<PAGE>
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
PROSPECTUS
FOR THE
VANGUARD VARIABLE ANNUITY PLAN CONTRACT
OFFERED BY
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
APRIL 30, 1996; REVISED SEPTEMBER 25, 1996
The Vanguard Variable Annuity Plan Contract (the "Contract"), offered through
Providian Life & Health Insurance Company (the "Company"), provides a vehicle
for investing on a tax-deferred basis in nine Portfolios offered by The
Vanguard Group, Inc. The Contract is intended for retirement savings or other
long-term investment purposes.
The minimum Initial Purchase Payment for the Contract is $5,000; there are no
sales loads. The Contract is a flexible-premium deferred variable annuity that
provides a Free Look Period for a minimum of 10 days (30 days or more in some
instances), during which you may cancel your investment in the Contract.
Your Purchase Payments for the Contract may be allocated among nine
Subaccounts of Providian Life & Health Insurance Company Separate Account IV
(the "Separate Account"). Assets of each Subaccount are invested in
corresponding Portfolios of Vanguard Variable Insurance Fund, Inc. (the
"Fund"), an open-end, diversified investment company offered by The Vanguard
Group, Inc. The Fund currently offers nine Portfolios: the Money Market
Portfolio, the High-Grade Bond Portfolio, the Balanced Portfolio, the Equity
Index Portfolio, the Equity Income Portfolio, the Growth Portfolio, the
International Portfolio, the High Yield Bond Portfolio, and the Small Company
Growth Portfolio. Net Purchase Payments are automatically allocated to the
Money Market Portfolio until the end of your Free Look Period, and are
subsequently allocated according to your instructions.
The Contract's Accumulated Value varies with the investment performance of
the Portfolios you select. You bear all investment risk and investment results
for the Portfolios are not guaranteed.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump-sum payment and several Annuity Payment Options. Full or
partial withdrawals from the Contract may be made at any time before the
Annuity Date, although in many instances withdrawals made prior to age 59 1/2
are subject to a 10% penalty tax (and a portion may be subject to ordinary
income taxes). If you elect an Annuity Payment Option, Annuity Payments may be
received on a fixed or variable basis. You also have significant flexibility in
choosing the Annuity Date on which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing
in the Contract; it must be accompanied by the current Prospectus for Vanguard
Variable Insurance Fund. Please read both Prospectuses carefully and retain
them for future reference. A Statement of Additional Information for the
Contract Prospectus, which has the same date as this Prospectus, has also been
filed with the Securities and Exchange Commission, is incorporated herein by
reference and is available free by writing to Vanguard Variable Annuity Plan,
P.O. Box 2600, Valley Forge, PA 19482. The Table of Contents of the Statement
of Additional Information is included at the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
HIGHLIGHTS............................................................ 3
Fee Table............................................................. 6
Glossary.............................................................. 8
Condensed Financial
Information.......................................................... 11
Financial Statements.................................................. 11
Yield and Total Return ............................................... 11
The Company and the
Separate Account..................................................... 12
Vanguard Variable
Insurance Fund....................................................... 12
<CAPTION>
Page
<S> <C>
CONTRACT FEATURES..................................................... 14
Free Look Period...................................................... 14
Contract Application and
Purchase Payments.................................................... 14
Allocation of Purchase
Payments............................................................. 16
Charges and Deductions................................................ 16
Accumulated Value..................................................... 19
Dividends and Capital Gains
Treatment............................................................ 19
Exchanges Among the
Portfolios........................................................... 19
<CAPTION>
Page
<S> <C>
Full and Partial Withdrawals.......................................... 20
IRS-Required Distributions............................................ 21
Minimum Balance
Requirements......................................................... 22
Designation of a Beneficiary.......................................... 22
Death of Annuitant Prior to
Annuity Date......................................................... 23
Annuity Date.......................................................... 23
Annuity Payment Options............................................... 24
FEDERAL TAX
CONSIDERATIONS....................................................... 26
General Information................................................... 30
</TABLE>
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The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2
<PAGE>
HIGHLIGHTS
REFER TO THE GLOSSARY (PAGE 8) FOR A DEFINITION OF ALL CAPITALIZED TERMS.
VANGUARD The Contract provides a vehicle for investing on a tax-de-
VARIABLE ANNUITY ferred basis in nine Portfolios offered by The Vanguard
PLAN CONTRACT Group, Inc. Monies may be subsequently withdrawn from the
Contract either as a lump sum or as an annuity income. Be-
cause Accumulated Values and, to the extent Variable Annu-
ity Payments are selected, Annuity Payments depend on the
investment experience of the selected Portfolios, you bear
all investment risk for monies invested under the Contract.
The investment performance of the Portfolios is not guaran-
teed.
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WHO SHOULD The Contract is designed for investors seeking long-term,
INVEST tax-deferred accumulation of funds, generally for retire-
ment but also for other long-term investment purposes. The
tax-deferred feature of the Contract is most attractive to
investors in high federal and state marginal tax brackets
who have exhausted other avenues of tax deferral, such as
"pre-tax" contributions to employer-sponsored retirement or
savings plans. The Contract is intended for long-term in-
vestors.
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INVESTMENT Your investment in the Contract may be allocated among sev-
CHOICES eral Subaccounts of the Separate Account. The Subaccounts
in turn invest exclusively in the nine Portfolios of Van-
guard Variable Insurance Fund. The Fund, a member of The
Vanguard Group of Investment Companies, offers nine Portfo-
lios: the Money Market Portfolio, the High-Grade Bond Port-
folio, the Balanced Portfolio, the Equity Index Portfolio,
the Equity Income Portfolio, the Growth Portfolio, the In-
ternational Portfolio, the High Yield Bond Portfolio, and
the Small Company Growth Portfolio. The assets of each
Portfolio are separate, and each Portfolio has distinct in-
vestment objectives and policies as described in the accom-
panying Fund Prospectus. PAGE 12
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FREE LOOK PERIOD The Contract provides a Free Look Period for a minimum of
10 days (30 or more days in some instances as specified in
your Contract) during which you may cancel your investment
in the Contract. To cancel your investment, please return
your Contract to us. When we receive the Contract, you will
be reimbursed for all Purchase Payments and any correspond-
ing appreciation credited to your account. PAGE 14
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HOW TO INVEST To invest in the Contract, please complete the accompanying
application form. The minimum Initial Purchase Payment is
$5,000; the minimum Portfolio balance is $1,000; and subse-
quent Purchase Payments must be at least $250. You may make
subsequent Purchase Payments at any time before the Con-
tract's Annuity Date, as long as the Annuitant or Joint An-
nuitant specified in the Contract is living. Please note
that when purchasing a Contract, the Annuitant you name,
and the Joint Annuitant if applicable, must be 75 years of
age or less. PAGE 14
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3
<PAGE>
ALLOCATION OF Your Net Purchase Payments are initially allocated to the
PURCHASE Money Market Portfolio when your Contract is issued. At the
PAYMENTS end of the Free Look Period, and a 5-day grace period, the
then-current Accumulated Value of your Contract is allo-
cated among the Portfolios of the Fund in accordance with
your application instructions. Requests to change the allo-
cation of subsequent Net Purchase Payments may be made in
writing, or by telephone if you have completed the Authori-
zation Form. PAGE 16
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CHARGES AND The Contract imposes no sales charges. The costs of the
DEDUCTIONS UNDER Contract include mortality and expense risk charges, main-
THE CONTRACT tenance and administrative charges which cover the cost of
administering the Contract, and management, advisory and
other fees, which reflect the costs of Vanguard Variable
Insurance Fund. There are no charges under the Contract for
withdrawals, although withdrawals made prior to age 59 1/2
may be subject to a 10% penalty tax. PAGE 16
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EXCHANGES You may make exchanges among the Fund's Portfolios subject
to certain restrictions on excess exchange activity. These
restrictions do not apply, however, to non-substantive ex-
changes or to the Money Market Portfolio. No fee is imposed
for exchanges. Exchanges must be for at least $250, or, if
less, for the entire value of the Portfolio from which the
exchange is made. PAGE 19
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FULL AND PARTIAL You may withdraw all or part of the Accumulated Value of
WITHDRAWALS the Contract before the earlier of the Annuity Date or the
Annuitant's death (or the Joint Annuitant's death, if lat-
er). You may establish systematic withdrawals from your
Contract, and receive distributions at regular intervals.
Withdrawals made prior to age 59 1/2 may be subject to a
10% penalty tax. PAGE 20
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DEATH BENEFIT If the Annuitant specified in your Contract dies prior to
the Annuity Date, the Annuitant's named Beneficiary will
receive the death benefit under the Contract. The death
benefit is the greater of the then-current Accumulated
Value of the Contract or the sum of all Purchase Payments
(less any partial withdrawals and premium taxes). Your Ben-
eficiary may elect to receive these proceeds as a lump sum
or as Annuity Payments. PAGE 23
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ANNUITY PAYMENT Beginning on the Annuity Date, you may withdraw monies from
OPTIONS the Contract in the form of an annuity income. As the Con-
tract Owner you may elect one of several Annuity Payment
Options. The Options provide a wide range of flexibility in
choosing an annuity payment schedule that meets your par-
ticular needs. Annuity Payments may be received for a des-
ignated period or for life (for either a single or joint
life), with or without a guaranteed number of payments. An-
nuity Payments can be fixed, or can vary with the invest-
ment performance of a Portfolio of the Fund. You may elect
a lump-sum payment prior to the Annuity Date in lieu of An-
nuity Payments. PAGE 24
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4
<PAGE>
CONTRACT AND If you have questions about your Contract, please telephone
POLICYHOLDER the Vanguard Variable Annuity Center (1-800-462-2391).
INFORMATION Please have ready the Contract number and the Contract Own-
er's name when you call. As Contract Owner, you will re-
ceive periodic statements confirming any transactions that
take place, as well as quarterly statements and an Annual
Report.
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5
<PAGE>
FEE TABLE The following table illustrates all expenses that you would
incur as a Contract Owner, except for Premium Taxes that
may be assessed by your state (see "Charges and Deduc-
tions"). The expenses and fees shown are for the Fund's and
the Separate Account's 1995 fiscal years. The expenses and
fees shown for the High Yield Bond Portfolio and the Small
Company Growth Portfolio are based on estimates for their
respective first fiscal year of operation. The purpose of
this table is to assist you in understanding the various
costs and expenses that you would bear directly or indi-
rectly as a purchaser of the Contract. The fee table re-
flects ALL expenses for both the Separate Account and the
Fund. For a complete discussion of contract costs and ex-
penses, see "Charges and Deductions."
<TABLE>
<CAPTION>
SEPARATE
OWNER TRANSACTION EXPENSES ACCOUNT
-------------------------------------------------------------
<S> <C>
Sales Load Imposed on Purchases........................... None
Redemption Fees........................................... None
Exchange Fees............................................. None
-------------------------------------------------------------
Annual Contract Maintenance Fee*.......................... $25
</TABLE>
* Applies to Contracts valued at less than $25,000 at the
time of initial purchase and on the last Business Day of
each year.
<TABLE>
<CAPTION>
SEPARATE
ANNUAL SEPARATE ACCOUNT EXPENSES ACCOUNT
---------------------------------------------------------------
<S> <C>
Mortality and Expense Risk Charge**......................... .38%
Administrative Expense Charge............................... .10%
---
TOTAL ANNUAL SEPARATE ACCOUNT EXPENSES.................... .48%
===
</TABLE>
** This charge is reduced to 0.30% for average daily net
assets attributable to the Separate Account (and Sepa-
rate Account B of First Providian Life & Health Insur-
ance Company) in excess of $1.5 billion. See "Mortality
and Expense Risk Charge."
<TABLE>
<CAPTION>
SMALL HIGH
MONEY HIGH-GRADE EQUITY EQUITY COMPANY YIELD
ANNUAL FUND OPERATING MARKET BOND BALANCED INDEX INCOME GROWTH INTERNATIONAL GROWTH BOND
EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management &
Administrative
Expenses.............. .16% .20% .22% .23% .22% .26% .28% .22% .22%
Investment
Advisory Fees......... .01 .01 .10 .01 .10 .15 .15 .15 .06
12b-1 Distribution
Fees.................. None None None None None None None None None
Other Expenses
Distribution Costs.... .03 .02 .02 .02 .02 .02 .02 .02 .02
Miscellaneous
Expenses............. .03 .06 .02 .02 .05 .04 .09 .02 .02
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Other Expenses... .06 .08 .04 .04 .07 .06 .11 .04 .04
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES............. .23% .29% .36% .28% .39% .47% .54% .41% .32%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SMALL HIGH
MONEY HIGH-GRADE EQUITY EQUITY COMPANY YIELD
MARKET BOND BALANCED INDEX INCOME GROWTH INTERNATIONAL GROWTH BOND
TOTAL EXPENSES PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Separate Account
Expenses.............. .48% .48% .48% .48% .48% .48% .48% .48% .48%
Total Fund Operating
Expenses.............. .23 .29 .36 .28 .39 .47 .54 .41 .32
--- --- --- --- --- --- ---- --- ---
GRAND TOTAL, SEPARATE
ACCOUNT AND FUND
OPERATING EXPENSES... .71% .77% .84% .76% .87% .95% 1.02% .89% .80%
=== === === === === === ==== === ===
</TABLE>
The following example illustrates the expenses that you
would incur on a $1,000 purchase payment over various
periods, assuming (1) a 5% annual rate of return and (2)
redemption at the end of each period. As noted in the table
above, the Contract imposes no redemption fees of any kind.
Your expenses are identical whether you continue the
Contract or withdraw the entire value of your Contract at
the end of the applicable period as a lump sum or under one
of the Contract's Annuity Payment Options.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Money Market Portfolio............. $ 7 $23 $40 $90
High-Grade Bond Portfolio.......... 8 25 44 97
Balanced Portfolio................. 9 27 48 105
Equity Index Portfolio............. 8 25 43 96
Equity Income Portfolio............ 9 28 49 109
Growth Portfolio................... 10 31 53 118
International Portfolio............ 11 33 57 127
High-Yield Bond Portfolio.......... 8 26 45 101
Small Company Growth Portfolio..... 9 29 50 111
</TABLE>
The Annual Contract Maintenance Fee is reflected in these
examples as a percentage equal to the total amount of fees
collected during a year divided by the total average net
assets of the Portfolios during the same year. The fee is
assumed to remain the same in each year of the above peri-
ods. The fee is prorated to reflect only the remaining por-
tion of the calendar year of purchase. Thereafter, the fee
is deducted on the last business day of the year for the
following year, on a pro rata basis, from each of the Port-
folios you have chosen. For a complete discussion of Con-
tract costs and expenses, see "Charges and Deductions."
THIS EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY
BE HIGHER OR LOWER THAN THOSE SHOWN, SUBJECT TO THE GUARAN-
TEES IN THE CONTRACT.
------------------------------------------------------------
AUTOMATED QUOTES The Vanguard Tele-Account Service provides access to accu-
mulated unit values (to two decimal places) for all
subaccounts, and yield information for the Money Market and
High-Grade Bond Portfolios of the Vanguard Variable Annuity
Plan. Contract Owners may utilize this service for 24-hour
access to Plan Portfolio information. To access the service
you may call Tele-Account at 1-800-662-6273 (ON-BOARD) and
follow the step-by-step instructions, or speak with a Van-
guard associate at 1-800-522-5555 to request a brochure
that explains how to use the service.
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7
<PAGE>
GLOSSARY ACCUMULATION UNIT--A measure of your ownership interest in
the Contract prior to the Annuity Date. Analogous, though
not identical, to a share owned in a mutual fund account.
ACCUMULATION UNIT VALUE--The value of each Accumulation
Unit which is calculated each Valuation Period. Analogous,
though not identical, to the share price (net asset value)
of a mutual fund.
ACCUMULATED VALUE--The value of all amounts accumulated un-
der the Contract prior to the Annuity Date, equivalent to
the Accumulation Units multiplied by the Accumulation Unit
Value. Analogous to the current market value of a mutual
fund account.
ANNUITANT--The person or persons whose life is used to de-
termine the duration of any Annuity Payments and, subject
to the provision dealing with Joint Annuitants, upon whose
death, prior to the Annuity Date, benefits under the Con-
tract are paid.
ANNUITY DATE--The date on which Annuity Payments begin. The
Annuity Date is always the first day of the month you spec-
ify.
ANNUITY PAYMENT--One of a series of payments made under an
Annuity Payment Option.
ANNUITY PAYMENT OPTION--One of several ways in which a se-
ries of payments are made after the Annuity Date. Under a
FIXED ANNUITY OPTION, the dollar amount of each Annuity
Payment does not change over time. Annuity Payments are
based on the Contract's Accumulated Value as of the Annuity
Date. Under a VARIABLE ANNUITY OPTION, the dollar amount of
each Annuity Payment may change over time, depending upon
the investment experience of the Portfolio or Portfolios
you choose.
ANNUITY UNIT--Unit of measure used to calculate Variable
Annuity Payments.
BENEFICIARY--The person to whom any benefits are due upon
the Annuitant's death.
BUSINESS DAY--A day when the New York Stock Exchange is
open for trading.
COMPANY ("We", "Us", "Our")--Providian Life & Health Insur-
ance Company, a Missouri stock company.
CONTRACT ANNIVERSARY--Any anniversary of the Contract Date.
CONTRACT DATE--The date of issue of this Contract.
CONTRACT OWNER ("You", "Your")--The person or persons des-
ignated as the Contract Owner in the Contract application.
The term shall also include any person named as Joint Own-
er. A Joint Owner shares ownership in all respects with the
Owner. The Owner has the right to assign ownership to a
person or party other than himself.
CONTRACT YEAR--A period of 12 months starting with the Con-
tract Date or any Contract Anniversary.
8
<PAGE>
FREE LOOK PERIOD--The period during which the Contract can
be cancelled and treated as void from the Contract Date.
FUND--Vanguard Variable Insurance Fund, Inc., an open-end,
diversified investment company, offered by The Vanguard
Group, Inc., in which the Separate Account invests.
JOINT ANNUITANT--The person other than the Annuitant who
may be designated by the Contract Owner and on whose life
Annuity Payments may also be based.
NET PURCHASE PAYMENT--Any Purchase Payment less the appli-
cable Premium Tax, if any.
NON-QUALIFIED CONTRACT--A Contract other than a Qualified
Contract. Contributions to such a Contract are made with
after-tax dollars.
OWNER'S DESIGNATED BENEFICIARY--The person designated to
receive the Contract Owner's interest in the Contract if
the Contract Owner dies before the entire interest in the
Contract is distributed, as explained in the "IRS-Required
Distribution" section.
PAYEE--The Contract Owner, Annuitant, Beneficiary, or any
other person, estate, or legal entity to whom benefits are
to be paid.
PORTFOLIO--The separate investment Portfolios of the Van-
guard Variable Insurance Fund. The Fund currently offers
nine Portfolios: the Money Market Portfolio, the High-Grade
Bond Portfolio, the Balanced Portfolio, the Equity Index
Portfolio, the Equity Income Portfolio, the Growth Portfo-
lio, the International Portfolio, the High Yield Bond Port-
folio, and the Small Company Growth Portfolio. In this Pro-
spectus, Portfolio will also be used to refer to the
Subaccount that invests in the corresponding Portfolio.
PREMIUM TAX--A regulatory tax that may be assessed by your
state on the Purchase Payments made into your Contract. The
amount which we must pay as Premium Tax will be deducted
from each Purchase Payment or from your Accumulated Value
as it is incurred by us.
PROOF OF DEATH--(a) A certified death certificate; (b) a
certified decree of a court of competent jurisdiction as to
the finding of death; (c) a written statement by a medical
doctor who attended the deceased; or (d) any other proof
satisfactory to the Company.
PURCHASE PAYMENT--Any premium payment--any amount you in-
vest in the Contract. The minimum Initial Purchase Payment
is $5,000; each Additional Purchase Payment must be at
least $250. Purchase Payments may be made at any time prior
to the Annuity Date as long as the Annuitant is living.
QUALIFIED CONTRACT--A Contract that qualifies as an indi-
vidual retirement annuity under Section 408(b) of the In-
ternal Revenue Code of 1986, as amended.
SEPARATE ACCOUNT--Providian Life & Health Insurance Company
Separate Account IV. The Separate Account consists of as-
sets that are segregated by Providian Life & Health Insur-
ance Company and invested in the Vanguard
9
<PAGE>
Variable Insurance Fund. The Separate Account is indepen-
dent of the general assets of the Company.
SUBACCOUNT--That portion of the Separate Account that in-
vests in shares of the Fund's Portfolios. Each Subaccount
will only invest in a single Portfolio. The investment per-
formance of each Subaccount is linked directly to the in-
vestment performance of one of the nine Portfolios of the
Fund.
VALUATION PERIOD--A period between two successive Business
Days commencing at the close of business of the first Busi-
ness Day and ending at the close of business of the follow-
ing Business Day.
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10
<PAGE>
CONDENSED The Accumulation Unit Values and the number of Accumulation
FINANCIAL Units outstanding for each Subaccount in 1991 through 1995
INFORMATION are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 29, 1991 THROUGH DECEMBER 31, 1995*
----------------------------------------------------------------------------------------------------
HIGH SMALL
MONEY HIGH-GRADE EQUITY EQUITY YIELD COMPANY
MARKET BOND BALANCED INDEX INCOME GROWTH INTERNATIONAL BOND GROWTH
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date*............. 1.000 10.000 10.000 10.000 10.000 10.000 10.000 10.000 10.000
12/31/91................ 1.032 11.027 10.802 11.275 . . . . .
12/31/92................ 1.064 11.656 11.514 12.039 . . . . .
12/31/93................ 1.091 12.695 12.961 13.144 10.488 10.569 . . .
12/31/94................ 1.130 12.290 12.815 13.224 10.304 10.964 10.128 . .
12/31/95................ 1.191 14.437 16.885 18.073 14.239 15.089 11.678 . .
Number of units outstanding as of:
12/31/91................ 32,495 2,122 3,395 2,311 . . . . .
12/31/92................ 75,564 4,417 8,682 9,645 . . . . .
12/31/93................ 109,190 6,592 16,164 12,971 6,411 4,879 . . .
12/31/94................ 154,415 6,589 16,429 13,676 6,089 8,004 6,818 . .
12/31/95................ 183,867 8,684 17,021 16,292 7,355 11,857 8,146 . .
<CAPTION>
(UNITS ARE SHOWN IN THOUSANDS)
</TABLE>
* Date of commencement of operations for the High-Grade Bond and Equity Index
Subaccounts was 4/29/91, for the Money Market Subaccount was 5/2/91, for the
Balanced Subaccount was 5/23/91, for the Equity Income and Growth Subaccounts
was 6/7/93, for the International Subaccount was 6/3/94, and for the High
Yield Bond and Small Company Growth Subaccounts will be 6/3/96.
- --------------------------------------------------------------------------------
FINANCIAL The audited statutory-basis financial statements of the
STATEMENTS Company and the financial statements of the Separate Ac-
count (as well as the Independent Auditors' Reports there-
on) are contained in the Statement of Additional Informa-
tion.
- --------------------------------------------------------------------------------
YIELD AND TOTAL From time to time a Portfolio of the Fund may advertise its
RETURN yield and total return investment performance. Advertised
yields and total returns include all charges and expenses
attributable to the Contract. Including these fees has the
effect of decreasing the advertised performance of a Port-
folio, so that a Portfolio's investment performance will
not be directly comparable to that of an ordinary mutual
fund.
Please refer to the Statement of Additional Information for
a description of the method used to calculate a Portfolio's
yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
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11
<PAGE>
THE COMPANY AND The Company is a stock life insurance company incorporated
THE SEPARATE under the laws of Missouri on August 6, 1920, with adminis-
ACCOUNT trative offices at 20 Moores Road, Frazer, Pennsylvania
19355. The Company is principally engaged in offering life
PROVIDIAN LIFE & insurance, annuity contracts, and accident and health in-
HEALTH INSURANCE surance and is admitted to do business in 49 states, the
COMPANY District of Columbia and Puerto Rico. The Company is ulti-
mately wholly owned by Providian Corporation, a publicly-
held diversified consumer financial services company whose
shares are traded on the New York Stock Exchange with as-
sets of $26.8 billion as of December 31, 1995.
------------------------------------------------------------
PROVIDIAN LIFE & The Separate Account was established by the Company as a
HEALTH INSURANCE separate account under the laws of the State of Missouri on
COMPANY SEPARATE July 16, 1990, pursuant to a resolution of the Company's
ACCOUNT IV Board of Directors. The Separate Account is a unit invest-
ment trust registered with the Securities and Exchange Com-
mission (the "SEC") under the Investment Company Act of
1940 (the "1940 Act"). Such registration does not signify
that the SEC supervises the management or the investment
practices or policies of the Separate Account.
The assets of the Separate Account are owned by the Company
and the obligations under the Contract are obligations of
the Company. These assets are held separately from the
other assets of the Company and are not chargeable with li-
abilities incurred in any other business operation of the
Company (except to the extent that assets in the Separate
Account exceed the reserves and other liabilities of the
Separate Account). The Company will always keep assets in
the Separate Account with a value at least equal to the to-
tal Accumulated Value under the Contracts. Income, gains
and losses incurred on the assets in the Separate Account,
whether or not realized, are credited to or charged against
the Separate Account without regard to other income, gains
or losses of the Company. Therefore, the investment perfor-
mance of the Separate Account is entirely independent of
the investment performance of the Company's general account
assets or any other separate account maintained by the Com-
pany.
The Separate Account has nine Subaccounts, each of which
invests solely in a corresponding Portfolio of the Fund.
Additional Subaccounts may be established at the discretion
of the Company. The Separate Account meets the definition
of a "separate account" under Rule O-1(e)(1) of the Invest-
ment Company Act of 1940.
- --------------------------------------------------------------------------------
VANGUARD Vanguard Variable Insurance Fund is an open-end diversified
VARIABLE investment company intended exclusively as an investment
INSURANCE FUND vehicle for variable annuity or variable life insurance
contracts offered by insurance companies.
The Fund is a member of The Vanguard Group of Investment
Companies, a family of more than 30 investment companies
with more than 90 distinct portfolios and assets in excess
of $190 billion. Through their jointly-owned subsidiary,
The Vanguard Group, Inc. ("Vanguard"), the Fund and the
other Funds in the Group obtain at cost virtually all of
their corporate management, administrative, shareholder ac-
counting and distribution services.
12
<PAGE>
The Fund offers nine Portfolios--a money market portfolio,
a bond portfolio, a balanced portfolio, an equity index
portfolio, an equity income portfolio, a growth portfolio,
an international portfolio, a high-yield bond portfolio and
a small company growth portfolio--each with distinct in-
vestment objectives and policies.
THE MONEY MARKET PORTFOLIO seeks to provide current income
consistent with the preservation of capital and liquidity.
The Portfolio also seeks to maintain a stable net asset
value of $1.00 per share. The Portfolio invests primarily
in high-quality money market instruments issued by finan-
cial institutions, non-financial corporations, the U.S.
Government, state and municipal governments and their agen-
cies or instrumentalities, as well as repurchase agreements
collateralized by such securities. The Portfolio also in-
vests in Eurodollar obligations (dollar-denominated obliga-
tions issued outside the U.S. by foreign banks or foreign
branches of domestic banks) and Yankee obligations (dollar-
denominated obligations issued in the U.S. by foreign
banks). Vanguard's Fixed Income Group serves as this Port-
folio's investment adviser.
THE HIGH-GRADE BOND PORTFOLIO seeks to parallel the invest-
ment results of the Lehman Brothers Aggregate Bond Index.
The Portfolio invests primarily in a diversified portfolio
of U.S. Government and corporate bonds, and mortgage-backed
securities. Vanguard's Fixed Income Group serves as this
Portfolio's investment adviser.
THE BALANCED PORTFOLIO seeks the conservation of principal,
a reasonable income return and profits without undue risk.
The Portfolio invests in a diversified portfolio of common
stocks and bonds, with common stocks expected to represent
60% to 70% of the Portfolio's total assets and bonds to
represent 30% to 40%. Wellington Management Company serves
as this Portfolio's investment adviser.
THE EQUITY INDEX PORTFOLIO seeks to parallel the investment
results of the Standard & Poor's 500 Composite Stock Price
Index (S&P 500). The Portfolio invests in common stocks in-
cluded in the S&P 500. Vanguard's Core Management Group
serves as this Portfolio's investment adviser.
THE EQUITY INCOME PORTFOLIO seeks to provide a high level
of current income by investing principally in dividend-pay-
ing equity securities. Newell Associates serves as this
Portfolio's investment adviser.
THE GROWTH PORTFOLIO seeks to provide long-term capital ap-
preciation by investing primarily in equity securities of
seasoned U.S. companies with above-average prospects for
growth. Lincoln Capital Management Company serves as this
Portfolio's investment adviser.
THE INTERNATIONAL PORTFOLIO seeks to provide long-term cap-
ital appreciation. The Portfolio invests primarily in eq-
uity securities of companies based outside the United
States. Schroder Capital Management International, Inc.
serves as this Portfolio's investment adviser.
THE HIGH YIELD BOND PORTFOLIO seeks to provide a high level
of current income by investing in lower-rated debt securi-
ties, which may be regarded as having speculative charac-
teristics and are commonly referred to as "junk bonds." Un-
der normal circumstances, at least 80% of the Portfolio's
assets
13
<PAGE>
will be invested in high-yield corporate debt obligations
rated at least B by Moody's Investors Service, Inc. or
Standard & Poor's Corporation or, if unrated, of comparable
quality as determined by the Portfolio's adviser,
Wellington Management Company.
THE SMALL COMPANY GROWTH PORTFOLIO seeks to provide long
term growth in capital by investing primarily in equity se-
curities of small companies deemed to have favorable pros-
pects for growth. These securities are primarily common
stocks but may also include securities convertible into
common stock. Granahan Investment Management serves as this
Portfolio's investment adviser.
There is no assurance that a Portfolio will achieve its
stated objective.
Additional information concerning the investment objectives
and policies of the Portfolios and the investment advisory
services, total expenses and charges can be found in the
current prospectus for the Fund, which accompanies this
Prospectus. The Fund Prospectus should be read carefully
before any decision is made concerning the allocation of
Purchase Payments to a Portfolio.
The Portfolios may be made available to registered separate
accounts offering variable annuity and variable life prod-
ucts of the Company as well as other insurance companies.
Although we believe it is unlikely, a material conflict
could arise between the interests of the Separate Account
and one or more of the other participating separate ac-
counts. In the event of a material conflict, the affected
insurance companies agree to take any necessary steps, in-
cluding removing their separate account from the Fund if
required by law, to resolve the matter. See the Fund's Pro-
spectus for more information.
- --------------------------------------------------------------------------------
CONTRACT FEATURES
The rights and benefits under the Contract are described
below and in the Contract. The Company reserves the right
to make any modification to conform the Contract to, or
give the Contract Owner the benefit of, any federal or
state statute or any rule or regulation of the United
States Treasury Department.
------------------------------------------------------------
FREE LOOK PERIOD A Free Look Period exists for a minimum of 10 days after
the Contract Owner receives the Contract (30 or more days
in some instances as set forth in your Contract). The Con-
tract permits the Contract Owner to cancel the Contract
during the Free Look Period by returning the Contract to
Vanguard Variable Annuity Center, P.O. Box 1103, Valley
Forge, PA 19482-1103. Upon cancellation, the Contract is
treated as void from the Contract Date and the Contract
Owner will receive the greater of the Purchase Payments
made under the Contract or the Accumulated Value of the
Contract as of the day the Contract is received by the Com-
pany.
- --------------------------------------------------------------------------------
CONTRACT Individuals wishing to purchase a Non-Qualified Contract
APPLICATION AND should send a completed application and your Initial Pur-
PURCHASE chase Payment to the Vanguard Variable Annuity Center. Your
PAYMENTS Initial Purchase Payment must be equal to or greater than
the $5,000 minimum investment requirement. Furthermore, the
named Annuitant and Joint Annuitant must be 75 years of age
or less.
14
<PAGE>
The Contract will be issued and the Initial Net Purchase
Payment will be credited within two Business Days after ac-
ceptance of the application and the Initial Purchase Pay-
ment. Acceptance is subject to the application being re-
ceived in good order, and the Company reserves the right to
reject any application or Initial Purchase Payment.
If the Initial Purchase Payment cannot be credited because
the application is incomplete, the Company will contact the
applicant in writing, explain the reason for the delay and
will refund the Initial Purchase Payment within five Busi-
ness Days. As soon as the necessary requirements are ful-
filled the Purchase Payment will be credited.
Additional Purchase Payments may be made at any time prior
to the Annuity Date, as long as the Annuitant or Joint An-
nuitant, if applicable, is living. Additional Purchase Pay-
ments must be for at least $250. Additional Purchase Pay-
ments received prior to the close of the New York Stock Ex-
change (generally 4:00 p.m. Eastern time) are credited to
the Accumulated Value of the Contract as of the close of
business that same day.
In order to prevent lengthy processing delays caused by the
clearing of foreign checks, we will only accept a foreign
check which has been drawn in U.S. dollars and has been is-
sued by a foreign bank with a U.S. correspondent bank.
The Contracts are available on a non-qualified basis and as
individual retirement annuities (IRAs) that qualify for
special federal income tax treatment. Generally, Qualified
Contracts may be purchased only in connection with a
"rollover" of funds from another qualified plan or IRA and
contain certain other restrictive provisions limiting the
timing and amount of payments to and distributions from the
Qualified Contract.
Total Purchase Payments may not exceed $1,000,000 without
prior approval of the Company.
PURCHASING BY WIRE
CORESTATES BANK, N.A.
MONEY SHOULD BE ABA 031000011
WIRED TO: DEPOSIT ACCOUNT NUMBER 1412652173
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
PLEASE CALL: CONTRACT NUMBER
1-800-462-2391 CONTRACT REGISTRATION
BEFORE WIRING
To assure proper receipt, please be sure your bank includes
the contract number Vanguard has assigned you. For an Ini-
tial Purchase Payment, please complete the Vanguard Vari-
able Annuity Plan Application and mail it to the Vanguard
Variable Annuity Center, P.O. Box 1103, Valley Forge, PA
19482- 1103 after completing wire arrangements. Note: Fed-
eral funds wire purchase orders will be accepted only when
the New York Stock Exchange and Custodian Bank are open for
business.
------------------------------------------------------------
SECTION 1035 You may exchange your Accumulated Value under an existing
EXCHANGES annuity contract to the Vanguard Variable Annuity Plan.
Section 1035 of the IRS Code of 1986, as amended (the
"Code"), provides, in general, that no gain or loss shall
be
15
<PAGE>
recognized on the exchange of one annuity contract for an-
other. To complete a "1035 Exchange" simply provide all the
requested information on the 1035 Exchange Form and mail
it, along with the application and your current contract,
to the Variable Annuity Center. Special rules and proce-
dures apply to Code Section 1035 transactions, particularly
if the Contract being exchanged was issued prior to August
14, 1982. Prospective Contract Owners wishing to take ad-
vantage of Code Section 1035 should consult their tax ad-
visers.
Please note, that an outstanding loan on the Contract that
you wish to transfer may create a tax consequence. There-
fore, you are encouraged to settle any outstanding loans
with your current insurance company prior to initiating a
1035 Exchange into the Plan.
- --------------------------------------------------------------------------------
ALLOCATION OF The Contract Owner specifies on the Contract Application
PURCHASE how Purchase Payments will be allocated. The Contract Owner
PAYMENTS may allocate each Purchase Payment to one or more of the
Portfolios as long as such portions are whole number per-
centages and any allocation made is at least 10% and at
least $1,000.
Allocation instructions for future Purchase Payments may be
changed by the Contract Owner by sending a written notice
to the Vanguard Variable Annuity Center. You may complete a
Telephone Allocation Authorization Form to establish an op-
tion that allows you to provide allocation instructions by
telephone. This option includes the ability to change your
investment by eliminating a Contract Portfolio from your
allocations or by adding a new Contract Portfolio to your
list. Please note that you must maintain a minimum of
$1,000 in each Portfolio to which you have allocated as-
sets.
During the Free Look Period (which is assumed for this pur-
pose to be 10 to 30 days (or more in some instances as
specified in your contract) after the issuance of the Con-
tract), the Initial Net Purchase Payment will be allocated
to the Money Market Portfolio. Upon expiration of the Free
Look Period, the Accumulated Value will remain in the Money
Market Portfolio for an additional 5-day grace period to
allow for mail delivery. Upon the expiration of the Free
Look Period and the 5-day grace period (15 to 35 days), the
Accumulated Value will then be allocated among the Portfo-
lios in accordance with the Contract Owner's instructions.
- --------------------------------------------------------------------------------
CHARGES AND The projected expenses for the Contract are substantially
DEDUCTIONS below the costs of other variable annuity contracts. For
example, based on a $25,000 contract the average expense
ratio of other variable annuity contracts was 2.04% as of
December 31, 1995, compared to 0.82% for the Vanguard Vari-
able Annuity Plan (source for competitors' data: Morning-
star, Inc.)
No sales load is deducted from the Initial Purchase Payment
or any Additional Purchase Payments. In addition, there are
no sales charges imposed upon withdrawals.
------------------------------------------------------------
16
<PAGE>
MORTALITY AND The Company imposes a charge as compensation for bearing
EXPENSE RISK certain mortality and expense risks under the Contracts.
CHARGE The annual charge is assessed daily based on the combined
net assets of the Separate Account and Separate Account B
of First Providian Life & Health Insurance Company in the
Fund according to the following schedule:
<TABLE>
<CAPTION>
NET ASSETS RATE
------------------ ------
<S> <C>
First $1.5 Billion 0.375%
Over $1.5 Billion 0.300%
</TABLE>
The Company guarantees that these mortality and expense
risk breakpoints will never increase. If this charge is in-
sufficient to cover actual costs and assumed risks, the
loss will fall on the Company. Conversely, if the charge
proves more than sufficient, any excess will be added to
the Company surplus.
The mortality risk borne by the Company under the Con-
tracts, where one of the life Annuity Payment Options was
selected, is to make monthly annuity payments (determined
in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all
Annuitants may live. We also assume mortality risk as a re-
sult of our guarantee of a minimum payment in the event the
Annuitant dies prior to the Annuity Date.
The expense risk borne by the Company under the Contracts
is the risk that the charges for administrative expenses
which are guaranteed for the life of the Contract may be
insufficient to cover the actual costs of issuing and ad-
ministering the Contract.
------------------------------------------------------------
ADMINISTRATIVE An annual administrative charge of .10% of the net asset
CHARGE & value of the Separate Account is assessed daily along with
MAINTENANCE FEE an annual maintenance fee of $25 for Contracts valued at
less than $25,000 at the time of initial purchase and on
the last Business Day of each year. The annual maintenance
fee is deducted proportionately from each Contract's Accu-
mulated Value; therefore, the $25 fee is assessed per Con-
tract, not per Portfolio chosen. Your Initial Purchase Pay-
ment of less than $25,000 is reduced by an initial mainte-
nance fee which is pro- rated to reflect only the remaining
portion of the calendar year of purchase. Thereafter, the
fee is deducted on the last Business Day of the year for
the following year, on a pro rata basis from each of the
Portfolios you have chosen. These deductions represent re-
imbursement for the costs expected to be incurred over the
life of the Contract for issuing and maintaining each Con-
tract and the Separate Account. Please note that Contracts
valued at $25,000 or more as of the last Business Day of
the year will not be assessed the $25 maintenance fee for
the following year.
------------------------------------------------------------
TAXES The Contract Owner will, where such taxes are imposed by
state law, pay Premium Taxes that currently range up to
3.5%. These taxes will be deducted from the Accumulated
Value or Purchase Payments as incurred by the Company.
17
<PAGE>
As of the date of this Prospectus, the following state as-
sesses a Premium Tax on all Initial and subsequent Purchase
Payments:
<TABLE>
<CAPTION>
NON-
QUALIFIED QUALIFIED
-------------------------------------------------------------
<S> <C> <C>
South Dakota................................... 0% 1.25%
</TABLE>
As of the date of this Prospectus, the following states as-
sess a Premium Tax against the Accumulated Value if the
Owner chooses an Annuity Payment Option instead of receiv-
ing a lump sum distribution:
<TABLE>
<CAPTION>
NON-
QUALIFIED QUALIFIED
-------------------------------------------------------------
<S> <C> <C>
California..................................... .50% 2.35%
District of Columbia........................... 2.25% 2.25%
Kansas......................................... 0% 2.00%
Kentucky....................................... 2.00% 2.00%
Maine.......................................... 0% 2.00%
Nevada......................................... 0% 3.50%
West Virginia.................................. 1.00% 1.00%
Wyoming........................................ 0% 1.00%
</TABLE>
Under present laws, the Company will incur state or local
taxes (in addition to the Premium Taxes described above) in
several states. At present, the Company does not charge the
Contract Owner for these other taxes. If there is a change
in state or local tax laws, charges for such taxes may be
made. The Company does not expect to incur any federal in-
come tax liability attributable to investment income or
capital gains retained as part of the reserves under the
Contracts. (See "Federal Tax Considerations," page 26.)
Based upon these expectations, no charge is currently being
made to the Separate Account for corporate federal income
taxes that may be attributable to the Separate Account.
The Company will periodically review the question of a
charge to the Separate Account for corporate federal income
taxes related to the Separate Account. Such a charge may be
made in future years for any federal income taxes incurred
by the Company. This might become necessary if the tax
treatment of the Company is ultimately determined to be
other than what the Company 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 the Company's tax status. In the event that the
Company should incur federal income taxes attributable to
investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the
Contract would be correspondingly adjusted by any provision
or charge for such taxes.
------------------------------------------------------------
VANGUARD The value of the assets in the Separate Account will re-
VARIABLE flect the fees and expenses paid by the Fund. A complete
INSURANCE FUND description of these expenses is found in the "Fee Table"
EXPENSES section of this Prospectus and in the "Management of the
Fund" Section of the Fund's Prospectus and in the Fund's
Statement of Additional Information.
- --------------------------------------------------------------------------------
18
<PAGE>
ACCUMULATED At the commencement of the Contract, the Accumulated Value
VALUE equals the Initial Net Purchase Payment. Thereafter, on any
Business Day the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: i) any
Additional Net Purchase Payments received by the Company
and ii) any increase in the Accumulated Value due to in-
vestment results of the selected Portfolio(s) that occur
during the Valuation Period; and reduced by: i) any de-
crease in the Accumulated Value due to investment results
of the selected Portfolio(s), ii) a daily charge to cover
the mortality and expense risks assumed by the Company,
iii) any charge to cover the cost of administering the Con-
tract, iv) any partial withdrawals, and v) Premium Taxes,
if any, that occur during the Valuation Period.
The Accumulated Value is expected to change from Valuation
Period to Valuation Period, reflecting the investment expe-
rience of the selected Portfolios of the Fund as well as
the daily deduction of charges. When your Net Purchase Pay-
ments are allocated to a selected Portfolio, they result in
a particular number of Accumulation Units being credited to
your Contract. The number of Accumulation Units credited is
determined by dividing the dollar amount allocated to each
Portfolio by the Accumulation Unit Value for that Portfolio
as of the end of the Valuation Period in which the payment
is received. The Accumulation Unit Value varies each Valua-
tion Period (i.e., each day that there is trading on the
New York Stock Exchange) with the net rate of return of the
Portfolio. The net rate of return reflects the investment
performance of the Portfolio for the Valuation Period and
is net of asset charges to the Portfolio.
- --------------------------------------------------------------------------------
DIVIDENDS AND All dividends and capital gains earned will be reinvested
CAPITAL GAINS and reflected in the Accumulation Unit Value. Only in this
TREATMENT way can these earnings remain tax deferred.
- --------------------------------------------------------------------------------
EXCHANGES AMONG Should your investment goals change, you may exchange the
THE PORTFOLIOS Accumulated Value among the Portfolios of the Fund. Re-
quests for exchanges received by mail or by telephone prior
to the close of the New York Stock Exchange (generally 4:00
p.m. Eastern time) are processed at the close of business
that same day. Requests received after the close of the Ex-
change are processed the next Business Day.
The Contract's exchange privilege is not intended to afford
Contract Owners a way to speculate on short-term movements
in the market. Accordingly, in order to prevent excessive
use of the exchange privilege that may potentially disrupt
the management of the Fund and increase transaction costs,
the Separate Account has established a policy of limiting
excessive exchange activity.
You may make two substantive exchanges from each Portfolio
(at least 30 days apart) during any calendar year. A sub-
stantive exchange is an exchange from a Portfolio for the
lesser of: i) 51% of the Accumulated Value in the Portfo-
lio, or ii) $100,000. This restriction does not limit non-
substantive exchanges and does not apply to exchanges from
the Money Market Portfolio. All exchanges must be for at
least $250, or, if less, the Accumulated Value in the Port-
folio. However, the Company and the Fund reserve the right
to revise or terminate the exchange privilege, limit the
amount of or reject any exchange, as deemed necessary, at
any time.
------------------------------------------------------------
19
<PAGE>
AUTOMATIC The Automatic Exchange Service allows you to move money au-
EXCHANGES tomatically among the Portfolios of the Fund. You may ex-
change fixed amounts or percentages of your Portfolio bal-
ance either monthly, quarterly, semiannually or annually
into existing (the $1,000 minimum balance requirement has
been met) Portfolios. Exchanges at regular intervals or
"dollar-cost averaging" can be used, for example, to move
money from a money market portfolio into a stock or bond
portfolio. The minimum exchange amount is $250, and the
maximum exchange amount is $50,000. The Automatic Exchange
Service may be established by completing a Vanguard Vari-
able Annuity Plan Automatic Exchange Service Application
Form or writing a letter of instruction. You may change the
transfer amount or cancel this service in writing or by
telephone, if you have established telephone authorization
on your Contract. Please note that the Automatic Exchange
Service cannot be used to establish a new Portfolio, and
will not be activated until the Free Look Period has ex-
pired.
------------------------------------------------------------
TELEPHONE To establish the telephone exchange privilege on your Con-
EXCHANGES tract, please complete the appropriate section of the Plan
Application. The Company, the Fund, and Vanguard shall not
be responsible for the authenticity of exchange instruc-
tions received by telephone. Reasonable procedures will be
undertaken to confirm that instructions communicated by
telephone are genuine. Prior to the acceptance of any re-
quest, the caller will be asked by a customer service rep-
resentative for his or her contract number and social secu-
rity number. All calls will be recorded, and this informa-
tion will be verified with the Contract Owner's records
prior to processing a transaction. Furthermore, all trans-
actions performed by a service representative will be veri-
fied with the Contract Owner through a written confirmation
statement. The Company, the Fund, and Vanguard shall not be
liable for any loss, cost or expense for action on tele-
phone instructions that are believed to be genuine in ac-
cordance with these procedures. Every effort will be made
to maintain the exchange privilege. However, the Company
and the Fund reserve the right to revise or terminate its
provisions, limit the amount of or reject any exchange, as
deemed necessary, at any time.
- --------------------------------------------------------------------------------
FULL AND PARTIAL At any time before the Annuity Date and while the Annuitant
WITHDRAWALS or Joint Annuitant is living, the Contract Owner may make a
partial or full withdrawal of the Contract to receive all
or part of the Accumulated Value by sending a written re-
quest to the Vanguard Variable Annuity Center. Full or par-
tial withdrawals may only be made before the Annuity Date
and all partial withdrawal requests must be for at least
$250.
You can make a withdrawal by writing to the Vanguard Vari-
able Annuity Center. Your written request should include
your Contract number, social security number, withdrawal
amount, and the signature of all owners. Your proceeds will
normally be distributed within two Business Days after the
receipt of the request but in no event will it be later
than seven calendar days, subject to postponement in cer-
tain circumstances (see "Deferment of Payment" page 25).
------------------------------------------------------------
20
<PAGE>
SYSTEMATIC You may establish an automatic withdrawal of a specific
WITHDRAWALS amount, a percentage of the balance, or accumulated earn-
ings from your Contract, and receive distributions on a
monthly, quarterly, semiannual, or annual schedule. Once
established, a check will be sent to your Contract address,
bank account or as you direct. Please note that each sys-
tematic withdrawal is subject to federal income taxes on
the earnings, and may be subject to a 10% tax imposed by
the IRS on withdrawals made prior to age 59 1/2.
A minimum Contract balance of $10,000, and Portfolio bal-
ance of $1,000 are required to establish a systematic with-
drawal program for your Contract. The minimum automatic
withdrawal amount is $250, and the maximum is $50,000.
Changes to the withdrawal amount, percentage, or the fre-
quency of distributions may be made by telephone. Any other
changes, including a change in the destination of the
check, must be requested in writing, and should include
signatures of all Contract owners. To cancel the systematic
withdrawal program, the Contract owner(s) needs to submit a
letter of instruction with the appropriate signatures.
To establish a systematic withdrawal program for your Con-
tract, simply complete the Vanguard Variable Annuity Plan
Systematic Withdrawal Program Application Form. Please note
that the completed form must be signed by all Contract own-
ers, and must be signature guaranteed if you are directing
the withdrawal checks to an address other than the Contract
address.
Payments under the Contract of any amounts derived from
premiums paid by check may be delayed until such time as
the check has cleared your bank. If, at the time the Con-
tract Owner requests a full or partial withdrawal, he or
she has not provided the Company with a written election
not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portion of any
full or partial withdrawal and remit that amount to the
federal government. Moreover, the Internal Revenue Code
provides that a 10% penalty tax will be imposed on certain
early withdrawals. (See "Federal Tax Considerations," page
26.)
Since the Contract Owner assumes the investment risk with
respect to amounts allocated to the Separate Account, the
total amount paid upon withdrawal of the Contract (taking
into account any prior withdrawals) may be more or less
than the total Purchase Payments made.
- --------------------------------------------------------------------------------
IRS-REQUIRED If the Contract Owner or, if applicable a Joint Owner, dies
DISTRIBUTIONS before the entire interest in the Contract is distributed,
the value of the Contract must be distributed to the Own-
er's Designated Beneficiary as described in this section so
that the Contract qualifies as an annuity under the Inter-
nal Revenue Code.
If the death occurs on or after the Annuity Date, the re-
maining portion of such interest will be distributed at
least as rapidly as under the method of distribution being
used as of the date of death. If the death occurs before
the Annuity Date, the entire interest in the Contract will
be distributed within five years after date of death or be
paid under an annuity option under which payments will be-
gin within one year of the Contract Owner's death and will
be made for the life of the "Owner's Designated Beneficia-
ry" or for a period not extending
21
<PAGE>
beyond the life expectancy of that beneficiary. The Owner's
Designated Beneficiary is the person to whom Ownership of
the Contract passes by reason of death.
If any portion of the Contract Owner's interest is payable
to (or for the benefit of) the surviving spouse of the Con-
tract Owner, the Contract may be continued with the surviv-
ing spouse as the new Contract Owner.
- --------------------------------------------------------------------------------
MINIMUM BALANCE Due to the relatively high cost of maintaining smaller ac-
REQUIREMENTS counts, the Company reserves the right to transfer the bal-
ance in any Portfolio account that falls below $1,000, due
to a partial withdrawal or exchange, to the remaining Port-
folios held under that Contract, on a pro rata basis. In
the event that the entire value of the Contract falls below
$1,000, you may be notified that the Accumulated Value of
your account is below the Contract's minimum requirement.
You would then be allowed 60 days to make an additional in-
vestment before the account is liquidated. Proceeds would
be promptly paid to the Contract Owner. The full proceeds
would be taxable as a withdrawal. A full withdrawal will
result in an automatic termination of the Contract.
- --------------------------------------------------------------------------------
DESIGNATION OF A The Contract Owner may select one or more Beneficiaries,
BENEFICIARY who would receive benefits upon the death of the Annuitant,
and name them in the application. The Beneficiary(ies), as
named on the application, will serve as the beneficiary
designation. Thereafter, while the Annuitant or Joint Annu-
itant is living, the Contract Owner may change the Benefi-
ciary by written notice. Such change will take effect on
the date the notice is signed by the Contract Owner but
will not affect any payment made or other action taken be-
fore the Company acknowledges the notice. The Contract
Owner may also make the designation of Beneficiary irrevo-
cable by sending written notice to, and obtaining approval
from, the Company. Changes in the Beneficiary may then be
made only with the consent of the designated irrevocable
Beneficiary.
If the Annuitant dies prior to the Annuity Date, the fol-
lowing will apply unless the Contract Owner has made other
provisions:
(a) If there is more than one Beneficiary, each will share
in the Death Benefits equally;
(b) If one or two or more Beneficiaries has already died,
that share of the Death Benefit will be paid equally to
the survivor(s);
(c) If no Beneficiary is living, the proceeds will be paid
to the Contract Owner;
(d) If a Beneficiary dies at the same time as the Annui-
tant, the proceeds will be paid as though the Benefi-
ciary had died first. If a Beneficiary dies within 15
days after the Annuitant's death and before the Company
receives due proof of the Annuitant's death, proceeds
will be paid as though the Beneficiary had died first.
If a Beneficiary who is receiving Annuity Payments dies,
any remaining Payments Certain will be paid to that
Beneficiary's named Beneficiary(ies) when due. If no Bene-
ficiary survives the Annuitant, the right to any amount
payable
22
<PAGE>
will pass to the Contract Owner. If the Contract Owner is
the Annuitant, this right will pass to his or her estate.
If a Life Annuity with Period Certain Option was elected,
and if the Annuitant dies on or after the Annuity Date, any
unpaid Payments Certain will be paid to the Beneficiary.
- --------------------------------------------------------------------------------
DEATH OF Subject to the provisions dealing with Joint Annuitants, if
ANNUITANT PRIOR the Annuitant dies prior to the Annuity Date, an amount
TO ANNUITY DATE will be paid as proceeds to the Beneficiary. If the Annui-
tant or Joint Annuitant dies prior to the Annuity Date, the
survivor shall become the sole Annuitant. The Death Benefit
is calculated and is payable upon receipt of due Proof of
Death of the Annuitant as well as proof that the Annuitant
died prior to the Annuity Date. Upon receipt of this proof,
the Death Benefit will be paid within seven days, or as
soon thereafter as the Company has sufficient information
about the Beneficiary to make the payment. The Beneficiary
may receive the amount payable in a lump sum cash benefit
or under one of the Annuity Payment Options.
A lump sum cash benefit will equal the greater of: (a) the
Accumulated Value as of the date of due Proof of Death and
proof that the Annuitant died prior to the Annuity Date or
(b) the sum of Purchase Payments less the sum of all par-
tial withdrawals and premium taxes. An Annuity Payment will
be based on the greater of: (a) the Accumulated Value ten
Business Days prior to the Annuity Date elected by the Ben-
eficiary and approved by the Company or (b) the sum of Pur-
chase Payments less the sum of all partial withdrawals and
Premium Taxes. The Contract Owner may elect an Annuity Pay-
ment Option for the Beneficiary or, if no such election was
made by the Contract Owner and a cash benefit has not been
paid, the Beneficiary may make this election after the
Annuitant's death.
- --------------------------------------------------------------------------------
ANNUITY DATE The Contract Owner may specify an Annuity Date in the ap-
plication, which can be no later than the first day of the
month after the Annuitant's 85th birthday. If no Annuity
Date is specified in the application, the Annuitant will
begin receiving Annuity Payments on the first day of the
month after ten full years from the date of this Contract,
or the first day of the month which follows the Annuitant's
65th birthday, whichever is later. The Annuity Date is the
date that Annuity Payments are scheduled to commence under
the Contract, unless the Contract has been surrendered or
an amount has been paid as proceeds to the designated Bene-
ficiary prior to that date.
The Contract Owner may advance or defer the Annuity Date.
However, the Annuity Date may not be advanced to a date
prior to 30 days after the date of receipt of a written re-
quest or, without the Company's prior approval, deferred to
a date beyond the Annuitant's 85th birthday. An Annuity
Date may only be changed by written request during the
Annuitant's or Joint Annuitant's lifetime and must be made
at least 30 days before the then-scheduled Annuity Date.
The Annuity Date and Annuity Payment Options available for
Qualified Contracts may also be controlled by endorsements,
the plan or applicable law.
- --------------------------------------------------------------------------------
23
<PAGE>
ANNUITY PAYMENT All Annuity Payment Options (except the Designated Period
OPTIONS Annuity Option) are offered as "Variable Annuity Options."
This means that Annuity Payments, after the initial pay-
ment, will reflect the investment experience of the Portfo-
lio or Portfolios chosen by the Contract Owner. All Annuity
Payment Options are offered as "Fixed Annuity Options."
This means that the amount of each payment will be set on
the Annuity Date and will not change. If you choose a Fixed
Option, your investment will be moved out of the underlying
Vanguard Portfolios and into the general account of
Providian Life & Health Insurance Company. If you do not
wish to receive your payments on an annuity basis, you may
take a lump sum payment at anytime before the annuity date.
The lump sum value is equal to the Accumulation Value. The
following Annuity Payment Options are available under the
Contract:
LIFE ANNUITY--Available as either a Fixed or Variable Op-
tion. Monthly Annuity Payments are paid for the life of an
Annuitant, ceasing with the last Annuity Payment due prior
to the Annuitant's death.
JOINT AND LAST SURVIVOR ANNUITY--Available as either a
Fixed or Variable Option. Monthly Annuity Payments are paid
for the life of two Annuitants and thereafter for the life
of the survivor, ceasing with the last Annuity Payment due
prior to the survivor's death.
LIFE ANNUITY WITH PERIOD CERTAIN--Available as either a
Fixed or Variable Option. Monthly Annuity Payments are paid
for the life of an Annuitant, with a Period Certain of not
less than 120, 180, or 240 months, as elected.
INSTALLMENT OR UNIT REFUND LIFE ANNUITY--Available as ei-
ther a Fixed (Installment Refund) or Variable (Unit Refund)
Option. Monthly Annuity Payments are paid for the life of
an Annuitant, with a Period Certain determined by dividing
the Accumulated Value by the First Annuity Payment.
DESIGNATED PERIOD ANNUITY--Only available as a Fixed Op-
tion. Monthly Annuity Payments are paid for a Period Cer-
tain as elected, which may be from 10 to 30 years.
In the event that an Annuity Payment Option is not select-
ed, the Company will make monthly Annuity Payments that
will go on for as long as the Annuitant lives (120 payments
guaranteed) in accordance with the Life Annuity with Period
Certain Option and the annuity benefit sections of the Con-
tract. That portion of the Accumulated Value that has been
held in a Portfolio prior to the Annuity Date will be ap-
plied under a Variable Annuity Option based on the perfor-
mance of that Portfolio. Subject to approval by the Compa-
ny, the Contract Owner may select any other Annuity Payment
Option then being offered by the Company. Annuity Payments
are guaranteed to be not less than as provided by the Annu-
ity Tables for the first payment under a Variable Option
and each payment under a Fixed Option. The minimum monthly
payment, however, is $100 ($20 for Massachusetts Contract
Owners). If the Accumulated Value is less than $5,000, or
less than $2,000 for Texas and Massachusetts Contract Own-
ers, the Company has the right to pay that amount in a lump
sum. From time-to-time, the Company may require proof that
the Annuitant, Joint Annuitant, or Contract Owner is liv-
ing. Annuity Payment Options
24
<PAGE>
are not available to: (1) an assignee; or (2) any other
than a natural person, except with the consent of the Com-
pany.
The Company may, at the time of election of an Annuity Pay-
ment Option, offer more favorable rates in lieu of the
guaranteed rates specified in the Annuity Tables found in
the Contract.
The value of Variable Annuity Payments will reflect the in-
vestment experience of the chosen Portfolio. On or after
the Annuity Date, the Annuity Payment Option is irrevoca-
ble. Only one Annuity Option may be chosen from among those
made available by the Company per each Portfolio. The annu-
ity tables, which are contained in the Contract and are
used to calculate the value of Variable Annuity Payments,
are based on an assumed interest rate of 4%. If the actual
net investment experience exactly equals the assumed inter-
est rate, then the Variable Annuity Payments will remain
the same (equal to the first Annuity Payment). However, if
actual investment experience exceeds the assumed interest
rate, the Variable Annuity Payments will increase; con-
versely, they will decrease if the actual experience is
lower.
If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant or of a Joint An-
nuitant, proof of birth date may be required before Annuity
Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant or of a Joint Annu-
itant will affect the amount of each payment. Since pay-
ments to older Annuitants are expected to be fewer in num-
ber, the amount of each Annuity Payment shall be greater.
If at the time of any Annuity Payment the Contract Owner
has not provided the Company with a written election not to
have federal income taxes withheld, the Company must by law
withhold such taxes from the taxable portion of such Annu-
ity Payment and remit that amount to the federal govern-
ment.
The value of all payments, both fixed and variable, will be
greater for shorter guaranteed periods than for longer
guaranteed periods, and greater for life annuities than for
joint and survivor annuities, because they are expected to
be made for a shorter period.
After the Annuity Date, the Contract Owner may change the
Portfolio funding the Variable Annuity Payments, either by
written request or by calling the Vanguard Variable Annuity
Center (1-800-462-2391). The method of computation of Vari-
able Annuity Payments is described in more detail in the
Statement of Additional Information.
------------------------------------------------------------
DEFERMENT OF Payment of any cash withdrawal or lump-sum death benefit
PAYMENT due from the Separate Account will occur within seven days
from the date the election becomes effective, except that
the Company may be permitted to defer such payment if: (1)
the New York Stock Exchange is closed for other than usual
weekends or holidays, or trading on the Exchange is other-
wise restricted; or (2) an emergency exists as defined by
the SEC, or the SEC requires that trading be restricted; or
(3) the SEC permits a delay for the protection of Contract
Owners.
- --------------------------------------------------------------------------------
25
<PAGE>
FEDERAL TAX CONSIDERATIONS
INTRODUCTION The ultimate effect of federal income taxes on the amounts
paid for the Contract, on the investment returns on assets
held under a Contract, on Annuity Payments, and on the eco-
nomic benefits to the Contract Owner, Annuitant or Benefi-
ciary, depends on the Company's tax status and upon the tax
status of the individuals concerned. The following discus-
sion is general in nature and is not intended as tax ad-
vice. You should consult a tax adviser regarding the tax
consequences of purchasing a Contract. No attempt is made
to consider any applicable state or other tax laws. More-
over, the discussion is based upon the Company's under-
standing of the federal income tax laws as they are cur-
rently interpreted. No representation is made regarding the
likelihood of continuation of the federal income tax laws,
the Treasury Regulations, or the current interpretations by
the Internal Revenue Service. We reserve the right to make
uniform changes on the Contract to the extent necessary to
continue to qualify the Contract as an annuity. For a dis-
cussion of federal income taxes as they relate to the Fund,
please see the accompanying Prospectus for the Fund.
------------------------------------------------------------
TAXATION OF Section 72 of the Code governs taxation of annuities. In
ANNUITIES IN general, a Contract Owner is not taxed on increases in
GENERAL value under a Contract until some form of withdrawal or
distribution is made under it. However, under certain cir-
cumstances, the increase in value may be subject to current
federal income tax. (See "Contracts Owned by Non-Natural
Persons" and "Diversification Standards", pages 28 and 29.)
Section 72 provides that the proceeds of a full or partial
withdrawal from a Contract prior to the Annuity Date will
be treated as taxable income to the extent the amounts held
under the Contract exceed the "investment in the Contract",
as that term is defined in the Code. The "investment in the
Contract" can generally be described as the cost of the
Contract, and generally constitutes all purchase payments
paid for the Contract less any amounts received under the
Contract that are excluded from the individual's gross in-
come. The taxable portion is taxed at ordinary income tax
rates. For purposes of this rule, a pledge or assignment of
a Contract is treated as a payment received on account of a
partial withdrawal of a Contract.
Upon receipt of a full or partial withdrawal or an Annuity
Payment under the Contract, you will be taxed if the value
of the Contract exceeds the investment in the Contract. Or-
dinarily, the taxable portion of such payments will be
taxed at ordinary income tax rates.
For Fixed Annuity Payments, in general, the taxable portion
of each payment is determined by using a formula known as
the "exclusion ratio", which establishes the ratio that the
investment in the Contract bears to the total expected
amount of Annuity Payments for the term of the Contract.
That ratio is then applied to each payment to determine the
non-taxable portion of the payment. The remaining portion
of each payment is taxed at ordinary income tax rates. For
Variable Annuity Payments, in general, the taxable portion
is determined by a formula that establishes a specific dol-
lar amount of each payment that is not taxed. The dollar
amount is determined by dividing the investment
26
<PAGE>
in the Contract by the total number of expected periodic
payments. The remaining portion of each payment is taxed at
ordinary income tax rates. Once the excludible portion of
Annuity Payments to date equals the investment in the Con-
tracts, the balance of the Annuity Payments will be fully
taxable.
Withholding of federal income taxes on all distributions
may be required unless the recipient elects not to have any
amounts withheld and properly notifies the Company of that
election.
With respect to amounts withdrawn or distributed before the
taxpayer reaches age 59 1/2, a penalty tax is imposed equal
to 10% of the taxable portion of amounts withdrawn or dis-
tributed. However, the penalty tax will not apply to with-
drawals: (i) made on or after the death of the Contract
Owner (or where the Contract Owner is not an individual,
the death of the primary Annuitant, who is defined as the
individual the events in whose life are of primary impor-
tance in affecting the timing and payment under the Con-
tract); (ii) attributable to the taxpayer's becoming disa-
bled within the meaning of Code Section 72(m)(7); (iii)
that are part of a series of substantially equal periodic
payments made at least annually for the life (or life ex-
pectancy) of the taxpayer, or joint lives (or joint life
expectancies) of the taxpayer and his Beneficiary; (iv)
from a qualified plan; (v) allocable to investment in the
Contract before August 14, 1982; (vi) under a qualified
funding asset (as defined in Code Section 130(d)); (vii)
under an immediate annuity contract as defined in Sec-
tion 72(u)(4); or (viii) that are purchased by an employer
on termination of certain types of qualified plans and that
are held by the employer until the employee separates from
service. Other tax penalties may apply to certain distribu-
tions as well as to certain contributions and other trans-
actions under a qualified contract.
If the penalty tax does not apply to a withdrawal as a re-
sult of the application of item (iii) above, and the series
of payments are subsequently modified (other than by reason
of death or disability), the tax for the year in which the
modification occurs will be increased by an amount (as de-
termined under Treasury Regulations) equal to the tax that
would have been imposed but for item (iii) above, plus in-
terest for the deferral period. The foregoing rule applies
if the modification takes place (a) before the close of the
period that is five years from the date of the first pay-
ment and after the taxpayer attains age 59 1/2, or (b) be-
fore the taxpayer reaches age 59 1/2.
------------------------------------------------------------
THE COMPANY'S The Company is taxed as a life insurance company under Part
TAX STATUS I of Subchapter L of the Code. Since the Separate Account
is not a separate entity from the Company and its opera-
tions form a part of the Company, it will not be taxed sep-
arately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized
capital gains on the assets of the Separate Account are re-
invested and taken into account in determining the Accumu-
lation Value. Under existing federal income tax law, the
Separate Account's investment income, including realized
net capital gains, is not taxed to the Company. The Company
reserves the right to make a deduction for taxes should
they be imposed with respect to such items in the future.
------------------------------------------------------------
27
<PAGE>
DISTRIBUTION-AT- In order to be treated as an annuity contract, a contract
DEATH RULES must, generally, provide the following two distribution
rules: (a) if any Contract Owner dies on or after the Annu-
ity Date and before the entire interest in the Contract has
been distributed, the remaining portion of such interest
must be distributed at least as quickly as the method in
effect on the Contract Owner's death; and (b) if any Con-
tract Owner dies before the Annuity Date, the entire inter-
est must generally be distributed within five years after
the date of death. To the extent such interest is payable
to a Designated Beneficiary, however, such interest may be
annuitized over the life of that Designated Beneficiary or
over a period not extending beyond the life expectancy of
that Beneficiary, so long as distributions commence within
one year after the Contract Owner's death. If the Desig-
nated Beneficiary is the spouse of the Contract Owner, the
Contract (together with the deferred tax on the accrued and
future income thereunder) may be continued unchanged in the
name of the spouse as Contract Owner. The term Designated
Beneficiary means the natural person named by the Contract
Owner as a beneficiary and to whom ownership of the Con-
tract passes by reason of the Contract Owner's death.
If the Contract Owner is not an individual, the "primary
Annuitant" (as defined under the Code) is considered the
Contract Owner. The primary Annuitant is the individual who
is of primary importance in affecting the timing or the
amount of payout under a Contract. In addition, when the
Contract Owner is not an individual, a change in the pri-
mary Annuitant is treated as the death of the Contract Own-
er.
Finally, in the case of Joint Contract Owners, the distri-
bution will be required at the death of the first of the
Contract Owners.
------------------------------------------------------------
TRANSFERS OF Any transfer of a non-qualified annuity Contract prior to
ANNUITY the Annuity Date for less than full and adequate considera-
CONTRACTS tion will generally trigger tax on the gain in the Contract
to the Contract Owner at the time of such transfer. The in-
vestment in the Contract of the transferee will be in-
creased by any amount included in the Contract Owner's in-
come. This provision, however, does not apply to those
transfers between spouses or incident to a divorce which
are governed by Code Section 1041(a).
------------------------------------------------------------
CONTRACTS OWNED Where the Contract is held by a non-natural person (for ex-
BY NON-NATURAL ample, a corporation), the Contract is generally not
PERSONS treated as an annuity contract for federal income tax pur-
poses, and the income on that Contract (generally the in-
crease in the net Accumulated Value less the payments) is
includible in taxable income each year. The rule does not
apply where the non-natural person is only a nominal owner
such as a trust or other entity acting as an agent for a
natural person. If an employer is the nominal owner of a
Contract, and the beneficial owners are employees, then the
Contract is not treated as being held by a non-natural per-
son. The rule also does not apply where the Contract is ac-
quired by the estate of a decedent, where the Contract is a
qualified funding asset for structured settlements, where
the Contract is purchased on behalf of an employee upon
termination of a qualified plan, and in the case of an im-
mediate annuity.
------------------------------------------------------------
28
<PAGE>
ASSIGNMENTS A transfer of ownership of a Contract, a collateral assign-
ment or the designation of an Annuitant or other Benefi-
ciary who is not also the Contract Owner may result in tax
consequences to the Contract Owner, Annuitant or Benefi-
ciary that are not discussed herein. A Contract Owner con-
templating such a transfer or assignment of a Contract
should contact a tax adviser with respect to the potential
tax effects of such a transaction.
------------------------------------------------------------
MULTIPLE All non-qualified annuity contracts issued by the same com-
CONTRACTS RULE pany (or affiliate) to the same Contract Owner during any
calendar year are to be aggregated and treated as one con-
tract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received un-
der any Contract prior to the Contract's Annuity Date, such
as a partial withdrawal, will be taxable (and possibly sub-
ject to the 10% penalty tax) to the extent of the combined
income in all such contracts. The Treasury Department has
specific authority to issue regulations that prevent the
avoidance of Code Section 72(e) through the serial purchase
of annuity Contracts or otherwise. In addition, there may
be other situations in which the Treasury may conclude that
it would be appropriate to aggregate two or more Contracts
purchased by the same Contract Owner. Accordingly, a Con-
tract Owner should consult a tax adviser before purchasing
more than one Contract or other annuity contracts.
------------------------------------------------------------
DIVERSIFICATION To comply with certain diversification regulations (the
STANDARDS "Regulations"), which were issued in final form on March 2,
1989, under Code Section 817(h), after a start up period,
the Separate Account will be required to diversify its in-
vestments. The Regulations generally require that on the
last day of each quarter of a calendar year, no more than
55% of the value of the Separate Account is represented by
any one investment, no more than 70% is represented by any
two investments, no more than 80% is represented by any
three investments, and no more than 90% is represented by
any four investments. A "look-through" rule applies that
suggests that each Subaccount of the Separate Account will
be tested for compliance with the percentage limitations by
looking through to the assets of the Portfolio of the Fund
in which each such division invests. All securities of the
same issuer are treated as a single investment. As a result
of the 1988 Act, each government agency or instrumentality
will be treated as a separate issuer for purposes of those
limitations.
In connection with the issuance of temporary diversifica-
tion regulations in 1986, the Treasury announced that such
regulations did not provide guidance concerning the extent
to which Contract Owners may direct their investments to
particular divisions of a separate account. It is possible
that regulations or revenue rulings may be issued in this
area at some time in the future. It is not clear, at this
time, what these regulations or rulings would provide. It
is possible that when the regulations or rulings are is-
sued, the Contracts may need to be modified in order to re-
main in compliance. For these reasons, the Company reserves
the right to modify the Contracts, as necessary, to prevent
the Contract Owner from being considered the owner of as-
sets of the Separate Account.
29
<PAGE>
We intend to comply with the Regulations to assure that the
Contracts continue to be treated as annuity contracts for
federal income tax purposes.
------------------------------------------------------------
QUALIFIED Qualified Contracts to provide for retirement may generally
INDIVIDUAL be purchased only in connection with a "rollover" of funds
RETIREMENT from another individual retirement annuity (IRA) or quali-
ANNUITIES fied plan. IRA Contracts must contain special provisions
and are subject to limitations on contributions and the
timing of when distributions can be made. Tax penalties may
apply to contributions in excess of specified limits, loans
or reassignments, distributions that do not meet specified
requirements, or in other circumstances. Anyone desiring to
purchase a Qualified Contract should consult a personal tax
adviser.
- --------------------------------------------------------------------------------
GENERAL The Company retains the right, subject to any applicable
INFORMATION law, to make certain changes. The Company reserves the
right to eliminate the shares of any of the Portfolios and
ADDITIONS, to substitute shares of another Portfolio of the Fund, or
DELETIONS, OR of another registered open-end management investment compa-
SUBSTITUTIONS OF ny, if the shares of the Portfolios are no longer available
INVESTMENTS for investment, or, if in the Company's judgment, invest-
ment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by
the 1940 Act, substitutions of shares attributable to a
Contract Owner's interest in a Portfolio will not be made
until SEC approval has been obtained and the Contract Owner
has been notified of the change.
New Portfolios may be established when marketing, tax, in-
vestment, or other conditions so warrant. Any new Portfo-
lios will be made available to existing Contract Owners on
a basis to be determined by the Company. The Company may
also eliminate one or more Portfolios if marketing, tax,
investment or other conditions so warrant.
In the event of any such substitution or change, the Com-
pany may, by appropriate endorsement, make such changes in
the Contracts as may be necessary or appropriate to reflect
such substitution or change. Furthermore, if deemed to be
in the best interests of persons having voting rights under
the Contracts, the Separate Account may be operated as a
management company under the 1940 Act or any other form
permitted by law, may be deregistered under such Act in the
event such registration is no longer required, or may be
combined with one or more other separate accounts.
------------------------------------------------------------
DISTRIBUTOR OF The Vanguard Group, Inc., through its wholly-owned subsidi-
THE CONTRACTS ary, Vanguard Marketing Corp., is the principal distributor
of the Contract. For these services, the Fund paid a fee of
less than .02% of the Fund's average net assets for the
1995 fiscal year. This fee is guaranteed not to exceed .20%
of the Fund's average month-end net assets. A complete de-
scription of these services is found in the "Management of
the Fund" section of the Fund's Prospectus and in the
Fund's Statement of Additional Information.
------------------------------------------------------------
30
<PAGE>
VOTING RIGHTS The Fund does not hold regular meetings of shareholders.
The Directors of the Fund may call special meetings of
shareholders as may be required by the 1940 Act or other
applicable law. To the extent required by law, the Portfo-
lio shares held in the Separate Account will be voted by
the Company at shareholder meetings of the Fund in accor-
dance with instructions received from persons having voting
interests in the corresponding Portfolio. Fund shares as to
which no timely instructions are received or shares held by
the Company as to which Contract Owners have no beneficial
interest will be voted in proportion to the voting instruc-
tions that are received with respect to all Contracts par-
ticipating in that Portfolio. Voting instructions to ab-
stain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
The number of votes that are available to a Contract Owner
will be calculated separately for each Portfolio of the
Separate Account. That number will be determined by apply-
ing his or her percentage interest, if any, in a particular
Portfolio to the total number of votes attributable to the
Portfolio.
Prior to the Annuity Date, the Contract Owner holds a vot-
ing interest in each Portfolio to which the Accumulated
Value is allocated. The number of votes which are available
to a Contract Owner will be determined by dividing the Ac-
cumulated Value attributable to a Portfolio by the net as-
set value per share of the applicable Portfolio. After the
Annuity Date, the person receiving Annuity Payments under
any variable annuity option has the voting interest. The
number of votes after the Annuity Date will be determined
by dividing the reserve for such Contract allocated to the
Portfolio by the net asset value per share of the corre-
sponding Portfolio. After the Annuity Date, the votes at-
tributable to a Contract decrease as the reserves allocated
to the Portfolio decrease. In determining the number of
votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available
will be determined as of the date coincident with the date
established by that Portfolio for determining shareholders
eligible to vote at the meeting of the Fund. Voting in-
structions will be solicited by written communication prior
to such meeting in accordance with procedures established
by the Fund.
------------------------------------------------------------
AUDITORS Ernst & Young LLP serves as independent auditors for the
Separate Account and the Company and will audit their fi-
nancial statements annually.
------------------------------------------------------------
LEGAL MATTERS Jorden Burt Berenson & Johnson LLP of Washington, DC, has
provided legal advice relating to the federal securities
laws applicable to the issue and sale of the Contracts. All
matters of Missouri law pertaining to the validity of the
Contract and the Company's right to issue such Contracts
have been passed upon by Kimberly A. Scouller, Esquire, on
behalf of the Company.
- --------------------------------------------------------------------------------
31
<PAGE>
TABLE OF CONTENTS FOR THE VANGUARD VARIABLE ANNUITY PLAN CONTRACT STATEMENT OF
ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE CONTRACT............................................................. B-2
Computation of Variable Annuity Income Payments......................... B-2
Exchanges............................................................... B-3
Joint Annuitant......................................................... B-3
GENERAL MATTERS.......................................................... B-3
Non-Participating....................................................... B-3
Misstatement of Age or Sex.............................................. B-3
Assignment.............................................................. B-3
Annuity Data............................................................ B-4
Annual Report........................................................... B-4
Incontestability........................................................ B-4
Ownership............................................................... B-4
DISTRIBUTION OF THE CONTRACT............................................. B-4
PERFORMANCE INFORMATION.................................................. B-4
Money Market Subaccount Yields.......................................... B-4
30-Day Yield for Non-Money Market Subaccounts........................... B-5
Average Annual Total Return for Non-Money Market Subaccounts............ B-5
SAFEKEEPING OF ACCOUNT ASSETS............................................ B-7
THE COMPANY.............................................................. B-7
STATE REGULATION......................................................... B-7
RECORDS AND REPORTS...................................................... B-7
LEGAL PROCEEDINGS........................................................ B-7
OTHER INFORMATION........................................................ B-7
FINANCIAL STATEMENTS..................................................... B-8
Audited Financial Statements............................................ B-8
</TABLE>
32
