<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 19, 1997.
REGISTRATION NO. 33-39946
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 7 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 9 [X]
FIRST PROVIDIAN LIFE & HEALTH INSURANCE COMPANY SEPARATE ACCOUNT B
(Exact Name of Registrant)
First Providian Life & Health Insurance Company
(Name of Depositor)
520 Columbia Drive Johnson City, New York 13790
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (607) 772-8750
First 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
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
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.
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<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
Companies......................... First Providian Life & Health
Insurance Company; First
Providian Life & Health Insurance
Company Separate Account B;
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
Information....................... Table of Contents for the
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>
FIRST PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
PROSPECTUS
FOR THE
VANGUARD VARIABLE ANNUITY PLAN CONTRACT
OFFERED BY
FIRST PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
(A NEW YORK STOCK COMPANY)
NOVEMBER __, 1997
The Vanguard Variable Annuity Plan Contract (the "Contract"), offered through
First 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 (20 days for replacement),
during which you may cancel your investment in the Contract.
Your Purchase Payments for the Contract may be allocated among nine
Subaccounts of First Providian Life & Health Insurance Company Separate Account
B (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 the 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>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
HIGHLIGHTS................................................................ 3
Fee Table................................................................. 6
Glossary.................................................................. 8
Condensed Financial Information........................................... 11
Financial Statements...................................................... 11
Yield and Total Return.................................................... 11
The Company and the Separate Account...................................... 12
Vanguard Variable Insurance Fund.......................................... 13
CONTRACT FEATURES......................................................... 15
Free Look Period.......................................................... 15
Contract Application and Purchase Payments................................ 15
Allocation of Purchase Payments........................................... 17
Charges and Deductions.................................................... 17
Accumulated Value......................................................... 19
Dividends and Capital Gains Treatment..................................... 19
Exchanges Among the Portfolios............................................ 19
Full and Partial Withdrawals.............................................. 21
IRS-Required Distributions................................................ 22
Minimum Balance Requirements.............................................. 22
Designation of a Beneficiary.............................................. 22
Death of Annuitant Prior to Annuity Date.................................. 23
Annuity Date.............................................................. 24
Annuity Payment Options................................................... 24
FEDERAL TAX
CONSIDERATIONS.......................................................... 27
General Information....................................................... 31
</TABLE>
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The Contract is only available in the State of New York.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
2
<PAGE>
HIGHLIGHTS
REFER TO THE GLOSSARY (PAGE 8) FOR A DEFINITION OF ALL CAPITALIZED TERMS.
VANGUARD The Contract provides a vehicle for investing on a tax-de-
VARIABLE ANNUITY ferred basis in nine Portfolios offered by The Vanguard
PLAN CONTRACT Group, Inc. Monies may be subsequently withdrawn from the
Contract either as a lump sum or as an annuity income. Be-
cause Accumulated Values and, to the extent Variable Annu-
ity Payments are selected, Annuity Payments depend on the
investment experience of the selected Portfolios, you bear
all investment risk for monies invested under the Contract.
The investment performance of the Portfolios is not guaran-
teed.
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WHO SHOULD The Contract is designed for investors seeking long-term,
INVEST tax-deferred accumulation of funds, generally for retire-
ment but also for other long-term investment purposes. The
tax-deferred feature of the Contract is most attractive to
investors in high federal and state marginal tax brackets
who have exhausted other avenues of tax deferral, such as
"pre-tax" contributions to employer-sponsored retirement or
savings plans. The Contract is intended for long-term in-
vestors.
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INVESTMENT Your investment in the Contract may be allocated among sev-
CHOICES eral Subaccounts of the Separate Account. The Subaccounts
in turn invest exclusively in the nine Portfolios of Van-
guard Variable Insurance Fund. The Fund, a member of The
Vanguard Group of Investment Companies, offers nine Portfo-
lios: the Money Market Portfolio, the High-Grade Bond Port-
folio, the Balanced Portfolio, the Equity Index Portfolio,
the Equity Income Portfolio, the Growth Portfolio, the In-
ternational Portfolio, the HighYield Bond Portfolio and the
Small Company Growth Portfolio. The assets of each Portfo-
lio are separate, and each Portfolio has distinct invest-
ment objectives and policies as described in the accompany-
ing Fund Prospectus. PAGE 13
- --------------------------------------------------------------------------------
FREE LOOK PERIOD The Contract provides a Free Look Period for a minimum of
10 days (20 days for replacement as set forth in your Con-
tract), 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 corresponding
appreciation credited to your account. PAGE 15
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HOW TO INVEST To invest in the Contract, please complete the accompanying
application form. The minimum Initial Purchase Payment is
$5,000; the minimum Portfolio balance is $1,000; and subse-
quent Purchase Payments must be at least $250. You may make
subsequent Purchase Payments at any time before the Con-
tract's Annuity Date, as long as the Annuitant or Joint An-
nuitant specified in the Contract is living. Please note
that when purchasing a Contract, the Annuitant you name,
and the Joint Annuitant if applicable, must be 75 years of
age or less. PAGE 15
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3
<PAGE>
ALLOCATION OF Your Net Purchase Payments are initially allocated to the
PURCHASE Money Market Portfolio when your Contract is issued. Subse-
PAYMENTS quently, at the end of the Free Look Period, and a 5-day
grace period, the then-current Accumulated Value of your
Contract is allocated among the Portfolios of the Fund in
accordance with your application instructions. Requests to
change the allocation of subsequent Net Purchase Payments
may be made in writing or by telephone if you have com-
pleted the Authorization Form. PAGE 17
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CHARGES AND The Contract imposes no sales charges. The costs of the
DEDUCTIONS UNDER Contract include mortality and expense risk charges, main-
THE CONTRACT tenance and administrative charges which cover the cost of
administering the Contract, and management, advisory and
other fees, which reflect the costs of Vanguard Variable
Insurance Fund. There are no charges under the Contract for
withdrawals, although withdrawals made prior to age 59 1/2
may be subject to a 10% penalty tax. PAGE 17
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EXCHANGES You may make exchanges among the Fund's Portfolios subject
to certain restrictions on excess exchange activity. These
restrictions do not apply, however, to non-substantive ex-
changes or to the Money Market Portfolio. No fee is imposed
for exchanges. Exchanges must be for at least $250, or, if
less, for the entire value of the Portfolio from which the
exchange is made. PAGE 19
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FULL AND PARTIAL You may withdraw all or part of the Accumulated Value of
WITHDRAWALS the Contract before the earlier of the Annuity Date or the
Annuitant's death (or the Joint Annuitant's death, if lat-
er). You may establish systematic withdrawals from your
Contract, and receive distributions at regular intervals.
Withdrawals made prior to age 59 1/2 may be subject to a
10% penalty tax. PAGE 21
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DEATH BENEFIT If the Annuitant specified in your Contract dies prior to
the Annuity Date, the Annuitant's named Beneficiary will
receive the Death Benefit under the Contract. The Death
Benefit is the greater of the then-current Accumulated
Value of the Contract or the sum of all Purchase Payments
(less any partial withdrawals). Your Beneficiary may elect
to receive these proceeds as a lump sum or as Annuity
Payments. PAGE 23
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ANNUITY PAYMENT Beginning on the Annuity Date, you may withdraw monies from
OPTIONS the Contract in the form of an annuity income. As the Con-
tract Owner you may elect one of several Annuity Payment
Options. The Options provide a wide range of flexibility in
choosing an annuity payment schedule that meets your par-
ticular needs. Annuity Payments may be received for a des-
ignated period or for life (for either a single or joint
life), with or without a guaranteed number of payments. An-
nuity Payments can be fixed, or can vary with the invest-
ment performance of a Portfolio of the Fund. You may elect
a lump-sum payment prior to the Annuity Date in lieu of An-
nuity Payments. PAGE 24
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4
<PAGE>
CONTRACT AND If you have questions about your Contract, please telephone
POLICYHOLDER the Vanguard Variable Annuity Center (1-800-258-4271).
INFORMATION Please have ready the Contract number and the Contract Own-
er's name when you call. As Contract Owner, you will re-
ceive periodic statements confirming any transactions that
take place, as well as quarterly statements and an Annual
Report.
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5
<PAGE>
FEE TABLE The following table illustrates all expenses that you would
incur as a Contract Owner. The expenses and fees shown are
for the Fund's 1996 fiscal year. The expenses and fees
shown for the High Yield Bond Portfolio and the Small Com-
pany Growth Portfolio are the annualized expenses and fees
incurred since June 3, 1996 to December 31, 1996. The pur-
pose 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 Sepa-
rate Account IV of 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 IV of 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 MARKET BOND BALANCED INDEX INCOME GROWTH INTERNATIONAL GROWTH BOND
OPERATING 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 .16 .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 Plan. Contract Owners may
utilize this service for 24-hour access to Plan Portfolio
information. To access the service you may call Tele-Ac-
count at 1-800-662-6273 (ON-BOARD) and follow the step-by-
step instructions, or speak with a Vanguard associate at 1-
800-522-5555 to request a brochure that explains how to use
the service.
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7
<PAGE>
GLOSSARY ACCUMULATION UNIT--A measure of your ownership interest in
the Contract prior to the Annuity Date. Analogous, though
not identical, to a share owned in a mutual fund account.
ACCUMULATION UNIT VALUE--The value of each Accumulation
Unit which is calculated each Valuation Period. Analogous,
though not identical, to the share price (net asset value)
of a mutual fund.
ACCUMULATED VALUE--The value of all amounts accumulated un-
der the Contract prior to the Annuity Date, equivalent to
the Accumulation Units multiplied by the Accumulation Unit
Value. Analogous to the current market value of a mutual
fund account.
ANNUITANT--The person or persons whose life is used to de-
termine the duration of any Annuity Payments and, subject
to the provision dealing with Joint Annuitants, upon whose
death, prior to the Annuity Date, benefits under the Con-
tract are paid.
ANNUITY DATE--The date on which Annuity Payments begin. The
Annuity Date is always the first day of the month you spec-
ify.
ANNUITY PAYMENT--One of a series of payments made under an
Annuity Payment Option. Annuity Payments are based on the
lifetime or life expectancy of the Annuitant unless, after
the Contract Date, an Annuity Income Option which pays for
a certain period only is elected.
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")--First Providian Life & Health
Insurance Company, a New York 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.
8
<PAGE>
CONTRACT YEAR--A period of 12 months starting with the Con-
tract Date or any Contract Anniversary.
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 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 Portfolio, the International Portfo-
lio, the High Yield Bond Portfolio, and the Small Company
Growth Portfolio. In this Prospectus, Portfolio will also
be used to refer to the Subaccount that invests in the cor-
responding 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.
9
<PAGE>
QUALIFIED CONTRACT--A Contract that qualifies as an indi-
vidual retirement annuity under Section 408(b) of the In-
ternal Revenue Code of 1986, as amended.
SEPARATE ACCOUNT--First Providian Life & Health Insurance
Company Separate Account B. The Separate Account consists
of assets that are segregated by First Providian Life &
Health Insurance Company and invested in the Fund. The Sep-
arate Account is independent of the general assets of the
Company.
SUBACCOUNT--That portion of the Separate Account that in-
vests in shares of the Fund's Portfolios. Each Subaccount
will only invest in a single Portfolio. The investment per-
formance of each Subaccount is linked directly to the in-
vestment performance of one of the nine underlying Portfo-
lios 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 The Accumulation Unit Values and the number of Accumulation
FINANCIAL Units outstanding for each Subaccount in 1992 through 1996
INFORMATION are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD DECEMBER 1, 1992 THROUGH DECEMBER 31, 1996*
---------------------------------------------------------------------
HIGH- HIGH SMALL
MONEY 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*............ 1.061 11.489 11.098 11.596 10.000 10.000 10.000 10.000 10.000
12/31/92............... 1.064 11.656 11.514 12.039 . . . . .
12/31/93............... 1.091 12.514 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:
12/31/92............... 1,660 11 9 33 . . . . .
12/31/93............... 4,079 271 636 440 290 220 . . .
12/31/94............... 5,365 526 745 534 306 457 322 . .
12/31/95............... 9,080 622 766 784 380 620 433 . .
12/31/96............... 13,590 689 852 1,035 525 906 698 253 246
<CAPTION>
(UNITS ARE SHOWN IN
THOUSANDS)
</TABLE>
* Date of commencement of operations for the Money Market Subaccount was
12/1/92, for the High-Grade Bond, Balanced, and Equity Index Subaccounts was
12/16/92, 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 the State of New York on March 23, 1970,
ACCOUNT with administrative offices at 520 Columbia Drive, Johnson
City, New York 13790. The Company is principally engaged in
offering life insurance, annuity contracts, and accident
and health insurance and is admitted to do business in 10
states and the District of Columbia.
FIRST PROVIDIAN As of December 31, 1996, the Company had statutory assets of
LIFE & HEALTH approximately $324 million. The Company is a wholly owned
INSURANCE indirect subsidiary of AEGON International N.V., which
COMPANY conducts substantially all of its operations through sub-
sidiary 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.
------------------------------------------------------------
FIRST PROVIDIAN The Separate Account was established by the Company as a
LIFE & HEALTH separate account under the laws of the State of New York on
INSURANCE November 2, 1987, pursuant to a resolution of the Company's
COMPANY SEPARATE Board of Directors. The Separate Account is a unit invest-
ACCOUNT B 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.
13
<PAGE>
THE EQUITY INCOME PORTFOLIO seeks to provide a high level
of current income by investing principally in dividend-pay-
ing equity securities. Newell Associates serves as this
Portfolio's investment adviser.
THE GROWTH PORTFOLIO seeks to provide long-term capital ap-
preciation. The Portfolio invests primarily in equity secu-
rities of seasoned U.S. companies with above average pros-
pects 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 ALLOCATION OF PUR-
CHASE 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 (20 days for re-
placement as set forth in your Contract). The Contract per-
mits the Contract Owner to cancel the Contract during the
Free Look Period by returning the Contract to the agent,
person or entity from whom it was purchased. The contract
should be returned to Vanguard Variable Annuity Center,
P.O. Box 419812, Kansas City, MO 64141-6812. Withdrawals
are not permitted during the Free Look Period. Upon cancel-
lation, 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 Accumu-
lated Value of the Contract as of the day the Contract is
received by the Company.
- --------------------------------------------------------------------------------
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 Variable Annuity Center. Your Initial
PAYMENTS 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.
15
<PAGE>
Generally, Qualified Contracts may be purchased only in
connection with a "rollover" of funds from another quali-
fied plan or IRA and contain certain other restrictive pro-
visions limiting the timing and amount of payments to and
distributions from the Qualified Contract.
Total Purchase Payments may not exceed $1,000,000 without
prior approval of the Company.
PURCHASING BY CORESTATES BANK N.A.
WIRE ABA 031000011
MONEY SHOULD BE DEPOSIT ACCOUNT NUMBER 1412652296
WIRED TO: FIRST PROVIDIAN LIFE & HEALTH INSURANCE
COMPANY
PLEASE CALL: CONTRACT NUMBER
1-800-258-4271 CONTRACT REGISTRATION
BEFORE WIRING
To assure proper receipt, please be sure your bank includes
the contract number Vanguard has assigned you. For an Ini-
tial Purchase Payment, please complete the Vanguard Vari-
able Annuity Plan Application and mail it to the Vanguard
Variable Annuity Center, P.O. Box 1103, Valley Forge, PA
19482-1103, 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 your application and current contract,
to the Vanguard Variable Annuity Center. As an accommoda-
tion to owners of Vanguard Variable Annuity Plan contracts,
and in accordance with the Code, we will accept, under cer-
tain conditions, the consolidation of two or more Vanguard
Variable Annuity Plan contracts into one. Such exchanges
will be accepted on a case by case basis in order to pro-
vide contract owners with consolidated account reporting.
In addition, if applicable, contract owners will be respon-
sible for only one Annual Contract Maintenance Fee. Under
no circumstances will an exchange of an existing Vanguard
Variable Annuity Plan contract for an identical new Van-
guard Variable Annuity Plan contract be allowed. Special
rules and procedures apply to Code Section 1035 transac-
tions, particularly if the Contract being exchanged was is-
sued prior to August 14, 1982. Prospective Contract Owners
wishing to take advantage of Code Section 1035 should con-
sult 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.
- --------------------------------------------------------------------------------
16
<PAGE>
ALLOCATION OF The Contract Owner specifies on the Contract Application
PURCHASE how Purchase Payments will be allocated. The Contract Owner
PAYMENTS may allocate each Purchase Payment to one or more of the
Portfolios as long as such portions are whole number per-
centages and any allocation made is at least 10% and at
least $1,000.
Allocation instructions for future Purchase Payments may be
changed by the Contract Owner by sending a written notice
to the Vanguard Variable Annuity Center. You may complete a
Telephone Allocation Authorization Form to establish an op-
tion that allows you to provide allocation instructions by
telephone. This option includes the ability to change your
investment by eliminating a Contract Portfolio from your
allocations or by adding a new Contract Portfolio to your
list. Please note that you must maintain a minimum of
$1,000 in each Portfolio to which you have allocated as-
sets.
During the Free Look Period (which is assumed for this pur-
pose to be 10 days after the issuance of the Contract), the
Initial Net Purchase Payment and additional Purchase Pay-
ments received during the Free Look Period will be allo-
cated 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 days), the Accu-
mulated Value will then be allocated among the Portfolios
in accordance with the Contract Owner's instructions.
- --------------------------------------------------------------------------------
CHARGES AND The projected expenses for the Contract are substantially
DEDUCTIONS below the costs of other variable annuity contracts. For
example, based on a $25,000 contract the average expense
ratio of other variable annuity contracts was 2.10% as of
December 31, 1996, compared to .81% for the Vanguard Vari-
able Annuity Contract (source for competitors' data: Morn-
ingstar 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 IV
of 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.
17
<PAGE>
The mortality risk borne by the Company under the Con-
tracts, where one of the life Annuity Payment Options was
selected, is to make monthly annuity payments (determined
in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all
Annuitants may live. We also assume mortality risk as a re-
sult of our guarantee of a minimum Death Benefit in the
event the Annuitant dies prior to the Annuity Date.
The expense risk borne by the Company under the Contracts
is 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 administering 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 to the Company 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 Contracts valued at $25,000 or more as of the
last Business Day of the year will not be assessed the $25
maintenance fee for the following year.
------------------------------------------------------------
TAXES Under present laws, the Company will not incur New York
state or local taxes. If there is a change in state or lo-
cal tax laws, charges for such taxes may be made. The Com-
pany does not expect to incur any federal income tax lia-
bility attributable to investment income or capital gains
retained as part of the reserves under the Contracts. (See
"Federal Tax Considerations," page 27.) Based upon these
expectations, no charge is currently being made to the Sep-
arate 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
18
<PAGE>
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 Statement of Additional Infor-
mation.
- --------------------------------------------------------------------------------
ACCUMULATED At the commencement of the Contract, the Accumulated Value
VALUE equals the Initial Net Purchase Payment. Thereafter, on any
Business Day the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: i) any
Additional Net Purchase Payments received by the Company
and ii) any increase in the Accumulated Value due to in-
vestment results of the selected Portfolio(s) that occur
during the Valuation Period; and reduced by: i) any de-
crease in the Accumulated Value due to investment results
of the selected Portfolio(s), ii) a daily charge to cover
the mortality and expense risks assumed by the Company,
iii) any charge to cover the cost of administering the Con-
tract, iv) any partial withdrawals, and v) Premium Taxes,
if any, that occur during the Valuation Period.
The Accumulated Value is expected to change from Valuation
Period to Valuation Period, reflecting the investment expe-
rience of the selected Portfolios of the Fund as well as
the daily deduction of charges. When your Net Purchase Pay-
ments are allocated to a selected Portfolio, they result in
a particular number of Accumulation Units being credited to
your Contract. The number of Accumulation Units credited is
determined by dividing the dollar amount allocated to each
Portfolio by the Accumulation Unit Value for that Portfolio
as of the end of the Valuation Period in which the payment
is received. The Accumulation Unit Value varies each Valua-
tion Period (i.e., each day that there is trading on the
New York Stock Exchange) with the net rate of return of the
Portfolio. The net rate of return reflects the investment
performance of the Portfolio for the Valuation Period and
is net of asset charges to the Portfolio.
- --------------------------------------------------------------------------------
DIVIDENDS AND All dividends and capital gains earned will be reinvested
CAPITAL GAINS and reflected in the Accumulation Unit Value. Only in this
TREATMENT way can these earnings remain tax deferred.
- --------------------------------------------------------------------------------
EXCHANGES AMONG Should your investment goals change, you may exchange the
THE PORTFOLIOS Accumulated Value among the Portfolios of the Fund. Re-
quests for exchanges received by mail or 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
19
<PAGE>
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 Telephone Exchange Form. The
Company, the Fund, and Vanguard shall not be responsible
for the authenticity of exchange instructions received by
telephone. Reasonable procedures will be undertaken to con-
firm that instructions communicated by telephone are genu-
ine. Prior to the acceptance 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 veri-
fied 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 confirmation statement. The Compa-
ny, 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 ex-
change 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.
- --------------------------------------------------------------------------------
20
<PAGE>
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 Variable Annuity Center. Full or partial with-
drawals may only be made before the Annuity Date and all
partial withdrawal requests must be for at least $250. (See
"Federal Tax Considerations," page 27.)
You can make a withdrawal by writing to the Variable Annu-
ity Center. Your written request should include your Con-
tract number, social security number, withdrawal amount,
the signature of all owners, and federal tax withholding
election (if no withholding election is chosen, we will be
required to withhold 10%). Your proceeds will normally be
distributed within two Business Days after the receipt of
the request but in no event will it be later than seven
calendar days, subject to postponement in certain circum-
stances (see "Deferment of Payment" page 26).
------------------------------------------------------------
SYSTEMATIC You may establish an automatic withdrawal of a specific
WITHDRAWALS amount, a percentage of the balance, or accumulated earn-
ings from your Contract, and receive distributions on a
monthly, quarterly, semiannual, or annual schedule. Once
established, a check will be sent to your Contract address,
bank account or as you direct. Please note that each sys-
tematic withdrawal, 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.
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
27.)
21
<PAGE>
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 the date of death or
be paid under an annuity option under which payments will
begin within one year of the Contract Owner's death and
will be made for the life of the "Owner's Designated Bene-
ficiary" or for a period not extending beyond the life ex-
pectancy of that beneficiary. The Owner's Designated Bene-
ficiary is the person to whom Ownership of the Contract
passes by reason of death.
If any portion of the Contract Owner's interest is payable
to (or for the benefit of) the surviving spouse of the Con-
tract Owner, the Contract may be continued with the surviv-
ing spouse as the new Contract Owner.
- --------------------------------------------------------------------------------
MINIMUM BALANCE Due to the relatively high cost of maintaining smaller ac-
REQUIREMENTS counts, the Company reserves the right to transfer the bal-
ance in any Portfolio account that falls below $1,000, due
to a partial withdrawal or exchange, to the remaining Port-
folios held under that Contract, on a pro rata basis. In
the event that the entire value of the Contract falls below
$1,000, you may be notified that the Accumulated Value of
your account is below the Contract's minimum requirement.
You would then be allowed 60 days to make an additional in-
vestment before the account is liquidated. Proceeds would
be promptly paid to the Contract Owner. The full proceeds
would be taxable as a withdrawal. A full withdrawal will
result in an automatic termination of the Contract.
- --------------------------------------------------------------------------------
DESIGNATION OF A The Contract Owner may select one or more Beneficiaries,
BENEFICIARY who would receive benefits upon the death of the Annuitant,
and name them in the application. The beneficiary(ies), as
named on the application, will serve as the beneficiary
designation. Thereafter, while the Annuitant or Joint Annu-
itant is living, the Contract Owner may change the Benefi-
ciary by written notice. Such change will take effect on
the date the notice is signed by the Contract Owner but
will not affect any payment made or other action taken be-
fore the Company acknowledges the notice. The Contract
Owner may also make the designation of Beneficiary irrevo-
cable by sending written notice to, and obtaining approval
from, the Company. Changes in the Beneficiary may then be
made only with the consent of the designated irrevocable
Beneficiary.
22
<PAGE>
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 payment. The Beneficiary
may receive the amount payable in a lump sum cash benefit
or under one of the Annuity Payment Options.
A lump sum cash benefit will equal the greater of: (a) the
Accumulated Value as of the date of due Proof of Death and
proof that the Annuitant died prior to the Annuity Date or
(b) the sum of Purchase Payments less the sum of all par-
tial withdrawals and premium taxes. An Annuity Payment will
be based on the greater of: (a) the Accumulated Value on
the Annuity Date elected by the Beneficiary and approved by
the Company or (b) the sum of Purchase Payments less the
sum of all partial withdrawals and premium taxes. The Con-
tract Owner may elect an Annuity Payment Option for the
Beneficiary or, if no such election was made by the Con-
tract Owner and a cash benefit has not been paid, the Bene-
ficiary 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 Distributors," page 22 and "Distribution-at-Death
Rules," page 29.
- --------------------------------------------------------------------------------
23
<PAGE>
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 Annuity will begin receiving Annu-
ity 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 First
Providian Life & Health Insurance Company. If you do not
wish to receive your payments on an annuity basis, you may
take a lump sum payment at anytime before the annuity date.
The lump sum value is equal to the Accumulation Value. The
following Annuity Payment Options are available under the
Contract:
LIFE ANNUITY--Available as either a Fixed or Variable Op-
tion. Monthly Annuity Payments are paid for the life of an
Annuitant, ceasing with the last Annuity Payment due prior
to the Annuitant's death.
JOINT AND LAST SURVIVOR ANNUITY--Available as either a
Fixed or Variable Option. Monthly Annuity Payments are paid
for the life of two Annuitants and thereafter for the life
of the survivor, ceasing with the last Annuity Payment due
prior to the survivor's death.
LIFE ANNUITY WITH PERIOD CERTAIN--Available as either a
Fixed or Variable Option. Monthly Annuity Payments are paid
for the life of an Annuitant, with a Period Certain of not
less than 120, 180, or 240 months, as elected.
INSTALLMENT OR UNIT REFUND LIFE ANNUITY--Available as ei-
ther a Fixed (Installment Refund) or Variable (Unit Refund)
Option. Monthly Annuity Payments are paid for the life of
an Annuitant, with a Period Certain determined by dividing
the Accumulated Value by the First Annuity Payment.
24
<PAGE>
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, and the Annuity Pay-
ment Option elected by the Contract Owner. The minimum pay-
ment, however, is $100. If the Accumulated Value is less
than $5,000, 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 assignee; or (2) any other than a natural per-
son, 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 Variable Annuity Option may be chosen from
among those made available by the Company per each Portfo-
lio. The annuity tables, which are contained in the Con-
tract and are used to calculate the value of Variable Annu-
ity 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 as-
sumed interest rate, the Variable Annuity Payments will in-
crease; conversely, they will decrease if the actual expe-
rience 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.
25
<PAGE>
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 Variable Annuity Center
(1-800-258-4271). Because excessive exchanges can poten-
tially disrupt the management of the Portfolios and in-
crease 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 of any cash withdrawal or lump-sum death benefit
PAYMENT due from the Separate Account will occur within seven days
from the date the election becomes effective, except that
the Company may be permitted to defer such payment if: (1)
the New York Stock Exchange is closed for other than usual
weekends or holidays, or trading on the Exchange is other-
wise restricted; or (2) an emergency exists as defined by
the SEC, or the SEC requires that trading be restricted; or
(3) the SEC permits a delay for the protection of Contract
Owners.
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26
<PAGE>
FEDERAL TAX CONSIDERATIONS
INTRODUCTION The ultimate effect of federal income taxes on the amounts
paid for the Contract, on the investment returns on assets
held under a Contract, on Annuity Payments, and on the eco-
nomic benefits to the Contract Owner, Annuitant or Benefi-
ciary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals con-
cerned. The following discussion is general in nature and
is not intended as tax advice. You should consult a tax ad-
viser regarding the tax consequences of purchasing a Con-
tract. No attempt is made to consider any applicable state
or other tax laws. Moreover, the discussion 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 continuation of the fed-
eral income tax laws, the Treasury Regulations, or the cur-
rent 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 Pro-
spectus 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 deter-
27
<PAGE>
mined by a formula that establishes a specific dollar
amount of each payment that is not taxed. The dollar amount
is determined by dividing the investment in the Contract by
the total number of expected periodic payments. The remain-
ing 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.
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 non-resident 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 Section
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 Accu-
28
<PAGE>
mulation 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 after the Annu-
ity Date and before the entire interest in the Contract has
been distributed, the remaining portion of such interest
must be distributed at least as quickly as the method in
effect on the Contract Owner's death; and (b) if any Con-
tract Owner dies before the Annuity Date, the entire inter-
est must generally be distributed within five years after
the date of death. To the extent such interest is payable
to a Designated Beneficiary, however, such interest may be
annuitized over the life of that Designated Beneficiary or
over a period not extending beyond the life expectancy of
that Beneficiary, so long as distributions commence within
one year after the Contract Owner's death. If the Desig-
nated Beneficiary is the spouse of the Contract Owner, the
Contract (together with the deferred tax on the accrued and
future income thereunder) may be continued unchanged in the
name of the spouse as Contract Owner. The term Designated
Beneficiary means the natural person named by the Contract
Owner as a beneficiary and to whom ownership of the Con-
tract passes by reason of the Contract Owner's death.
If the Contract Owner is not an individual, 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 distribution 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 benefi-
29
<PAGE>
cial owners are employees, then the Contract is not treated
as being held by a non-natural person. The rule also does
not apply where the Contract is acquired 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 immediate annuity as defined
under the Code.
------------------------------------------------------------
ASSIGNMENTS A transfer of ownership of a Contract, a collateral assign-
ment or the designation of an Annuitant or other Benefi-
ciary who is not also the Contract Owner may result in tax
consequences to the Contract Owner, Annuitant or Benefi-
ciary that are not discussed herein. A Contract Owner con-
templating such a transfer or assignment of a Contract
should contact a tax adviser with respect to the potential
tax effects of such a transaction.
------------------------------------------------------------
MULTIPLE All non-qualified annuity contracts issued by the same com-
CONTRACTS RULE pany (or affiliate) to the same Contract Owner during any
calendar year are to be aggregated and treated as one con-
tract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received un-
der any Contract prior to the Contract's Annuity Date, such
as a partial withdrawal, will be taxable (and possibly sub-
ject to the 10% penalty tax) to the extent of the combined
income in all such contracts. The Treasury Department has
specific authority to issue regulations that prevent the
avoidance of Code Section 72(e) through the serial purchase
of annuity Contracts or otherwise. In addition, there may
be other situations in which the Treasury may conclude that
it would be appropriate to aggregate two or more Contracts
purchased by the same Contract Owner. 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
30
<PAGE>
concerning the extent to which Contract Owners may direct
their investments to particular divisions of a separate ac-
count. 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 rul-
ings would provide. It is possible that when the regula-
tions or rulings are issued, the Contracts may need to be
modified in order to remain in compliance. For these rea-
sons, the Company reserves the right to modify the Con-
tracts, as necessary, to prevent the Contract Owner from
being considered the owner of assets of the Separate Ac-
count.
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.
------------------------------------------------------------
31
<PAGE>
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 1940 Act or other
applicable law. To the extent required by law, the Portfo-
lio shares held in the Separate Account will be voted by
the Company at shareholder meetings of the Fund in accor-
dance with instructions received from persons having voting
interests in the corresponding Portfolio. Fund shares as to
which no timely instructions are received or shares held by
the Company as to which Contract Owners have no beneficial
interest will be voted in proportion to the voting instruc-
tions that are received with respect to all Contracts par-
ticipating in that Portfolio. Voting instructions to ab-
stain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
The number of votes that are available to a Contract Owner
will be calculated separately for each Portfolio of the
Separate Account. That number will be determined by apply-
ing his or her percentage interest, if any, in a particular
Portfolio to the total number of votes attributable to the
Portfolio.
Prior to the Annuity Date, the Contract Owner holds a vot-
ing interest in each Portfolio to which the Accumulated
Value is allocated. The number of votes which are available
to a Contract Owner will be determined by dividing the Ac-
cumulated Value attributable to a Portfolio by the net as-
set value per share of the applicable Portfolio. After the
Annuity Date, the person receiving Annuity Payments under
any variable annuity option has the voting interest. The
number of votes after the Annuity Date will be determined
by dividing the reserve for such Contract allocated to the
Portfolio by the net asset value per share of the corre-
sponding Portfolio. After the Annuity Date, the votes at-
tributable to a Contract decrease as the reserves allocated
to the Portfolio decrease. In determining the number of
votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available
will be determined as of the date coincident with the date
established by that Portfolio for determining shareholders
eligible to vote at the meeting of the Fund. Voting in-
structions will be solicited by written communication prior
to such meeting in accordance with procedures established
by the Fund.
------------------------------------------------------------
AUDITORS Ernst & Young LLP serves as independent auditors for the
Separate Account and the Company and will audit their fi-
nancial statements annually.
------------------------------------------------------------
32
<PAGE>
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 New York 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.
- --------------------------------------------------------------------------------
33
<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 Average Annual Total Return.......................... B-7
Non-Standardized Total Return Year-to-Date.............................. B-8
Non-Standardized One Year Return........................................ B-8
SAFEKEEPING OF ACCOUNT ASSETS............................................ B-9
THE COMPANY.............................................................. B-9
STATE REGULATION......................................................... B-9
RECORDS AND REPORTS...................................................... B-9
LEGAL PROCEEDINGS........................................................ B-9
OTHER INFORMATION........................................................ B-9
FINANCIAL STATEMENTS..................................................... B-9
Audited Financial Statements............................................ B-9
</TABLE>
34
<PAGE>
FIRST PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
VANGUARD VARIABLE ANNUITY PLAN CONTRACT
OFFERED BY
FIRST PROVIDIAN LIFE & HEALTH INSURANCE COMPANY
(A NEW YORK STOCK COMPANY)
ADMINISTRATIVE OFFICES
520 COLUMBIA DRIVE
JOHNSON CITY, NEW YORK 13790
----------------
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Vanguard Variable Annuity Plan Contract (the
"Contract") offered by First Providian Life & Health Insurance Company (the
"Company"). 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-8
Non-Standardized One Year Return........................................ B-8
SAFEKEEPING OF ACCOUNT ASSETS............................................ B-9
THE COMPANY.............................................................. B-9
STATE REGULATION......................................................... B-9
RECORDS AND REPORTS...................................................... B-9
LEGAL PROCEEDINGS........................................................ B-9
OTHER INFORMATION........................................................ B-9
FINANCIAL STATEMENTS..................................................... B-9
Audited Financial Statements............................................ B-9
</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 on 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 Pay-
ment is equal to the number of Annuity Units multiplied by the Annuity Unit
value for the Subaccount on 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 combined net assets of the Separate Account and Separate Account
IV of 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.
B-2
<PAGE>
EXCHANGES
After the Annuity Date, if a Variable Annuity Option has been chosen, the
Contract Owner may, by telephone or written request, 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 Pay-
ment on the date of exchange. The Contract 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 provide 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 of .02% of the Funds' average net assets
for the fiscal year ended September 30, 1996. 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 De-
cember 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--December 16, 1992
Balanced Subaccount--December 16, 1992
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 First Providian Life & Health 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 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>
B-7
<PAGE>
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>
B-8
<PAGE>
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
The stock of the Company is owned by Veterans Life Insurance Company, which is
a subsidiary of Providian Life and Health Insurance Company, a Missouri
insurance company ("PLH"). Providian Corporation owns a 4% interest in PLH and
61%, 15% and 20% interests in PLH, 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.
STATE REGULATION
The Company is a stock life insurance company organized under the laws of the
State of New York, and is subject to regulation by the New York State Depart-
ment of Insurance. An annual statement is filed with the New York Superinten-
dent 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 New York Superintendent of In-
surance examines the financial condition of the Company, including the liabil-
ities and reserves of the Separate Account.
The availability of certain contract rights and provisions depends on state
approval and/or filing and review 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-9
<PAGE>
FINANCIAL STATEMENTS
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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
First Providian Life and Health Insurance Company
Separate Account B
We have audited the accompanying statements of assets and liabilities of
First Providian Life and Health Insurance Company Separate Account B (compris-
ing the Money Market, High-Grade Bond, Balanced, Equity Index, Growth, Equity
Income, 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 First Providian Life and Health Insurance Company
Separate Account B at December 31, 1996 and 1995, and the results of their op-
erations and changes in their net assets for the years then ended in confor-
mity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 25, 1997
1
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Investments:
Money Market Portfolio (cost: $16,979,591 and
$10,799,963 in 1996 and 1995, respectively).......... $ 16,979,591 $10,799,963
High-Grade Bond Portfolio (cost: $10,052,147 and
$8,524,987 in 1996 and 1995, respectively)........... 10,253,364 8,982,460
Balanced Portfolio (cost: $13,721,750 and $10,729,191
in 1996 and 1995, respectively)...................... 16,657,085 12,972,924
Equity Index Portfolio (cost: $17,674,415 and
$11,501,260 in 1996 and 1995, respectively).......... 22,875,329 14,162,739
Growth Portfolio (cost: $13,823,615 and $7,362,813 in
1996 and 1995, respectively)......................... 17,276,890 9,366,967
Equity Income Portfolio (cost: $7,174,320 and
$4,436,629 in 1996 and 1995, respectively)........... 8,840,883 5,418,865
International Portfolio (cost: $8,405,989 and
$4,586,612 in 1996 and 1995, respectively)............. 9,295,395 5,055,190
High Yield Bond Portfolio (cost: $2,701,505).......... 2,745,802 --
Small Company Growth Portfolio (cost: $2,417,280)..... 2,391,705 --
------------ -----------
Total investments....................................... 107,316,044 66,759,108
Amounts due from Vanguard Group, Inc. .................. 1,753 --
------------ -----------
TOTAL ASSETS............................................ 107,317,797 66,759,108
============ ===========
LIABILITIES
Amounts due to First Providian Life and Health
Insurance Company.................................... 33,164 20,790
Amounts due to Vanguard Group, Inc. .................. -- 10,999
------------ -----------
NET ASSETS.............................................. $107,284,633 $66,727,319
</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............................... $ 16,986,272 $10,812,397
High-Grade Bond Subaccount............................ 10,248,835 8,977,751
Balanced Subaccount................................... 16,645,306 12,941,393
Equity Index Subaccount............................... 22,871,121 14,162,330
Growth Subaccount..................................... 17,268,173 9,362,795
Equity Income Subaccount.............................. 8,837,503 5,417,621
International Subaccount.............................. 9,291,127 5,053,032
High Yield Bond Subaccount............................ 2,745,296 --
Small Company Growth Subaccount....................... 2,391,000 --
------------ -----------
Net assets attributable to variable annuity contract
owners............................................... $107,284,633 $66,727,319
============ ===========
</TABLE>
See accompanying notes.
3
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HIGH-
MONEY GRADE EQUITY EQUITY HIGH YIELD SMALL COMPANY
MARKET BOND BALANCED INDEX GROWTH INCOME INTERNATIONAL BOND GROWTH
---------- --------- ---------- ---------- ---------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT
INCOME:
Dividends....... $ 700,008 $ 614,949 $1,118,903 $ 466,230 $ 786,684 $ 349,987 $ 323,226 $ 61,355 $ 5,016
Expenses:
Mortality and
expense risk
and
administrative
charges........ 61,227 45,105 49,446 88,387 65,020 33,328 38,473 2,732 2,347
---------- --------- ---------- ---------- ---------- ---------- --------- -------- -------
Net investment
income.......... 638,781 569,844 1,069,457 377,843 721,664 316,659 284,753 58,623 2,669
Realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)
from investment
transactions:
Proceeds from
sales.......... 13,240,998 1,801,202 2,323,702 4,613,638 4,258,500 1,256,081 2,597,230 768,131 686,636
Cost of
investments
sold........... 13,240,998 1,808,041 1,922,381 3,745,134 3,324,278 1,005,412 2,340,779 757,465 622,015
---------- --------- ---------- ---------- ---------- ---------- --------- -------- -------
-- (6,839) 401,321 868,504 934,222 250,669 256,451 10,666 64,621
Net unrealized
appreciation
(depreciation)
of investments:
At end of year.. -- 201,217 2,935,335 5,200,914 3,453,275 1,666,563 889,406 44,297 (25,575)
At beginning of
year........... -- 457,473 2,243,733 2,661,479 2,004,154 982,236 468,578 -- --
---------- --------- ---------- ---------- ---------- ---------- --------- -------- -------
-- (256,256) 691,602 2,539,435 1,449,121 684,327 420,828 44,297 (25,575)
---------- --------- ---------- ---------- ---------- ---------- --------- -------- -------
Net gain (loss)
on investments.. -- (263,095) 1,092,923 3,407,939 2,383,343 934,996 677,279 54,963 39,046
---------- --------- ---------- ---------- ---------- ---------- --------- -------- -------
Net increase in
net assets
resulting from
operations...... $ 638,781 $ 306,749 $2,162,380 $3,785,782 $3,105,007 $1,251,655 $ 962,032 $113,586 $41,715
========== ========= ========== ========== ========== ========== ========= ======== =======
<CAPTION>
TOTAL
-----------
<S> <C>
INVESTMENT
INCOME:
Dividends....... $ 4,426,358
Expenses:
Mortality and
expense risk
and
administrative
charges........ 386,065
-----------
Net investment
income.......... 4,040,293
Realized and
unrealized gain
(loss) on
investments:
Net realized
gain (loss)
from investment
transactions:
Proceeds from
sales.......... 31,546,118
Cost of
investments
sold........... 28,766,503
-----------
2,779,615
Net unrealized
appreciation
(depreciation)
of investments:
At end of year.. 14,365,432
At beginning of
year........... 8,817,653
-----------
5,547,779
-----------
Net gain (loss)
on investments.. 8,327,394
-----------
Net increase in
net assets
resulting from
operations...... $12,367,687
===========
</TABLE>
See accompanying notes.
4
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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.............. $ 475,452 $ 496,098 $ 441,480 $ 338,218 $ 203,874 $ 186,897 $ 62,754 $ 2,204,773
Expenses:
Mortality and expense
risk and
administrative
charges............... 31,690 36,783 61,206 48,361 36,566 21,822 21,256 257,684
---------- ---------- ---------- ---------- ---------- ---------- -------- -----------
Net investment income... 443,762 459,315 380,274 289,857 167,308 165,075 41,498 1,947,089
Realized and unrealized
gain (loss) on
investments:
Net realized gain from
investment
transactions:
Proceeds from sales.... 8,809,248 830,901 1,857,126 1,834,629 1,223,853 479,199 798,041 15,832,997
Cost of investments
sold.................. 8,809,248 824,201 1,789,701 1,652,059 1,079,469 457,088 778,956 15,390,722
---------- ---------- ---------- ---------- ---------- ---------- -------- -----------
-- 6,700 67,425 182,570 144,384 22,111 19,085 442,275
Net unrealized
appreciation
(depreciation) of
investments:
At end of year......... -- 457,473 2,243,733 2,661,479 2,004,154 982,236 468,578 8,817,653
At beginning of year... -- (308,930) (302,893) 43,308 186,596 (160,480) (39,322) (581,721)
---------- ---------- ---------- ---------- ---------- ---------- -------- -----------
-- 766,403 2,546,626 2,618,171 1,817,558 1,142,716 507,900 9,399,374
---------- ---------- ---------- ---------- ---------- ---------- -------- -----------
Net gain on investments. -- 773,103 2,614,051 2,800,741 1,961,942 1,164,827 526,985 9,841,649
---------- ---------- ---------- ---------- ---------- ---------- -------- -----------
Net increase in net
assets resulting from
operations............. $ 443,762 $1,232,418 $2,994,325 $3,090,598 $2,129,250 $1,329,902 $568,483 $11,788,738
========== ========== ========== ========== ========== ========== ======== ===========
</TABLE>
See accompanying notes.
5
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
MONEY HIGH-GRADE EQUITY EQUITY HIGH YIELD
MARKET BOND BALANCED INDEX GROWTH INCOME INTERNATIONAL BOND
----------- ----------- ----------- ----------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at
January 1, 1996.. $10,812,397 $ 8,977,751 $12,941,393 $14,162,330 $ 9,362,795 $5,417,621 $5,053,032 $ --
Increase
(decrease) in net
assets resulting
from operations:
Net investment
income.......... 638,781 569,844 1,069,457 377,843 721,664 316,659 284,753 58,623
Net realized
gain (loss) on
investments..... -- (6,839) 401,321 868,504 934,222 250,669 256,451 10,666
Net unrealized
appreciation
(depreciation)
of investments.. -- (256,256) 691,602 2,539,435 1,449,121 684,327 420,828 44,297
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Net increase in
net assets
resulting from
operations....... 638,781 306,749 2,162,380 3,785,782 3,105,007 1,251,655 962,032 113,586
Changes from
variable annuity
contract
transactions:
Transfers of net
premiums........ 10,511,308 1,774,783 2,843,338 5,374,799 4,096,267 2,218,053 2,218,577 1,371,311
Transfers for
terminations.... (1,010,844) (85,829) (617,555) (452,158) (547,857) (89,349) (154,927) (64)
Transfers for
annuity
benefits........ -- -- (3,326) -- -- -- -- --
Net transfers
within Separate
Account B....... (3,965,370) (724,619) (680,924) 368 1,251,961 39,523 1,212,413 1,260,463
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Net increase in
net assets
derived from
variable annuity
contract
transactions..... 5,535,094 964,335 1,541,533 4,923,009 4,800,371 2,168,227 3,276,063 2,631,710
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Net increase in
net assets....... 6,173,875 1,271,084 3,703,913 8,708,791 7,905,378 3,419,882 4,238,095 2,745,296
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Balances at
December 31,
1996............. $16,986,272 $10,248,835 $16,645,306 $22,871,121 $17,268,173 $8,837,503 $9,291,127 $2,745,296
=========== =========== =========== =========== =========== ========== ========== ==========
<CAPTION>
SMALL
COMPANY
GROWTH TOTAL
----------- -------------
<S> <C> <C>
Balances at
January 1, 1996.. $ -- $ 66,727,319
Increase
(decrease) in net
assets resulting
from operations:
Net investment
income.......... 2,669 4,040,293
Net realized
gain (loss) on
investments..... 64,621 2,779,615
Net unrealized
appreciation
(depreciation)
of investments.. (25,575) 5,547,779
----------- -------------
Net increase in
net assets
resulting from
operations....... 41,715 12,367,687
Changes from
variable annuity
contract
transactions:
Transfers of net
premiums........ 743,223 31,151,659
Transfers for
terminations.... (123) (2,958,706)
Transfers for
annuity
benefits........ -- (3,326)
Net transfers
within Separate
Account B....... 1,606,185 --
----------- -------------
Net increase in
net assets
derived from
variable annuity
contract
transactions..... 2,349,285 28,189,627
----------- -------------
Net increase in
net assets....... 2,391,000 40,557,314
----------- -------------
Balances at
December 31,
1996............. $2,391,000 $107,284,633
=========== =============
</TABLE>
See accompanying notes.
6
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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 TOTAL
----------- ---------- ----------- ----------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1,
1995.................... $ 6,064,825 $6,459,370 $ 9,542,415 $ 7,062,813 $5,011,936 $3,150,504 $3,265,145 $40,557,008
Increase in net assets
resulting from
operations:
Net investment income.. 443,762 459,315 380,274 289,857 167,308 165,075 41,498 1,947,089
Net realized gain on
investments............ -- 6,700 67,425 182,570 144,384 22,111 19,085 442,275
Net unrealized
appreciation of
investments............ -- 766,403 2,546,626 2,618,171 1,817,558 1,142,716 507,900 9,399,374
----------- ---------- ----------- ----------- ---------- ---------- ---------- -----------
Net increase in net
assets resulting from
operations.............. 443,762 1,232,418 2,994,325 3,090,598 2,129,250 1,329,902 568,483 11,788,738
Changes from variable
annuity contract
transactions:
Transfers of net
premiums............... 9,557,439 623,112 1,045,702 2,766,760 1,448,375 672,523 867,858 16,981,769
Transfers for
terminations........... (801,670) (122,891) (234,624) (1,148,629) (103,073) (105,027) (84,282) (2,600,196)
Net transfers within
Separate Account B..... (4,451,959) 785,742 (406,425) 2,390,788 876,307 369,719 435,828 --
----------- ---------- ----------- ----------- ---------- ---------- ---------- -----------
Net increase in net
assets derived from
variable annuity
contract transactions... 4,303,810 1,285,963 404,653 4,008,919 2,221,609 937,215 1,219,404 14,381,573
----------- ---------- ----------- ----------- ---------- ---------- ---------- -----------
Net increase in net
assets.................. 4,747,572 2,518,381 3,398,978 7,099,517 4,350,859 2,267,117 1,787,887 26,170,311
----------- ---------- ----------- ----------- ---------- ---------- ---------- -----------
Balances at December 31,
1995.................... $10,812,397 $8,977,751 $12,941,393 $14,162,330 $9,362,795 $5,417,621 $5,053,032 $66,727,319
=========== ========== =========== =========== ========== ========== ========== ===========
</TABLE>
See accompanying notes.
7
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES
ORGANIZATION OF THE ACCOUNT
First Providian Life and Health Insurance Company Separate Account B (the
"Separate Account") is a separate account of First Providian Life and Health
Insurance Company ("FPLH"), an indirect, wholly owned subsidiary of Providian
Corporation ("Providian"), and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The Separate Account was es-
tablished for the purpose of funding variable annuity contracts issued by
FPLH.
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 FPLH, 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 FPLH 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>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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 a minimum
of ten days or, for replacement, 20 days). 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>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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 FPLH 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 FPLH.
Although the assets in the Separate Account are the property of FPLH, 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 FPLH may
conduct. The assets of the Separate Account are available to cover the general
liabilities of FPLH 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........................ 16,979,591.191 $ 1.00 $ 16,979,591
High-Grade Bond..................... 983,064.587 10.43 10,253,364
Balanced............................ 1,109,732.540 15.01 16,657,085
Equity Index........................ 1,170,093.530 19.55 22,875,329
Growth.............................. 976,647.283 17.69 17,276,890
Equity Income....................... 605,539.909 14.60 8,840,883
International....................... 729,622.842 12.74 9,295,395
High Yield Bond..................... 265,808.560 10.33 2,745,802
Small Company Growth................ 246,313.599 9.71 2,391,705
------------
$107,316,044
============
</TABLE>
10
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------------------
PORTFOLIO SHARES NET ASSET VALUE FAIR VALUE
- --------- -------------- --------------- -----------
<S> <C> <C> <C>
Money Market......................... 10,799,962.550 $1.00 $10,799,963
High-Grade Bond...................... 835,577.655 10.75 8,982,460
Balanced............................. 929,958.708 13.95 12,972,924
Equity Index......................... 868,879.713 16.30 14,162,739
Growth............................... 638,511.750 14.67 9,366,967
Equity Income........................ 419,741.636 12.91 5,418,865
International........................ 438,058.080 11.54 5,055,190
-----------
$66,759,108
===========
</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......................................... $19,420,627 $13,542,581
High-Grade Bond...................................... 3,335,200 2,574,128
Balanced............................................. 4,914,940 2,647,595
Equity Index......................................... 9,918,289 6,130,767
Growth............................................... 9,785,079 3,613,826
Equity Income........................................ 3,743,104 1,582,574
International........................................ 6,160,156 2,060,212
High Yield Bond...................................... 3,458,971 --
Small Company Growth................................. 3,039,296 --
----------- -----------
$63,775,662 $32,151,683
=========== ===========
</TABLE>
3. FEDERAL INCOME TAXES
Operations of the Separate Account are included in the federal income tax re-
turn of FPLH, 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>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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 FPLH'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 IV of Providian Life and
Health Insurance Company ("PLH"), an affiliate of FPLH. For the year ended De-
cember 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 to-
tal charge was $319,868 and $213,800, respectively.
In addition, an annual administrative charge of .10% is deducted from the
unit value of the subaccounts of the Separate Account. This charge is assessed
daily by Vanguard based on the Fund's net assets attributable to the Separate
Account and Separate Account IV of PLH. 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 $66,197 and $43,884, respectively.
12
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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 period..... 9,080,164.861 5,365,112.677
Issuance of units............................ 15,271,388.654 11,293,277.973
Redemption of units.......................... (10,761,753.282) (7,578,225.789)
---------------- ---------------
Outstanding units at end of period........... 13,589,800.233 9,080,164.861
================ ===============
End of year:
Unit value................................. $ 1.249928 $ 1.190771
================ ===============
Subaccount value........................... $ 16,986,272 $ 10,812,397
================ ===============
HIGH-GRADE BOND
Outstanding units at beginning of period..... 621,861.498 525,581.016
Issuance of units............................ 189,611.380 155,137.754
Redemption of units.......................... (122,787.595) (58,857.272)
---------------- ---------------
Outstanding units at end of period........... 688,685.283 621,861.498
================ ===============
End of year:
Unit value................................. $ 14.881740 $ 14.436898
================ ===============
Subaccount value........................... $ 10,248,835 $ 8,977,751
================ ===============
BALANCED
Outstanding units at beginning of period..... 766,458.776 744,654.789
Issuance of units............................ 211,350.350 148,578.615
Redemption of units.......................... (125,599.689) (126,774.628)
---------------- ---------------
Outstanding units at end of period........... 852,209.437 766,458.776
================ ===============
End of year:
Unit value................................. $ 19.531943 $ 16.884656
================ ===============
Subaccount value........................... $ 16,645,306 $ 12,941,393
================ ===============
</TABLE>
13
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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........... 783,606.794 534,100.758
Issuance of units.................................. 474,338.097 371,612.565
Redemption of units................................ (222,981.400) (122,106.529)
------------- ------------
Outstanding units at end of period................. 1,034,963.491 783,606.794
============= ============
End of year:
Unit value....................................... $ 22.098481 $ 18.073261
============= ============
Subaccount value................................. $ 22,871,121 $ 14,162,330
============= ============
GROWTH
Outstanding units at beginning of period........... 620,485.748 457,117.267
Issuance of units.................................. 526,957.808 259,477.239
Redemption of units................................ (241,303.438) (96,108.758)
------------- ------------
Outstanding units at end of period................. 906,140.118 620,485.748
============= ============
End of year:
Unit value....................................... $ 19.056846 $ 15.089461
============= ============
Subaccount value................................. $ 17,268,173 $ 9,362,795
============= ============
EQUITY INCOME
Outstanding units at beginning of period........... 380,466.275 305,755.616
Issuance of units.................................. 225,146.289 114,148.908
Redemption of units................................ (80,206.927) (39,438.249)
------------- ------------
Outstanding units at end of period................. 525,405.637 380,466.275
============= ============
End of year:
Unit value....................................... $ 16.820343 $ 14.239424
============= ============
Subaccount value................................. $ 8,837,503 $ 5,417,621
============= ============
</TABLE>
14
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------- ------------
<S> <C> <C>
INTERNATIONAL
Outstanding units at beginning of period........... 432,692.144 322,389.639
Issuance of units.................................. 467,326.158 185,181.525
Redemption of units................................ (202,447.200) (74,879.020)
------------- ------------
Outstanding units at end of period................. 697,571.102 432,692.144
============= ============
End of year:
Unit value....................................... $ 13.319255 $ 11.678122
============= ============
Subaccount value................................. $ 9,291,127 $ 5,053,032
============= ============
HIGH YIELD BOND
Outstanding units at beginning of period -- --
Issuance of units.................................. 324,832.566 --
Redemption of units................................ (72,293.668) --
------------- ------------
Outstanding units at end of period................. 252,538.898 --
============= ============
End of year:
Unit value....................................... $ 10.870783 $ --
============= ============
Subaccount value................................. $ 2,745,296 $ --
============= ============
SMALL COMPANY GROWTH
Outstanding units at beginning of period........... -- --
Issuance of units.................................. 317,488.323 --
Redemption of units................................ (71,626.120) --
------------- ------------
Outstanding units at end of period................. 245,862.203 --
============= ============
End of year:
Unit value....................................... $ 9.724958 $ --
============= ============
Subaccount value................................. $ 2,391,000 $ --
============= ============
</TABLE>
15
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT B
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- EQUITY
MARKET GRADE BOND BALANCED INDEX GROWTH
----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract owner
transactions........... $15,616,629 $ 8,720,379 $11,145,097 $15,647,379 $ 11,827,523
Accumulated net
investment income...... 1,369,643 1,429,586 2,070,496 922,377 915,708
Accumulated net realized
gain
(loss) on investments.. -- (102,347) 494,378 1,100,451 1,071,667
Net unrealized
appreciation
on investments......... -- 201,217 2,935,335 5,200,914 3,453,275
----------- ----------- ----------- ----------- ------------
$16,986,272 $10,248,835 $16,645,306 $22,871,121 $ 17,268,173
=========== =========== =========== =========== ============
<CAPTION>
SMALL
EQUITY HIGH YIELD COMPANY
INCOME INTERNATIONAL BOND GROWTH TOTAL
----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Contract owner
transactions........... $ 6,292,271 $ 7,777,801 $ 2,631,710 $ 2,349,285 $ 82,008,074
Accumulated net
investment income...... 637,909 334,588 58,623 2,669 7,741,599
Accumulated net realized
gain
on investments......... 240,760 289,332 10,666 64,621 3,169,528
Net unrealized
appreciation
(depreciation) on
investments............ 1,666,563 889,406 44,297 (25,575) 14,365,432
----------- ----------- ----------- ----------- ------------
$ 8,837,503 $ 9,291,127 $ 2,745,296 $ 2,391,000 $107,284,633
=========== =========== =========== =========== ============
</TABLE>
16
<PAGE>
STATUTORY-BASIS FINANCIAL STATEMENTS
FIRST PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
FIRST 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
First Providian Life and Health Insurance Company
We have audited the accompanying statutory-basis balance sheets of First
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 surplus, and cash flows for the years then ended. These financial state-
ments are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing 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 New York 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 preced-
ing paragraph, the financial statements referred to above do not present fair-
ly, in conformity with generally accepted accounting principles, the financial
position of First 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 First Providian
Life and Health Insurance Company at December 31, 1996 and 1995, and the re-
sults of its operations and its cash flows for the years then ended, in con-
formity with accounting practices prescribed or permitted by the New York De-
partment of Insurance.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 25, 1997
1
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
BALANCE SHEETS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1996 1995
------------ ------------
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds.............................................. $202,816,142 $191,710,780
Preferred stocks................................... 1,820,130 1,599,164
Policy loans....................................... 2,161,098 2,007,632
Cash and shortterm investments..................... 2,722,574 11,873,445
Other invested assets.............................. 61,009 --
------------ ------------
Total cash and invested assets....................... 209,580,953 207,191,021
Deferred and uncollected premiums.................... 3,088,869 3,225,228
Accrued investment income............................ 3,548,020 2,873,293
Amounts due from affiliates.......................... 360,620 992,996
Other admitted assets................................ 158,590 218,292
Separate account assets.............................. 107,317,797 66,759,108
------------ ------------
Total admitted assets................................ $324,054,849 $281,259,938
============ ============
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate policy reserves.......................... $115,759,093 $121,170,215
Policy and contract claims......................... 2,666,897 2,388,452
Premiums received in advance....................... 295,034 342,612
Accrued commissions, general expenses and taxes.... 378,021 358,355
Amounts due to affiliates.......................... 35,309 1,215,793
Asset valuation reserve............................ 2,029,494 1,703,042
Interest maintenance reserve....................... 8,822,157 9,587,138
Other liabilities.................................. 1,824,673 791,487
Separate account liabilities....................... 107,317,797 66,759,108
------------ ------------
Total liabilities.................................... 239,128,475 204,316,202
Capital and surplus:
Capital stock, $2 par value, 1,000,000 shares
authorized,
issued and outstanding............................ 2,000,000 2,000,000
Paid-in surplus.................................... 10,485,844 10,485,844
Special surplus fund............................... 1,473,034 1,357,319
Unassigned surplus................................. 70,967,496 63,100,573
------------ ------------
Total capital and surplus............................ 84,926,374 76,943,736
------------ ------------
Total liabilities and capital and surplus............ $324,054,849 $281,259,938
============ ============
</TABLE>
See accompanying notes.
2
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF OPERATIONS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Premiums earned:
Life and annuity................................. $12,170,934 $12,372,922
Accident and health.............................. 5,135,923 5,832,507
Annuity deposit funds.............................. 30,982,346 17,120,829
Net investment income.............................. 15,632,095 15,717,675
Commissions and expense allowances on reinsurance
ceded............................................. 394,923 377,609
Amortization of interest maintenance reserve....... 423,319 416,590
Other income....................................... 21 --
----------- -----------
64,739,561 51,838,132
Benefits and expenses:
Accident and health, life and other benefits....... 24,544,627 32,303,968
Decrease in aggregate policy reserves.............. (5,411,122) (11,906,293)
Interest on reinsurance reserves................... 191,948 141,441
Commissions........................................ 77,336 44,486
General insurance expenses......................... 4,546,942 3,746,966
Insurance taxes, licenses, and fees................ 692,100 888,802
Net transfers to separate accounts................. 27,869,760 14,167,774
----------- -----------
52,511,591 39,387,144
----------- -----------
Net gain from operations before federal income taxes. 12,227,970 12,450,988
Federal income tax expense........................... 4,414,000 4,559,235
----------- -----------
Net gain from operations............................. 7,813,970 7,891,753
Net realized capital gains/(losses), net of income
taxes (1996--($174,000),
1995--($95,973)), and excluding losses transferred
to the interest
maintenance reserve (1996--($341,664), 1995--
($16,497)).......................................... (9,975) 87,090
----------- -----------
Net income........................................... $ 7,803,995 $ 7,978,843
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
SPECIAL
CAPITAL PAID-IN SURPLUS UNASSIGNED
STOCK SURPLUS FUND SURPLUS
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Balances, January 1, 1995....... $2,000,000 $10,485,844 $1,285,200 $55,238,891
Net income...................... -- -- -- 7,978,843
Change in net unrealized gains
on investments................. -- -- -- 54,651
Change in reserves due to change
in valuation basis............. -- -- -- 131,831
(Increase) decrease in
nonadmitted assets and related
items.......................... -- -- 72,119 (65,305)
Increase in asset valuation
reserve........................ -- -- -- (238,338)
---------- ----------- ---------- -----------
Balances, December 31, 1995..... 2,000,000 10,485,844 1,357,319 63,100,573
Net income...................... -- -- -- 7,803,995
Change in net unrealized gains
on investments................. -- -- -- 26,057
Prior year federal income tax
adjustment..................... -- -- -- 446,132
(Increase) decrease in
nonadmitted assets and related
items.......................... -- -- 115,715 (82,809)
Increase in asset valuation
reserve........................ -- -- -- (326,452)
---------- ----------- ---------- -----------
Balances, December 31, 1996..... $2,000,000 $10,485,844 $1,473,034 $70,967,496
========== =========== ========== ===========
</TABLE>
See accompanying notes.
4
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF CASH AND FLOWS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash and short-term investments provided:
Operations:
Premiums and annuity fund deposits................ $48,426,473 $ 35,413,986
Net investment income received.................... 15,504,168 16,280,847
Allowances on reinsurance ceded and other income
received......................................... 394,944 377,609
----------- ------------
64,325,585 52,072,442
Benefits paid..................................... 24,265,630 32,574,937
Commissions, expenses and taxes paid.............. 9,405,504 9,075,459
Net increase in policy loans...................... 153,466 109,912
Net transfers to separate accounts................ 27,910,962 14,174,868
----------- ------------
61,735,562 55,935,176
----------- ------------
Total cash provided (applied) by operations........ 2,590,023 (3,862,734)
Investments sold, matured, or repaid............... 73,171,482 116,523,787
Other cash provided:
Receivable from affiliates........................ -- 46,820
Investment payables............................... 402,490 --
Other items....................................... 829,867 257,157
----------- ------------
Total other cash provided.......................... 1,232,357 303,977
----------- ------------
Total cash and short-term investments provided...... 76,993,862 112,965,030
Cash and shortterm investments applied:
Investments acquired............................... 85,301,194 109,277,115
Other cash applied:
Payable to affiliates............................. 548,108 --
Other items....................................... 295,431 77,125
----------- ------------
Total other cash applied........................... 843,539 77,125
----------- ------------
Total cash and short-term investments applied....... 86,144,733 109,354,240
----------- ------------
Increase (decrease) in cash and short-term
investments........................................ (9,150,871) 3,610,790
Cash and short-term investments:
Beginning of year.................................. 11,873,445 8,262,655
----------- ------------
End of year........................................ $ 2,722,574 $ 11,873,445
=========== ============
</TABLE>
See accompanying notes.
5
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES
ORGANIZATION
First Providian Life and Health Insurance Company (FPLH) is domiciled in New
York and is a wholly owned subsidiary of Veterans Life Insurance Company
(VLIC), a wholly owned subsidiary of Providian Life and Health Insurance Com-
pany (PLH). PLH is owned by Commonwealth Life Insurance Company (CLICO) 61%,
Capital Liberty, L.P. (CLLP) 20%, Peoples Security Life Insurance Company
(PSI) 15%, and Providian Corporation (Providian) 4%. Providian is the ultimate
parent of CLICO, CLLP, and PSI.
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 FPLH, 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 FPLH should the merger occur.
NATURE OF OPERATIONS
FPLH sells and services life and accident and health insurance products, pri-
marily utilizing direct response methods, such as television, telephone and
mail to reach low to middle-income households nationwide. FPLH also sells and
services individual accumulation products, primarily utilizing financial plan-
ners, stock brokerage firms and a mutual fund.
MANAGEMENT'S ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Such estimates and assumptions could change in the
future as more
6
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
information becomes known, which could impact the amounts reported and
disclosed herein.
BASIS OF PRESENTATION
The accompanying financial statements of FPLH have been prepared in accor-
dance with the accounting practices prescribed or permitted by the New York
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 are reported at amortized cost or fair value based on
their National Association of Insurance Commissioners (NAIC) rating; for
GAAP, such fixed maturity investments are designated at purchase as held-
to-maturity, trading or available-for-sale. Held-to-maturity fixed invest-
ments are reported at amortized cost, and the remaining fixed maturity in-
vestments are reported at fair value with unrealized holding gains and
losses reported in operations for those designated as trading and as a sep-
arate component of shareholders' equity for those designated as available-
for-sale.
Fair values of investments in bonds and preferred 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 in-
ternally calculated estimates. However, for certain investments, the NAIC
does not provide a value and FPLH uses either admitted asset investment
amounts (i.e., statement values) as allowed by the NAIC, quoted fair values
provided by outside broker confirmations or internally calculated esti-
mates. Changes between cost and admitted asset investment amounts are cred-
ited or charged directly to unassigned surplus rather than to a separate
surplus account.
Under a formula prescribed by the NAIC, FPLH 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 amortizes such deferrals into income on a
straight-line basis over the remaining period to maturity based on group-
ings of individual liabilities or investments sold. The net accumulated un-
amortized balance of such deferrals is reported as an "interest maintenance
reserve" (IMR) in the accompanying balance sheets. Realized gains and
losses are reported in income net of tax and transfers to the IMR. The "as-
set valuation reserve" (AVR) is also determined by a NAIC prescribed for-
mula and is reported as a liability rather than
7
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
a valuation allowance. The AVR represents a provision for possible fluctua-
tions in the value of bonds and other invested assets. Changes to the AVR
are charged or credited directly to unassigned surplus. Under GAAP, real-
ized gains and losses are reported in the income statement on a pretax ba-
sis in the period that the asset giving rise to the gain or loss is sold
and direct write-downs are recorded (or valuation allowances 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.
Policy Acquisition Costs
Costs of acquiring and renewing business are expensed when incurred. Under
GAAP, acquisition costs related to traditional life insurance, to the ex-
tent 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 bal-
ances 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 consist
of the entire premium received and benefits represent the death benefits
paid, surrenders and the change in policy reserves. Under GAAP, premiums
received in excess of policy charges are not recognized as premium revenue
and benefits represent the excess of benefits paid over the policy account
value and interest credited to the account values.
8
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Benefit Reserves
Certain policy reserves are calculated using prescribed interest and mor-
tality assumptions rather than on estimated expected experience and actual
account balances as is required under GAAP.
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 stat-
utory-basis financial statements have not been determined, but are presumed
to be material.
Other significant accounting policies followed in preparing the accompany-
ing statutory-basis financial statements are as follows:
Investments
Bonds, preferred stocks, policy loans and short-term investments are
stated at values prescribed by the NAIC, as follows:
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 reported at fair value as determined by the SVO
of the NAIC.
9
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
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.
Bond and other loan interest is credited to income as it accrues. For se-
curities, FPLH follows the guidelines of the NAIC for each security on an
individual basis in determining the admitted or nonadmitted status of ac-
crued income amounts. There was no interest on securities excluded from in-
vestment income at December 31, 1996 and 1995.
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 stat-
utory-basis financial statements represent funds that are separately admin-
istered, principally for annuity contracts, and for which the contract
holder, rather than FPLH, bears the investment risk. Separate account con-
tract holders have no claim against the assets of the general account of
FPLH. 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.
FPLH waives deduction of deferred fractional premiums upon death of
insureds. FPLH's policy is to return any portion of the final premium be-
yond the date of death. Surrender values are not promised in excess of the
legally computed reserves.
10
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Additional premiums are charged for policies issued on substandard lives
according to underwriting classification. 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.
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.
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 reinsurance contracts. Premiums, benefits, expenses and aggre-
gate policy reserves are recorded net of reinsured amounts.
11
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Permitted Statutory Accounting Practices
FPLH's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the New York 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 FPLH uses to prepare its statutory-basis financial statements. The ef-
fect of any such changes on FPLH's statutory surplus cannot be determined
at this time and could be material.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial state-
ments to conform with the current year presentation.
12
<PAGE>
FIRST 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......... $ 30,055 $ 66 $ 26 $ 30,095
States and political subdivisions... 5,094 406 -- 5,500
Corporate and other................. 125,377 4,446 959 128,864
Foreign corporate*.................. 5,556 -- -- 5,556
Asset-backed........................ 2,825 -- -- 2,825
Mortgage-backed..................... 33,909 -- -- 33,909
-------- ------- ---- --------
$202,816 $ 4,918 $985 $206,749
======== ======= ==== ========
DECEMBER 31, 1995
U.S. government obligations......... $ 39,767 $ 2,109 $-- $ 41,876
States and political subdivisions... 5,393 603 -- 5,996
Corporate and other................. 109,735 8,718 209 118,244
Mortgage-backed..................... 36,816 -- -- 36,816
-------- ------- ---- --------
$191,711 $11,430 $209 $202,932
======== ======= ==== ========
</TABLE>
- --------
* Substantially all are U.S. dollar denominated.
13
<PAGE>
FIRST 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................................ $ 11,846 $ 11,850
Due after one year through five years.................. 16,933 17,152
Due after five years through ten years................. 61,086 61,045
Due after ten years.................................... 76,217 79,968
-------- --------
166,082 170,015
Asset-backed securities................................ 2,825 2,825
Mortgage-backed securities............................. 33,909 33,909
-------- --------
$202,816 $206,749
======== ========
</TABLE>
Proceeds during 1996 and 1995 from sales, maturities and calls of bonds were
$73,171,000 and $116,526,000, respectively. Gross gains of $170,000 and
$1,127,000 and gross losses of $696,000 and $1,150,000 in 1996 and 1995, re-
spectively, were realized on those sales.
The cost of preferred stocks of unaffiliated companies was $1,739,000 and
$1,545,000 at December 31, 1996 and 1995, respectively, and the related fair
value was $1,820,000 and $1,599,000 at December 31, 1996 and 1995, respective-
ly. The differences between cost and statement value of $81,000 and $54,000 at
December 31, 1996 and 1995, respectively, were credited directly to unassigned
surplus as of those dates and did not affect net income.
Included in investments are securities having statement values of $1,643,000
at December 31, 1996 which were on deposit with various state insurance de-
partments to satisfy regulatory requirements.
14
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. INVESTMENTS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
FPLH limits credit risk by diversifying its investment portfolio among public
and private placement bonds and preferred stocks. 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 stan-
dards and purchasing insurance protection in certain cases. In addition, FPLH
establishes credit approval processes, credit limits and monitoring procedures
on an individual counterparty basis. As a result, management believes that
significant concentrations of credit risk do not exist.
3. FEDERAL INCOME TAXES
FPLH is included in the life-nonlife consolidated federal income tax return
filed by PLH. Under a written agreement, FPLH 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 bene-
fit from a net operating loss, for the year bears to the consolidated tax lia-
bility. The final 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 result
from applying rates to pretax income primarily due to differences in the stat-
utory and tax treatment of certain investments and deferred policy acquisition
costs.
Included in the statement of capital and surplus are certain adjustments in-
creasing surplus by $446,132 at December 31, 1996 relating to tax accrual ad-
justments applicable to the 1995 tax year.
At December 31, 1996, accumulated earnings of FPLH for federal income tax
purposes included $1,630,514 of "Policyholders' Surplus," a special memorandum
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. "Shareholders'
Surplus" is also a special memorandum tax account, and generally represents an
accumulation of taxable income (net of tax thereon) plus the dividends-re-
ceived deduction, tax-exempt interest, and certain other special deductions as
provided by the Act. At December 31, 1996, the balance in the
15
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. FEDERAL INCOME TAXES (CONTINUED)
Shareholders' Surplus account amounted to approximately $80,976,000. There is
no present intention to make distributions in excess of Shareholders' Surplus.
4. RELATED PARTY TRANSACTIONS
REINSURANCE CEDED TO AFFILIATES
FPLH is a party to a reinsurance agreement with VLIC whereby FPLH cedes a pro
rata portion of accident and health policies according to issue dates. Rein-
surance ceded to VLIC has reduced net gain from operations before federal in-
come taxes by $600,000 in both 1996 and 1995.
OTHER AGREEMENTS AND TRANSACTIONS WITH RELATED PARTIES
FPLH entered into an agreement effective January 1, 1992 with PLH for the
performance of administrative services, management support services and mar-
keting services for FPLH. PLH, as compensation, receives an amount equal to
the actual cost of providing these services. Amounts paid to PLH for these
services were $2,200,000 in 1996 and $2,800,000 in 1995.
FPLH entered into a revolving credit note with Providian on September 3,
1996, whereby FPLH can borrow from Providian up to $1,000,000. 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, FPLH entered into a revolving credit note with PLH
whereby FPLH can borrow from PLH up to $5,000,000. This 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.
FPLH participates in various benefit plans sponsored by Providian and the re-
lated costs allocated to FPLH are not significant.
Providian provides general management, advisory, legal and other general
services to FPLH. Providian Capital Management, Inc. (PCM), an affiliate, pro-
vides investment management services to FPLH along with marketing and adminis-
trative services for FPLH's accumulation business.
16
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. REINSURANCE
Certain premiums and benefits are ceded to nonaffiliated insurance companies
under various reinsurance agreements. The ceded reinsurance agreements provide
FPLH with increased capacity to write larger risks.
FPLH's ceded reinsurance agreements with affiliated and nonaffiliated insur-
ance companies have reduced (increased) certain items in the accompanying fi-
nancial statements by the following amounts:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Benefits paid or provided................................ $ 804 $ 884
Commission and expense allowances on reinsurance ceded... (395) (378)
Interest on reinsurance reserves......................... (192) (141)
Policy and contract claims*.............................. 44 45
Unearned premium reserves*............................... 1 2
Aggregate policy reserves*............................... 13 13
Premiums received in advance*............................ 1 1
</TABLE>
- --------
*At year end
For long-duration contracts, the effect of reinsurance on life and annuity
premiums earned in 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
PREMIUMS PREMIUMS
EARNED EARNED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Direct.................................................. $12,194 $12,398
Ceded................................................... (23) (25)
------- -------
Net................................................... $12,171 $12,373
======= =======
</TABLE>
17
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. REINSURANCE (CONTINUED)
For short-duration contracts, the effect of reinsurance 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................................. $ 6,671 $ 6,671 $ 7,571 $ 7,571
Ceded.................................. (1,535) (1,535) (1,738) (1,738)
------- ------- ------- -------
Net.................................. $ 5,136 $ 5,136 $ 5,833 $ 5,833
======= ======= ======= =======
</TABLE>
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, FPLH reinsurance recoverables are not material and no individual rein-
surer owed FPLH an amount equal to or greater than 3% of FPLH's surplus.
FPLH remains obligated for amounts ceded in the event that the reinsurers do
not meet their obligations.
6. ANNUITY RESERVES
The withdrawal provisions of FPLH's annuity reserves at December 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary withdrawal at market value...... $107,285 58.3%
Subject to discretionary withdrawal at book value less
surrender charge........................................ 35,221 19.1%
Subject to discretionary withdrawal (without adjustment)
at book value with minimal or no charge or adjustment... 38,200 20.7%
Not subject to discretionary withdrawal.................. 3,460 1.9%
-------- ------
Total annuity reserves before reinsurance.............. 184,166 100.0%
======
Less reinsurance......................................... --
--------
Net annuity reserves................................... $184,166*
========
</TABLE>
- --------
* Includes $107,285,000 of annuities reported in FPLH's separate account lia-
bilities.
See first caption above.
18
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. SEPARATE ACCOUNTS
Separate accounts held by FPLH 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 FPLH as of and
for the year ended December 31, 1996 is as follows (in thousands):
<TABLE>
<S> <C>
Premiums, deposits and other considerations.................... $ 30,982
========
Separate account liabilities*.................................. $107,285
========
</TABLE>
- --------
* Separate account liabilities are exclusive of $33,000 which represents
amounts due to the general account as of December 31, 1996.
FPLH's nonguaranteed separate account liabilities ($107,285,000) are subject
to discretionary withdrawal at market value.
A reconciliation of the amounts transferred to and from FPLH's separate
accounts for the year ended December 31, 1996 is presented below (in
thousands):
<TABLE>
<S> <C>
Transfers as reported in the Summary of Operations of FPLH's Sepa-
rate Accounts Annual Statements:
Transfers to separate accounts................................... $31,152
Transfers from separate accounts................................. (3,348)
-------
Net transfers to separate accounts................................. 27,804
Reconciling adjustments:
Fees paid to external fund manager............................... 66
-------
Transfers as reported in the Summary of Operations of FPLH's Life,
Accident & Health Annual Statement................................ $27,870
=======
</TABLE>
19
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. DEFERRED AND UNCOLLECTED PREMIUMS
Deferred and uncollected life insurance premiums and annuity considerations
as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
NET OF
TYPE GROSS LOADING LOADING
---- ------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Ordinary new.......................................... $ 326 $ 227 $ 99
Ordinary renewal...................................... 3,199 1,012 2,187
------ ------ ------
Total Ordinary...................................... 3,525 1,239 2,286
Group new............................................. 7 7 --
Group renewal......................................... 1,272 470 802
------ ------ ------
Total Group......................................... $1,279 $ 477 $ 802
------ ------ ------
Total............................................. $4,804 $1,716 $3,088
====== ====== ======
</TABLE>
9. STATUTORY RESTRICTIONS ON DIVIDENDS
FPLH is restricted from distributing any dividends to shareholders without
prior approval from the New York Department of Insurance.
10. CONTINGENCIES
In the ordinary course of business, FPLH 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 that would be material to FPLH's financial
position or results of operations.
20
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating fair value dis-
closures for the following financial instruments:
Bonds and Preferred Stocks
The fair values of bonds and preferred stocks are generally based on pub-
lished quotations of the SVO of the NAIC. However, for certain investments,
the SVO does not provide a value and FPLH uses either admitted asset in-
vestment amounts (i.e., statement values) as allowed by the NAIC, values
provided by outside broker confirmations or internally calculated esti-
mates. The fair values of FPLH's bonds and preferred stocks are disclosed
in Note 2.
Policy Loans
The carrying values of policy loans reported in the accompanying balance
sheets approximate their fair values.
Cash and Short-Term Investments
The carrying values of cash and short-term investments reported in the ac-
companying balance sheets approximate their fair values.
Investment Contracts
The fair values of investment-type fixed annuity contracts are estimated
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.
21
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and fair values of FPLH's liabilities for
investmenttype contracts at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1996
Fixed annuity contracts................................. $ 76,881 $ 72,900
Variable annuity contracts*............................. 107,285 107,285
-------- --------
$184,166 $180,185
======== ========
DECEMBER 31, 1995
Fixed annuity contracts................................. $ 82,835 $ 85,511
Variable annuity contracts*............................. 66,727 66,727
-------- --------
$149,562 $152,238
======== ========
</TABLE>
--------
* Included in FPLH's separate account liabilities.
The fair values for FPLH's insurance contracts other than investment con-
tracts are not required to be disclosed. However, the fair values of lia-
bilities under all insurance contracts are taken into consideration in
FPLH's overall management of interest rate risk, such that FPLH's exposure
to changing interest rates is minimized through the matching of investment
maturities with amounts due under insurance contracts.
22
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS
Part A None
Part B Audited Financial Statements
First Providian Life & Health Insurance Company Separate Account B
Years ended December 31, 1996 and 1995 with Report of Independent Au-
ditors
Audited Financial Statements--Statutory-Basis
First 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 First Providian Life and Health
Insurance Company ("First Providian") authorizing establishment of the
Separate Account./4/
(2) Not Applicable.
(3) Not Applicable.
(4) Form of variable annuity contract/2/
(5) Form of application/2/
(6) (a) Amended and Restated Charter of First Providian/4/
(b) By-Laws of First Providian as amended February 28, 1995/4/
(7) Not applicable.
(8) (a) Form of Participation Agreement for the Vanguard Variable Insurance
Fund/2/
(b) First Amendment to Participation, Market Consulting and Administra-
tion Agreement/3/
(c) Administration Agreement/2/
(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/3/
(14) Not applicable.
- --------
/1/ Filed herewith.
/2/ Incorporated by reference from Pre-Effective Amendment No. 1 to the Regis-
tration Statement of National Home Life Assurance Company Separate Account
IV, File No. 33-36073.
/3/ Incorporated by reference from Post-Effective Amendment No. 5 to the Regis-
tration Statement of First Providian Life & Health Insurance Company Sepa-
rate Account B, File No. 33-39946.
/4/ Incorporated by reference from Pre-Effective Amendment No. 1 to the Regis-
tration Statement of First Providian Life & Health Insurance Company Sepa-
rate Account C, File No. 33-94204.
C-1
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
OFFICERS:
<TABLE>
<S> <C>
President....................................... David G. Rekoski
Senior Vice President, Treasurer & Senior
Financial Officer............................... Dennis E. Brady
Senior Vice President........................... Carol E. Ballentine
Senior Vice President........................... Martin Renninger
Vice President.................................. Thomas B. Nesspor
Vice President.................................. Brian Alford
Vice President.................................. Edward A. Biemer
Vice President/Underwriting..................... Carolyn M. Johnson
Vice President.................................. Kevin F. McGlynn
Vice President and Secretary.................... Susan E. Martin
Vice President and Actuary...................... John C. Prestwood, Jr.
Vice President.................................. Nancy B. Schuckert
Vice President.................................. Joseph D. Strenk
Vice President.................................. G. Eric O'Brien
Vice President/Underwriting..................... William J. Kline
Vice President.................................. Nathan C. Anguiano
Vice President.................................. Thomas P. Bowie
Vice President.................................. Gregory J. Garvin
Vice President.................................. Daniel H. Odum
Vice President and Consumer Services Officer.... Rosalie M. Smith
Assistant Vice President........................ Geralyn Barbato
Assistant Vice President........................ Mary Ellen Fahringer
Assistant Vice President and Qualified Actuary.. Michael A. Cioffi
Assistant Vice President........................ Patricia A. Lukacs
Assistant Vice President and Assistant
Treasurer....................................... John A. Mazzuca
Assistant Controller............................ Paul J. Lukacs
Assistant Controller............................ Joseph C. Noone
Second Vice President........................... Cindy L. Chanley
Second Vice President/Investments............... Terri L. Allen
Second Vice President/Investments............... Kirk W. Buese
Second Vice President........................... Karen H. Fleming
Second Vice President........................... Michael F. Lane
Second Vice President........................... Frank J. Rosa
Second Vice President........................... George E. Claiborne, Jr.
Second Vice President........................... Michele M. Coan
Second Vice President........................... Robin M. Morgan
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
</TABLE>
C-2
<PAGE>
<TABLE>
<S> <C>
Second Vice President/Investments......................... James G. Nickerson
Second Vice President/Investments......................... Douglas H. Owen, Jr.
Second Vice President/Investments......................... Jon L. Skaggs
Second Vice President/Investments......................... Robert Smedley
Second Vice President/Investments......................... Bradley L. Stofferahn
Second Vice President/Investments......................... Randall K. Waddell
Second Vice President/Investments......................... Joel L. Coleman
Second Vice President/Investments......................... Jeffrey T. McGlaun
Second Vice President and Assistant Secretary............. Edward P. Reiter
Assistant Secretary....................................... L. Jude Clark
Assistant Secretary....................................... Colleen S. Lyons
Assistant Secretary....................................... Mary Ann Malinyak
Assistant Secretary....................................... John E. Reesor
Assistant Secretary....................................... Kimberly A. Scouller
Assistant Secretary....................................... R. Michael Slaven
Product Compliance Officer................................ James T. Bradley
</TABLE>
DIRECTORS:
Dennis E. Brady Brian B. Perry Craig D. Vermie
I. Donald Britton John C. Prestwood, Jr.
Patricia A. Collins Martin Renninger
Jeffrey H. Goldberger Rosalie M. Smith
Susan E. Martin Thomas B. Nesspor
Kevin McGlynn David G. Rekoski
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
The Depositor, First Providian Life & Health Insurance Company ("First
Providian"), is directly and indirectly wholly owned by Providian Corporation.
The Registrant is a segregated asset account of First Providian.
The following chart indicates the persons controlled by or under common con-
trol with First Providian Life & Health Insurance Company.
<TABLE>
<CAPTION>
PERCENT OF
JURISDICTION OF VOTING SECURITIES
NAME INCORPORATION 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 Delaware 100% Diversified Investment Broker-Dealer
Securities 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
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
JURISDICTION OF VOTING SECURITIES
NAME INCORPORATION OWNED BUSINESS
---- --------------- ----------------- ---------------
<S> <C> <C> <C>
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
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.
</TABLE>
C-4
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
JURISDICTION OF VOTING SECURITIES
NAME INCORPORATION OWNED BUSINESS
---- --------------- ----------------- ---------------
<S> <C> <C> <C>
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
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.
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
JURISDICTION OF VOTING SECURITIES
NAME INCORPORATION OWNED BUSINESS
---- --------------- ----------------- ---------------
<S> <C> <C> <C>
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
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.
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF
JURISDICTION OF VOTING SECURITIES
NAME INCORPORATION OWNED BUSINESS
---- --------------- ----------------- ---------------
<S> <C> <C> <C>
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>
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 2,500 owners of Contracts.
ITEM 28. INDEMNIFICATION
Item 28 is incorporated by reference from the initial Registration Statement
of National Home Life Assurance Company of New York Separate Account B, File
No. 33-39946.
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.
C-7
<PAGE>
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 on any matter relating to the Separate Ac-
count's operations, policies or practices.
(e) First Providian Life and 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 ex-
penses expected to be incurred and the risks assumed by First Providian Life
and Health Insurance Company.
C-8
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THE REGISTRANT, FIRST PROVIDIAN LIFE & HEALTH INSURANCE COMPANY SEPARATE
ACCOUNT B, CERTIFIES THAT IT MEETS THE REQUIREMENTS OF SECURITIES ACT RULE 485
FOR EFFECTIVENESS OF THIS AMENDED REGISTRATION STATEMENT AND HAS CAUSED THIS
AMENDED REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF IN THE COUNTY OF
JEFFERSON AND COMMONWEALTH OF KENTUCKY ON THE 16TH DAY OF SEPTEMBER, 1997.
First Providian Life & Health
Insurance Company Separate Account
B (Registrant)
By: First Providian Life & Health
Insurance Company
/s/ David G. Rekoski*
By: _________________________________
DAVID G. REKOSKI, DIRECTOR
AND PRESIDENT
First Providian Life & Health
Insurance Company (Depositor)
/s/ David G. Rekoski*
By: _________________________________
DAVID G. REKOSKI, DIRECTOR
AND 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 IN-
DICATED.
SIGNATURE TITLE DATE
/s/ David G. Rekoski Director and September 16, 1997
- ------------------------------------ President
DAVID G. REKOSKI
/s/ Dennis E. Brady* Director, Senior September 16, 1997
- ------------------------------------ Vice President,
DENNIS E. BRADY Treasurer and
Senior Financial
Officer (Chief
Accounting
Officer)
/s/ Susan E. Martin* Director, Vice September 16, 1997
- ------------------------------------ President, and
SUSAN E. MARTIN Secretary
/s/ I. Donald Britton* Director September 16, 1997
- ------------------------------------
I. DONALD BRITTON
/s/ Patricia A. Collins* Director September 16, 1997
- ------------------------------------
PATRICIA A. COLLINS
/s/ Jeffrey H. Goldberger* Director September 16, 1997
- ------------------------------------
JEFFREY H. GOLDBERGER
/s/ Brian H. Perry* Director September 16, 1997
- ------------------------------------
BRIAN H. PERRY
/s/ Martin Renninger* Director and Senior September 16, 1997
- ------------------------------------ Vice President
MARTIN RENNINGER
/s/ Rosalie M. Smith* Director September 16, 1997
- ------------------------------------
ROSALIE M. SMITH
/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/ Kevin McGlynn* Director and Vice September 16, 1997
- ------------------------------------ President
KEVIN MCGLYNN
/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 16, 1997
First Providian Life & Health Insurance Company Administrative Offices 520
Columbia Drive Johnson City, New York 13790
RE: First Providian Life & Health Insurance Company Separate Account B--
Opinion and Consent
To Whom It May Concern:
This opinion and consent is furnished in connection with the filing of Post-
Effective Amendment No. 7 (the "Amendment") to the Registration Statement on
Form N-4, File No. 33-39946 (the "Registration Statement") under the Securi-
ties Act of 1933, as amended (the "Act"), of First Providian Life & Health In-
surance Company Separate Account B ("Separate Account B"). Separate Account B
receives and invests premiums allocated to it under a flexible premium multi-
funded annuity contract (the "Annuity Contract"). The Annuity Contract is of-
fered in the manner described in the prospectus contained in the Registration
Statement (the "Prospectus").
In my capacity as legal adviser to First Providian Life & Health Insurance
Company, I hereby confirm the establishment of Separate Account B pursuant to
a resolution adopted by the Board of Directors of First Providian Life &
Health Insurance Company for a separate account for assets applicable to the
Annuity Contract, pursuant to the provisions of Section 46 of the New York In-
surance Statutes. In addition, I have made such examination of the law in ad-
dition to consultation with outside counsel and have examined such corporate
records and such other documents as I consider appropriate as a basis for the
opinion hereinafter expressed. On the basis of such examination, it is my pro-
fessional opinion that:
1. First Providian Life & Health Insurance Company is a corporation duly
organized and validly existing under the laws of the State of New York.
2. Separate Account B is an account established and maintained by First
Providian Life & Health Insurance Company pursuant to the laws of the
State of New York, under which income, capital gains and capital losses
incurred on the assets of Separate Account B are credited to or charged
against the assets of Separate Account B, without regard to the income,
capital gains or capital losses arising out of any other business which
First Providian Life & Health Insurance Company may conduct.
3. Assets allocated to Separate Account B will be owned by First Providian
Life & Health Insurance Company. The assets in Separate Account B at-
tributable to the Annuity Contract generally are not chargeable with li-
abilities arising out of any other business which First Providian Life &
Health Insurance Company may conduct. The assets of Separate Account B
are available to cover the general liabilities of First Providian Life &
Health Insurance Company only to the extent that the assets of Separate
Account B exceed the liabilities arising under the Annuity Contracts.
4. The Annuity Contracts have been duly authorized by First Providian Life
& Health Insurance Company and, when sold in jurisdictions authorizing
such sales, in accordance with the Registration Statement, will consti-
tute validly issued and binding obligations of First Providian Life &
Health Insurance Company in accordance with their terms.
5. Owners of the Annuity Contracts as such, will not be subject to any de-
ductions, charges or assessments imposed by First Providian Life &
Health Insurance Company other than those provided in the Annuity Con-
tract.
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 Pro-
spectus.
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 16, 1997
First Providian Life & Health Insurance Company 520 Columbia Drive Johnson
City, New York 13790
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal Mat-
ters" in the Prospectus contained in Post-Effective Amendment No. 7 to the
Registration Statement on Form N-4 (file No. 33-39946) filed by First
Providian Life & Health Insurance Company and First Providian Life & Health
Insurance Company Separate Account B with the Securities and Exchange Commis-
sion 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 First Providian Life and Health Insurance Company Separate Account
B and the statutory-basis financial statements of First Providian Life and
Health Insurance Company in Post-Effective Amendment No. 7 to the Registration
Statement (Form N-4 No. 33-39946) and related Prospectus of First Providian Life
and Health Insurance Company Separate Account B.
/s/ Ernst & Young LLP
Louisville, Kentucky
September 12, 1997
