031.7) (1,362.6)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities (42.9) (65.3) 21.8 72.9
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (0.7) 5.5 (21.4) (0.1)
Cash at beginning of period 7.1 1.6 23.0 23.1
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 6.4 7.1 1.6 23.0
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA & SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996
===============================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles
(GAAP) and include the accounts of The Life Insurance Company of
Virginia and its subsidiaries ("Life of Virginia" or "Company").
Subsidiaries include Globe Life Insurance Company and Assigned
Settlements Inc. at December 31, 1994 and only Assigned Settlements
Inc. at December 31, 1996 and 1995. All material intercompany
accounts and transactions have been eliminated.
Prior to April 1, 1996 Combined Insurance Company of America
("CICA") owned 100% or 4,000 shares of Life of Virginia. CICA is a
wholly-owned subsidiary of AON Corporation (AON). On April 1, 1996,
CICA sold 100% of the issued and outstanding shares of Life of
Virginia to General Electric Capital Corporation ("GE Capital").
Immediately thereafter, 80% was contributed to General Electric
Capital Assurance Company (the "Parent"). On December 31, 1996, the
remaining 20% was contributed to General Electric Life Insurance
Group, Inc. ("GELIC").
Life of Virginia primarily sells variable annuities and universal
life insurance to customers throughout most of the United States.
Life of Virginia distributes variable annuities primarily through
stockbrokers and universal life insurance primarily through career
agents and independent brokers. Life of Virginia is also engaged in
the sale of traditional individual and group life products and
guaranteed investment contracts. Approximately 34%, 43% and 46% of
premium and annuity consideration collected, in 1996, 1995, and
1994, respectively, came from customers residing in the South
Atlantic region of the United States.
Although the Company markets its products through numerous
distributors, approximately 21.2% and 13.8% of the Company's sales
in 1996 and 1995, respectively, have been through two specific
national stockbrokers. Loss of all or a substantial portion of the
business provided by these stockbrokers could have a material
adverse effect on the business and operations of the Company. The
Company does not believe, however, that the loss of such business
would have a long-term adverse effect because of the Company's
competitive position in the marketplace and the availability of
business from other distributors.
Certain 1995 and 1994 amounts have been reclassified to conform to
1996 presentation.
PURCHASE ACCOUNTING METHOD
Upon acquisition of Life of Virginia by GE Capital, Life of Virginia
restated its financial statements in accordance with the purchase
method of accounting which allocates the net purchase price for Life
of Virginia and its subsidiaries of $932.1 million according to the
fair values of the acquired assets and liabilities, including the
estimated present value of future profits. These allocated values
were dependent upon policies in force and market conditions at the
time of closing.
(Continued)
7
<PAGE>
============================================================================
(1) CONTINUED
These allocations are summarized below:
(In millions) April 1, 1996
- ----------------------------------------------------------------------------
Assets acquired:
Cash and investments (including mortgages) $ 6,006.2
Goodwill 130.3
Present value of future profits 484.1
Assets held in separate accounts 2,096.6
Other assets 194.2
- ------------------------------------------------------------------------------
Total $ 8,911.4
- ------------------------------------------------------------------------------
Liabilities assumed:
Policyholder liabilities $ 5,658.7
Other liabilities 224.0
Liabilities related to separate accounts 2,096.6
- ------------------------------------------------------------------------------
Total 7,979.3
- ------------------------------------------------------------------------------
Adjusted purchase price $ 932.1
- ------------------------------------------------------------------------------
In addition to revaluing all material tangible assets and liabilities to
their respective estimated market values as of the closing date of the
sale, Life of Virginia also recorded in its financial statements the
excess of cost over fair value of net assets acquired (goodwill) as well
as the present value of future profits to be derived from the purchased
business. These amounts were determined in accordance with the purchase
method of accounting. This new basis of accounting resulted in an
increase in stockholders' equity of $120.2 million in 1996 reflecting the
application of the purchase method of accounting. The Company's
consolidated financial statements subsequent to April 1, 1996 reflect
this new basis of accounting.
All amounts for periods ended before April 1, 1996 are labeled
"Preacquisition" and are based on the preacquisition historical costs in
accordance with generally accepted accounting principles. The periods
ending after such date are based on fair values at April 1, 1996 and
subsequent costs in accordance with the purchase method of accounting.
PRESENT VALUE OF FUTURE PROFITS
As of April 1, 1996 Life of Virginia established an intangible asset
which represents the "present value of future profits" (PVFP). PVFP
reflects the estimated fair value of the Company's life insurance
business in-force and represents the portion of the cost to acquire the
Company that is allocated to the value of the right to receive future
cash flows from insurance contracts existing at the date of acquisition.
Such value is the present value of the actuarially determined projected
cash flows for the acquired policies discounted at a rate of 15%, the
rate of return required by the Parent to invest in the business being
acquired.
(Continued)
8
<PAGE>
(1) CONTINUED
PVFP is amortized over the estimated contract life of the business
acquired in relation to the present value of estimated gross profits. The
estimated gross profit streams are periodically reevaluated and the
unamortized balance of PVFP adjusted to the amount that would have
existed had the actual experience and revised estimates been known and
applied since inception. The amortization period is the remaining life of
the policies, which ranges from 10 to 30 years from the date of original
policy issue. Based on current assumptions, net amortization of the PVFP
asset, expressed as a percentage, is projected to be 13.3%, 12.1%, 10.9%,
9.7% and 8.3% for the years ended December 31, 1997 through 2001,
respectively. Actual amortization incurred during these years may vary as
assumptions are modified to incorporate actual results.
Prior to April 1, 1996, Life of Virginia's PVFP was calculated in a
similar manner as the PVFP discussed above and related to policies
in-force on April 30, 1986, the date the Company was acquired by Aon.
Under purchase accounting this PVFP was removed.
The projected ending balance of PVFP will be further adjusted to
reflect the impact of unrealized gains or losses on fixed maturities
held as available for sale in the investment portfolios. Such
adjustments are not recorded in the Company's net income but rather as
a credit or charge to stockholders' equity, net of income tax. The
components of PVFP are as follows:
<TABLE>
<CAPTION>
Preacquisition
-------------------------------------------------
Nine months Three months
ended ended Year ended, Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S><C>
PVFP - beginning of period $ - 32.6 48.6 53.7
Adjustment related to the purchase
method of accounting 484.0 - - -
Interest added 22.4 0.5 2.1 3.2
Gross amortization, excluding interest (67.5) (1.1) (5.3) (8.3)
Dividend of Globe Life Insurance
Company (note 7) - - (12.8) -
PVFP attributable to unrealized gains (19.7) - - -
- -----------------------------------------------------------------------------------------------------------------
PVFP - end of period $ 419.2 32.0 32.6 48.6
=================================================================================================================
</TABLE>
GOODWILL
Under the purchase method of accounting, the excess of purchase price
over the fair value of assets and liabilities acquired and PVFP is
established as an asset and referred to as "goodwill." The Company has
elected to amortize goodwill on the straight line basis over a 20 year
period.
(Continued)
9
<PAGE>
(1) CONTINUED
The Company reviews goodwill to determine if events or changes in
circumstances may have affected the recoverability of the outstanding
goodwill as of each reporting period. In the event that the Company
determined that goodwill was not recoverable it would amortize such
amounts as additional goodwill expense in the accompanying financial
statements. As of December 31, 1996, the Company believes that no such
adjustment is necessary.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that could affect the reported amounts of assets and
liabilities as well as the disclosure of contingent assets or liabilities
at the date of the financial statements. As a result, actual results
reported as revenue and expenses could differ from the estimates reported
in the accompanying financial statements. As further discussed in the
accompanying notes to the consolidated financial statements, significant
estimates and assumptions affect deferred acquisition costs, PVFP, future
life policy benefits, provisions for real estate-related losses and
related reserves, other-than-temporary declines in values for fixed
maturities, the valuation allowance for deferred income taxes and the
calculation of fair value disclosures for certain financial instruments.
DEFERRED TAX ASSETS AND LIABILITIES
Pursuant to the acquisition on April 1, 1996, GE Capital, the Company's
ultimate parent, and Aon Corporation, the Company's previous ultimate
parent, agreed to file an election to treat the acquisition of Life of
Virginia as an asset acquisition under the provisions of Internal Revenue
Code Section 338(h)(10). As a result of that election, the tax basis of
the Company's assets as of the date of acquisition were revalued based
upon fair market values. The principal effect of the election was to
establish a tax basis of intangibles of approximately $348 million for
the value of the business acquired that is amortizable for tax purposes
over 10-15 years.
Deferred income taxes have been provided for the effects of temporary
differences between financial reporting and tax bases of assets and
liabilities and have been measured using the enacted marginal tax rates
and laws that are currently in effect.
RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
For universal life-type and investment products, generally there is no
requirement for payment of premium other than to maintain account values
at a level sufficient to pay mortality and expense charges. Consequently,
premiums for universal life-type policies and investment products are not
reported as revenue, but as deposits. Policy fee revenue for universal
life-type policies and investment products consists of charges for the
cost of insurance, policy administration, and surrenders assessed during
the period. Expenses include interest credited to policy account balances
and benefit claims incurred in excess of policy account balances.
(Continued)
10
<PAGE>
(1) CONTINUED
In general, for accident and health products, premiums collected are
reported as earned proportionately over the period covered by the
policies. For all other life products, premiums are recognized as revenue
when due. Benefits and related expenses associated with the premium
revenues are charged to expense proportionately over the lives of the
policies through a provision for future policy benefit liabilities and
through deferral and amortization of deferred policy acquisition costs.
REINSURANCE
Reinsurance premiums, commissions, and expense reimbursements on
reinsured business are accounted for on a basis consistent with those
used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums and benefits ceded to other companies
have been reported as a reduction of premium revenue and benefits.
Expense reimbursements received in connection with reinsurance ceded have
been accounted for as a reduction of the related policy acquisition costs
or, to the extent such reimbursements exceed the related acquisition
costs, as other revenue. All reinsurance receivables and prepaid
reinsurance premium amounts are reported as assets.
INVESTMENTS
Fixed maturities are carried at fair value. The amortized cost of fixed
maturities is adjusted for amortization of premiums and accretion of
discounts to maturity that are included in net investment income.
Included in fixed maturities are investments in collateralized mortgage
obligations ("CMOs"). Premiums and discounts arising from the purchase of
CMOs are treated as yield adjustments and included in net investment
income. Prepayment assumptions are obtained from dealer surveys. The
retrospective adjustment method is used to adjust for prepayment
activity.
Short-term investments are carried at amortized cost which approximates
market value. Equity securities are valued at fair value. Mortgage loans
are carried at their unpaid balance, net of unamortized discounts and
reserves. Real estate is carried generally at cost less accumulated
depreciation. Policy loans are carried at unpaid principal balance. Other
long-term investments are carried generally at cost.
Realized investment gains or losses are computed using specific costs of
securities sold. Unrealized gains and temporary unrealized losses on
fixed maturities available for sale and equity securities are excluded
from income and are recorded directly to stockholders' equity, net of
related deferred income taxes and adjustments to amortization of deferred
policy acquisition costs and present value of future profits.
(Continued)
11
<PAGE>
(1) CONTINUED
Investments that have declines in fair value below cost, that are judged
to be other than temporary, are written down to estimated fair values and
reported as realized investment losses. Additionally, reserves for
mortgage loans and certain other long-term investments are established
based on an evaluation of the respective investment portfolio, past
credit loss experience, and current economic conditions. Writedowns and
the change in reserves are included in realized investment gains and
losses in the statements of income. In general, the Company ceases to
accrue investment income when interest or dividend payments are in
arrears.
Life of Virginia measures "impaired" loans at the present value of the
loans discounted cash flow using the effective interest rate of the
original loan as the discount rate. Impaired loans are loans for which it
is probable that the Company will be unable to collect all amounts due
according to terms of the original contractual terms of the loan
agreement. This definition includes, among other things, leases, or
larger groups of small-homogenous loans, and therefore applies
principally to the Company's commercial loans.
Accounting policies relating to interest rate swaps are discussed in
Note 9.
DEFERRED POLICY ACQUISITION COSTS
Costs of acquiring new business, principally commissions, underwriting
and sales expenses that vary with and are primarily related to the
production of new business, are deferred. For non-universal life-type
products, amortization of deferred acquisition costs are related to and
based on the present value of expected premium revenues on the policies.
Periodically amortization is adjusted to reflect current withdrawal
experience. Expected premium revenues are estimated by using the same
assumptions used in estimating future policy benefits.
Deferred policy acquisition costs related to universal life-type policies
and investment products are amortized in relation to the present value of
expected gross profits on the policies. Such amortization is adjusted
periodically to reflect differences in actual and assumed gross profits.
To the extent that unrealized gains or losses on available for sale
securities would result in an adjustment to deferred policy acquisition
costs amortization, had those gains or losses actually been realized, the
related deferred policy acquisition cost adjustments are recorded along
with the unrealized gains or losses included in stockholders' equity with
no effect on net income.
(Continued)
12
<PAGE>
(1) CONTINUED
The components of deferred acquisition costs are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S><C>
Deferred acquisition costs - $ - 363.9 388.1 413.2
beginning of period
Commissions and expenses deferred 74.9 22.2 76.1 108.8
Amortization (3.2) (6.0) (39.3) (57.1)
Credit Life and Health cession (note 4) - - - (107.0)
Dividend of Globe Life Insurance
Company (note 7) - - (22.8) -
Deferred acquisition costs attributable
to unrealized gains (losses) (1.4) 17.9 (38.2) 30.2
- --------------------------------------------------------------------------------------------------------------------
Deferred acquisition costs - end of period $ 70.3 398.0 363.9 388.1
====================================================================================================================
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are generally depreciated using the straight- line
method over their estimated useful lives. As a result of purchase
accounting fully depreciated property and equipment were removed.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values
for financial instruments. The carrying amounts in the consolidated
statements of financial position for cash and short-term investments
approximate their fair values. Fair values for fixed maturity securities
and equity securities are based on quoted market prices or, if they are
not actively traded, on estimated values obtained from independent
pricing services or in the case of private placements, are estimated by
discounted expected future cash flows using a current market rate
applicable to the yield credit quality, call features and maturity of the
investments, as applicable. The fair values for mortgage loans and policy
loans are estimated using discounted cash flow analyses, using interest
rates currently being offered for similar loans to borrowers with similar
credit ratings. Fair values of derivatives are based on quoted prices for
exchange-traded instruments or the cost to terminate or offset with other
contracts.
Fair values for liabilities for investment-type contracts are estimated
using discounted cash flow calculations based on interest rates currently
being offered for similar contracts with maturities consistent with those
remaining for the contracts being valued.
(Continued)
13
<PAGE>
(1) CONTINUED
SEPARATE ACCOUNT BUSINESS
The assets and liabilities of the separate accounts represent designated
funds of group pension, variable life and annuity policyholders and are
not guaranteed or supported by other general investments of the Company.
The Company earns mortality and expense risk fees from the separate
accounts and assesses withdrawal charges in the event of early
withdrawals. The assets are carried at fair value and are offset by
liabilities that represent such policyholders' equity in those assets.
The net investment income generated from these assets is not included in
the consolidated statements of income.
The Company has periodically transferred capital to the separate accounts
to provide for the initial purchase of investments in the new portfolios.
As of December 31, 1996, approximately $29.3 million of the Company's
common stock investment related to its capital investments in the
separate accounts.
FUTURE POLICY BENEFIT LIABILITIES AND UNEARNED PREMIUMS AND POLICY AND
CONTRACT CLAIMS
Future policy benefit liabilities on non-universal life-type and accident
and health products have been provided on the net level premium method.
The liabilities are calculated based on assumptions as to investment
yield, mortality, morbidity and withdrawal rates that were determined at
the date of issue or acquisition of Life of Virginia by the Parent, and
provide for possible adverse deviations. Interest assumptions are graded
and range from 7.4% to 6.5%.
Withdrawal assumptions are based principally on experience and vary by
plan, year of issue, and duration.
Policyholder liabilities on universal life-type and investment products
are generally based on policy account values. Interest crediting rates
for these products range from 8.6% to 4.5%.
Unearned premiums generally are calculated using the pro rata method
based on gross premiums. However, in the case of credit life and credit
accident and health, the unearned premiums are calculated such that the
premiums are earned over the period of risk in a reasonable relationship
to anticipated claims.
Policy and contract claim liabilities represent estimates for reported
claims, as well as provisions for losses incurred, but not yet reported.
These claim liabilities are based on historical experience and are
estimates of the ultimate amount to be paid when the claims are settled.
Changes in the estimated liability are reflected in income as the
estimates are revised.
(Continued)
14
<PAGE>
(1) CONTINUED
FOREIGN CURRENCY TRANSLATION
Foreign revenues and expenses are translated at average exchange rates.
Foreign assets and liabilities are translated at year-end exchange rates.
Unrealized foreign exchange gains or losses on translation are generally
reported in stockholders' equity. No tax effect was taken into
consideration for unrealized losses.
(2) INVESTED ASSETS AND RELATED INCOME
Under purchase accounting, the market value of Life of Virginia's fixed
maturity investments as of April 1, 1996, became Life of Virginia's new
cost basis in such investments. The difference between the new cost basis
and original par is then amortized against investment income over the
remaining effective lives of the fixed maturity investments. As a result
of the interest rate environment as of April 1, 1996, the market value of
Life of Virginia's fixed maturity investments was approximately $37.4
million lower than original amortized cost.
The Company's investments in debt and equity securities are considered
available for sale and are carried at estimated fair value, with the
aggregate unrealized appreciation or depreciation being recorded as a
separate component of stockholders' equity. The carrying value and
amortized cost of investments at December 31, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Available for sale:
U.S. government and agencies $ 65.5 2.1 - 67.6
States and political subdivisions 2.1 - - 2.1
Foreign governments 178.2 5.6 - 183.8
Corporate securities 3,092.1 29.0 (19.6) 3,101.5
Mortgage-backed securities 1,764.3 29.7 (6.3) 1,787.7
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities 5,102.2 66.4 (25.9) 5,142.7
Total equity securities 155.1 11.2 (0.8) 165.5
- ---------------------------------------------------------------------------------------------------------------------
Total available for sale $ 5,257.3 77.6 (26.7) 5,308.2
=====================================================================================================================
</TABLE>
(Continued)
15
<PAGE>
(2) CONTINUED
<TABLE>
<CAPTION>
Preacquisition
--------------------------------------------------------------------
December 31, 1995
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Available for sale:
U.S. government and agencies $ 60.7 1.5 - 62.2
States and political subdivisions 2.2 0.2 - 2.4
Foreign governments 18.6 0.6 - 19.2
Corporate securities 2,478.6 140.2 (9.9) 2,608.9
Mortgage-backed securities 1,596.3 19.6 (16.9) 1,599.0
Other fixed maturities 110.8 8.5 - 119.3
- ---------------------------------------------------------------------------------------------------------------------
Total fixed maturities 4,267.2 170.6 (26.8) 4,411.0
Total equity securities 133.7 26.2 (3.0) 156.9
- ---------------------------------------------------------------------------------------------------------------------
Total available for sale $ 4,400.9 196.8 (29.8) 4,567.9
=====================================================================================================================
</TABLE>
The amortized cost and fair value of fixed maturities, by contractual
maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------
Amortized Fair
(millions) Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S><C>
Due in one year or less $ 82.1 82.5
Due after one year through five years 961.8 902.8
Due after five years through ten years 1,626.5 1,671.5
Due after ten years 667.5 698.2
Mortgage-backed securities 1,764.3 1,787.7
- ----------------------------------------------------------------------------------------------------------------------
$ 5,102.2 5,142.7
======================================================================================================================
</TABLE>
The cumulative effect on January 1, 1994 of adopting Statement No. 115
increased stockholders equity by $25.1 million (net of adjustments to
deferred policy acquisition costs of $14.0 million and deferred income
taxes of $20.2 million) to reflect the net unrealized fixed maturities
holding gains on securities previously carried at amortized cost; there
was no effect on net income as a result of the adoption.
(Continued)
16
<PAGE>
(2) CONTINUED
On November 30, 1995, Life of Virginia reclassified all held to maturity
securities to available for sale. The amortized cost and related
unrealized gains for the securities reclassified was $2,698.3 million and
$50.9 million, respectively.
Securities on deposit for regulatory authorities as required by law
amounted to $4.5 million at December 31, 1996 and 1995.
Life of Virginia had $12.6 million and $34.2 million of non-income
producing investments on December 31, 1996 and December 31, 1995,
respectively.
Life of Virginia's "impaired" loans consist of loans requiring allowances
for loan losses of .2 and 12.2 as of December 31, 1996 and 1995,
respectively. Interest income earned on these loans while they were
considered impaired was 1.2 and 5.5 as of December 31, 1996 and 1995,
respectively.
Life of Virginia's mortgage and real estate portfolio is distributed by
geographic location and type. However, Life of Virginia has concentration
exposures in certain regions and in certain types as shown in the
following two tables.
Geographic distribution as of December 31, 1996:
<TABLE>
<CAPTION>
Mortgage Real estate
- -------------------------------------------------------------------------------------------------------------------
<S><C>
South Atlantic 48.3% 75.2%
East North Central 14.6% 1.4%
Mountain 12.7% -
West South Central 11.2% -
Pacific 7.3% 8.1%
Middle Atlantic 4.5% 15.3%
East South Central 1.4% -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
===================================================================================================================
</TABLE>
(Continued)
17
<PAGE>
(2) CONTINUED
Type distribution as of December 31, 1996:
<TABLE>
<CAPTION>
Mortgage Real estate
- -------------------------------------------------------------------------------------------------------------------
<S><C>
Office building 23.7% 66.4%
Retail 22.8% 18.4%
Industrial 21.9% -
Apartments 19.2% -
Other commercial 8.2% 15.2%
Hotel/motel 4.2% -
- -------------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0%
===================================================================================================================
</TABLE>
The components of net unrealized investment gains (losses) are as
follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Gross unrealized investment gains (losses)
Fixed maturities available for sale $ 40.5 2.8 143.8 (154.9)
Equity securities 10.4 5.8 23.2 (2.9)
PVFP (19.7) - - -
Deferred policy acquisition costs (1.4) 9.9 (8.0) 30.2
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized before deferred tax $ 29.8 18.5 159.0 (127.6)
Unrealized income tax benefit (expense) (10.4) (6.6) (55.9) 30.1
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized $ 19.4 11.9 103.1 (97.5)
=======================================================================================================================
</TABLE>
(Continued)
18
<PAGE>
(2) CONTINUED
The components of net investment income are as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities $ 276.8 93.1 332.8 404.1
Equity securities 8.7 4.2 10.8 25.2
Mortgage loans on real estate 41.3 13.5 49.8 49.9
Short-term investments 3.1 0.5 3.5 3.8
Other investments 9.9 3.0 13.2 18.0
- -----------------------------------------------------------------------------------------------------------------------
Gross investment income 339.8 114.3 410.1 501.0
Investment expenses (5.4) (2.3) (8.0) (10.4)
- -----------------------------------------------------------------------------------------------------------------------
Net investment income $ 334.4 112.0 402.1 490.6
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities:
Gross gains $ 0.6 0.5 12.9 8.6
Gross losses (0.7) (1.4) (90.2) (39.2)
Fixed maturities held to maturity:
Gross gains - - 1.1 11.3
Gross losses - - (13.8) (9.8)
Equity securities 6.0 10.3 5.6 (1.9)
Mortgage loans on real estate - (0.4) 2.3 9.6
Other 0.1 - 5.6 (4.4)
- -----------------------------------------------------------------------------------------------------------------------
Total before tax 6.0 9.0 (76.5) (25.8)
Less applicable tax (2.3) (1.9) 26.8 9.0
- -----------------------------------------------------------------------------------------------------------------------
Total $ 3.7 7.1 (49.7) (16.8)
========================================================================================================================
</TABLE>
(Continued)
19
<PAGE>
(2) CONTINUED
The changes in net unrealized gains (losses) on fixed maturities and
equity security investments are as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S><C>
Fixed maturities:
Available for sale $ 40.5 (141.0) 298.7 (214.2)
Held to maturity - - 233.7 (351.0)
Equity securities 10.4 (17.4) 26.1 (38.8)
- -----------------------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ 50.9 (158.4) 558.5 (604.0)
=======================================================================================================================
</TABLE>
(3) INCOME TAX
Beginning April 1, 1996, Life of Virginia and its subsidiary will be
included in the life insurance company consolidated Federal income tax
return of GECA. Prior to the April 1, 1996, Life of Virginia was included
in the consolidated federal income tax return of Aon and its principal
domestic subsidiaries and in accordance with intercompany policy,
provided taxes on income based on a separate company basis. Amounts
payable or recoverable related to periods before April 1, 1996, are
subject to an indemnification agreement with Aon. As such the Company is
not at risk for any income taxes nor entitled to recoveries related to
those periods.
Income taxes are recorded in the statements of income and directly in
stockholders' equity accounts. Income tax expense (benefit) for the years
ending December 31 was allocated as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S><C>
Statement of income:
Operating income (excluding
realized investment gains
and losses) $ 29.5 5.1 53.9 24.3
Realized investment gains/losses 2.3 1.9 (26.8) (9.0)
Income tax expense/(benefit)
included in the statement of
income 31.8 7.0 27.1 15.3
Stockholders' equity:
Unrealized gains/(losses) on
securities available for sale 10.4 (49.3) 86.0 (42.4)
- ---------------------------------------------------------------------------------------------------------------------
Total income tax expense/(benefit) $ 42.2 (42.3) 113.1 (27.1)
=====================================================================================================================
</TABLE>
(Continued)
20
<PAGE>
(3) CONTINUED
The actual Federal income tax expense differed from the expected tax
expense computed by applying the U.S. Federal statutory rate to income
before income tax expense. A reconciliation of the income tax provisions
based on the statutory corporate tax rate to the provisions reflected in
the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
Preacquisition
---------------------------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S><C>
Statutory tax rate $ 30.1 35.0% $ 6.6 35.0% $ 23.2 35.0% $ 31.0 35.0%
Tax-exempt
investment
income
deductions (1.0) (1.2) - (0.1) (0.1) (0.1) (0.8) (0.9)
Adjustment of prior
year taxes - - - - 3.5 5.3 (11.8) (13.3)
Other - net 2.7 3.2 0.4 2.1 0.5 0.7 (3.1) (3.5)
- -------------------------------------------------------------------------------------------------------------------------
Effective tax rate $ 31.8 37.0% $ 7.0 37.0% $ 27.1 40.9% $ 15.3 17.3%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
21
<PAGE>
(3) CONTINUED
Significant components of Life of Virginia's deferred tax liabilities and
assets are as follows (in millions):
<TABLE>
<CAPTION>
Preacquisition
------------------
December 31, December 31,
1996 1995
- -------------------------------------------------------------------------------------------
<S><C>
Deferred tax liabilities:
Present value of future profits $ 89.8 -
Policy acquisition costs - 96.9
Employee benefits - 11.0
Unrealized investment gains 10.4 58.7
Other 6.5 35.2
- -------------------------------------------------------------------------------------------
Total deferred tax liabilities 106.7 201.8
- -------------------------------------------------------------------------------------------
Deferred tax assets:
Insurance reserve amounts 120.4 78.2
Policy acquisition costs 34.3 -
Guaranty fund amounts 10.8 -
Other 14.1 48.1
- -------------------------------------------------------------------------------------------
Total deferred tax assets 179.6 126.3
- -------------------------------------------------------------------------------------------
Net deferred tax liabilities (assets) $ (72.9) 75.5
===========================================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that
some portion of the deferred tax assets will not be realized. Management
believes the deferred tax assets will be fully realized in the future
based on the expectation of the reversal of existing temporary
differences, anticipated future earnings, and consideration of all other
available evidence. Accordingly, no valuation allowance is established.
The amount of income taxes paid (refund) for nine months ended December
31, 1996, three months ended March 31, 1996, the years ended December 31,
1995 and 1994 was $38.6 million, $(2.4) million, $44.9 million, and $56.7
million, respectively.
(Continued)
22
<PAGE>
(4) REINSURANCE AND CLAIM RESERVES
Life of Virginia is involved in both the cession and assumption of
reinsurance with other companies. In 1996 and 1995, Life of Virginia's
reinsurance consists primarily of long-duration contracts that are
entered into with financial institutions and related party reinsurance.
In 1994, Life of Virginia's reinsurance consisted primarily of
short-duration contracts that were entered into with numerous automobile
dealerships, financial institutions, and related party reinsurance.
Although these reinsurance agreements contractually obligate the
reinsurers to reimburse the Company, they do not discharge the Company
from its primary liabilities and the Company remains liable to the extent
that the reinsuring companies are unable to meet their obligations.
A summary of reinsurance activity is as follows:
<TABLE>
<CAPTION>
Preacquisition
--------------------------------------------------------
Nine months Three months
ended ended Year ended Year ended
December 31, March 31, December 31, December 31,
1996 1996 1995 1994
---------------- ---------------- ---------------- ------------------
Earned Earned Earned Earned
---------------- ---------------- ---------------- ------------------
<S><C>
Direct $ 210.5 77.2 261.5 404.2
Assumed 6.6 35.0 4.3 8.3
Ceded 62.4 19.8 86.5 193.7
- -------------------------------------------------------------------------------------------------------------------
Net premiums 154.7 92.4 179.3 218.8
===================================================================================================================
</TABLE>
Due to the nature of the Company's reinsurance contracts, premiums earned
approximate premiums written.
A significant portion of Life of Virginia's ceded premiums relates to
group life and health premiums. Life of Virginia is the primary carrier
for the State of Virginia employees group life and health plan. By
statute, Life of Virginia must reinsure these risks with other Virginia
domiciled companies who wish to participate.
Incurred losses and loss adjustment expenses are net of reinsurance of
$60.5 million, $17.2 million, $63.1 million and $102.1 million for the
nine months ended December 31, 1996, three months ended March 31, 1996
and the years ended December 31, 1995 and 1994, respectively.
In December 1994, Life of Virginia ceded to CICA $406.6 million of its
guaranteed investment contract liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA available for
sale fixed maturities with a fair value of $278.1 million and a cost of
$287.2 million and preferred stock with a fair value of $110.5 million
and a cost of $119.7 million. Included in receivable from affiliates at
December 31, 1995 is $212.6 million which represents the remaining ceded
guaranty investment contract liability.
(Continued)
23
<PAGE>
(4) CONTINUED
In July 1994, Life of Virginia ceded to Union Fidelity Life Insurance
Company ("UFLIC") $280.7 million of its credit life and health reserves
and associated acquisition costs of $107.0 million. In conjunction with
the liability cession, Life of Virginia recognized a $29.1 million loss
which is reflected as a $20.8 million premium ceded and $8.3 million
realized loss on investments.
Premiums, benefits to policyholders, and commissions and general expenses
ceded to UFLIC during the second six months of 1994 amounted to $35.0
million, $14.4 million, and $14.2 million, respectively.
In January 1995, Life of Virginia ceded to CICA $600 million of its
single premium deferred annuity liabilities. In conjunction with the
liability cession, Life of Virginia transferred to CICA available for
sale fixed maturities with a fair value of $436.1 million and cost of
$501.4 million and held to maturity fixed maturities with a fair value of
$81.4 million and a cost of $95.1 million. In addition, $5.5 million of
accrued income related to the assets above was transferred to CICA. This
transaction resulted in a deferred reinsurance gain of $77.0 million, $24
million of which was recognized in 1995. Additionally, Life of Virginia
recognized a $79.0 million realized investment loss. Included in
receivable from affiliates at December 31, 1995 is $357.5 million which
represents the ceded single premium deferred annuity liability of $410.5
million less a deferred reinsurance gain of $53 million.
In connection with the sale of the Company, the following transactions
occurred effective January 1, 1996: single premium deferred annuity
liabilities reinsured with CICA in 1995 were recaptured, guaranteed
investment contract liabilities reinsured with CICA in 1994 were
recaptured, other lines of CICA insurance business inforce were assumed,
and other related liabilities of CICA were assumed. In conjunction with
the recapture and assumption, CICA transferred to Life of Virginia assets
with a fair market value totaling $842.6 million. For the three months
ended March 31, 1996, premiums of $33.9 million, benefits of $46.7
million, commission expense of $10.2 million and a capital contribution
of $69.3 million as a result of various reinsurance transactions. The $53
million deferred reinsurance gain remaining at December 31, 1995 from the
January 1995 single premium deferred annuity cession to CICA was
recognized as a capital contribution. The tables below summarize the
assets and liabilities transferred from CICA to the Company.
(Continued)
24
<PAGE>
(4) CONTINUED
<TABLE>
<CAPTION>
Millions Fair Market Value
- ---------------------------------------------------------------------------------
<S><C>
Assets transferred:
Fixed maturity $ 727.4
Preferred stock 88.2
Policy loans 14.2
Accrued investment income 10.0
Cash 2.8
- ---------------------------------------------------------------------------------
Total 842.6
- ---------------------------------------------------------------------------------
Liabilities recaptured and assumed:
Single premium deferred annuity 410.5
Guaranteed investment contracts 212.6
Universal life contracts 156.6
Individual traditional contracts 33.2
Other lines of business inforce 19.9
Other liabilities 16.5
- ---------------------------------------------------------------------------------
Total 849.3
=================================================================================
</TABLE>
(5) EMPLOYEE BENEFITS
SAVINGS PLAN
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric contributory savings plan.
Provisions made for the savings plan were $.6 million for the nine months
ended December 31, 1996.
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's contributory savings plan for the benefit of salaried and
commissioned employees. Provisions made for the savings plan were $.3
million, $.8 million and $1.2 million for the three months ended March
31, 1996, and the years ended December 31, 1995 and 1994, respectively.
This plan terminated upon the acquisition of Life of Virginia by GE
Capital.
EMPLOYEE STOCK OWNERSHIP PLAN
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's leveraged ESOP for the benefit of salaried and certain
commissioned employees. Contributions to the ESOP for the three months
ended March 31, 1996 and the years ended December 31, 1995 and 1994
charged to Life of Virginia's operations amounted to $.1 million, $.5
million and $.6 million, respectively. This plan terminated upon the
acquisition of Life of Virginia by GE Capital.
(Continued)
25
<PAGE>
(5) CONTINUED
PENSION PLAN
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric contributory defined
benefit pension plan. Generally, benefits are based on the greater of a
formula recognizing career earnings or a formula recognizing length of
service and final average earnings. Benefit provisions are subject to
collective bargaining. General Electric's funding policy is to contribute
amounts sufficient to meet minimum funding requirements as set forth in
employee benefit and tax laws plus such additional amounts as determined
appropriate. The components of net periodic pension cost and benefit
obligations of the General Electric defined benefit plan are not
separately available for Life of Virginia. In connection with Life of
Virginia's participation in the General Electric contributory defined
benefit pension plan a $.4 million expense was incurred for the nine
months ended December 31, 1996.
Prior to the acquisition on April 1, 1996, Life of Virginia participated
in Aon's non-contributory defined benefit pension plan providing
retirement benefits for salaried employees and certain commissioned
employees based on years of service and salary. Aon's funding policy was
to contribute amounts to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of
1974, plus such additional amounts as Aon determines to be appropriate
from time to time. The components of net periodic pension cost and
benefit obligations of the Aon defined benefit plan were not separately
available for Life of Virginia. In connection with Life of Virginia's
participation in the Aon defined benefit plan, net pension credits of
$1.2 million, $3.8 million and $3.1 million in the three months ended
March 31, 1996 and the years ended December 31, 1995 and 1994. This plan
terminated upon the acquisition of Life of Virginia by GE Capital.
During 1993, the Aon Pension Plan was amended to include certain
additional amounts of compensation in determining plan benefits and in
1994 to reduce the maximum amount of compensation that can be considered
under the plan as required by law. Further, the Pension Plan was amended
in 1994 to provide increases in benefits to current pensioners.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Beginning April 1, 1996, Life of Virginia's salaried and commissioned
employee's participated in a General Electric retiree health and life
insurance benefit plan. The plan's principally provide health and life
insurance benefits to employees who retire under the General Electric
pension plan with 10 or more years of service. Retirees share in the cost
of their health care benefits. The funding policy for retiree health
benefits is generally to pay covered expenses as they are incurred.
Expenses incurred by Life of Virginia for the nine months ended December
31, 1996 for the retiree health and life insurance benefit plan were $1.3
million.
(Continued)
26
<PAGE>
(5) CONTINUED
Prior to the acquisition on April 1, 1996, Aon sponsored two defined
benefit postretirement health and welfare plans in which Life of Virginia
participated that cover both salaried and nonsalaried employees. One plan
provides medical benefits, prior to and subsequent to Medicare
eligibility, and the other provides life insurance benefits. The
postretirement health care plan is contributory, with retiree
contributions adjusted annually; the life insurance plan is
noncontributory. Both plans are funded on a pay-as-you-go basis. These
plans terminated upon the acquisition of Life of Virginia by GE Capital.
(6) LEASE COMMITMENTS
Life of Virginia has noncancelable operating leases for certain office
space, equipment and automobiles. Future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease
terms in excess of one year at December 31, 1996 are as follows:
(millions) Minimum lease payments
-------------------------------------------------------------------
1997 $ 1.1
1998 0.8
1999 0.4
2000 0.2
2001 0.1
Later years -
-------------------------------------------------------------------
Total minimum payments required $ 2.6
===================================================================
MINIMUM LEASE PAYMENTS
Rental expenses for all operating leases for the nine months ended
December 31, 1996, the three months ended March 31, 1996 and the years
ended December 31, 1995 and 1994 amounted to $2.5 million, $.8 million,
$3.6 million and $5.1 million, respectively.
(7) RELATED PARTY TRANSACTIONS
Life of Virginia pays investment advisory fees and other fees to
affiliates; Parent after April 1, 1996 and Aon previous to that date.
Amounts incurred for these items aggregated $3.2 million, $3.5 million,
$5.8 million and $37.8 million for nine months ended December 31, 1996,
the three months ended March 31, 1996 and the years ended December 31,
1995 and 1994, respectively. Life of Virginia charges affiliates for
certain services and for the use of facilities and equipment which
aggregated $2.0 million, $1.0 million, $10.0 million and $101.2 million
for the nine months ended December 31, 1996, the three months ended March
31, 1996 and the years ended December 31, 1995, and 1994, respectively.
(Continued)
27
<PAGE>
(7) CONTINUED
At December 31, 1996 and 1995, Life of Virginia held investments in
securities of certain affiliates amounting to $2.6 million and $12.6
million, respectively. Amounts included in net investment income related
to these holdings totaled $0.1 million, $0.2 million, $1.0 million and
$3.5 million for the nine months ended December 31, 1996, the three
months ended March 31, 1996 and the years ended December 31, 1995 and
1994, respectively.
In January 1995, Life of Virginia dividended 100% of its Globe Life
Insurance Company ("Globe") common stock to CICA, a subsidiary of Aon. At
December 31, 1994, Globe had assets of $954.9 million, liabilities of
$765.7 million and stockholders' equity of $189.2 million. The fair
market value of this dividend was $193.3 million.
In 1995, Life of Virginia received from CICA, in the form of a capital
contribution, fixed maturities with a fair value of $45.0 million.
In January 1995, Life of Virginia transferred limited partnership
investments with a fair value of $8.0 million and cost of $7.5 million,
common stocks with a fair value of $5.6 million and cost of $3.4 million,
and cash of $6.4 million to pay a $20.0 million dividend declared but not
paid in 1994. A $2.7 million realized investment gain was recorded on
this transfer.
In December 1994, Life of Virginia exchanged common stocks with a fair
value of $61.4 million and cost of $67.1 million for CICA's available for
sale fixed maturities and related accrued income with fair values of
$60.9 million and $.5 million, respectively. Life of Virginia recorded
the fixed maturity securities at CICA's fair value of $60.9 million
resulting in a $5.7 million realized loss that is reflected in the
statement of income.
(8) LITIGATION
Life of Virginia is subject to numerous claims and lawsuits that arise in
the ordinary course of business. In some of these cases the remedies that
may be sought or damages claimed are substantial, including cases that
seek punitive or extraordinary damages. Accruals for these lawsuits have
been provided to the extent that losses are deemed probable and are
estimable. Although the ultimate outcome of these suits cannot be
ascertained and liabilities in indeterminate amounts may be imposed on
Life of Virginia, on the basis of present information, availability of
insurance coverage, and advice received from counsel, it is the opinion
of management that the disposition or ultimate determination of such
claims and lawsuits will not have a material adverse effect on the
consolidated financial position or results of operations of Life of
Virginia.
(Continued)
28
<PAGE>
(9) FINANCIAL INSTRUMENTS
INTEREST RATE RISK MANAGEMENT
Life of Virginia used interest rate swap agreements to manage asset and
liability durations relating to its capital accumulation annuity
business. As of December 31, 1995 and 1994, these swap agreements had the
net effect of lengthening liability durations. Variable rates received on
interest rate swap agreements correlate with crediting rates paid on
outstanding liabilities. The net effect of swap payments is settled
periodically and reported in income. There was no settlement of
underlying notional amounts.
Life of Virginia performed frequent analyses to measure the degree of
correlation associated with its derivative program. Life of Virginia
assessed the adequacy of the correlation analyses results in determining
whether the derivatives qualify for hedge accounting. Realized gains and
losses on derivatives that qualify as hedges were deferred and reported
as an adjustment of the cost basis of the hedged item. Deferred gains and
losses were amortized into income over the life of the hedged item. The
fair value of swap agreements hedging liabilities were not recognized in
the consolidated statements of financial position.
These interest rate swaps gave rise to credit risks due to possible
non-performance by counterparties. The credit risk was generally limited
to the fair value of those contracts that were favorable to Life of
Virginia. Life of Virginia limited its credit risk by restricting
investments in derivative contracts to a diverse group of highly rated
major financial institutions. Life of Virginia closely monitored the
credit worthiness of, and exposure to, its counterparties and considered
its credit risk to be minimal.
Life of Virginia had $0.0 million and $250.0 million notional
amount of interest rate swaps outstanding at December 31, 1996 and
1995, respectively.
During the three months ended March 31, 1996 and the year ended
December 31, 1995 Life of Virginia amortized $.6 million and $1.4
million, respectively, of net deferred losses relating to interest rate
swaps into income.
The interest rates on Life of Virginia's principal outstanding swaps at
December 31, are presented below:
Pay Receive
Fixed Variable
------------------------------------------------------------------
1995 7.9 - 8.3% 5.40%
==================================================================
As of December 31, 1995, the principal swaps have maturities ranging from
September 1999 to October 2000 and variable rates based on five year
treasury rates. These swaps were terminated prior to March 31, 1996
resulting in a $1.1 million gain which was deferred.
(Continued)
29
<PAGE>
(9) CONTINUED
OTHER FINANCIAL INSTRUMENTS
Life of Virginia has certain investment commitments to provide fixed-rate
loans. The investment commitments, which would be collateralized by
related properties of the underlying investments, involve varying
elements of credit and market risk. Investment commitments outstanding at
December 31, 1996 and December 31, 1995, totaled $1.7 million and $21.7
million, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting standards require the disclosure of fair values for certain
financial instruments. The fair value disclosures are not intended to
encompass the majority of policy liabilities, various other non-financial
instruments, or other intangible items related to Life of Virginia's
business. Accordingly, care should be exercised in deriving conclusions
about Life of Virginia's business or financial condition based on the
fair value disclosures.
The carrying amount and fair value of certain of Life of Virginia's
financial instruments are as follows:
<TABLE>
<CAPTION>
Preacquisition
----------------------------
December 31, 1996 December 31, 1995
-------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Amount Value Amount Value
- ------------------------------------------------------------------------------------------------------
<S> <C>
Assets:
Fixed maturities and
equity securities
(note 2) $ 5,308.2 5,308.2 4,567.9 4,567.9
Mortgage loans on
real estate 585.4 622.6 592.5 638.2
Policy loans 179.5 179.5 151.7 150.2
Cash, short-term
investments and
receivables 186.4 186.4 727.5 727.5
Assets held in separate accounts 2,762.7 2,762.7 2,019.6 2,019.6
- ------------------------------------------------------------------------------------------------------
Liabilities:
Investment type
insurance contracts 3,055.0 3,027.6 2,769.7 2,796.9
Commissions and
general expenses 46.8 46.8 12.8 12.8
Interest rate swaps - - - 24.1
Liabilities related to separate accounts 2,762.7 2,762.7 2,019.6 2,019.6
=======================================================================================================
</TABLE>
See Note 1 regarding the method used to estimate fair values.
(Continued)
30
<PAGE>
(10) STOCKHOLDERS' EQUITY
Generally, the capital and surplus of Life of Virginia available for
transfer to the Parent are limited to the amounts that the statutory
capital and surplus exceed minimum statutory capital requirements;
however, payments of the amounts as dividends may be subject to approval
by regulatory authorities. The maximum amount of dividends which can be
paid by the Company without prior approval at December 31, 1996, is $41.9
million.
Statutory net income (loss) and stockholders' equity is summarized below:
<TABLE>
<CAPTION>
Preacquisition
------------------------------------------------------
Nine months Three months
ended ended
December 31, March 31, December 31, December 31,
(millions) 1996 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S><C>
Statutory net income $ 69.7 (8.3) 53.9 58.2
Statutory stockholders equity 419.1 360.5 364.2 400.6
==================================================================================================================
</TABLE>
The National Association of Insurance Commissioners has developed certain
Risk Based Capital (RBC) requirements for life insurers. If prescribed
levels of RBC are not maintained, certain actions may be required on the
part of the Company or its regulators. At December 31, 1996 the Company's
Total Adjusted Capital and Authoritized Control Level - RBC were, $504.6
million and $78.6 million, respectively. This level of adjusted capital
qualifies under all tests.
===============================================================================
31
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
All required financial statements are included in Part B of this
Registration Statement.
(b) Exhibits
(1)(a) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of Separate Account 4. 1/
(1)(b) Resolution of Board of Directors of Life of Virginia authorizing
the elimination of investment subdivisions of Separate Accounts
II, III and 4 which invest in shares of the American
Life/Annuity Series. 1/
(1)(c) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of additional investment subdivisions of
Separate Account 4, investing in shares of the Asset Manager
Portfolio of the Fidelity Variable Insurance Products Fund II
and the Balanced Portfolio of the Advisers Management Trust. 1/
(1)(d) Resolution of Board of Directors of Life of Virginia authorizing
the investment of $300,000 in the N&B Balanced Portfolio of
Neuberger & Berman's Advisers Management Trust. 1/
(1)(e) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of additional investment subdivisions of
Separate Account 4, investing in shares of the Growth Portfolio
and the Limited Maturity Bond Portfolio of the Neuberger &
Berman Advisers Management Trust.1/
(1)(f) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of additional investment subdivisions of
Separate Account 4, investing in shares of the Growth Portfolio,
the Aggressive Growth Portfolio, and the Worldwide Growth
Portfolio of the Janus Aspen Series. 4/
(1)(g) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of twenty-two (22) additional subdivisions of
Separate Account 4, investing in shares of Money Market
Portfolio, High Income Portfolio, Equity-Income Portfolio,
Growth Portfolio and Overseas Portfolio of the Fidelity Variable
Insurance Products Fund; Asset Manager Portfolio of the Fidelity
Variable Insurance Products Fund II; Money Market Portfolio,
Government Securities Portfolio, Common Stock Index Portfolio,
Total Return Portfolio of the Life of Virginia Series Fund,
Inc.; Limited Maturity Bond Portfolio, Growth Portfolio and
Balanced Portfolio of the Neuberger & Berman Advisers Management
Trust; Growth Portfolio, Aggressive Growth Portfolio, and
Worldwide Growth Portfolio of the Janus Aspen Series; Money
Fund, High Income Fund, Bond Fund, Capital Appreciation Fund,
Growth Fund, Multiple Strategies Fund of the Oppenheimer
Variable Account Funds. 4/
(1)(h) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of three additional investment subdivisions of
Separate Account 4, investing in shares of the Utility Fund and
Corporate Bond Fund of the Insurance Management Series, and the
Contrafund Portfolio of the Variable Insurance Products Fund II.
6/
(1)(i) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of two additional investment subdivisions of
Separate Account 4, investing in shares of the International
Equity Portfolio and the Real Estate Securities Portfolio of
Life of Virginia Series Fund. 7/
(1)(j) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of four additional investment subdivisions of
Separate Account 4, investing in shares of the American Growth
Portfolio and the American Small Capitalization Portfolio of The
Alger American Fund, and the Growth Portfolio and Flexible
Income Portfolio of the Janus Aspen Series. 8/
(1)(k) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of two additional investment subdivisions of
Separate Account 4, investing in shares of the Federated
American Leaders Fund II of the Federated Insurance Series, and
the International Growth Portfolio of the Janus Aspen Series. 9/
(1)(l) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of twelve additional investment subdivisions
of Separate Account 4, investing in shares of the Growth &
Income Portfolio and Growth
1
<PAGE>
opportunities Portfolio of Variable Insurance Products Fund III;
Growth II Portfolio and Large Cap Growth Portfolio of the PBHG
Insurance Series Fund, Inc.; Global Income Fund and Value Equity
Fund of GE Investments Funds, Inc.
(1)(m) Resolution of Board of Directors of Life of Virginia authorizing
the establishment of two additional investment subdivisions of
Separate Account 4, investing in shares of the Capital
Appreciation Portfolio of the Janus Aspen Series.
(2) Not Applicable.
(3)(a) Underwriting Agreement between The Life Insurance Company of
Virginia and Forth Financial Securities Corporation 1/
(i) Underwriting Agreement dated April 2, 1996 between The Life
Insurance Company of Virginia and Forth Financial Securities
Corporation.9/
(b) Dealer Sales Agreement.1/
(4)(a) Form of Policy.
(i) Original Form of Policy. 4/
(b) Endorsements to Policy.
(i) IRA Endorsement 1/
(ii) Pension Endorsement 1/
(iii) Section 403(b) Endorsement 1/
(iv) Guaranteed Minimum Death Benefit Rider 5/
(v) Optional Death Benefit at Death of Annuitant Endorsement
(5)(a) Form of Application. 1/
(6)(a) Certificate of Incorporation of The Life Insurance Company of
Virginia. 1/
(b) By-Laws of The Life Insurance Company of Virginia. 1/
(7) Not Applicable.
(8)(a) Stock Sale Agreement between The Life Insurance Company of
Virginia and The Life of Virginia Series Fund, Inc. 1/
(b) Participation Agreement among Variable Insurance Products Fund,
Fidelity Distributors Corporation, and The Life Insurance
Company of Virginia. 1/
(b)(i) Amendment to Participation Agreement Referencing Policy Form
Numbers. 1/
(b)(ii) Amendment to Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors Corporation, and The
Life Insurance Company of Virginia. 9/
(b)(iii) Amendment to Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation, and The Life
Insurance Company of Virginia. 9/
(c) Agreement between Oppenheimer Variable Account Funds,
Oppenheimer Management Corporation, and The Life Insurance
Company of Virginia. 1/
(c)(i) Amendment to Agreement between Oppenheimer Variable Account
Funds, Oppenheimer Management Corporation, and The Life
Insurance Company of Virginia. 1/
(d) Sales Agreement between Advisers Management Trust and The Life
Insurance Company of Virginia. 1/
(d)(i) Addendum to Sales Agreement between Advisers Management Trust
and The Life Insurance Company of Virginia. 1/
2
<PAGE>
(d)(ii) Assignment and Modification Agreement between Neuberger and
Berman Advisers Management Trust and The Life Insurance Company
of Virginia. 9/
(e) Participation Agreement among Variable Insurance Products Fund
II, Fidelity Distributors Corporation and The Life Insurance
Company of Virginia. 1/
(f) Participation Agreement between Janus Capital Corporation and
The Life Insurance Company of Virginia. 4/
(g) Participation Agreement between Insurance Management Series,
Federated Securities Corp., and The Life Insurance Company of
Virginia. 6/
(h) Participation Agreement between The Alger American Fund, Fred
Alger and Company, Inc., and The Life Insurance Company of
Virginia. 8/
(i) Participation Agreement between Variable Insurance Products Fund
III and The Life Insurance Company of Virginia.
(j) Participation Agreement between PBHG Insurance Series Fund, Inc.
and The Life Insurance Company of Virginia.
(9) Opinion and Consent of Counsel.
(10)(a) Consent of Counsel.
(b) Consent of Independent Auditors.
(11) Not Applicable.
(12) Not Applicable.
(13) Schedule showing computation for Performance Data 5/
(14)(a) Power of Attorney 3/
(b) Power of Attorney dated April 2, 1996. 9/
(c) Power of Attorney dated April 16, 1997.
--------------------------
1/ Incorporated herein by reference to post-effective amendment number 8 to
the Registrant's registration statement on Form N-4, File No. 33-17428,
filed with the Securities and Exchange Commission on April 24, 1992.
2/ Incorporated herein by reference to post-effective amendment number 9 to
the Registrant's registration statement on Form N-4, File No. 33-17428,
filed with the Securities and Exchange Commission on March 2, 1993.
3/ Incorporated herein by reference to post-effective amendment number 10 to
the Registrant's registration statement on Form N-4, File No. 33-17428,
filed with the Securities and Exchange Commission on April 29, 1993.
4/ Incorporated herein by reference to initial Registration Statement on Form
N-4, File No. 33-76334, filed with the Securities and Exchange Commission
on March 11, 1994.
5/ Incorporated herein by reference to pre-effective amendment number 1 to the
Registrant's registration statement on Form N-4, File No. 33-76334, filed
with the Securities and Exchange Commission on April 14, 1994.
6/ Incorporated herein by reference to post-effective amendment number 1 to
the Registrant's registration statement on Form N-4, File No. 33-76334,
filed with the Securities and Exchange Commission on January 3, 1995.
7/ Incorporated herein by reference to post-effective amendment number 2 to
the Registrant's registration statement on Form N-4, File No. 33-76334,
filed with the Securities and Exchange Commission on April 28, 1995.
3
<PAGE>
8/ Incorporated herein by reference to post-effective amendment number 3 to
the Registrant's registration statement on Form N-4, File No. 33-76334,
filed with the Securities and Exchange Commission on September 28, 1995.
9/ Incorporated herein by reference to post-effective amendment number 4 to
the Registrant's registration statement on Form N-4, File No. 33-76334,
filed with the Securities and Exchange Commission on April 30, 1996.
10/ Incorporated herein by reference to post-effective amendment number 6 to
the Registrant's registration statement on Form N-4, File No. 33-76334,
filed with the Securities and Exchange Commission on March 24, 1997.
11/ Incorporated herein by reference to post-effective amendment number 7 to
the Registrant's registration statement on Form N-4, File No. 33-76334,
filed with the Securities and Exchange Commission on May 1, 1997.
4
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF LIFE OF VIRGINIA
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS WITH DEPOSITOR
<S><C>
Ronald V. Dolan* Director and Chairman of the Board
Paul E. Rutledge III* Director, President, Chief Executive Officer
William D. Baldwin* Director and Senior Vice President
Selwyn L. Flournoy, Jr.* Director and Senior Vice President
Robert A. Bowen* Director and Senior Vice President
Linda L. Lanam* Director and Senior Vice President
Robert D. Chinn* Director and Senior Vice President - Agency
Thomas A. Barefield* Director and Senior Vice President - Special Markets
Michael A. Weitz Senior Vice President - Brokerage
Elliot Rosenthal Senior Vice President - Investment Products
Victor C. Moses Director
Geoffrey S. Stiff Director
- -------------------------------------------------------------------------------------
</TABLE>
The principal business address of each person listed, unless otherwise
indicated, is The Life Insurance Company of Virginia, 6610 W. Broad Street,
Richmond, VA 23230.
The address for Mr. Dolan is First Colony Life Insurance Company, 700 Main
Street, Lynchburg, VA 24505
The principal business address for Mr. Moses and Mr. Stiff is GNA Corporation,
Two Union Square, 601 Union Street, Seattle, WA 98101
*Messrs. Dolan, Baldwin, Bowen, Rutledge, Flournoy, Chinn, Barefield and Ms.
Lanam are members of the Executive Committee of the Board of Directors of Life
of Virginia.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The Depositor, The Life Insurance Company of Virginia, is an indirectly,
wholly-owned subsidiary of GNA Corporation. GNA Corporation is a wholly-owned
subsidiary of General Electric Capital Corporation. The Registrant, Life of
Virginia Separate Account 4, is a segregated asset account of Life of Virginia.
Previously, Life of Virginia was an indirectly, wholly-owned subsidiary of Aon
Corporation, an affiliate of Aon Advisors.
ITEM 27. NUMBER OF POLICYOWNERS
For the period ended April 1, 1997, there were 29,207 Policyowners.
ITEM 28. INDEMNIFICATION
Section 13.1-698 and 13.1-702 of the Code of Virginia, in brief, allow a
corporation to indemnify any person made party to a proceeding because such
person is or was a director, officer, employee, or agent of the corporation,
against liability incurred in the proceeding if: (1) he conducted himself in
good faith; and (2) he believed that (a) in the case of conduct in his official
capacity with the corporation, his conduct was in its best interests; and (b) in
all other cases, his conduct was at least not opposed to the corporation's best
interests and (3) in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. The termination of a proceeding by
judgment, order, settlement or conviction is not, of itself, determinative that
the director, officer, employee, or agent of the corporation did not meet the
standard of conduct described. A corporation may not indemnify a director,
officer, employee, or agent of the corporation in connection with a proceeding
by or in the right of the corporation, in which such person was adjudged liable
to the corporation, or in connection with any other
5
<PAGE>
proceeding charging improper personal benefit to such person, whether or not
involving action in his official capacity, in which such person was adjudged
liable on the basis that personal benefit was improperly received by him.
Indemnification permitted under these sections of the Code of Virginia in
connection with a proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
Section 5 of the By-Laws of Life of Virginia further provides that:
(a) The Corporation shall indemnify each director, officer and employee of
this Company who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, arbitrative, or investigative (other than
an action by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer or employee of the Corporation, or
is or was serving at the request of the Corporation as a director, officer
or employee of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgements
[sic], fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in the
best interests of the Corporation, and with respect to any criminal
action, had no cause to believe his conduct unlawful. The termination of
any action, suit or proceeding by judgement [sic], order, settlement,
conviction, or upon a plea of nolo contendere, shall not of itself create
a presumption that the person did not act in good faith, or in a manner
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, believed his conduct unlawful.
(b) The Corporation shall indemnify each director, officer or employee of the
Corporation who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of
the Corporation to procure a judgement [sic] in its favor by reason of the
fact that he is or was a director, officer or employee of the Corporation,
or is or was serving at the request of the Corporation as a director,
officer or employee of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his duty to the Corporation unless and only to the extent
that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem
proper.
(c) Any indemnification under subsections (a) and (b) (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer or
employee is proper in the circumstances because he has met the applicable
standard of conduct set forth in subsections (a) and (b). Such
determination shall be made (1) by the Board of Directors of the
Corporation by a majority vote of a quorum consisting of the directors who
were not parties to such action, suit or proceeding, or (2) if such a
quorum is not obtainable, or even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion,
or (3) by the stockholders of the Corporation.
(d) Expenses (including attorneys' fees) incurred in defending an action, suit
or proceeding, whether civil, criminal, administrative, arbitrative or
investigative, may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as authorized in the manner
provided in subsection (c) upon receipt of an undertaking by or on behalf
of the director, officer or employee to repay such amount to the
Corporation unless it shall ultimately be determined that he is entitled
to be indemnified by the Corporation as authorized in this Article.
(e) The Corporation shall have the power to make any other or further
indemnity to any person referred to in this section except an indemnity
against gross negligence or willful misconduct.
(f) Every reference herein to director, officer or employee shall include
every director, officer or employee, or former director, officer or
employee of the Corporation and its subsidiaries and shall enure to the
benefit of the heirs, executors and administrators of such person.
(g) The foregoing rights and indemnification shall not be exclusive of any
other rights and indemnification to which the directors, officers and
employees of the Corporation may be entitled according to law.
* * *
6
<PAGE>
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
depositor pursuant to the foregoing provisions, or otherwise, the depositor has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the depositor of expenses incurred
or paid by a director, officer or controlling person of the depositor in
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the depositor will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Forth Financial Securities Corporation is the principal underwriter of the
Policies as defined in the Investment Company Act of 1940, and is also the
principal underwriter for flexible premium variable life insurance
policies issued through Life of Virginia Separate Accounts I, II, III and
V.
<TABLE>
<CAPTION>
(b) Name and Principal Positions and Offices
Business Address* with Underwriter
<S><C>
Scott R. Reeks Director, President, Treasurer and Compliance Officer
Robert Z. Peranski Director
William D. Baldwin Director
Linda L. Lanam Secretary
William E. Daner, Jr. General Counsel & Director
Robert D. Chinn Director
John L. Knowles Director
Thomas A. Barefield Director
</TABLE>
* The principal business address of all listed above is 6610 West Broad Street,
Richmond, Virginia 23261.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules under it are maintained by Life of
Virginia at its executive offices.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
Registration Statement.
ITEM 32. UNDERTAKINGS
(a) Registrant undertakes that it will file a post-effective amendment to this
Registration Statement as frequently as necessary to ensure that the
audited financial statements in the Registration Statement are never more
than 16 months old for so long as payments under the variable annuity
contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that
an applicant can check to request a Statement of Additional Information,
or (2) a post card or similar written communication affixed to or included
in the Prospectus that the applicant can remove to send for a Statement of
Additional Information.
7
<PAGE>
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this Form
promptly upon written or oral request to Life of Virginia at the address
or phone number listed in the Prospectus.
STATEMENT PURSUANT TO RULE 6c-7
Life of Virginia offers and will offer Policies to participants in the Texas
Optional Retirement Program. In connection therewith, Life of Virginia and
Account 4 rely on 17 C.F.R. Section 270.6c-7 and represent that the provisions
of paragraphs (a)-(d) of the Rule have been or will be complied with.
SECTION 403(b) REPRESENTATIONS
Life of Virginia represents that in connection with its offering of Policies
as funding vehicles for retirement plans meeting the requirements of Section
403(b) of the Internal Revenue Code of 1986, it is relying on a no-action letter
dated November 28, 1988, to the American Council of Life Insurance (Ref. No.
IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d) of the Investment Company
Act of 1940, and that paragraphs numbered (1) through (4) of that letter will be
complied with.
SECTION 26(e)(2)(A) REPRESENTATION
Life of Virginia hereby represents that the fees and charges deducted under
the Policy, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by Life of
Virginia.
8
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant, Life of Virginia Separate Account 4, certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of this
registration statement, and has duly caused this registration statement to be
signed on its behalf by the undersigned thereunto duly authorized, and its seal
to be hereunto affixed and attested, in the County of Henrico in the
Commonwealth of Virginia, on the 29th of April, 1997.
Life of Virginia Separate Account 4
(Registrant)
By:Selwyn L. Flournoy, Jr.
------------------------------------
Selwyn L. Flournoy, Jr.
Senior Vice President
The Life Insurance Company of Virginia
The Life Insurance Company of Virginia
(Depositor)
By:Selwyn L. Flournoy, Jr.
-------------------------------------
Selwyn L. Flournoy, Jr.
Senior Vice President
Given under my hand this ______ day of ____________, 19___ in the City/County of
_______________________, Commonwealth of Virginia.
- ---------------------------
Notary Public
- ---------------------------
My Commission Expires
<PAGE>
As required by the Securities Act of 1933, this registration statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S><C>
RONALD V. DOLAN Director, Chairman of the Board 4/29/97
- --------------------
Ronald V. Dolan
PAUL E. RUTLEDGE III
- --------------------- Director, President, and Chief Executive Officer 4/29/97
Paul E. Rutledge III
WILLIAM D. BALDWIN
- --------------------- Director, Senior Vice President 4/29/97
William D. Baldwin
Selwyn L. Flournoy, Jr. Director, Senior Vice President 4/29/97
- ----------------------
Selwyn L. Flournoy, Jr.
ROBERT A. BOWEN
- ---------------------- Director, Senior Vice President and Director 4/29/97
Robert A. Bowen
LINDA L. LANAM
- ---------------------- Director, Senior Vice President 4/29/97
Linda L. Lanam
ROBERT D. CHINN
- ----------------------- Director, Senior Vice President 4/29/97
Robert D. Chinn
THOMAS A. BAREFIELD
- ----------------------- Director, Senior Vice President 4/29/97
Thomas A. Barefield
VICTOR C. MOSES
- ----------------------- Director 4/29/97
Victor C. Moses
GEOFFREY S. STIFF
- ----------------------- Director 4/29/97
Geoffrey S. Stiff
</TABLE>
By Selwyn L. Flourney Jr., pursuant to Power of Attorney executed on
------------------------
April 16, 1997.
<PAGE>
Exhibit List
------------
Page
----
(1)(l) Resolution of the Board of Directors of
The Life Insurance Company of Virginia
(1)(m) Resolution of the Board of Directors of
The Life Insurance Company of Virginia
(4)(b)(v) Option Death Benefit at Death of Annuity
Endorsment
(8)(i) Participation Agreement
(8)(j) Participation Agreement
(9) Opinion and Consent of Counsel
(10)(a) Consent of Counsel
(10)(b) Consent of Independent Auditors
(14)(b) Power of Attorney
EXHIBIT(1)(l)
Resolution of the Board of Directors of Life of Virginia establishing
additional Investment Subdivisions investing in shares of Growth and
Income Portfolio and Growth Opportunities Portfolio of Variable
Insurance Products Funds, III; Growth II Portfolio and Large Cap Growth
Portfolio of the PBHG Insurance Series Fund, Inc.; and Global Income
Fund and Value Equity Fund of GE Investments Funds, Inc.
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE EXECUTIVE COMMITTEE OF
THE BOARD OF DIRECTORS OF
THE LIFE INSURANCE COMPANY OF VIRGINIA
The undersigned, being all of the members of the Executive Committee of the
Board of Directors of The Life Insurance Company of Virginia, a Virginia
corporation, in lieu of a meeting held for the purpose and pursuant to the
provisions of Section 13.1-685 of the Code of Virginia do hereby approve the
following resolutions:
WHEREAS, The Executive Committee of the Board of Directors of the Company,
pursuant to the provisions of Section 38.2-3113 of the Code of Virginia, adopted
resolutions establishing Life of Virginia Separate Account 4 ("Separate Account
4") on August 19, 1987; and
WHEREAS, The Company wishes to establish twelve additional investment
subdivisions of Separate Account 4 which will invest in shares of the Global
Income Fund and the Value Equity Fund of the GE Investments Funds, Inc., the
PBHG Growth II Portfolio and the PBHG Large Cap Growth Portfolio of the PBHG
Insurance Series Fund, Inc., and the Growth and Income Portfolio and the Growth
Opportunities Portfolio of Fidelity's Variable Insurance Products Fund III;
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create twelve additional
investment subdivisions of Separate Account 4. Each of the new subdivisions
shall invest in shares of a single mutual fund portfolio as set forth below:
<TABLE>
<CAPTION>
========================================================================================================================
INVESTMENT SUBDIVISIONS: TO BE INVESTED IN:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
GE Investments Funds, Inc. -
GEI Global Income Global Income Fund
GEI Value Equity Value Equity Fund
- ------------------------------------------------------------------------------------------------------------------------
PBHG Insurance Series Fund, Inc. --
PIL Growth II Growth II Portfolio
PIL Large Cap Growth Large Cap Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund III -
FID Growth and Income Growth and Income Portfolio
FID Growth Opportunities Growth Opportunities Portfolio
- ------------------------------------------------------------------------------------------------------------------------
GE Investments Funds, Inc. --
GEI Global Income - B Global Income Fund
GEI Value Equity - B Value Equity Fund
- ------------------------------------------------------------------------------------------------------------------------
PBHG Insurance Series Fund, Inc. -
PIL Growth II - B Growth II Portfolio
PIL Large Cap Growth - B Large Cap Growth Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Variable Insurance Products Fund III
FID Growth and Income - B Growth and Income Portfolio
FID Growth Opportunities - B Growth Opportunities Portfolio
========================================================================================================================
</TABLE>
FURTHER RESOLVED, That the President, or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute whatever agreement or agreements may be necessary or appropriate to
enable such investments to be made, and the Executive Committee hereby ratifies
the action of any such officer in executing any such agreement prior to the date
of these resolutions; and
FURTHER RESOLVED, That the President or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute and deliver such other documents and do such acts and things as each
or any of them may deem necessary or desirable to carry out the foregoing
resolutions and the intent and purposes thereof.
FURTHER RESOLVED, That these resolutions shall take effect as of March 3, 1997.
<PAGE>
/s/WILLIAM D. BALDWIN 2/26/97 /s/ROBERT ALLEN BOWEN 2/26/97
- --------------------- ---------------------
William D. Baldwin Date Robert Allen Bowen Date
/s/SELWYN L. FLOURNOY, JR. 2/26/97 /s/H. GAYLORD HODGES, Jr. 2/24/97
- ------------------------- -------------------------
Selwyn L. Flournoy, Jr. Date H. Gaylord Hodges Date
/s/LINDA L. LANAM 2/26/97 /s/JOHN J. PALMER 2/21/97
- ----------------- -----------------
Linda L. Lanam Date John J. Palmer Date
/s/PAUL E. RUTLEDGE III 2/29/97
- -----------------------
Paul E. Rutledge III Date
EXHIBIT (1)(m)
Resolution of the Board of Directors of Life of Virginia
establishing additional Investment Subdivisions
investing in shares of Capital Appreciation Portfolio
of the Janus Aspen Series.
<PAGE>
UNANIMOUS WRITTEN CONSENT OF
THE EXECUTIVE COMMITTEE OF
THE BOARD OF DIRECTORS OF
THE LIFE INSURANCE COMPANY OF VIRGINIA
The undersigned, being all of the members of the Executive Committee of the
Board of Directors of The Life Insurance Company of Virginia, a Virginia
corporation, in lieu of a meeting held for the purpose and pursuant to the
provisions of Section 13.1-685 of the Code of Virginia do hereby approve the
following resolutions:
WHEREAS, The Executive Committee of the Board of Directors of the Company,
pursuant to the provisions of Section 38.2-3113 of the Code of Virginia, adopted
resolutions establishing Life of Virginia Separate Account 4 ("Separate Account
4") on August 19, 1987; and
WHEREAS, The Company wishes to establish two additional investment subdivisions
of Separate Account 4 which will invest in shares of the Capital Appreciation
Portfolio of the Janus Aspen Series;
NOW, THEREFORE, BE IT RESOLVED, That the Executive Committee of the Board of
Directors of the Company does hereby establish and create two additional
investment subdivisions of Separate Account 4. Each of the new subdivisions
shall invest in shares of a single mutual fund portfolio as set forth below:
<TABLE>
<CAPTION>
========================================================================================================================
INVESTMENT SUBDIVISIONS: TO BE INVESTED IN:
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Janus Aspen Series -
JAN Capital Appreciation Capital Appreciation Portfolio
- ------------------------------------------------------------------------------------------------------------------------
Janus Aspen Series --
JAN Capital Appreciation - Capital Appreciation Portfolio
B
========================================================================================================================
</TABLE>
FURTHER RESOLVED, That the President, or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute whatever agreement or agreements may be necessary or appropriate to
enable such investments to be made, and the Executive Committee hereby ratifies
the action of any such officer in executing any such agreement prior to the date
of these resolutions; and
FURTHER RESOLVED, That the President or any Senior Vice President, and each of
them, with full power to act without the others, are hereby severally authorized
to execute and deliver such other documents and do such acts and things as each
or any of them may deem necessary or desirable to carry out the foregoing
resolutions and the intent and purposes thereof.
FURTHER RESOLVED, That these resolutions shall take effect as of April 1, 1997.
/s/WILLIAM D. BALDWIN 2/26/97 /s/ROBERT ALLEN BOWEN 2/26/97
- --------------------- ---------------------
William D. Baldwin Date Robert Allen Bowen Date
/s/SELWYN L. FLOURNOY, JR. 2/26/97 /s/H. GAYLORD HODGES, Jr. 2/24/97
- ------------------------- -------------------------
Selwyn L. Flournoy, Jr. Date H. Gaylord Hodges Date
/s/LINDA L. LANAM 2/26/97 /s/JOHN J. PALMER 2/21/97
- ----------------- -----------------
Linda L. Lanam Date John J. Palmer Date
/s/PAUL E. RUTLEDGE III 2/29/97
- -----------------------
Paul E. Rutledge III Date
EXHIBIT (4)(B)(V)
Optional Death Benefit at Death of Annuity Endorsment
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
OPTIONAL DEATH BENEFIT AT DEATH OF ANNUITANT ENDORSEMENT
----------------------------------------------
The policy to which this Endorsement is attached is amended by deleting the
Optional Death Benefit at Death of Annuitant provision in its entirety and
adding the following:
Optional Death Benefit at Death of Annuitant
If the death of the Annuitant occurs before income payments begin, the
Designated Beneficiary may surrender the policy for the Death Benefit within 90
days of the date of such death. If this optional death benefit is paid, the
policy will terminate, and we will have no further obligation under the policy.
If the surrender occurs more than 90 days after the Annuitant's death, the
Surrender Value will be payable instead of the Death Benefit. If the policy is
not surrendered, it will remain in force subject to all of its provisions.
The Death Benefit will be the greater of:
o The minimum death benefit described below; or
o The Account Value of the policy on the date we receive proof of the
Annuitant's death.
Minimum Death Benefit
During the first six policy years, or if the Annuitant was age 81 or older on
the policy date, the minimum death benefit is the total premiums paid, less
adjustments for any partial surrenders.
If the Annuitant was age 80 or younger on the policy date, the minimum death
benefit during any subsequent six-year period will be the Death Benefit on the
last day of the previous six-year period, plus any premiums paid since then,
less adjustments for any partial surrenders since then.
For The Life Insurance Company of Virginia,
/s/ Paul E. Rutledge III
President
EXHIBIT(8)(i)
Participation Agreement between Variable Insurance Products Fund III
and The Life Insurance Company of Virginia.
<PAGE>
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
THE LIFE INSURANCE COMPANY OF VIRGINIA
THIS AGREEMENT, made and entered into as of the 15th day of April, 1997
by and among THE LIFE INSURANCE COMPANY OF VIRGINIA, (hereinafter the
"Company"), a Virginia corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is or will, before it purchases any Fund shares,
be a duly organized, validly existing segregated asset account, established by
resolution of the Board of Directors of the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided that
the Fund receives notice of such order by 9:30 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely for
<PAGE>
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts with the form
number(s) which are listed on Schedule A attached hereto and incorporated herein
by this reference, as such Schedule A may be amended from time to time hereafter
by mutual written agreement of all the parties hereto, (the "Contracts") shall
be invested in the Fund, in such other Funds advised by the Adviser as may be
mutually agreed to in writing by the parties hereto, or in the Company's general
account, provided that such amounts may also be invested in an investment
company other than the Fund if (a) such other investment company, or series
thereof, has investment objectives or policies that are substantially different
from the investment objectives and policies of all the Portfolios of the Fund;
or (b) the Company gives the Fund and the Underwriter 45 days written notice of
its intention to make such other investment company available as a funding
vehicle for the Contracts; or (c) such other investment company was available as
a funding vehicle for the Contracts prior to the date of this Agreement and the
Company so informs the Fund and Underwriter prior to their
<PAGE>
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 38.2-3113 of the Virginia Insurance Code and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly
<PAGE>
authorized for issuance and sold in compliance with the laws of the State of
Virginia and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
endowment, annuity or life insurance contracts, under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund and the Underwriter immediately upon having a reasonable
basis for believing that the Contracts have ceased to be so treated or that they
might not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Virginia and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Virginia to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Virginia and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
<PAGE>
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Virginia and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are and will be covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimum coverage as required currently of entities
subject to the requirements of Rule 17g-1 of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall
<PAGE>
be borne by the Fund. If the Company chooses to receive camera-ready film in
lieu of receiving printed copies of the Fund's prospectus, the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B is
the Fund's per unit cost of typesetting and printing the Fund's prospectus. The
same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Company (or in
the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications (except
for prospectuses and Statements of Additional Information, which are covered in
Section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
a particular separate account in the same proportion as Fund shares of such
portfolio for which instructions have been received in that separate account, so
long as and to the extent that the Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Fund calculates voting privileges
in a manner consistent with the standards set forth on Schedule B attached
hereto and incorporated herein by this reference, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
<PAGE>
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material. The Fund or its designee
will use reasonable efforts to review materials within a shorter time period if
the Company makes a request for expedited review in a letter accompanying such
materials.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales
<PAGE>
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to the Contracts or each Account, contemporaneously with the filing of
such document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, Statements of Additional Information, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to
the Company under this agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
<PAGE>
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder.
Without limiting the scope of the foregoing, the Fund will at all times comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all
<PAGE>
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision
by the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Underwriter and Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
<PAGE>
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf
of the Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund not supplied
by the Company, or persons under its control) or wrongful conduct of the Company
or persons under its control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company, as limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the Contracts or the
operation of the Fund.
<PAGE>
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful conduct of
the Fund, Adviser or Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus,
or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund;
or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this
<PAGE>
Agreement by the Underwriter; as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
<PAGE>
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of this Agreement
(including a failure to comply with the diversification requirements specified
in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of an Account,
or the sale or acquisition of shares of the Fund.
<PAGE>
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by ninety
(90) days advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued or to be issued by
the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M
of the Code or under any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in Article VI
hereof; or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or
<PAGE>
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under this
Section 10.1(h) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
<PAGE>
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, Virginia 23230
Attention: Thomas A. Barefield, Senior Vice President
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may
<PAGE>
request in order to ascertain whether the insurance operations of the Company
are being conducted in a manner consistent with the California Insurance
Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9. The Company shall furnish, or shall cause to be
furnished, to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared for filing
with the Virginia Bureau of Insurance under statutory accounting principles) and
annual report (prepared under generally accepted accounting principles ("GAAP"),
if any), as soon as practical and in any event within 120 days after the end of
each fiscal year;
(b) the Company's quarterly statutory statements,
as soon as practical and in any event within 45 days after the end of each
quarterly period:
(c) any registration statement (without exhibits)
and financial reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulator, as soon as practical after the
filing thereof;
(d) any other report submitted to the Company by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after the receipt
thereof. However, the Company shall be under no obligation to provide any such
reports that contain privileged or confidential information.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: _________________________
Name: _________________________
Title: _________________________
VARIABLE INSURANCE PRODUCTS FUND III
By: ________________________
J. Gary Burkhead
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _______________________
Paul J. Hondros
President
<PAGE>
<TABLE>
<CAPTION>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Account
<S><C>
Life of Virginia Separate Account II P 1096 1/87
(August 21, 1986)
Life of Virginia Separate Account III P 1097 1/87
(February 10, 1987)
Life of Virginia Separate Account 4 P 1098 A 8/87
(August 18, 1987) P 1140 10/90
P 1142 4/94
P 1142 N 4/94
P 1143 4/94
</TABLE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder meeting to
facilitate the establishment of tabulation procedures. At this time the
Underwriter will inform the Company of the Record, Mailing and Meeting dates.
This will be done verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as of
the Record Date. Allowance should be made for account adjustments made after
this date that could affect the status of the Customers' accounts as of the
Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
<PAGE>
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall produce
and personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card before it
is printed. Allow approximately 2-4 business days for printing information on
the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due
to possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will pay
for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by the
Insurance Company). Contents of envelope sent to Customers by Company will
include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including) the meeting, counting
backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal procedure
<PAGE>
and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed on the
Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new Card
and return envelope. The mutilated or illegible Card is disregarded and
considered to be not received for purposes of vote tabulation. Any Cards that
have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand
verified," i.e., examined as to why they did not complete the system. Any
questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the Cards
as they first arrive into categories depending upon their vote; an estimate of
how the vote is progressing may then be calculated. If the initial estimates and
the actual vote do not coincide, then an internal audit of that vote should
occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated in
terms of a percentage and the number of shares.) Fidelity Legal must review and
approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the vote
in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise necessary
for legal, regulatory, or accounting purposes, Fidelity Legal will be permitted
reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always
be followed up in writing.
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Fidelity Variable Insurance Products Fund:
<PAGE>
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
Fidelity Variable Insurance Products Fund II
Asset Manager Portfolio
Contrafund Portfolio
G.E. Investments Funds, Inc.
Money Market Fund
Government Securities Fund
Common Stock Index Fund
Total Return Fund
International Equity Fund
Real Estate Securities Fund
Value Equity Fund
Global Income Fund
Oppenheimer Variable Account Funds
Oppenheimer High Income Fund
Oppenheimer Bond Fund
Oppenheimer Capital Appreciation Fund
Oppenheimer Growth Fund
Oppenheimer Multiple Strategies Fund
Janus Aspen Series
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
International Growth Portfolio
Balanced Portfolio
Flexible Income Portfolio
Capital Appreciation Portfolio
Federated Insurance Series
Federated Utility Fund II
Federated High Income Bond Fund II
Federated American Leaders Fund II
The Alger American Fund:
Alger American Growth Portfolio
Alger American Small Capitalization Portfolio
Fidelity Advisor Funds
Equity Income Fund
Equity Growth Fund
Growth Opportunities Fund
Income and Growth Fund
PBHG Insurance Series Fund, Inc.
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
EXHIBIT (8)(j)
Participation Agreement between PBHG Insurance Series Fund, Inc.
and The Life Insurance Company of Virginia.
<PAGE>
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT made as of the 1st day of May, 1997, by and between
the PBHG INSURANCE SERIES FUND, INC. ("FUND"), a Maryland corporation, PILGRIM
BAXTER & ASSOCIATES, LTD. ("Adviser"), a Delaware corporation, THE LIFE
INSURANCE COMPANY OF VIRGINIA ("LIFE COMPANY"), a life insurance company
organized under the laws of the Commonwealth of Virginia.
WHEREAS, FUND is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"`40 Act"), as an open-end, diversified management investment company; and
WHEREAS, FUND is organized as a series fund comprised of several
Portfolios ("Portfolios"), with those currently available being listed on
Appendix A hereto; and
WHEREAS, FUND was organized to act as the funding vehicle for
certain variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts
("Separate Accounts") of such life insurance companies ("Participating Insurance
Companies"); and
WHEREAS, FUND may also offer its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, FUND will apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the `40 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the FUND to be sold to and held by Variable
Contract separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and Qualified Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having FUND as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and as a broker-dealer under the
Securities Exchange Act of 1934, as amended and acts as the FUND's investment
adviser; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE
COMPANY, FUND, and ADVISER agree as follows:
1
Article I. SALE OF FUND SHARES
1.1 FUND agrees to make available to the Separate Accounts of LIFE
COMPANY shares of the selected Portfolios as listed on Appendix B for investment
of purchase payments of Variable Contracts allocated to the designated Separate
Accounts as provided in FUND's Registration Statement.
1.2 FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its designee
of the order for the shares of FUND. For purposes of this Section 1.2, LIFE
COMPANY shall be the designee of FUND for receipt of such orders from the
designated Separate Account and receipt by such designee shall constitute
receipt by FUND; provided that LIFE COMPANY receives the order by 4:00 p.m. New
York time and FUND receives notice from LIFE COMPANY by telephone or facsimile
(or by such other means as FUND and LIFE COMPANY may agree in writing) of such
order by 8:30 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange is open for trading
and on which FUND calculates its net asset value pursuant to the rules of the
SEC.
1.3 FUND agrees to redeem on LIFE COMPANY's request, any full or
fractional shares of FUND held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by FUND or its
designee of the request for redemption, in accordance with the provisions of
this agreement and FUND's Registration Statement. For purposes of this Section
1.3, LIFE COMPANY shall be the designee of FUND for receipt of requests for
redemption from the designated Separate Account and receipt by such designee
shall constitute receipt by FUND; provided that LIFE COMPANY receives the
request for redemption by 4:00 p.m. New York time and FUND receives notice from
LIFE COMPANY by telephone or facsimile (or by such other means as FUND and LIFE
COMPANY may agree in writing) of such request for redemption by 8:30 a.m. New
York time on the next following Business Day.
1.4 FUND shall furnish, on or before the ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the shares of any Portfolio of FUND. LIFE COMPANY hereby elects to receive all
such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. FUND shall notify LIFE
COMPANY or its designee of the number of shares so issued as payment of such
dividends and distributions.
1.5 FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 7:00 p.m. New York time.
If FUND provides LIFE COMPANY with incorrect share net asset value information
through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the Separate
Accounts, shall be entitled to an adjustment to the number of shares purchased
or redeemed to
2
reflect the correct share net asset value. Any error in the calculation of net
asset value per share, dividend or capital gain information shall be reported
promptly upon discovery to LIFE COMPANY.
1.6 At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 1.5 to calculate Separate Account unit values
for the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of FUND shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to FUND by LIFE COMPANY by 8:30 a.m. New York Time on the
Business Day next following LIFE COMPANY's receipt of such requests and premiums
in accordance with the terms of Sections 1.2 and 1.3 hereof.
1.7 If LIFE COMPANY's order requests the purchase of FUND shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, FUND shall use its best efforts
to wire the redemption proceeds to LIFE COMPANY by the next Business Day, unless
doing so would require FUND to dispose of Portfolio securities or otherwise
incur additional costs. In any event, proceeds shall be wired to LIFE COMPANY
within three Business Days or such longer period permitted by the '40 Act or the
rules, orders or regulations thereunder and FUND shall notify the person
designated in writing by LIFE COMPANY as the recipient for such notice of such
delay by 3:00 p.m. New York Time the same Business Day that LIFE COMPANY
transmits the redemption order to FUND.
1.8 FUND agrees that all shares of the Portfolios of FUND will be
sold only to Participating Insurance Companies which have agreed to participate
in FUND to fund their Separate Accounts and/or to Qualified Plans, all in
accordance with the requirements of Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
Portfolios of FUND will not be sold directly to the general public.
1.9 FUND may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of the shares of or liquidate any Portfolio
of FUND if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Directors of the FUND
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the shareholders of such Portfolios.
1.10 Issuance and transfer of Portfolio shares will be by book entry
only. Stock certificates will not be issued to LIFE COMPANY or the Separate
Accounts. Shares ordered from Portfolio will be recorded in appropriate book
entry titles for the Separate Accounts.
3
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the Commonwealth
of Virginia and that it has legally and validly established each Separate
Account as a segregated asset account under such laws, and that Forth Financial
Securities Corporation, the principal underwriter for the Variable Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"'34 Act").
2.2 LIFE COMPANY represents and warrants that it has registered or,
prior to any issuance or sale of the Variable Contracts, will register each
Separate Account as a unit investment trust ("UIT") in accordance with the
provisions of the `40 Act and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Variable Contracts,
unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that the Variable Contracts
will be registered under the Securities Act of 1933 (the "`33 Act") unless an
exemption from registration is available prior to any issuance or sale of the
Variable Contracts and that the Variable Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Variable Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 LIFE COMPANY represents and warrants that the Variable Contracts
are currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify FUND immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 FUND represents and warrants that the Fund shares offered and
sold pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal and state laws, and FUND shall be
registered under the `40 Act prior to and at the time of any issuance or sale of
such shares. FUND, subject to Section 1.9 above, shall amend its registration
statement under the `33 Act and the `40 Act from time to time as required in
order to effect the continuous offering of its shares. FUND shall register and
qualify its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by FUND.
2.6 FUND represents and warrants that each Portfolio will comply
with the diversification requirements set forth in Section 817(h) of the Code,
and the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing any Portfolio has ceased to comply or might not
so comply and will immediately take all reasonable steps to adequately diversify
the Portfolio to achieve compliance.
4
2.7 FUND represents and warrants that each Portfolio invested in by
the Separate Account intends to elect to be treated as a "regulated investment
company" under Subchapter M of the Code, and to qualify for such treatment for
each taxable year and will notify LIFE COMPANY immediately upon having a
reasonable basis for believing it has ceased to so qualify or might not so
qualify in the future.
2.8. ADVISER represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
Article III. PROSPECTUS AND PROXY STATEMENTS
3.1 FUND shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of FUND. FUND
shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 At least annually, FUND or its designee shall provide LIFE
COMPANY, free of charge, with as many copies of the current prospectus for the
shares of the Portfolios as LIFE COMPANY may reasonably request for distribution
to existing Variable Contract owners whose Variable Contracts are funded by such
shares. FUND or its designee shall provide LIFE COMPANY, at LIFE COMPANY's
expense, with as many copies of the current prospectus for the shares as LIFE
COMPANY may reasonably request for distribution to prospective purchasers of
Variable Contracts. If requested by LIFE COMPANY in lieu thereof, FUND or its
designee shall provide such documentation (including a "camera ready" copy of
the new prospectus as set in type or, at the request of LIFE COMPANY, as a
diskette in the form sent to the financial printer) and other assistance as is
reasonably necessary in order for the parties hereto once a year (or more
frequently if the prospectus for the shares is supplemented or amended) to have
the prospectus for the FUND shares and the prospectuses for other funds serving
as underlying investments for the Variable Contract printed together in one
document. The expenses of such printing will be apportioned between (a) LIFE
COMPANY and (b) FUND in proportion to the number of pages of the FUND's
prospectus and the total number of pages of prospectus of other underlying
funds, taking account of other relevant factors affecting the expense of
printing, such as covers, columns, graphs and charts; FUND to bear the cost of
printing the FUND's prospectus portion of such document for distribution only to
owners of existing Variable Contracts funded by the FUND's shares and LIFE
COMPANY to bear the remaining expense; provided, however, LIFE COMPANY shall
bear all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Variable
Contracts not funded by the FUND's shares. In the event that LIFE COMPANY
requests that FUND or its designee provide FUND's prospectus in a "camera ready"
or diskette format, FUND shall be responsible
5
for providing the prospectus in the format in which it is accustomed to
formatting prospectuses and shall bear the expense of providing the prospectus
in such format (e.g. typesetting expenses), and LIFE COMPANY shall bear the
expense of adjusting or changing the format to conform with any of its
prospectuses.
3.3 FUND will provide LIFE COMPANY with at least one complete copy
of all prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all amendments
or supplements to any of the above that relate to the Portfolios promptly after
the filing of each such document with the SEC or other regulatory authority.
LIFE COMPANY will provide FUND with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly after
the filing of each such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish, or will cause to be furnished, to
FUND and ADVISER, each piece of sales literature or other promotional material
in which FUND or ADVISER is named, at least ten (10) Business Days prior to its
intended use. No such material will be used if FUND or ADVISER objects to its
use in writing within five (5) Business Days after receipt of such material.
4.2 FUND and ADVISER will furnish, or will cause to be furnished, to
LIFE COMPANY, each piece of sales literature or other promotional material in
which LIFE COMPANY or its Separate Accounts are named, at least fifteen (15)
Business Days prior to its intended use. No such material will be used if LIFE
COMPANY objects to its use in writing within ten (10) Business Days after
receipt of such material.
4.3 FUND and its affiliates and agents shall not give any
information or make any representations on behalf of LIFE COMPANY or concerning
LIFE COMPANY, the Separate Accounts, or the Variable Contracts issued by LIFE
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports of the Separate Accounts or reports prepared for
distribution to owners of such Variable Contracts, or in sales literature or
other promotional material approved by LIFE COMPANY or its designee, except with
the prior written permission of LIFE COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning FUND
other than the information or representations contained in a registration
statement or prospectus for FUND, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by FUND or its designee, except with the
prior written permission of FUND.
6
4.5 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for use, in
a newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written communication distributed
or made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts, or
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under National Association of Securities Dealers, Inc.
("NASD") rules, the `40 Act or the '33 Act.
Article V. POTENTIAL CONFLICTS
5.1 The parties acknowledge that FUND will be filing an application
with the SEC to request an order granting relief from various provisions of the
'40 Act and the rules thereunder to the extent necessary to permit FUND shares
to be sold to and held by Variable Contract separate accounts of both affiliated
and unaffiliated Participating Insurance Companies and Qualified Plans. It is
anticipated that the Exemptive Order, when and if issued, shall require FUND and
each Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 5. If the Exemptive Order imposes
conditions materially different from those provided for in this Section 5, the
conditions and undertakings imposed by the Exemptive Order shall govern this
Agreement and the parties hereto agree to amend this Agreement consistent with
the Exemptive Order. The Fund will not enter into a participation agreement with
any other Participating Insurance Company unless it imposes the same conditions
and undertakings as are imposed on LIFE COMPANY hereby.
5.2 The Board of Directors of the Fund (the "Board") will monitor
FUND for the existence of any material irreconcilable conflict between the
interests of Variable Contract owners of all separate accounts investing in FUND
and between the interests of Qualified Plan Participants, if any, and Variable
Contract Owners investing in Fund. An irreconcilable material conflict may arise
for a variety of reasons, which may include: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of FUND are being managed;
(e) a difference in voting instructions given by Variable Contract owners,
Qualified Plans or Qualified Plan Participants, if any; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of Variable
Contract owners and (g) if applicable, a decision by a Qualified Plan to
disregard the voting instructions of plan participants.
5.3 LIFE COMPANY will report any potential or existing conflicts to
the Board. LIFE
7
COMPANY will be responsible for assisting the Board in carrying out its duties
in this regard by providing the Board with all information reasonably necessary
for the Board to consider any issues raised. The responsibility includes, but is
not limited to, an obligation by the LIFE COMPANY to inform the Board whenever
it has determined to disregard Variable Contract owner voting instructions.
These responsibilities of LIFE COMPANY will be carried out with a view only to
the interests of the Variable Contract owners.
5.4 If a majority of the Board or majority of its disinterested
Directors, determines that a material irreconcilable conflict exists affecting
LIFE COMPANY, LIFE COMPANY, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested
Directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including; (a) withdrawing the assets
allocable to some or all of the Separate Accounts from FUND or any Portfolio
thereof and reinvesting those assets in a different investment medium, which may
include another Portfolio of FUND, or another investment company; (b) submitting
the question as to whether such segregation should be implemented to a vote of
all affected Variable Contract owners and as appropriate, segregating the assets
of any appropriate group (i.e variable annuity or variable life insurance
Contract owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected Variable Contract owners
the option of making such a change; and (c) establishing a new registered
management investment company (or series thereof) or managed separate account.
If a material irreconcilable conflict arises because of LIFE COMPANY's decision
to disregard Variable Contract owner voting instructions, and that decision
represents a minority position or would preclude a majority vote, LIFE COMPANY
may be required, at the election of FUND, to withdraw the Separate Account's
investment in FUND, and no charge or penalty will be imposed as a result of such
withdrawal. The responsibility to take such remedial action shall be carried out
with a view only to the interests of the Variable Contract owners.
For the purposes of this Section 5.4, a majority of the
disinterested members of the Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict but in no event
will FUND or ADVISER (or any other investment adviser of FUND) be required to
establish a new funding medium for any Variable Contract. Further, LIFE COMPANY
shall not be required by this Section 5.4 to establish a new funding medium for
any Variable Contracts if any offer to do so has been declined by a vote of a
majority of Variable Contract owners materially and adversely affected by the
irreconcilable material conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations under the Exemptive Order. Such
reports, materials, and data shall be submitted more frequently if deemed
appropriate by the Board.
8
<PAGE>
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Variable Contract owners so long as the SEC continues to interpret the `40 Act
as requiring pass-through voting privileges for Variable Contract owners.
Accordingly, LIFE COMPANY, where applicable, will vote shares of the Portfolio
held in its Separate Accounts in a manner consistent with voting instructions
timely received from its Variable Contract owners. LIFE COMPANY will be
responsible for assuring that each of its Separate Accounts that participates in
FUND calculates voting privileges in a manner consistent with other
Participating Insurance Companies. LIFE COMPANY will vote shares for which it
has not received timely voting instructions, as well as shares it owns, in the
same proportion as its votes those shares for which it has received voting
instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
if Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
`40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Exemptive Order, then FUND, and/or the Participating Insurance Companies, as
appropriate, shall take such steps as may be necessary to comply with Rule 6e-2
and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
Rules are applicable.
Article VII. INDEMNIFICATION
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to
indemnify and hold harmless FUND, ADVISER and each of their directors,
principals, officers, employees and agents and each person, if any, who controls
FUND or ADVISER within the meaning of Section 15 of the `33 Act (collectively,
the "Indemnified Parties" for purposes of this Article VII) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of LIFE COMPANY, which consent shall not be unreasonably
withheld) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of FUND's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the Registration Statement or prospectus
or sales literature for the Variable Contracts or
contained in the Variable Contracts (or any amendment or
supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission
to state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity
with information furnished to LIFE COMPANY by or on
behalf of FUND for use in the registration statement
or
9
prospectus for the Variable Contracts or in the
Variable Contracts or sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Variable Contracts or
FUND shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration statement,
prospectus or sales literature of FUND not supplied by
LIFE COMPANY, or persons under its control) or wrongful
conduct of LIFE COMPANY or persons under its control,
with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of FUND or
any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make
the statements therein not misleading if such statement
or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to FUND for inclusion therein by or on behalf
of LIFE COMPANY; or
(d) arise as a result of any failure by LIFE COMPANY to
provide substantially the services and furnish the
materials under the terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in
this Agreement or arise out of or result from any other
material breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action.
10
After notice from LIFE COMPANY to such party of LIFE COMPANY's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and LIFE COMPANY will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by ADVISER. ADVISER agrees to indemnify and hold
harmless LIFE COMPANY and each of its directors, officers, employees, and agents
and each person, if any, who controls LIFE COMPANY within the meaning of Section
15 of the `33 Act (collectively, the "Indemnified Parties" for the purposes of
this Article VII) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of ADVISER which
consent shall not be unreasonably withheld) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute, or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of FUND's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement or
prospectus or sales literature of FUND (or any
amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading, provided
that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or
omission or such alleged statement or omission was
made in reliance upon and in conformity with
information furnished to ADVISER or FUND by or on
behalf of LIFE COMPANY for use in the registration
statement or prospectus for FUND or in sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of
the Variable Contracts or FUND shares; or
(b) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Contracts not supplied by ADVISER or persons
under its control) or wrongful conduct of FUND or
ADVISER or persons under their control, with respect
to the sale or distribution of the Variable Contracts
or FUND shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales
literature covering the Variable Contracts, or any
amendment thereof or supplement thereto or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the
11
statements therein not misleading, if such statement
or omission or such alleged statement or omission was
made in reliance upon and in conformity with
information furnished to LIFE COMPANY for inclusion
therein by or on behalf of FUND; or
(d) arise as a result of (i) a failure by FUND to provide
substantially the services and furnish the materials
under the terms of this Agreement; or (ii) a failure
by a Portfolio(s) invested in by the Separate Account
to comply with the diversification requirements of
Section 817(h) of the Code; or (iii) a failure by a
Portfolio(s) invested in by the Separate Account to
qualify as a "regulated investment company" under
Subchapter M of the Code; or
(e) arise out of or result from any material breach of
any representation and/or warranty made by ADVISER or
FUND in this Agreement or arise out of or result from
any other material breach of this Agreement by
ADVISER or FUND.
7.5 ADVISER shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
7.6 ADVISER shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified ADVISER in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify ADVISER of any such claim shall not
relieve ADVISER from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, ADVISER shall be entitled to participate at its own expense
in the defense thereof. ADVISER also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from ADVISER to such party of ADVISER's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and ADVISER will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
Article VIII. TERM; TERMINATION
8.1 This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the provisions
herein.
12
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of LIFE COMPANY or FUND at any time
from the date hereof upon six (6) months' prior
written notice, unless a shorter time is agreed to by
the parties;
(b) At the option of LIFE COMPANY, if FUND shares are not
reasonably available to meet the requirements of the
Variable Contracts as determined by LIFE COMPANY.
Prompt notice of election to terminate shall be
furnished by LIFE COMPANY, said termination to be
effective ten days after receipt of notice unless
FUND makes available a sufficient number of shares to
reasonably meet the requirements of the Variable
Contracts within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution
of formal proceedings against FUND by the SEC, the
NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in LIFE COMPANY's reasonable judgment,
materially impair FUND's ability to meet and perform
FUND's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
LIFE COMPANY with said termination to be effective
upon receipt of notice;
(d) At the option of FUND, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the
NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in FUND's reasonable judgment, materially
impair LIFE COMPANY's ability to meet and perform its
obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by FUND with
said termination to be effective upon receipt of
notice;
(e) In the event FUND's shares are not registered, issued
or sold in accordance with applicable state or
federal law, or such law precludes the use of such
shares as the underlying investment medium of
Variable Contracts issued or to be issued by LIFE
COMPANY. Termination shall be effective upon such
occurrence without notice;
(f) At the option of FUND if the Variable Contracts cease
to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code, or if FUND
reasonably believes that the Variable Contracts may
fail to so qualify. Termination shall be effective
upon receipt of notice by LIFE COMPANY;
13
(g) At the option of LIFE COMPANY, upon FUND's breach of
any material provision of this Agreement, which
breach has not been cured to the satisfaction of LIFE
COMPANY within ten days after written notice of such
breach is delivered to FUND;
(h) At the option of FUND, upon LIFE COMPANY's breach of
any material provision of this Agreement, which
breach has not been cured to the satisfaction of FUND
within ten days after written notice of such breach
is delivered to LIFE COMPANY;
(i) At the option of FUND, if the Variable Contracts are
not registered, issued or sold in accordance with
applicable federal and/or state law. Termination
shall be effective immediately upon such occurrence
without notice;
(j) In the event this Agreement is assigned without the
prior written consent of LIFE COMPANY, FUND, and
ADVISER, termination shall be effective immediately
upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, the FUND and the ADVISER at the option of LIFE COMPANY shall
continue to make available additional shares of the Fund pursuant to the terms
of this Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of Existing Contracts or LIFE
COMPANY, whichever shall have the legal authority to do so, shall be permitted
to reallocate investment in the FUND, redeem investments in the FUND and/or
invest in the FUND upon the making of additional premium payments under the
Existing Contracts. The parties agree that this Section 8.3 shall not apply to
any terminations under Article V of this Agreement.
8.4 In the event of a termination of this Agreement pursuant to
Section 8.2 hereof, LIFE COMPANY, as promptly as practicable under the
circumstances, shall notify FUND and ADVISER that it wishes to exercise the
option afforded by Section 8.3 hereof.
8.5 Except as necessary to implement Variable Contract owner
initiated transactions, or as required by state insurance laws or regulations or
as permitted by order of the Securities and Exchange Commission, LIFE COMPANY
shall not redeem the shares attributable to the Variable Contracts (as opposed
to the shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Variable Contract owners from
allocating payments to a Portfolio that was otherwise available under the
Variable Contracts until thirty (30) days after the LIFE COMPANY shall have
notified FUND of its intention to do so.
14
<PAGE>
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested to the other party at the address of such party set
forth below or at such other address as such party may from time to time specify
in writing to the other party.
If to FUND:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to the ADVISER:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: Mr. Brian F. Bereznak
With a copy to:
PBHG Insurance Series Fund, Inc.
1255 Drummers Lane, Suite 300
Wayne, PA 19087
Attention: John M. Zerrr, Esq.
If to LIFE COMPANY:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Attn: Thomas A. Barefield
With a copy to:
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Attn: J. Neil McMurdie, Esq.
Notice shall be deemed given on the date of receipt by the addressee
as evidenced by the return receipt.
15
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania. It shall also be subject to the provisions of the federal
securities laws and the rules and regulations thereunder and to any orders of
the SEC granting exemptive relief therefrom and the conditions of such orders.
10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Directors or officers of FUND or
any Portfolio shall be personally liable hereunder. No Portfolio shall be liable
for the liabilities of any other Portfolio. All persons dealing with FUND or a
Portfolio must look solely to the property of FUND or that Portfolio,
respectively, for enforcement of any claims against FUND or that Portfolio. It
is also understood that each of the Portfolios shall be deemed to be entering
into a separate Agreement with LIFE COMPANY so that it is as if each of the
Portfolios had signed a separate Agreement with LIFE COMPANY and that a single
document is being signed simply to facilitate the execution and administration
of the Agreement.
10.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
10.8 No provision of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
FUND, ADVISER and the LIFE COMPANY.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
16
PBHG INSURANCE SERIES FUND, INC.
By: /s/ Brian F. Berecnak
--------------------------
Name: Brian F. Berecnak
Title: Vice President
PILGRIM BAXTER & ASSOCIATES, LTD.
By: /s/ Eric C. Schneider
--------------------------
Name: Eric C. Schneider
Title: CFO
THE LIFE INSURANCE COMPANY
OF VIRGINIA
By: /s/ Thomas A. Barefield
--------------------------
Name: Thomas Barefield
Title: Senior Vice President
17
<PAGE>
APPENDIX A
PBHG Insurance Series Fund, Inc. - Portfolios
PBHG Growth II Portfolio
PBHG Large Cap Growth Portfolio
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
Separate Accounts Selected Portfolios
- ----------------- -------------------
<S><C>
Life of Virginia Separate Account II PBHG Growth II
Life of Virginia Separate Account III PBHG Large Cap Growth
Life of Virginia Separate Account 4
Life of Virginia Separate Account 5
</TABLE>
EXHIBIT (9)
Opinion and Consent of Counsel
<PAGE>
[Letterhead of Life of Virginia]
May 1, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
With reference to Post-Effective Amendment No. 7 on Form N-4 for policy form
P1143 4/94 (File Number 33-76334), filed by The Life Insurance Company of
Virginia and Life of Virginia Separate Account 4 with the Securities and
Exchange Commission covering flexible premium variable deferred annuity
policies, I have examined such documents and such law as I considered necessary
and appropriate, and on the basis of such examination, it is my opinion that:
1. The Life Insurance Company of Virginia is duly organized and validly
existing under the laws of the Commonwealth of Virginia and has been duly
authorized to issue individual flexible premium variable deferred annuity
policies by the Bureau of Insurance of the State Corporation Commission
of the Commonwealth of Virginia.
2. Life of Virginia Separate Account 4 is a duly authorized and existing
separate account established pursuant to the provisions of Section
38.2-3113 of the Code of Virginia.
3. The flexible premium variable deferred annuity policies, when issued as
contemplated by said Form N-4 Registration Statement, will constitute
legal, validly issued and binding obligations of The Life Insurance
Company of Virginia.
I hereby consent to the use of this letter, or copy thereof, as an exhibit to
Post Effective Amendment No. 7 to the Registration Statement on Form N-4 (File
Number 33-76334) and the reference to me under the caption "Legal Matters" in
the Statement of Additional Information contained in said Post-Effective
Amendment.
Sincerely,
/s/J. NEIL MCMURDIE
- -------------------
J. Neil McMurdie
Associate Counsel and
Assistant Vice President
Law Department
EXHIBIT (10)(a)
Consent of Counsel
<PAGE>
[Letterhead of Sutherland, Asbill & Brennan, L.L.P.]
April 29, 1997
The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal Matters"
in the Statement of Additional Information filed as part of Post-Effective
Amendment No. 7 to the Registration Statement on Form N-4 (File No. 33-76334)
filed by Life of Virginia Separate Account 4 for certain variable annuity
contracts. In giving this consent, we do not admit that we are in the category
of persons whose consent is required under Section 7 of the Securities Act of
1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
By: /s/STEPHEN E. ROTH
--------------------
Stephen E. Roth
EXHIBIT (10)(b)
Consent of Independent Auditors
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" and "Change
in Auditors" and to the use of our reports dated February 8, 1996, with respect
to the consolidated financial statements and the related financial statement
schedules of The Life Insurance Company of Virginia and subsidiaries and the
Life of Virginia Separate Account 4, in Amendment No. 7 to the Registration
Statement under the Securities Act of 1933 (Form N-4 No. 33-76334) of the Life
of Virginia Separate Account 4, and in Amendment No. 15 to the Registration
Statement under the Investment Company Act of 1940 (Registration No. 811-5343),
for the registration of an indefinite amount of securities.
ERNST & YOUNG LLP
Richmond, Virginia
April 25, 1997
<PAGE>
[Letterhead of KPMG Peat Marwick LLP]
The Board of Directors
The Life Insurance Company of Virginia
Life of Virginia Separate Account 4
We consent to the reference to our firm under the caption "Experts" and to the
use of our report with respect to the consolidated financial statements of The
Life Insurance Company of Virginia and subsidiaries as of December 31, 1996 and
for the nine month period ended December 31, 1996 and the preacquisition three
month period ended March 31, 1996, dated January 15, 1997, and our report with
respect to the financial statement of Life of Virginia Separate Account 4 as of
December 31, 1996 and for the year of periods then ended, dated February 11,
1997, in Amendment No. 7 to the Registration Statement under the Securities Act
of 1933 (Form N-4 No. 33-76334) of Life of Virginia Separate Account 4, and in
Amendment No. 15 to the Registration Statement under the Investment Company Act
of 1940 (Registration No. 811-5343), for the registration of an indefinite
amount of securities.
Richmond, Virginia
April 25, 1997
EXHIBIT (14)(c)
Power of Attorney
<PAGE>
THE LIFE INSURANCE COMPANY OF VIRGINIA
POWER OF ATTORNEY
The Life Insurance Company of Virginia, a Virginia Corporation, (the "Company")
and each of its undersigned officers and directors, hereby nominate and appoint
Paul E. Rutledge III, Selwyn L. Flournoy, Jr., and J. Neil McMurdie, (with full
power to each of them to act alone) as his/her true and lawful attorney-in-fact
and agent, for him/her and in his/her name and place in any and all capacities,
to execute and sign all Registration Statements of the Company filed with the
Securities and Exchange Commission on form N-4 under the Securities Act of 1933
and the Investment Company Act of 1940 and on form S-6 under the Securities Act
of 1933 (including any and all pre- and post-effective amendments and any
supplements thereto), and to file with the Securities and Exchange Commission
all such Registration Statements, amendments and any supplements thereto, as
well as any and all exhibits and other documents necessary or desirable to such
Registration Statement, amendment or supplement, granting to such attorneys and
each of them, full power and authority to do and perform each and every act
necessary and/or appropriate as fully and with all intents and purposes as the
Company itself and the undersigned officers and directors themselves might or
could do.
IN WITNESS WHEREOF, THE LIFE INSURANCE COMPANY OF VIRGINIA has caused this power
of attorney to be executed in its full name and by its President and attested by
its Secretary, and the undersigned officers and directors have each executed
such power of attorney, on this 16th day of April, 1997.
THE LIFE INSURANCE COMPANY OF VIRGINIA
By: /s/PAUL E. RUTLEDGE III
-------------------------
Paul E. Rutledge III
President and Chief Executive Officer
ATTEST:
/s/LINDA L. LANAM
- -----------------
Linda L. Lanam, Secretary
(Signatures Continue on Next Page)
<PAGE>
<TABLE>
<CAPTION>
Name Title
- ---- -----
<S><C>
/s/RONALD V. DOLAN Director and Chairman
- ------------------
Ronald V. Dolan
/s/PAUL E. RUTLEDGE III Director, President and Chief Executive Officer
- -----------------------
Paul E. Rutledge III (Principal Executive Officer)
/s/SELWYN L. FLOURNOY, JR. Director and Senior Vice President
- --------------------------
Selwyn L. Flournoy, Jr. (Principal Financial and Principal Accounting Officer)
/s/WILLIAM D. BALDWIN Director and Senior Vice President
- ---------------------
William D. Baldwin
/s/ROBERT A. BOWEN Director and Senior Vice President
- ------------------
Robert A. Bowen
/s/LINDA L. LANAM Director and Senior Vice President
- -----------------
Linda L. Lanam
/s/VICTOR C. MOSES Director
- ------------------
Victor C. Moses
/s/GEOFFREY S. STIFF Director
- --------------------
Geoffrey S. Stiff
/s/THOMAS A. BAREFIELD Director and Senior Vice President
- ----------------------
Thomas A. Barefield
/s/ROBERT D. CHINN Director and Senior Vice President
- ------------------
Robert D. Chinn
</TABLE>
