<PAGE>
PEOPLES BENEFIT LIFE INSURANCE COMPANY
SEPARATE ACCOUNT IV
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
VANGUARD VARIABLE ANNUITY PLAN CONTRACT
OFFERED BY
PEOPLES BENEFIT LIFE 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 Peoples Benefit Life Insurance Company (the "Company").
You may obtain a copy of the Prospectus dated April 30, 1999 by calling 800-522-
5555, or writing to Vanguard Variable Annuity Plan Center, P.O. Box 1103, Valley
Forge, PA 19482-1103. 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.
April 30, 1999; Revised July 14, 1999
<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
Subaccount Inception Dates B-4
Money Market Subaccount Yields B-5
30-Day Yield for Non-Money Market Subaccounts B-5
Standardized Average Annual Total Return B-6
ADDITIONAL PERFORMANCE MEASURES B-8
Non-Standardized Cumulative Total Return and Non-Standardized Average
Annual Total Return B-8
Non-Standardized Total Return Year-to-Date B-9
Non-Standardized One Year Return B-9
SAFEKEEPING OF ACCOUNT ASSETS B-10
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS B-10
THE COMPANY B-10
TAXES B-10
STATE REGULATION OF THE COMPANY B-11
RECORDS AND REPORTS B-11
LEGAL PROCEEDINGS B-11
OTHER INFORMATION B-11
FINANCIAL STATEMENTS B-11
</TABLE>
B-1
<PAGE>
THE CONTRACT
In order to supplement the description in the Prospectus, the following
provides 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
Accumulated Value (or the portion of the Accumulated Value used to provide
variable payments) is applied under the Annuity Table contained in the Contract
corresponding 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 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 multiplied 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 (0.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in determining the
Annuity 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:
Rate For
Net Assets* All Assets
----------- ----------
Up to $2.5 Billion....................................0.30%
Over $2.5 Billion and Up To $5 Billion................0.28%
Over $5 Billion.......................................0.27%
*Based on combined net assets of the Separate Account and Separate Account
B of AUSA Life Insurance Company, Inc.
(c) a daily charge for the cost of administering the Contract corresponding to
an annual charge of 0.10%.
(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
Massachusetts 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 gender.
B-2
<PAGE>
Exchanges
After the Annuity Date, if a Variable Annuity Option has been chosen, the
Contract Owner may, by making written request or by calling the Vanguard
Variable Annuity Plan 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 payment 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 Contract Owner is limited to two substantive exchanges (at least
30 days apart) from a Portfolio (except the Money Market Portfolio) in any
Contract Year, and the value of the Annuity Units exchanged must provide a
monthly Annuity Payment of at least $100 at the time of the exchange.
"Substantive" means a dollar amount that The Vanguard Group, Inc. determines, in
its sole discretion, could adversely affect management of the Fund.
Exchanges will be made using the Annuity Unit value for the Subaccounts on the
date the request for exchange is received by the Company. On the exchange 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 existing 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
Annuitant. 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
designated. 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
Contracts will not share in the profits or surplus earnings of the Company.
Misstatement of Age or Sex
Depending on the state of issue of a Contract, the Company may require proof
of age and/or 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 correction 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 responsible
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 interest 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 settlement
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
information from a Payee until such information is received in a form
satisfactory 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
report 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
"Misstatement of Age or Sex" or "Misstatement of Age" provision.
Ownership
The Owner of the Contract on the Contract Date is the Annuitant, unless
otherwise 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 Owner(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 Beneficiary 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 living.
DISTRIBUTION OF THE CONTRACT
The Vanguard Group, Inc. through its wholly-owned subsidiary, Vanguard
Marketing Corporation, is the principal distributor of the Contracts. For these
services, the Fund paid a fee of 0.02% of the Fund's average net assets for its
1998 fiscal year. This fee is guaranteed not to exceed 0.20% of the Fund's
average month-end net assets. A complete description of these services is found
in the section of the Fund's Prospectus entitled "The Portfolios and Vanguard"
and in the Fund's Statement of Additional Information. The principal business
address for The Vanguard Group, Inc. is The Vanguard Variable Annuity Plan
Center, 100 Vanguard Boulevard, Malvern, PA 19355.
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.
Subaccount Inception Dates
Where applicable, the following Subaccount inception dates are used in the
calculation of performance figures: April 29, 1991 for the Equity Index
Subaccount and the High-Grade Bond Subaccount; May 2, 1991 for the Money Market
Subaccount; May 23, 1991 for the Balanced Subaccount; June 7, 1993 for the
Equity Income Subaccount and the Growth Subaccount; June 3, 1994 for the
International Subaccount; and June 3, 1996 for the High Yield Bond Subaccount
and the Small Company Growth Subaccount. As of December 31, 1998, the Short-Term
Corporate Subaccount, the Diversified Value Subaccount, the Mid-Cap Index
Subaccount, and the REIT Index Subaccount had not commenced operations.
B-4
<PAGE>
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
investment 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.
Calculation of "effective yield" begins with the same "base period return"
used in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [(Base Period Return +1)/365/7/] -1
The yield of the Money Market Subaccount for the 7-day period ended December
31, 1998, was 4.71%.
30-Day Yield for Non-Money Market Subaccounts
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed 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]
-----
c x d
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 declared 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, 1998, is
set forth below. Yields are calculated daily for each Subaccount. Premiums and
discounts on asset-backed securities are not amortized.
High-Grade Bond Subaccount............................5.15%
High Yield Bond Subaccount............................8.53%
Short-Term Corporate Subaccount.......................---
Balanced Subaccount...................................3.08%
Diversified Value Subaccount..........................---
Equity Income Subaccount..............................2.02%
Equity Index Subaccount...............................0.81%
Growth Subaccount.....................................0.22%
Mid-Cap Index Subaccount..............................---
REIT Index Subaccount.................................---
Small Company Growth Subaccount.......................0.17%
International Subaccount..............................---
B-5
<PAGE>
Standardized Average Annual Total Return
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
produced the cash redemption value over the stated period had the performance
remained 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
period. It reflects the deduction of all applicable sales loads or sales
charges, the Annual Contract Maintenance Fee and all other Portfolio, Separate
Account and Contract level charges except Premium Taxes, if any. In calculating
performance information, 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 average 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.
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.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, three, five and 10 years (or, if
less, up to the life of the Subaccount) and year-to-date, six months to date,
month-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] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000 Purchase
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, 1998.
<TABLE>
<CAPTION>
Since
Year Year Ended Subaccount
1 year 3 years 5 years to date 12/31/98 Inception*
------ ------- ------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Money Market Subaccount.......... 5.10% 5.04% 4.81% 5.10% 5.10% 4.26%
High-Grade Bond Subaccount....... 8.17% 6.70% 6.66% 8.17% 8.17% 7.56%
High Yield Bond Subaccount....... 3.62% --- --- 3.62% 3.62% 9.29%
Short-Term Corporate Subaccount.. --- --- --- --- --- ---
Balanced Subaccount.............. 11.61% 16.53% 15.55% 11.61% 11.61% 13.75%
Diversified Value Subaccount..... --- --- --- --- --- ---
Equity Income Subaccount......... 17.15% 22.78% 20.21% 17.15% 17.15% 18.99%
Equity Index Subaccount.......... 28.19% 27.60% 23.34% 28.19% 28.19% 18.78%
Growth Subaccount................ 40.19% 30.69% 26.07% 40.19% 40.19% 24.35%
Mid-Cap Index Subaccount......... --- --- --- --- --- ---
REIT Index Subaccount............ --- --- --- --- --- ---
Small Company Growth Subaccount.. 7.48% --- --- 7.48% 7.48% 6.59%
International Subaccount......... 18.35% 11.57% --- 18.35% 18.35% 11.12%
</TABLE>
_____________
*Refer to "Subaccount Inception Dates" under the "PERFORMANCE INFORMATION"
section of this Statement of Additional Information.
B-6
<PAGE>
<TABLE>
<CAPTION>
Month- Quarter- 6 Months-
to-date to-date to-date
-------- --------- ----------
<S> <C> <C> <C>
Money Market Subaccount.......... 0.40% 1.21% 2.50%
High-Grade Bond Subaccount....... 0.33% 0.23% 4.32%
High Yield Bond Subaccount....... 0.00% 2.44% -0.42%
Short-Term Corporate Subaccount.. --- --- ---
Balanced Subaccount.............. -0.01% 7.36% 2.74%
Diversified Value Subaccount..... --- --- ---
Equity Income Subaccount......... 1.83% 12.08% 7.77%
Equity Index Subaccount.......... 5.77% 21.30% 9.17%
Growth Subaccount................ 8.60% 24.80% 13.25%
Mid-Cap Index Subaccount......... --- --- ---
REIT Index Subaccount............ --- --- ---
Small Company Growth Subaccount.. 8.60% 23.97% 3.90%
International Subaccount......... 3.50% 17.72% 3.56%
</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
promotional literature, to: (i) the Standard & Poor's 500 Stock Index ("S&P
500"), Dow Jones Industrial Average ("DJIA"), Donoghue Money Market
Institutional 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
administrative and management costs and expenses.
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 Peoples Benefit Life Insurance Company as determined by
A.M. Best, Moody's, Standard & Poor's or other recognized rating services.
Reports and promotional literature may also contain other information 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, publications, or other persons
who rank separate accounts or other investment products on overall performance
or other criteria, and (ii) the effect of tax deferred compounding on a
Subaccount's investment returns, or returns in general, 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 investment 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.
B-7
<PAGE>
ADDITIONAL PERFORMANCE MEASURES
Non-Standardized Cumulative Total Return and Non-Standardized Average Annual
Total Return
The Company may show Non-Standardized Cumulative 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 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 Cumulative Total Return and
the Non-Standardized Average Annual Total Return are effective annual rates of
return and are equal. For periods greater than one year, the Non-Standardized
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 Cumulative Total Return and Non-Standardized 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 Cumulative Total Return
For Period Ending 12/31/98
<TABLE>
<CAPTION>
Since
Month- Quarter- 6 Month- One Subaccount
to-date to-date to-date Year Inception*
-------- --------- -------- ------ -----------
<S> <C> <C> <C> <C> <C>
Money Market Subaccount.. 0.40% 1.21% 2.51% 5.11% 38.09%
High-Grade Bond
Subaccount.............. 0.33% 0.24% 4.32% 8.18% 75.46%
High Yield Bond
Subaccount.............. 0.00% 2.44% -0.42% 3.63% 25.76%
Short-Term Corporate
Subaccount.............. --- --- --- --- ---
Balanced Subaccount...... -0.01% 7.36% 2.74% 11.62% 167.29%
Diversified Value
Subaccount.............. --- --- --- --- ---
Equity Income Subaccount. 1.83% 12.08% 7.78% 17.16% 163.65%
Equity Index Subaccount.. 5.77% 21.31% 9.17% 28.21% 275.65%
Growth Subaccount........ 8.60% 24.80% 13.26% 40.20% 236.97%
Mid-Cap Index Subaccount. --- --- --- --- ---
REIT Index Subaccount.... --- --- --- --- ---
Small Company Growth
Subaccount.............. 8.60% 23.98% 3.91% 7.49% 17.92%
International Subaccount. 3.50% 17.72% 3.56% 18.36% 62.26%
</TABLE>
_____________
*Refer to "Subaccount Inception Dates" under the "PERFORMANCE INFORMATION"
section of this Statement of Additional Information.
Non-Standardized Average Annual Total Returns
For Period Ending 12/31/98
<TABLE>
<CAPTION>
Since
Subaccount
One Year Three Year Five Year Inception*
--------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Money Market Subaccount..... 5.11% 5.06% 4.83% 4.30%
High-Grade Bond Subaccount.. 8.18% 6.72% 6.69% 7.60%
High Yield Bond Subaccount.. 3.63% --- --- 9.30%
Short-Term Corporate
Subaccount................. --- --- --- ---
Balanced Subaccount......... 11.62% 16.55% 15.58% 13.79%
Diversified Value Subaccount --- --- --- ---
Equity Income Subaccount.... 17.16% 22.79% 20.24% 19.02%
Equity Index Subaccount..... 28.21% 27.62% 23.37% 18.82%
Growth Subaccount........... 40.20% 30.71% 26.10% 24.39%
</TABLE>
B-8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Mid-Cap Index Subaccount.... --- --- --- ---
REIT Index Subaccount....... --- --- --- ---
Small Company Growth
Subaccount................. 7.49% --- --- 6.61%
International Subaccount.... 18.36% 11.59% --- 11.15%
</TABLE>
_____________
*Refer to "Subaccount Inception Dates" under the "PERFORMANCE INFORMATION"
section of this Statement of Additional Information.
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.
Total Return YTD
as of 12/31/98
--------------
Money Market Subaccount....................... 5.11%
High-Grade Bond Subaccount.................... 8.18%
High Yield Bond Subaccount.................... 3.63%
Short-Term Corporate Subaccount............... ---
Balanced Subaccount........................... 11.62%
Diversified Value Subaccount.................. ---
Equity Income Subaccount...................... 17.16%
Equity Index Subaccount....................... 28.21%
Growth Subaccount............................. 40.20%
Mid-Cap Index Subaccount...................... ---
REIT Index Subaccount......................... ---
Small Company Growth Subaccount............... 7.49%
International Subaccount...................... 18.36%
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>
1998 1997 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Subaccount.......... 5.11% 5.10% 4.97% 5.34% 3.66% 2.47% 3.10%
High-Grade Bond Subaccount....... 8.18% 8.98% 3.08% 17.47% -3.19% 8.92% 5.70%
High Yield Bond Subaccount....... 3.63% 11.63% --- --- --- --- ---
Short-Term Corporate Subaccount.. --- --- --- --- --- --- ---
Balanced Subaccount.............. 11.62% 22.60% 15.68% 31.76% -1.13% 12.56% 6.59%
Diversified Value Subaccount..... --- --- --- --- --- --- ---
Equity Income Subaccount......... 17.16% 33.78% 18.13% 38.19% -1.76% --- ---
Equity Index Subaccount.......... 28.21% 32.59% 22.27% 36.67% 0.61% 9.18% 6.77%
Growth Subaccount................ 40.20% 26.12% 26.29% 37.62% 3.74% --- ---
Mid-Cap Index Subaccount......... --- --- --- --- --- --- ---
</TABLE>
B-9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
REIT Index Subaccount............ --- --- --- --- --- --- ---
Small Company Growth Subaccount.. 7.49% 12.80% --- --- --- --- ---
International Subaccount......... 18.36% 2.92% 14.05% 15.31% --- --- ---
</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 redemptions
of eligible Portfolio shares held by each of the Subaccounts.
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company or other insurance
companies. Although the Company believes it is unlikely, a material conflict
could arise between the interests of the Separate Account and one or more of the
other participating separate accounts. In the event a material conflict does
exist, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Fund if required by law, to
resolve the matter.
THE COMPANY
The Company is a direct subsidiary of Monumental Life Insurance Company,
Capital Liberty, L.P., and Commonwealth General Corporation, which,
respectively, have 76.3%, 20%, and 3.7% interests in the Company. Monumental
Life Insurance Company is a direct subsidiary of Capital General Development
Corporation and First AUSA Life Insurance Company, which, respectively, have
73.23% and 26.77% interests in Monumental Life Insurance Company. Monumental
Life Insurance Company and Commonwealth General Corporation have, respectively,
99% and 1% interests in Capital Liberty, L.P. Commonwealth General Corporation
is a wholly owned subsidiary of AEGON USA, Inc. Capital General Development
Corporation is a wholly owned subsidiary of Commonwealth General Corporation.
First AUSA Life Insurance Company is a wholly owned subsidiary of AEGON USA,
Inc.
The Company is a wholly owned indirect subsidiary of AEGON USA, Inc., which in
turn is wholly owned by AEGON U.S. Holding Corporation, 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 53.63% interest in AEGON N.V.
The Company was formerly known as National Home Life Assurance Company, until
July 1, 1995, when it changed its name to Providian Life and Health Insurance
Company. On October 1, 1998, it changed its name to Peoples Benefit Life
Insurance Company.
TAXES
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Internal Revenue Code. Since the Separate Account is not a separate
entity from the Company and its operations form a part of the Company, the
Separate Account will not be taxed separately as a "regulated investment
company" under Subchapter M of the Internal Revenue Code. Investment income and
realized capital gains on the assets of the Separate Account are reinvested and
taken into account in determining the Accumulated 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.
Under present laws, the Company will incur state or local taxes in several
states. If there is a change in state or local tax laws, the Company may make
charges for such taxes. At present time, 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 income tax liability attributable to investment income or
capital gains retained as part of the reserves under the Contracts. Based upon
these expectations, no charge is
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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 the Company
incurs. This might become necessary if the Company ultimately determines that
its tax treatment is not what it currently believes it to be, if there are
changes in the federal income tax treatment of annuities at the corporate level,
or if there is a change in the Company's tax status. If 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.
STATE REGULATION OF THE COMPANY
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
Insurance. An annual statement in a prescribed form is filed with Missouri
Commissioner of Insurance 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
Commission of Insurance examines the financial condition of the Company,
including the liabilities and reserves of the Separate Account
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by the Company or by its administrator, The Vanguard Group, Inc. As presently
required by the Investment 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 under 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
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts 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.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The audited financial statements of the subaccounts of the Separate Account
which are available for investment by Vanguard Variable Annuity Plan Contract
Owners for the year ended December 31, 1998, including the Report of Independent
Auditors thereon, are included in this Statement of Additional Information.
The audited statutory-basis financial statements of the Company as of December
31, 1998 and 1997 and for each of the three years in the period ended December
31, 1998, including the Report of Independent Auditors thereon, which are also
included in this Statement of Additional Information, should be distinguished
from the financial statements of subaccounts of the Separate Account which are
available for investment by Vanguard Variable Annuity Plan Contract Owners 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.
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