<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997.
REGISTRATION NO. 33-36073
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 8 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 9 [X]
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY SEPARATE ACCOUNT IV
(Exact Name of Registrant)
Providian Life & Health Insurance Company
(Name of Depositor)
20 Moores Road Frazer, Pennsylvania 19355
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (800) 523-7900
Providian Life & Health Insurance Company
Kimberly A. Scouller, Esquire
Providian Center
P.O. Box 32830
400 West Market Street
Louisville, KY 40232
(Name and Address of Agent for Service)
Copy to: Michael Berenson, Esquire Jorden Burt Berenson & Johnson LLP 1025
Thomas Jefferson St. N.W. Suite 400 E Washington, DC 20007-0805
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[_] On pursuant to paragraph (b)(1)(v) of Rule 485.
[X] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[_] On pursuant to paragraph (a)(1) of Rule 485.
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[_] On pursuant to paragraph (a)(2) of Rule 485.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
registered an indefinite amount of Securities being offered. Registrant filed
the 24f-2 notice for the fiscal year ended December 31, 1996, on February 27,
1997.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PURSUANT TO RULE 481
SHOWING LOCATION IN PART A (PROSPECTUS) AND PART B
(STATEMENT OF ADDITIONAL INFORMATION) OF REGISTRATION
STATEMENT OF INFORMATION REQUIRED BY FORM N-4
PART A
<TABLE>
<CAPTION>
ITEM OF
FORM N-4 PROSPECTUS CAPTION
<C> <S> <C>
1. Cover Page........................ Cover Page
2. Definitions....................... Glossary
3. Synopsis.......................... Highlights; Fee Table
4. Condensed Financial Information... Condensed Financial Information
5. General Description of Registrant,
Depositor, and Portfolio Providian Life & Health Insurance
Companies......................... Company; Providian Life & Health
Insurance Company Separate
Account IV; The Vanguard Variable
Insurance Fund; Voting Rights
6. Deductions and Expenses........... Charges and Deductions; Taxes;
Vanguard Variable Insurance Fund;
Expenses
7. General Description of Variable
Annuity Contracts................. Contract Features; Distribution
at Death Rules; Voting Rights;
Allocation of Purchase Payments;
Exchanges Among the Portfolios;
Additions, Deletions, or
Substitutions of Investments
8. Annuity Period.................... Annuity Payment Options
9. Death Benefit..................... Death of Annuitant Prior to
Annuity Date
10. Purchases and Contract Value...... Contract Application and Purchase
Payments; Accumulated Value
11. Redemptions....................... Full and Partial Withdrawals;
Annuity Payment Options; Free
Look Period
12. Taxes............................. Federal Tax Considerations
13. Legal Proceedings................. Part B: Legal Proceedings
14. Table of Contents for the
Statement of Additional Table of Contents for the
Information....................... Vanguard Variable Annuity Plan
Contract Statement of Additional
Information
PART B
<CAPTION>
ITEM OF STATEMENT OF ADDITIONAL
FORM N-4 INFORMATION CAPTION
<C> <S> <C>
15. Cover Page........................ Cover Page
16. Table of Contents................. Table of Contents
17. General Information and History... The Company
18. Services.......................... Part A: Auditors; Safekeeping of
Account Assets; Distribution of
the Contract
19. Purchase of Securities Being
Offered........................... Distribution of the Contract
20. Underwriters...................... Distribution of the Contract
21. Calculation of Performance Data... Performance Information;
Additional Performance Measures
22. Annuity Payments.................. Computations of Variable Annuity
Income Payments
23. Financial Statements.............. Financial Statements
</TABLE>
<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)
NOVEMBER __, 1997
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 (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
<PAGE>
- --------------------------------------------------------------------------------
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............................. 13
CONTRACT FEATURES............................................ 15
Free Look Period............................................. 15
Contract Application and Purchase Payments................... 15
Allocation of Purchase Payments.............................. 16
Charges and Deductions....................................... 17
Accumulated Value............................................ 19
Dividends and Capital Gains Treatment........................ 20
Exchanges Among the Portfolios............................... 20
Full and Partial Withdrawals................................. 21
IRS-Required Distributions................................... 22
Minimum Balance Requirements................................. 22
Designation of a Beneficiary................................. 23
Death of Annuitant Prior to Annuity Date..................... 23
Annuity Date................................................. 24
Annuity Payment Options...................................... 24
FEDERAL TAX CONSIDERATIONS................................... 26
General Information.......................................... 31
</TABLE>
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 13
- --------------------------------------------------------------------------------
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 15
- --------------------------------------------------------------------------------
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 15
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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 17
- --------------------------------------------------------------------------------
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 20
- --------------------------------------------------------------------------------
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 21
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 1996 fiscal years. The expenses and
fees shown for the High Yield Bond Portfolio and the Small
Company Growth Portfolio are the annualized expenses and
fees incurred since June 3, 1996 to December 31, 1996. The
purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or
indirectly as a purchaser of the Contract. The fee table
reflects 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**......................... .30%
Administrative Expense Charge............................... .10%
---
TOTAL ANNUAL SEPARATE ACCOUNT EXPENSES.................... .40%
===
</TABLE>
** This charge is reduced to 0.28% for average daily net
assets attributable to the Separate Account (and Separate
Account B of First Providian Life & Health Insurance
Company) in excess of $2.5 billion up to $5 billion. This
charge is further reduced to 0.27% for average daily net
assets attributable to the Separate Account (and Separate
Account B of First Providian Life & Health Insurance
Company) in excess of $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.............. .13% .18% .18% .19% .20% .20% .22% .24% .20%
Investment
Advisory Fees......... .01 .01 .10 .00 .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............. .02 .04 .01 .01 .03 .02 .09 .04 .04
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Other Expenses... .05 .06 .03 .03 .05 .04 .11 .06 .06
---- ---- ---- ---- ---- ---- ---- ---- ----
TOTAL FUND OPERATING
EXPENSES............. .19% .25% .31% .22% .35% .39% .49% .45% .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.............. .19 .25 .31 .22 .35 .39 .49 .45 .32
--- --- --- --- --- --- --- --- ---
GRAND TOTAL, SEPARATE
ACCOUNT AND FUND
OPERATING EXPENSES... .67% .73% .79% .70% .83% .87% .97% .93% .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............. $ 6 $19 $33 $75
High-Grade Bond Portfolio.......... 7 21 37 82
Balanced Portfolio................. 7 23 40 89
Equity Index Portfolio............. 6 20 35 78
Equity Income Portfolio............ 8 24 42 94
Growth Portfolio................... 8 26 45 99
International Portfolio............ 9 29 50 111
High-Yield Bond Portfolio.......... 7 23 40 90
Small Company Growth Portfolio..... 9 28 48 107
</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.
- --------------------------------------------------------------------------------
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>
DEATH BENEFIT--The greater of the then-current Accumulated
Value or the sum of all Purchase Payments (less any partial
withdrawals and premium taxes).
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.
9
<PAGE>
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 Variable Insur-
ance Fund. The Separate Account is independent of the gen-
eral 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.
- --------------------------------------------------------------------------------
10
<PAGE>
CONDENSED FINAN- The Accumulation Unit Values and the number of Accumulation
CIAL INFORMATION Units outstanding for each Subaccount in 1991 through 1996
are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 29, 1991 THROUGH DECEMBER 31, 1996*
----------------------------------------------------------------------------------------------------
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>
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 . .
12/31/96................ 1.250 14.882 19.532 22.098 16.820 19.057 13.319 10.871 9.725
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 . .
12/31/96................ 246,219 9,395 17,307 19,360 9,260 15,744 12,435 3,042 5,362
<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 was 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 for various
periods, including quarter-to-date, year-to-date, one year,
three year, five year and since inception. 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.
- --------------------------------------------------------------------------------
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
insurance, annuity contracts, and accident and health in-
surance and is admitted to do business in 49 states, the
District of Columbia and Puerto Rico.
PROVIDIAN LIFE & As of December 31, 1996, the Company had statutory assets of
HEALTH INSURANCE approximately $10 billion. The Company is a wholly owned
COMPANY indirect subsidiary of AEGON International N.V., which
conducts substantially all of its operations through
subsidiary companies engaged in the insurance business or in
providing non-insurance financial services. All of the stock
of AEGON International N.V. is owned by AEGON N.V. of the
Netherlands. AEGON N.V., a holding company, conducts its
business through subsidiary companies engaged primarily in
the insurance business.
------------------------------------------------------------
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 estab-
12
<PAGE>
lished at the discretion of the Company. The Separate Ac-
count meets the definition of a "separate account" under
Rule O-1(e)(1) of the Investment 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 $230 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.
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.
13
<PAGE>
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 will be invested in high-yield corporate debt obli-
gations rated at least B by Moody's Investors Service, Inc.
or Standard & Poor's Corporation or, if unrated, of compa-
rable 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.
Administrative services are provided by The Vanguard Group,
Inc., Vanguard Service Center, 100 Vanguard Boulevard,
Malvern, PA 19355. In addition, The Continuum Company,
Inc., 301 West 11th Street, Kansas City, MO 64105, provides
some subadministrative services.
- --------------------------------------------------------------------------------
14
<PAGE>
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. Withdrawals are not permitted during
the Free Look Period. 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.
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
15
<PAGE>
other restrictive provisions limiting the timing and amount
of payments to and distributions from the Qualified Con-
tract.
Total Purchase Payments may not exceed $1,000,000 without
prior approval of the Company.
PURCHASING BY CORESTATES BANK, N.A.
WIRE ABA 031000011
DEPOSIT ACCOUNT NUMBER 1412652173
MONEY SHOULD BE PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
WIRED TO: CONTRACT NUMBER
CONTRACT REGISTRATION
PLEASE CALL:
1-800-462-2391
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 prior to completing wire arrangements. Note:
Federal 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 recognized on the exchange of one annuity contract for
another. 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 con-
tract, to the Variable Annuity Center. As an accommodation
to owners of Vanguard Variable Annuity Plan contracts, and
in accordance with the Code, we will accept, under certain
conditions, the consolidation of two or more Vanguard Vari-
able Annuity Plan contracts into one. Such exchanges will
be accepted on a case by case basis in order to provide
contract owners with consolidated account reporting. In ad-
dition, if applicable, contract owners will be responsible
for only one Annual Contract Maintenance Fee. Under no cir-
cumstances will an exchange of an existing Vanguard Vari-
able Annuity Plan contract for an identical new Vanguard
Variable Annuity Plan contract be allowed. Special rules
and procedures apply to Code Section 1035 transactions,
particularly if the Contract being exchanged was issued
prior to August 14, 1982. Prospective Contract Owners wish-
ing to take advantage of Code Section 1035 should consult
their tax advisers.
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.
16
<PAGE>
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 and additional
Purchase Payments received during the Free Look Period 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 Portfolios in accordance with the Contract Owner's in-
structions.
- --------------------------------------------------------------------------------
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 2.10% as of
December 31, 1996, compared to 0.81% for the Vanguard Vari-
able Annuity Plan (source for competitors' data: Morning-
star Performance Report January 1997)
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.
------------------------------------------------------------
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 $2.5 Billion 0.30%
Over $2.5 Billion and Up To $5 Billion 0.28%
Over $5 Billion 0.27%
</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
17
<PAGE>
live. We also assume mortality risk as a result of our
guarantee of a minimum Death Benefit in the event the Annu-
itant 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. It is important to note
that fluctuation in Accumulation Unit Values due to changes
in the market values of securities may cause an investor's
Contract's value to fall below $25,000. The annual mainte-
nance fee is deducted proportionately from each Contract's
Accumulated Value; therefore, the $25 fee is assessed per
Contract, not per Portfolio chosen. Your Initial Purchase
Payment of less than $25,000 is reduced by an initial main-
tenance fee which is pro- rated to reflect only the remain-
ing 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
reimbursement for the costs expected to be incurred over
the life of the Contract for issuing and maintaining each
Contract and the Separate Account. Please note that Con-
tracts 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.
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>
18
<PAGE>
Under present laws, the Company will incur state or local
taxes (other than 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.
- --------------------------------------------------------------------------------
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
19
<PAGE>
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.
Because excessive exchanges can potentially disrupt the
management of the Portfolios and increase transaction
costs, exchange activity is limited to two substantive ex-
changes (at least 30 days apart) from each Portfolio (ex-
cept the Money Market Portfolio) during any 12-month peri-
od. "Substantive" means either a dollar amount large enough
to have a negative impact on a Portfolio or a series of
movements between Portfolios. This restriction does not
limit non-substantive exchanges and does not apply to ex-
changes from the Money Market Portfolio. All exchanges must
be for at least $250, or, if less, the Accumulated Value in
the Portfolio. 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 nec-
essary, at any time.
------------------------------------------------------------
AUTOMATIC EX- The Automatic Exchange Service allows you to move money au-
CHANGES 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 EX- To establish the telephone exchange privilege on your Con-
CHANGES tract, please complete the appropriate section of the Plan
Application. The Company, the Fund, and
20
<PAGE>
Vanguard shall not be responsible for the authenticity of
exchange instructions received by telephone. Reasonable
procedures will be undertaken to confirm that instructions
communicated by telephone are genuine. Prior to the accept-
ance of any request, the caller will be asked by a customer
service representative for his or her contract number and
social security number. All calls will be recorded, and
this information will be verified with the Contract Owner's
records prior to processing a transaction. Furthermore, all
transactions performed by a service representative will be
verified with the Contract Owner through a written confir-
mation statement. The Company, the Fund, and Vanguard shall
not be liable for any loss, cost or expense for action on
telephone instructions that are believed to be genuine in
accordance 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. (See "Federal Tax Considerations," page 26.)
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, the signature of all owners, and federal tax with-
holding election (if no withholding election is chosen, we
will be required to withhold 10%). Your proceeds will nor-
mally be distributed within two Business Days after the re-
ceipt of the request but in no event will it be later than
seven calendar days, subject to postponement in certain
circumstances (see "Deferment of Payment" page 26).
------------------------------------------------------------
SYSTEMATIC WITH- You may establish an automatic withdrawal of a specific
DRAWALS 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, like any other partial 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.
21
<PAGE>
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 beyond the life expec-
tancy of that beneficiary. The Owner's Designated Benefi-
ciary 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
22
<PAGE>
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 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 pay-
23
<PAGE>
ment. 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.
For a discussion of the consequences of the death of the
Contract Owner, if different from the Annuitant, see "IRS
Required Distributions," page 22 and "Distribution-at-Death
Rules," page 28.
- --------------------------------------------------------------------------------
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, without the
Company's prior approval. If no Annuity Date is specified
in the application, the Annuitant will begin receiving An-
nuity 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 Annu-
ity 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 Beneficiary 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.
- --------------------------------------------------------------------------------
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
24
<PAGE>
date. The lump sum value is equal to the Accumulation Val-
ue. The following Annuity Payment Options are available un-
der 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 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 Owners, 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 living.
Annuity Payment Options are not available to: (1) an as-
signee; or (2) any other than a natural person, except with
the consent of the Company.
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
25
<PAGE>
Variable Annuity Payments, are based on an assumed interest
rate of 4%. If the actual net investment experience exactly
equals the assumed interest 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; conversely, 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). Because excessive exchanges can
potentially disrupt the management of the Portfolios and
increase transaction costs, exchange activity is limited to
two substantive exchanges (at least 30 days apart) from the
Portfolios (except the Money Market Portfolio) during any
12-month period. "Substantive" means either a dollar amount
large enough to have a negative impact on a Portfolio or a
series of movements between Portfolios. The method of com-
putation of Variable Annuity Payments is described in more
detail in the Statement of Additional Information.
------------------------------------------------------------
DEFERMENT OF
PAYMENT
Payment of any cash withdrawal or lump-sum death benefit
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.
- --------------------------------------------------------------------------------
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
26
<PAGE>
the individuals concerned. The following discussion is gen-
eral in nature and is not intended as tax advice. 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. Moreover, the dis-
cussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted.
No representation is made regarding the likelihood of con-
tinuation of the federal income tax laws, the Treasury Reg-
ulations, 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 discussion 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 29 and 30.)
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. Partial withdrawals are
generally taken out of earnings first and then Purchase
Payments.
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 in the Con-
tract 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 Contracts,
the balance of the Annuity Payments will be fully taxable.
27
<PAGE>
Withholding of federal income taxes on all distributions is
required unless the recipient elects not to have any
amounts withheld and properly notifies the Company of that
election. In certain situations, taxes will be withheld on
distributions to nonresident aliens at a 30% flat rate un-
less an exemption from withholding applies under the appli-
cable tax treaty.
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 penalty
tax that would have been imposed but for item (iii) above,
plus interest 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 payment and after the taxpayer attains age 59 1/2, or
(b) before 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.
------------------------------------------------------------
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
28
<PAGE>
after the Annuity 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 Contract Owner dies before the Annuity Date, the en-
tire interest must generally be distributed within five
years after the date of death. To the extent
such interest is payable to a Designated Beneficiary, how-
ever, such interest may be annuitized over the life of that
Designated Beneficiary or over a period not extending be-
yond the life expectancy of that Beneficiary, so long as
distributions commence within one year after the Contract
Owner's death. If the Designated Beneficiary is the spouse
of the Contract Owner, the Contract (together with the de-
ferred tax on the accrued and future income thereunder) may
be continued unchanged in the name of the spouse as Con-
tract Owner. The term Designated Beneficiary means the nat-
ural person named by the Contract Owner as a beneficiary
and to whom ownership of the Contract passes by reason of
the Contract Owner's death.
If the Contract Owner is not an individual, death of the
"primary Annuitant" (as defined under the Code) is treated
as the death of 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 ad-
dition, when the Contract Owner is not an individual, a
change in the primary Annuitant is treated as the death of
the Contract Owner.
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 as defined under the Code.
------------------------------------------------------------
29
<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, Annu-
itant or Beneficiary that are not discussed herein. A Con-
tract Owner contemplating 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. The aggregation rules
do not apply to immediate annuities as defined under Sec-
tion 72(u)(4) of the Code. Accordingly, a Contract 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.
30
<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
1996 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.
------------------------------------------------------------
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
31
<PAGE>
1940 Act or other applicable law. To the extent required by
law, the Portfolio shares held in the Separate Account will
be voted by the Company at shareholder meetings of the Fund
in accordance with instructions received from persons hav-
ing 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 instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instruc-
tions to abstain on any item to be voted upon will be ap-
plied 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.
- --------------------------------------------------------------------------------
32
<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
Standardized Average Annual Total Return for Non-Money Market
Subaccounts........................................................... B-5
ADDITIONAL PERFORMANCE MEASURES.......................................... B-7
Non-Standardized Actual Total Return and Non-Standardized
Actual Average Annual Total Return.................................... B-7
Non-Standardized Total Return Year-to-Date.............................. B-7
Non-Standardized One Year Return........................................ B-7
SAFEKEEPING OF ACCOUNT ASSETS............................................ B-7
THE COMPANY.............................................................. B-7
STATE REGULATION......................................................... B-8
RECORDS AND REPORTS...................................................... B-8
LEGAL PROCEEDINGS........................................................ B-8
OTHER INFORMATION........................................................ B-8
FINANCIAL STATEMENTS..................................................... B-8
Audited Financial Statements............................................ B-8
</TABLE>
33
<PAGE>
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
VANGUARD VARIABLE ANNUITY PLAN CONTRACT
OFFERED BY
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
20 MOORES ROAD
FRAZER, PENNSYLVANIA 19355
----------------
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Vanguard Variable Annuity Plan Contract (the
"Contract") offered by Providian Life & Health Insurance Company (the "Compa-
ny"). You may obtain a copy of the Prospectus dated November __, 1997; by
calling 1-800-522-5555, or writing to Vanguard Variable Annuity Plan, P.O. Box
2600, Valley Forge, PA 19482. Terms used in the current Prospectus for the
Contract are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE
READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
NOVEMBER __, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS 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
Standardized Average Annual Total Return for Non-Money Market
Subaccounts.......................................................... B-5
ADDITIONAL PERFORMANCE MEASURES.......................................... B-7
Non-Standardized Actual Total Return and Non-Standardized Actual
Average Annual Total Return......................................... B-7
Non-Standardized Total Return Year-to-Date.............................. B-7
Non-Standardized One Year Return........................................ B-7
SAFEKEEPING OF ACCOUNT ASSETS............................................ B-7
THE COMPANY.............................................................. B-7
STATE REGULATION......................................................... B-8
RECORDS AND REPORTS...................................................... B-8
LEGAL PROCEEDINGS........................................................ B-8
OTHER INFORMATION........................................................ B-8
FINANCIAL STATEMENTS..................................................... B-8
Audited Financial Statements............................................ B-8
</TABLE>
B-1
<PAGE>
THE CONTRACT
In order to supplement the description in the Prospectus, the following pro-
vides additional information about the Contract which may be of interest to
Contract Owners.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
Variable Annuity Income Payments are computed as follows. First, the Accumu-
lated Value (or the portion of the Accumulated Value used to provide variable
payments) is applied under the Annuity Table contained in the Contract corre-
sponding to the Annuity Option elected by the Contract Owner and based on an
assumed interest rate of 4%. This will produce a dollar amount which is the
first monthly payment. The Company may, at the time Annuity Income Payments
are computed, offer more favorable rates in lieu of the guaranteed rates spec-
ified in the Annuity Table.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an exchange of Annuity Units (as set
forth below) is made. After the first Annuity Payment, the dollar amount of
each subsequent Annuity Payment is equal to the number of Annuity Units multi-
plied by the Annuity Unit value for the Subaccount ten Business Days before
the due date of the Annuity Payment.
The Annuity Unit value for each Subaccount was initially established at
$10.00 on the day money was first deposited in that Subaccount. The Annuity
Unit value for any subsequent Business Day is equal to (a) times (b) times
(c), where:
(a) the Annuity Unit value for the immediately preceding Business Day;
(b) the Net Investment Factor for the day;
(c) the investment result adjustment factor (.99989255 per day), which recog-
nizes an assumed interest rate of 4% per year used in determining the An-
nuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a) any increase or decrease in the value of the Subaccount due to investment
results;
(b) a daily charge for the mortality and expense risks assumed by the Company
corresponding to an annual rate according to the following schedule:
<TABLE>
<CAPTION>
NET ASSETS* RATE
----------- ------
<S> <C>
First $2.5 Billion................................................... 0.30%
Over $2.5 Billion and Up To $5 Billion............................... 0.28%
Over $5 Billion...................................................... 0.27%
</TABLE>
* Based on the combined net assets of the Separate Account and Separate Ac-
count B of First Providian Life & Health Insurance Company.
(c) a daily charge for the cost of administering the Contract corresponding
to an annual charge of .10%.
(d) an annual charge of $25 for maintenance of Contracts valued at less than
$25,000 at time of initial purchase and on the last business day of each
year.
The Annuity Tables contained in the Contract are based on the 1983 Table "A"
Mortality Table projected for mortality improvement to the year 2000 using
Projection Scale G and an interest rate of 4% a year; except that in Massachu-
setts and Montana, the Annuity Tables contained in the Contract are based on a
60% female/40% male blending of the above, for all annuitants of either gen-
der.
B-2
<PAGE>
EXCHANGES
After the Annuity Date, if a Variable Annuity Option has been chosen, the
Contract Owner may, by making a written request or by calling the Variable An-
nuity Center, exchange the current value of the existing Subaccount to Annuity
Units of any other Subaccount then available. The request for the exchange
must be received, however, at least 10 Business Days prior to the first pay-
ment date on which the exchange is to take effect. This exchange shall result
in the same dollar amount of Annuity Payment on the date of exchange. The Con-
tract Owner is limited to two substantive exchanges (at least 30 days apart)
in any Contract Year, and the value of the Annuity Units exchanged must pro-
vide a monthly Annuity Payment of at least $100 at the time of the exchange.
Exchanges will be made using the Annuity Unit value for the Subaccounts on
the date the request for exchange is received by the Administrator. On the ex-
change date, the Company will: establish a value for the current Subaccount by
multiplying the Annuity Unit value by the number of Annuity Units in the ex-
isting Subaccount, and compute the number of Annuity Units for the new
Subaccount by dividing the Annuity Unit value of the new Subaccount into the
value previously calculated for the existing Subaccount.
JOINT ANNUITANT
The Contract Owner may, in the Contract Application or by written request at
least 30 days prior to the Annuity Date, name a Joint Annuitant. Such Joint
Annuitant must meet the Company's underwriting requirements. If approved by
the Company, the Joint Annuitant shall be named on the Contract Schedule or
added by endorsement. An Annuitant or Joint Annuitant may not be replaced.
The Annuity Date shall be determined based on the date of birth of the Annui-
tant. If the Annuitant or Joint Annuitant dies prior to the Annuity Date, the
survivor shall be the sole Annuitant. Another Joint Annuitant may not be des-
ignated. Payment to a Beneficiary shall not be made until the death of the
surviving Annuitant.
GENERAL MATTERS
NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the Con-
tracts will not share in the profits or surplus earnings of the Company.
MISSTATEMENT OF AGE OR SEX
The Company may require proof of age and sex before making Annuity Payments.
If the Annuitant's stated age, sex or both in the Contract are incorrect, the
Company will change the Annuity Benefits payable to those which the Purchase
Payments would have purchased for the correct age and sex. In the case of cor-
rection of the stated age or sex after payments have commenced, the Company
will: (1) in the case of underpayment, pay the full amount due with the next
payment; or (2) in the case of overpayment, deduct the amount due from one or
more future payments.
ASSIGNMENT
Any Nonqualified Contract may be assigned by the Contract Owner prior to the
Annuity Date and during the Annuitant's lifetime. The Company is not responsi-
ble for the validity of any assignment. No assignment will be recognized until
the Company receives written notice thereof. The interest of any Beneficiary
which the assignor has the right to change shall be subordinate to the inter-
est of an assignee. Any amount paid to the assignee shall be paid in one sum,
notwithstanding any settlement agreement in effect at the time assignment was
executed. The Company shall not be liable as to any payment or other settle-
ment made by the Company before receipt of written notice.
B-3
<PAGE>
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving in-
formation from a Payee until such information is received in a form satisfac-
tory to the Company.
ANNUAL REPORT
Once each Contract Year, the Company will send the Contract Owner an annual
report of the current Accumulated Value allocated to each Subaccount; and any
Purchase Payments, charges, exchanges or withdrawals during the year. This re-
port will also give the Contract Owner any other information required by law
or regulation. The Contract Owner may ask for a report like this at any time.
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the "Mis-
statement of Age or Sex" provision.
OWNERSHIP
The Owner of the Contract on the Contract Date is the Annuitant, unless oth-
erwise specified in the application. The Owner may specify a new Owner by
written notice at any time thereafter. The term Owner also includes any person
named as a Joint Owner. A Joint Owner shares ownership in all respects with
the Owner. During the Annuitant's lifetime all rights and privileges under
this Contract may be exercised solely by the Owner. Upon the death of the Own-
er(s), Ownership is retained by the surviving Joint Owner or passes to the
Owner's Designated Beneficiary, if one has been designated by the Owner. If no
Owner's Designated Beneficiary is designated or if no Owner's Designated Bene-
ficiary is living, the Owner's Designated Beneficiary is the Owner's estate.
From time to time the Company may require proof that the Owner is still liv-
ing.
DISTRIBUTION OF THE CONTRACT
The Vanguard Group, Inc. through its wholly-owned subsidiary, Vanguard Mar-
keting Corporation, will be the principal distributor of the Contracts. For
these services, the Fund paid a fee .02% of the Funds' average net assets for
its 1996 fiscal year. This fee is guaranteed not to exceed .20% of the Fund's
average month-end net assets. A complete description 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.
PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and effective
yield of the Money Market Subaccount, the yield of the remaining Subaccounts,
and the total return of all Subaccounts, may appear in reports or promotional
literature to current or prospective Contract Owners.
MONEY MARKET SUBACCOUNT YIELDS
Current yield for the Money Market Subaccount will be based on the change in
the value of a hypothetical investment (exclusive of capital changes) over a
particular 7-day period, less a pro-rata share of Subaccount expenses accrued
over that period (the "base-period"), and stated as a percentage of the in-
vestment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent. Calcu-
lation of "effective yield" begins with the same "base period return" used in
the calculation of yield, which is then annualized to reflect weekly com-
pounding pursuant to the following formula:
Effective Yield = [((Base Period Return) +1) /3//6//5///7/]-1
The yield of the Money Market Subaccount for the 7-day period ended December
31, 1996, was 4.84%.
B-4
<PAGE>
30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS
Quotations of yield for the remaining Subaccounts will be based on all in-
vestment income per Unit earned during a particular 30-day period, less ex-
penses accrued during the period ("net investment income"), and will be com-
puted by dividing net investment income by the value of a Unit on the last day
of the period, according to the following formula:
YIELD = 2[(a-b + 1)/6/ - 1]
cXd
Where:
[a] equals the net investment income earned during the period by the Series
attributable to shares owned by a Subaccount
[b] equals the expenses accrued for the period (net of reimbursements)
[c] equals the average daily number of Units outstanding during the period
[d] equals the maximum offering price per Accumulation Unit on the last day
of the period
Yield on the Subaccount is earned from the increase in net asset value of
shares of the Series in which the Subaccount invests and from dividends de-
clared and paid by the Series, which are automatically reinvested in shares of
the Series.
The yield of each Subaccount for the 30-day period ended December 31, 1996,
is set forth below. Yields are calculated daily for each Subaccount. Premiums
and discounts on asset-backed securities are not amortized. The High Yield
Bond and Small Company Growth Subaccounts had no operations during the period.
<TABLE>
<S> <C>
High-Grade Bond Subaccount............................................. 5.95%
Balanced Subaccount.................................................... 3.43%
Equity Index Subaccount................................................ 1.46%
Equity Income Subaccount............................................... 2.86%
Growth Subaccount...................................................... 0.70%
International Subaccount............................................... --
High Yield Bond Subaccount............................................. 8.46%
Small Company Growth Subaccount........................................ 0.43%
</TABLE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET SUBACCOUNTS
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have pro-
duced the cash redemption value over the stated period had the performance re-
mained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the pe-
riod. It reflects the deduction of all applicable sales loads, the Annual Con-
tract Maintenance Fee and all other Portfolio, Separate Account and Contract
level charges except Premium Taxes, if any. In calculating performance infor-
mation, the Annual Contract Maintenance Fee is reflected as a percentage equal
to the total amount of fees collected during a year divided by the total aver-
age net assets of the Portfolios during the same year. The fee is assumed to
remain the same in each year of the applicable period. The fee is prorated to
reflect only the remaining portion of the calendar year of purchase. Thereaf-
ter, the fee is deducted on the last business day of the year for the follow-
ing year, on a pro rata basis, from each of the Portfolios you have chosen.
Quotations of average annual total return for any Subaccount will be ex-
pressed in terms of the average annual compounded rate of return of a hypo-
thetical investment in a Contract over a period of one, three, five and 10
B-5
<PAGE>
years (or, if less, up to the life of the Subaccount) and year-to-date and
quarter-to-date, calculated pursuant to the formula:
P(1 + T)n = ERV
Where:
(1) [P] equals a hypothetical Initial Purchase Payment of $1,000
(2) [T] equal an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000 Pur-
chase Payment made at the beginning of the period (or fractional portion
thereof)
The following tables show the average annual total return for the
Subaccounts for the period beginning at the inception of each Subaccount and
ending on December 31, 1996.
<TABLE>
<CAPTION>
YEAR YEAR ENDED SINCE
1 YEAR 3 YEARS 5 YEARS TO DATE 12/31/96 INCEPTION*
------ ------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
High-Grade Bond
Subaccount............. 3.07% 5.43% 6.16% 3.07% 3.07% 7.22%
Balanced Subaccount..... 15.66% 14.63% 12.55% 15.66% 15.66% 12.62%
Equity Index Subaccount. 22.25% 18.89% 14.38% 22.25% 22.25% 14.93%
Equity Income
Subaccount............. 18.11% 17.04% -- 18.11% 18.11% 15.64%
Growth Subaccount....... 26.27% 21.70% -- 26.27% 26.27% 19.76%
International
Subaccount............. 14.04% -- -- 14.04% 14.04% 11.72%
High Yield Bond
Subaccount............. -- -- -- 8.69% -- 8.69%
Small Company Growth
Subaccount............. -- -- -- -2.76% -- -2.76%
</TABLE>
- --------
* Since Inception:
Equity Index Subaccount and High-Grade Bond Subaccount--April 29, 1991
Balanced Subaccount--May 23, 1991
Equity Income Subaccount and Growth Subaccount--June 7, 1993
International Subaccount--June 3, 1994
High Yield Bond Subaccount and Small Company Growth Subaccount--June 3,
1996
<TABLE>
<CAPTION>
Month- Quarter 6 Months
To-Date To-Date To-Date
------------------------------------------------------------------
<S> <C> <C> <C>
High-Grade Bond Subaccount -0.99% 2.91% 4.76%
Balanced Subaccount -2.25% 6.46% 10.66%
Equity Index Subaccount -2.00% 8.21% 11.38%
Equity Income Subaccount -0.99% 8.82% 10.42%
Growth Subaccount -2.30% 5.77% 10.35%
International Subaccount -0.12% 3.68% 4.13%
High Yield Bond Subaccount 1.43% 4.10% 9.09%
Small Company Growth Subaccount 1.11% -1.12% 2.08%
</TABLE>
All total return figures reflect the deduction of the administrative charge,
and the mortality and expense risk charge. The SEC requires that an assumption
be made that the Contract Owner surrenders the entire Contract at the end of
the 1, 5 and 10 year periods (or, if less, up to the life of the Subaccount)
for which performance is required to be calculated.
Performance information for a Subaccount may be compared, in reports and pro-
motional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market Institu-
tional Averages, or other indices that measure performance of a pertinent
group of securities so that investors may compare a Subaccount's results with
those of a group of securities widely regarded by investors as representative
of the securities markets in general; (ii) other groups of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Services, a widely-used independent research firm which ranks mutual funds and
other investment companies by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank such investment companies on overall performance or other criteria; and
(iii) the Consumer Price Index (measure for inflation) to assess the real rate
of return from an investment in the Contract. Unmanaged indices may assume the
reinvestment of dividends but generally do not reflect deductions for adminis-
trative and management costs and expenses.
B-6
<PAGE>
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are
based. Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the portfolio of the
Fund in which the Subaccount invests, and the market conditions during the
given time period, and should not be considered as a representation of what
may be achieved in the future.
Reports and marketing materials may, from time to time, include information
concerning the rating of Providian Life & Health Insurance Company as deter-
mined by A.M. Best, Moody's, Standard & Poor's or other recognized rating
services. Reports and promotional literature may also contain other informa-
tion including (i) the ranking of any Subaccount derived from rankings of
variable annuity separate accounts or other investment products tracked by
Lipper Analytical Services or by other rating services, companies, publica-
tions, or other persons who rank separate accounts or other investment prod-
ucts on overall performance or other criteria, and (ii) the effect of tax-de-
ferred compounding on a Subaccount's investment returns, or returns in gener-
al, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an invest-
ment in a Contract (or returns in general) on a tax-deferred basis (assuming
one or more tax rates) with the return on a taxable basis.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the percentage
change in the value of an Accumulation Unit) for one or more Subaccounts with
respect to one or more periods. The Company may also show Non-Standardized
Actual Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year and
periods less than one year, the Non-Standardized Actual Total Return and the
Non-Standardized Actual Average Annual Total Return are effective annual rates
of return and are equal. For periods greater than one year, the Non-
Standardized Actual Average Annual Total Return is the effective annual
compounded rate of return for the periods stated. Because the value of an
Accumulation Unit reflects the Separate Account and Portfolio expenses (See Fee
Table in the Prospectus), the Non-Standardized Actual Total Return and Non-
Standardized Actual Average Annual Total Return also reflect these expenses.
However, these percentages do not reflect the Annual Contract Maintenance Fee or
Premium Taxes (if any), which if included would reduce the percentages reported
by the Company.
NON-STANDARDIZED ACTUAL TOTAL RETURN
FOR PERIOD ENDING 12/31/96
<TABLE>
<CAPTION>
Month Quarter 6 Months
To-Date To-Date To-Date One Year Since Inception
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High-Grade Bond Subaccount -0.99% 2.91% 4.76% 3.08% 48.82%
Balanced Subaccount -2.25% 6.46% 10.66% 15.68% 95.32%
Equity Index Subaccount -2.00% 8.21% 11.39% 22.27% 120.98%
Equity Income Subaccount -0.99% 8.82% 10.43% 18.13% 68.20%
Growth Subaccount -2.30% 5.77% 10.35% 26.29% 90.57%
International Subaccount -0.12% 3.68% 4.13% 14.05% 33.19%
High Yield Bond Subaccount 1.43% 4.10% 9.09% -- 8.71%
Small Company Growth Subaccount 1.11% -1.02% 2.08% -- -2.75%
</TABLE>
NON-STANDARDIZED ACTUAL AVERAGE ANNUAL TOTAL RETURNS
FOR PERIOD ENDING 12/31/96
<TABLE>
<CAPTION>
One Year Three Year Five Year Ten Year Since Inception
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
High-Grade Bond Subaccount 3.08% 5.44% 6.18% -- 7.25%
Balanced Subaccount 15.68% 14.65% 12.58% -- 12.67%
Equity Index Subaccount 22.27% 18.91% 14.41% -- 14.98%
Equity Income Subaccount 18.13% 17.05% -- -- 15.68%
Growth Subaccount 26.29% 21.71% -- -- 19.80%
International Subaccount 14.05% -- -- -- 11.75%
High Yield Bond Subaccount -- -- -- -- 8.71%
Small Company Growth Subaccount -- -- -- -- -2.75%
</TABLE>
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
The Company may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more Subaccounts with
respect to one or more non-standardized base periods commencing at the beginning
of a calendar year. Total Return YTD figures reflect the percentage change in
actual Accumulation Unit Values during the relevant period. These percentages
reflect a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Maintenance Fee or Premium Taxes (if any), which if
included would reduce the percentages reported by the Company.
<TABLE>
<CAPTION>
Total Return YTD
as of 12/31/96
------------------
<S> <C>
High-Grade Bond Subaccount 3.08%
Balanced Subaccount 15.68%
Equity Index Subaccount 22.27%
Equity Income Subaccount 18.13%
Growth Subaccount 26.29%
International Subaccount 14.05%
High Yield Bond Subaccount 8.71%
Small Company Growth Subaccount -2.75%
</TABLE>
NON-STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts with respect to one or more non-standardized base periods commencing
at the beginning of a calendar year (or date of inception, if during the
relevant year) and ending at the end of such calendar year. One Year Return
figures reflect the percentage change in actual Accumulation Unit Values during
the relevant period. These percentages reflect a deduction for the Separate
Account and Portfolio expenses, but do not include the Annual Contract
Maintenance Fee or Premium Taxes (if any), which if included would reduce the
percentages reported by the Company.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
--------------------------------------
<S> <C> <C> <C> <C> <C>
High-Grade Bond Subaccount 3.08% 17.47% -3.19% 8.92% 5.70%
Balanced Subaccount 15.68% 31.76% -1.13% 12.56% 6.59%
Equity Index Subaccount 22.27% 36.67% 0.61% 9.18% 6.77%
Equity Income Subaccount 18.13% 38.19% -1.76% -- --
Growth Subaccount 26.29% 37.62% 3.74% -- --
International Subaccount 14.05% 15.31% -- -- --
High Yield Bond Subaccount -- -- -- -- --
Small Company Growth Subaccount -- -- -- -- --
</TABLE>
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Company. The assets
are kept physically segregated and held separate and apart from the Company's
general account assets. Records are maintained of all purchases and redemp-
tions of eligible Portfolio shares held by each of the Subaccounts.
THE COMPANY
Providian Corporation owns a 4% interest in the Company and 61%, 15% and 20%
interests, respectively, are held by Commonwealth Life Insurance Company,
Peoples Security Life Insurance Company and Capital Liberty, L.P. Commonwealth
Life Insurance Company and Peoples Security Life Insurance Company are each
wholly owned by Capital General Development Corporation, which in turn is wholly
owned by Providian Corporation. A 3% interest in Capital Liberty, L.P. is owned
by Providian Corporation, which is the general partner, and 78% and 19%
interests, respectively, are held by two limited partners, Commonwealth Life
Insurance Company and Peoples Security Life Insurance Company.
Providian Corporation is a wholly owned subsidiary of AEGON International N.V.
AEGON International N.V. is a wholly owned subsidiary of AEGON N.V. Vereniging
AEGON (a Netherlands membership association) has a 53% interest in AEGON N.V.
B-7
<PAGE>
STATE REGULATION
The Company is a stock life insurance company organized under the laws of
Missouri, and is subject to regulation by the Missouri State Department of In-
surance. An annual statement is filed with the Missouri Commissioner of Insur-
ance on or before March 1 of each year covering the operations and reporting
on the financial condition of the Company as of December 31 of the preceding
calendar year. Periodically, the Missouri Commissioner of Insurance examines
the financial condition of the Company, including the liabilities and reserves
of the Separate Account.
In addition, the Company is subject to the insurance laws and regulations of
all the states where it is licensed to operate. The availability of certain
contract rights and provisions depends on state approval and/or filing and re-
view processes. Where required by state law or regulation, the Contracts will
be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by the Company or by its Administrator. As presently required by the Invest-
ment Company Act of 1940 and regulations promulgated thereunder, the Company
will mail to all Contract Owners at their last known address of record, at
least semiannually, reports containing such information as may be required un-
der that Act or by any other applicable law or regulation.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not in-
volved in any litigation that is of material importance in relation to its to-
tal assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange Com-
mission, under the Securities Act of 1933 as amended, with respect to the Con-
tracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information. State-
ments contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be summa-
ries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange Com-
mission.
FINANCIAL STATEMENTS
The audited financial statements of the Separate Account for the years ended
December 31, 1996 and December 31, 1995, including the Report of Independent
Auditors thereon, are included in this Statement of Additional Information.
The audited statutory-basis financial statements of the Company for the years
ended December 31, 1996 and December 31, 1995, including the Report of Inde-
pendent Auditors thereon, which are also included in this Statement of Addi-
tional Information, should be distinguished from the financial statements of
the Separate Account and should be considered only as bearing on the ability
of the Company to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the assets held in the
Separate Account.
B-8
<PAGE>
FINANCIAL STATEMENTS
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
YEARS ENDED DECEMBER 31, 1996 AND 1995 WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Statements of Assets and Liabilities...................................... 2
Statements of Operations.................................................. 4
Statements of Changes in Net Assets....................................... 6
Notes to Financial Statements............................................. 8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Contract Owners
Providian Life and Health Insurance Company Separate Account IV
We have audited the accompanying statements of assets and liabilities of
Providian Life and Health Insurance Company Separate Account IV (comprising
the Money Market, High-Grade Bond, Balanced, Equity Index, Growth, Equity In-
come, International, High Yield Bond, and Small Company Growth Subaccounts) as
of December 31, 1996 and 1995, and the related statements of operations and
changes in net assets for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to ex-
press an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. Our proce-
dures included confirmation of securities owned as of December 31, 1996 and
1995, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
subaccounts constituting the Providian Life and Health Insurance Company Sepa-
rate Account IV at December 31, 1996 and 1995, and the results of their opera-
tions and changes in their net assets for the years then ended in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 25, 1997
1
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1995
-------------- --------------
<S> <C> <C>
ASSETS
Investments:
Money Market Portfolio (cost: $307,822,346 and
$217,738,608 in 1996 and 1995, respectively)... $ 307,822,346 $ 217,738,608
High-Grade Bond Portfolio (cost: $138,952,194
and $120,647,973 in 1996 and 1995,
respectively).................................. 139,742,432 125,311,000
Balanced Portfolio (cost: $273,862,778 and
$234,102,665 in 1996 and 1995, respectively)... 338,446,730 287,631,817
Equity Index Portfolio (cost: $315,174,642 and
$229,332,072 in 1996 and 1995, respectively)... 428,230,285 294,679,897
Growth Portfolio (cost: $234,271,695 and
$142,004,170) in 1996 and 1995, respectively).. 300,148,377 178,963,982
Equity Income Portfolio (cost: $125,927,119 and
$85,429,290 in 1996 and 1995, respectively).... 155,702,167 104,553,347
International Portfolio (cost: $148,121,109 and
$86,425,822 in 1996 and 1995, respectively).... 165,699,331 95,153,823
High Yield Bond Portfolio (cost: $32,343,453)... 33,101,942 --
Small Company Growth Portfolio (cost:
$52,498,244)................................... 52,169,364 --
-------------- --------------
Total investments............................. 1,921,062,974 1,304,032,474
Amounts due from Vanguard Group, Inc.......... -- 1,305,118
-------------- --------------
TOTAL ASSETS.................................. 1,921,062,974 1,305,337,592
LIABILITIES
Amounts due to Providian Life and Health
Insurance Company.............................. 592,319 406,906
Amounts due to Vanguard Group, Inc.............. 399,137 --
-------------- --------------
NET ASSETS.................................... $1,920,071,518 $1,304,930,686
============== ==============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1996 1995
-------------- --------------
<S> <C> <C>
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY
CONTRACT OWNERS
Money Market Subaccount........................... $ 307,756,483 $ 218,943,545
High-Grade Bond Subaccount........................ 139,806,986 125,374,146
Balanced Subaccount............................... 338,038,396 287,392,121
Equity Index Subaccount........................... 427,833,751 294,449,996
Growth Subaccount................................. 300,037,248 178,912,627
Equity Income Subaccount.......................... 155,751,785 104,724,939
International Subaccount.......................... 165,630,157 95,133,312
High Yield Bond Subaccount........................ 33,067,945 --
Small Company Growth Subaccount................... 52,148,767 --
-------------- --------------
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY
CONTRACT OWNERS............................... $1,920,071,518 $1,304,930,686
============== ==============
</TABLE>
See accompanying notes.
3
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH- HIGH
MONEY GRADE EQUITY EQUITY YIELD
MARKET BOND BALANCED INDEX GROWTH INCOME INTERNATIONAL BOND
------------ ----------- ----------- ------------ ----------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment
income:
Dividends....... $ 13,160,444 $ 8,463,430 $23,855,951 $ 8,868,690 $13,349,352 $ 6,157,784 $ 5,582,345 $1,034,662
Expenses:
Mortality and
expense risk and
administrative
charges......... 1,260,312 622,547 1,641,529 1,830,793 1,153,277 691,291 681,652 69,954
------------ ----------- ----------- ------------ ----------- ----------- ----------- ----------
Net investment
income........... 11,900,132 7,840,883 22,214,422 7,037,897 12,196,075 5,466,493 4,900,693 964,708
Realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss) from
investment
transactions:
Proceeds from
sales........... 211,205,591 47,435,492 61,055,889 73,303,777 58,237,988 33,524,966 31,825,076 3,286,820
Cost of invest-
ments sold...... 211,205,591 47,452,352 49,086,533 55,129,134 45,698,016 27,736,656 28,197,949 3,247,554
------------ ----------- ----------- ------------ ----------- ----------- ----------- ----------
-- (16,860) 11,969,356 18,174,643 12,539,972 5,788,310 3,627,127 39,266
Net unrealized
appreciation
(depreciation) of
investments:
At end of year.. -- 790,238 64,583,952 113,055,643 65,876,682 29,775,048 17,578,222 758,488
At beginning of
year............ -- 4,663,027 53,529,152 65,347,825 36,959,812 19,124,057 8,728,001 --
------------ ----------- ----------- ------------ ----------- ----------- ----------- ----------
-- (3,872,789) 11,054,800 47,707,818 28,916,870 10,650,991 8,850,221 758,488
------------ ----------- ----------- ------------ ----------- ----------- ----------- ----------
Net gain (loss)
on investments... -- (3,889,649) 23,024,156 65,882,461 41,456,842 16,439,301 12,477,348 797,754
------------ ----------- ----------- ------------ ----------- ----------- ----------- ----------
Net increase
(decrease) in net
assets resulting
from operations.. $ 11,900,132 $ 3,951,234 $45,238,578 $ 72,920,358 $53,652,917 $21,905,794 $17,378,041 $1,762,462
============ =========== =========== ============ =========== =========== =========== ==========
<CAPTION>
SMALL
COMPANY
GROWTH TOTAL
------------ ------------
<S> <C> <C>
Investment
income:
Dividends....... $ 185,451 $ 80,658,109
Expenses:
Mortality and
expense risk and
administrative
charges......... 147,387 8,098,742
------------ ------------
Net investment
income........... 38,064 72,559,367
Realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss) from
investment
transactions:
Proceeds from
sales........... 11,251,067 531,126,666
Cost of invest-
ments sold...... 11,600,231 479,354,016
------------ ------------
(349,164) 51,772,650
Net unrealized
appreciation
(depreciation) of
investments:
At end of year.. (328,880) 292,089,393
At beginning of
year............ -- 188,351,874
------------ ------------
(328,880) 103,737,519
------------ ------------
Net gain (loss)
on investments... (678,044) 155,510,169
------------ ------------
Net increase
(decrease) in net
assets resulting
from operations.. $ (639,980) $228,069,536
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY HIGH-GRADE EQUITY EQUITY
MARKET BOND BALANCED INDEX GROWTH INCOME INTERNATIONAL TOTAL
------------ ----------- ----------- ----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends.......... $ 11,204,406 $ 6,609,782 $ 9,915,934 $ 7,603,005 $ 3,903,520 $ 3,632,740 $ 1,219,138 $ 44,088,525
Expenses:
Mortality and ex-
pense risk and ad-
ministrative
charges............ 1,015,942 451,324 1,463,934 1,363,951 701,788 222,931 425,400 5,645,270
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Net investment in-
come................ 10,188,464 6,158,458 8,452,000 6,239,054 3,201,732 3,409,809 793,738 38,443,255
Realized and
unrealized gain
(loss) on
investments:
Net realized gain
from investment
transactions:
Proceeds from
sales.............. 229,967,188 30,654,842 45,657,519 39,754,640 23,901,774 16,524,319 27,209,957 413,670,239
Cost of investments
sold............... 229,967,188 30,645,358 41,884,579 33,545,855 20,112,614 15,351,255 26,350,573 397,857,422
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
-- 9,484 3,772,940 6,208,785 3,789,160 1,173,064 859,384 15,812,817
Net unrealized ap-
preciation (depre-
ciation) of invest-
ments:
At end of year..... -- 4,663,027 53,529,152 65,347,825 36,959,812 19,124,057 8,728,001 188,351,874
At beginning of
year............... -- (5,529,530) (1,805,142) 6,602,435 3,483,636 (2,315,664) (669,624) (233,889)
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
-- 10,192,557 55,334,294 58,745,390 33,476,176 21,439,721 9,397,625 188,585,763
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Net gain on invest-
ments............... -- 10,202,041 59,107,234 64,954,175 37,265,336 22,612,785 10,257,009 204,398,580
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Net increase in net
assets resulting
from operations..... $ 10,188,464 $16,360,499 $67,559,234 $71,193,229 $40,467,068 $26,022,594 $11,050,747 $242,841,835
============ =========== =========== =========== =========== =========== =========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH
MONEY HIGH-GRADE EQUITY EQUITY YIELD
MARKET BOND BALANCED INDEX GROWTH INCOME INTERNATIONAL BOND
------------ ------------ ------------ ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1996.. $218,943,545 $125,374,146 $287,392,121 $294,449,996 $178,912,627 $104,724,939 $ 95,133,312 $ --
Increase
(decrease) in net
assets resulting
from operations:
Net investment
income.......... 11,900,132 7,840,883 22,214,422 7,037,897 12,196,075 5,466,493 4,900,693 964,708
Net realized
gain (loss) on
investments..... -- (16,860) 11,969,356 18,174,643 12,539,972 5,788,310 3,627,127 39,266
Net unrealized
appreciation
(depreciation)
of investments.. -- (3,872,789) 11,054,800 47,707,818 28,916,870 10,650,991 8,850,221 758,488
------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Net increase
(decrease) in net
assets resulting
from operations.. 11,900,132 3,951,234 45,238,578 72,920,358 53,652,917 21,905,794 17,378,041 1,762,462
Changes from
variable annuity
contract
transactions:
Transfers of net
premiums........ 157,597,760 28,246,069 41,426,503 73,583,170 60,643,110 31,387,672 34,938,284 6,901,502
Transfers for
terminations.... (20,633,241) (3,734,039) (9,607,547) (10,057,111) (5,701,392) (3,446,687) (4,009,584) (156,080)
Transfers for
annuity
benefits........ (248,748) (2,021) (138,974) 61,650 23,382 (286,506) 79,822 27,956
Net transfers
within Separate
Account IV...... (59,802,965) (14,028,403) (26,272,285) (3,124,312) 12,506,604 1,466,573 22,110,282 24,532,105
------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Net increase in
net assets
derived from
variable annuity
contract
transactions..... 76,912,806 10,481,606 5,407,697 60,463,397 67,471,704 29,121,052 53,118,804 31,305,483
------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Net increase in
net assets....... 88,812,938 14,432,840 50,646,275 133,383,755 121,124,621 51,026,846 70,496,845 33,067,945
------------ ------------ ------------ ------------ ------------ ------------ ------------ -----------
Balances at
December 31,
1996............. $307,756,483 $139,806,986 $338,038,396 $427,833,751 $300,037,248 $155,751,785 $165,630,157 $33,067,945
============ ============ ============ ============ ============ ============ ============ ===========
<CAPTION>
SMALL
COMPANY
GROWTH TOTAL
------------ ---------------
<S> <C> <C>
Balances at
January 1, 1996.. $ -- $1,304,930,686
Increase
(decrease) in net
assets resulting
from operations:
Net investment
income.......... 38,064 72,559,367
Net realized
gain (loss) on
investments..... (349,164) 51,772,650
Net unrealized
appreciation
(depreciation)
of investments.. (328,880) 103,737,519
------------ ---------------
Net increase
(decrease) in net
assets resulting
from operations.. (639,980) 228,069,536
Changes from
variable annuity
contract
transactions:
Transfers of net
premiums........ 10,562,475 445,286,545
Transfers for
terminations.... (386,129) (57,731,810)
Transfers for
annuity
benefits........ -- (483,439)
Net transfers
within Separate
Account IV...... 42,612,401 --
------------ ---------------
Net increase in
net assets
derived from
variable annuity
contract
transactions..... 52,788,747 387,071,296
------------ ---------------
Net increase in
net assets....... 52,148,767 615,140,832
------------ ---------------
Balances at
December 31,
1996............. $52,148,767 $1,920,071,518
============ ===============
</TABLE>
See accompanying notes.
6
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
MONEY HIGH-GRADE EQUITY EQUITY
MARKET BOND BALANCED INDEX GROWTH INCOME INTERNATIONAL
------------ ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1995.. $174,553,341 $ 80,983,034 $210,524,783 $180,849,156 $ 87,762,789 $ 62,738,661 $69,048,969
Increase in net
assets resulting
from operations:
Net investment
income.......... 10,188,464 6,158,458 8,452,000 6,239,054 3,201,732 3,409,809 793,738
Net realized
gain on
investments..... -- 9,484 3,772,940 6,208,785 3,789,160 1,173,064 859,384
Net unrealized
appreciation of
investments..... -- 10,192,557 55,334,294 58,745,390 33,476,176 21,439,721 9,397,625
------------ ------------ ------------ ------------ ------------ ------------ -----------
Net increase in
net assets
resulting from
operations....... 10,188,464 16,360,499 67,559,234 71,193,229 40,467,068 26,022,594 11,050,747
Changes from
variable annuity
contract
transactions:
Transfers of net
premiums........ 150,223,807 12,786,625 22,610,492 31,694,775 21,330,346 9,642,644 11,827,884
Transfers for
terminations.... (29,847,722) (3,246,738) (12,646,934) (8,166,636) (3,512,645) (3,275,910) (3,126,828)
Transfers for
annuity
benefits........ (125,802) (62,961) (130,018) (169,490) (2,020) (3,984) (170,767)
Net transfers
within Separate
Account IV...... (86,048,543) 18,553,687 (525,436) 19,048,962 32,867,089 9,600,934 6,503,307
------------ ------------ ------------ ------------ ------------ ------------ -----------
Net increase in
net assets
derived from
variable annuity
contract
transactions..... 34,201,740 28,030,613 9,308,104 42,407,611 50,682,770 15,963,684 15,033,596
------------ ------------ ------------ ------------ ------------ ------------ -----------
Net increase in
net assets....... 44,390,204 44,391,112 76,867,338 113,600,840 91,149,838 41,986,278 26,084,343
------------ ------------ ------------ ------------ ------------ ------------ -----------
Balances at
December 31,
1995............. $218,943,545 $125,374,146 $287,392,121 $294,449,996 $178,912,627 $104,724,939 $95,133,312
============ ============ ============ ============ ============ ============ ===========
<CAPTION>
TOTAL
---------------
<S> <C>
Balances at
January 1, 1995.. $ 866,460,733
Increase in net
assets resulting
from operations:
Net investment
income.......... 38,443,255
Net realized
gain on
investments..... 15,812,817
Net unrealized
appreciation of
investments..... 188,585,763
---------------
Net increase in
net assets
resulting from
operations....... 242,841,835
Changes from
variable annuity
contract
transactions:
Transfers of net
premiums........ 260,116,573
Transfers for
terminations.... (63,823,413)
Transfers for
annuity
benefits........ (665,042)
Net transfers
within Separate
Account IV...... --
---------------
Net increase in
net assets
derived from
variable annuity
contract
transactions..... 195,628,118
---------------
Net increase in
net assets....... 438,469,953
---------------
Balances at
December 31,
1995............. $1,304,930,686
===============
</TABLE>
See accompanying notes.
7
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES
Organization of the Account
Providian Life and Health Insurance Company Separate Account IV (the "Sepa-
rate Account") is a separate account of Providian Life and Health Insurance
Company ("PLH"), an indirect, wholly owned subsidiary of Providian Corporation
("Providian"), and is registered as a unit investment trust under the Invest-
ment Company Act of 1940, as amended. The Separate Account was established for
the purpose of funding variable annuity contracts issued by PLH.
On December 28, 1996, Providian executed a Plan and Agreement of Merger and
Reorganization (the "Merger Agreement") with AEGON N.V. ("AEGON"), an interna-
tional insurance company headquartered in The Hague, The Netherlands. Under
the Merger Agreement, Providian's insurance operations, including the opera-
tions of PLH, will merge with a wholly owned subsidiary of AEGON. Providian
will be the surviving corporation in the merger and will become a wholly owned
subsidiary of AEGON. The merger of Providian's insurance businesses with AEGON
is conditioned upon several events, including shareholder and various regula-
tory approvals. Providian anticipates that the closing of the transaction will
occur in mid-1997. Because consummation of the merger is subject to the above
conditions, no representations can be made as to whether, or when, the merger
will be completed or as to the possible impact of the merger on the financial
position and results of operations of PLH should the merger occur.
As of December 31, 1996, the Separate Account has 9 subaccounts which invest
exclusively in shares of a corresponding portfolio of the Vanguard Variable
Insurance Fund (the "Fund"), an open-end diversified investment company of-
fered by The Vanguard Group, Inc. ("Vanguard").
8
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
The portfolios available in the Fund are as follows:
VANGUARD VARIABLE INSURANCE FUND
Money Market Portfolio
High-Grade Bond Portfolio
Balanced Portfolio
Equity Index Portfolio
Growth Portfolio
Equity Income Portfolio
International Portfolio
High-Yield Bond Portfolio
Small Company Growth Portfolio
The subaccounts corresponding to the High-Yield Bond Portfolio and the Small
Company Growth Portfolio were added to the Separate Account on June 3, 1996.
Each portfolio has different investment objectives and policies as outlined
in the prospectus of the Separate Account. There is no assurance that a port-
folio will achieve its stated investment objective.
The contract owner's initial premium is automatically allocated to the Money
Market Subaccount until the end of the free look period (typically ten days
or, in certain instances, 30 days or more). Subsequent to the free look period
and a five day grace period, a contract owner may allocate all or a portion of
the initial premium and additional premiums, if any, to one or more
subaccounts of the Separate Account.
Investments
The Separate Account purchases shares of the Fund at net asset value in con-
nection with premium payments allocated to the subaccounts in accordance with
contract owners' directions and redeems shares of the Fund to process trans-
fers and to meet policy contract obligations. Gains and losses resulting from
the redemption of shares are computed on the basis of average cost. Investment
transactions are recorded on the trade dates.
9
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
All dividends and capital gains earned on the portfolios are reinvested in
the portfolios and are reflected in the unit values of the subaccounts of the
Separate Account.
Investments in the Fund portfolios are valued at market which is calculated
daily on each day the New York Stock Exchange is open for trading. Income and
both realized and unrealized gains or losses from assets of each subaccount
will be credited to, or charged against, that subaccount without regard to in-
come, gains or losses from any other subaccount of the Separate Account or
arising out of any other business PLH may conduct.
The contract's accumulated value varies with the investment performance of
the corresponding portfolios. Investment results are not guaranteed by the
Separate Account or PLH.
Although the assets in the Separate Account are the property of PLH, the as-
sets in the Separate Account attributable to the contracts cannot be used to
discharge the liabilities arising out of any other business which PLH may con-
duct. The assets of the Separate Account are available to cover the general
liabilities of PLH only to the extent that the Separate Account's assets ex-
ceed its liabilities under the contracts.
2. INVESTMENTS
The following is a summary of shares and amounts outstanding for each of the
respective portfolios as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------
PORTFOLIO SHARES NET ASSET VALUE FAIR VALUE
- --------- --------------- --------------- --------------
<S> <C> <C> <C>
Money Market..................... 307,822,345.890 $ 1.00 $ 307,822,346
High-Grade Bond.................. 13,398,123.884 10.43 139,742,432
Balanced......................... 22,548,083.271 15.01 338,446,730
Equity Index..................... 21,904,362.398 19.55 428,230,285
Growth........................... 16,967,121.386 17.69 300,148,377
Equity Income.................... 10,664,532.007 14.60 155,702,167
International.................... 13,006,226.890 12.74 165,699,331
High Yield Bond.................. 3,204,447.399 10.33 33,101,942
Small Company Growth............. 5,372,746.072 9.71 52,169,364
--------------
$1,921,062,974
==============
</TABLE>
10
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------------
PORTFOLIO SHARES NET ASSET VALUE FAIR VALUE
- --------- --------------- --------------- --------------
<S> <C> <C> <C>
Money Market..................... 217,738,607.700 $ 1.00 $ 217,738,608
High-Grade Bond.................. 11,656,837.206 10.75 125,311,000
Balanced......................... 20,618,768.217 13.95 287,631,817
Equity Index..................... 18,078,521.279 16.30 294,679,897
Growth........................... 12,199,317.112 14.67 178,963,982
Equity Income.................... 8,098,632.631 12.91 104,553,347
International.................... 8,245,565.227 11.54 95,153,823
--------------
$1,304,032,474
==============
</TABLE>
The aggregate cost of shares purchased during the years ended December 31,
1996 and 1995 for each of the respective portfolios is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Money Market....................................... $301,289,330 $273,261,907
High-Grade Bond.................................... 65,756,574 64,743,821
Balanced........................................... 88,846,647 63,508,701
Equity Index....................................... 140,971,704 88,488,544
Growth............................................. 137,965,542 77,775,358
Equity Income...................................... 68,234,485 35,685,619
International...................................... 89,893,236 43,029,548
High Yield Bond.................................... 35,591,007 --
Small Company Growth............................... 64,098,475 --
------------ ------------
$992,647,000 $646,493,498
============ ============
</TABLE>
3. FEDERAL INCOME TAXES
Operations of the Separate Account are included in the federal income tax
return of PLH, which is taxed as a life insurance company under the Internal
Revenue Code. The Separate Account will not be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code. Under current federal
income tax law, no federal income taxes are payable with respect to the Sepa-
rate Account.
11
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. ADVISORY AND SERVICE FEES
Vanguard furnishes corporate management, administrative, marketing and dis-
tribution services. Additionally, Vanguard furnishes investment advisory serv-
ices to certain Fund portfolios. The net asset value of the portfolios is net
of the advisory and service fees.
5. EXPENSES
An annual charge is deducted from the unit values of the subaccounts of the
Separate Account for PLH's assumption of certain mortality and expense risks
incurred in connection with the contract and for the cost of administering the
contract. It is assessed daily based on the Fund's combined net assets attrib-
utable to the Separate Account and Separate Account B of First Providian Life
and Health Insurance Company ("FPLH"), an affiliate of PLH. For the year ended
December 31, 1995 and through April 29, 1996, the annual rate on the first
$500 million of combined net assets in the Fund was .45% and was .40% on the
next $250 million of combined net assets in the Fund. This charge was reduced
in various increments to .30% on combined net assets in the Fund in excess of
$1.5 billion. Effective April 30, 1996, the annual rate changed to .375% on
the first $1.5 billion of combined net assets in the Fund and is reduced to
.30% of combined net assets in the Fund in excess of $1.5 billion.
For the years ended December 31, 1996 and 1995, the effective annual rate
for this mortality and expense charge was .37% and .41%, respectively, and the
total charge was $5,928,086 and $4,391,683, respectively.
In addition, an annual administrative charge of .10% is deducted from the
unit values of the subaccounts of the Separate Account. This charge is as-
sessed daily by Vanguard, based on the net assets attributable to the Separate
Account and Separate Account B of FPLH. Additionally, an annual maintenance
fee of $25 per contract is charged for contracts valued at less than $25,000
at the time of initial purchase and on the last business day of each year. The
maintenance fee is deducted proportionately from the contract's accumulated
value. These deductions represent reimbursement to Vanguard for the costs ex-
pected to be incurred for issuing and maintaining each contract and the Sepa-
rate Account. The total of these costs for the years ended December 31, 1996
and 1995 was $2,170,656 and $1,253,587, respectively.
12
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. CONTRACT OWNER TRANSACTIONS
Transactions with contract owners during 1996 and 1995 and end of period val-
ues for each of the respective subaccounts were as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- -----------------
<S> <C> <C>
MONEY MARKET
Outstanding units at beginning of peri-
od.................................... 183,867,044.733 154,414,727.137
Issuance of units...................... 234,989,691.634 227,264,003.770
Redemption of units.................... (172,637,367.731) (197,811,686.174)
----------------- -----------------
Outstanding units at end of period..... 246,219,368.636 183,867,044.733
================= =================
End of year:
Unit value........................... $ 1.249928 $ 1.190771
================= =================
Subaccount value..................... $ 307,756,483 $ 218,943,545
================= =================
HIGH-GRADE BOND
Outstanding units at beginning of peri-
od.................................... 8,684,285.622 6,589,365.136
Issuance of units...................... 3,980,774.263 4,337,499.103
Redemption of units.................... (3,270,527.643) (2,242,578.617)
----------------- -----------------
Outstanding units at end of period..... 9,394,532.242 8,684,285.622
================= =================
End of year:
Unit value........................... $ 14.881740 $ 14.436898
================= =================
Subaccount value..................... $ 139,806,986 $ 125,374,146
================= =================
BALANCED
Outstanding units at beginning of peri-
od.................................... 17,020,904.719 16,428,575.298
Issuance of units...................... 3,631,390.249 3,640,645.915
Redemption of units.................... (3,345,343.157) (3,048,316.494)
----------------- -----------------
Outstanding units at end of period..... 17,306,951.811 17,020,904.719
================= =================
End of year:
Unit value........................... $ 19.531943 $ 16.884656
================= =================
Subaccount value..................... $ 338,038,396 $ 287,392,121
================= =================
</TABLE>
13
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
EQUITY INDEX
Outstanding units at beginning of period.... 16,292,023.678 13,676,091.207
Issuance of units........................... 6,659,468.353 5,103,722.376
Redemption of units......................... (3,591,168.093) (2,487,789.905)
--------------- ---------------
Outstanding units at end of period.......... 19,360,323.938 16,292,023.678
=============== ===============
End of year:
Unit value................................ $ 22.098481 $ 18.073261
=============== ===============
Subaccount value.......................... $ 427,833,751 $ 294,449,996
=============== ===============
GROWTH
Outstanding units at beginning of period.... 11,856,793.774 8,004,469.507
Issuance of units........................... 7,257,192.909 5,612,227.676
Redemption of units......................... (3,369,657.930) (1,759,903.409)
--------------- ---------------
Outstanding units at end of period.......... 15,744,328.753 11,856,793.774
=============== ===============
End of year:
Unit value................................ $ 19.056846 $ 15.089461
=============== ===============
Subaccount value.......................... $ 300,037,248 $ 178,912,627
=============== ===============
EQUITY INCOME
Outstanding units at beginning of period.... 7,354,576.945 6,088,771.702
Issuance of units........................... 4,071,632.986 2,603,351.275
Redemption of units......................... (2,166,482.879) (1,337,546.032)
--------------- ---------------
Outstanding units at end of period.......... 9,259,727.052 7,354,576.945
=============== ===============
End of year:
Unit value................................ $ 16.820343 $ 14.239424
=============== ===============
Subaccount value.......................... $ 155,751,785 $ 104,724,939
=============== ===============
</TABLE>
14
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
INTERNATIONAL
Outstanding units at beginning of period.... 8,146,285.194 6,817,666.179
Issuance of units........................... 6,779,070.277 3,876,884.516
Redemption of units......................... (2,489,963.459) (2,548,265.501)
--------------- ---------------
Outstanding units at end of period.......... 12,435,392.012 8,146,285.194
=============== ===============
End of year:
Unit value................................ $ 13.319255 $ 11.678122
=============== ===============
Subaccount value.......................... $ 165,630,157 $ 95,133,312
=============== ===============
HIGH YIELD BOND
Outstanding units at beginning of period.... -- --
Issuance of units........................... 3,355,401.631 --
Redemption of units......................... (313,491.506) --
--------------- ---------------
Outstanding units at end of period.......... 3,041,910.125 --
=============== ===============
End of year:
Unit value................................ $ 10.870783 $ --
=============== ===============
Subaccount value.......................... $ 33,067,945 $ --
=============== ===============
SMALL COMPANY GROWTH
Outstanding units at beginning of period.... -- --
Issuance of units........................... 6,547,047.130 --
Redemption of units......................... (1,184,682.883) --
--------------- ---------------
Outstanding units at end of period.......... 5,362,364.247 --
=============== ===============
End of year:
Unit value................................ $ 9.724958 $ --
=============== ===============
Subaccount value.......................... $ 52,148,767 $ --
=============== ===============
</TABLE>
15
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. NET ASSETS
Net assets at December 31, 1996 for each of the respective subaccounts are
summarized in the following tables:
<TABLE>
<CAPTION>
MONEY HIGH-GRADE EQUITY
MARKET BOND BALANCED INDEX GROWTH
------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Contract owner
transactions........... $275,389,517 $112,802,888 $203,825,009 $260,189,331 $ 201,354,510
Accumulated net
investment income...... 32,366,966 26,462,448 51,485,589 23,173,542 16,022,838
Accumulated net realized
gain (loss) on
investments............ -- (248,588) 18,143,846 31,415,235 16,783,218
Net unrealized
appreciation on
investments............ -- 790,238 64,583,952 113,055,643 65,876,682
------------ ------------ ------------ ------------ --------------
$307,756,483 $139,806,986 $338,038,396 $427,833,751 $ 300,037,248
============ ============ ============ ============ ==============
<CAPTION>
SMALL
EQUITY HIGH YIELD COMPANY
INCOME INTERNATIONAL BOND GROWTH TOTAL
------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Contract owner
transactions........... $107,883,460 $137,547,749 $ 31,305,483 $ 52,788,747 $1,383,086,694
Accumulated net
investment income...... 12,302,861 5,909,272 964,708 38,064 168,726,288
Accumulated net realized
gain (loss) on
investments............ 5,790,416 4,594,914 39,266 (349,164) 76,169,143
Net unrealized
appreciation
(depreciation) on
investments............ 29,775,048 17,578,222 758,488 (328,880) 292,089,393
------------ ------------ ------------ ------------ --------------
$155,751,785 $165,630,157 $ 33,067,945 $ 52,148,767 $1,920,071,518
============ ============ ============ ============ ==============
</TABLE>
16
<PAGE>
STATUTORY-BASIS FINANCIAL STATEMENTS
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1996, AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATUTORY-BASIS FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Balance Sheets (Statutory-Basis).......................................... 2
Statements of Operations (Statutory-Basis)................................ 3
Statements of Changes in Capital and Surplus (Statutory-Basis)............ 4
Statements of Cash Flows (Statutory-Basis)................................ 5
Notes to Financial Statements............................................. 6
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors Providian Life and Health Insurance Company
We have audited the accompanying statutory-basis balance sheets of Providian
Life and Health Insurance Company as of December 31, 1996 and 1995, and the
related statutory-basis statements of operations, changes in capital and sur-
plus, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to ex-
press an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Missouri Department of Insurance, which practices differ from
generally accepted accounting principles. The variances between such practices
and generally accepted accounting principles are also described in Note 1. The
effects on the financial statements of these variances are not reasonably de-
terminable but are presumed to be material.
In our opinion, because of the effects of the matter described in the pre-
ceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the fi-
nancial position of Providian Life and Health Insurance Company at December
31, 1996 and 1995, or the results of its operations or its cash flows for the
years then ended.
Also, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Providian Life and
Health Insurance Company at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with ac-
counting practices prescribed or permitted by the Missouri Department of In-
surance.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 25, 1997
1
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
BALANCE SHEETS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds............................................... $ 4,249,252 $ 4,410,245
Preferred stocks.................................... 30,658 27,719
Common stocks....................................... 438,067 408,298
Mortgage loans...................................... 2,651,611 2,756,891
Real estate......................................... 6,653 25,065
Policy loans........................................ 158,186 158,774
Cash and short-term investments..................... 139,705 205,266
Other invested assets............................... 168,430 125,052
------------ ------------
Total cash and invested assets.................... 7,842,562 8,117,310
Deferred and uncollected premiums.................... 46,032 45,849
Accrued investment income............................ 89,539 99,001
Other receivables.................................... 38,556 35,432
Amounts due from affiliates.......................... 7,687 15,510
Federal income taxes recoverable from parent......... 5,840 3,725
Other admitted assets................................ 4,539 4,581
Separate account assets.............................. 2,427,504 1,741,564
------------ ------------
Total admitted assets................................ $ 10,462,259 $ 10,062,972
============ ============
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate policy reserves........................... $ 4,736,127 $ 5,608,366
Policy and contract claims.......................... 43,006 37,947
Policyholder contract deposits...................... 1,961,549 1,519,204
Other policy or contract liabilities................ 366,441 318,911
Amounts due to affiliates........................... 12,719 18,882
Asset valuation reserve............................. 97,169 89,486
Accrued expenses and other liabilities.............. 212,433 152,118
Separate account liabilities........................ 2,427,504 1,741,564
------------ ------------
Total liabilities................................. 9,856,948 9,486,478
Capital and surplus:
Common stock, $11 par value; 1,145,000 shares
authorized, issued and outstanding................. 12,595 12,595
Preferred stock, $11 par value; 2,290,000 shares
authorized, issued and outstanding 25,190 25,190
Paid-in surplus..................................... 2,583 2,583
Unassigned surplus.................................. 564,943 536,126
------------ ------------
Total capital and surplus......................... 605,311 576,494
------------ ------------
Total liabilities and capital and surplus............ $ 10,462,259 $ 10,062,972
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF OPERATIONS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Premiums earned:
Life and annuity................................ $ 343,086 $ 264,020
Accident and health............................. 154,993 160,996
Annuity fund deposits............................. 1,073,366 803,537
Net investment income............................. 569,860 570,009
Commissions and expense allowances on reinsurance
ceded............................................ 1,123 7,164
Amortization of interest maintenance reserve...... 3,109 4,798
Other income...................................... 10,196 455
----------- -----------
2,155,733 1,810,979
Benefits and expenses:
Accident and health, life and other benefits...... 1,417,390 1,323,996
Decrease in aggregate policy reserves............. (9,138) (141,219)
Commissions and expense allowances on reinsurance
assumed.......................................... 39,533 66,988
General insurance and other expenses.............. 122,906 140,495
Reinsurance recapture fee......................... 2,320 66,672
Net transfers to separate accounts................ 425,800 316,222
----------- -----------
1,998,811 1,773,154
----------- -----------
Net gain from operations before federal income
taxes.............................................. 156,922 37,825
Federal income tax expense.......................... 50,639 18,222
----------- -----------
Net gain from operations............................ 106,283 19,603
Net realized capital gains (losses), net of income
taxes (1996--$1,402;
1995--($14,998)) and excluding gains (losses)
transferred to the interest maintenance reserve
(1996--$2,921; 1995--($21,644)).................... 3,394 (609)
----------- -----------
Net income.......................................... $ 109,677 $ 18,994
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
COMMON PREFERRED PAID-IN UNASSIGNED
STOCK STOCK SURPLUS SURPLUS
------- --------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances, January 1, 1995.............. $ 2,530 $ -- $ 41,838 $ 485,844
Purchase and retirement of common
stock................................. (11) -- (3,989) --
Stock split/dividend................... 10,076 25,190 (35,266) --
Net income............................. -- -- -- 18,994
Change in net unrealized gains on in-
vestments............................. -- -- -- 96,430
Change in reserves due to change in
valuation basis....................... -- -- -- (802)
Prior year federal income tax adjust-
ment.................................. -- -- -- (5,092)
Increase in nonadmitted assets......... -- -- -- (17,244)
Increase in asset valuation reserve.... -- -- -- (42,004)
------- ------- -------- ---------
Balances, December 31, 1995............ 12,595 25,190 2,583 536,126
Net income............................. -- -- -- 109,677
Change in net unrealized gains on in-
vestments............................. -- -- -- 40,540
Dividends to shareholders.............. -- -- -- (125,000)
Prior year federal income tax adjust-
ment.................................. -- -- -- 6,546
Decrease in nonadmitted assets......... -- -- -- 4,737
Increase in asset valuation reserve.... -- -- -- (7,683)
------- ------- -------- ---------
Balances, December 31, 1996............ $12,595 $25,190 $ 2,583 $ 564,943
======= ======= ======== =========
</TABLE>
See accompanying notes.
4
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and short-term investments provided
Operations:
Premiums and annuity fund deposits................. $ 1,573,203 $ 1,224,560
Net investment income received..................... 574,079 564,587
Allowances and reserve adjustments received on
reinsurance ceded................................. 1,125 7,195
Other income received.............................. 10,182 455
----------- -----------
2,158,589 1,796,797
Benefits paid...................................... 1,412,797 1,320,679
General insurance and other expenses............... 169,580 197,177
Federal income taxes paid (recovered).............. 56,121 (10,510)
Net increase in policy loans and premium notes..... 3,520 7,283
Paid reinsurance reserves and other items.......... 293 1,305
Net transfers to separate accounts................. 412,252 327,365
----------- -----------
2,054,563 1,843,299
----------- -----------
Total cash provided (applied) by operations...... 104,026 (46,502)
Investments sold, matured or repaid................. 3,688,955 3,662,934
Other cash provided:
Increase in amounts due to affiliates.............. 7,826 --
Net increase in broker receivables/payables........ 31,112 114,177
Accounts receivable--other invested assets......... -- 83,606
Cash received in reinsurance recapture transaction. -- 30,095
Net cash and short-term investments received from
reinsurance assumed............................... -- 303,376
Other items........................................ 40,047 7,764
----------- -----------
Total other cash provided........................ 78,985 539,018
----------- -----------
Total cash and short-term investments provided... 3,871,966 4,155,450
Cash and short-term investments applied:
Investments acquired................................ 3,717,511 4,029,433
Other cash applied:
Dividends paid to shareholders..................... 125,000 --
Decrease in amounts due to affiliates.............. 6,162 15,506
Net cash and short-term investments transferred on
reinsurance assumed............................... 78,980 --
Redemption of common stock......................... -- 4,000
Other items........................................ 9,874 14,776
----------- -----------
Total other cash applied......................... 220,016 34,282
----------- -----------
Total cash and short-term investments applied.... 3,937,527 4,063,715
----------- -----------
Increase (decrease) in cash and short-term
investments......................................... (65,561) 91,735
Cash and short-term investments:
Beginning of year................................... 205,266 113,531
----------- -----------
End of year......................................... $ 139,705 $ 205,266
=========== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Organization
Providian Life and Health Insurance Company (PLH) is a life and health in-
surance company domiciled in Missouri. PLH is owned by Commonwealth Life In-
surance Company (CLICO) 61%, Capital Liberty, L.P. (CLLP) 20%, Peoples Secu-
rity Life Insurance Company (PSI) 15%, and Providian Corporation (Providian)
4%. Providian is the ultimate parent of CLICO, CLLP, and PSI. PLH wholly owns
an insurance subsidiary, Veterans Life Insurance Company (VLIC), which wholly
owns an insurance subsidiary, First Providian Life and Health Insurance Com-
pany (FPLH), and a non-insurance subsidiary.
On December 28, 1996, Providian executed a Plan and Agreement of Merger and
Reorganization (the Merger Agreement) with AEGON N.V. (AEGON), an interna-
tional insurance company headquartered in The Hague, The Netherlands. Under
the Merger Agreement, Providian's insurance operations, including the opera-
tions of PLH, will merge with a wholly owned subsidiary of AEGON. Providian
will be the surviving corporation in the merger and will become a wholly owned
subsidiary of AEGON. The merger of Providian's insurance businesses with AEGON
is conditioned upon several events, including shareholder and various regula-
tory approvals. Providian anticipates that the closing of the transaction will
occur in mid-1997. Because consummation of the merger is subject to the above
conditions, no representations can be made as to whether, or when, the merger
will be completed or as to the possible impact of the merger on the financial
position and results of operations of PLH should the merger occur.
Nature of Operations
PLH sells and services life and accident and health insurance products, pri-
marily utilizing direct response methods, such as television, telephone, mail
and third-party programs to reach low to middle-income households nationwide.
PLH also sells and services group and individual accumulation products, pri-
marily utilizing brokers, fund managers, financial planners, stock brokerage
firms and a mutual fund.
6
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Management's Estimates
The preparation of financial statements requires management to make esti-
mates and assumptions that affect the amounts reported in the financial state-
ments and accompanying notes. Such estimates and assumptions could change in
the future as more information becomes known, which could impact the amounts
reported and disclosed herein.
Basis of Presentation
The accompanying financial statements of PLH have been prepared in accor-
dance with the accounting practices prescribed or permitted by the Missouri
Department of Insurance. Such practices vary from generally accepted account-
ing principles (GAAP). The more significant variances from GAAP are as fol-
lows:
Investments
Investments in bonds and mandatorily redeemable preferred stocks are re-
ported at amortized cost or fair value based on their National Association
of Insurance Commissioners (NAIC) rating; for GAAP, such fixed maturity in-
vestments are designated at purchase as held-to-maturity, trading or avail-
able-for-sale. Held-to-maturity fixed investments are reported at amortized
cost, and the remaining fixed maturity investments are reported at fair
value with unrealized holding gains and losses reported in operations for
those designated as trading and as a separate component of shareholders'
equity for those designated as available-for-sale.
Fair values of investments in bonds and stocks are generally based on
values specified by the Securities Valuation Office (SVO) of the NAIC,
rather than on values provided by outside broker confirmations or inter-
nally calculated estimates. However, for certain investments, the NAIC does
not provide a value and PLH uses either admitted asset investment amounts
(i.e., statement values) as allowed by the NAIC, quoted fair values pro-
vided by outside broker confirmations or internally calculated estimates.
Investments in real estate are reported net of related obligations rather
than on a gross basis. Real estate owned and occupied by PLH is included in
investments rather than reported as an operating asset, and investment in-
come and operating expense include amounts representing rent for PLH's oc-
cupancy of such real estate. Changes between
7
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
cost and admitted asset investment amounts are credited or charged directly
to unassigned surplus rather than to a separate surplus account.
Valuation allowances are established for mortgage loans based on the dif-
ference between the unpaid loan balance and the estimated fair value of the
underlying real estate when such loans are determined to be in default as
to scheduled payments. Under GAAP, valuation allowances would be estab-
lished when PLH determines it is probable that it will be unable to collect
all amounts due (both principal and interest) according to the contractual
terms of the loan agreement. Such allowances are generally based on the es-
timated fair value of the underlying real estate (collateral). The initial
valuation allowance and subsequent changes in the allowance for mortgage
loans are charged or credited directly to unassigned surplus, rather than
being included as a component of earnings as would be required under GAAP.
Under a formula prescribed by the NAIC, PLH defers the portion of real-
ized capital gains and losses attributable to changes in the general level
of interest rates on sales of certain liabilities and fixed income invest-
ments, principally bonds and mortgage loans, and amortizes such deferrals
into income on a straight-line basis over the remaining period to maturity
based on groupings of individual liabilities or investments sold. The net
accumulated unamortized balance of such deferrals is reported as an "inter-
est maintenance reserve" (IMR). Realized gains and losses are reported in
income net of tax and transfers to the IMR. At December 31, 1996 and 1995,
the IMR balance was in an asset position of $10,762,458 and $10,574,877,
respectively, and was non-admitted for statutory accounting purposes. The
"asset valuation reserve" (AVR) is also determined by a NAIC prescribed
formula and is reported as a liability rather than a valuation allowance.
The AVR represents a provision for possible fluctuations in the value of
bonds, equity securities, mortgage loans, real estate and other invested
assets. Changes to the AVR are charged or credited directly to unassigned
surplus. Under GAAP, realized gains and losses are reported in the income
statement on a pretax basis in the period that the asset giving rise to the
gain or loss is sold and direct write-downs are recorded (or valuation al-
lowances are provided, where appropriate under GAAP) when there has been a
decline in value deemed to be other than temporary, in which case, write-
downs (or provisions) for such declines are charged to income.
8
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Subsidiaries
The accounts and operations of PLH's subsidiaries are not consolidated
with the accounts and operations of PLH as would be required under GAAP.
Policy Acquisition Costs
Costs of acquiring and renewing business are expensed when incurred. Un-
der GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For uni-
versal life insurance and investment-type contracts, to the extent recover-
able from future gross profits, deferred policy acquisition costs are amor-
tized generally in proportion to the present value of expected gross prof-
its from surrender charges and investment, mortality and expense margins.
Nonadmitted Assets
Certain assets designated as "nonadmitted," principally agents' debit
balances and furniture and equipment, are excluded from the balance sheets
and are charged directly to unassigned surplus.
Premiums
Revenues for universal life policies and investment-type contracts con-
sist of the entire premium received and benefits represent the death bene-
fits paid, surrenders and the change in policy reserves. Under GAAP, premi-
ums received in excess of policy charges are not recognized as premium rev-
enue and benefits represent the excess of benefits paid over the policy ac-
count value and interest credited to the account values.
Benefit Reserves
Certain policy reserves are calculated using prescribed interest and mor-
tality assumptions rather than on expected experience and actual account
balances as is required under GAAP.
9
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred income taxes are not provided for differences between the finan-
cial statement and the tax bases of assets and liabilities.
The effects of the foregoing variances from GAAP on the accompanying
statutory-basis financial statements have not been determined, but are pre-
sumed to be material.
Other significant accounting policies followed in preparing the accompa-
nying statutory-basis financial statements are as follows:
Investments
Bonds, preferred stocks, common stocks, mortgage loans, real estate, pol-
icy loans, other invested assets, short-term investments and derivative fi-
nancial instruments are stated at values prescribed by the NAIC, as fol-
lows:
Bonds not backed by other loans are stated at amortized cost using
the constant effective yield method.
Loan-backed bonds and structured securities are valued at amortized
cost using the interest method. Anticipated prepayments are considered
when determining the amortization of related discounts or premiums.
Prepayment assumptions are obtained from dealer survey values or inter-
nal estimates and are consistent with the current interest rate and
economic environment. The retrospective adjustment method is used to
value such securities.
Preferred stocks are carried at cost. In addition, certain bonds and
preferred stocks are carried at the lower of cost (or amortized cost)
or the NAIC designated fair value.
Common stocks are carried at the NAIC designated fair value, except
that investments in unconsolidated subsidiaries and affiliates in which
PLH has an interest of 20 percent or more are carried on the equity ba-
sis.
10
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Mortgage loans in good standing are carried at unpaid principal bal-
ances while statutorily delinquent mortgages are carried at their un-
paid principal balance less the related valuation allowance.
Real estate is carried at the lower of cost (less depreciation for
occupied and investment real estate, generally calculated using the
straight-line method) or net realizable value, and is net of related
obligations, if any.
Policy loans are carried at the aggregate unpaid balance.
Short-term investments include investments with maturities of less
than one year at the date of acquisition. Short-term investments are
carried at amortized cost.
Other invested assets are principally comprised of limited partner-
ship investments and are valued using the equity method of accounting.
Derivative financial instruments, consisting primarily of interest
rate swap agreements, including basis swaps, and futures, are valued
consistently with the hedged item. Hedges of fixed income assets and/or
liabilities are valued at amortized cost. Hedges of items carried at
fair value are valued at fair value. Derivatives which cease to be ef-
fective hedges are valued at fair value.
Bond and other loan interest is credited to income as it accrues. Divi-
dends on preferred and common stocks are credited to income on ex-dividend
dates. For securities, PLH follows the guidelines of the NAIC for each se-
curity on an individual basis in determining the admitted or nonadmitted
status of accrued income amounts. There was no interest on securities ex-
cluded from investment income at December 31, 1996 and 1995. For mortgage
loans, PLH's policy is to exclude from investment income interest in excess
of three months past due. At December 31, 1996 and 1995, the total amount
excluded from accrued investment income for delinquent mortgage loans was
approximately $504,000 and $314,000, respectively. The amounts to be paid
or received as a result of derivative instruments are recognized in the
statements of operations as an adjustment to investment income. Realized
gains and losses on derivative instruments are recognized currently in
earnings. If the item being hedged is subject to the IMR, the gain or loss
on the hedging derivative instrument is subject to the IMR upon termina-
tion.
11
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Net income includes realized gains and losses on investments sold, net of
tax and transfers to the IMR. The cost of investments sold is determined on
a first-in, first-out basis.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
statutory-basis financial statements represent funds that are separately
administered, principally for annuity contracts, and for which the contract
holder, rather than PLH, bears the investment risk. Separate account con-
tract holders have no claim against the assets of the general account of
PLH. Separate account assets are reported at fair value. The operations of
the separate accounts are not included in the accompanying statutory-basis
financial statements. Fees charged on separate account policyholder depos-
its are included in net transfers to separate accounts in the accompanying
statements of operations.
Policy Reserves
Unearned premiums represent the portion of premiums written which are ap-
plicable to the unexpired terms of accident and health policies in force,
calculated principally by the application of monthly pro rata fractions.
Liabilities for unearned premiums are included in aggregate policy re-
serves.
PLH waives deduction of deferred fractional premiums upon death of
insureds. PLH's policy is to return any portion of the final premium beyond
the date of death. Surrender values on direct business are not promised in
excess of the legally computed reserves. Additional premiums are charged
for policies issued on substandard lives according to underwriting classi-
fication. Mean reserves are determined by
computing the regular mean reserve for the plan at the issued age and hold-
ing in addition one-half of the extra premium charged for the year.
The tabular interest has been determined from the basic data for the cal-
culation of policy reserves. The tabular less actual reserve released and
the tabular cost have been determined by formula as described in the NAIC
instructions.
12
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Policy reserves also include single premium and flexible premium annuity
contracts and structured settlement contracts. The single premium and flex-
ible premium contracts contain surrender charges for the first six to seven
years of the contract. These contract reserves are held at the contract
value that accrues to the policyholder. Structured settlement contracts
contain no surrender charge as the contracts are not surrenderable. Policy
reserves on these contracts are determined based on the expected future
cash flows discounted at the applicable statutorily defined mortality and
interest rates. Annual effective rates credited to these annuity contracts
ranged from 4.0 percent to 8.0 percent during 1996 and 1995.
Liabilities for Policy and Contract Claims
Liabilities for policy and contract claims, principally related to acci-
dent and health policies, include amounts determined in accordance with
standard actuarial practice and statutory regulation. These estimates are
subject to the effects of trends in claim severity and frequency. Although
considerable variability is inherent in such estimates, management believes
that the liabilities for policy and contract claims are adequate. The meth-
ods of making such estimates and establishing the resulting liabilities are
continually reviewed and updated, and any adjustments resulting therefrom
are reflected in current earnings.
Policyholder Contract Deposits
Policyholder contract deposits consist of guaranteed investment contracts
(GICs). The GICs consist of three types. One type is guaranteed as to prin-
cipal along with interest guarantees based upon predetermined indices. The
second type guarantees principal and interest, but also includes a penalty
if the contract is surrendered early. The third type guarantees principal
and interest and is non-surrenderable before the fixed maturity date. Pol-
icy reserves on the GICs are determined following the retrospective deposit
method and consist of contract values that accrue to the benefit of the
policyholder. Annual effective rates credited to these GICs ranged from 5.2
percent to 6.6 percent and from 5.5 percent to 7.8 percent during 1996 and
1995, respectively.
13
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Premiums, Benefits and Expenses
For individual and most group life policies, premiums are reported as
earned on the policy/certificate anniversary. For individual and group an-
nuities, premiums and annuity fund deposits are recorded as earned when
collected. For individual and group accident and health policies, premiums
are recorded as earned on a pro rata basis over the coverage period for
which the premiums were collected or due. Benefit claims (including an es-
timated provision for claims incurred but not reported), policy reserve
changes and expenses are charged to income as incurred.
Reinsurance
Reinsurance premiums, benefits and expenses are accounted for in a manner
consistent with that used in accounting for original policies issued and
the terms of the reinsurance contracts. Premiums, benefits, expenses and
the reserves for policy and contract liabilities and unearned premiums are
recorded net of reinsured amounts.
Guaranty Fund Assessments
Periodically, PLH is assessed by various state guaranty funds as part of
those funds' activities to collect funds from solvent insurance companies
to cover certain losses to policyholders that resulted from the insolvency
or rehabilitation of other insurance companies. Each state guaranty fund
operates independently of any other state guaranty fund; as such, the meth-
ods by which assessments are levied against PLH vary from state to state.
Also, some states permit guaranty fund assessments to be partially recov-
ered through reductions in future premium taxes. At December 31, 1996 and
1995, PLH has established an estimated liability for guaranty fund assess-
ments for those insolvencies or rehabilitations that have actually occurred
prior to that date. The estimated liability is determined using preliminary
information received from the various state guaranty funds and the National
Organization of Life and Health Insurance Guaranty Associations. Because
there are many uncertainties regarding the ultimate assessments that will
be assessed against PLH, the ultimate assessments for those insolvencies or
rehabilitations that occurred prior to December 31, 1996 may vary from the
estimated liability included in the accompanying financial statements. The
estimated liability for guaranty fund assessments recorded at December 31,
1996 and 1995 was $11,525,000 and $11,571,000, respectively.
14
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Permitted Statutory Accounting Practices
PLH's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Missouri Depart-
ment of Insurance. "Prescribed" statutory accounting practices include
state laws, regulations, and general administrative rules, as well as a va-
riety of publications of the NAIC. "Permitted" statutory accounting prac-
tices encompass all accounting practices that are not prescribed; such
practices may differ from state to state, may differ from company to com-
pany within a state, and may change in the future. The NAIC currently is in
the process of recodifying statutory accounting practices, the result of
which is expected to constitute the only source of "prescribed" statutory
accounting practices. Accordingly, that project, which is expected to be
completed in 1998, will likely change, to some extent, prescribed statutory
accounting practices, and may result in changes to the accounting practices
that PLH uses to prepare its statutory-basis financial statements. The ef-
fect of any such changes on PLH's statutory surplus cannot be determined at
this time and could be material.
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
15
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS
The tables below contain amortized cost (carrying value or statement value)
and fair value information on bonds.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
U.S. government obligations......... $ 170,990 $ 576 $ 3,340 $ 168,226
States and political subdivisions... 33,765 526 994 33,297
Foreign government obligations*..... 39,483 301 432 39,352
Corporate and other................. 2,730,863 43,960 23,430 2,751,393
Foreign corporate*.................. 218,306 5,868 679 223,495
Asset-backed........................ 519,149 -- -- 519,149
Mortgage-backed..................... 536,696 -- -- 536,696
---------- -------- ------- ----------
$4,249,252 $ 51,231 $28,875 $4,271,608
========== ======== ======= ==========
DECEMBER 31, 1995
U.S. government obligations......... $ 249,757 $ 9,764 $ 4 $ 259,517
States and political subdivisions... 37,957 1,399 280 39,076
Foreign government obligations*..... 71,820 4,026 34 75,812
Corporate and other................. 2,686,294 93,236 11,054 2,768,476
Foreign corporate*.................. 259,804 14,063 2,223 271,644
Asset-backed........................ 553,591 -- -- 553,591
Mortgage-backed..................... 551,022 -- -- 551,022
---------- -------- ------- ----------
$4,410,245 $122,488 $13,595 $4,519,138
========== ======== ======= ==========
</TABLE>
- --------
* Substantially all are U.S. dollar denominated.
16
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of bonds at December 31, 1996, by contrac-
tual maturity, are shown below. Actual maturities may differ from contractual
maturities because certain borrowers may have the right to call or prepay ob-
ligations, sometimes without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less............................. $ 30,634 $ 30,634
Due after one year through five years............... 598,038 598,439
Due after five years through ten years.............. 953,944 955,870
Due after ten years................................. 1,610,791 1,630,820
---------- ----------
3,193,407 3,215,763
Asset-backed securities............................. 519,149 519,149
Mortgage-backed securities.......................... 536,696 536,696
---------- ----------
$4,249,252 $4,271,608
========== ==========
</TABLE>
Proceeds during 1996 and 1995 from sales, maturities and calls of bonds were
$2,992,250,000 and $2,842,536,000, respectively. Gross gains of $36,104,000
and $60,899,000 and gross losses of $28,403,000 and $35,199,000 in 1996 and
1995, respectively, were realized on those sales.
The cost of preferred stocks of unaffiliated companies was $30,886,000 and
$27,719,000 at December 31, 1996 and 1995, respectively, and the related fair
value was $30,681,000 and $27,199,000 at December 31, 1996 and 1995, respec-
tively. The difference between cost and statement value of preferred stocks of
$228,000 at December 31, 1996 was charged directly to unassigned surplus as of
that date and did not affect net income. There was no difference between cost
and statement value of preferred stocks at December 31, 1995.
17
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS (CONTINUED)
The change in unrealized gains and losses on investments in common stocks
and on investments in subsidiaries is credited or charged directly to unas-
signed surplus and does not affect net income. The cost and fair value of
those investments at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Common stocks...................... $ 28,991 $ 655 $1,083 $ 28,563
Subsidiaries....................... 202,606 206,898 -- 409,504
-------- -------- ------ --------
$231,597 $207,553 $1,083 $438,067
======== ======== ====== ========
DECEMBER 31, 1995
Common stocks...................... $ 41,619 $ 662 $ 796 $ 41,485
Subsidiaries....................... 197,949 168,864 -- 366,813
-------- -------- ------ --------
$239,568 $169,526 $ 796 $408,298
======== ======== ====== ========
</TABLE>
The fair value of investments in subsidiaries presented above represents
PLH's equity interest in the net assets of the subsidiary.
Included in investments are securities having statement values of $3,981,000
at December 31, 1996 which were on deposit with various state insurance de-
partments to satisfy regulatory requirements.
The carrying value of mortgage loans is net of an allowance for loan losses
of $2,526,000 and $771,000 at December 31, 1996 and 1995, respectively. The
maximum and minimum lending rates for commercial mortgage loans made during
1996 were 9.4 percent and 8.4 percent, respectively; the maximum and minimum
lending rates for residential mortgage loans made during 1996 were 9.9 percent
and 4.5 percent, respectively; and the maximum and minimum lending rates for
farm mortgage loans made during 1996 were 8.9 percent and 8.6 percent, respec-
tively. The maximum percentage of any one loan to the value of collateral at
the time of the loan, exclusive of insured, guaranteed or purchase money mort-
gages was 80 percent. Hazard insurance is required on all properties covered
by
18
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS (CONTINUED)
mortgage loans at least equal to the excess of the loan over the maximum loan
which would be permitted by law on the land without buildings. As of December
31, 1996, PLH held $1,855,000 of mortgages with interest more than one year
overdue amounting to $296,000. As of December 31, 1996, there were no taxes,
assessments, or other amounts advanced by PLH on account of mortgage loans
which were not included in mortgage loan totals. During 1996, $1,045,000 of
taxes and maintenance expenses were paid by PLH on property acquired through
foreclosure. During 1996, PLH did not reduce interest rates on any outstanding
mortgages.
3. FINANCIAL INSTRUMENTS
PLH utilizes a variety of financial instruments in its asset/liability man-
agement process and to meet its customers' financing needs. The
asset/liability management process focuses on the management of a variety of
risks, including interest rate, market and credit risks. Effective management
of these risks is an important determinant of profitability. Instruments used
in this process and to meet the customers' financing and investing needs in-
clude derivative financial instruments, primarily interest rate swap agree-
ments and futures contracts, and commitments to extend credit. Other deriva-
tives, such as forwards, are used to a much lesser extent in the
asset/liability management process. All of these instruments involve (to vary-
ing degrees) elements of market and credit risks in excess of the amounts rec-
ognized in the accompanying financial statements at a given point in time. The
contract or notional values of all of these instruments reflect the extent of
involvement in the various types of financial instruments.
PLH's exposure to market risk (including interest rate risk) is the risk of
market volatility and potential disruptions in the market which may result in
certain instruments being less valuable. PLH monitors and controls its expo-
sure to this risk primarily through the use of cash flow stress testing, total
portfolio analysis of net duration levels, a monthly mark-to-market process
and ongoing monitoring of interest rate movements.
PLH's exposure to credit risk (including interest rate risk) is the risk of
loss from a counterparty failing to perform according to the terms of the con-
tract. This exposure includes settlement risk (risk that the counterparty de-
faults after PLH has delivered funds or securities under the terms of the con-
tract) which results in an accounting loss and replacement cost risk (cost to
replace the contract at current market rates should the counterparty default
prior to the settlement date). There is no off-balance sheet exposure to
credit risk that would result in an immediate accounting loss (settlement
risk)
19
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FINANCIAL INSTRUMENTS (CONTINUED)
associated with counterparty non-performance on interest rate swap agreements
and futures. Interest rate swap agreements are subject to replacement cost
risk, which equals the cost to replace those contracts in a net gain position
should a counterparty default. Default by a counterparty would not result in
an immediate accounting loss. These instruments, as well as futures and for-
wards, are subject to market risk, which is the possibility that future
changes in market prices may make the instruments less valuable. Credit loss
exposure resulting from non-performance by a counterparty for commitments to
extend credit is represented by the contractual amounts of the instruments.
The credit risk on all financial instruments, whether on- or off-balance
sheet, is controlled through an ongoing credit review, approval and monitoring
process. PLH determines, on an individual counterparty basis, the need for
collateral or other security to support financial instruments with credit
risk, and establishes individual and aggregate counterparty exposure limits.
In order to limit exposure associated with counterparty non-performance on in-
terest rate swap agreements, PLH enters into master netting agreements with
its counterparties. These master netting agreements provide that, upon default
of either party, contracts in gain positions will be offset with contracts in
loss positions and the net gain or loss will be received or paid, respective-
ly. Assuming every counterparty defaulted, the cost of replacing those inter-
est rate contracts in a net gain position, after consideration of the afore-
mentioned master netting agreements, was $22,188,000 and $53,450,000 at Decem-
ber 31, 1996 and 1995, respectively.
PLH manages interest rate risk through the use of duration analysis. Dura-
tion is a key portfolio management tool and is measured for both assets and
liabilities. For the simplest forms of assets or liabilities, duration is pro-
portional to their weighted average life, with weights equal to the discounted
present value of estimated cash flows. This methodology causes near-term cash
flows to have a greater proportional weight than cash flows further in the fu-
ture. For more complex assets and liabilities with optional cash flows, for
example, callable bonds, mortgage-backed securities, or traditional insurance
liabilities, additional adjustments are made in estimating an effective dura-
tion number. PLH uses derivatives as a less costly and less burdensome alter-
native to restructuring the underlying cash instruments to manage interest
rate risk based upon the aggregate net duration level of its aggregate portfo-
lio. Information is provided below for each significant derivative product
type.
20
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FINANCIAL INSTRUMENTS (CONTINUED)
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payments, without an exchange of the underlying princi-
pal amount. PLH also enters into basis swap agreements where amounts received
are based primarily upon six month LIBOR and pays an amount based on either a
short-term Treasury or Prime Rate. The amounts to be paid or received as a re-
sult of these agreements are accrued and recognized in the accompanying state-
ments of operations through net investment income. Gains or losses realized on
closed or terminated agreements are deferred and amortized as a component of
the IMR.
Futures are contracts which call for the delayed delivery of securities in
which the seller agrees to deliver on a specified future date, a specified in-
strument at a specified price. The daily change in fair value of futures con-
tracts used to adjust the net duration level of the overall portfolio is de-
ferred and amortized as a component of the IMR. The daily change in fair value
for futures used as accounting hedges both for products that provide a return
based on the market performance of a designated index and for investments in
common stocks are recognized in the accompanying statement of operations
through net realized investment gains and losses. Margin requirements on
futures contracts, equal to the change in fair value, are usually settled on a
daily basis.
21
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FINANCIAL INSTRUMENTS (CONTINUED)
The following information is based on the assumption that rates will remain
constant at December 31, 1996 levels. To the extent that actual rates change,
the variable interest rate information will change accordingly. The following
table illustrates the maturities and weighted average rates by type of deriva-
tive product held at December 31, 1996.
<TABLE>
<CAPTION>
MATURITY SCHEDULE BY YEAR FOR DERIVATIVE PRODUCTS
-----------------------------------------------------------
2001-
1997 1998 1999 2000 2002 TOTAL
-------- ------- -------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED SWAPS
Notional value.......... $ 34,567 $55,500 $216,000 $338,400 $278,300 $ 922,767
Weighted average:
Receive rate.......... 6.33% 4.99% 7.42% 7.34% 7.40% 7.20%
Pay rate.............. 5.63% 5.66% 5.63% 5.72% 5.73% 5.70%
PAY FIXED SWAPS
Notional value.......... -- -- -- -- $ 10,000 $ 10,000
Weighted average:
Receive rate.......... -- -- -- -- 5.59% 5.59%
Pay rate.............. -- -- -- -- 7.29% 7.29%
BASIS SWAPS
Notional value.......... 17,800 -- 42,840 50,000 50,000 160,640
Weighted average:
Receive rate ......... 5.35% -- 5.60% 5.53% 5.53% 5.53%
Pay rate.............. 5.59% -- 5.79% 5.55% 5.56% 5.62%
OTHER DERIVATIVE
PRODUCTS (A)
Notional or contract
value.................. 70,783 -- -- -- 250,000 320,783
-------- ------- -------- -------- -------- ----------
Total notional or
contract value......... $123,150 $55,500 $258,840 $388,400 $588,300 $1,414,190
======== ======= ======== ======== ======== ==========
TOTAL WEIGHTED AVERAGE
RATES ON SWAPS:
Receive rate.......... 6.00% 4.99% 7.12% 7.11% 7.07% 6.94%
Pay rate.............. 5.62% 5.66% 5.66% 5.70% 5.75% 5.70%
</TABLE>
- --------
(a) Other derivative products include futures and forwards.
22
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes the activity by notional or contract value in
derivative products for 1996 and 1995:
<TABLE>
<CAPTION>
RECEIVE PAY FIXED/
FIXED/PAY RECEIVE
FLOATING FLOATING BASIS FUTURES FORWARDS
---------- ---------- -------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994. $ 699,556 $ -- $ 65,060 $ 669,628 $ --
Additions................. 622,500 -- 94,271 1,200,907 250,000
Maturities................ 1,094 -- 50,000 -- --
Terminations.............. -- -- 44,133 1,820,429 --
---------- ------- -------- ---------- --------
Balances, December 31, 1995. 1,320,962 -- 65,198 50,106 250,000
Additions................. 107,473 10,000 100,000 314,271 --
Maturities................ 109,268 -- 4,558 -- --
Terminations.............. 396,400 -- -- 293,594 --
---------- ------- -------- ---------- --------
Balances, December 31, 1996. $ 922,967 $10,000 $160,640 $ 70,783 $250,000
========== ======= ======== ========== ========
</TABLE>
During 1996, PLH terminated or closed certain interest rate swap agreements
which were accounted for as hedges. The net deferred gains on these agreements
during 1996 were $1,279,000 and are being amortized to investment income over
the expected remaining life of the related investment, generally one to seven
years, as a component of the IMR.
Commitments
Commitments to extend credit consist of agreements to lend to a customer at
some future time, subject to established contractual conditions. Since it is
likely some commitments may expire or be withdrawn without being fully drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. PLH evaluates individually each customer's creditworthiness.
Collateral may be obtained, if deemed necessary, based on a credit evaluation
of the counterparty. The collateral may include commercial and/or residential
real estate. At December 31, 1996 and 1995, commitments to extend credit were
$136,317,000 and $140,800,000, respectively.
Additionally, at December 31, 1996, PLH has agreed to fund additional in-
vestments through the year 2000 in an amount not to exceed $85,468,000.
23
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FINANCIAL INSTRUMENTS (CONTINUED)
Concentrations of Credit Risk
PLH limits credit risk by diversifying its investment portfolio among common
and preferred stocks, public bonds, private placement securities, and commer-
cial and residential mortgage loans. It further diversifies these portfolios
between and within industry sectors, by geography and by property type. Credit
risk is also limited by maintaining stringent underwriting standards and pur-
chasing insurance protection in certain cases. In addition, PLH establishes
credit approval processes, credit limits and monitoring procedures on an indi-
vidual counterparty basis. As a result, management believes that significant
concentrations of credit risk do not exist.
4. FEDERAL INCOME TAXES
PLH and its subsidiaries file a life-nonlife consolidated federal income tax
return. Under a written agreement, PLH and its affiliates allocate the federal
income tax liability among the members of the consolidated return group in the
ratio that each member's separate return tax liability, or benefit from a net
operating loss, for the year bears to the consolidated tax liability. The fi-
nal settlement under this agreement is made after the annual filing of the
consolidated U.S. Corporate Income Tax Return.
Reported income tax expense differs from income tax expense that would re-
sult from applying rates to pretax income primarily due to differences in the
statutory and tax treatment of certain investments, deferred policy acquisi-
tion costs, bad debts, and differences in policy and contract liabilities.
Included in the statements of changes in capital and surplus are certain ad-
justments increasing surplus by $6,544,000 at December 31, 1996 and decreasing
surplus by $5,092,000 at December 31, 1995, respectively, relating to tax ac-
crual adjustments applicable to prior tax years.
At December 31, 1996, accumulated earnings of PLH for federal income tax
purposes included $17,425,000 of "Policyholders' Surplus," a special memoran-
dum tax account. This memorandum account balance has not been currently taxed,
but income taxes computed at current rates will become payable if this surplus
is distributed. Provisions of the Deficit Reduction Act of 1984 (the Act) do
not permit further additions to the Policyholders' Surplus account. "Share-
holders' Surplus" is also a special memorandum tax account, and generally rep-
resents an accumulation of taxable income (net of tax
24
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. FEDERAL INCOME TAXES (CONTINUED)
thereon) plus the dividends received deduction, tax-exempt interest, and cer-
tain other special deductions as provided by the Act. At December 31, 1996,
the balance in the Shareholders' Surplus account amounted to approximately
$601,601,000. There is no present intention to make distributions in excess of
Shareholders' Surplus.
5. RELATED PARTY TRANSACTIONS
Reinsurance Assumed from Affiliates
PLH entered into two indemnity reinsurance agreements with CLICO in 1987
whereby PLH assumes 100 percent of the risks reinsured on all structured set-
tlement policies issued during 1987 by CLICO. The agreements were amended in
1988 whereby PLH also assumes 100 percent of the risks reinsured on all struc-
tured settlement, pension buyout, and single premium immediate annuities is-
sued subsequent to 1987 by CLICO. The agreements were also amended in 1988 to
change the agreements from indemnity reinsurance to coinsurance. The agree-
ments were also amended in 1992 whereby CLICO recaptured structured settle-
ments issued in 1991 and in the first five months of 1992.
PLH entered into a reinsurance agreement with CLICO in 1990 on a coinsurance
basis whereby PLH assumes 100 percent of the risk on certain guaranteed in-
vestment contracts issued by CLICO. The agreement was amended in 1996 to pro-
vide CLICO with profit sharing on the assumed business of up to 20 basis
points per year of the account value. The amount of profit sharing paid to
CLICO in 1996 and 1995 was $1,733,000 and $1,589,000, respectively. In addi-
tion, the agreement was amended to provide CLICO with reimbursement of ex-
traordinary expenses related to the assumed policies, including guaranty fund
assessment payments. There were no expense reimbursements made to CLICO in
1996 or 1995.
PLH entered into indemnity reinsurance agreements with PSI in 1987 whereby
PLH assumed 100 percent of the risks reinsured on all structured settlement
contracts issued during 1987. The agreements were amended in 1988 whereby PLH
also assumed 100 percent of the risks reinsured on all structured settlement,
pension buyout and single premium immediate annuities issued subsequent to
1987. The agreements were also amended in 1988 to change the agreements from
indemnity reinsurance to coinsurance.
25
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
PLH entered into a reinsurance agreement with PSI in 1996 on a coinsurance
basis whereby PLH assumed 100 percent of the risk on certain guaranteed in-
vestment contracts issued by PSI. The agreement provides PSI with profit shar-
ing on the assumed business of up to 20 basis points of account value. The
amount of profit sharing paid to PSI in 1996 was $164,000.
Effective June 30, 1995, PLH entered into a coinsurance agreement with PSI
whereby PLH assumed 100 percent of the risk of business reinsured by PSI from
North American Security Life (NASL). This agreement coinsures existing depos-
its of NASL's fixed account portion of their variable annuity product busi-
ness. In addition, this agreement included prospective coinsurance of future
sales of NASL's fixed account portion of their variable annuity product. This
agreement also contained a provision which provides PSI with profit sharing on
the assumed business of up to 10 basis points of account value. The profit
sharing amount paid by PLH to PSI in 1996 was $574,000. No amounts were paid
in 1995. Under the initial agreement, PLH received cash and invested assets in
exchange for its coinsurance of $724,700,000 of fixed annuity deposits. As of
November 1, 1996, the coinsurance agreement was amended whereby PSI recaptured
the fixed annuity deposits from PLH. The recapture resulted in PLH transfer-
ring to PSI liabilities previously reinsured related to the business of
$575,450,000 and assets of $577,000,000. The $1,550,000 difference represents
the net expense incurred by PLH.
26
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
The following table summarizes the amounts reflected in the statements of
operations from reinsurance assumed by PLH from CLICO and PSI:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------------------------------------
ASSUMED FROM
--------------------------------------------------------
CLICO CLICO PSI PSI PSI TOTAL
ITEM ASSUMED (ANNUITIES) (GIC'S) (ANNUITIES) (GIC'S) (NASL) ASSUMED
- ------------ ----------- ---------- ----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Premium income.......... $(105,397) $ (105,319) $ (307) $(244,197) $(126,736) $(581,946)
Life, annuity and other
benefits............... 62,884 152,409 9,871 5,120 306,302 536,586
Commissions and
expenses............... 4,304 -- 3 -- (2,338) 1,969
Change in reserves or
policyholder contract
deposits............... 112,743 38,934 (789) 243,558 (149,236) 245,210
<CAPTION>
EXPENSE (REVENUE) FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------------
ASSUMED FROM
--------------------------------------------------------
CLICO CLICO PSI PSI PSI TOTAL
ITEM ASSUMED (ANNUITIES) (GIC'S) (ANNUITIES) (GIC'S) (NASL) ASSUMED
- ------------ ----------- ---------- ----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Premium income.......... $ (66,091) $ (289,272) $ (1,231) $ -- $ (72,339) $(428,933)
Life, annuity and other
benefits............... 61,307 276,351 8,007 -- 98,519 444,184
Commissions and
expenses............... 5,291 350 10 -- 1,441 7,092
Change in reserves or
policyholder contract
deposits............... 71,056 104,113 116 -- 1,715 177,000
</TABLE>
PLH entered into two separate reinsurance agreements with two affiliates,
Academy Life Insurance Company (ALIC) and Pension Life Insurance Company of
America (PLIC), in 1992, both on a coinsurance funds withheld basis. On April
1, 1993, the reinsurance agreements were amended from a coinsurance funds
withheld basis to a coinsurance nonfunds withheld basis. The following table
summarizes the amounts reflected in the statements of operations from these
reinsurance agreements:
27
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
-------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Premium income assumed........................ $ (49,974) $ (49,325)
Life, accident and health and other benefit
assumed...................................... 32,048 31,421
Commissions and expense allowances on
reinsurance assumed.......................... 11,547 12,349
Change in policy reserves assumed............. 3,983 1,588
Other income assumed.......................... (165) (1,030)
</TABLE>
Reinsurance Ceded to Affiliate
Prior to April 1, 1995, PLH was a party to various reinsurance agreements
with VLIC whereby PLH ceded pro rata portions of certain blocks of its life
and health business on a coinsurance basis. The agreements were amended effec-
tive April 1, 1995 whereby PLH recaptured the business. This recapture re-
sulted in PLH recording $159,169,000 of liabilities related to the business
and $92,497,000 of assets supporting the block of business. The $66,672,000
difference between the liabilities and assets recorded represents a recapture
fee incurred by PLH to compensate VLIC for the present value of the future
cash flows on the business recaptured by PLH.
The following table summarizes the amounts reflected in the statements of
operations from these reinsurance agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
-------------------------
1996 1995
--------------------------
(IN THOUSANDS)
<S> <C> <C>
Premium income ceded.......................... $ -- $ 15,049
Life, accident and health and other benefit
assumed...................................... -- (10,582)
Commissions and expense allowances on reinsur-
ance ceded................................... -- (6,029)
Reinsurance recapture fee..................... -- 66,672
</TABLE>
28
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Other Agreements and Transactions with Related Parties
PLH has entered into agreements with its affiliates whereby PLH performs ad-
ministrative services, management support services, and marketing services for
its affiliates. PLH, as compensation, receives an amount equal to the actual
cost of providing such services. This cost is allocated on a pro rata basis to
each affiliate receiving these services. Amounts received were $70,000,000 in
1996 and $68,000,000 in 1995. Such amounts are classified as reductions of
general insurance and other expenses in the accompanying statements of opera-
tions.
PLH entered into a revolving credit note with Providian on April 8, 1996,
whereby PLH can borrow from Providian up to $35,000,000. Interest is computed
monthly at a rate designated in the note. No borrowings were made during the
year under this arrangement.
On November 1, 1996, PLH entered into a revolving credit note with FPLH
whereby FPLH can borrow from PLH up to $5,000,000. The note is a demand note
expiring November 1, 1997 with interest payable at the prime rate. No
borrowings were made during the year under this arrangement.
PLH participates in various benefit plans sponsored by Providian and the re-
lated costs allocated to PLH are not significant.
PLH has 2,290,000 shares of redeemable preferred stock outstanding, all of
which are owned by CLLP. The preferred stock has a par value of $11 per share
and a liquidation value of $240 per share. CLLP is entitled to receive a cumu-
lative dividend equal to 8 1/2 percent per annum of the liquidation value of
the preferred stock. PLH may redeem all or any portion of the preferred stock
at the liquidation value commencing December 18, 2008.
During 1996, PLH paid ordinary cash dividends of $53,871,000 ($46,716,000 to
CLLP and $7,155,000 to its common stock shareholders). Also during 1996, PLH
paid an extraordinary cash dividend of $71,129,000 to its common stock share-
holders. No dividends were paid in 1995.
29
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
On December 23, 1996, PLH made a capital contribution of its home office
data center with a book value of $4,657,000 to VLIC.
On December 13, 1995, PLH redeemed 1,000 shares of its common stock held by
VLIC for $4,000,000.
Providian provides general management, advisory, legal and other general
services to PLH. Providian Capital Management, Inc. an affiliate, provides in-
vestment management services to PLH along with marketing and administrative
services for PLH's accumulation business.
6. REINSURANCE
Certain premiums and benefits are assumed from and ceded to nonaffiliated
insurance companies under various reinsurance agreements. The ceded reinsur-
ance agreements provide PLH with increased capacity to write larger risks.
PLH's assumed and ceded reinsurance agreements with affiliated and
nonaffiliated insurance companies reduced (increased) certain items in the ac-
companying financial statements by the following amounts:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSUMED:
Policy and contract liabilities*...................... $3,040,667 $3,153,667
Claim reserves*....................................... 13,796 11,512
Advance premiums*..................................... 928 921
Unearned premium reserves*............................ 7,273 8,114
CEDED:
Benefits paid or provided............................. 1,512 12,679
Commissions and expense allowances on reinsurance
ceded................................................ (1,123) (7,164)
Other incomereserves on ceded business................ 39 1,305
Policy and contract liabilities*...................... 1,412 2,682
Claim reserves*....................................... 392 469
Advance premiums*..................................... 10 11
Unearned premium reserves*............................ 35 19
</TABLE>
- --------
* At year end.
30
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. REINSURANCE (CONTINUED)
Amounts payable or recoverable for reinsurance on paid or unpaid life and
health claims are not subject to periodic or maximum limits. At December 31,
1996, PLH reinsurance recoverables are not material and no individual rein-
surer owed PLH an amount equal to or greater than 3% of PLH's surplus.
For all longduration contracts, the effect of reinsurance on life and annu-
ity premiums earned in 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
PREMIUMS EARNED PREMIUMS EARNED
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Direct..................................... $162,087 $138,553
Assumed.................................... 180,812 140,739
Ceded...................................... 187 (15,270)
-------- --------
Net........................................ $343,086 $264,020
======== ========
</TABLE>
PLH remains obligated for amounts ceded in the event that the reinsurers do
not meet their obligations.
For all short-duration contracts, the effect of all reinsurance agreements
on accident and health premiums written and earned in 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
1996 1995
PREMIUMS PREMIUMS
------------------ ------------------
WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct............................... $ 92,721 $ 92,721 $101,495 $101,495
Assumed.............................. 63,960 63,960 62,661 62,661
Ceded................................ (1,688) (1,688) (3,160) (3,160)
-------- -------- -------- --------
Net.................................. $154,993 $154,993 $160,996 $160,996
======== ======== ======== ========
</TABLE>
31
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. LIFE AND ANNUITY RESERVES AND DEPOSIT FUND LIABILITIES
The withdrawal provisions of PLH's annuity reserves and deposit fund liabil-
ities at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
---------- -------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment):
With market value adjustment........................... $1,531,616 18.7%
At book value less surrender charge.................... 553,381 6.7%
At market value........................................ 2,410,266 29.3%
---------- ------
4,495,263 54.7%
Subject to discretionary withdrawal (without adjustment)
at book value with minimal or no charge or adjustment... 1,818,986 22.1%
Not subject to discretionary withdrawal.................. 1,906,536 23.2%
---------- ------
Total annuity reserves and deposit fund liabilities
before reinsurance...................................... 8,220,785 100.0%
======
Less reinsurance......................................... --
----------
Net annuity reserves and deposit fund liabilities*....... $8,220,785
==========
</TABLE>
- --------
* Includes $2,411,476,000 of annuities reported in PLH's separate account
liabilities.
The above amount subject to discretionary withdrawal with market value ad-
justment includes approximately $880,000,000 at December 31, 1996 of floating
rate GIC liabilities with credited rates that vary in response to changes in
stipulated indexes and which self-adjust in response to market changes making
their market value and book value essentially equal.
As of December 31, 1996, PLH had $131,437,500 of insurance in force for
which the gross premiums were less than the net premiums according to the
standard of valuation set by the State of Missouri.
32
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. SEPARATE ACCOUNTS
Separate accounts held by PLH represent funds held for individual policy-
holders. The separate accounts do not have any minimum guarantees and the in-
vestment risks associated with market value changes are borne entirely by the
policyholder. Information regarding the separate accounts of PLH as of and for
the year ended December 31, 1996 is as follows:
<TABLE>
<CAPTION>
NONINDEXED
GUARANTEED NON-
MORE THAN 4% GUARANTEED TOTAL
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Premiums, deposits and other
considerations......................... $ 6,468 $ 580,536 $ 587,004
======== ========== ==========
Separate account liabilities*........... $199,480 $2,231,028 $2,430,508
======== ========== ==========
Reserves for separate accounts by
withdrawal characteristics:
Subject to discretionary withdrawal
(with adjustment):
With market value adjustment........ $199,480 $ -- $ 199,480
At market value..................... -- 2,231,028 2,231,028
-------- ---------- ----------
Total separate account liabilities...... $199,480 $2,231,028 $2,430,508
======== ========== ==========
</TABLE>
- --------
* Separate account liabilities are exclusive of $3,004,000 which represents
amounts due from the general account net of other amounts payable as of De-
cember 31, 1996.
33
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of the amounts transferred to and from PLH's separate ac-
counts for the year ended December 31, 1996 is presented below (in thousands):
<TABLE>
<S> <C>
Transfers as reported in the Summary of Operations of
PLH's Separate Accounts Annual Statement:
Transfers to separate accounts................................ $ 587,137
Transfers from separate accounts.............................. (163,117)
---------
Net transfers to separate accounts.............................. 424,020
---------
Reconciling adjustments:
Fees paid to external fund manager............................ 2,171
Transfers to modified separate account........................ (391)
---------
1,780
---------
Transfers as reported in the Summary of Operations of
PLH's Life, Accident & Health Annual Statement................. $ 425,800
=========
</TABLE>
9. DEFERRED AND UNCOLLECTED PREMIUMS
Deferred and uncollected life insurance premiums and annuity considerations
as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
TYPE GROSS LOADING NET OF LOADING
---- ------- ------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Ordinary new................................ $ 2,932 $ 2,100 $ 832
Ordinary renewal............................ 18,361 5,206 13,155
------- ------- -------
Total ordinary............................ 21,293 7,306 13,987
------- ------- -------
Group new business.......................... 2,772 1,634 1,138
Group renewal............................... 41,535 10,628 30,907
------- ------- -------
Total group............................... 44,307 12,262 32,045
------- ------- -------
Total....................................... $65,600 $19,568 $46,032
======= ======= =======
</TABLE>
34
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. STATUTORY RESTRICTIONS ON DIVIDENDS
PLH is subject to limitations, imposed by the State of Missouri, on the pay-
ment of dividends to its parent company. Generally, dividends during any year
may not be paid, without prior regulatory approval, in excess of the greater
of (1) 10 percent of PLH's statutory capital and surplus as of the preceding
December 31, or (2) PLH's statutory net income for the preceding year. Subject
to availability of unassigned surplus at the time of such dividend, the maxi-
mum payment which may be made in 1997, without prior regulatory approval, is
$109,677,000.
11. CONTINGENCIES
In the ordinary course of business, PLH is a defendant in litigation princi-
pally involving insurance policy claims for damages, including compensatory
and punitive damages. In the opinion of management, the outcome of such liti-
gation will not result in a loss which would be material to PLH's financial
position or results of operations.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating fair value
disclosures for the following financial instruments:
Bonds, Preferred Stocks and Common Stocks
The fair values of bonds, preferred stocks and common stocks are gener-
ally based on published quotations of the SVO of the NAIC. However, for
certain investments, the SVO does not provide a value and PLH uses either
admitted asset investment amounts (i.e., statement values) as allowed by
the NAIC, values provided by outside broker confirmations or internally
calculated estimates. The fair values of PLH's bonds, preferred stocks and
common stocks are disclosed in Note 2.
Mortgage Loans
The fair values of commercial, residential and farm mortgage loans are
estimated utilizing discounted cash flow calculations, using current market
interest rates for loans with similar terms to borrowers of similar credit
quality.
35
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Policy Loans
The carrying values of policy loans reported in the accompanying balance
sheets approximate their fair values.
Cash, Short-Term Investments and Other Invested Assets
The carrying values of cash, short-term investments and other invested
assets reported in the accompanying balance sheets approximate their fair
values.
Investment Contracts
The fair values of floating rate guaranteed investment contracts approxi-
mate their carrying values. The fair values of fixed rate guaranteed in-
vestment contracts and investment-type fixed annuity contracts are esti-
mated using discounted cash flow calculations, based on current interest
rates for similar contracts. The fair values of variable annuity contracts
are equal to their carrying values.
Derivative Financial Instruments
The fair values for derivative financial instruments are based on pricing
models or formulas using current assumptions.
The carrying values and fair values of PLH's investments in commercial, res-
idential and farm mortgage loans are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1996
Commercial mortgages................................. $1,565,534 $1,584,662
Residential mortgages................................ 1,035,648 1,043,983
Farm mortgages....................................... 50,429 49,055
---------- ----------
$2,651,611 $2,677,700
========== ==========
DECEMBER 31, 1995
Commercial mortgages................................. $1,495,755 $1,527,424
Residential mortgages................................ 1,261,136 1,267,627
---------- ----------
$2,756,891 $2,795,051
========== ==========
</TABLE>
36
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and fair values of PLH's interest rate swap and forward-
rate agreements are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1996
Interest rate swaps...................................... $ -- $ 21,178
Forwards................................................. 210 210
----- --------
$ 210 $ 21,388
===== ========
DECEMBER 31, 1995
Interest rate swaps...................................... $ -- $ 51,021
Forwards................................................. 519 519
----- --------
$ 519 $ 51,540
===== ========
</TABLE>
The carrying values and fair values of PLH's liabilities for investment-type
contracts are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1996
Fixed annuity contracts............................. $3,050,018 $3,097,631
Guaranteed investment contracts..................... 1,961,549 2,034,047
Variable annuity contracts *........................ 2,430,508 2,430,508
---------- ----------
$7,442,075 $7,562,186
========== ==========
DECEMBER 31, 1995
Fixed annuity contracts............................. $3,409,887 $3,543,841
Guaranteed investment contracts..................... 1,519,204 1,546,248
Variable annuity contracts *........................ 1,729,032 1,729,032
---------- ----------
$6,658,123 $6,819,121
========== ==========
</TABLE>
- --------
* Included in PLH's separate account liabilities.
37
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The fair values for PLH's insurance contracts other than investment contracts
are not required to be disclosed. However, the fair values of liabilities under
all insurance contracts are taken into consideration in PLH's overall manage-
ment of interest rate risk, such that PLH's exposure to changing interest rates
is minimized through the matching of investment maturities with amounts due un-
der insurance contracts.
38
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
Part A None
Part B Audited Financial Statements
Providian Life & Health Insurance Company Separate Account IV
Years ended December 31, 1996 and 1995 with Report of Independent Au-
ditors
Audited Financial Statements--Statutory-Basis
Providian Life & Health Insurance Company
Years ended December 31, 1996 and 1995 with Report of Independent Au-
ditors
Part C None
(B) EXHIBITS
(1) Resolution of the Board of Directors of National Home Life Assurance
Company ("National Home") authorizing establishment of the Separate Ac-
count./5/
(2)Not Applicable.
(3)Not Applicable.
(4)Form of variable annuity contract/6/
(5)Form of application/6/
(6) (a) Articles of Incorporation of National Home/2/
(b) Amendment to Articles of Incorporation of National Home/3/
(c) Amended and Restated Articles of Incorporation of National Home/4/
(7)Not applicable.
(8)(a) Participation Agreement for the Vanguard Variable Insurance Fund/7/
(b) First Amendment to Participation, Market Consulting and Administra-
tion Agreement/8/
(c) Administration Agreement/6/
(9)(a) Opinion and Consent of Counsel/1/
(b) Consent of Counsel/1/
(10)Consent of Independent Auditors/1/
(11) No financial statements are omitted from item 23.
(12) Not applicable.
(13) Performance computation/8/
(14) Not applicable.
- --------
/1/Filed herewith.
/2/Incorporated by reference from the initial Registration Statement of the
Providian Life & Health Insurance Company Separate Account II, File No. 33-
7033.
/3/Incorporated by reference from Post-Effective Amendment No. 3 to the Regis-
tration Statement of Providian Life & Health Insurance Company Separate Ac-
count II, File No. 33-7033.
/4/Incorporated by reference from Post-Effective Amendment No. 5 to the Regis-
tration Statement of the Providian Life & Health Insurance Company Separate
Account II, File No. 33-7033.
/5/Incorporated by reference from the initial Registration Statement of the
Providian Life & Health Insurance Company Separate Account IV, File No. 33-
36073.
/6/Incorporated by reference from Pre-Effective Amendment No. 1 to the Regis-
tration Statement of the Providian Life & Health Insurance Company Separate
Account IV, File No. 33-36073.
/7/Incorporated by reference from Post-Effective Amendment No.1 to the Regis-
tration Statement of Providian Life & Health Insurance Company Separate Ac-
count IV, File No. 33-36073.
/8/Incorporated by reference from Post-Effective Amendment No. 6 to Registra-
tion Statement of Providian Life & Health Insurance Company Separate Account
IV, File No. 33-36073.
C-1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH DEPOSITOR
------------------ ---------------------
<S> <C>
Bart Herbert, Jr. ............... President
Carol E. Ballentine.............. Senior Vice President
Edward A. Biemer................. Senior Vice President
Dennis E. Brady.................. Senior Vice President, Treasurer, and
Senior Financial Officer
Kevin P. McGlynn................. Senior Vice President
Martin Renninger................. Senior Vice President
G. Douglas Mangum, Jr. .......... Senior Vice President
John C. Prestwood, Jr. .......... Vice President and Actuary
Thomas Nesspor................... Vice President
Carolyn M. Johnson............... Vice President
Brian Alford..................... Vice President
Douglas A. Sarcia................ Vice President
Nancy B. Schuckert............... Senior Vice President
Joseph D. Strenk................. Vice President
Julie S. Congdon................. Senior Vice President and General Counsel
Charles N. Coatsworth............ Vice President
William J. Kline................. Vice President/Underwriting
Michael F. Lane.................. Vice President
Susan Martin..................... Vice President, Secretary and Associate
General Counsel
G. Eric O'Brien.................. Vice President
Harold W. Peterson, Jr. ......... Vice President
Frank J. Rosa.................... Vice President
Oris Stuart, III................. Vice President
Nathan C. Anguiano............... Vice President
Thomas P. Bowie.................. Senior Vice President
Michele M. Coan.................. Vice President
Gregory J. Garvin................ Vice President
John A. Mazzuca.................. Vice President
Robin M. Morgan.................. Vice President
Daniel H. Odum................... Vice President
Ellen S. Rosen................... Vice President and Associate General Counsel
Janice L. Weaver................. Vice President
Geralyn Barbato.................. Assistant Vice President
Janice Boehmler.................. Assistant Vice President
Mary Ellen Fahringer............. Assistant Vice President
Harvey Waite..................... Assistant Vice President
Michael A. Cioffi................ Assistant Vice President and Qualified Actuary
Patricia A. Lukacs............... Assistant Vice President
Elaine J. Robinson............... Assistant Treasurer
Paul J. Lukacs................... Assistant Controller
Joseph C. Noone.................. Assistant Controller
Karen Fleming.................... Vice President
George E. Claiborne, Jr. ........ Second Vice President
Cindy L. Chanley................. Second Vice President
</TABLE>
C-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH DEPOSITOR
------------------ ---------------------
<S> <C>
Terri L. Allen.................... Second Vice President/Investments
Lisa M. Longino................... Second Vice President/Investments
Kirk W. Buese..................... Second Vice President/Investments
William S. Cook................... Second Vice President/Investments
Deborah A. Dias................... Second Vice President/Investments
Eric B. Goodman................... Second Vice President/Investments
James Grant....................... Second Vice President/Investments
Frederick B. Howard............... Second Vice President/Investments
Tim Kuussalo...................... Second Vice President/Investments
Mark E. Lamb...................... Second Vice President/Investments
James D. MacKinnon................ Second Vice President/Investments
Douglas H. Owen, Jr. ............. Second Vice President/Investments
Jon L. Skaggs..................... Second Vice President/Investments
Robert A. Smedley................. Second Vice President/Investments
Bradley L. Stofferahn............. Second Vice President/Investments
Randall K. Waddell................ Second Vice President/Investments
Tammy C. Wetterer................. Second Vice President/Investments
Michael B. Simpson................ Second Vice President/Investments
C. Ray Brewer..................... Second Vice President/Investments
Joel L. Coleman................... Second Vice President/Investments
Lee W. Eastland................... Second Vice President/Investments
Claudia Jackson................... Second Vice President/Investments
Jeffrey T. McGlaun................ Second Vice President/Investments
Paul D. Mier...................... Second Vice President/Investments
J. Alan Schork.................... Second Vice President/Investments
Elizabeth A. Smedley.............. Second Vice President/Investments
Marcia Weiland.................... Second Vice President/Investments
Gregory Lee Chapman............... Second Vice President/Special Markets
Gregory M. Curry.................. Second Vice President/Special Markets
Julie Ford........................ Second Vice President/Special Markets
Kim A. Bivins..................... Second Vice President/Special Markets
Lisa L. Patterson................. Second Vice President/Special Markets
Rhonda L. Pritchett............... Second Vice President/Special Markets
Harvey Willis..................... Second Vice President/Special Markets
Thomas E. Walsh................... Second Vice President/Special Markets
Edward P. Reiter.................. Second Vice President and Assistant Secretary
Kimberly A. Scouller.............. Assistant Secretary
L. Jude Clark..................... Assistant Secretary
Colleen S. Lyons.................. Assistant Secretary
John E. Reesor.................... Assistant Secretary
Mary Ann Malinyak................. Assistant Secretary
R. Michael Slaven................. Assistant Secretary
Carolyn Wetterer.................. Assistant Secretary
James T. Bradley.................. Product Compliance Officer
Nancy E. Partington............... Advertising Compliance Officer
</TABLE>
C-3
<PAGE>
DIRECTORS:
David E. Brady Martin Renninger
Julie S. Congdon Ellen S. Rosen
Susan E. Martin Kevin P. McGlynn
John C. Prestwood, Jr. Thomas B. Nesspor
Bart Herbert, Jr. Craig D. Vermie
- --------
* The business address of each director and officer of Providian Life & Health
Insurance Company is 20 Moores Road, Frazer, Pennsylvania 19355 or 400 West
Market Street, Louisville, Kentucky 40202.
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
The Depositor, Providian Life & Health Insurance Company, is directly and in-
directly wholly owned by Providian Corporation. The Registrant is a segregated
asset account of Providian Life & Health Insurance Company.
The following chart indicates the persons controlled by or under common con-
trol with Providian Life & Health Insurance Company.
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ------------------------------------ ---------------- ------------------------------- ---------------------------------
<S> <C> <C> <C>
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advsiors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
American Forum For Fiscal Iowa 100% AUSA Holding Co. Marketing
Fitness, Inc.
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ------------------------------------ ---------------- ------------------------------- ---------------------------------
<S> <C> <C> <C>
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc. Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
Cedar Income Fund, Ltd. Iowa 16.73% PFL Life Ins. Co. Real estate investment trust
3.77% Bankers United Life
Assurance Company
3.38% Life Investors Co. of
America
1.97% AEGON USA Realty
Advisors, Inc.
.18% First AUSA Life Ins. Co.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AUSA Institutional Marketing Minnesota 100% AUSA Holding Co. Insurance agency
Group, Inc.
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
ISI Insurance Agency, Inc. California 100% Intersecurities, Inc. Insurance agency
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency Inc. Insurance Agency
of Massachusetts, Inc.
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. - Holding company services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group,
Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group,
Inc.
Mariner Agency of Hawaii, Inc. Hawaii 100% Associated Mariner Insurance agency
Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp Michigan 100% Associated Mariner Mortgage origination
Financial Group,
Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX II Series Fund Massachusetts Various Mutual fund
IDEX Fund Massachusetts Various Mutual fund
IDEX Fund 3 Massachusetts Various Mutual fund
First AUSA Life Insurance Co. Maryland 100% AEGON USA, Inc. Insurance holding company
AUSA Life Insurance Co. Inc. New York 100% First AUSA Life Insurance
Insurance Company
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ------------------------------------ ---------------- ------------------------------- ---------------------------------
<S> <C> <C> <C>
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Ohio 100% First AUSA Life Ins. Co. Insurance
Co. of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Florida 100% Western Reserve Life Registered investment advisor
Management, Inc. Assurance Co. of Ohio
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
Monumental General Casualty Co. Maryland 100% Monumental Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% Monumental Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% Monumental Life Insurance
Insurance Company
The Whitestone Corporation Maryland 100% Monumental Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Providian Corporation Delaware 100% AEGON N.V. Holding company
Providian Series Trust Massachusetts N/A Mutual fund
Providian Agency Group, Inc. Kentucky 100% Providian Corp. Provider of services to ins. cos.
Benefit Plans, Inc. Delaware 100% Providian Corp. TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Providian Assignment Corp. Kentucky 100% Providian Corp. Administrator of structured
settlements
Providian Financial Services, Inc. Pennsylvania 100% Providian Corp. Financial services
Providian Securities Corporation Pennsylvania 100% Providian Financial Broker-Dealer
Services, Inc.
Providian Investment Delaware 100% Providian Corp. Registered investment advisor
Advisors, Inc.
Providian Capital Delaware 100% Providian Corp. Provider of investment,
Management, Inc. marketing and admin. services
to ins. cos.
Providian Capital Management Delaware 100% Providian Capital Real estate and mortgage
Real Estate Services, Inc. Management, Inc. holding company
Capital Real Estate Delaware 100% Providian Corp. Furniture and equiment lessor
Development Corporation
Capital General Development Delaware 100% Providian Corp. Holding company
Corporation
Commonwealth Life Kentucky 100% Capital General Insurance company
Insurance Company Development Corporation
Agency Holding I, Inc. Delaware 100%Commonwealth Life Investment subsidiary
Insurance Company
Agency Investments I, Inc. Delaware 100% Agency Holding I, Inc. Investment subsidiary
Commonwealth Agency, Inc. Kentucky 100%Commonwealth Life Special purpose subsidiary
Insurance Company
Camden Asset Management L.P. California 51%Commonwealth Life Investment entity
Insurance Company
Peoples Security Life North Carolina 100% Capital General Insurance company
Insurance Company Development Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- --------------------------------- ---------------- ------------------------------ ---------------------------------
<S> <C> <C> <C>
Agency Holding II, Inc. Delaware 100% Peoples Security Life Investment subsidiary
Insurance Company
Agency Investments II, Inc. Delaware 100% Agency Holding II, Inc. Investment subsidiary
Agency Holding III, Inc. Delaware 100% Peoples Security Life Investment subsidiary
Insurance Company
Agency Investments III, Inc. Delaware 100% Agency Holding III, Inc. Investment subsidiary
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Capital Security Life Ins. Co. North Carolina 100% Capital General Insurance company
Development Corporation
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% Providian Corp. Real estate holdings
Capital Broadway Corporation Kentucky 100% Providian Corp. Real estate holdings
Southlife, Inc. Tennessee 100% Providian Corp. Investment subsidiary
Providian Insurance Agency, Inc. Pennsylvania 100% Providian Corp. Provider of management
support services
National Home Life Corporation Pennsylvania 100% Providian Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Providian Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Association Consultants, Inc. Illinois 100% Providian Insurance TPA license-holder
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Providian Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Providian Insurance Administator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Providian Insurance Special-purpose subsidiary
Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Providian Insurance Special-purpose subsidiary
Agency, Inc.
Providian Auto and Home Missouri 100% Providian Corp. Insurance company
Insurance Company
Academy Insurance Group, Inc. Delaware 100% Providian Auto and Holding company
Home Insurance Company
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
AMPAC, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
AMPAC Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100% Unicom Administrative Provider of admin. servcies
Services, GmbH Services, Inc.
Providian Property and Casualty Kentucky 100% Providian Auto and Insurance company
Insurance Company Home Insurance Company
Providian Fire Insurance Co. Kentucky 100% Providian Property Insurance company
and Casualty Insurance Co.
Capital Liberty, L.P. Delaware 78% Commonwealth Life Holding Company
Insurance Company
19% Peoples Security Life
Insurance Company
3% Providian Corp.
Providian LLC Turks & 100% Providian Corp. Special-purpose subsidiary
Caicos Islands
Providian Life and Health Missouri 4% Providian Corp. Insurance company
Insurance Company 15% Peoples Security Life
Insurance Company
20% Capital Liberty, L.P.
61% Commonwealth Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Providian Life and Insurance company
Health Insurance Company
Providian Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
First Providian Life and New York 100% Veterans Life Ins. Co. Insurance Company
Health Insurance Company
</TABLE>
<PAGE>
All subsidiaries are included in the consolidated financial statements for
Providian Corporation.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of July 31, 1997 there were 36,612 owners of Contracts.
ITEM 28. INDEMNIFICATION
Item 28 is incorporated by reference from the Post-Effective Amendment No. 6
to the Registration Statement of the National Home Life Assurance Company Sep-
arate Account II, File No. 33-7037.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) None.
(b) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the physical possession of The Continuum Company, Inc., Kansas City, Mis-
souri and The Vanguard Group, Inc., Valley Forge, Pennsylvania.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted;
(b) The Registrant hereby undertakes to include either (1) as part of any ap-
plication to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the pro-
spectus that the applicant can remove to send for a Statement of Additional
Information;
(c) The Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) The Registrant hereby represents that no Director has resigned due to a
disagreement with the Registrant or any matter relating to the Separate Ac-
count's operations, policies or practices.
(e) Providian Life & Health Insurance Company represents that the fees and
charges deducted under the contracts in this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by Providian Life & Health In-
surance Company.
C-8
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THE REGISTRANT, PROVIDIAN LIFE & HEALTH INSURANCE COMPANY SEPARATE
ACCOUNT IV, CERTIFIES THAT IT MEETS THE REQUIREMENTS OF SECURITIES ACT RULE
485 FOR EFFECTIVENESS HEREOF AND HAS DULY CAUSED THIS AMENDED REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF IN THE TOWN OF VALLEY FORGE AND
COMMONWEALTH OF PENNSYLVANIA ON THE 16TH DAY OF SEPTEMBER, 1997.
Providian Life & Health Insurance
Company Separate Account IV
(Registrant)
By: Providian Life & Health
Insurance Company
/s/ Bart Herbert, Jr.*
By: _________________________________
BART HERBERT, JR., PRESIDENT
Providian Life & Health Insurance
Company (Depositor)
/s/ Bart Herbert, Jr.*
By: _________________________________
BART HERBERT, JR., PRESIDENT
/s/ R. Michael Slaven
*By: ________________________________
R. MICHAEL SLAVEN
ATTORNEY-IN-FACT
C-9
<PAGE>
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS AMENDED REGISTRATION STATEMENT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
SIGNATURE TITLE DATE
/s/ Dennis E. Brady* Director, Senior September 16, 1997
- ------------------------------------ Vice President,
DENNIS E. BRADY Treasurer and
Senior Financial
Officer (Chief
Accounting
Officer)
/s/ Julie S. Congdon* Director, Senior Vice September 16, 1997
- ------------------------------------ President, and
JULIE S. CONGDON General Counsel
/s/ Susan E. Martin* Director, Vice September 16, 1997
- ------------------------------------ President, Secretary
SUSAN E. MARTIN and Associate
General Counsel
/s/ Kevin P. McGlynn* Director, and September 16, 1997
- ------------------------------------ Senior Vice
KEVIN P. MCGLYNN President
/s/ John C. Prestwood, Jr.* Director, Vice September 16, 1997
- ------------------------------------ President and
JOHN C. PRESTWOOD, JR. Actuary
/s/ Thomas B. Nesspor* Director and Vice September 16, 1997
- ------------------------------------ President
THOMAS B. NESSPOR
/s/ Martin Renninger* Director and Senior September 16, 1997
- ------------------------------------ Vice President
MARTIN RENNINGER
/s/ Ellen S. Rosen* Director, Vice September 16, 1997
- ------------------------------------ President and
ELLEN S. ROSEN Associate General
Counsel
/s/ Bart Herbert, Jr.* Director and September 16, 1997
- ------------------------------------ President
BART HERBERT, JR.
/s/ Craig D. Vermie* Director September 16, 1997
- ------------------------------------
CRAIG D. VERMIE
/s/ R. Michael Slaven
*By: _______________________________
R. MICHAEL SLAVEN
ATTORNEY-IN-FACT
C-10
<PAGE>
EXHIBIT 9(A)
September 15, 1997
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
ADMINISTRATIVE OFFICES
20 MOORES ROAD
FRAZER, PENNSYLVANIA 19355
RE: PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT IV--OPINION AND CONSENT
To Whom It May Concern:
This opinion and consent is furnished in connection with the filing of Post-
Effective Amendment No. 8 (the "Amendment") to the Registration Statement on
Form N-4, File No. 33-36073 (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Act"), of Providian Life & Health Insurance
Company Separate Account IV ("Separate Account IV"). Separate Account IV
receives and invests premiums allocated to it under a flexible premium
multi-funded annuity contract (the "Annuity Contract"). The Annuity Contract is
offered in the manner described in the prospectus contained in the Registration
Statement (the "Prospectus").
In my capacity as legal adviser to Providian Life & Health Insurance Company,
I hereby confirm the establishment of Separate Account IV pursuant to a resolu-
tion adopted by the Board of Directors of Providian Life & Health Insurance
Company for a separate account for assets applicable to the Annuity Contract,
pursuant to the provisions of Section 376.309 of the Missouri Insurance Stat-
utes. In addition, I have made such examination of the law in addition to con-
sultation with outside counsel and have examined such corporate records and
such other documents as I consider appropriate as a basis for the opinion here-
inafter expressed. On the basis of such examination, it is my professional
opinion that:
1. Providian Life & Health Insurance Company is a corporation duly orga-
nized and validly existing under the laws of the State of Missouri.
2. Separate Account IV is an account established and maintained by
Providian Life & Health Insurance Company pursuant to the laws of the State
of Missouri, under which income, capital gains and capital losses incurred
on the assets of Separate Account IV are credited to or charged against the
assets of Separate Account IV, without regard to the income, capital gains
or capital losses arising out of any other business which Providian Life &
Health Insurance Company may conduct.
3. Assets allocated to Separate Account IV will be owned by Providian Life
& Health Insurance Company. The assets in Separate Account IV attributable
to the Annuity Contract generally are not chargeable with liabilities aris-
ing out of any other business which Providian Life & Health Insurance Com-
pany may conduct. The assets of Separate Account IV are available to cover
the general liabilities of Providian Life & Health Insurance Company only to
the extent that the assets of Separate Account IV exceed the liabilities
arising under the Annuity Contracts.
4. The Annuity Contracts have been duly authorized by Providian Life &
Health Insurance Company and, when sold in jurisdictions authorizing such
sales, in accordance with the Registration Statement, will constitute val-
idly issued and binding obligations of Providian Life & Health Insurance
Company in accordance with their terms.
<PAGE>
Providian Life and Health Insurance Company
Separate Account IV
September 15, 1997
5. Owners of the Annuity Contracts as such, will not be subject to any de-
ductions, charges or assessments imposed by Providian Life and Health Insur-
ance Company other than those provided in the Annuity Contract.
I hereby consent to the use of this opinion as an exhibit to the Amendment and
to the reference to my name under the heading "Legal Matters" in the Prospec-
tus.
Very truly yours,
/s/ Kimberly A. Scouller
Assistant General Counsel
<PAGE>
EXHIBIT 9(b)
JORDEN BURT BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400-EAST
WASHINGTON, D.C. 20007-0805
(202) 965-8100
TELECOPIER (202) 965-8104
September 15, 1997
PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
20 MOORES ROAD
FRAZER, PENNSYLVANIA 19355
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 8 to the
Registration Statement on Form N-4 (file No. 33-36073) filed by Providian Life &
Health Insurance Company and Providian Life & Health Insurance Company Separate
Account IV with the Securities and Exchange Commission under the Securities Act
of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/ Jorden Burt Berenson & Johnson LLP
Jorden Burt Berenson & Johnson LLP
<PAGE>
Exhibit No. (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Auditors" and to the
use of our reports dated April 25, 1997, with respect to the financial
statements of Providian Life and Health Insurance Company Separate Account IV
and the statutory-basis financial statements of Providian Life and Health
Insurance Company in Post-Effective Amendment No. 8 to the Registration
Statement (Form N-4 No. 33-36073) and related Prospectus of Providian Life
and Health Insurance Company Separate Account IV.
/s/ Ernst & Young LLP
Louisville, Kentucky
September 12, 1997
