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As Filed With The Securities And Exchange Commission On November 20, 1995
Registration No. 33-80958
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 3
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 14
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
(Exact Name of Registrant)
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(Name of Depositor)
20 Moores Road
Frazer, Pennsylvania 19355
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number (800) 523-7900
Kimberly A. Scouller, Esquire
Providian Life and Health Insurance Company
400 West Market Street
P.O. Box 32830
Louisville, Kentucky 40232
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esquire
Margaret E. Hankard, Esquire
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed 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 _____, 1995, 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.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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 Rule 24f-2 notice for the fiscal year ended December 31, 1994, on February
24, 1995.
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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
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PART A
Item of
Form N-4 Prospectus Caption
- - - -------- ------------------
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1. Cover Page................................................ Cover Page
2. Definitions............................................... GLOSSARY
3. Synopsis.................................................. HIGHLIGHTS; FEE TABLE; Performance Measures
4. Condensed Financial Information........................... Condensed Financial Information
5. General Description of Registrant, Depositor, and
Portfolio Companies....................................... Providian Life and Health Insurance Company,
Providian Life and Health Insurance Company
Separate Account V; The Portfolios; Voting Rights
6. Deductions................................................ Charges and Deductions; FEDERAL TAX CONSIDERATIONS;
FEE TABLE
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; Right to Cancel Period
12. Taxes..................................................... FEDERAL TAX CONSIDERATIONS
13. Legal Proceedings......................................... Part B: Legal Proceedings
14. Table of Contents of the Statement of Additional
Information............................................... Table of Contents of The Advisor's Edge Statement
of Additional Information
PART B
Item of Statement of Additional
Form N-4 Information Caution
- - - --------....................................................... -----------------------
15. Cover Page................................................ Cover Page
16. Table of Contents......................................... Table of Contents
17. General Information and History........................... THE COMPANY
18. Services.................................................. Part A: Auditors; Part B: SAFEKEEPING OF
ACCOUNT ASSETS; DISTRIBUTION OF THE CONTRACTS
19. Purchase of Securities Being Offered...................... DISTRIBUTION OF THE CONTRACTS; Exchanges
20. Underwriters.............................................. DISTRIBUTION OF THE CONTRACTS
21. Calculation of Performance Data........................... PERFORMANCE INFORMATION
22. Annuity Payments.......................................... Computations of Annuity Income Payments
23. Financial Statements...................................... FINANCIAL STATEMENTS
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
PROSPECTUS
FOR
THE ADVISOR'S EDGE VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The Advisor's Edge variable annuity contract (the "Contract"), offered through
Providian Life and Health Insurance Company (the "Company", "us", "we" or
"our"), provides a vehicle for investing on a tax-deferred basis in 20
investment company Portfolios and our General Account. The Contract is an
individual variable annuity contract and is intended for retirement savings or
other long-term investment purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $5,000. The
minimum initial purchase payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (30 days
or more in some instances) during which you may cancel your investment in the
Contract.
Your Net Purchase Payments for the Contract may be allocated among 20
Subaccounts of Providian Life and Health Insurance Company's Separate Account V
and three fixed options available under the Company's General Account. Assets
of each Subaccount are invested in one of the following Portfolios (which are
contained within five open-end, diversified investment companies):
.DFA SMALL VALUE PORTFOLIO .SEI INTERNATIONAL GROWTH FUND
.DFA LARGE VALUE PORTFOLIO .SEI GROWTH FUND
.DFA INTERNATIONAL VALUE .SEI AGGRESSIVE GROWTH FUND
PORTFOLIO .SEI INCOME EQUITY FUND
.DFA INTERNATIONAL SMALL .SEI INTERMEDIATE FIXED INCOME
PORTFOLIO FUND
.DFA SHORT-TERM FIXED .WANGER U.S. SMALL CAP ADVISOR
PORTFOLIO .WANGER INTERNATIONAL SMALL CAP
.DFA GLOBAL BOND PORTFOLIO ADVISOR
.FEDERATED'S EQUITY GROWTH .WEISS, PECK & GREER CORE LARGE-
AND INCOME FUND CAP STOCK PORTFOLIO
.FEDERATED'S UTILITY FUND .WEISS, PECK & GREER CORE SMALL-
.FEDERATED'S PRIME MONEY CAP STOCK PORTFOLIO
FUND
.FEDERATED'S CORPORATE BOND
FUND
.FEDERATED'S U.S.
GOVERNMENT BOND FUND
Depending upon the state of issue and provisions of your Contract, your initial
Net Purchase Payment(s) will, when your Contract is issued, either be (i)
invested in Federated's Prime Money Portfolio during your Right to Cancel
Period and/or invested immediately in your chosen Guaranteed Index Rate Options
or (ii) invested immediately in your chosen Portfolios and fixed options (other
than the Five-Year Guaranteed Equity Option).
The Contract's Accumulated Value varies with the investment performance of the
Portfolios you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed except to
the extent a portion of the Accumulated Value is allocated to the General
Account.
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 of the Contract's Surrender Value may be made at any time,
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 and/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 a current Prospectus for each Fund.
Please read the 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 calling our Administrative Offices at 1-800-866-6007. 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.
The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The date of this Prospectus is December , 1995
fm-0989
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TABLE OF CONTENTS
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PAGE
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GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 6
FEE TABLE.................................................................. 8
Condensed Financial Information............................................ 10
Financial Statements....................................................... 10
Performance Measures....................................................... 10
Additional Performance Measures............................................ 11
Yield and Effective Yield.................................................. 11
The Company and the Separate Account....................................... 12
DFA Investment Dimensions Group Inc........................................ 12
Insurance Management Series................................................ 12
Insurance Investment Products Trust........................................ 13
Wanger Advisors Trust...................................................... 13
Tomorrow Funds Retirement Trust............................................ 13
The Portfolios............................................................. 13
CONTRACT FEATURES.......................................................... 17
Right to Cancel Period................................................... 17
Contract Application and Purchase Payments............................... 17
Purchasing by Wire....................................................... 17
Allocation of Purchase Payments.......................................... 17
Charges and Deductions................................................... 18
Accumulated Value........................................................ 20
Exchanges Among the Portfolios........................................... 20
Full and Partial Withdrawals............................................. 21
Systematic Withdrawal Option............................................. 21
Dollar Cost Averaging Option............................................. 21
IRS-Required Distributions............................................... 22
Minimum Balance Requirement.............................................. 22
Designation of an Annuitant's Beneficiary................................ 22
Death of Annuitant Prior to Annuity Date................................. 23
Annuity Date............................................................. 23
Lump Sum Payment Option.................................................. 23
Annuity Payment Options.................................................. 23
Deferment of Payment..................................................... 25
FEDERAL TAX CONSIDERATIONS................................................. 25
GENERAL INFORMATION........................................................ 30
APPENDIX A--The General Account............................................ A-1
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GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period before
age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from each
Subaccount.
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 23), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options," page
23), the dollar amount of each Annuity Payment may change over time, depending
upon the investment experience of the Portfolio or Portfolios you choose.
Annuity Payments are based on the Contract's Accumulated Value as of 10
Business Days prior to the Annuity Date.
Annuity Unit - Unit of measure used to calculate Variable Annuity Payments (see
"Annuity Payment Options," page 23).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
Company ("we", "us", "our") - Providian Life and Health Insurance Company, a
Missouri stock company.
Contract Anniversary - Any anniversary of the Contract Date.
Contract Date - The date of issue of this Contract.
Contract Owner ("you", "your") - The person or persons designated as the
Contract Owner in the Contract application. The term shall also include any
person named as Joint Owner. A Joint Owner shares ownership in all respects
with the Contract Owner. Prior to the Annuity Date, the Contract Owner has the
right to assign ownership, designate beneficiaries, make permitted withdrawals
and Exchanges among Subaccounts and Guaranteed Index Rate Options.
Contract Year - A period of 12 months starting with the Contract Date or any
Contract Anniversary.
Death Benefit - The greater of the Contract's Accumulated Value on the date the
Company receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit. If any portion of the Contract's Accumulated Value on the date we
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receive proof of the Annuitant's death is derived from the Five-Year Guaranteed
Index Rate Option, that portion of the Accumulated Value will be adjusted by a
positive Market Value Adjustment Factor (see "Five-Year Guaranteed Index Rate
Option," at Appendix A), if applicable.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount or General Account Guaranteed Option.
Funds - Each of (i) DFA Investment Dimensions Group Inc., (ii) Insurance
Management Series (advised by Federated Advisers), (iii) Insurance Investment
Products Trust (advised by SEI Financial Management Corporation), (iv) Wanger
Advisors Trust (advised by Wanger Asset Management, L.P.) and (v) Tomorrow
Funds Retirement Trust (advised by Weiss, Peck & Greer, L.L.C.). The Separate
Account invests in the Portfolios.
General Account - The account which contains all of our assets other than those
held in our separate accounts.
General Account Guaranteed Option - Any of the following three General Account
options offered by your Contract and to which you may allocate your Net
Purchase Payments: the One-Year Guaranteed Index Rate Option, the Five-Year
Guaranteed Index Rate Option, and the Five-Year Guaranteed Equity Option.
Guaranteed Index Rate Options - The One-Year Guaranteed Index Rate Option and
the Five-Year Guaranteed Index Rate Option.
Market Value Adjustment Factor - The formula applied to the Accumulated Value
in order to determine the net amount of any transfer or surrender under the
Five-Year Guaranteed Index Rate Option (see "Five-Year Guaranteed Index Rate
Option," at Appendix A).
Net Purchase Payment - Any Purchase Payment less the applicable Premium Tax, if
any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant--in which case the Annuitant's Beneficiary is entitled to the Death
Benefit. (Note: this transfer of ownership to the Owner's Designated
Beneficiary will generally not be subject to probate, but will be subject to
estate and inheritance taxes. Consult with your tax and estate adviser to be
sure which rules will apply to you.)
Payee - The Contract Owner, Annuitant, Annuitant's Beneficiary, or any other
person, estate, or legal entity to whom benefits are to be paid.
Portfolio - A separate investment series of the Funds. The Funds currently
offer 20 Portfolios in The Advisor's Edge: the VA Small Value Portfolio (the
"DFA Small Value Portfolio") the VA Large Value Portfolio (the "DFA Large Value
Portfolio") (formerly, the DFA Global Value Portfolio), the VA International
Value Portfolio (the "DFA International Value Portfolio"), the VA International
Small Portfolio (the "DFA International Small Portfolio"), the VA Short-Term
Fixed Portfolio (the "DFA Short-Term Fixed Portfolio") and the VA Global Bond
Portfolio (the "DFA Global Bond Portfolio") of DFA Investment Dimensions Group
Inc.; Federated's Equity Growth and Income Fund ("Federated's Equity Growth and
Income Portfolio"), Federated's Utility Fund ("Federated's Utility Portfolio"),
Federated's Prime Money Fund ("Federated's Prime Money Portfolio"), Federated's
U.S. Government Bond Fund ("Federated's U.S. Government Bond Portfolio") and
Federated's Corporate Bond Fund ("Federated's Corporate Bond Portfolio") of
Insurance Management Series; the SEI International Growth Fund (the "SEI
International Growth Portfolio"), the SEI Growth Fund (the "SEI Growth
Portfolio"), the SEI Aggressive Growth Fund (the "SEI Aggressive Growth
Portfolio"), the SEI Income Equity Fund (the "SEI Income Portfolio"), and the
SEI Intermediate Fixed Income Fund (the "SEI Intermediate Fixed Income
Portfolio") of Insurance Investment Products Trust; the Wanger U.S. Small Cap
Advisor (the "Wanger U.S. Small Cap Advisor Portfolio") and the Wanger
International Small Cap Advisor (the "Wanger International Small Cap Advisor
Portfolio") of Wanger Advisors Trust; and the Core Large-Cap Stock Fund (the
"Weiss, Peck & Greer Core Large-Cap Stock Portfolio") and the Core Small-Cap
Stock Fund (the "Weiss, Peck & Greer Small-Cap Stock Portfolio") of the
Tomorrow Funds Retirement Trust (each, a "Portfolio" and collectively, the
"Portfolios"). In this Prospectus, Portfolio will also be used to refer to the
Subaccount that invests in the corresponding Portfolio.
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Premium Tax - A regulatory tax that may be assessed by certain states on the
Purchase Payments you make to this 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
of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment is
$5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or $50
monthly by payroll deduction for Qualified Contracts); each additional Purchase
Payment must be at least $1,000 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of Providian Life and Health Insurance
Company's Separate Account V dedicated to the Contract. The Separate Account
consists of assets that are segregated by Providian Life and Health Insurance
Company and, for Contract Owners, invested in the Portfolios. The Separate
Account is independent of the general assets of the Company.
Subaccount - That portion of the Separate Account that invests in shares of the
Funds' Portfolios. Each Subaccount will only invest in a single Portfolio. The
investment performance of each Subaccount is linked directly to the investment
performance of one of the 20 Portfolios.
Surrender Value - The Accumulated Value, adjusted to reflect any applicable
Market Value Adjustment (see "Five-Year Guaranteed Index Rate Option," at
Appendix A) for amounts allocated to the Five-Year Guaranteed Index Rate
Option, less any early withdrawal charges for amounts allocated to the One-Year
Guaranteed Index Rate Option, less any amount allocated to the Five-Year
Guaranteed Equity Option, less any Premium Taxes incurred but not yet deducted.
Valuation Period - The relative performance of your Contract is measured by the
Accumulation Unit Value. This value is calculated each Valuation Period. A
Valuation Period is defined as the period of time between the close of business
on one Business Day and the close of business on the following Business Day.
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HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 3).
THE ADVISOR'S EDGE
The Contract provides a vehicle for investing on a tax-deferred basis in 20
investment company Portfolios and three General Account Guaranteed Options
offered by the Company. Monies may be subsequently withdrawn from the Contract
either as a lump sum or as annuity income as permitted under the Contract.
Accumulated Values and Annuity Payments depend on the investment experience of
the selected Portfolios and/or the guarantees of the General Account Guaranteed
Options. The investment performance of the Portfolios is not guaranteed. Thus,
you bear all investment risk for monies invested under the Contract except to
the extent of the portion of your Accumulated Value allocated to the General
Account.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement 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 income tax brackets.
The Contract is offered as both a Qualified Contract and a Non-Qualified
Contract. Both Qualified and Non-Qualified Contracts offer tax-deferral on
increases in the Contract's value prior to withdrawal or distribution; however,
Purchase Payments made by Contract Owners of Qualified Contracts may be
excludible or deductible from gross income in the year such payments are made,
subject to certain statutory restrictions and limitations. (See "Federal Tax
Considerations")....................................................Page 25
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 20 Subaccounts of the
Separate Account and/or the General Account Guaranteed Options. The Subaccounts
in turn invest exclusively in the following 20 Portfolios offered by the Funds:
the DFA Small Value Portfolio, the DFA Large Value Portfolio, the DFA
International Value Portfolio, the DFA International Small Portfolio, the DFA
Short-Term Fixed Portfolio, the DFA Global Bond Portfolio, Federated's Equity
Growth and Income Portfolio, Federated's Utility Portfolio, Federated's Prime
Money Portfolio, Federated's U.S. Government Bond Portfolio, Federated's
Corporate Bond Portfolio, the SEI International Growth Portfolio, the SEI
Growth Portfolio, the SEI Aggressive Growth Portfolio, the SEI Income Equity
Portfolio, the SEI Intermediate Fixed Income Portfolio, the Wanger U.S. Small
Cap Advisor Portfolio, the Wanger International Small Cap Advisor Portfolio,
the Weiss, Peck & Greer Core Large-Cap Stock Portfolio and the Weiss, Peck &
Greer Core Small-Cap Stock Portfolio. The assets of each Portfolio are
separate, and each Portfolio has distinct investment objectives and policies as
described in the corresponding Fund Prospectus......................Page 12
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in the
Contract application. The Contract Owner may designate any person as a Joint
Owner. A Joint Owner shares ownership in all respects with the Contract Owner.
Prior to the Annuity Date, the Contract Owner has the right to assign
ownership, designate beneficiaries, and make permitted withdrawals and
Exchanges among the Subaccounts and General Account Guaranteed Options.
ANNUITANT
The Annuitant is a person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
ANNUITANT'S BENEFICIARY
The Contract Owner may designate any person to receive benefits under the
Contract which are payable upon the death of the Annuitant prior to the Annuity
Date.
HOW TO INVEST
To invest in the Contract, please consult your adviser who will assist you in
completing the Contract application. You will need to select an Annuitant. The
Annuitant may not be older than age 75. The minimum initial Purchase Payment is
$5,000 for Non-Qualified Contracts, and $2,000 for Qualified Contracts (or $50
monthly by payroll deduction for Qualified
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Contracts); subsequent Purchase Payments must be at least $1,000 for Non-
Qualified Contracts or $50 for Qualified Contracts. You may make subsequent
Purchase Payments at any time before the Contract's Annuity Date, as long as
the Annuitant specified in the Contract is living...................Page 17
ALLOCATION OF PURCHASE PAYMENTS
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when your
Contract is issued, be invested in Federated's Prime Money Portfolio until the
expiration of the Right to Cancel Period and then invested according to your
initial allocation instructions (except that any accrued interest will remain
in Federated's Prime Money Portfolio if it is selected as an initial allocation
option), provided that you may elect to have the portion of your initial Net
Purchase Payment(s) allocated to the Guaranteed Index Rate Options invested
immediately upon our receipt thereof in order to lock in the rates then
applicable to such options.
If the state of issue of your Contract is any other state, then depending on
the applicable provisions of your Contract, your initial Net Purchase
Payment(s) will, unless you indicate otherwise, be invested in your Portfolios
and Guaranteed Index Rate Options immediately upon our receipt thereof, IN
WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE
PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that this automatic
immediate investment feature only applies if your Contract so specifies. The
Company does not expect to issue Contracts with this immediate investment
feature until the fourth quarter of 1995 at the earliest. Please check with
your agent to determine the status of your Contract. Also, immediate investment
is not available with respect to any amounts allocated to THE FIVE-YEAR
GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR FIVE YEARS.) You must fill out
and send us the appropriate form or comply with other designated Company
procedures if you would like to change how subsequent Net Purchase Payments are
allocated...........................................................Page 17
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (30 or more days
in some instances as specified in your Contract), during which you may cancel
your investment in the Contract. To cancel your investment, please return your
Contract to us or to the agent from whom you purchased the Contract. When we
receive the Contract, (1) if the state of issue of your Contract is CA, GA, ID,
LA, MI, MO, NE, NH, NC, OK, SC, UT, VA or WV, then for any amount of your
initial Purchase Payment(s) invested in Federated's Prime Money Portfolio, we
will return the Accumulated Value of the amount of your Purchase Payment(s) so
invested, or if greater, the amount of your Purchase Payment(s) so invested,
(2) for any amount of your initial Purchase Payment(s) invested in the
Portfolios immediately following receipt by us, we will return the Accumulated
Value of your Purchase Payment(s) so invested plus any fees and/or Premium
Taxes that may have been subtracted from such amount, and (3) for any amount of
your initial Purchase Payment(s) invested in the Guaranteed Index Rate Options
immediately following receipt by us, we will refund the amount of your Purchase
Payment(s) so invested..............................................Page 17
EXCHANGES
You may make unlimited Exchanges among the Portfolios or into the General
Account Guaranteed Options, provided you maintain a minimum balance of $1,000
in each Subaccount or General Account Guaranteed Option to which you have
allocated a portion of your Accumulated Value. A $15 fee is currently imposed
for Exchanges in excess of 12 per Contract Year. Exchanges must not reduce the
value of any Subaccount or General Account Guaranteed Option below $1,000, or
that remaining amount will be transferred to your other Subaccounts or
Guaranteed Index Rate Options on a pro rata basis. The Five-Year Guaranteed
Equity Option is illiquid for the entire five-year guarantee period, and
transfers from the General Account Guaranteed Options may be subject to
additional limitations and charges. (See also "Charges and Deductions," page
18, and "The General Account," at Appendix A).......................Page 19
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value (plus any
positive Market Value Adjustment applicable under the Five-Year Guaranteed
Index Rate Option) or the Adjusted Death Benefit on the date we receive due
proof of the Annuitant's death. During the first six Contract Years, the
Adjusted Death Benefit will be the sum of all Net Purchase Payments made, less
any partial withdrawals taken. During each subsequent six-year period, the
Adjusted Death Benefit will be the Death Benefit on the last day of the
previous six-year period plus any Net
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Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death Benefit
will remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken. The Annuitant's Beneficiary may elect
to receive these proceeds as a lump sum or as Annuity Payments. If the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid, generally to the Annuitant's Beneficiary, in accordance with the
Contract............................................................Page 23
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your Contract. We provide you with a variety of options as it relates
to those payments. At your discretion, payments may be either fixed or variable
or both. Fixed payouts are guaranteed for a designated period or for life
(either single or joint). Variable payments will vary depending on the
performance of the underlying Portfolio or Portfolios selected......Page 23
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-866-6007 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming any
financial transactions that take place, as well as quarterly statements and an
annual statement.
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .50%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
administrative charges and policy fees which pay for administering the
Contract, and management, advisory and other fees, which reflect the costs of
the Funds...........................................................Page 18
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior to
age 59 1/2 may be subject to a 10% penalty tax (and a portion thereof may be
subject to ordinary income taxes)...................................Page 21
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that may
be assessed by your state) that you would incur as an owner of a Contract (see
page 18). The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as a
purchaser of the Contract. The fee table reflects all expenses for both the
Separate Account and the Funds. For a complete discussion of Contract costs and
expenses, including charges applicable to General Account Guaranteed Options,
see "Charges and Deductions," page 18.
<TABLE>
<CAPTION>
CONTRACTOWNER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
Exchange Fees (for Exchanges in excess of twelve per Contract Year)..... $15
ANNUAL CONTRACT FEE..................................................... $30
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
<S> <C>
Mortality and Expense Risk Charge....................................... .50%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .65%*
</TABLE>
*Separate Account Annual Expenses are not charged against the General
Account Guaranteed Options.
8
<PAGE>
PORTFOLIO ANNUAL EXPENSES
The figures below are based on estimated expenses for fiscal year 1995 (as a
percentage of each Portfolio's average net assets after fee waiver and/or
expense reimbursement, if applicable).
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT PORTFOLIO
AND ADVISORY OTHER ANNUAL
EXPENSES EXPENSES EXPENSES
------------ -------- ---------
<S> <C> <C> <C>
DFA Small Value Portfolio...................... 0.50% 0.70% 1.20%
DFA Large Value Portfolio...................... 0.25% 0.70% 0.95%
DFA International Value Portfolio.............. 0.40% 0.93% 1.33%
DFA International Small Portfolio.............. 0.50% 0.91% 1.41%
DFA Short-Term Fixed Portfolio................. 0.25% 0.59% 0.84%
DFA Global Bond Portfolio...................... 0.25% 0.62% 0.87%
Federated's Equity Growth and Income
Portfolio*.................................... 0.00% 0.85% 0.85%
Federated's Utility Portfolio*................. 0.00% 0.85% 0.85%
Federated's Prime Money Portfolio*............. 0.00% 0.80% 0.80%
Federated's U.S. Government Bond Portfolio*.... 0.00% 0.80% 0.80%
Federated's Corporate Bond Portfolio*.......... 0.00% 0.80% 0.80%
SEI International Growth Portfolio**........... 0.48% 0.92% 1.40%
SEI Growth Portfolio**......................... 0.40% 0.60% 1.00%
SEI Aggressive Growth Portfolio**.............. 0.65% 0.55% 1.20%
SEI Income Equity Portfolio**.................. 0.35% 0.65% 1.00%
SEI Intermediate Fixed Income Portfolio**...... 0.28% 0.42% 0.70%
Wanger U.S. Small Cap Advisor Portfolio***..... 0.98% 0.17% 1.15%
Wanger International Small Cap Advisor
Portfolio***.................................. 1.27% 0.27% 1.54%
Weiss, Peck & Greer Core Large-Cap Stock
Portfolio****................................. 0.00% 1.50% 1.50%
Weiss, Peck & Greer Core Small-Cap Stock
Portfolio****................................. 0.00% 1.50% 1.50%
</TABLE>
*The expense figures shown reflect anticipated voluntary waivers of a
portion of the management fees and/or assumption of expenses. The maximum
Management and Advisory Expenses, Other Expenses, and Total Portfolio Annual
Expenses absent the anticipated voluntary waivers are as follows: 0.75%,
0.85% and 1.60%, respectively, for Federated's Equity Growth and Income
Portfolio; 0.75%, 0.85% and 1.60%, respectively, for Federated's Utility
Portfolio; 0.50%, 0.80% and 1.30%, respectively, for Federated's Prime Money
Portfolio; and 0.60%, 0.80% and 1.40%, respectively, for each of Federated's
U.S. Government Bond Portfolio and Federated's Corporate Bond Portfolio.
**The expense figures shown reflect anticipated voluntary waivers of a
portion of the management fees and/or assumption of expenses. The maximum
Management and Advisory Expenses, Other Expenses, and Total Portfolio Annual
Expenses absent the anticipated voluntary waivers are estimated to be as
follows: 1.03%, 2.38% and 3.41%, respectively, for the SEI International
Growth Portfolio; 0.85%, 0.75% and 1.60%, respectively, for the SEI Growth
Portfolio; 1.10%, 1.16% and 2.26%, respectively, for the SEI Aggressive
Growth Portfolio; 0.80%, 0.65% and 1.45%, respectively, for the SEI Income
Equity Portfolio; and 0.66%, 0.64% and 1.30%, respectively, for the SEI
Intermediate Fixed Income Portfolio.
***The advisor has agreed to reimburse this Portfolio in the event certain
fees and expenses payable by the Portfolio in any fiscal year exceed 2.0% of
average daily net assets.
****The expense figures shown reflect anticipated voluntary waivers of a
portion of the management fees and/or assumption of expenses. The maximum
Management and Advisory Expenses, Other Expenses, and Total Portfolio Annual
Expenses absent the anticipated voluntary waivers are estimated to be as
follows: 0.75%, 3.90% and 4.65%, respectively, for the Weiss, Peck and Greer
Core Large-Cap Stock Portfolio and 0.75%, 4.49% and 5.24%, respectively, for
the Weiss, Peck and Greer Core Small-Cap Stock Portfolio. For each of these
Portfolios, 0.25% of the figure representing Other Expenses is attributable
to a service fee payable by the Tomorrow Funds Retirement Trust under non-
Rule 12b-1 service plans. For more information, please refer to the section
entitled "Service Plans" in the attached prospectus for the Tomorrow Funds
Retirement Trust.
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 surrender or withdrawal charges of any kind. Your expenses
are identical whether you
9
<PAGE>
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>
3
1 YEAR YEARS
------ ------
<S> <C> <C>
DFA Small Value Portfolio.................................. $21.76 $66.91
DFA Large Value Portfolio.................................. $19.25 $59.27
DFA International Value Portfolio.......................... $23.07 $70.86
DFA International Small Portfolio.......................... $23.87 $73.29
DFA Short-Term Fixed Portfolio............................. $18.14 $55.89
DFA Global Bond Portfolio.................................. $18.44 $56.82
Federated's Equity Growth and Income Portfolio............. $18.24 $56.20
Federated's Utility Portfolio.............................. $18.24 $56.20
Federated's Prime Money Portfolio.......................... $17.74 $54.66
Federated's U.S. Government Bond Portfolio................. $17.74 $54.66
Federated's Corporate Bond Portfolio....................... $17.74 $54.66
SEI International Growth Portfolio......................... $23.77 $72.98
SEI Growth Portfolio....................................... $19.75 $60.81
SEI Aggressive Growth Portfolio............................ $21.76 $66.91
SEI Income Equity Portfolio................................ $19.75 $60.81
SEI Intermediate Fixed Income Portfolio.................... $16.73 $51.58
Wanger U.S. Small Cap Advisor Portfolio.................... $21.26 $65.39
Wanger International Small Cap Advisor Portfolio........... $25.17 $77.21
Weiss, Peck & Greer Core Large-Cap Stock Portfolio......... $24.77 $76.01
Weiss, Peck & Greer Core Small-Cap Stock Portfolio......... $24.77 $76.01
</TABLE>
Included in these estimates are the pro rata portions of the Annual Contract
Fees, $3 and $9, respectively, for the periods shown based on an average
expected account size of $10,000. The Annual Contract Fee will be deducted on
each Contract Anniversary and upon surrender or annuitization of the Contract,
on a pro rata basis, from each Subaccount. In some states, the Company will
deduct Premium Taxes as incurred by the Company.
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 guarantees in the Contract.
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD DECEMBER 6, 1994 THROUGH DECEMBER 31, 1994)
<TABLE>
<CAPTION>
FEDERATED'S
PRIME
MONEY
PORTFOLIO*
-----------
<S> <C>
Accumulation unit value as of:
Start Date........................................................ 10.000000
12/31/94.......................................................... 10.026003
Number of units outstanding as of:
12/31/94.......................................................... 70,223
</TABLE>
*Federated's Prime Money Portfolio is the only Portfolio which had commenced
operations as of 12/31/94. Date of commencement of operations for
Federated's Prime Money Portfolio was 12/6/94.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company and the
financial statements of the Separate Account (as well as the Independent
Auditors' Reports thereon) are contained in the Statement of Additional
Information.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of Federated's Prime Money Portfolio, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed 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.
10
<PAGE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission ("SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the deduction of the Annual Contract Fee and all
other Portfolio, Separate Account and Contract level charges except Premium
Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show 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 actual Average Annual Total Return
(i.e., the average annual change in Accumulation Unit Values) with respect to
one or more periods. For one year, the actual Total Return and the actual
Average Annual Total Return are effective annual rates of return and are equal.
For periods greater than one year, the 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 above), the actual Total Return and actual Average
Annual Total Return also reflect these expenses. These percentages, however, do
not reflect the Annual Contract Fee or Premium Taxes (if any) which, if
included, would reduce the percentages reported.
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. They do not include the
Annual Contract Fee or Premium Taxes (if any) which, if included, would reduce
the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of Federated's Prime Money Portfolio. "Yield" refers to the
income generated by an investment in Federated's Prime Money Portfolio over a
seven-day period, which is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in Federated's Prime Money Portfolio is assumed to be
reinvested. Therefore the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. These
figures do not reflect the Annual Contract Fee or Premium Taxes (if any) which,
if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than Federated's Prime
Money Market for which the Company advertises yield, the Company shall furnish
a yield quotation referring to the Portfolio computed in the following manner:
the net investment income per Accumulation Unit earned during a recent one
month period is divided by the Accumulation Unit Value on the last day of the
period.
11
<PAGE>
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.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
THE COMPANY AND THE SEPARATE ACCOUNT
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Missouri on August 6, 1920. The Company is principally engaged in offering life
insurance, annuity contracts, and accident and health insurance and is admitted
to do business in all states except for New York, as well as the District of
Columbia and Puerto Rico. The Company is wholly-owned, directly and indirectly,
by Providian Corporation, a publicly-held diversified consumer financial
services company whose shares are traded on the New York Stock Exchange with
assets of $23.6 billion as of December 31, 1994.
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
The Separate Account was established by the Company as a separate account under
the laws of the State of Missouri on February 14, 1992, pursuant to a
resolution of the Company's Board of Directors. The Separate Account is a unit
investment trust registered with 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 Separate Account meets the definition of a "separate
account" under the federal securities laws.
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
liabilities 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). 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 performance of the Separate
Account is entirely independent of the investment performance of the General
Account assets or any other separate account maintained by the Company.
The Separate Account has dedicated 20 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
DFA INVESTMENT DIMENSIONS GROUP INC.
DFA Investment Dimensions Group Inc. is an open-end management investment
company organized under Maryland law in 1981, and is registered under the 1940
Act. The Fund issues 24 series of shares, including the DFA Small Value
Portfolio, the DFA Large Value Portfolio (formerly, the DFA Global Value
Portfolio), the DFA International Value Portfolio, the DFA International Small
Portfolio, DFA Short-Term Fixed Portfolio and the DFA Global Bond Portfolio,
which are the only portfolios available as part of The Advisor's Edge.
Dimensional Fund Advisors Inc. serves as this Fund's investment adviser.
INSURANCE MANAGEMENT SERIES (ADVISED BY FEDERATED ADVISERS)
Insurance Management Series is an open-end management investment company
organized as a Massachusetts business trust and registered under the 1940 Act.
The Fund consists of five investment portfolios available as part of The
Advisor's Edge: Federated's Equity Growth and Income Portfolio, Federated's
Utility Portfolio, Federated's Prime Money Portfolio, Federated's U.S.
Government Bond Portfolio and Federated's Corporate Bond Portfolio. Federated
Advisers serves as this Fund's investment adviser.
12
<PAGE>
INSURANCE INVESTMENT PRODUCTS TRUST (ADVISED BY SEI FINANCIAL MANAGEMENT
CORPORATION)
Insurance Investment Products Trust (the "SEI Fund"), an open-end management
investment company, was organized as a Massachusetts business trust in 1994 and
is registered under the 1940 Act. The SEI Fund consists of five professionally
managed investment portfolios available as part of The Advisor's Edge: the SEI
International Growth Portfolio, the SEI Growth Portfolio, the SEI Aggressive
Growth Portfolio, the SEI Income Equity Portfolio and the SEI Intermediate
Fixed Income Portfolio. SEI Financial Management Corporation ("SFM"), a wholly-
owned subsidiary of SEI Corporation, was organized as a Delaware corporation in
1969 and is the SEI Fund's investment advisor. SFM has general oversight
responsibility for the investment advisory services provided to the SEI Fund.
SFM contracts with various sub-advisors who are responsible for making the day-
to-day investment decisions for each Portfolio as well as placing orders on
behalf of each Portfolio in order to effect the investment decisions made. In
addition, SFM is authorized to make investment decisions for the assets of each
Portfolio.
WANGER ADVISORS TRUST (ADVISED BY WANGER ASSET MANAGEMENT, L.P.)
Wanger Advisors Trust, an open-end management investment company, was organized
as a Massachusetts business trust in 1994 and is registered under the 1940 Act.
The Fund consists of two series available as part of The Advisor's Edge: the
Wanger U.S. Small Cap Advisor Portfolio and the Wanger International Small Cap
Advisor Portfolio. Wanger Asset Management, L.P., a limited partnership managed
by its general partner, Wanger Asset Management, Ltd., serves as this Fund's
investment adviser.
TOMORROW FUNDS RETIREMENT TRUST (ADVISED BY WEISS, PECK & GREER, L.L.C.)
Tomorrow Funds Retirement Trust, an open-end management investment company, was
organized as a Delaware business trust in 1995 and is registered under the 1940
Act. The Fund consists of six series, including the Core Large-Cap Stock
Portfolio and the Core Small-Cap Stock Portfolio, which are the only series
available as part of The Advisor's Edge. Weiss, Peck & Greer, L.L.C. serves as
this Fund's investment adviser.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
For more information concerning the risks associated with each Portfolio's
investments, please refer to the applicable underlying Fund prospectus.
VA SMALL VALUE PORTFOLIO ("DFA SMALL VALUE PORTFOLIO")
The investment objective of the DFA Small Value Portfolio is to achieve long-
term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in common stocks of U.S. companies with shares that have
a high book value in relation to their market value (a "book to market ratio")
and whose market capitalizations are smaller than that of the company having
the median market capitalization of companies whose shares are listed on the
NYSE.
VA LARGE VALUE PORTFOLIO ("DFA LARGE VALUE PORTFOLIO")
The investment objective of the DFA Large Value Portfolio is to achieve long-
term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in common stocks of U.S. companies that have a high book
to market ratio and whose market capitalizations equal or exceed that of the
company having the median market capitalization of companies whose shares are
listed on the NYSE. Pursuant to a special meeting of this Portfolio's
shareholders held on September 15, 1995, the DFA Large Value Portfolio's
investment policy was changed to permit the Portfolio to achieve its investment
objective by investing substantially all of its assets in the stock of U.S.
companies and the sale of the Portfolio's non-U.S. securities to another series
of shares of DFA Investment Dimensions Group Inc.
VA INTERNATIONAL VALUE PORTFOLIO ("DFA INTERNATIONAL VALUE PORTFOLIO")
The investment objective of the DFA International Portfolio is to achieve long-
term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in the stocks of large non-U.S. companies that have a
high book to market ratio in countries with developed markets.
13
<PAGE>
VA INTERNATIONAL SMALL PORTFOLIO ("DFA INTERNATIONAL SMALL PORTFOLIO")
The investment objective of the DFA International Small Portfolio is to achieve
long-term capital appreciation. This Portfolio provides investors with access
to securities portfolios consisting of small Japanese, United Kingdom,
Continental and Pacific Rim companies. The Portfolio seeks to achieve its
investment objective by investing its assets in a broad and diverse group of
marketable stocks of (1) Japanese small companies which are traded in the
Japanese securities markets; (2) United Kingdom small companies which are
traded principally on the International Stock Exchange of the United Kingdom
and the Republic of Ireland; (3) small companies organized under the laws of
certain European countries; and (4) small companies located in Australia, New
Zealand and Asian countries whose shares are traded principally on the
securities markets located in those countries.
VA SHORT-TERM FIXED PORTFOLIO ("DFA SHORT-TERM FIXED PORTFOLIO")
This investment objective of the DFA Short-Term Fixed Portfolio is to achieve a
stable real value (i.e., a return in excess of the rate of inflation) of
invested capital with a minimum of risk. This Portfolio seeks to achieve its
investment objective by investing in U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign
issuers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper, repurchase
agreements and obligations of supranational organizations. Generally, this
Portfolio will acquire obligations which mature within one year from the date
of settlement, but substantial investments may be made in obligations maturing
within two years from the date of settlement when greater returns are
available.
VA GLOBAL BOND PORTFOLIO ("DFA GLOBAL BOND PORTFOLIO")
The DFA Global Bond Portfolio seeks to provide a market rate of return for a
global fixed income portfolio with low relative volatility of returns. This
Portfolio will invest primarily in obligations issued or guaranteed by the U.S.
and foreign governments, their agencies and instrumentalities, obligations of
other foreign issuers rated AA or better and supranational organizations, such
as the World Bank, the European Investment Bank, European Economic Community,
and European Coal and Steel Community and corporate debt obligations.
FEDERATED'S EQUITY GROWTH AND INCOME FUND ("FEDERATED'S EQUITY GROWTH AND
INCOME PORTFOLIO")
The primary investment objective of the Federated's Equity Growth and Income
Portfolio is to achieve long-term growth of capital. The Portfolio's secondary
objective is to provide income. The Portfolio pursues its investment objectives
by investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue-chip" companies.
FEDERATED'S UTILITY FUND ("FEDERATED'S UTILITY PORTFOLIO")
The investment objective of Federated's Utility Portfolio is to achieve high
current income and moderate capital appreciation. The Portfolio endeavors to
achieve its objective by investing primarily in a professional managed and
diversified portfolio of equity and debt securities of utility companies.
FEDERATED'S PRIME MONEY FUND ("FEDERATED'S PRIME MONEY PORTFOLIO")
The investment objective of Federated's Prime Money Portfolio is to provide
current income consistent with stability of principal and liquidity. The
Portfolio pursues its investment objective by investing exclusively in a
portfolio of money market instruments maturing in 397 days or less.
FEDERATED'S U.S. GOVERNMENT BOND FUND ("FEDERATED'S U.S. GOVERNMENT BOND
PORTFOLIO")
The investment objective of Federated's U.S. Government Bond Portfolio is to
provide current income. Under normal circumstances, the Portfolio pursues its
investment objective by investing at least 65% of the value of its total assets
in securities issued or guaranteed as to payment of principal and interest by
the U.S. government, its agencies or instrumentalities.
FEDERATED'S CORPORATE BOND FUND ("FEDERATED'S CORPORATE BOND PORTFOLIO")
The investment objective of Federated's Corporate Bond Portfolio is to seek
high current income. The Portfolio endeavors to achieve its investment
objective by investing primarily in a diversified portfolio of professionally
managed
14
<PAGE>
fixed income securities. The fixed income securities in which the Portfolio
intends to invest are lower-rated corporate debt obligations, which are
commonly referred to as "junk-bonds." Some of these fixed income securities may
involve equity features. Capital growth will be considered, but only when
consistent with the investment objective of high current income.
SEI INTERNATIONAL GROWTH FUND ("SEI INTERNATIONAL GROWTH PORTFOLIO")
The investment objective of the SEI International Growth Portfolio is to
provide long-term capital appreciation by investing primarily in a diversified
portfolio of equity securities of non-U.S. issuers. Under normal conditions, at
least 65% of the SEI International Growth Portfolio's assets will be invested
in the following equity securities of non-U.S. issuers: common stocks,
securities convertible into common stocks, preferred stocks, warrants and
rights to subscribe to common stocks. At all times at least 65% of the
Portfolio's total assets will be invested in securities of issuers in at least
three different countries other than the United States. Acadian Asset
Management, Inc. and WorldInvest Limited act as the investment sub-advisors for
the SEI International Growth Portfolio.
SEI GROWTH FUND ("SEI GROWTH PORTFOLIO")
The investment objective of the SEI Growth Portfolio is capital appreciation.
Under normal conditions, the Portfolio will invest at least 65% of its total
assets in equity securities of large companies (i.e., companies with market
capitalizations of more than $1 billion at the time of purchase). The
Portfolio's advisors will generally select securities of issuers believed by
them to possess significant growth potential. Equity securities include common
stock, preferred stock, warrants or rights to subscribe to common stock and, in
general, any security that is convertible into or exchangeable for common
stock. IDS Advisory Group Inc. and Alliance Capital Management L.P. act as the
investment sub-advisors for the SEI Growth Portfolio.
SEI AGGRESSIVE GROWTH FUND ("SEI AGGRESSIVE GROWTH PORTFOLIO")
The investment objective of the SEI Aggressive Growth Portfolio is to provide
long-term capital appreciation by investing primarily in equity securities of
smaller companies. The Portfolio's policy is to invest in equity securities of
smaller companies that its advisors believe are in an early stage or
transitional point in their development and have demonstrated or have the
potential for above average capital growth. The Portfolio's advisors will
select companies which have the potential to gain market share in their
industry, achieve and maintain high and consistent profitability or produce
increases in earnings. The Portfolio's advisors also seek companies with strong
company management and superior fundamental strength. Under normal market
conditions, the Portfolio will invest at least 65% of its total assets in
equity securities of smaller growth companies (i.e., market capitalizations
less than $1 billion at time of purchase). The remaining 35% of the Portfolio's
assets may be invested in the equity securities of more established companies.
Under normal circumstances the Portfolio, to the extent not invested in the
securities described above, may invest in investment grade bonds, including
securities rated BBB by Standard & Poor's Corporation ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's"), which may be regarded as having
speculative characteristics and are commonly referred to as "junk bonds."
SEI INCOME EQUITY FUND ("SEI INCOME EQUITY PORTFOLIO")
The investment objective of the SEI Income Equity Portfolio is long-term growth
of capital and income. The Portfolio invests primarily in a diversified
portfolio of high quality, income producing common stocks which, in the opinion
of the advisors, are undervalued in the marketplace at the time of purchase. In
general, high quality securities are characterized as those that have average
return-on-equity and above average reinvestment rates relative to the stock
market in general as measured by the S&P Barra/Value Index. The Portfolio's
sub-advisors will also consider other factors, such as earnings and dividend
growth prospects. Under normal conditions, the Portfolio will invest at least
65% of its total assets in common stocks of companies with market
capitalizations of at least $1 billion. Merus Capital Management, Mellon Equity
Associates and LSV Asset Management act as the investment sub-advisors for the
SEI Income Equity Portfolio. Under normal circumstances the Portfolio, to the
extent not invested in the securities described above, may invest in investment
grade bonds, including securities rated BBB by S&P or Baa by Moody's, which may
be regarded as having speculative characteristics and are commonly referred to
as "junk bonds."
SEI INTERMEDIATE FIXED INCOME FUND ("SEI INTERMEDIATE FIXED INCOME PORTFOLIO")
The investment objective of the SEI Intermediate Fixed Income Portfolio is
current income consistent with the preservation of capital. The Portfolio's
permitted investments consist of corporate bonds and debentures, obligations
15
<PAGE>
issued by the United States Government, its agencies and instrumentalities,
receipts involving U.S. Treasury obligations, collateralized mortgage
obligations and asset backed securities, all of which are rated AAA, AA or A by
S&P or Aaa, Aa or A by Moody's at the time of purchase or are of comparable
quality. This Portfolio may invest up to 35% of its total assets in corporate
bonds and debentures rated BBB by S&P or Baa by Moody's at the time of
purchase. Such securities are regarded as having an adequate capacity to pay
interest and repay principal, but adverse economic conditions or changing
economic circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal. Such securities are thought to possess
speculative characteristics and are commonly referred to as "junk bonds." Under
normal market conditions, this Portfolio will invest at least 65% of its total
assets in bonds. Securities comprising the Portfolio will have an aggregate
average weighted maturity of five to ten years. As a result of its investment
strategies, the Portfolio's annual Portfolio turnover rate is expected to
exceed 100%. Such a rate, if achieved, will lead to higher transaction costs.
Western Asset Management Company acts as the investment sub-advisor for the SEI
Intermediate Fixed Income Portfolio.
WANGER U.S. SMALL CAP ADVISOR ("WANGER U.S. SMALL CAP ADVISOR PORTFOLIO")
The investment objective of the Wanger U.S. Small Cap Advisor Portfolio is to
seek long-term growth of capital. The Portfolio pursues its investment
objective by investing primarily in stocks of small and medium size United
States companies. The Portfolio may also invest in debt securities, including
lower-rated debt securities, which may be regarded as having speculative
characteristics and are commonly referred to as "junk bonds."
WANGER INTERNATIONAL SMALL CAP ADVISOR ("WANGER INTERNATIONAL SMALL CAP ADVISOR
PORTFOLIO")
The investment objective of the Wanger International Small Cap Advisor
Portfolio is to seek long-term growth of capital. The Portfolio pursues its
investment objective by investing primarily in stocks of small and medium size
foreign companies. The Portfolio may also invest in debt securities, including
lower-rated debt securities, which may be regarded as having speculative
characteristics and are commonly referred to as "junk bonds."
WEISS, PECK & GREER CORE LARGE-CAP STOCK FUND ("WEISS, PECK & GREER CORE LARGE-
CAP STOCK PORTFOLIO") AND WEISS, PECK & GREER CORE SMALL-CAP STOCK FUND
("WEISS, PECK & GREER CORE SMALL-CAP STOCK PORTFOLIO")
The investment objective of the Weiss, Peck & Greer Core Large-Cap Stock
Portfolio is to seek to exceed the performance of publicly traded large
capitalization stocks in the aggregate, as represented by the S&P 500. The S&P
500 is an unmanaged index of 500 common stocks. The S&P 500 represents
approximately 70% of the total domestic U.S. equity market capitalization. The
investment objective of the Core Small-Cap Stock Portfolio is to seek to exceed
the performance of publicly traded small capitalization stocks in the
aggregate, as represented by the Russell 2000. The Russell 2000 is an unmanaged
index of 2000 common stocks of small capitalization companies. Each of these
Portfolios pursues its investment objective by investing in a portfolio of
securities that is considered more "efficient" than the applicable benchmark.
An efficient portfolio is one that has the maximum expected return for any
level of risk. While each Portfolio will generally be substantially fully
invested in equity securities which comprise the applicable benchmark, each
Portfolio may invest up to 10% of its total assets in fixed-income securities
that are rated at the time of investment at least AA by S&P or Aa by Moody's or
their respective equivalents or, if not rated, determined to be of equivalent
credit quality to securities so rated.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
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 prospectuses for the corresponding Funds. THE FUNDS'
PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING
THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise among the interests of
the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
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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.
RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for a minimum of 10 days after you receive the
Contract (30 or more days in some instances as set forth in your Contract). The
Contract permits you to cancel the Contract during the Right to Cancel Period
by returning the Contract to our Administrative Offices, P.O. Box 32700,
Louisville, Kentucky 40232 or to the agent from whom you purchased the
Contract. Upon cancellation, the Contract is treated as void from the Contract
Date and when we receive the Contract, (1) if the state of issue of your
Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC, OK, SC, UT, VA or WV, then for
any amount of your initial Purchase Payment(s) invested in Federated's Prime
Money Portfolio, we will return the Accumulated Value of the amount of your
Purchase Payment(s) so invested, or if greater, the amount of your Purchase
Payment(s) so invested, (2) for any amount of your initial Purchase Payment(s)
invested in the Portfolios immediately following receipt by us, we will return
the Accumulated Value of your Purchase Payment(s) so invested plus any fees
and/or Premium Taxes that may have been subtracted from such amount, and (3)
for any amount of your initial Purchase Payment(s) invested in the Guaranteed
Index Rate Options immediately following receipt by us, we will refund the
amount of your Purchase Payment(s) so invested.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
If an applicant wishes to purchase a Contract, the applicant should send his or
her completed application and initial Purchase Payment to the address indicated
on the application, or to such other location as the Company may from time to
time designate. If the applicant wishes to make personal delivery by hand or
courier to the Company of the completed application and initial Purchase
Payment (rather than through the mail), he or she must do so at our
Administrative Offices at 400 West Market Street, Louisville, KY 40202. The
initial Purchase Payment for a Non-Qualified Contract must be equal to or
greater than the $5,000 minimum investment requirement. The Initial Purchase
Payment for a Qualified Contract must be equal to or greater than $2,000 (or
you may establish a payment schedule of $50 a month by payroll deduction).
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within two Business Days after acceptance of the
application and the initial Purchase Payment. Acceptance is subject to the
application being received 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, we will contact the applicant, explain the reason for the delay and
will refund the initial Purchase Payment within five Business Days, unless the
applicant instructs us to retain the initial Purchase Payment and credit it as
soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity Date,
as long as the Annuitant is living. Additional Purchase Payments must be for at
least $1,000 for Non-Qualified Contracts, or $50 for Qualified Contracts.
Additional Purchase Payments received prior to the close of the New York Stock
Exchange (generally 4:00 P.M. Eastern time) are credited to the Accumulated
Value at the close of business that same day. Additional Purchase Payments
received after the close of the New York Stock Exchange are processed the next
Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
PURCHASING BY WIRE
For wiring instructions please contact our Administrative Offices at 1-800-866-
6007.
ALLOCATION OF PURCHASE PAYMENTS
You specify in the Contract application how your Net Purchase Payments will be
allocated. You may allocate each Net Purchase Payment to one or more of the
Portfolios or General Account Guaranteed Options as long as such portions are
whole number percentages provided that each allocation to a General Account
Guaranteed Option is at least $1,000
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<PAGE>
and that no Portfolio or General Account Guaranteed Option may contain a
balance less than $1,000. You may choose not to allocate any monies to a
particular Portfolio. You may change allocation instructions for future Net
Purchase Payments by sending us the appropriate Company form or by complying
with other designated Company procedures.
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when your
Contract is issued, be invested in Federated's Prime Money Portfolio until the
expiration of the Right to Cancel Period (which is assumed for this purpose to
be 15 to 35 days (i.e., a 10 to 30 day Right to Cancel Period plus a five day
grace period to allow for mail delivery) or more in some instances as specified
in your Contract after the issuance of your Contract) and then invested
according to your initial allocation instructions (except that any accrued
interest will remain in Federated's Prime Money Portfolio if it is selected as
an initial allocation option), provided that you may elect to have the portion
of your initial Net Purchase Payment(s) allocated to the Guaranteed Index Rate
Options invested immediately upon our receipt thereof in order to lock in the
rates then applicable to such options.
If the state of issue of your Contract is any other state, then depending on
the applicable provisions of your Contract, your initial Net Purchase
Payment(s) will, unless you indicate otherwise, be invested in your Portfolios
and Guaranteed Index Rate Options immediately upon our receipt thereof, IN
WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE
PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that this automatic
investment feature only applies if your Contract so specifies. The Company does
not expect to issue Contracts with this immediate investment feature until the
fourth quarter of 1995 at the earliest. Please check with your agent to
determine the status of your Contract. Also, immediate investment is not
available with respect to any amounts allocated to THE FIVE-YEAR GUARANTEED
EQUITY OPTION WHICH IS ILLIQUID FOR FIVE YEARS.)
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts (although certain charges or
restrictions may apply to your Contract's General Account Guaranteed Options).
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the net
asset value of the Separate Account. The annual mortality and expense risk
charge is .50% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on us.
Conversely, if the charge proves more than sufficient, any excess will be added
to the Company surplus and will be used for any lawful purpose, including any
shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is 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 result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
These costs are deducted proportionately from the Contract's Accumulated Value;
therefore, the $30 fee is assessed per Contract, not per Portfolio chosen. The
Annual Contract Fee will be deducted on each Contract Anniversary and upon
surrender, on a pro rata basis, from each Subaccount. These deductions
represent reimbursement for the costs expected to be incurred over the life of
the Contract for issuing and maintaining each Contract and the Separate
Account.
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<PAGE>
EXCHANGES
Each Contract Year you may make an unlimited number of Exchanges between
Portfolios and/or General Account Guaranteed Options, provided that after an
Exchange no Portfolio or General Account Guaranteed Option may contain a
balance less than $1,000. A $15 fee is currently imposed for Exchanges in
excess of 12 per Contract Year.
EXCEPTIONS TO CHARGES
The administrative charges or fees may be reduced for sales of Contracts to a
trustee, employer or similar entity representing a group where the Company
determines that such sales result in savings of administrative expenses. In
addition, directors, officers and bona fide full-time employees (and their
spouses and minor children) of the Company, its ultimate parent company,
Providian Corporation and certain of their affiliates are permitted to purchase
Contracts with substantial reduction of administrative charges or fees.
Contracts so purchased are for investment purposes only and may not be resold
except to the Company.
In no event will reduction or elimination of fees or charges be permitted where
such reduction or elimination will be unfairly discriminatory to any person.
Additional information about reductions in charges is contained in the
Statement of Additional Information.
TAXES
We will, where such taxes are imposed on the Company by state law, deduct
Premium Taxes that currently range up to 3.5%. These taxes will be deducted
from the Accumulated Value or Purchase Payments in accordance with applicable
law.
As of the date of this Prospectus, the following states assess a Premium Tax on
all initial and additional Purchase Payments:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
Pennsylvania................................ 2.00%*
South Dakota................................ 1.25%
</TABLE>
*Pennsylvania has passed legislation which repeals its Premium Tax effective as
of January 1, 1996.
In addition, a number of states currently impose Premium Taxes at the time an
Annuity Payment Option (other than a Lump Sum Payment Option) is selected. As
of the date of this Prospectus, the following states assess a Premium Tax
against the Accumulated Value if the Contract Owner chooses an Annuity Payment
Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
NON-
QUALIFIED QUALIFIED
--------- ---------
<S> <C> <C>
Alabama..................................................... 1.00% 1.00%
California.................................................. .50% 2.35%
District of Columbia........................................ 2.25% 2.25%
Kansas...................................................... 0% 2.00%
Kentucky.................................................... 2.00% 2.00%
Maine....................................................... 0% 2.00%
Nevada...................................................... 0% 3.50%
West Virginia............................................... 1.00% 1.00%
Wyoming..................................................... 0% 1.00%
</TABLE>
Under present laws, the Company will incur state or local taxes (in addition to
the Premium Taxes described above) in several states. At present, the Company
does not charge the Contract Owner for these taxes. If there is a change in
state or local tax laws, charges for such taxes may be made. The Company does
not expect to incur any federal income tax liability attributable to investment
income or capital gains retained as part of the reserves under the Contracts.
(See "Federal Tax Considerations," page 25.) Based upon these expectations, no
charge is currently being made to the Separate Account for corporate federal
income taxes that may be attributable to the Separate Account.
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<PAGE>
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a charge
may be made in future years for any federal income taxes incurred by the
Company. This might become necessary if the tax treatment of the Company is
ultimately determined to be other than what the Company currently believes it
to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflect the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in each Fund's Prospectus and
Statement of Additional Information.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, 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 investment results of the selected Portfolio(s) and
the interest credited to the General Account Guaranteed Options during the
Valuation Period; and reduced by: (i) any decrease 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 Contract, (iv) any partial withdrawals,
(v) any Market Value Adjustment or other deduction due to early Exchanges or
withdrawals from the Guaranteed Index Rate Options and, if exercised by the
Company, (vi) any charges for any Exchanges made after the first 12 in any
Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds and, as permitted, the General Account Guaranteed
Options. Requests for Exchanges, received by mail or by telephone, prior to the
close of the New York Stock Exchange (generally 4:00 P.M. Eastern time) are
processed at the close of business that same day. Requests received after the
close of the New York Stock Exchange are processed the next Business Day. If
you experience difficulty in making a telephone Exchange your Exchange request
may be made by regular or express mail. It will be processed on the date
received.
To take advantage of the privilege of initiating transactions by telephone, you
must first elect the privilege by completing the appropriate section of the
application or by completing a separate telephone authorization form at a later
date. To take advantage of the privilege of authorizing a third party to
initiate transactions by telephone, you must first complete a third party
authorization form.
The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. 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. In addition, telephone
communications from a third party authorized to transact in an account will
undergo reasonable procedures to confirm that instructions are genuine. The
third party caller will be asked for his or her name, company affiliation (if
appropriate), the Contract number to which he or she is referring, and the
social security number of the Contract Owner. All calls will be recorded, and
this information will be verified with the Contract Owner's records prior to
processing a transaction. Furthermore, all transactions performed by a customer
service representative will be verified with the Contract Owner through a
written confirmation statement. Neither the Company nor the Funds shall be
liable for any loss, cost or expense for action on telephone instructions that
are believed to be genuine in accordance with these procedures.
For information concerning Exchanges to and from the General Account Guaranteed
Options, See "The General Account," at Appendix A.
20
<PAGE>
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of the
Surrender Value by sending a written request to our Administrative Offices.
Full or partial withdrawals may only be made before the Annuity Date and all
partial withdrawal requests must be for at least $500. The amount available for
full or partial withdrawal is the Surrender Value at the end of the Valuation
Period during which the written request for withdrawal is received. The
Surrender Value is an amount equal to the Accumulated Value, adjusted to
reflect any applicable Market Value Adjustment for amounts allocated to the
Five-Year Guaranteed Index Rate Option, less any early withdrawal charges for
amounts allocated to the One-Year Guaranteed Index Rate Option, less any amount
allocated to the Five-Year Guaranteed Equity Option less any Premium Taxes
incurred but not yet deducted. The withdrawal amount may be paid in a lump sum
to you, or if elected, all or any part may be paid out under an Annuity Payment
Option. (See "Annuity Payment Options," page 23.)
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. You may not make any full or partial withdrawals from
the Five-Year Guaranteed Equity Option before the end of the five-year
guarantee period. Your proceeds will normally be processed and mailed to you
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
circumstances. (See "Deferment of Payment," page 25.)
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 Contract Owner requests a full or partial withdrawal, he 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 Code provides that a 10% penalty tax may be imposed
on certain early withdrawals. (See "Federal Tax Considerations," page 25.)
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 Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the day
and at the frequency indicated on the Systematic Withdrawal Request Form. The
start date for the systematic withdrawals must be between the first and twenty-
eighth day of the month. You may discontinue the Systematic Withdrawal Option
at any time by notifying us in writing at least 30 days prior to your next
scheduled withdrawal date.
Each systematic withdrawal is subject to federal income taxes on the taxable
portion, and may be subject to a 10% federal tax penalty if you are under age
59 1/2. You may elect to have federal income taxes withheld from each
withdrawal at a 10% rate on the Systematic Withdrawal Request Form. For a
discussion of the tax consequences of withdrawals, see "Federal Tax
Considerations" on page 25 of your Prospectus. You may wish to consult a tax
advisor regarding any tax consequences that might result prior to electing the
Systematic Withdrawal Option.
We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for such
service.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in Federated's Prime Money
Portfolio, you may choose to have a specified dollar amount transferred from
this Portfolio to other Portfolios in the Separate Account or to the General
Account Guaranteed Options on a monthly basis. The main objective of Dollar
Cost Averaging is to shield your investment from short term price fluctuations.
Since the same dollar amount is transferred to other Portfolios each
21
<PAGE>
month, more units are purchased in a Portfolio if the value per unit is low and
less units are purchased if the value per unit is high. Therefore, a lower
average cost per unit may be achieved over the long term. This plan of
investing allows investors to take advantage of market fluctuations but does
not assure a profit or protect against a loss in declining markets.
This Dollar Cost Averaging Option may be elected on the enrollment form or at a
later date. The minimum amount that may be transferred each month into any
Portfolio or General Account Guaranteed Option is $250. The maximum amount
which may be transferred is equal to the Accumulated Value in Federated's Prime
Money Portfolio when elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel this
option by sending the appropriate Company form to our Administrative Offices
which must be received at least seven days before the next transfer date.
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within five years after
date of death or be paid under an Annuity Payment 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 Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason of
death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $1,000, due to a
partial withdrawal or Exchange, to the remaining Portfolios 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 investment before the account is
liquidated. Proceeds would be promptly paid to the Contract Owner. The full
proceeds would be taxable as a withdrawal. We will not exercise this right with
respect to Qualified Contracts.
DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the application. Thereafter, while the Annuitant is living, the
Contract Owner may change the Annuitant's Beneficiary by sending us the
appropriate Company form. Such change will take effect on the date such form is
signed by the Contract Owner but will not affect any payment made or other
action taken before the Company acknowledges such form. You may also make the
designation of Annuitant's Beneficiary irrevocable by sending us the
appropriate Company form and obtaining approval from the Company. Changes in
the Annuitant's Beneficiary may then be made only with the consent of the
designated irrevocable Annuitant's Beneficiary.
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died, that
share of the Death Benefit will be paid equally to the survivor(s);
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(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) If an Annuitant's Beneficiary dies at the same time as the Annuitant,
the proceeds will be paid as though the Annuitant's Beneficiary had
died first. If an Annuitant's 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 Annuitant's
Beneficiary had died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's named
beneficiary(ies) when due. If no Annuitant's Beneficiary 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 Annuitant's Beneficiary or your designated Payee.
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. 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 Annuitant's Beneficiary to make
the payment. The Annuitant's Beneficiary may receive the amount payable in a
lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the sum
of all Net Purchase Payments made, less any partial withdrawals taken. During
each subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period before
age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date in the application, which can be no later than
the first day of the month after the Annuitant's 85th birthday, without the
Company's prior approval. The Annuity Date is the date that Annuity Payments
are scheduled to commence under the Contract unless the Contract has been
surrendered or an amount has been paid as proceeds to the designated
Annuitant's Beneficiary prior to that date.
You 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
request or, without the Company's prior approval, deferred to a date beyond the
first day of the month after the Annuitant's 85th birthday. The Annuity Date
may only be changed by written request during the Annuitant's lifetime and must
be made at least 30 days before the then-scheduled Annuity Date. The Annuity
Date and the Annuity Payment options available for Qualified Contracts may also
be controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated Value,
adjusted for any Market Value Adjustment or other deductions applicable to
amounts allocated to a General Account Guaranteed Option, less any amount
allocated to the Five-Year Guaranteed Equity Option, less any Premium Taxes
incurred but not yet deducted.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
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Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--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--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--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 either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from 10
to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each payment.
Since payments to older Annuitants are expected to be fewer in number, the
amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one option,
the Company must be told what part of the Accumulated Value is to be paid under
each option.
If at the time of any Annuity Payment you have 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 portions of such Annuity Payment and
remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, 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 Contract. That portion
of the Accumulated Value that has been held in a Portfolio prior to the Annuity
Date will be applied under a Variable Annuity Option based on the performance
of that Portfolio. Subject to approval by the Company, you may select any other
Annuity Payment Option then being offered by the Company. All Fixed Annuity
Payments and the initial Variable Annuity Payment are guaranteed to be not less
than as provided by the Annuity Tables and the Annuity Payment Option elected
by the Contract Owner. The minimum payment, however, is $100. If the
Accumulated Value is less than $5,000, or less than $2,000 for Texas Contract
Owners, the Company has the right to pay that amount in a lump sum. From time
to time, the Company may require proof that the Annuitant or Contract Owner is
living. Annuity Payment Options are not available to: (1) an assignee; or (2)
any other than a natural person, except with the consent of the Company.
We may, at the time of election of an Annuity Payment 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 investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the value
of the initial Variable Annuity Payment, are based on an assumed interest rate
of 4%. If the actual net investment experience exactly equals the assumed
interest rate, then the Variable Annuity Payments will remain the same (equal
to the first Annuity Payment). However, if actual investment experience exceeds
the assumed interest rate, the Variable Annuity Payments will increase;
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conversely, they will decrease if the actual experience is lower. The method of
computation of Variable Annuity Payments is described in more detail in the
Statement of Additional Information.
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, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-866-6007.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within seven days from the date the election becomes
effective except that the Company may be permitted to defer such payment if:
(1) the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the New York Stock Exchange is otherwise 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.
As to amounts allocated to the General Account, we may, at any time, defer
payment of the Surrender Value for up to six months after we receive a request
for it. We will allow interest of at least 4% annually on any Surrender Value
payment derived from the General Account that we defer 30 days or more.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax adviser regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the 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 federal income tax laws,
the Treasury regulations or the current interpretations by the Internal Revenue
Service. We reserve the right to make uniform changes in 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 Funds, please see the
accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons," page 27, and
"Diversification Standards," page 27.)
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
income. 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. Ordinarily, the taxable portion of such payments will be taxed
at ordinary income tax rates.
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For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected
amount of Annuity Payments for the term of the Contract. That ratio is then
applied to each payment to determine the non-taxable portion of the payment.
The remaining portion of each payment is taxed at ordinary income tax rates.
For Variable Annuity Payments, in general, the taxable portion is determined by
a formula that establishes a specific 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 remaining
portion of each payment is taxed at ordinary income tax rates. Once the
excludible portion of Annuity Payments to date equals the investment in the
Contract, the balance of the Annuity Payments will be fully taxable.
Withholding of federal income taxes on all distributions may be required unless
the recipient elects not to have any amounts withheld and properly notifies the
Company of that election.
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals (i) made on or after the death of the Contract Owner or, where the
Contract Owner is not an individual, the death of the Annuitant, who is defined
as the individual the events in whose life are of primary importance in
affecting the timing and payment under the Contracts; (ii) attributable to the
taxpayer's becoming disabled 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 expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi) under
an immediate annuity contract as defined in Section 72(u)(4); or (vii) 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 distributions as well as to certain
contributions and other transactions under Qualified Contracts.
If the penalty tax does not apply to a withdrawal as a result 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 determined
under Treasury Regulations) equal to the 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 TAX STATUS
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Separate Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be taxed
separately 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 reinvested and taken into account in determining the Accumulated
Value. Under existing federal income tax law, the Separate Account's investment
income, including realized net capital gains, is not taxed to the Company. The
Company reserves the right to make a deduction for taxes should they be imposed
with respect to such items in the future.
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract, a Contract must generally
provide the following two distribution rules: (a) if any Contract Owner dies on
or after the Annuity Date and before the entire interest in the Contract has
been distributed, the remaining portion of such interest must be distributed at
least as quickly as the method in effect on the Contract Owner's death; and (b)
if any Contract Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death. To the
extent such interest is payable to the Owner's Designated Beneficiary, however,
such interests may be annuitized over the life of that Owner's Designated
Beneficiary or over a period not extending beyond the life expectancy of that
Owner's Designated Beneficiary, so long as distributions commence within one
year after the Contract Owner's death. If the Owner's Designated Beneficiary is
the spouse of the Contract Owner, the Contract (together with the deferral on
tax on the accrued and future income thereunder) may be continued unchanged in
the name of the spouse as Contract Owner. The term Owner's Designated
Beneficiary
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means the natural person named by the Contract Owner as a beneficiary and to
whom ownership of the Contract passes by reason of the Contract Owner's death
(unless the Contract Owner was also the Annuitant--in which case the
Annuitant's Beneficiary is entitled to the Death Benefit).
If the Contract Owner is not an individual, the "primary Annuitant" (as defined
under the Code) is considered the Contract Owner. The primary Annuitant is the
individual who is of primary importance in affecting the timing or the amount
of payout under a Contract. In addition, when the Contract Owner is not an
individual, a change in the 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 ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger tax on the gain in
the Contract to the Contract Owner at the time of such transfer. The investment
in the Contract of the transferee will be increased by any amount included in
the Contract Owner's income. 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 BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. If an employer is the nominal owner of a Contract, and the
beneficial owners are employees, then the Contract is not treated as being held
by a non-natural 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.
ASSIGNMENTS
A transfer of ownership of a Contract, a collateral assignment or the
designation of an Annuitant or other beneficiary who is not also the Contract
Owner may result in tax consequences to the Contract Owner, Annuitant or
beneficiary that are not discussed herein. A Contract Owner contemplating such
a transfer or assignment of a Contract should contact a tax advisor with
respect to the potential tax effects of such a transaction.
MULTIPLE CONTRACTS RULE
All non-qualified annuity contracts issued by the same company (or affiliate)
to the same Contract Owner during any calendar year are to be aggregated and
treated as one contract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received under any Contract prior
to the Contract's Annuity Date, such as a partial withdrawal, will be taxable
(and possibly subject to the 10% federal 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 Department may conclude
that it would be appropriate to aggregate two or more Contracts purchased by
the same Contract Owner. Accordingly, a Contract Owner should consult a tax
advisor before purchasing more than one Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, the Separate Account will be
required to diversify its investments. 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
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by looking through to the assets of the Portfolios in which each such
Subaccount invests. All securities of the same issuer are treated as a single
investment. Each government agency or instrumentality will be treated as a
separate issuer for purposes of those limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to remain in compliance. For these
reasons, the Company reserves the right to modify the Contracts, as necessary,
to prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by public
school systems and certain tax-exempt organizations (Code Section 501(c)(3)
organizations) for their employees under Section 403(b) of the Code; except, as
discussed below and subject to any conditions in an employer's plan, a Contract
used in connection with a Section 403(b) Plan offers the same benefits and is
subject to the same charges described in this Prospectus.
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are also allowed if the Contract Owner can show "hardship," as
defined by the Internal Revenue Service, but the surrender is limited to the
lesser of Purchase Payments made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a surrender is permitted under these
provisions, a 10% federal tax penalty may be assessed on the withdrawn amount
if it does not otherwise meet the exceptions to the penalty tax provisions.
(See "Taxation of Annuities in General," page 25).
Under the Code, you may request a full or partial surrender of an amount equal
to the individual account cash value as of December 31, 1988 (the
"grandfathered" amount), subject to the terms of the 403(b) Plan. Although the
Code surrender restrictions do not apply to this amount, a 10% federal penalty
tax may be assessed on the withdrawn amount if it does not otherwise meet the
exceptions to the penalty tax provisions. (See "Taxation of Annuities in
General," page 25).
The Company believes that the Code surrender restrictions do not apply to tax-
free transfers pursuant to Revenue Ruling 90-24. The Company further believes
that the surrender restrictions will not apply to any "grandfathered" amount
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
Loans Under 403(b) Contracts
Under your 403(b) Contract, you may borrow against your Contract's Surrender
Value after the first Contract Year. No additional loans will be extended until
prior loan balances are paid in full. The loan amount must be at least $1,000
with a minimum vested Accumulated Value of $2,000. The loan amount may not
exceed the lesser of (a) or (b), where (a) is 50% of the Contract's vested
Accumulated Value on the date on which the loan is made, and (b) is $50,000
reduced by the highest outstanding balance of any loan within the preceding 12
months ending on the day before the current loan is made. If you are married,
your spouse must consent in writing to a loan request. This consent must be
given within the 90-day period before the loan is to be made.
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On the first Business Day of each calendar month, the Company will determine a
loan interest rate. The loan interest rate for the calendar month in which the
loan is effective will apply for one year from the loan effective date.
Annually on the anniversary of the loan effective date, the rate will be
adjusted to equal the loan interest rate determined for the month in which the
loan anniversary occurs.
Principal and interest on loans must be amortized in quarterly installments
over a five year term except for certain loans for the purchase of a principal
residence. If the loan interest rate is adjusted, future payments will be
adjusted so that the outstanding loan balance is amortized in equal quarterly
installments over the remaining term. A $40 processing fee is charged for each
loan. The remainder of each repayment will be credited to the individual
account.
If a loan payment is not made when due, interest will continue to accrue. The
defaulted payment plus accrued interest will be deducted from any future
distributions under the Contract and paid to us. Any loan payment which is not
made when due, plus interest, will be treated as a distribution, as permitted
by law. The loan payment may be taxable to the borrower, and may be subject to
the early withdrawal tax penalty. When a loan is made, the number of
Accumulation Units equal to the loan amount will be withdrawn from the
individual account and placed in the Collateral Fixed Account. Accumulation
Units taken from the individual account to provide a loan do not participate in
the investment experience of the related Portfolios or the guarantees of the
General Account Guaranteed Options. The loan amount will be withdrawn on a pro
rata basis first from the Portfolios to which Accumulated Value has been
allocated, and if that amount is insufficient, collateral will then be
transferred from the General Account Guaranteed Options--except the Five-Year
Guaranteed Equity Option. As with any withdrawal, Market Value Adjustments or
other deductions applicable to amounts allocated to General Account Guaranteed
Options may be applied and no amounts may be withdrawn from the Five-Year
Guaranteed Equity Option. Until the loan is repaid in full, that portion of the
Collateral Fixed Account shall be credited with interest at a rate of 2% less
than the loan interest rate applicable to the loan--however, the interest rate
credited will never be less than the General Account Guaranteed Option's
guaranteed rate of 3%.
When a loan is made, the number of Accumulation Units equal to the loan amount
will be withdrawn from the individual account and placed in the Collateral
Fixed Account. Accumulation Units taken from the individual account to provide
a loan do not participate in the investment experience of the related
Portfolios or the guarantees of the General Account Guaranteed Options. The
loan amount will be withdrawn on a pro rata basis first from the Portfolios to
which Accumulated Value has been allocated, and if that amount is insufficient,
collateral will then be transferred from the General Account Guaranteed
Options--except the Five-Year Guaranteed Equity Option. As with any withdrawal,
Market Value Adjustments or other deductions applicable to amounts allocated to
General Account Guaranteed Options may be applied and no amounts may be
withdrawn from the Five-Year Guaranteed Equity Option. Until the loan is repaid
in full, that portion of the Collateral Fixed Account shall be credited with
interest at a rate of 2% less than the loan interest rate applicable to the
loan--however, the interest rate credited will never be less than the General
Account Guaranteed Option's guaranteed rate of 3%.
A bill in the amount of the quarterly principal and interest will be mailed
directly to you in advance of the payment due date. The initial quarterly
repayment will be due three months from the loan date. The loan date will be
the date that the Company receives the loan request form in good order. Payment
is due within 30 calendar days after the due date. Subsequent quarterly
installments are based on the first due date.
When repayment of principal is made, Accumulation Units will be reallocated on
a current value basis among the same investment Portfolios and/or General
Account Guaranteed Options and in the same proportion as when the loan was
initially made. If a repayment in excess of a billed amount is received, the
excess will be applied towards the principal portion of the outstanding loan.
Payments received which are less than the billed amount will not be accepted
and will be returned to you.
If a partial surrender is taken from your individual account due to nonpayment
of a billed quarterly installment, the date of the surrender will be the first
Business Day following the 30 calendar day period in which the repayment was
due.
Prepayment of the entire loan is allowed. At the time of prepayment, the
Company will bill you for any accrued interest. The Company will consider the
loan paid when the loan balance and accrued interest are paid.
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If the individual account is surrendered with an outstanding loan balance, the
outstanding loan balance and accrued interest will be deducted from the
Surrender Value. If the individual account is surrendered, with an outstanding
loan balance, due to the Contract Owner's death or the election of an Annuity
Payment Option, the outstanding loan balance and accrued interest will be
deducted.
The Company may require that any outstanding loan be paid if the individual
account value falls below an amount equal to 25% of total loans outstanding.
The Code requires the aggregation of all loans made to an individual employee
under a single employer-sponsored 403(b) Plan. However, since the Company has
no information concerning the outstanding loans that you may have with other
companies, if will only use the information available under Contracts issued by
the Company.
GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio of the Funds, or of
another registered, open-end management investment company, if the shares of
the Portfolios are no longer available for investment, or, if in the Company's
judgment, investment 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 at the discretion of the Company. Any new
Portfolios 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 Company 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 the
1940 Act in the event such registration is no longer required, or may be
combined with one or more other separate accounts.
VOTING RIGHTS
The Funds do not hold regular meetings of shareholders. The Directors/Trustees
of each 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
Portfolio shares held in the Separate Account will be voted by the Company at
shareholder meetings of each Fund in accordance 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 instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain 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. That number will be determined by applying 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, a Contract Owner holds a voting 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
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments 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 corresponding Portfolio.
After the Annuity Date, the votes attributable to a Contract decrease as the
reserves allocated to the Portfolio decrease. In determining the number of
votes, fractional shares will be recognized.
30
<PAGE>
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 corresponding
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by such Fund.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
the Company and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt & Berenson of Washington, D.C. has provided legal advice relating
to the federal securities laws applicable to the issue and sale of the
Contracts. All matters of Missouri law pertaining to the validity of the
Contract and the Company's right to issue such Contracts have been passed upon
by Kimberly A. Scouller, Esquire, on behalf of the Company.
31
<PAGE>
TABLE OF CONTENTS FOR THE ADVISOR'S EDGE
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 2
Computation of Variable Annuity Income Payments......................... 2
Exchanges............................................................... 2
Exceptions to Charges................................................... 3
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 3
Annuity Data............................................................ 3
Annual Statement........................................................ 3
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 4
Prime Money and Money Market Portfolio Yields........................... 4
30-Day Yield for Non-Money Market Subaccounts........................... 4
Standardized Average Annual Total Return for Non-Money Market
Subaccounts............................................................ 5
ADDITIONAL PERFORMANCE MEASURES........................................... 5
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return.................................................... 5
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 5
Individualized Computer Generated Illustrations......................... 6
PERFORMANCE COMPARISONS................................................... 6
SAFEKEEPING OF ACCOUNT ASSETS............................................. 8
THE COMPANY............................................................... 8
STATE REGULATION.......................................................... 8
RECORDS AND REPORTS....................................................... 8
DISTRIBUTION OF THE CONTRACTS............................................. 8
LEGAL PROCEEDINGS......................................................... 9
OTHER INFORMATION......................................................... 9
FINANCIAL STATEMENTS...................................................... 9
Audited Financial Statements............................................ 9
</TABLE>
32
<PAGE>
APPENDIX A
THE GENERAL ACCOUNT
Because of applicable exemptive and exclusionary provisions, interests in the
General Account have not been registered under the Securities Act of 1933
("1933 Act"), nor under the 1940 Act. Thus, neither our General Account, nor
any interest therein are generally subject to regulation under the provisions
of the 1933 Act or the 1940 Act. Accordingly, the Company has been advised that
the staff of the SEC has not reviewed the disclosure in this Prospectus
relating to the General Account. These disclosures regarding the General
Account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
Note: The General Account Guaranteed Options are currently available for sale
in most, but not all, states. Please check with your sales representative for
details of the availability of these features before purchasing.
The General Account contains all of the assets of the Company other than those
in the separate accounts we establish. The Company has sole discretion to
invest the assets of the General Account, subject to applicable law. Allocation
of any amounts to the General Account does not entitle you to share directly in
the investment experience of these assets.
There are three fixed options under the General Account: the One-Year
Guaranteed Index Rate Option, the Five-Year Guaranteed Index Rate Option, and
the Five-Year Guaranteed Equity Option, each described below:
One-Year Guaranteed Index Rate Option
You may allocate your Accumulated Value to this option at any time. The
Accumulated Value you allocate under this option earns interest equal to 90% of
the one-year constant maturity Treasury rate at the time your allocation is
made with a guarantee that the Accumulated Value in this General Account
Guaranteed Option will not be less than the amounts allocated, plus 3%.
You may allocate any or all of your Accumulated Value from this General Account
Guaranteed Option to any of the Subaccounts or other General Account Guaranteed
Options at any time before the end of the one-year guarantee period. However,
for any amounts so transferred we will deduct an amount equal to the interest
the transferred value earned over the previous 90 days at the applicable one-
year rate. For full and partial withdrawals of amounts allocated to this
General Account Guaranteed Option prior to the end of the one-year guarantee
period, we will deduct an amount equal to the interest earned on the amount
withdrawn during the previous 90 days at the applicable one-year rate, subject
to a guarantee that any amounts allocated to this General Account Guaranteed
Option will earn interest of at least 3%.
At the end of the one-year guarantee period, you may, without loss of interest,
elect to transfer all or part of your Accumulated Value under this option to
any of the Subaccounts or transfer to another General Account Guaranteed Option
or renew your participation in this option. Notice of such an election must be
provided to the Company no later than 15 days after the end of the one-year
guarantee period (and each subsequent one-year guarantee period). If no such
election is made, your Accumulated Value will automatically be renewed under
this option for the next one-year guarantee period.
Five-Year Guaranteed Index Rate Option
You may allocate your Accumulated Value to this option at any time. The
Accumulated Value you allocate under this option earns interest equal to 100%
of the five-year constant maturity Treasury rate at the time your allocation is
made with a guarantee that the Accumulated Value in this General Account
Guaranteed Option will not be less than the amount initially allocated, plus
3%, compounded annually.
You may allocate any or all of your Accumulated Value from this General Account
Guaranteed Option to any of the Subaccounts or other General Account Guaranteed
Options at any time before the end of the five-year guarantee period. However,
for any amounts so transferred we will apply a Market Value Adjustment (as
described below) against such amounts. For full and partial withdrawals of
amounts allocated to this General Account Guaranteed Option prior to the end of
the five-year guarantee period, we will apply a Market Value Adjustment (as
described below) against such amounts withdrawn.
A-1
<PAGE>
The Market Value Adjustment ("MVA") Factor for the Five-Year Guaranteed Index
Rate Option will be as follows:
<TABLE>
<S> <C> <C>
N X (B - E)
--- -------
12 1 + E
</TABLE>
where N
=the number of months left in the five-year guarantee period at the time
of the transfer or surrender (including any partial months which will
count as full months for purposes of this calculation).
B
=the applicable five-year constant maturity Treasury rate at the beginning
of the five-year guarantee period.
E
=the applicable five-year constant maturity Treasury rate at the time of
the transfer or surrender.
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option. Generally, if the five-
year constant maturity Treasury rate at the beginning of the five-year
guarantee period is lower than the five-year constant maturity Treasury rate
prevailing at the time of the transfer or surrender, then the application of
the MVA will result in a lower payment upon transfer or surrender. Similarly,
if the five-year constant maturity Treasury rate at the beginning of the five-
year guarantee period is higher than the prevailing five-year constant maturity
Treasury rate at the time of transfer or surrender, then the application of the
MVA will result in a higher payment upon transfer or surrender.
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a positive Market Value Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months of
the guarantee period remaining and the five-year constant maturity Treasury
rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .07 = 4 X .00935 = .0374
12
1 + .07
Adjustment = $108,000 X .0374 = $4,039
= $108,000 + $4,039 = $112,039 = Net amount of transfer or
surrender
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a negative Market Value Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months
remaining in the guarantee period and the five-year constant maturity Treasury
rate is 9%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .09 = 4 X -.00917 = -.0367
12
1 + .09
Adjustment = $108,000 X -.0367 = -$3,964
= $108,000 - $3,964 = $104,036 = Net amount of transfer or
surrender
Notwithstanding application of a negative Market Value Adjustment, any Net
Purchase Payments allocated to this General Account Guaranteed Option will earn
interest of at least 3%, compounded annually.
At the end of the five-year guarantee period, you may, without loss of
interest, elect to transfer any or all of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Such election
must be provided to the Company before the end of the five-year guarantee
period (and each subsequent five-year guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for the next five-year guarantee period.
Five-Year Guaranteed Equity Option
You may allocate your Accumulated Value to this option as of the first business
day of each month. During the five-year guarantee period applicable to
Accumulated Value allocated to this option, we will credit interest at a
guaranteed annual
A-2
<PAGE>
effective rate of 3%, compounded annually. At the end of the five-year
guarantee period we will credit additional interest in an amount equal to the
amount by which (a) exceeds (b), where: (a) equals the percentage change in the
S&P 500(R) Composite Stock Price Index from the date Accumulated Value is
allocated to the end of the five-year guarantee period, multiplied by the
amount allocated; and (b) equals the total amount of interest credited during
the five-year guarantee period. ("S&P 500(R)" is a trademark of The McGraw-Hill
Companies, Inc. and has been licensed for use by Providian Corporation.)
THIS OPTION IS ILLIQUID FOR THE ENTIRE FIVE-YEAR GUARANTEE PERIOD AND,
ACCORDINGLY, DOES NOT PERMIT ANY EXCHANGES OR REALLOCATIONS OF ACCUMULATED
VALUE TO THE SUBACCOUNTS OR OTHER GENERAL ACCOUNT GUARANTEED OPTIONS OR FULL OR
PARTIAL WITHDRAWALS DURING SUCH FIVE-YEAR PERIOD. However, during such
guarantee period, the Accumulated Value allocated under this option may be
annuitized under any of the Annuity Payment Options.
At the end of the five-year guarantee period, you may, without loss of
earnings, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts, transfer into another General Account
Guaranteed Option or renew your participation in this option. Such election
must be received by the Company no later than 30 days prior to the end of the
five-year guarantee period. If no election is received, your Accumulated Value
will automatically be transferred to Federated's Prime Money Portfolio. This
option may not be available at all times.
DISCLAIMER REGARDING STANDARD & POOR'S 500 INDEX
The Five-Year Guaranteed Equity Option (the "GEO") is not sponsored,
endorsed, sold or promoted by Standard & Poor's Corporation ("S&P"). S&P makes
no representation or warranty, express or implied, to investors in the GEO or
any member of the public regarding the advisability of investing in securities
generally or in the GEO particularly or the ability of the S&P 500 Index to
track general stock market performance. S&P's only relationship to Providian
Life and Health Insurance Company is the licensing of certain trademarks and
trade names of S&P and of the S&P 500 Index which is determined, composed and
calculated by S&P without regard to Providian Life and Health Insurance Company
or the GEO. S&P has no obligation to take the needs of Providian Life and
Health Insurance Company or the investors in the GEO into consideration in
determining, composing or calculating the S&P 500 Index. S&P is not responsible
for and has not participated in the determination of the timing of, prices at,
or quantities of the GEO to be issued or in the determination or calculation of
the equation by which the GEO is to be converted into cash. S&P has no
obligation or liability in connection with the administration, marketing or
trading of the GEO.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY,
INVESTORS IN THE GEO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN IN CONNECTION WITH THE RIGHTS LICENSED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY OR FOR ANY OTHER USE. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.
A-3
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
FOR THE ADVISOR'S EDGE VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for The Advisor's Edge variable annuity contract (the
"Contract") offered by Providian Life and Health Insurance Company (the
"Company"). You may obtain a copy of the Prospectus dated May 1, 1995, as
revised July 1, 1995 and October 2, 1995, by calling 1-800-866-6007 or by
writing to our Administrative Offices, P.O. Box 32700, Louisville, Kentucky
40232. 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.
December , 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 2
Computation of Variable Annuity Income Payments......................... 2
Exchanges............................................................... 2
Exceptions to Charges................................................... 3
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 3
Annuity Data............................................................ 3
Annual Statement........................................................ 3
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 4
Prime Money and Money Market Portfolio Yields........................... 4
30-Day Yield for Non-Money Market Subaccounts........................... 4
Standardized Average Annual Total Return for Non-Money Market
Subaccounts............................................................ 5
ADDITIONAL PERFORMANCE MEASURES........................................... 5
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return.................................................... 5
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual
Total Return........................................................... 5
Individualized Computer Generated Illustrations......................... 6
PERFORMANCE COMPARISONS................................................... 6
SAFEKEEPING OF ACCOUNT ASSETS............................................. 8
THE COMPANY............................................................... 8
STATE REGULATION.......................................................... 8
RECORDS AND REPORTS....................................................... 8
DISTRIBUTION OF THE CONTRACT.............................................. 8
LEGAL PROCEEDINGS......................................................... 9
OTHER INFORMATION......................................................... 9
FINANCIAL STATEMENTS...................................................... 9
</TABLE>
<PAGE>
THE CONTRACT
In order to supplement the description in the Prospectus, the following
provides additional information about the Contract which may be of interest to
Contract Owners.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent
the guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the
Accumulated Value (or the portion of the Accumulated Value used to provide
variable payments) is applied under the Annuity Tables contained in your
Contract corresponding to the Annuity Payment 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 specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set
forth below) is made. After the first Annuity Payment, the dollar amount of
each subsequent Annuity Payment is equal to the number of Annuity Units
multiplied by the Annuity Unit Value for the Subaccount ten Business Days
before the due date of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date 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
recognizes an assumed interest rate of 4% per year used in
determining the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a)=any increase or decrease in the value of the Subaccount due to
investment results;
(b)=a daily charge assessed at an annual rate of .50% for the mortality and
expense risks assumed by the Company;
(c)=a daily charge for the cost of administering the Contract corresponding
to an annual charge of .15% of the value of the Subaccount, plus the
Annual Contract Fee.
The Annuity Tables contained in the Contract are based on the 1983 Table "A"
Mortality Table projected for mortality improvement to the year 2000 using
Projection Scale G and an interest rate of 4% a year; except that in
Massachusetts and Montana, the Annuity Tables contained in the Contract are
based on a 60% female/40% male blending of the above for all annuitants of
either gender.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of any other
Subaccount(s) then available. The written request for an Exchange must be
received by us, 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 as that of the Annuity Payment on the date of Exchange (the
"Exchange Date"). Each year you may make an unlimited number of free Exchanges
between Subaccounts. A $15 fee is currently imposed for Exchanges in excess of
twelve per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, the
Company will establish a value for the current Subaccounts by multiplying the
2
<PAGE>
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing the
Annuity Unit Value of the new Subaccounts into the value previously calculated
for the existing Subaccounts.
EXCEPTIONS TO CHARGES
In addition to the Purchase Payment breakpoints discussed in the Prospectus,
the Company may impose reduced sales loads, administrative charges or other
deductions from Purchase Payments in certain situations where the Company
expects to realize significant economies of scale or other economic benefits
with respect to the sale of Contracts. This is possible because sales costs do
not increase in proportion to the dollar amount of the Contracts sold. For
example, the per-dollar transaction cost for a sale of a Contract equal to
$5,000 is generally much higher than the per-dollar cost for a sale of a
Contract equal to $1,000,000. As a result, the applicable sales charge declines
as a percentage of the dollar amount of Contracts sold as the dollar amount
increases.
The Company may also impose reduced sales loads and reduced administrative
charges and fees on sales to directors, officers and bona fide full-time
employees (and their spouses and minor children) of the Company, its ultimate
parent company, Providian Corporation, and their affiliates and certain sales
representatives for the Contract.
Notwithstanding the above, any variations in the sales loads, administrative
charges or other deductions from Purchase Payments shall reflect differences in
costs or services and shall not be unfairly discriminatory against any person.
GENERAL MATTERS
NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the Contracts
will not share in the profits or surplus earnings of the Company.
MISSTATEMENT OF AGE OR SEX
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 benefits which the
Purchase Payments would have purchased for the correct age and sex. In the case
of correction of the stated age and/or sex after payments have commenced, the
Company will (1) in the case of underpayment, pay the full amount due with the
next payment; (2) in the case of overpayment, deduct the amount due from one or
more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the
validity of any assignment. No assignment will be recognized until the Company
receives the appropriate Company form notifying the Company of such assignment.
The interest of any beneficiary which the assignor has the right to change
shall be subordinate to the interest of an assignee. Any amount paid to the
assignee shall be paid in one sum notwithstanding any settlement agreement in
effect at the time assignment was executed. The Company shall not be liable as
to any payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and/or the General
Account Guaranteed Options; and any Purchase Payments, charges,
3
<PAGE>
Exchanges or withdrawals during the year. This report will also give you any
other information required by law or regulation. You may ask for an annual
statement like this at any time. We will also send you quarterly statements.
However, we reserve the right to discontinue quarterly statements at any time.
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
OWNERSHIP
The Contract Owner on the Contract Date is the Annuitant, unless otherwise
specified in the application. The Contract Owner may specify a new Contract
Owner by sending us the appropriate Company form at any time thereafter. The
term Contract Owner also includes any person named as a Joint Owner. A Joint
Owner shares ownership in all respects with the Contract Owner. During the
Annuitant's lifetime, all rights and privileges under this Contract may be
exercised solely by the Contract Owner. Upon the death of the Contract Owner,
ownership is retained by the surviving Joint Owner or passes to the Owner's
Designated Beneficiary, if one has been designated by the Contract Owner. If no
Owner's Designated Beneficiary has been selected or if no Owner's Designated
Beneficiary is living, then the Owner's Designated Beneficiary is the Contract
Owner's estate. From time to time the Company may require proof that the
Contract Owner is still living.
PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and effective
yield of the Prime Money and Money Market Subaccounts, 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.
PRIME MONEY AND MONEY MARKET PORTFOLIO YIELDS
Current yield for the Prime Money and Money Market Subaccounts will be based on
the change in the value of a hypothetical investment (exclusive of capital
changes) over a particular 7-day period, less a pro-rata share of Subaccount
expenses accrued over that period (the "base period"), and stated as a
percentage of the investment at the start of the base period (the "base period
return"). The base period return is then annualized by multiplying by 365/7,
with the resulting yield figure carried to at least the nearest hundredth of
one percent. Calculation of "effective yield" begins with the same "base period
return" used in the calculation of yield, which is then annualized to reflect
weekly compounding pursuant to the following formula:
Effective Yield = [(Base Period Return)+1)/3//6//5///7/] - 1
30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of a Unit on the last
day of the period, according to the following formula:
YIELD = 2[(a - b + 1)/6/ - 1]
-------------
c - d
Where:
[a] equals the net investment income earned during the period by the
Portfolio attributable to shares owned by a Subaccount
[b] equals the expenses accrued for the period (net of reimbursement)
[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
4
<PAGE>
Yield on the Subaccount is earned from the increase in net asset value of
shares of the Portfolio in which the Subaccount invests and from dividends
declared and paid by the Portfolio, which are automatically reinvested in
shares of the Portfolio.
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
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of all applicable sales loads (including the
contingent deferred sales load), the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes,
if any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if
less, up to the life of the Subaccount), calculated pursuant to the formula:
P(1 + T)n = ERV
Where:
(1) [P] equals a hypothetical initial Purchase Payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000
Purchase Payment made at the beginning of the period (or fractional
portion thereof)
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, 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 Fee, any sales loads or Premium Taxes (if
any), which if included would reduce the percentages reported by the Company.
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios (calculated beginning from the
end of the year of inception for each Portfolio) and may assume the Contract
was in existence prior to it's inception date. After the Contract's inception
date, the calculations will reflect actual Accumulation Unit Values. These
returns are based on specified premium patterns which produce the resulting
Accumulated Values. However, they reflect a deduction for the Separate Account
expenses and Portfolio expenses. They do not include the Annual Contract Fee,
any sales loads or Premium Taxes (if any), which if included would reduce the
percentages reported.
5
<PAGE>
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
The Company may from time to time use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide registered
representatives and existing and/or potential owners of Contracts with
individualized hypothetical performance illustrations for some or all of the
Portfolios. Such illustrations may include, without limitation, graphs, bar
charts and other types of formats presenting the following information: (i) the
historical results of a hypothetical investment in a single Portfolio; (ii) the
historical fluctuation of the value of a single Portfolio (actual and
hypothetical); (iii) the historical results of a hypothetical investment in
more than one Portfolio; (iv) the historical performance of two or more market
indices in relation to one another and/or one or more Portfolios; (v) the
historical performance of two or more market indices in comparison to a single
Portfolio or a group of Portfolios; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Portfolios to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Portfolio data sheets showing various
information about one or more Portfolios (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets).
PERFORMANCE COMPARISONS
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 in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of Providian Life and Health Insurance Company as
determined by one or more of the ratings services listed below, or other
recognized rating services. Reports and promotional literature may also contain
other information including (i) the ranking of any Subaccount derived from
rankings of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other person who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of tax-
deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which
may include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Each Subaccount's performance depends on, among other things, the performance
of the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
. the relative amount of the Portfolio's cash flow.
From time to time, we may advertise the performance of the Subaccounts and the
underlying Portfolios as compared to similar funds or portfolios using certain
indexes, reporting services and financial publications, and we may advertise
6
<PAGE>
rankings or ratings issued by certain services and/or other institutions. These
may include, but are not limited to, the following:
. DOW JONES INDUSTRIAL AVERAGE ("DJIA"), an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is
cited as a principal indicator of market conditions.
. STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, which can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated into the Standard & Poor's figures.
. LIPPER ANALYTICAL SERVICES, INC., a reporting service that ranks funds in
various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks
and thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, an index comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed-rate, non-convertible domestic bonds of companies in
industry, public utilities and finance. The average maturity of these
bonds approximates nine years. Tracked by Shearson Lehman, Inc., the
index calculates total returns for one month, three month, twelve month,
and ten year periods and year-to-date.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (LONG-TERM) INDEX, an index composed
of the same types of issues as defined above. However, the average
maturity of the bonds included in this index approximates 22 years.
. SHEARSON LEHMAN GOVERNMENT INDEX, an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate
debt guaranteed by the U.S. government. Only notes and bonds with a
minimum outstanding principal of $1 million and a minimum maturity of one
year are included.
. MORNINGSTAR, INC., an independent rating service that publishes the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
. MONEY, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.
. STANDARD & POOR'S UTILITY INDEX, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the
price of the stocks. The index also provides figures for changes in price
from the beginning of the year to date, and for a twelve month period.
. DOW JONES UTILITY INDEX, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period.
The index also provides the highs and lows for each of the past five
years.
. THE CONSUMER PRICE INDEX, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the
Funds' Prospectuses to obtain a more complete view of each Portfolio's
performance before investing. Of course, when comparing each Portfolio's
performance to any index, conditions such as composition of the index and
prevailing market conditions should be considered in assessing the significance
of such companies. Unmanaged indexes may assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management costs
and expenses.
7
<PAGE>
When comparing funds using reporting services, or total return and yield, or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
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. The General Account contains all of the assets of the
Company. Records are maintained of all purchases and redemptions of eligible
Portfolio shares held by each of the Subaccounts and the General Account.
THE COMPANY
All the stock of the Company is owned by Capital Liberty, L.P., a limited
partnership, which is owned, directly and indirectly, by Providian Corporation.
A 50% interest in Capital Liberty, L.P. is owned by Providian Corporation,
which is the general partner, and 40% and 10% interests, respectively, are held
by two limited partners, Commonwealth Life Insurance Company and Peoples
Security Life Insurance Company, which are both wholly-owned by Providian
Corporation.
STATE REGULATION
The Company is a stock life insurance company organized under the laws of
Missouri, and is subject to regulation by the Missouri State Department of
Insurance. An annual statement is filed with the Missouri Commissioner of
Insurance on or before March 1st of each year covering the operations and
reporting on the financial condition of the Company as of December 31st of the
preceding calendar year. Periodically, the Missouri Commissioner of Insurance
examines the financial condition of the Company, including the liabilities and
reserves of the Separate Account.
In addition, the Company is subject to the insurance laws and regulations of
all the states where it is licensed to operate. The availability of certain
contract rights and provisions depends on state approval and/or filing and
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 Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under
that Act or by any other applicable law or regulation.
DISTRIBUTION OF THE CONTRACTS
Providian Securities Corporation ("PSC"), the principal underwriter of the
Contracts, is ultimately a wholly owned subsidiary of Providian Corporation.
PSC is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc.
The Contracts are offered to the public through persons or entities licensed
under the federal securities laws and state insurance laws that have entered
into agreements with PSC. The offering of the Contracts is continuous and PSC
does not anticipate discontinuing the offering of the Contracts. However, PSC
does reserve the right to discontinue the offering of the Contracts.
8
<PAGE>
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The audited financial statements of the Separate Account for the year ended
December 31, 1994, including the Report of Independent Auditors thereon, is
included in this Statement of Additional Information. The audited statutory-
basis financial statements of the Company, for the years ended December 31,
1994 and 1993, respectively, including the Reports of Independent Auditors,
thereon, which are also included in this Statement of Additional 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.
9
<PAGE>
Financial Statements
National Home Life Assurance Company
Separate Account V - Advisor's Edge
For the Period Since Inception through December 31, 1994
with Report of Independent Auditors
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Financial Statements
For the Period Since Inception through December 31, 1994
Contents
Report of Independent Auditors............................................ 1
Audited Financial Statements
Statement of Assets and Liabilities....................................... 2
Statement of Operations................................................... 3
Statement of Changes in Net Assets........................................ 4
Notes to Financial Statements............................................. 5
<PAGE>
Report of Independent Auditors
Contract Holders
National Home Life Assurance Company Separate Account V - Advisor's Edge
We have audited the accompanying statement of assets and liabilities of National
Home Life Assurance Company Separate Account V - Advisor's Edge (comprising
Federated's Prime Money Subaccount) as of December 31, 1994, and the related
statements of operations and changes in net assets for the period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1994, 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 audit provides 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 the subaccount constituting the
National Home Life Assurance Company Separate Account V - Advisor's Edge at
December 31, 1994, and the results of its operations and changes in its net
assets for the period then ended in conformity with generally accepted
accounting principles.
Louisville, Kentucky
April 21, 1995
1
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Statement of Assets and Liabilities
December 31,
1994
------------
Assets
Investments in Advisor's Edge Variable Insurance Product Fund:
Federated's Prime Money Portfolio (704,060.890 shares at net
asset value of $1.00; cost $704,061) $704,061
------------
Net assets $704,061
============
Net assets attributable to variable annuity contract owners
Federated's Prime Money Subaccount (accumulation units
outstanding 70,223.494; unit value $10.026003) $704,061
------------
Net assets attributable to variable annuity contract owners $704,061
============
See accompanying notes.
2
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Statement of Operations
For the Period Since Inception through December 31, 1994
Federated's
Prime
Money
-----------
Investment income:
Dividends $ 125
Expenses:
Mortality and expense risk and administrative charges 13
-----------
Net investment income 112
Realized and unrealized gain on investments:
Net realized gain from investment transactions:
Proceeds from sales 13
Cost of investments sold 13
-----------
Net unrealized appreciation of investments:
At end of year -
-----------
Net gain on investments -
-----------
Net increase in net assets resulting from operations $ 112
===========
See accompanying notes.
3
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Statement of Changes in Net Assets
For the Period Since Inception through December 31, 1994
Federated's
Prime
Money
------------
Increase in net assets resulting from operations:
Net investment income $ 12
Net realized gain on investments -
Net unrealized appreciation of investments -
------------
Net increase in net assets resulting from operations 112
Changes from variable annuity contract transactions:
Transfers of net premiums 703,949
------------
Net increase in net assets derived from variable annuity
contract transactions 703,949
------------
Net increase in net assets 704,061
------------
Balance at December 31, 1994 $ 704,061
============
See accompanying notes.
4
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements
December 31, 1994
1. Accounting Policies
Organization of the Account
National Home Life Assurance Company Separate Account V - Advisor's Edge
(the "Separate Account") is a separate account of National Home Life Assurance
Company ("National Home"), a wholly-owned subsidiary of Providian Corporation,
formerly Capital Holding Corporation, and is registered as a unit investment
trust under the Investment Company Act of 1940, as amended. The Separate Account
was established for the purpose of funding variable annuity contracts issued by
National Home.
The Separate Account has 12 subaccounts, one of which had activity during 1994.
During 1994, contract owners' initial premiums were automatically allocated to
Federated's Prime Money Market Subaccount until the end of the free look period
(typically 10 days or, in certain instances, 30 days or more). Subsequent to the
free look period, contract owners could allocate all or a portion of the initial
premium and additional premiums, if any, to one or more subaccounts of the
Separate Account or to National Home's General Account, which consists of all
assets owned by National Home other than those in the Separate Account or other
separate accounts.
The Separate Account had no activity until the first contract application
was processed in December 1994.
Investments
Each subaccount invests exclusively in shares of the corresponding portfolios of
DFA Investment Dimensions Group Inc. (advised by Dimensional Fund Advisors
Inc.), Insurance Management Series (advised by Federated Advisers) and Insurance
Investment Products Trust (advised by SEI Financial Management Corporation)
(each, a "Fund" and collectively, the "Funds"). The investment objectives of the
Funds' portfolios are as follows:
The DFA Global Value Portfolio seeks to achieve long-term capital appreciation
by investing approximately 50% of its total assets in the stocks of large non-
U.S. companies that have a high book value in relation to their market value
(a "book-
5
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
to-market ratio") and approximately 50% of its total assets in stocks of U.S.
companies that have a high book-to-market ratio.
The DFA Global Bond Portfolio seeks to provide a market rate of return for a
global fixed income portfolio with low relative volatility of returns by
investing primarily in obligations issued or guaranteed by the U.S. and
foreign governments, their agencies and instrumentalities, obligations of
other foreign issuers rated AA or better and supranational organizations,
such as the World Bank, the European Investment Bank, European Economic
Community, and European Coal and Steel Community and corporate debt
obligations.
Federated's Equity Growth and Income Portfolio seeks to achieve long-term
growth of capital. The portfolio's secondary objective is to provide income.
The portfolio pursues its investment objectives by investing, under normal
circumstances, at least 65% of its total assets in common stock of "blue-
chip" companies.
Federated's Utility Portfolio seeks to achieve high current income and
moderate capital appreciation by investing primarily in a professional
managed and diversified portfolio of equity and debt securities of utility
companies.
Federated's Prime Money Portfolio seeks to provide current income consistent
with stability of principal and liquidity by investing exclusively in a
portfolio of mon ey market instruments maturing in 397 days or less.
Federated's U.S. Government Bond Portfolio seeks to provide current income
by investing at least 65% of the value of its total assets in securities
issued or guaranteed as to payment of principal and interest by the U.S.
government, its agencies or instrumentalities.
Federated's Corporate Bond Portfolio seeks high current income by investing
primarily in a diversified portfolio of professionally managed fixed income
securities. The fixed income securities in which the portfolio intends to
invest are lower-rated corporate debt obligations, which are commonly
referred to as "junk-bonds". Some of these fixed income securities may
involve equity features. Capital growth will be considered, but only when
consistent with the investment objective of high current income.
6
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
The SEI International Growth Portfolio seeks to provide long-term capital
appreciation by investing primarily in a diversified portfolio of equity
securities of non-U.S. issuers. Under normal conditions, at least 65% of the
portfolio's assets will be invested in the following equity securities of
non-U.S. issuers: common stocks, securities convertible into common stocks,
preferred stocks, warrants and rights to subscribe to common stocks. At all
times at least 65% of the portfolio's total assets will be invested in
securities of issuers in at least three different countries other than the
United States.
The SEI Growth Portfolio seeks to provide capital appreciation by investing
at least 65% of its total assets in equity securities of large companies
(i.e., companies with market capitalizations of more than $1 billion at the
time of purchase). The portfolio's advisors will generally select securities
of issuers believed by them to possess significant growth potential. Equity
securities include common stock, preferred stock, warrants or rights to
subscribe to common stock and, in general, any security that is convertible
into or exchangeable for common stock.
The SEI Aggressive Growth Portfolio seeks to provide long-term capital
appreciation by investing primarily in equity securities of smaller
companies. The portfolio's policy is to invest in equity securities of
smaller companies that its advisors believe are in an early stage or
transitional point in their development and have demonstrated or have the
potential for above average capital growth. The portfolio's advisors will
select companies which have the potential to gain market share in their
industry, achieve and maintain high and consistent profitability or produce
increases in earnings. The portfolio's advisors also seek companies with
strong company management and superior fundamental strength. Under normal
market conditions, the portfolio will invest at least 65% of its total
assets in equity securities of smaller growth companies (i.e., market
capitalizations less than $1 billion at time of purchase). The remaining 35%
of the portfolio's assets may be invested in the equity securities of more
established companies.
The SEI Income Equity Portfolio seeks to provide long-term growth of capital
and income by investing primarily in a diversified portfolio of high quality,
income producing common stocks which, in the opinion of the portfolio's
investment advisors, are undervalued in the marketplace at the time of
purchase. In general,
7
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
high quality securities are characterized as those that have average return-
on-equity and above average reinvestment rates relative to the stock market
in general as measured by the S&P Barra/Value Index. The portfolio's
advisors will also consider other factors, such as earnings and dividend
growth prospects. Under normal conditions, the portfolio will invest at least
65% of its total assets in common stocks with market capitalizations of at
least $1 billion.
The SEI Intermediate Fixed Income Portfolio seeks to provide current income
consistent with the preservation of capital. The portfolio's permitted
investments consist of corporate bonds and debentures, obligations issued by
the United States Government, its agencies and instrumentalities, receipts
involving U.S. Treasury obligations, collateralized mortgage obligations and
asset backed securities that are rated AAA, AA or A by Standard & Poor's
Corporation ("S&P") or Aaa, Aa or A by Moody's Investors Service, Inc.
("Moody's") at the time of purchase or are of comparable quality. This
portfolio may invest up to 35% of its total assets in corporate bonds and
debentures rated BBB by S&P or Baa by Moody's at the time of purchase. Such
securities are regarded as having an adequate capacity to pay interest and
repay principal, but adverse economic conditions or changing economic
circumstances are more likely to lead to a weakened capacity to pay interest
and repay principal. Such securities are thought to possess speculative
characteristics. Under normal market conditions, this portfolio will invest
at least 65% of its total assets in bonds. Securities comprising the
portfolio will have an aggregate average weighted maturity of five to ten
years. As a result of its investment strategies, the portfolio's annual
turnover rate is expected to exceed 100%. Such a rate, if achieved, will lead
to higher transaction costs.
There is no assurance that a portfolio will achieve its stated investment
objective.
The Separate Account purchases shares of the Funds at net asset value in
connection with premium payments allocated to the subaccounts in accordance
with contract owners' directions and redeems shares of the Funds to process
transfers 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.
The aggregate cost of shares purchased during the period since inception
through December 31, 1994 for Federated's Prime Money Portfolio is $704,074.
8
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
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
income, gains or losses from any other subaccount of the Separate Account or
arising out of any other business National Home 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 National Home, except to the extent of amounts allocated
to National Home's General Account. National Home has sole discretion to
invest the assets of the General Account, subject to applicable law.
Allocation of any amounts to the General Account does not entitle the
contract owner to share directly in the investment experience of these
assets. There are three fixed options under the General Account.
Although the assets in the Separate Account are the property of National
Home, the assets in the Separate Account cannot be used to discharge the
liabilities arising out of any other business which National Home may
conduct. The assets of the Separate Account are available to cover the
general liabilities of National Home only to the extent that the Separate
Account's assets exceed its liabilities under the contracts.
2. Federal Income Taxes
Operations of the Separate Account are included in the federal income tax
return of National Home, 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 Separate Account.
9
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
3. Advisory and Service Fees
The Funds and their advisors furnish corporate management, administrative,
marketing and distribution services to the funds of the Separate Account.
Additionally, the Funds' advisors furnish investment advisory services to the
Fund portfolios under the terms of advisory contracts. The net asset value of
the portfolios is net of the advisory and service fees.
4. Expenses
An annual charge is deducted from the unit values of the subaccounts of the
Separate Account and is assessed for National Home's assumption of certain
mortality and expense risks incurred in connection with the contract. The charge
is assessed daily based on the net asset value of the Separate Account. For the
period since inception through December 31, 1994, the effective annual rate for
this charge was .50%.
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily by National Home, along with an annual
contract fee of $30 per contract. These costs are deducted proportionately from
the contract's accumulated value. These deductions represent reimbursement for
the costs expected to be incurred over the life of the contract for issuing and
maintaining each contract and the Separate Account.
In addition, an exchange fee of $15 is assessed for transfers among the
subaccounts of the Separate Account or into National Home's General Account
which are in excess of twelve transfers per contract year.
5. Contract Owner Transactions
Transactions with contract owners during the period since inception through
December 31, 1994 were as follows:
10
<PAGE>
National Home Life Assurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1994
----------------------
Units Amount
----------------------
Federated's Prime Money Subaccount
Issuance of units 70,223.494 $703,949
Increase from operations - 112
Redemption of units - -
----------------------
Net increase 70,223.494 $704,061
======================
11
<PAGE>
Statutory-Basis Financial Statements
and Other Financial Information
National Home Life Assurance Company
Years ended December 31, 1994 and 1993
with Report of Independent Auditors
<PAGE>
National Home Life Assurance Company
Statutory-Basis Financial Statements
and Other Financial Information
Years ended December 31, 1994 and 1993
Contents
Report of Independent Auditors............................................... 1
Audited Financial Statements
Balance Sheets (Statutory-Basis)............................................. 3
Statements of Operations (Statutory-Basis)................................... 4
Statements of Changes in Capital and Surplus (Statutory-Basis)............... 5
Statements of Cash Flow (Statutory-Basis).................................... 6
Notes to Financial Statements................................................ 7
Other Financial Information
Report of Independent Auditors on Other Financial Information................ 35
Supplemental Schedule of Selected Financial Data (Statutory-Basis)........... 36
<PAGE>
Report of Independent Auditors
Board of Directors
National Home Life Assurance Company
We have audited the accompanying statutory-basis balance sheets of National
Home Life Assurance Company as of December 31, 1994 and 1993, and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flows for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits of the accompanying statutory-basis financial statements
in accordance with generally accepted auditing standards; however, as discussed
in the following paragraph, we were not engaged to determine or audit the
effects of the variances between statutory accounting practices and generally
accepted accounting principles. Generally accepted auditing standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion on the accompanying statutory-
basis financial statements.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Missouri Insurance Department. When
statutory-basis financial statements are presented for purposes other than for
filing with a regulatory agency, generally accepted auditing standards require
that an auditors' report on them state whether they are presented in conformity
with generally accepted accounting principles. The accounting practices used by
the Company vary from generally accepted accounting principles as explained in
Note 1, and the Company has not determined the effects of these variances.
Accordingly, we were not engaged to audit, and we did not audit the effects of
these variances. Since the accompanying financial statements do not purport to
be a presentation in conformity with generally accepted accounting principles,
we are not in a position to express, and we do not express, an opinion on the
financial
1
<PAGE>
statements referred to above as to fair presentation of financial position,
results of operations, or cash flows in conformity with generally accepted
accounting principles.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of National
Home Life Assurance Company at December 31, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with accounting practices prescribed or
permitted by the Missouri Insurance Department.
Louisville, Kentucky
April 21, 1995
2
<PAGE>
National Home Life Assurance Company
Balance Sheets (Statutory-Basis)
<TABLE>
<CAPTION>
December 31
1994 1993
------------------------
(In Thousands)
<S> <C> <C>
Admitted assets
Bonds $4,307,195 $4,419,017
Preferred stocks 72,508 62,210
Common stocks 297,906 149,885
Mortgage loans 2,013,375 1,598,027
Real estate 27,152 34,014
Policy loans 151,132 146,776
Cash and short-term investments 113,531 38,261
Other invested assets 127,620 175,569
------------------------
Total cash and invested assets 7,110,419 6,623,759
Premiums deferred and uncollected 43,340 43,415
Accrued investment income 93,066 91,679
Other receivables 154,174 15,264
Federal income taxes recoverable from parent 17,459 --
Other admitted assets 4,054 9,145
Separate account assets 1,114,835 958,040
------------------------
Total admitted assets $8,537,347 $7,741,302
========================
Liabilities and capital and surplus
Liabilities:
Aggregate policy reserves $4,908,607 $4,908,272
Policy and contract claims 35,302 39,361
Policyholder contract deposits 1,494,308 882,414
Other policy or contract liabilities 300,304 288,504
Amounts due to affiliates 18,665 14,263
Federal income taxes due to parent -- 24,143
Asset valuation reserve 47,482 44,652
Interest maintenance reserve 15,868 30,130
Accrued expenses and other liabilities 71,764 98,226
Separate account liabilities 1,114,835 958,040
------------------------
Total liabilities 8,007,135 7,288,005
Capital and surplus:
Capital stock, $11 par value, 230,000 shares
authorized, issued and outstanding 2,530 2,530
Paid-in surplus 41,838 41,838
------------------------
Unassigned surplus 485,844 408,929
------------------------
Total capital and surplus 530,212 453,297
------------------------
Total liabilities and capital surplus $8,537,347 $7,741,302
========================
</TABLE>
See accompanying notes.
3
<PAGE>
National Home Life Assurance Company
Statements of Operations (Statutory-Basis)
<TABLE>
<CAPTION>
Year ended December 31
1994 1993 1992
-----------------------------------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Premiums earned:
Accident and health $ 162,742 $ 173,168 $ 156,987
Life and annuity 181,143 258,471 257,848
Annuity deposit funds 1,223,232 1,073,837 825,819
Net investment income 472,691 451,417 446,809
Commissions and expense allowances on
reinsurance ceded 16,186 17,230 15,896
Amortization of interest maintenance
reserve 7,476 3,006 45
Reinsurance reserve adjustments and other
income 10 103 6
-----------------------------------
2,063,480 1,977,232 1,703,410
Benefits and expenses:
Accident and health, life and other
benefits 986,601 1,033,991 677,875
Increase in aggregate policy reserves 623,028 328,584 542,907
Reinsurance reserve adjustments (9,311) 1,210 28,711
Commissions and expense allowances on
reinsurance assumed 70,596 89,116 102,224
General insurance and other expenses 104,885 110,435 119,225
Net transfers to separate accounts 162,973 314,382 211,675
-----------------------------------
1,938,772 1,877,718 1,682,617
Net gain from operations before federal
income taxes 124,708 99,514 20,793
Federal income tax expense 50,351 46,866 18,808
-----------------------------------
Net gain from operations 74,357 52,648 1,985
Net realized capital losses, net of income
taxes (1994-($7,311); 1993-$25,997;
1992-$7,590) and excluding gains (losses)
transferred to the interest maintenance
reserve (1994-($6,786); 1993-$28,652;
1992-$4,530) (15,867) (2,547) (6,712)
-----------------------------------
Net income (loss) $ 58,490 $ 50,101 $ (4,727)
===================================
</TABLE>
See accompanying notes.
4
<PAGE>
National Home Life Assurance Company
Statements of Changes in Capital and Surplus (Statutory-Basis)
<TABLE>
<CAPTION>
Capital Paid-in Unassigned
Stock Surplus Surplus
------------------------------
(In Thousands)
<S> <C> <C> <C>
Balances, January 1, 1992 $ 2,530 $ 41,838 $375,578
Net loss (4,727)
Change in net unrealized capital gains on
investments 4,969
Increase in nonadmitted assets and related items (6,070)
Increase in asset valuation reserve (10,229)
Prior year federal income tax adjustment 22
------------------------------
Balances, December 31, 1992 2,530 41,838 359,543
Net income 50,101
Change in net unrealized capital gains on
investments 838
Decrease in nonadmitted assets and related
items 1,643
Change in reserve due to change in valuation
basis 6,582
Increase in asset valuation reserve (6,330)
Prior year federal income tax adjustment (3,448)
------------------------------
Balances, December 31, 1993 2,530 41,838 408,929
Net income 58,490
Change in net unrealized capital gains on
investments 24,538
Increase in nonadmitted assets and related
items (3,283)
Increase in asset valuation reserve (2,830)
------------------------------
Balances, December 31, 1994 $ 2,530 $ 41,838 $485,844
==============================
</TABLE>
See accompanying notes.
5
<PAGE>
NATIONAL HOME LIFE ASSURANCE COMPANY
STATEMENTS OF CASH FLOWS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------------------------------
(In Thousands)
<S> <C> <C> <C>
Cash and short-term investments provided:
Operations:
Premiums and annuity fund deposits $1,574,914 $1,499,353 $1,228,048
Net investment income 481,560 440,139 450,779
Allowances and reserve adjustments
received on reinsurance ceded 16,168 17,337 16,231
------------------------------------
2,072,642 1,956,829 1,695,058
Benefits paid 991,357 1,044,195 678,896
Commissions, expenses and taxes
paid 171,197 196,101 196,380
Federal income taxes paid 64,311 28,719 26,895
Net increase in policy loans and
premium notes 4,298 11,752 9,841
Paid reinsurance reserves and other
items 39 997 36
Net transfer to separate accounts 147,516 308,635 221,268
------------------------------------
1,378,718 1,590,399 1,133,316
------------------------------------
Total cash provided by operations 693,924 366,430 561,742
Investments sold, matured or repaid 2,096,056 7,767,911 3,818,300
Other cash provided:
Increase in amounts due to affiliates 4,402 -- 13,253
Other items 15,530 50,655 60,325
------------------------------------
Total other cash provided 19,932 50,655 73,578
------------------------------------
Total cash and short-term investments
provided 2,809,912 8,184,996 4,453,620
Cash and short-term investments applied:
Investments acquired 2,533,051 8,244,557 4,513,028
Other cash applied:
Decrease in amounts due to affiliates -- 23,314 --
Investment receivables/payables 101,703 16,401
Accounts receivable--limited
partnership 83,606 -- --
Other items 16,282 38,001 65,288
------------------------------------
Total other cash applied 201,591 61,315 81,689
------------------------------------
Total cash and short-term investments
applied 2,734,642 8,305,872 4,594,717
------------------------------------
Increase (decrease) in cash and short-
term investments 75,270 (120,876) (141,097)
Cash and short-term investments:
Beginning of year 38,261 159,137 300,234
------------------------------------
End of year $ 113,531 $ 38,261 $ 159,137
====================================
</TABLE>
See accompanying notes.
6
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements
December 31, 1994
1. Organization and Accounting Policies
Organization
National Home Life Assurance Company (NHL) is wholly-owned by a limited
partnership consisting of Providian Corporation and two of its insurance
subsidiaries. NHL wholly-owns two insurance subsidiaries, Veterans Life
Insurance Company (VLIC) and National Liberty Life Insurance Company (NLL).
NLL wholly-owns an insurance subsidiary, National Home Life Assurance Company
of New York (NHNY).
Effective May 11, 1994, Capital Holding Corporation changed its name to
Providian Corporation (PC).
Basis of Presentation
The accompanying financial statements have been prepared in accordance with
the accounting practices prescribed or permitted by the Missouri Insurance
Department. Such practices vary from generally accepted accounting principles
(GAAP). The more significant variances from GAAP are as follows:
Investments
Investments in bonds and mandatorily redeemable preferred stocks are
reported at amortized cost or market 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 investments are
reported at amortized cost, and the remaining fixed maturity investments
are reported at fair value with unrealized holding gains and losses
reported in operations for those designated as trading and as a separate
component of shareholders' equity for those designated as available-for-
sale.
Market values of certain investments in bonds and stocks are based on
values specified by the Securities Valuation Office (SVO) of the NAIC,
rather than on values provided by outside broker confirmations or
internally calculated estimates. However, for certain investments, the
NAIC does not provide a value and NHL uses quoted market values from other
outside sources or internally calculated estimates. Mortgage loans in good
standing are reported at unpaid principal balances. Investments in real
estate are reported net of related debt rather than gross. Real estate
owned and
7
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
1. Organization and Accounting Policies (continued)
occupied by NHL is included in investments rather than reported as an
operating asset, and investment income and operating expenses include
amounts representing rent for NHL's occupancy of such real estate.
Increases and decreases in admitted investment asset amounts are credited
and charged directly to unassigned surplus rather than to a separate
surplus account.
The asset valuation reserve (AVR) is determined by a NAIC prescribed
formula and is reported as a liability rather than as a valuation
allowance. The AVR represents a provision for possible fluctuations in the
value of bonds, equity securities, mortgage loans, real estate and other
invested assets. Changes to the AVR are charged or credited directly to
unassigned surplus.
As also determined under a formula prescribed by the NAIC, NHL defers the
portion of realized capital gains and losses attributable to changes in the
general level of interest rates on sales of certain liabilities and fixed
income investments, principally bonds and mortgage loans, and amortizes
such deferrals into income on a straight-line basis over the remaining
period to maturity based on groupings of individual liabilities or
investments sold. The net accumulated unamortized balance of such
deferrals is reported as an interest maintenance reserve (IMR) in the
accompanying balance sheet. Realized gains and losses are reported in
income net of tax and transfers to the IMR. Under GAAP, realized gains and
losses are reported in the income statement on a pretax basis in the period
that the asset giving rise to the gain or loss is sold.
Subsidiaries
The accounts and operations of NHL's subsidiaries are not consolidated with
the accounts and operations of NHL as would be required under GAAP.
Policy Acquisition Costs
Costs of acquiring and renewing business are expensed when incurred. Under
GAAP, acquisition costs related to traditional life insurance, to the
extent recoverable from future policy revenues, are deferred and amortized
over the premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves. For
universal life insurance and investment-type contracts, to the extent
recoverable from future gross profits, deferred policy acquisition costs
are being amortized generally in proportion to the present value of
expected gross profits from surrender charges and investment, mortality and
expense margins.
8
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
1. Organization and Accounting Policies (continued)
Nonadmitted Assets
Certain assets designated as "nonadmitted," principally agents' debit
balances and furniture and equipment, are excluded from the balance sheets
and are charged directly to unassigned surplus.
Premiums
Revenues for universal life policies and investment-type contracts consist
of the entire premium received and benefits represent the death benefits
paid 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.
Benefit Reserves
Certain policy reserves are calculated using prescribed interest and
mortality assumptions rather than based 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
financial statement and the tax bases of assets and liabilities.
The effects of the foregoing variances from GAAP on the accompanying statutory-
basis financial statements have not been determined.
Other significant accounting policies followed in preparing the accompanying
statutory-basis financial statements are as follows.
Investments
Bonds, preferred stocks, common stocks, short-term investments and
derivative instruments are stated at values prescribed by the NAIC, as
follows:
Bonds not backed by other loans are stated at amortized cost using the
interest method.
9
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
1. Organization and Accounting Policies (continued)
Loan-backed bonds and structured securities are valued at amortized
cost using the interest method. Anticipated prepayments are
considered when determining the amortization of discount or premium.
Prepayment assumptions are obtained from dealer survey values or
internal estimates and are consistent with the current interest rate
and economic environment. The retrospective adjustment method is used
to value such securities.
Short-term investments include investments with maturities of less
than one year at the date of acquisition. Short-term investments and
cash are carried at cost, which approximates market value.
Preferred stocks are carried at cost or amortized cost. In addition,
certain preferred stocks are carried at the lower of cost (or
amortized cost) or the NAIC designated market value.
Common stocks are carried at the NAIC designated market value, except
that investments in unconsolidated subsidiaries and affiliates in
which NHL has an interest of 20 percent or more are carried on the
equity basis.
Derivative instruments, consisting of interest rate exchange
agreements and futures contracts, are valued in accordance with the
NAIC, which is on a basis consistent with the asset or liability being
hedged.
Mortgage loans in good standing and policy loans are carried at unpaid
principal balances while statutorily delinquent mortgages are carried
at the lower of unpaid balances or net realizable value.
Real estate is carried at cost less depreciation, generally calculated
using the straight-line method, or net realizable value, and is net of
related debt, if any.
Bond and other loan interest is credited to income as it accrues.
Dividends on common and preferred stocks are credited to income on ex-
dividend dates. For securities, NHL follows the guidelines of the NAIC
for each security on an individual basis in determining the admitted or
nonadmitted status of accrued income amounts. For interest rate exchange
agreements, interest is credited to income as it accrues. For mortgage
loans, NHL's policy is to accrue investment income due for a maximum of
three months from the last payment date. At December 31, 1994 and 1993, the
total amount excluded from accrued investment income was approximately
$4,200,000 and $5,900,000, respectively.
10
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
1. Organization and Accounting Policies (continued)
Net income includes realized gains and losses on investments sold, net of
tax and transfers to the IMR. The cost of investments sold is determined
on a first-in, first-out basis. Changes in unrealized gains and losses on
common stocks and admitted asset amounts of other investments are credited
or charged directly to unassigned surplus.
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
annuities, 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
estimated provision for claims incurred but not reported), policy reserve
changes and expenses are charged to income as incurred.
Policy Reserves
Unearned premiums represent the portion of premiums written which is
applicable 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
reserves.
NHL waives deduction of deferred fractional premiums upon death of insured.
NHL's policy is not to return any portion of the final premium beyond the
date of death. Surrender values are not promised in excess of the legally
computed reserves. 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 holding in addition one-half of the extra premium charged
for the year.
The tabular interest has been determined from the basic data for the
calculation of policy reserves. The tabular less actual reserve released
and the tabular cost have been determined by formula as described in the
NAIC instructions.
11
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
Policy and Contract Claims
Claims and benefits payable include amounts determined on an individual
case basis for reported losses and estimates of incurred but not reported
losses developed on the basis of experience. 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 reserves for claims and claim expenses are adequate. The methods
of making such estimates and establishing the resulting reserves are
continually reviewed and updated, and any adjustments resulting therefrom
are reflected in earnings currently.
Policyholder Contract Deposits
Policyholder contract deposits consist primarily of guaranteed investment
contracts (GICs) and single premium and flexible premium annuity contracts.
The GICs consist of two types. One type is guaranteed as to principal along
with interest guarantees based upon predetermined indices. The second type
guarantees principal and interest, but also includes a penalty if the
contract is surrendered early. Policy reserve on the GICs are determined
following the retrospective deposit method and consist of contract values
the accrue to the benefit of the policyholder, excluding surrender charges.
The annuity contracts contain no surrender options. Policy reserves on
these annuities are determined based on the expected future cash flows
discounted at the applicable statutorily defined mortality and interest
rates. Annual effective rates credited to these GICs and annuity contracts
ranged from 3.6 percent to 10.3 percent during 1994.
Reinsurance
Reinsurance premiums, benefits and expenses are accounted for in a manner
consistent with that used in accounting for original policies issued and
the terms of the reinsurance contracts. Premiums, benefits, expenses and
the reserves for policy and contract liabilities and unearned premiums are
recorded net of reinsured amounts.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
financial statements principally represent funds that are separately
administered, principally for annuity contracts, and for which the contract
holder, rather than NHL, bears the investment risk. Separate account
contract holders have no claim against the assets of the general account of
NHL. Separate account assets are reported at market value.
The operations of the separate accounts are not included in the
accompanying financial statements.
12
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
1. Organization and Accounting Policies (continued)
Guaranty Fund Assessments
Periodically, NHL is assessed by various state guaranty funds as part of
those funds' activities to collect funds from solvent insurance companies to
cover certain losses to policyholders that resulted from the insolvency or
rehabilitation of other insurance companies. Each state guaranty fund
operates independently of any other state guaranty fund; as such, the methods
by which assessments are levied against NHL vary from state to state. Also,
some states permit guaranty fund assessments to be partially recovered
through reductions in future premium taxes. At December 31, 1994 and 1993,
NHL has established an estimated liability for guaranty fund assessments for
those insolvencies or rehabilitations that have actually occurred prior to
that date. The estimated liability is determined using preliminary
information received from the various state guaranty funds and the National
Organization of Life and Health Insurance Guaranty Associations. Because
there are many uncertainties regarding the ultimate assessments that will be
assessed against NHL, the ultimate assessments for those insolvencies or
rehabilitations that occurred prior to December 31, 1994 may vary from the
estimated liability included in the accompanying financial statements. The
estimated liability for guaranty fund assessments recorded at December 31,
1994 and 1993 was $11.4 million and $9.5 million, respectively.
Permitted Statutory Accounting Practices
NHL's statutory-basis financial statements are prepared in accordance with
accounting practices prescribed or permitted by the Missouri Insurance
Department. "Prescribed" statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices
may differ from state to state, may differ from company to company 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 1996, will
likely change, to some extent, prescribed statutory accounting practices, and
may result in changes to the accounting practices that NHL uses to prepare
its statutory financial statements.
13
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
1. Organization and Accounting Policies (continued)
Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
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, 1994
U.S. Government obligations $ 334,098 $ 272 $ 20,501 $ 313,869
States and political subdivisions 73,093 380 5,253 68,220
Corporate and other 3,014,222 15,830 209,514 2,820,538
Mortgage-backed 885,782 3,275 47,803 841,254
------------------------------------------------
$4,307,195 $19,757 $283,071 $4,043,881
================================================
December 31, 1993
U.S. Government obligations $ 357,995 $ 883 $ 3,143 $ 355,735
States and political subdivisions 105,890 3,615 596 108,909
Corporate and other 2,972,137 130,840 26,285 3,076,692
Mortgage-backed 982,995 4,671 2,848 984,818
------------------------------------------------
$4,419,017 $140,009 $32,872 $4,526,154
================================================
</TABLE>
14
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of bonds at December 31, 1994, by contractual
maturity, are shown below. Actual maturities may differ from contractual
maturities because certain borrowers may have the right to call or prepay
obligations, sometimes without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
-----------------------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 44,281 $ 43,367
Due after one year through five years 681,925 638,381
Due after five years through ten years 1,074,023 999,299
Due after ten years 1,621,184 1,521,581
-----------------------
3,421,413 3,202,628
Mortgage-backed securities 885,782 841,253
-----------------------
$4,307,195 $4,043,881
=======================
</TABLE>
Proceeds during 1994, 1993 and 1992 from sales, maturities and calls of bonds
were $1,674,690,000, $7,346,224,000 and $3,592,256,000, respectively. Gross
gains of $28,226,000, $279,781,000 and $126,845,000, in 1994, 1993 and 1992,
respectively, and gross losses of $37,882,000, $20,164,000 and $61,081,000, in
1994, 1993 and 1992, respectively, were realized on those sales.
The change in unrealized gains and losses on investments in common stocks and on
investments in subsidiaries is charged directly to unassigned surplus and does
not affect net income. The gross unrealized gains and gross unrealized losses on
those investments at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized
Gains Losses
-----------------------
(In Thousands)
<S> <C> <C>
Common $ 313 $ 775
Subsidiaries 76,706 --
-----------------------
$ 77,019 $ 775
=======================
</TABLE>
15
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The cost of common stock of unaffiliated companies was $23,713,000 and $536,000
at December 31, 1994 and 1993, respectively. The cost of common stocks of
subsidiaries was $197,949,000 and $96,828,000 at December 31, 1994 and 1993.
The cost of preferred stocks of unaffiliated companies was $72,508,000 and
$62,210,000 at December 31, 1994 and 1993, respectively, and the related market
value was $61,502,000 and $59,537,000 at December 31, 1994 and 1993,
respectively. There was no difference between cost and statement value of
preferred stocks at December 31, 1994 and 1993.
Included in investments are securities having admitted asset values of
$3,977,000 at December 31, 1994 which were on deposit with various state
insurance departments to satisfy regulatory requirements.
The carrying value of mortgage loans is net of an allowance for loan losses of
$9,137,000 and $9,800,000 at December 31, 1994 and 1993, respectively. The
maximum and minimum lending rates for mortgage loans made during 1994 were 9.625
percent and 3.750 percent. The maximum percentage of any one loan to the value
of collateral at the time of the loan, exclusive of insured, guaranteed or
purchase money mortgages was 80 percent. Hazard insurance is required on all
properties covered by mortgage loans at least equal to the excess of the loan
over the maximum loan which would be permitted by law on the land without
buildings.
For the years ended December 31, 1994, 1993 and 1992, net investment income is
applicable to the following investments:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------
(In Thousands)
<S> <C> <C> <C>
Fixed securities $328,247 $303,759 $303,825
Equity securities 6,739 2,548 1,695
Short-term investments 8,990 11,443 16,280
Mortgage loans 134,298 126,421 124,694
Real estate -- 1,446 361
Policy loans 8,417 6,058 6,026
Other investments 5,974 17,874 8,308
------------------------------
Total investment income 492,665 469,549 461,189
Less investment expenses 19,974 18,132 14,380
------------------------------
Net investment income $472,691 $451,417 $446,809
==============================
</TABLE>
16
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
3. Financial Instruments
NHL utilizes a variety of financial instruments in its asset/liability
management process and to meet its customers' financing needs. The asset/
liability management process focuses on the management of a variety of risks,
including interest rate, market and credit risks. Effective management of these
risks is an important determinant of profitability. Instruments used in this
process and to meet the customers' financing needs include derivative financial
instruments, primarily interest rate swap agreements and futures contracts, and
commitments to extend credit. Other derivatives, such as interest rate cap and
floor agreements, options and forwards are used to a much lesser extent in the
asset/liability management process. All of these instruments involve (to varying
degrees) elements of market and credit risks in excess of the amounts recognized
in the accompanying financial statements at a given point in time. The contract
or notional values of all of these instruments reflect the extent of involvement
in the various types of financial instruments.
NHL's exposure to market risk is the risk of market volatility and potential
disruptions in the market which may result in certain instruments being less
valuable. NHL monitors and controls its exposure to this risk primarily through
the use of cash flow stress testing, total portfolio analysis of duration
mismatch, a monthly mark to market process and daily monitoring of interest rate
movements.
NHL's exposure to credit risk is the risk of loss from a counterparty failing to
perform according to the terms of the contract. This exposure includes
settlement risk (risk that the counterparty defaults after NHL has delivered
funds or securities under the terms of the contract) which results in an
accounting loss and replacement cost risk (cost to replace the contract at
current market rates should the counterparty default prior to the settlement
date). There is no off-balance sheet exposure to credit risk that would result
in an immediate accounting loss (settlement risk) associated with counterparty
non-performance on interest rate swap agreements (including caps and floors),
futures, forwards and options. Interest rate swap, cap and floor agreements are
subject to replacement cost risk, which equals the cost to replace those
contracts in a net gain position should a counterparty default. Default by a
counterparty would not result in an immediate accounting loss. These
instruments, as well as futures, forwards and options are subject to market
risk, which is the possibility that future changes in market prices may make the
instruments less valuable. Credit loss exposure resulting from non-performance
by a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
17
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
3. Financial Instruments (continued)
The credit risk on all financial instruments, whether on- or off-balance sheet,
is controlled through an on-going credit review, approval and monitoring
process. NHL determines, on an individual counterparty basis, the need for
collateral or other security to support financial instruments with credit risk,
and establishes individual and aggregate counterparty exposure limits. In order
to limit exposure associated with counterparty non-performance on interest rate
exchange agreements, NHL enters into master netting agreements with its
counterparties. These master netting agreements provide that, upon default of
either party, contracts in gain positions will be offset with contracts in loss
positions and the net gain or loss will be received or paid, respectively.
Assuming every counterparty defaulted, the cost of replacing those interest rate
contracts in a net gain position, after consideration of the aforementioned
master netting agreements, was $698,000 and $91,554,000 at December 31, 1994 and
1993, respectively.
NHL primarily manages interest rate risk through the use of net duration
mismatch management. This asset/liability management technique provides NHL with
an approximation of the net sensitivity of investment and liability portfolio
values to changes in interest rates. Duration mismatch management focuses on
determining the estimated weighted average lives of the liabilities and an equal
amount of assets based on the discounted present values of the estimated cash
flows and then determining the difference between the estimated durations of
invested assets and those of the related liabilities. NHL uses derivatives as a
less costly and less burdensome alternative to restructuring the underlying cash
instruments to manage interest rate risk based upon the aggregate net duration
mismatch of its aggregate portfolios.
Information is provided below for each significant derivative product type. NHL
uses futures contracts primarily to adjust the net duration mismatch of the
overall portfolio. Interest rate swaps are used in the overall asset/liability
management process to modify the interest rate characteristics of the underlying
asset or liability or to adjust the net duration mismatch of the overall
portfolio. These interest rate swaps generally provide for the exchange of the
difference between fixed and floating (primarily the one-month or three-month
London Interbank Offered Rate (LIBOR) interest amounts based upon an underlying
notional amount. The basis swaps are contracts where NHL receives an amount
based upon either one-month or three-month LIBOR and pays an amount based on
either a short-term Treasury or Prime rate.
18
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
3. Financial Instruments (continued)
The following table summarizes the activity by notional or contract value in
derivative products for 1994 and 1993:
<TABLE>
<CAPTION>
Receive Pay Fixed/
Fixed/Pay Receive
Floating Floating Basis Futures
----------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balances, December 31, 1992 $1,480,000 $2,781,000 $66,000 $ 31,000
Additions 737,000 1,628,000 _ 2,860,000
Maturities 72,000 _ 10,000 _
Terminations 750,000 3,152,000 _ 2,852,000
----------------------------------------------
Balances, December 31, 1993 1,395,000 1,257,000 56,000 39,000
Additions 1,647,000 _ 18,000 4,226,000
Maturities 18,000 _ 9,000 _
Terminations 2,325,000 1,257,000 _ 3,595,000
----------------------------------------------
Balances, December 31, 1994 $ 699,000 $ _ $65,000 $ 670,000
==============================================
</TABLE>
During 1994 and 1993, NHL terminated or closed certain interest rate swaps
which were accounted for as hedges. The net deferred gains or losses on these
agreements were $7,425,000 and $(177,556,000) as of December 31, 1994 and 1993,
respectively, and are being amortized to investment income over the expected
remaining life of the related investment, generally four to ten years, as a
component of the IMR.
Commitments
Commitments to extend credit consist of agreements to lend to a customer at
some future time, subject to conditions established in the contract. Since it is
likely some commitments may expire or be withdrawn without being fully drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. NHL evaluates individually each customer's creditworthiness.
Collateral may be obtained, if deemed necessary, based on a credit evaluation of
the counterparty. The collateral may include commercial and/or residential real
estate. At December 31, 1994 and 1993, commitments to extend credit were
$359,793,000 and $93,000,000, respectively.
19
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
3. Financial Instruments (continued)
Concentrations of Credit Risk
NHL limits credit risk by diversifying its investment portfolio among common and
preferred stocks, public bonds, private placement securities, and commercial and
residential mortgage loans. It further diversifies these portfolios between and
within industry sectors, by geography and by property type. Credit risk is also
limited by maintaining stringent underwriting standards and purchasing insurance
protection in certain instances. In addition, NHL establishes credit approval
processes, limits and monitoring procedures on an individual counterparty basis.
As a result, management believes that significant concentrations of credit risk
do not exist.
4. Federal Income Taxes
NHL and its subsidiaries (NHNY, NLL and VLIC) file a consolidated federal tax
return. Under a written agreement, NHL 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 for the year bears to the
sum of the separate return tax liabilities of all members, with current credits
for net operating losses. All settlements under this agreement are made after
the filing of the applicable estimated or actual consolidated U.S. Corporate
Income Tax return with the IRS.
Income before income taxes differs from taxable income principally due to tax-
exempt investment income, dividends' received tax deductions, differences
between the treatment of investments for statutory and tax purposes, reinsurance
transactions, policy acquisition costs, and differences in policy and contract
liabilities.
At December 31, 1994, NHL recorded a receivable for federal income taxes
recoverable from parent of approximately $17,500,000. The tax benefit resulted
primarily from updated estimates used in the 1993 and 1994 tax accrual
calculations and a tax capital loss of approximately $15,300,000. The tax
capital loss is expected to be carried back and fully utilized against tax
capital gains in the carryback period.
At December 31, 1994, accumulated earnings of NHL for federal income tax
purposes included approximately $17,400,000 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
20
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
4. Income Taxes (continued)
income (net of tax thereon) plus the dividends-received deduction, tax-exempt
interest, and certain other special deductions as provided by the Act. At
December 31, 1994, the balance in the Shareholders' Surplus account amounted to
$604,500,000. There is no present intention to make distributions in excess of
Shareholders' Surplus.
5. Benefit Plans
NHL sponsors a profit sharing plan, the National Liberty Corporation Profit
Sharing Plan, which was merged into the Providian Corporation Thrift Savings
Plan (Thrift Plan) as of July 1, 1994. This merger was for administrative
purposes only; the profit sharing arrangement was maintained under the Thrift
Plan for employees of NHL and other participating affiliates. This profit
sharing feature is a non-contributory arrangement covering substantially all
employees of the participating companies. As a matter of policy, profit sharing
costs are funded as they accrue and non-vested as well as vested benefits are
fully funded. The liabilities for this arrangement are paid when incurred to
Merrill Lynch, the Trustee for the Thrift Plan. Most employees of NHL are
covered by the Thrift Plan. Employees meeting the minimum service requirement
are eligible to participate in the contributory Thrift Plan, under which
employee contributions, up to 6% of their earnings, are matched by NHL at 50% or
55% depending on the investment option selected by the employee.
Certain executives of NHL are also eligible to participate in PC's Stock
Ownership Plan (SOP). Through the SOP, a portion of all executive cash incentive
awards is paid in PC common stock. Stock awarded to participants under the SOP
is deposited into an account in the participant's name and matched with an equal
number of shares of restricted stock. Participants are free to withdraw the
awarded shares of common stock at any time, but will forfeit all shares of
matching restricted stock if the withdrawal occurs prior to the end of
applicable restriction period.
Under the 1989 Stock Option Plan, options may be granted to key employees in
positions of substantial responsibility of PC and its affiliates, including NHL,
for a total of 4,400,000 shares of PC common stock.
21
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
6. Postretirement Benefits
NHL provides certain health care and life insurance benefits ("postretirement
benefits") for retired employees of NHL and its subsidiaries. Substantially all
employees may become eligible for the life insurance benefits if they retire
with ten or more years of service. Life insurance benefits are generally set at
a fixed amount. Only employees who were either disabled, retired or were
retiree-eligible as of December 31, 1988 are eligible for the health care
benefits.
In 1993, NHL changed its method of accounting for the costs of its retiree
benefit plans to the accrual method and elected to amortize its transition
obligation for retirees and fully eligible or vested employees over 20 years.
The transition obligation was $8,309,437 and $8,071,073 at December 31, 1994 and
1993, respectively. On January 1, 1994, the total postretirement benefit
obligation was $9,469,382 and the fair value of assets was $305,653.
For the year ended December 31, 1994, net postretirement benefit costs for NHL
and its subsidiaries were $1,225,494 and include the expected cost of such
benefits for newly eligible or vested employees, interest cost, and amortization
of the transition obligation. NHL made contributions to the plans of $713,576
and $639,343 in 1994 and 1993, respectively.
At December 31, 1994 and 1993, the unfunded postretirement benefit obligation
for retirees and other fully eligible or vested plan participants was $1,251,805
and $738,548, respectively. The amount of the benefit obligation as of January
1, 1994, for active non-vested employees was $1,117,237. The discount rate used
in determining the accumulated postretirement benefit obligation was 7.75% and
the health care cost trend rate was 9% graded to 6% over 8 years.
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the total
postretirement benefit obligation as of December 31, 1994, by $997,549 and the
estimated eligibility cost and interest cost components of net periodic
postretirement benefit cost for 1994 by $71,915.
22
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
7. Intercompany and Related Party Balances and Transactions
Consolidated financial information of NHL's two insurance company subsidiaries
is summarized as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
-------------------
(In Thousands)
<S> <C> <C>
Invested assets $540,950 $423,254
Other assets 56,603 42,659
-------------------
Total assets $597,553 $465,913
===================
Insurance reserves $301,967 $298,445
Other liabilities 20,931 18,119
Capital and surplus 274,655 149,349
-------------------
Total liabilities and capital and surplus $597,553 $465,913
===================
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31
1994 1993 1992
----------------------------
(In Thousands)
<S> <C> <C> <C>
Revenues $240,929 $255,320 $258,004
Expenses 222,054 251,307 266,485
----------------------------
Net income (loss) $ 18,875 $ 4,013 $ (8,481)
============================
</TABLE>
NHL entered into an agreement effective January 1, 1992 with its affiliates
whereby NHL performs administrative services, management support services, and
marketing services for its affiliates. NHL, as compensation, receives an amount
equal to the actual cost of providing such services. This cost is allocated on a
pro rata basis to each affiliate receiving these services. The amount received
was $44,000,000 in 1994, $73,300,000 in 1993 and $69,300,000 in 1992.
On November 1, 1994, NHL executed a Revolving Credit Note with NHNY allowing for
NHNY to borrow from NHL up to $5,000,000. The note is a demand note expiring
November 1, 1995 with interest payable at the prime rate. At December 31, 1994,
there was no outstanding balance. There was no interest earned by NHL for 1994
on this note.
23
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
7. Intercompany and Related Party Balances and Transactions (continued)
NHL participates in a short-term investment agreement with PC and other
affiliates which provides for the centralization of short-term investment
operations. NHL retains the right to participate in or withdraw its funds on a
daily basis. NHL had invested $21,900,000, $23,900,000 and $145,300,000 in this
short-term agreement as of December 31, 1994, 1993 and 1992, respectively.
On November 8, 1994, NHL made a surplus contribution of $101,000,000 to VLIC.
NHL is a party to various reinsurance agreements with affiliates whereby NHL
cedes pro rata portions of certain blocks of business on a coinsurance basis.
The following table summarizes the amounts reflected in the statements of
operations from these reinsurance agreements:
<TABLE>
<CAPTION>
Expense (Revenue) for the
Year ended December 31
------------------------------
1994 1993 1992
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Premium income ceded $ 37,573 $ 37,333 $ 38,263
Life and accident and health benefits
ceded (28,601) (28,874) (29,727)
Commissions and expense allowances on
reinsurance ceded (14,794) (15,926) (14,583)
Reserve adjustments on reinsurance ceded (2,626) (1,963) (595)
</TABLE>
NHL entered into two indemnity reinsurance agreements with affiliates in 1987
whereby NHL assumes 100% of the risks reinsured on all structured settlement
policies issued during 1987 by these affiliates. The agreements were amended in
1988 whereby NHL also assumes 100% of the risks reinsured on all structured
settlement, pension buyout, and single premium immediate annuities issued
subsequent to 1987 by these affiliates.
24
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
7. INTERCOMPANY AND RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
The agreements were amended in 1988 to change the agreements from indemnity
reinsurance to coinsurance. The agreements were also amended in 1992 whereby the
affiliates recaptured structured settlements issued in 1991 and in the first
five months of 1992. Recapture consideration was $114,600,000. The following
table summarizes the amount reflected in the statements of operations from these
agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1994 1993 1992
-------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $(23,719) $(76,519) $(107,043)
Annuity benefits assumed 55,802 52,493 65,882
Commissions and expense allowances on
reinsurance assumed 3,784 6,393 6,956
Changes in policy reserves assumed 29,618 81,199 6,409
</TABLE>
NHL entered into a reinsurance agreement with an affiliate in 1988 on a
coinsurance basis whereby NHL assumes 100% of the risks on all credit life and
disability policies issued prior to January 1, 1989 by the affiliate. The
agreements were amended in 1990 whereby NHL also assumes 100% of the risks on
all credit life and disability policies issued between January 1, 1989 and March
31, 1990, inclusive. The following table summarizes the amount reflected in the
statements of operations from these agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1994 1993 1992
-------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $ 10 $ (117) $ (441)
Life and accident and health benefits assumed 431 1,277 2,686
Commissions and expense allowances on
reinsurance assumed (19) (104) (371)
Changes in policy reserves assumed (668) (1,701) (2,961)
</TABLE>
25
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
7. INTERCOMPANY AND RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED)
NHL entered into a reinsurance agreement with an affiliate in 1990 on a
coinsurance basis whereby NHL assumes 100% of the risk on certain guaranteed
investment contracts issued by the affiliate. The following table summarizes
amounts reflected in the statements of operations from these reinsurance
agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1994 1993 1992
----------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $ 698,338 $207,489 $81,014
Life and other benefits assumed 76,342 234,937 91,969
Commissions and expense allowances on reinsurance
assumed 1,110 1,910 775
Changes in policyholder contract deposits assumed (658,482) 4,496 11,222
</TABLE>
NHL entered into indemnity reinsurance agreements with an affiliate in 1987
whereby NHL assumed 100 percent of the risks reinsured on all structured
settlement contracts issued during 1987. The agreements were amended in 1988
whereby NHL also assumed 100 percent of the risks reinsured on all structured
settlement, pension buyout and single premium immediate annuities issued
subsequent to 1987. The agreements were also amended in 1988 to change the
agreements from indemnity reinsurance to coinsurance. The following table
summarizes amounts reflected in the statements of operations from these
reinsurance agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1994 1993 1992
----------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $ 291 $ 503 $ 2,680
Annuity benefits assumed 7,443 7,563 7,599
Commissions and expense allowances on
reinsurance assumed 5 21 81
Changes in policy reserves assumed (666) 169 3,489
</TABLE>
26
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
7. Intercompany and Related Party Balances and Transactions (continued)
NHL entered into two separate reinsurance agreements with affiliates in 1992,
both on a coinsurance funds withheld basis. On April 1, 1993, the reinsurance
agreements were amended from a coinsurance funds withheld basis to a coinsurance
nonfunds withheld basis. On April 1, 1993, NHL received funds in the amount of
$23,000,000 under the terms of these reinsurance agreements. The following table
summarizes the amounts reflected in the statements of operations from these
reinsurance agreements:
<TABLE>
<CAPTION>
Expense (Revenue) for the
Year ended December 31
1994 1993
-------------------------
(In Thousands)
<S> <C> <C>
Premium income assumed $(53,051) $(71,128)
Life, accident and health and other benefits assumed 33,457 37,926
Commissions and expense allowances on reinsurance assumed 12,438 26,966
Changes in policy reserves assumed 4,122 3,269
Other income assumed (3,475) (1,019)
</TABLE>
Policy reserves and claims and benefits payable exclude liabilities relating to
reinsurance ceded to affiliates of approximately $160,000,000 and $167,000,000
at December 31, 1994 and 1993, respectively. While these amounts have been
excluded from liabilities, NHL remains liable in the event the reinsuring
companies are unable to meet their obligations.
8. Reinsurance
Certain premiums and benefits are assumed from and ceded to other nonaffiliated
insurance companies under various reinsurance agreements. The ceded reinsurance
agreements provide NHL with increased capacity to write larger risks.
27
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
8. Reinsurance (continued)
NHL's ceded reinsurance agreements with affiliated and nonaffiliated insurance
companies reduced (increased) certain items in the accompanying financial
statements by the following amounts:
1994 1993 1992
-----------------------------------
(In Thousands)
Benefits paid or provided $ 30,889 $ 30,274 $ 32,137
Commissions and expense allowances on
reinsurance ceded (16,186) (17,230) (15,896)
Other income-reserves on ceded business (39) (37) (36)
Policy and contract liabilities* 164,604 174,624 176,072
Claims reserves* 1,120 1,441 1,969
Advance premiums* 55 54 63
Unearned premium reserves* 533 554 562
*At year end.
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, 1994, NHL
reinsurance recoverables are not material and no individual reinsurer owed NHL
an amount equal to or greater than 3% of NHL's surplus.
For all short-duration contracts, the effect of all reinsurance agreements on
premiums written and earned in 1994, 1993 and 1992 was as follows:
1994 1993 1992
Premiums Premiums Premiums
---------------------------------------------------------------
Written Earned Written Earned Written Earned
---------------------------------------------------------------
(In Thousands)
Direct $111,163 $111,099 $124,725 $125,110 $140,008 $142,532
Assumed 56,762 55,946 50,951 52,250 23,155 18,803
Ceded (4,283) (4,303) (4,184) (4,192) (4,279) (4,348)
---------------------------------------------------------------
Net $163,642 $162,742 $171,492 $173,168 $158,884 $156,987
===============================================================
28
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
8. Reinsurance (continued)
For all long-duration contracts, the effect of reinsurance on premiums earned in
1994, 1993 and 1992 was as follows:
1994 1993 1992
Premiums Earned Premiums Earned Premiums Earned
---------------------------------------------------
(In Thousands)
Direct $134,011 $147,943 $156,515
Assumed 84,332 146,994 138,601
Ceded (37,200) (36,466) (37,268)
---------------------------------------------------
Net $181,143 $258,471 $257,848
===================================================
NHL remains obligated for amounts ceded in the event that the reinsurers do not
meet their obligations.
9. Life and Annuity Reserves
At December 31, 1994, NHL's annuity reserves and deposit fund liabilities that
are subject to discretionary withdrawal (with adjustment), subject to
discretionary withdrawal (without adjustment) and not subject to discretionary
withdrawal provisions are summarized as follows:
Amount Percent
------------------
(In Thousands)
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $1,516,582 22.6%
At book value less surrender charge 1,033,561 15.5%
At market value 1,098,037 16.4%
------------------
3,648,180 54.5%
Subject to discretionary withdrawal (without adjustment) at
book value with minimal or no charge or adjustment 1,856,770 27.8%
Not subject to discretionary withdrawal 1,185,583 17.7%
------------------
Total annuity reserves and deposit fund liabilities before
reinsurance 6,690,533 100.0%
=====
Less reinsurance (3,428)
----------
Net annuity reserves and deposit fund liabilities $6,687,105*
==========
*Includes $1,098,037,000 of annuities reported in NHL's separate account
liability.
29
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
9. Life and Annuity Reserves (continued)
As of December 31, 1994, the Company has $85,000,000 of insurance in force
for which the gross premiums are less than the net premiums according to the
standard of valuation set by the State of Missouri.
10. Premium and Annuity Considerations Deferred and Uncollected
Deferred and uncollected life insurance premiums and annuity considerations as
of December 31, 1994 were as follows:
<TABLE>
<CAPTION>
Net of
Type Gross Loading Loading
-------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Ordinary new $ 2,220 $ 1,565 $ 675
Ordinary renewal 18,333 5,212 13,101
-------------------------------
Total ordinary 20,553 6,777 13,776
-------------------------------
Group new business 5,239 3,317 1,922
Group renewal 38,467 10,825 27,642
-------------------------------
Total group 43,706 14,142 29,564
-------------------------------
Total $64,259 $20,919 $43,340
===============================
</TABLE>
11. Statutory Restrictions on Dividends
NHL is subject to limitations, imposed by the State of Missouri on the payment
of dividends to its parent company. Generally, dividends during any year may
not be paid, without prior regulatory approval, in excess of the greater of (1)
10 percent of NHL's statutory capital and surplus as of the preceding December
31, or (2) NHL's statutory net income for the preceding year. Subject to
availability of unassigned surplus at the time of such dividend, the maximum
payment which may be made in 1995, without prior approval, is $58,000,000.
12. Contingencies
In the ordinary course of business, NHL is a defendant in litigation principally
involving insurance policy claims for damages, including compensatory and
punitive damages. In the opinion of management, the outcome of such litigation
will not result in a loss which would be material to NHL's financial position at
December 31, 1994.
30
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
13. Fair Values of Financial Instruments
The following methods and assumptions were used in estimating fair value
disclosures for the following financial instruments.
Bonds, Preferred Stocks and Common Stocks
The fair values of bonds, preferred stocks and common stocks are generally
based on published quotations of the SVO of the NAIC. However, for certain
investments, the SVO does not provide a value and NHL uses values provided
by other outside sources or internally calculated estimates. The fair values
of NHNY's bonds, preferred stocks and common stocks are disclosed in Note 2.
Mortgage Loans
The fair values of commercial and residential mortgage loans are estimated
utilizing discounted cash flow calculations, using current market interest
rates for loans with similar terms to borrowers of similar credit quality.
Policy Loans
The carrying values of policy loans reported in the accompanying balance
sheets approximate their fair values.
Cash, Short-term Investments and Other Invested Assets
The carrying values of cash, short-term investments and other invested
assets reported in the accompanying balance sheets approximate their fair
values.
Investment Contracts
The fair values of floating rate guaranteed investment contracts approximate
their carrying values. The fair values of fixed rate guaranteed investment
contracts and 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 approximate
their carrying values.
Derivative Instruments
The fair values for derivative instruments are based on pricing models or
formulas using current assumptions.
31
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
13. Fair Values of Financial Instruments (continued)
The carrying values and fair values of NHL's investments in commercial and
residential mortgage loans and policy loans are summarized as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-----------------------
(In Thousands)
<S> <C> <C>
December 31, 1994
Commercial mortgages $1,442,685 $1,468,697
Residential mortgages 570,690 545,640
-----------------------
$2,013,375 $2,014,337
=======================
December 31, 1993
Commercial mortgages $1,350,977 $1,405,333
Residential mortgages 247,050 246,957
-----------------------
$1,598,027 $1,652,290
=======================
</TABLE>
The fair values of interest rate swap agreements were $(20,833,000) and
$24,423,000 at December 31, 1994 and 1993, respectively. These instruments are
off-balance sheet and as such, are not recorded in the accompanying financial
statements.
The carrying amounts and fair values of NHL's liabilities for investment-type
insurance contracts at December 31, 1994 and 1993 are summarized as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-----------------------
(In Thousands)
<S> <C> <C>
December 31, 1994
Fixed annuity contracts $3,103,331 $3,098,958
Guaranteed investment contracts 1,494,308 1,473,202
Variable annuity contracts 944,261* 944,261
-----------------------
$5,541,900 $5,516,421
=======================
December 31, 1993
Individual and group annuities $2,960,432 $3,086,944
Guaranteed investment contracts 882,414 882,414
Variable annuity contracts 964,525* 964,525
-----------------------
$4,807,371 $4,933,883
=======================
</TABLE>
* Included in NHL's separate account liabilities.
32
<PAGE>
National Home Life Assurance Company
Notes to Financial Statements (continued)
13. Fair Values of Financial Instruments (continued)
The fair values for NHL's insurance contracts other than investment contracts
are not required to be disclosed. However, the fair values of liabilities under
all insurance contracts are taken into consideration in NHL's overall management
of interest rate risk, such that NHL's exposure to changing interest rates is
minimized through the matching of investment maturities with amounts due under
insurance contracts.
14. Separate Accounts
A reconciliation of the amounts transferred to and from NHL's separate accounts
for the year ended December 31, 1994 is presented below:
<TABLE>
<CAPTION>
<S> <C>
Transfers as reported in the Summary of Operations of (In Thousands)
NHL's Separate Accounts Annual Statement:
Transfers to separate accounts $235,756
Transfers from separate accounts (69,011)
--------
Net transfers to separate accounts 166,745
Reconciling adjustments:
Fees paid to external fund manager 857
Transfers to modified separate account (4,629)
--------
3,771
--------
Transfers as reported in the Summary of Operations of NHL's
Life, Accident & Health Annual Statement $162,973
========
</TABLE>
33
<PAGE>
Other Financial Information
34
<PAGE>
Report of Independent Auditors on
Other Financial Information
Board of Directors
National Home Life Assurance Company
Our audits were conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of selected statutory-basis financial data is presented to
comply with the National Association of Insurance Commissioners' Annual
Statement Instructions and is not a required part of the statutory-basis
financial statements. Such information has been subjected to the auditing
procedures applied in our audit of the statutory-basis financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
statutory-basis financial statements taken as a whole.
This report is intended solely for the use of the Company and for filing with
state insurance regulatory authorities and should not be used for any other
purpose.
Louisville, Kentucky
April 21, 1995
35
<PAGE>
National Home Life Assurance Company
Supplemental Schedule of Selected Financial Data (Statutory-Basis)
December 31, 1994
Investment income earned:
Government bonds $ 69,141,807
Other bonds (unaffiliated) 249,638,943
Preferred stocks (unaffiliated) 6,614,278
Common stocks (unaffiliated) 125,202
Mortgage loans 134,298,043
Premium notes, policy loans and liens 8,416,827
Cash on hand and on deposit 115
Short-term investments 8,989,531
Other invested assets 6,299,924
Derivative instruments 9,279,498
Aggregate write-ins for investment income:
Miscellaneous income (325,728)
Security lending 186,588
--------------
Gross investment income $ 492,665,028
==============
Real estate owned (book value less encumbrances) $ 27,151,802
==============
Mortgage loans (book value):
Residential mortgages $ 570,690,247
Commercial mortgages 1,442,685,135
--------------
Total mortgage loans $2,013,375,382
==============
Mortgage loans by standing (book value):
Good standing $1,978,421,048
==============
Good standing with restructured terms $ 11,267,994
==============
Interest overdue more than three months, not in foreclosure $ 2,908,227
==============
Foreclosure in process $ 20,778,112
==============
Other long term assets (statement value) $ 128,611,877
==============
See accompanying note.
36
<PAGE>
National Home Life Assurance Company
Supplemental Schedule of Selected Financial Data (Statutory-Basis)
(continued)
December 31, 1994
<TABLE>
<S> <C>
Common stocks of parents, subsidiaries and affiliates (book value) $ 197,949,303
==============
Bonds and short-term investments by class and maturity:
Bonds by maturity (statement value):
Due within one year or less $ 317,024,958
Over 1 year through 5 years 1,271,145,371
Over 5 years through 10 years 1,253,975,904
Over 10 years through 20 years 650,555,095
Over 20 years 931,745,795
--------------
Total by maturity $4,424,447,123
==============
Bonds and short-term investments by class (statement value):
Class 1 $2,949,093,211
Class 2 1,103,585,364
Class 3 223,109,382
Class 4 148,659,166
Class 5 -
Class 6 -
--------------
Total by class $4,424,447,123
==============
Total bonds and short-term investments publicly traded $3,804,677,018
==============
Total bonds and short-term investments privately placed $ 619,770,105
==============
Preferred stocks (statement value) $ 72,508,040
==============
Common stocks (market value) $ 297,905,605
==============
Short-term investments (book value) $ 117,252,362
==============
Financial futures contracts open (current price) $ 667,125,175
==============
Cash on deposit $ (3,721,127)
==============
</TABLE>
See accompanying note.
37
<PAGE>
National Home Life Assurance Company
Supplemental Schedule of Selected Financial Data (Statutory-Basis)
(continued)
December 31, 1994
<TABLE>
<S> <C>
Life insurance in-force:
Ordinary $4,275,299,000
==============
Credit life $ 7,193,000
==============
Group life $6,937,637,000
==============
Amount of accidental death insurance in-force under ordinary policies
$ 341,057,000
==============
Life insurance policies with disability provisions in-force:
Ordinary $2,321,388,000
==============
Group life $ 303,851,000
==============
Supplementary contracts in-force:
Ordinary-not involving life contingencies:
Income payable $ 32,079
==============
Ordinary-involving life contingencies:
Income payable $ 66,717
==============
Annuities:
Ordinary:
Immediate-amount of income payable $ 855,100,120
==============
Deferred-fully paid account balance $ 600,215,598
==============
Deferred-not fully paid-account balance $ 7,939,374
==============
Group:
Amount of income payable $ 316,904,323
==============
Fully paid account balance $2,600,995,917
==============
</TABLE>
See accompanying note.
38
<PAGE>
National Home Life Assurance Company
Supplemental Schedule of Selected Financial Data (Statutory-Basis)
(continued)
December 31, 1994
Accident and health insurance-premiums in-force:
Ordinary $ 33,410,248
============
Group $ 78,554,197
============
Credit $ 1,295
============
Deposit funds and dividend accumulations:
Deposit funds-account balance $ 1,235,157
============
Dividend accumulations-account balance $ 87,654
============
Claims payments 1994:
Group accident and health
1994 $ 43,485,156
============
1993 $ 17,792,527
============
1992 $ 2,031,499
============
Other accident and health
1994 $ 15,022,707
============
1993 $ 5,886,320
============
1992 $ 546,598
============
Other coverages that use development methods to calculate claims
reserves
1994 $ 60,050
============
1993 $ 244,814
============
1992 $ 5,187
============
See accompanying note.
39
<PAGE>
National Home Life Assurance Company
Supplemental Schedule of Selected Financial Data (Statutory-Basis)
(continued)
December 31, 1994
Note-Basis of Presentation
The accompanying schedule presents selected statutory-basis financial data as of
December 31, 1994 and for the year then ended for purposes of complying with
paragraph 9 of the Annual Audited Financial Reports in the General section of
the National Association of Insurance Commissioners' Annual Statement
Instructions and agrees to or is included in the amounts reported in NHL's 1994
Statutory Annual Statement as filed with the Missouri Insurance Department.
40
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Part A. None
Part B. All financial statements required to be filed are included in
Part B.
Part C. None
(b) Exhibits.
(1) Resolution of the Board of Directors of Providian Life and Health
Insurance Company ("Providian Life and Health" formerly, National
Home Life Assurance Company) authorizing establishment of the
Separate Account./1/
(2) Not Applicable.
(3) Distribution Agreement.
(a) Form of Selling Agreement./5/
(4) (a) Form of variable annuity contract (A Unit)./6/
(b) Form of variable annuity contract (B Unit)./6/
(5) (a) Form of Application./7/
(b) 403(b) Rider./5/
(c) Individual Retirement Annuity Rider./5/
(6) (a) Articles of Incorporation of Providian Life and Health./1/
(b) Amendment to Articles of Incorporation of Providian Life and
Health./1/
(c) Amended and Restated Articles of Incorporation of Providian
Life and Health./1/
(7) Not Applicable.
(8) (a) Form of Participation Agreement for the Funds./6/
(b) Participation Agreement Among DFA Investment Dimensions Group,
Inc., Dimensional Fund Advisors, Inc., DFA Securities Inc. and
National Home Life Assurance Company dated as of June 29,
1994./8/
(c) Participation Agreement Among Insurance Management Series,
Federated Advisors, Federated Securities Corp. and National
Home Life Assurance Company dated as of May 17, 1994./8/
(d) Participation Agreement Among Insurance Investment Products
Trust, SEI Financial Services Company and National Home Life
Assurance Company dated as of January 1, 1995./10/
(e) Participation Agreement Among Wanger Advisors Trust and
National Home Life Assurance Company dated as of May 19, 1995.
/10/
(f) Participation Agreement Among Tomorrow Funds Retirement Trust,
Weiss, Peck & Greer, L.L.C. and Providian Life and Health
Insurance Company dated as of September 11, 1995./10/
(9) (a) Opinion and Consent of Counsel./9/
(b) Consent of Counsel./9/
(10) Consent of Independent Auditors./10/
- - - -----------
/1/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account V, File No. 33-45862.
/2/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account II, File No. 33-7033.
/3/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/4/ Incorporated by reference from Post-Effective Amendment No. 5 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/5/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-45862.
/6/ Incorporated by reference from the Registration Statement of National
Home Life Assurance Company Separate Account V, File No. 33-72838, filed on
December 10, 1993.
/7/ Incorporated by reference from the Registration Statement of National
Home Life Assurance Company Separate Account V, File No. 33-79502, filed on
May 27, 1994.
/8/ Incorporated by reference from the Post-Effective Amendment No. 1 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-80958, filed April 28, 1995.
/9/ Incorporated by reference from Post-Effective Amendment No. 2 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 80958, Filed September 19, 1995.
/10/ Filed herewith.
<PAGE>
(11) No Financial Statements are omitted from Item 23.
(12) Not Applicable.
(13) Not Applicable.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Chairman of the Board and CEO Shailesh J. Mehta
President David J. Miller
Vice President and Controller Jean A. Young
Senior Vice President & CFO Earl W. Baucom
Senior Vice President Roland A. LaPlante
Senior Vice President Robert A. Long
Senior Vice President Richard J. Potter
Senior Vice President/Human Resources
Corporate Communications John H. Rogers
Senior Vice President Richard H. Smith
Senior Vice President Martin Renninger
Senior Vice President Paul Yakulis
Vice President, General Counsel
and Secretary David R. Aplington
Vice President Brian Alford
Vice President Edward A. Biemer
Vice President Rita Biesiot
Vice President & Treasurer Dennis E. Brady
Vice President Charles N. Coatsworth
Vice President Stephen F. Eulie
Vice President Shirley W. Lanier
Vice President Richard A. Babyak
Vice President Karen H. Fleming
Vice President Carolyn M. Kerstein
Vice President Michael F. Lane
Vice President Kevin P. McGlynn
Vice President Douglas S. Menges
Vice President Thomas B. Nesspor
Vice President John R. Pegues
Vice President and Actuary John C. Prestwood, Jr.
<PAGE>
Vice President Frank J. Rosa
Vice President Douglas A. Sarcia
Vice President Nancy B. Schuckert
Vice President Michael A. Simpson
Vice President Joseph D. Strenk
Vice President William W. Strickland
Vice President Oris Stuart, III
Vice President Anita R. Tilley
Vice President William C. Tomilin
Assistant Vice President Janice Boehmler
Assistant Vice President James P. Greaton
Assistant Vice President/Underwriting William J. Kline
Assistant Vice President Joan G. Chandler
Assistant Vice President &
Assistant Treasurer John A. Mazzuca
Assistant Vice President Harvey Waite
Assistant Treasurer Elaine J. Robinson
Assistant Controller Joseph C. Noone
Second Vice President Cindy L. Chanley
Second Vice President Belinda J. Lyons
Second Vice President Michael K. Mingus
Second Vice President/Investments Terri L. Allen
Second Vice President/Investments Tom Bauer
Second Vice President/Investments Kirk W. Buese
Second Vice President/Investments Curt M. Burns
Second Vice President/Investments William S. Cook
Second Vice President/Investments Deborah A. Dias
Second Vice President/Investments Eric B. Goodman
<PAGE>
Second Vice President/Investments James Grant
Second Vice President/Investments Theodore M. Haag
Second Vice President/Investments Frederick B. Howard
Second Vice President/Investments Diane J. Hulls
Second Vice President/Investments William H. Jenkins
Second Vice President/Investments Frederick C. Kessell
Second Vice President/Investments Tim Kuussalo
Second Vice President/Investments Mark E. Lamb
Second Vice President/Investments Monika Machon
Second Vice President/Investments James D. MacKinnon
Second Vice President/Investments Jack McCabe
Second Vice President/Investments Wayne R. Nelis
Second Vice President/Investments Douglas H. Owen, Jr.
Second Vice President/Investments Debra K. Pellman
Second Vice President/Investments Robert Saunders
Second Vice President/Investments Brad H. Seibel
Second Vice President/Investments Michael B. Simpson
Second Vice President/Investments Jon L. Skaggs
Second Vice President/Investments James A. Skufca
Second Vice President/Investments Robert A. Smedley
Second Vice President/Investments Bradley L. Stofferahn
Second Vice President/Investments Randall K. Waddell
Second Vice President/Investments Tammy C. Wetterer
Second Vice President/Special Markets Gregory Lee Chapman
Second Vice President/Special Markets John B. Cobb, III
Second Vice President/Special Markets Gregory M. Curry
Second Vice President/Special Markets Julie Ford
Second Vice President/Special Markets Lauren M. S. Kaltman
Second Vice President/Special Markets Paul Farley Olschwanger
<PAGE>
Second Vice President/Special Markets Prentice J. Siegel
Second Vice President/Special Markets Harvey Willis
Second Vice President and Assistant
Secretary Edward P. Reiter
Assistant Secretary L. Jude Clark
Assistant Secretary Sherry F. Hardy
Assistant Secretary Paul J. Houk
Assistant Secretary Mary Ann Malinyak
Assistant Secretary John F. Reesor
Assistant Secretary R. Michael Slaven
Assistant Secretary Carolyn Wetterer
Product Compliance Officer James T. Bradley
DIRECTORS:
- - - ---------
David R. Aplington
Earl W. Baucom
Robert A. Long
Shailesh J. Mehta
David J. Miller
Richard J. Potter
John H. Rogers
David B. Smith
Richard H. Smith
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
The Depositor, Providian Life and Health Insurance Company ("Providian Life and
Health"), is directly and indirectly wholly owned by Providian Corporation. The
Registrant is a segregated asset account of Providian Life and Health.
The following chart indicates the persons controlled by or under common control
with Providian Life and Health:
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Percent of Voting Securities Owned
<S> <C> <C>
Providian Corporation Delaware 100% Publicly Owned
Providian Agency Group, Inc. Kentucky 100% Providian Corporation
College Resource Group, Inc. Kentucky 100% Providian Agency Group, Inc.
Knight Insurance Agency, Inc. Massachusetts 100% College Resource Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Knight Tuition Payment
Plans, Inc. Massachusetts 100% Knight Insurance Agency, Inc.
Knight Insurance Agency
(New Hampshire), Inc. New Hampshire 100% Knight Insurance Agency, Inc.
Peoples Security Life
Insurance Company North Carolina 100% Providian Corporation
Agency Holding II, Inc. Delaware 100% Peoples Security Life Insurance
Company
Agency Investments II, Inc. Delaware 100% Agency Holding II, Inc.
Agency Holding III, Inc. Delaware 100% Peoples Security Life Insurance
Company
Agency Investments III, Inc. Delaware 100% Agency Holding III, Inc.
Ammest Realty Corporation Texas 100% Peoples Security Life Insurance
Company
Providian Assignment Corporation Kentucky 100% Providian Corporation
Providian Capital Management,
Inc. Delaware 100% Providian Corporation
Providian Capital Management
Real Estate Services, Inc. Delaware 100% Providian Capital Management, Inc.
Capital Real Estate
Development Corporation Delaware 100% Providian Corporation
KB Currency Advisors, Inc. Delaware 33 1/3% Capital Real Estate Development
Corporation
33 1/3% Jonathan M. Berg
33 1/3% Andrew J. Krieger
Capital General
Development Corporation Delaware 100% Providian Corporation
Commonwealth Life Insurance
Company Kentucky 100% Capital General Development
Corporation
Agency Holding I, Inc. Delaware 100% Commonwealth Life Insurance Company
Agency Investments I, Inc. Delaware 100% Agency Holding I, Inc.
Commonwealth Agency, Inc. Kentucky 100% Commonwealth Life Insurance Company
Capital 200 Block Corporation Delaware 100% Providian Corporation
Capital Values Financial
Services, Inc. Pennsylvania 100% Providian Corporation
Providian Securities
Corporation Pennsylvania 100% Capital Values Financial Services,
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Capital Broadway Corporation Kentucky 100% Providian Corporation
Providian Investment
Advisors, Inc. Delaware 100% Providian Corporation
Capital Security Life
Insurance Company North Carolina 100% Providian Corporation
Security Trust Life
Insurance Company Kentucky 100% Capital Security Life Insurance
Company
Independence Automobile
Association, Inc. Florida 100% Capital Security Life Insurance
Company
Independence Automobile
Club, Inc. Georgia 100% Capital Security Life Insurance
Company
Southlife, Inc. Tennessee 100% Providian Corporation
Providian Bancorp, Inc. Delaware 100% Providian Corporation
First Deposit Service
Corporation California 100% Providian Bancorp, Inc.
First Deposit Life
Insurance Company Arkansas 100% Providian Bancorp, Inc.
First Deposit National Bank United States 100% Providian Bancorp, Inc.
Winnisquam Community
Development Corporation New Hampshire 96% First Deposit National Bank
Providian National Bank United States 100% Providian Bancorp, Inc.
Providian National Bancorp California 100% Providian Bancorp, Inc.
Commonwealth Premium Finance California 100% Providian National Bancorp
Providian Credit Services, Inc. Utah 100% Providian Bancorp, Inc.
Providian Credit Corporation Delaware 100% Providian Bancorp, Inc.
National Liberty Corporation Pennsylvania 100% Providian Corporation
National Assets Management
Corporation Pennsylvania 100% National Liberty Corporation
Compass Rose Development
Corporation Pennsylvania 100% National Liberty Corporation
Association Consultants, Inc. Illinois 100% National Liberty Corporation
Valley Forge Associates, Inc. Pennsylvania 100% National Liberty Corporation
Veterans Benefits Plans, Inc. Pennsylvania 100% National Liberty Corporation
Veterans Insurance Services,
Inc. Delaware 100% National Liberty Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Financial Planning
Services, Inc. Washington, D. C. 100% National Liberty Corporation
Providian Auto and
Home Insurance Company Missouri 100% Providian Corporation
Academy Insurance Group,
Inc. Delaware 100% Providian Auto and Home Insurance
Company
Academy Life Insurance
Company Missouri 100% Providian Corporation
Pension Life Insurance
Company of America New Jersey 100% Academy Insurance Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Group, Inc.
Ammest Development
Corporation, Inc. Kansas 100% Academy Insurance Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance Group, Inc.
Ammest Massachusetts
Insurance Agency, Inc. Massachusetts 100% Academy Insurance Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Group, Inc.
Force Financial Group, Inc. Delaware 90% Academy Insurance Group, Inc.
10% owned by an officer of Force Financial
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Financial Group, Inc.
Military Associates, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Group, Inc.
Unicom Administrative
Services, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
Unicom Administrative
Services GmbH Germany 100% Unicom Administrative Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Providian Property and
Casualty Insurance Company Kentucky 100% Providian Auto and Home Insurance
Company
Providian Fire Insurance
Company Kentucky 100% Providian Property and Casualty
Insurance Company
Capital Liberty, L.P. Delaware 50% Providian Corporation (General
Partnership Interests)
40% Commonwealth Life Insurance Company
(Limited Partnership Interests)
10% Peoples Security Life Insurance
Company (Limited Partnership Interests)
Providian Life and Health
Insurance Company Missouri 100% Capital Liberty, L.P.
Veterans Life Insurance Company Illinois 100% Providian Life and Health Insurance
Company
National Information Systems
Corporation Pennsylvania 100% Veterans Life Insurance Company
First Providian Life and
Health Insurance Company New York 100% Veterans Life Insurance Company
Benefit Plans, Inc. Delaware 100% Providian Corporation
DurCo Agency, Inc. Virginia 100% Benefit Plans, Inc.
Camden Asset Management, L.P. California 51% Commonwealth Life Insurance Company
(Limited Partner)
</TABLE>
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of September 14, 1995, there were 98 Contract Owners.
ITEM 28. INDEMNIFICATION
Item 28 is incorporated by reference from the Post-Effective Amendment No. 6 to
the Registration Statement of the National Home Life Assurance Company Separate
Account II, File No. 33-7033.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Providian Securities Corporation, which serves as the principal
underwriter for the variable annuity contracts funded by Separate
Account V, also serves as the principal underwriter for variable life
insurance policies funded by Separate Account I and for Separate
Account II of Providian Life and Health.
(b) Directors and Officers
<TABLE>
<CAPTION>
Positions and Officers
Name with Underwriter
---- ----------------------
<S> <C>
Jeffrey P. Lammers President, Assistant Secretary
and Director
Jamie L. Holland Compliance Officer and Vice President
Michael F. Lane Vice President
Harvey E. Willis Vice President and Secretary
Sarah J. Strange Vice President
Elaine J. Robinson Treasurer
Michael G. Ayers Controller
Robert L. Walker Director
William R. Gernert Director
</TABLE>
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 Administrative Office of Providian Life and Health in Louisville,
Kentucky.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted;
(b) The Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus 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.
<PAGE>
(d) The Registrant hereby undertakes to rely on the no-action letter dated
November 28, 1988 (Ref. No. IP-6-88) with respect to language concerning
withdrawal restrictions applicable to Code Section 403(b) plans. Providian Life
and Health has complied with conditions 1 through 4 of the no-action letter.
(e) The Registrant hereby undertakes that no Director has resigned due to a
disagreement with the Registrant or any matter relating to the Separate
Account's operations, policies or practices.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Providian Life and Health Insurance Company Separate
Account V has caused this amended Registration Statement to be signed in the
County of Chester and Commonwealth of Pennsylvania on the 16th day of November
1995.
Providian Life and Health Insurance
Company Separate Account V (Registrant)
By: Providian Life and Health Insurance
Company
By: David J. Miller*
-------------------------------------------
David J. Miller, President
Providian Life and Health Insurance Company
Providian Life and Health Insurance
Company (Depositor)
By: David J. Miller*
-------------------------------------------
David J. Miller, President
Providian Life and Health Insurance Company
*By: /s/ R. Michael Slaven
-------------------------------------------
R. Michael Slaven
Attorney-in-Fact
<PAGE>
As required by the Securities Act of 1933, this Registration Statement has
been duly signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- - - --------- ----- ----
<S> <C> <C>
Shailesh J. Mehta* Director, Chairman of the Board November 16, 1995
- - - ----------------------- and Chief Executive Officer
Shailesh J. Mehta
David J. Miller* Director and President November 16, 1995
- - - -----------------------
David J. Miller
Earl W. Baucom* Director, Senior Vice President November 16, 1995
- - - ----------------------- and Chief Financial Officer
Earl W. Baucom
Robert A. Long* Director and Senior Vice November 16, 1995
- - - ----------------------- President
Robert A. Long
John H. Rogers* Director and Senior Vice November 16, 1995
- - - ----------------------- President
John H. Rogers
Richard J. Potter* Director and Senior Vice November 16, 1995
- - - ----------------------- President
Richard J. Potter
David B. Smith* Director November 16, 1995
- - - -----------------------
David B. Smith
Richard H. Smith* Director and Senior Vice November 16, 1995
- - - ----------------------- President
Richard H. Smith
David R. Aplington* Director, Vice President, November 16, 1995
- - - ----------------------- General Counsel and Secretary
David R. Aplington
Jean A. Young* Vice President and Controller November 16, 1995
- - - ----------------------- (Chief Accounting Officer)
Jean A. Young
Dennis E. Brady* Vice President and Treasurer November 16, 1995
- - - -----------------------
Dennis E. Brady
</TABLE>
/s/ R. Michael Slaven
*By__________________________
R. Michael Slaven
Attorney-in-Fact
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 1st day of January, 1995 by
and between INSURANCE INVESTMENT PRODUCTS TRUST, an unincorporated business
trust formed under the laws of Massachusetts (the "Trust"), SEI FINANCIAL
SERVICES COMPANY, a Pennsylvania corporation (the "Distributor), and NATIONAL
HOME LIFE ASSURANCE COMPANY, a Missouri life insurance company (the "Company"),
on its own behalf and on behalf of each separate account of the Company
identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more classes of
separate series ("Series") of shares ("Series shares"), each such series
representing an interest in a particular managed portfolio of securities and
other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies; and
WHEREAS, the Distributor has the exclusive right to distribute shares
of the Trust to qualifying investors; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for a certain separate account(s) of the Company and the Distributor
desires to sell shares of certain Series to such separate account(s);
NOW, THEREFORE, in consideration of their mutual promises, the Trust
and the Company agree as follows:
ARTICLE I. Additional Definitions
1.1. "Account" -- the separate account of the Company described more
specifically in Schedule 1 to this Agreement. If more than one separate account
is so described, the term shall refer to each separate account.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended.
1.4. "Contracts" -- the class or classes of variable annuity
contracts and variable life insurance policies issued by the Company and
described more specifically on Schedule 2 to this Agreement.
<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as
distinguished from all Product Owners.
1.6. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.7. "Participating Insurance Company" -- any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
1.8. "Products" -- variable annuity contracts and variable life
insurance policies supported by Participating Accounts investing assets
attributable thereto in the Trust, including the Contracts.
1.9. "Product Owners" -- owners of Products, including Contract
Owners.
1.10. "Prospectus" -- with respect to the Trust shares or a class of
Contracts, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act. With respect to any
provision of this Agreement requiring a party to take action in accordance with
a Prospectus, such reference thereto shall be deemed to be to the version last
so filed prior to the taking of such action. For purposes of Article VIII, the
term "Prospectus" shall include any statement of additional information
incorporated therein.
1.11. "Registration Statement" -- with respect to the Trust Shares or
a class of Contracts, the registration statement filed with the SEC to register
the securities issued thereby under the 1933 Act, or the most recently filed
amendment thereto, in either case in the form in which it was declared or became
effective. The Contracts Registration Statement is described more specifically
on Schedule 2 to this Agreement. The Trust Registration Statement was filed on
Form N-1A (File No. 33-80158).
1.12. "1940 Act Registration Statement" -- with respect to the Trust
or the Account, the registration statement filed with the SEC to register such
person as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust 1940 Act
Registration Statement was filed on Form N-1A (File No. 811-8562).
1.13. "Statement of Additional Information" -- with respect to the
Trust or a class of Contracts, each version of the definitive statement of
additional information or supplement thereto filed with the SEC pursuant to Rule
497 under the 1933 Act.
1.14. "SEC" -- the Securities and Exchange Commission .
1.15. "1933 Act" -- the Securities Act of 1933, as amended.
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<PAGE>
1.16. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. Sale of Trust Shares
2.1. The Trust has granted to the Distributor exclusive authority to
distribute the Trust's shares, and has agreed to instruct, and has so
instructed, the Distributor to make available to the Company for purchase on
behalf of the Account Trust shares of those Series so selected by the
Distributor. Pursuant to such authority and instructions, and subject to
Article X hereof, the Distributor agrees to make available to the Company for
purchase on behalf of the Account, shares of those Series listed on Schedule 3
to this Agreement, such purchases to be effected at net asset value in
accordance with Section 2.3 of this Agreement. Notwithstanding the foregoing,
(i) Trust Series (other than those listed on Schedule 3) in existence now or
that may be established in the future will be made available to the Company only
as the Distributor may so provide, and (ii) the Board of Directors of the Trust
(the "Trust Board") may suspend or terminate the offering of Trust shares of any
Series or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trust Board
acting in good faith and in light of its fiduciary duties under Federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of any Series (it being understood that
"shareholders" for this purpose shall mean Product Owners).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional Series shares held by the Company on behalf of the Account, such
redemptions to be effected at net asset value in accordance with Section 2.3 of
this Agreement. Notwithstanding the foregoing, the Trust may delay redemption
of Trust shares of any Series to the extent permitted by the 1940 Act, any
rules, regulations or orders thereunder.
2.3. Purchase and Redemption Procedures
(a) The Trust hereby appoints the Company as an agent of the
Trust for the limited purpose of receiving purchase and redemption requests
on behalf of the Account (but not with respect to any Trust shares that may
be held in the general account of the Company) for shares of those Series
made available hereunder, based on allocations of amounts to the Account or
subaccounts thereof under the Contracts and other transactions relating to
the Contracts or the Account. Receipt of any such request (or relevant
transactional information therefor) on any Business Day by the Company as
such limited agent of the Trust prior to the Trust's close of business as
defined from time to time in the Trust Prospectus (which as of the date of
execution of this Agreement is 4 p.m. Eastern Time) shall constitute
receipt by the Trust on that same Business Day, provided that the Trust
receives notice of such request by 10 a.m. Eastern Time on the next
following Business Day.
(b) The Company shall pay for shares of each Series on the same
day that
-3-
<PAGE>
it notifies the Trust of a purchase request for such shares. Payment for
Series shares shall be made in Federal funds transmitted to the Trust by
wire to be received by the Trust by 4 p.m. Eastern Time on the day the
Trust is notified of the purchase request for Series shares (unless the
Trust determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Series effected pursuant to
redemption requests tendered by the Company on behalf of the Account). If
Federal funds are not received on time, such funds will be invested, and
Series shares purchased thereby will be issued, as soon as practicable.
Upon receipt of Federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the
Trust.
(c) Payment for Series shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire prior to 3 p.m.
to the Company or any other designated person on the same Business Day that
the Trust is properly notified of the redemption order of Series shares
pursuant to Section 2.3(a) (unless redemption proceeds are to be applied to
the purchase of Trust shares of other Series in accordance with Section
2.3(b) of this Agreement), except that the Trust reserves the right to
redeem Series shares in assets other than cash, to the extent permitted in
the prospectus, and to delay payment of redemption proceeds to the extent
permitted under Section 22(e) of the 1940 Act. The Trust shall not bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds by the Company; the Company alone shall be responsible
for such action.
(d) Any purchase or redemption request for Series shares held or
to be held in the Company's general account shall be effected at the net
asset value per share next determined after the Trust's receipt of such
request, provided that, in the case of a purchase request, payment for
Trust shares so requested is received by the Trust in Federal funds prior
to close of business for determination of such value, as defined from time
to time in the Trust Prospectus.
2.4. The Trust shall use its best efforts to make the net asset value
per share for each Series available to the Company by 6:30 p.m. Eastern Time
each Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such Series is calculated, and shall calculate
such net asset value in accordance with the Trust Prospectus. Neither the
Trust, any Series, the Distributor, nor any of their affiliates shall be liable
for any information provided to the Company pursuant to this Agreement which
information is based on incorrect information supplied by the Company or any
other Participating Company to the Trust or the Distributor.
2.5. The Trust shall furnish notice to the Company as soon as
reasonably practicable of any income dividends or capital gain distributions
payable on any Series shares. The Company, on its behalf and on behalf of the
Account, hereby elects to receive all such dividends and distributions as are
payable on any Series shares in the form of additional shares of
-4-
<PAGE>
that Series. The Company reserves the right, on its behalf and on behalf of the
Account, to revoke this election and to receive all such dividends and capital
gain distributions in cash. The Trust shall notify the Company promptly of the
number of Series shares so issued as payment of such dividends and
distributions.
2.6. Issuance and transfer of Trust shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7.(a) The Company may withdraw the Account's investment in the
Trust or a Series of the Trust only: (i) as necessary to facilitate
Contract owner requests; (ii) upon a determination by a majority of the
Trust Board, or a majority of disinterested Trust Board members, that an
irreconcilable material conflict exists among the interests of (x) all
Product Owners or (y) the interests of the Participating Insurance
Companies investing in the Trust; (iii) upon requisite vote of the Contract
Owners having an interest in the affected Series and the written consent of
the Distributor (unless otherwise required by applicable law), to
substitute the shares of another investment company for Series shares of
the Trust in accordance with the terms of the Contracts; (iv) as required
by state and/or federal laws or regulations or judicial or other legal
precedent of general application; or (v) as permitted by an order of the
SEC pursuant to Section 26(b) of the 1940 Act.
(b) The parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Trust Shares may be sold to other
insurance companies (subject to Section 2.8 hereof) and the cash value of
the Contracts may be invested in other investment companies, provided,
however, that (i) such other investment company or series thereof has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Trust Series available hereunder;
or (ii) the Company gives the Trust and the Distributor 45 days written
notice of its intention to make such other investment company available as
a funding vehicle for the Contracts; or (iii) such other investment company
was available as a funding vehicle for the Contracts prior to the date of
this Agreement and appears on Schedule 3 to this Agreement; or (iv) the
Trust or Distributor consents in writing to the use of such other
investment company, such consent not to be unreasonably withheld.
(c) The Company shall not, without prior notice to the Distributor
(unless otherwise required by applicable law), take any action to operate
the Account as a management investment company under the 1940 Act.
(d) The Company shall not, without the prior written consent of the
Distributor (unless otherwise required by applicable law), solicit, induce
or encourage Contract owners to change or modify the Trust or change the
Trust's distributor, manager or investment adviser.
-5-
<PAGE>
2.8. The Distributor and the Trust shall sell Trust shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that qualify to purchase shares of the Trust under
Section 817(h) of the Code. The Distributor and the Trust shall not sell Trust
shares to any insurance company or separate account unless an agreement
containing provisions substantially the same as Articles V and VII of this
Agreement is in effect to govern such sales. The Company hereby represents and
warrants that it and the Account are Qualified Persons.
ARTICLE III. Representations and Warranties
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under Missouri insurance
law; (ii) the Account is a validly existing separate account, duly established
and maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; (vi) the
Account will maintain its registration under the 1940 Act and will comply in all
material respects with the 1940 Act; and (vii) the Contracts currently are, and
at the time of issuance will be, treated as annuity contracts or life insurance
policies, whichever is appropriate, under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under the
Massachusetts law; (ii) the Trust 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act; (vi) the Trust currently
qualifies as a "regulated investment company" under Subchapter M of the Code and
is in compliance with Section 817(h) of the Code; and (vii) the Trust's
investment policies are in material compliance with any investment restrictions
set forth on Schedule 4 to this Agreement, when applicable. Subject to Section
4.4 of this Agreement, the Trust makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses and
investment policies) otherwise complies with the insurance laws or regulations
of any state. Further, the Trust shall register and qualify its shares for sale
in accordance with the securities laws of the various states only if and to the
extent deemed advisable by the Trust.
3.3. The Distributor represents and warrants that: (i) the
Distributor is a corporation duly organized and in good standing under
Pennsylvania law; and (ii) the Distributor is registered as a broker-dealer
under federal and applicable state securities laws and is a member of the
National Association of Securities Dealers, Inc.
-6-
<PAGE>
3.4. Each party represents and warrants that the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein have been duly authorized by all necessary corporate or trust action, as
applicable, by such party, and, when so executed and delivered, this Agreement
will be the valid and binding obligation of such party enforceable in accordance
with its terms.
3.5. The Distributor represents and warrants that it is and will be a
member in good standing of the NASD and is and will remain duly registered in
all material respects as a broker-dealer with the SEC and under all applicable
state securities laws, and shall perform its obligations hereunder in compliance
in all material respects with any such applicable federal and state securities
laws.
3.6. Each party represents and warrants that all of its directors,
officers and employees dealing with the money and/or securities of the Trust are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than the
amount required by the rules of the NASD and the federal securities laws
applicable to such party. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding company. All
parties agree to make all reasonable efforts to see that this bond or another
bond containing these provisions is always in effect, and each agrees to notify
the other parties promptly in the event that such coverage no longer applies.
ARTICLE IV. Filings, Information and Expenses
4.1. The Trust shall amend the Trust Registration Statement and the
Trust 1940 Act Registration Statement from time to time as required in order to
effect the continuous offering of Trust shares and to maintain the Trust's
registration under the 1940 Act for so long as Trust shares are sold.
4.2. Unless other arrangements are made, the Trust shall provide the
Company with a copy, in camera-ready form or otherwise suitable for printing or
duplication, as selected by the Company, of (i) each Trust prospectus and any
supplement thereto; (ii) each Statement of Additional Information and any
supplement thereto; (ii) any Trust proxy soliciting material; and (iv) any Trust
periodic shareholder reports.
4.3. The Company shall amend the Contracts Registration Statement and
the Account 1940 Act Registration Statement from time to time as required in
order to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law, but in any event shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding unless the Company has supplied
the Trust with an SEC no-action letter or opinion of counsel satisfactory to the
Trust's counsel to the effect that maintaining such Registration Statement on a
current basis is no longer required. The Company shall assure that any Contracts
Prospectus for a life insurance
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<PAGE>
contract, where it is reasonably probable that such Contract would be a
"modified endowment contract," as that term is defined in Section 7702A of the
Code, will identify such Contract as a modified endowment contract (or policy).
The Company shall file, register, qualify and obtain approval of the Contracts
for sale to the extent required by applicable insurance and securities laws of
the various states.
4.4. The Company shall inform the Trust of any investment
restrictions imposed by Missouri state insurance law that may become applicable
to the Trust from time to time as a result of the Account's investment therein
(including, but not limited to, restrictions with respect to fees and expenses
and investment policies), other than those set forth on Schedule 4 to this
Agreement. Upon receipt of any such information from the Company, the Trust
shall determine whether it is in the best interests of shareholders to comply
with any such restrictions. If the Trust, acting reasonably and in good faith,
determines that it is not in the best interests of shareholders (it being
understood that "shareholders" for this purpose shall mean Product Owners), the
Trust shall so inform the Company, and the Trust and the Company shall discuss
alternative accommodations in the circumstances. If the Trust determines that
it is in the best interests of shareholders to comply with such restrictions,
the Trust and the Company shall amend Schedule 4 to this Agreement to reflect
such restrictions. The Trust shall comply with Schedule 4 as in effect from
time to time.
4.5. Each party shall promptly inform the others when such party
becomes aware of the commencement of any litigation or proceeding against such
party or a person affiliated with such party in connection with the issuance or
sale of Trust shares or the Contracts.
4.6. The Company shall provide Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, reports,
solicitations for voting instructions including any related Trust proxy
solicitation materials, and all amendments or supplements to any of the
foregoing to Contract Owners and prospective Contract Owners, all in accordance
with the federal securities laws.
4.7. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by such party to the extent permitted by law.
(a) Expenses assumed by the Trust include, but are not limited to,
the costs of: registration and qualification of the Trust shares under the
federal securities laws; preparation and filing with the SEC of the Trust
Prospectus, Trust Registration Statement, Trust proxy materials and
shareholder reports, and preparation of a camera-ready copy thereof;
preparation of all statements and notices required by any Federal or state
securities law; printing and mailing of all materials and reports required
to be provided by the Trust to its shareholders; all taxes on the issuance
or transfer of Trust shares; payment of all applicable fees, including,
without limitation, all fees due under Rule 24f-2 relating to the Trust;
and any expenses permitted to be paid or assumed by the Trust pursuant to a
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<PAGE>
plan, if any, under Rule 12b-1 under the 1940 Act. The Trust otherwise
shall pay no fee or other compensation to the Company under this Agreement,
unless the parties otherwise agree, except that if the Trust or any Series
adopts and implements a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses, then payments may be made to the Company in
accordance with such plan. The Trust currently does not intend to make any
payments to finance distribution expenses pursuant to Rule 12b-1 under the
1940 Act or in contravention of such rule, although it may make payments
pursuant to Rule 12b-1 in the future. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, the Trust undertakes
to have a Board of Directors, a majority of whom are not interested persons
of the Trust, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
(b) Expenses assumed by the Company include, but are not limited to,
the costs of: registration and qualification of the Contracts under the
federal securities laws; preparation and filing with the SEC of the
Contracts Prospectus, Contracts Registration Statement, solicitation of
voting instructions with respect to Trust proxy materials; payment of all
applicable fees, including, without limitation, all fees due under Rule
24f-2 relating to the Contracts; and preparation and dissemination of all
statements and notices to Contract Owners required by any Federal or state
insurance law other than those paid for by the Trust.
4.8. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust
for such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Company shall no longer
use the material subject to such revocation. Until further notice to the
Company, the Trust has delegated its rights and responsibilities under this
provision to the Distributor.
4.9. No piece of advertising or sales literature or other promotional
material in which the Company is named shall be used, except with the prior
written consent of the Company. Any such piece shall be furnished to the
Company for such consent prior to its use. The Company shall respond to any
request for written consent on a prompt and timely basis, but failure to respond
shall not relieve the Company of the obligation to obtain the prior written
consent of the Company. The Company may at any time in its sole discretion
revoke such written consent, and upon notification of such revocation, the Trust
and the Distributor shall no longer use the material subject to such revocation.
4.10. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or
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<PAGE>
proxy statements for the Trust, or in sales literature or other promotional
material approved in accordance with Article IV of this Agreement, or in
published reports or statements of the Trust in the public domain, except with
the prior written consent of the Trust.
4.11. The Trust and the Distributor shall not give any information or
make any representations on behalf of the Company or concerning the Company, the
Account or the Contracts other than the information or representations contained
in the Contracts Registration Statement or Contracts Prospectus or in published
reports of the Account which are in the public domain or approved in writing by
the Company for distribution to Contract Owners, or in sales literature or other
promotional material approved in writing by the Company, except with the prior
written consent of the Company.
4.12. The Trust and the Company shall provide to each other upon
request at least one complete copy of all Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations of voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, that relate to the Trust, the Contracts or the Account, as the case may
be, promptly after the filing by or on behalf of such party of such document
with the SEC or other regulatory authorities. Each party shall provide to the
other any complaints from Contract Owners pertaining to the Contracts.
4.13. The Trust and the Company shall provide to each other upon
request copies of draft versions of any Registration Statements, Prospectuses,
Statements of Additional Information, periodic and other shareholder or Contract
Owner reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of the
above, to the extent that the other party reasonably needs such information for
purposes of preparing a report or other filing to be filed with or submitted to
a regulatory agency. If a party requests any such information before it has
been filed, the other party will provide the requested information if then
available and in the version then available at the time of such request.
4.14. Each party hereto shall cooperate with the other parties and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.15. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
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<PAGE>
4.16. No party shall use any other party's names, logos, trademarks
or service marks, whether registered or unregistered, without the prior written
consent of such other party.
4.17. To the extent required by applicable law, including the
administrative requirements of regulatory authorities, or as mutually agreed
between the Company and the Distributor, the Company reserves the right to
modify the Contracts in any respect whatsoever. The Company reserves the right
in its sole discretion to suspend the sale of any of the Contracts, in whole or
in part, or to accept or reject any application for the sale of the Contract.
The Company agrees to notify the Trust and the Distributor promptly upon the
occurrence of any event the Company believes might necessitate a material
modification or suspension.
ARTICLE V. Voting of Trust Shares
With respect to any matter put to vote by the holders of Trust shares
or Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such
Contract Owners;
(c) vote Voting Shares of each Series attributable to Contract Owners
for which no instructions have been received in the same proportion as
Voting Shares of such Series for which instructions have been timely
received; and
(d) vote Voting Shares of each Series held by the Company on its own
behalf or on behalf of the Account that are not attributable to Contract
Owners in the same proportion as Voting Shares of such Series for which
instructions have been timely received.
The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above and with the Exemptive Order.
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<PAGE>
ARTICLE VI. Compliance with Code
6.1. The Trust shall comply with Section 817(h) of the Code and the
regulations issued thereunder to the extent applicable to the Trust as a fund
underlying the Account, and shall notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
6.2. The Trust shall maintain its qualification as a registered
investment company (under Subchapter M or any successor or similar provision),
and shall notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
6.3. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
and the Distributor immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
ARTICLE VII. Potential Conflicts
7.1. The parties to this Agreement acknowledge that the Trust intends
to file an application with the SEC to request an order (the "Exemptive Order")
granting relief from various provisions of the 1940 Act and the rules thereunder
to the extent necessary to permit Trust shares to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and other
Qualified Persons (as defined in Section 2.8). It is anticipated that the
Exemptive Order, when and if issued, shall require the Trust and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Article VII. If the Exemptive Order imposes
conditions on the Company materially different from those provided for in this
Article VII and the Company elects not to comply with such materially different
conditions, the Trust shall have the right to require the Company to redeem the
Account's investment in the Trust, in accordance with Section 10.4. of this
Agreement. The Trust will not enter into a participation agreement with any
other Participating Insurance Company unless it imposes the same conditions and
undertakings as are imposed on the Company hereby.
7.2. The Trust Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Product Owners.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Series are
-12-
<PAGE>
being managed; (e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract owners; or (f) a decision by a
Participating Insurance Company to disregard the voting instructions of Product
Owners.
7.3. The Company will report any potential or existing conflicts
promptly to the Trust Board, and in particular whenever Contract Owner voting
instructions are disregarded, and shall be responsible for assisting the Trust
Board in carrying out its responsibilities in connection with the Exemptive
Order. The Company agrees to carry out such responsibilities with a view to the
interests of Contract Owners.
7.4. If a majority of the Trust Board, or a majority of Disinterested
Trustees, determines that a material irreconcilable conflict exists with regard
to Contract Owner investments in the Trust, the Trust Board shall give prompt
notice to all Participating Insurance Companies. If the Trust Board determines
that the Company is responsible for causing or creating said conflict, the
Company shall at no cost and expense to the Trust, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Trustees), take
such action as is necessary to remedy or eliminate the irreconcilable material
conflict. Such necessary action may include, but shall not be limited to:
(a) Withdrawing the assets allocable to the Account from the Trust
and reinvesting such assets in a different investment medium or submitting
the question of whether such segregation should be implemented to a vote of
all affected Contract Owners;
(b) Establishing a new registered management investment company.
7.5. If a material irreconcilable conflict arises as a result of a
decision by the Company to disregard Contract Owner voting instructions and said
decision represents a minority position or would preclude a majority vote by all
Contract Owners having an interest in the Trust, the Company may be required, at
the Trust Board's election, to withdraw the Account's investment in the Trust.
7.6. For purposes of this Article, a majority of the Disinterested
Trustees shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict, but in no event shall the Trust be
required to bear the expense of establishing a new funding medium for any
Contract. The Company shall not be required by this Article to establish a new
funding medium for any Contract if an offer to do so has been declined by vote
of a majority of the Contract Owners materially adversely affected by the
irreconcilable material conflict.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provisions of the 1940 Act or the rules promulgated thereunder with respect to
mixed and shared funding on terms and conditions
-13-
<PAGE>
materially different from those contained in the Exemptive Order, then (a) the
Trust and/or the Company, as appropriate, shall take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, or Rule 6e-3, as
adopted, as applicable, to the extent such rules are applicable, and (b)
Sections 7.2 through 7.5 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification by the Company. The Company shall indemnify and
hold harmless the Trust, the Distributor and each person who controls the Trust
or the Distributor within the meaning of such term under the 1933 Act or 1940
Act (but not any Participating Insurance Companies or Qualified Plans) and any
officer, trustee, director, employee or agent of the foregoing, against any and
all losses, claims, damages or liabilities, joint or several (including any
investigative, legal and other expenses reasonably incurred in connection with,
and any amounts paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they or any of them may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts
Registration Statement, Contracts Prospectus, sales literature or other
promotional material for the Contracts or the Contracts themselves (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were
made; provided that this obligation to indemnify shall not apply if such
statement or omission or such alleged statement or alleged omission was
made in reliance upon and in conformity with information furnished in
writing to the Company by or on behalf of the Trust for use in the
Contracts Registration Statement, Contracts Prospectus or in the Contracts
or sales literature or promotional material for the Contracts (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust
(or any amendment or supplement to any of the foregoing), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in light
of the circumstances in which they were made, if such statement or omission
was made in reliance upon and in conformity with information furnished to
the Trust in writing by or on behalf of the Company; or
-14-
<PAGE>
(c) arise out of or are based upon any wrongful conduct of the Company
or persons under its control (or subject to its authorization) with respect
to the sale or distribution of the Contracts or Trust shares; or
(d) arise as a result of any failure by the Company or persons under
its control (or subject to its authorization) to provide services, furnish
materials or make payments as required under this Agreement; or
(e) arise out of any material breach by the Company or persons under
its control (or subject to its authorization) of this Agreement, including
but not limited to any failure to transmit a request for redemption or
purchase of Trust shares on a timely basis in accordance with the
procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. Indemnification by the Trust. The Trust shall indemnify and
hold harmless the Company and each person who controls the Company within the
meaning of such term under the 1933 Act or 1940 Act and any officer, director,
employee or agent of the foregoing, against any and all losses, claims, damages
or liabilities, joint or several (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amounts paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they or any of them may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing by or on behalf of the Company to the
Trust for use in the Trust Registration Statement, Trust Prospectus or
sales literature or promotional material for the Trust (or any amendment or
supplement to any of the foregoing) or otherwise for use in connection with
the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature
-15-
<PAGE>
or other promotional material for the Contracts (or any amendment or
supplement to any of the foregoing), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances in
which they were made, if such statement or omission was made in reliance
upon and in conformity with information furnished in writing by or on
behalf of the Trust to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or
persons under its control (or subject to its authorization) with respect to
the sale of Trust shares; or
(d) arise as a result of any failure by the Trust or persons under
its control (or subject to its authorization) to provide services, furnish
materials or make payments as required under the terms of this Agreement;
or
(e) arise out of any material breach by the Trust or persons under
its control (or subject to its authorization) of this Agreement (including
any breach of Section 6.1 of this Agreement).
This indemnification will be in addition to any liability that the Trust may
otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.3. Indemnification by the Distributor. The Distributor shall
indemnify and hold harmless the Company and each person who controls or is
associated with the Company within the meaning of such term under the 1933 Act
or 1940 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional
material of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing by or on behalf of the Company to the
Trust for use in the Trust Registration Statement, Trust Prospectus or
sales literature or promotional material for the Trust (or any amendment or
supplement to
-16-
<PAGE>
any of the foregoing) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of
a material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature or other promotional material for
the Contracts (or any amendment or supplement to any of the foregoing), or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made, if such
statement or omission was made in reliance upon and in conformity with
information furnished in writing by or on behalf of the Trust or the
Distributor to the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or
the Distributor or persons under its respective control (or subject to its
respective authorization) with respect to the sale of Trust shares; or
(d) arise as a result of any failure by the Trust or the Distributor
or persons under its respective control (or subject to its respective
authorization) to provide services, furnish materials or make payments as
required under the terms of this Agreement; or
(e) arise out of any material breach by the Trust or the Distributor
or persons under its respective control (or subject to its respective
authorization) of this Agreement (including any breach of Section 6.1 of
this Agreement).
This indemnification will be in addition to any liability that the Distributor
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.4. Indemnification Procedures. After receipt by a party entitled
to indemnification ("indemnified party") under this Article VIII of notice of
the commencement of any action, if a claim in respect thereof is to be made by
the indemnified party against any person obligated to provide indemnification
under this Article VIII ("indemnifying party"), such indemnified party will
notify the indemnifying party in writing of the commencement thereof as soon as
practicable thereafter, provided that the omission to so notify the indemnifying
party will not relieve it from any liability under this Article VIII, except to
the extent that the omission results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give such notice. The indemnifying party, upon the request of
the indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the
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<PAGE>
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania, without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933
Act, 1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. Term and Termination
10.1 Term and Termination of Agreement. This Agreement shall not
terminate as to any Series of the Trust until the Account no longer invests in
that Series and the Company has confirmed in writing to the Trust that it no
longer intends to invest in such Series. However, certain obligations of, or
restrictions on, the parties to this Agreement may terminate as provided in
Sections 10.2 and 10.3 and the Company may be required to redeem shares pursuant
to Section 10.4 or in the circumstances contemplated by Article VII.
10.2. Termination of Offering of Trust Shares. The obligation of the
Trust to make Series shares available through the Distributor to the Company for
purchase pursuant to Article II of this Agreement shall terminate at the option
of the Trust upon written notice to the Company as provided below:
(a) at any time more than two years after the date of this Agreement,
upon 60 days prior written notice;
-18-
<PAGE>
(b) upon institution of formal proceedings against the Company by the
NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the operation of the Account, the
administration of the Contracts or the purchase of Trust shares, or an
expected or anticipated ruling, judgment or outcome which would, in the
Trust's reasonable judgment exercised in good faith, materially impair the
Company's ability to meet and perform the Company's obligations and duties
hereunder, such termination effective upon 15 days prior written notice;
(c) in the event any of the Contracts are not registered, issued or
sold in accordance with applicable Federal and/or state law, such
termination effective upon [5] days prior written notice and only as to
such Contracts;
(d) if the Trust or the Distributor shall determine, in their sole
judgment exercised in good faith, that either (1) the Company shall have
suffered a material adverse change in its business or financial condition
or (2) the Company shall have been the subject of material adverse
publicity which is likely to have a material adverse impact upon the
business and operations of either the Trust or the Distributor, such
termination effective upon 30 days prior written notice;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless
the Trust consents thereto, such termination effective upon 30 days prior
written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of the Trust
within 30 days after written notice of such breach has been delivered to
the Company; or
(g) upon termination pursuant to Section 10.1 or notice from the
Company pursuant to Section 10.3, such termination as to a Series hereunder
effective upon 15 days prior written notice, unless a longer notice period
is provided in which case the longer notice period shall apply.
Notwithstanding an exercise of its option to terminate its obligation to make
Shares available through the Distributor to the Company, the Trust shall
continue to make Trust shares available through the Distributor to the extent
necessary to permit owners of Contracts in effect on the effective date of such
termination (hereinafter referred to as "Existing Contracts") to reallocate
investments in the Trust, redeem investments in the Trust and/or invest in the
Trust upon the making of additional purchase payments under the Existing
Contracts, unless the Trust exercised its option to terminate because of
circumstances involving the Existing Contracts (or a class thereof). In that
case, the Trust shall promptly notify the Company whether the Trust is electing
to make Trust shares available through the Distributor after termination for the
Noncomplying
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<PAGE>
Contracts (or a class thereof) responsible for such termination (the
"Noncomplying Contracts"). In determining whether to make Shares available
through the Distributor for the Noncomplying Contracts (or a class thereof), the
Trust shall act in good faith giving due consideration to the interests of
owners of the Noncomplying Contracts (or a class thereof).
10.3. As to the Company. The Company may elect to cease investing in a
Series or the Trust, promoting a Series or the Trust as an investment option
under the Contracts, or withdraw its investment in a Series or the Trust,
subject to compliance with applicable law, upon written notice to the Trust
within 30 days of the occurrence of any of the following events (unless provided
otherwise below):
(a) at any time more than two years after the date of this Agreement,
upon 60 days prior written notice;
(b) as to a Series, if shares of such Series are not reasonably
available to meet the requirements of the Contracts as determined by the
Company, and the Trust, after receiving written notice from the Company of
such non-availability, fails to make available a sufficient number of Trust
shares to meet the requirements of the Contracts within 10 days after
receipt thereof, it being understood that, in such event, the Company's
rights pursuant to this Section 10.3 shall be limited to such Series;
(c) as to the Trust, upon institution of formal proceedings against
the Trust or the Distributor by the NASD, the SEC or any state securities
or insurance commission or any other regulatory body, upon 15 days prior
written notice;
(d) as to a Series or the Trust, as applicable, if such Series or the
Trust ceases to qualify as a Regulated Investment Company under Subchapter
M of the Code, or under any successor or similar provision, or if such
Series or the Trust may fail to so qualify, and the Trust, within 30 days
following receipt of written request, fails to provide reasonable assurance
acceptable to the Company that it will take action to cure or correct such
failure, it being understood that, if the event does not involve all
Series, the Company's rights pursuant to this Section 10.3 shall be limited
to the affected Series;
(e) as to a Series or the Trust, as applicable, if such Series or the
Trust fails to meet the diversification requirements specified in Section
817(h) of the Code and any regulations thereunder and the Trust, within 30
days following receipt of written request, fails to provide reasonable
assurance acceptable to the Company that it will take action to cure or
correct such failure, it being understood that, if the event does not
involve all Series, the Company's rights pursuant to this Section 10.3
shall be limited to the affected Series;
(f) as to a Series or the Trust, as applicable, if such Series or
Trust ceased to qualify as a Regulated Investment Company or failed to meet
the diversification
-20-
<PAGE>
requirements specified in Section 817(h) of the Code, the Trust failed to
cure such failure within the time period agreed upon when reasonable
assurances were accepted by the Company, it being understood that, if the
failure does not involve all Series, the Company's rights pursuant to this
Section 10.3 shall be limited to the affected Series;
(g) as to a Series or the Trust, as applicable, if the Trust informs
the Company pursuant to Section 4.4 that such Series or the Trust will not
comply with investment restrictions as requested by the Company and the
Trust and the Company are unable to agree upon any reasonable alternative
accommodations, it being understood that, if the event does not involve
all Series, the Company's rights pursuant to this Section 10.3 shall be
limited to the affected Series;
(h) if the Trust or Distributor is in material breach of a provision
of this Agreement, which breach has not been cured to the satisfaction of
the Company within 30 days after written notice of such breach has been
delivered to the Trust or the Distributor, as the case may be;
(i) with respect to any Series in the event any of the Series shares
are not registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be issued by the
Company, it being understood that, if the event does not involve all
Series, the Company's rights pursuant to this Section 10.3 shall be limited
to the affected Series; or
(j) if the Company shall determine, in its sole judgment, exercised
in good faith, that either (1) the Trust or the Distributor shall have
suffered a material adverse change in its business or financial conditions
or (2) the Trust or the Distributor shall have been the subject of material
adverse publicity which is likely to have a material adverse effect on the
Company or the distribution of the Contracts.
10.4. Company Required to Redeem. The parties understand and
acknowledge that it is essential for compliance with Section 817(h) of the Code
that the Contracts qualify as annuity contracts or life insurance policies, as
applicable, under the Code. Accordingly, if any of the Contracts cease to
qualify as annuity contracts or life insurance policies, as applicable, under
the Code, or if any such Contracts may fail to so qualify (in either case, other
than solely as a result of the Trust's failure to comply with this Agreement),
the Trust shall have the right to require the Company to redeem Shares
attributable to such Contracts upon notice to the Company and the Company shall
so redeem such Shares in order to ensure that the Trust complies with the
provisions of Section 817(h) of the Code applicable to ownership of Trust
Shares. Notice to the Company shall specify the period of time the Company has
to redeem the Shares or to make other arrangements satisfactory to the Trust and
its counsel, such period of time to be determined with reference to the
requirements of Section 817(h) of the Code. In addition, the Company may be
required to redeem Shares pursuant to Article VII or the
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<PAGE>
Exemptive Order (assuming the Company has not elected not to comply therewith).
Also, if the Exemptive Order when issued imposes conditions and undertakings
materially different from those set forth in Article VII and the Company elects
not to comply with such materially different conditions, the Trust Board may
require the Company to withdraw the Account's investment in the Trust. The
Company agrees to redeem Shares in the circumstances described herein and to
comply with applicable terms and provisions. This Agreement shall remain in
effect as to the availability of Trust Shares for any Contracts other than those
as to which the Company is required to redeem Shares pursuant to this Section.
ARTICLE XI. Applicability to New Accounts and New Contracts
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect, as appropriate, changes in or relating
to the Contracts, or Series or funding vehicles thereof, additions of new
classes of Contracts to be issued by the Company and separate accounts therefor
investing in the Trust. The provisions of this Agreement shall be equally
applicable to each such class of Contracts, Series and Accounts, effective as of
the date of amendment of such Schedule, unless the context otherwise requires.
ARTICLE XII. Notice, Request or Consent
Any notice, request or consent to be provided pursuant to this
Agreement is to be made in writing and shall be given:
If to the Trust:
David G. Lee
President
Insurance Investment Products Trust
680 East Swedesford Road
Wayne, PA 19087-1658
If to the Distributor:
General Counsel
SEI Financial Services Company
680 East Swedesford Road
Wayne, PA 19087-1658
If to the Company:
Dale E. Cooper
Providian Corporation
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<PAGE>
400 West Market Street
Louisville, KY 40202
with a copy to:
Earl W. Baucom
Chief Financial Officer
National Home Life Assurance Company
Valley Forge, PA 19493
or at such other address as such party may from time to time specify in writing
to the other party. Each such notice, request or consent to a party shall be
sent by registered or certified United States mail with return receipt requested
or by overnight delivery with a nationally recognized courier, and shall be
effective upon receipt.
ARTICLE XIII. Miscellaneous
13.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
13.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.4. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
13.5. Subject to the requirements of legal process and regulatory
authority, the Trust and the Distributor shall treat as confidential the names
and addresses of the Contract Owners and all information reasonably identified
as confidential in writing by the Company and except as permitted by this
Agreement, shall not disclose, disseminate or utilize such names and addresses
and other confidential information without the express written consent of the
Company until such time as it may come into the public domain.
13.6. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party hereto without the prior written consent of all
other parties.
13.7. A copy of the Declaration of Trust of the Trust is on file with
the Secretary
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of State of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Trust as trustees,
and is not binding upon any of the Trustees, officers or shareholders of the
Trust individually, but binding only upon the assets and property of the Trust.
No Series of the Trust shall be liable for the obligations of any other Series
of the Trust.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
INSURANCE INVESTMENT PRODUCTS TRUST
(Trust)
Date: June 19, 1995 By: /s/ Robert B. Carroll
------------- --------------------------------------------------
Name: Robert B. Carroll
Title: Vice President
SEI FINANCIAL SERVICES COMPANY
(Distributor)
Date: June 19, 1995 By: /s/ Kathryn C. Stockton
------------- --------------------------------------------------
Name: Kathryn C. Stockton
Title: Vice President
NATIONAL HOME LIFE ASSURANCE COMPANY
(Company)
Date: June 7, 1995 By: /s/ Dale Cooper
------------- --------------------------------------------------
Name: Dale Cooper
Title: Vice President
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<PAGE>
Schedule 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date of the Agreement, the following separate accounts of
the Company are subject to the Agreement:
<TABLE>
<CAPTION>
===================================================================================================================================
Name of Account and Date Established by Board SEC 1940 Act Type of Product
Subaccounts of Directors of the Registration Number Supported by Account
Company
===================================================================================================================================
<S> <C> <C> <C>
National Home Life February 14, 1992 Variable Annuity
Assurance Company
Separate Account V
- - - ------------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
Effective as of ____________, the following separate accounts of the Company are
hereby added to this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
====================================================================================================================================
Name of Account and Date Established by Board SEC 1940 Act Type of Product
Subaccounts of Directors of the Registration Number Supported by Account
Company
====================================================================================================================================
<S> <C> <C> <C>
- - - ------------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 1 in accordance with Article XI of the Agreement.
___________________________________ ____________________________________
Insurance Investment Products Trust National Home Life
Assurance Company
______________________________
SEI Financial Services Company
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<PAGE>
Schedule 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date of the Agreement, the following classes of Contracts
are subject to the Agreement:
<TABLE>
<CAPTION>
====================================================================================================================================
Policy Marketing Name SEC 1933 Act Name of Supporting Annuity or Life
Registration Number Account
====================================================================================================================================
<S> <C> <C> <C>
National Home Life 33-80958 National Home Life Annuity
Advisor's Edge Assurance Company
Separate Account V
- - - ------------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
Effective as of ____________, the following classes of Contracts are hereby
added to this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
====================================================================================================================================
Policy Marketing Name SEC 1933 Act Name of Supporting Annuity or Life
Registration Number Account
====================================================================================================================================
<S> <C> <C> <C>
- - - ------------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 2 in accordance with Article XI of the Agreement.
___________________________________ __________________________________
Insurance Investment Products Trust National Home Life
Assurance Company
______________________________
SEI Financial Services Company
-26-
<PAGE>
Schedule 3
----------
Trust Series and Other Funding
Vehicles Available Under
Each Class of Contracts
Effective as of the date of the Agreement, the following Trust Series and other
Funding Vehicles are available under the Contracts:
<TABLE>
<CAPTION>
====================================================================================================================================
Contracts Marketing Name Trust Series Other Funding Vehicles
====================================================================================================================================
<S> <C> <C>
National Home Life Advisor's Edge . International Growth Portfolio . DFA Investment Dimensions
. Growth Portfolio Group, Inc.
. Aggressive Growth Portfolio . Federated Insurance
. Income Equity Management Series
. Intermediate Fixed Income
Portfolio
- - - ------------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
Effective as of _________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Series and other funding vehicles:
<TABLE>
<CAPTION>
====================================================================================================================================
Contracts Marketing Name Trust Series Other Funding Vehicles
====================================================================================================================================
<S> <C> <C>
- - - ------------------------------------------------------------------------------------------------------------------------------------
- - - ------------------------------------------------------------------------------------------------------------------------------------
====================================================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 3 in accordance with Article XI of the Agreement.
___________________________________ ____________________________________
Insurance Investment Products Trust National Home Life
Assurance Company
______________________________
SEI Financial Services Company
-27-
<PAGE>
Schedule 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date of the Agreement, the Trust, at the request of another
Participating Insurance Company, has undertaken to comply with the following
investment restrictions when applicable to the Trust:
. California diversification guidelines for foreign country
investments by a portfolio of a separate account
. California borrowing guideline limits applicable to a
portfolio of a separate account
Effective as of _________________, 19__, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust, the Distributor and the Company hereby amend this
Schedule 4 in accordance with Article XI of the Agreement.
___________________________________ __________________________________
Insurance Investment Products Trust National Home Life
Assurance Company
______________________________
SEI Financial Services Company
-28-
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 19th day of May, 1995 by
and between WANGER ADVISORS TRUST, an unincorporated business trust formed under
the laws of Massachusetts (the "Trust"), and NATIONAL HOME LIFE ASSURANCE
COMPANY, a Missouri life insurance company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment
vehicle for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust
and the Company agree as follows:
ARTICLE I. ADDITIONAL DEFINITIONS
----------------------
1.1. "Account" -- each separate account of the Company described
more specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business
as provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
1.4. "Contracts" -- the class or classes of variable annuity
contracts issued by the Company and described more specifically on Schedule 2 to
this Agreement.
1.5. "Contract Owners" -- the owners of the Contracts, as
distinguished from all Product Owners.
<PAGE>
1.6. "Investment Adviser" -- the investment manager of the Trust,
Wanger Asset Management, L.P.
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company
investing in the Trust on its behalf or on behalf of a Participating Account,
including the Company.
1.9. "Products" -- variable annuity contracts and variable life
insurance policies supported by Participating Accounts investing assets
attributable thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each
version of the definitive prospectus or supplement thereto filed with the SEC
pursuant to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect
to Trust shares, each version of the definitive prospectus or supplement thereto
filed with the SEC pursuant to Rule 497 under the 1933 Act with respect to a
series of the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus").
With respect to any provision of this Agreement requiring a party to take action
in accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares or
a class of Contracts, the registration statement filed with the SEC to register
the securities issued thereby under the 1933 Act, or the most recently filed
amendment thereto, in either case in the form in which it was declared or became
effective. The Contracts Registration Statement is described more specifically
on Schedule 2 to this Agreement. The Trust Registration Statement was filed on
Form N-1A (File No. 33-83598).
2
<PAGE>
1.14. "1940 Act Registration Statement" -- with respect to the Trust
or the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described more
specifically on Schedule 2 to this Agreement. The Trust 1940 Act Registration
Statement was filed on Form N-1A (File No. 811-8748).
1.15. "Statement of Additional Information" -- with respect to the
Trust or a class of Contracts, each version of the definitive statement of
additional information or supplement thereto filed with the SEC pursuant to Rule
497 under the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. SALE OF TRUST SHARES
--------------------
2.1. The Trust shall make shares of those Series listed on Schedule 3
to this Agreement available for purchase by the Company on behalf of the
Account, such purchases to be effected at net asset value in accordance with
Section 2.3 of this Agreement. Notwithstanding the foregoing, (i) other than
those Series listed on Schedule 3, Trust Series in existence now or that may be
established in the future will be made available to the Company only as the
Trust and the Company may agree pursuant to Article XI hereof, and (ii) the
Board of Trustees of the Trust (the "Trust Board") may suspend or terminate the
offering of Trust shares of any Series, if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Trust Board acting in good faith and in light of its fiduciary duties under
Federal and any applicable state laws, suspension or termination is necessary in
the best interests of the shareholders of any Series (it being understood that
"shareholders" for this purpose shall mean Product Owners and Qualified
Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem
3
<PAGE>
Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, and the Trust Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for the
limited purpose of receiving purchase and redemption requests from the Account
based on allocations of net amounts to the Account or subaccounts thereof under
the Contracts and other transactions relating to the Contracts or the Account.
Purchase and redemption requests shall be processed by the Trust at the net
asset value per share next calculated after the Trust receives such request.
The Trust shall calculate its net asset value per share at the Trust's close of
business on each Business Day (as defined from time to time in the Trust
Prospectus, and which as of the date of execution of this Agreement is the time
of the close of regular session trading on the New York Stock Exchange, which is
generally 4:00 p.m. Eastern Time. Receipt of any such request on any Business
Day by the Company as designee of the Trust prior to the Trust's close of
business shall constitute receipt by the Trust on that same Business Day,
provided that the Trust receives notice of such request by 10 a.m. Eastern Time
on the next following Business Day.
(b) The Company shall pay for shares of each Series on the same day
that it notifies the Trust of a purchase request for such shares. Payment for
Series shares shall be made in Federal funds transmitted to the Trust by wire by
2:30 p.m. Eastern Time on the day the Trust is notified of the purchase request
for Series shares (unless the Trust determines and so advises the Company that
sufficient proceeds are available from redemption of shares of other Series
effected pursuant to redemption requests tendered by the Company on behalf of
the Account). If payment in Federal funds for any purchase is not received, or
is received by the Trust after 3 p.m. Eastern Time on such Business Day, the
Company shall promptly, upon the Trust's request, reimburse the Trust for any
charges, costs, fees, interest or other expenses incurred by the Trust in
connection with any advances to, or borrowings or overdrafts by, the Trust, or
any similar expenses incurred by the Trust, as a result of portfolio
transactions effected or dilution suffered by the Trust based upon such failure
to receive the funds by 3:00 p.m. Eastern Time. If Federal funds are not
received on time, such funds will be invested, and Series shares purchased
thereby will be issued, as soon as practicable. Upon receipt of Federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Trust.
4
<PAGE>
(c) Payment for Series shares redeemed by the Account or the Company
shall be made in Federal funds transmitted by wire to the Company or any other
designated person by 3:00 p.m. Eastern Time on the Business Day during which the
Trust is properly notified of the redemption order of Series shares (unless
redemption proceeds are to be applied to the purchase of Trust shares of other
Series in accordance with Section 2.3(b) of this Agreement), except that (i) the
Trust reserves the right to delay payment of redemption proceeds to the extent
permitted under Section 22(e) of the 1940 Act; and (ii) the Trust reserves the
right to effect payment of redemptions in kind, but only to the extent described
in the Trust Prospectus. The Trust shall not bear any responsibility whatsoever
for the proper disbursement or crediting of redemption proceeds under the
Contracts; the Company alone shall be responsible for such action.
2.4. The Trust shall use reasonable efforts to make the net asset
value per share for each Series available to the Company by 6:30 p.m. Eastern
Time each Business Day, and shall use its best efforts to make the net asset
value available to the Company by 7:00 p.m. Eastern Time each Business Day, and
in any event, as soon as reasonably practicable after the net asset value per
share for such Series is calculated, and shall calculate such net asset value in
accordance with the Trust Prospectus. Neither the Trust, any Series, the
Investment Adviser, nor any of their affiliates shall be liable for any
information provided to the Company pursuant to this Agreement which information
is based on incorrect information supplied by the Company or any other
Participating Company to the Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as
reasonably practicable of any income dividends or capital gain distributions
payable on any Series shares. The Trust shall notify the Company promptly of
the number of Series shares so issued as payment of such dividends and
distributions. The Company, on its behalf and on behalf of the Account, hereby
elects to receive all such dividends and distributions as are payable on any
Series shares in the form of additional shares of that Series. The Company
reserves the right, on its behalf and on behalf of the Account, to revoke this
election and to receive all such dividends and capital gains distributions in
cash.
2.6. Issuance and transfer of Trust shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Trust shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the Account.
2.7.
5
<PAGE>
(a) The Company shall invest amounts available for investment under
the Contracts in the Series of the Trust specified in Schedule 3 in accordance
with allocation instructions received from Contract Owners, it being understood
that no changes shall be made to Schedule 3 without the prior written consent of
the Trust and the Investment Adviser. The Company may withdraw the Account's
investment in the Trust or a Series of the Trust only: (i) as necessary to
facilitate Contract Owner requests; (ii) upon a determination by a majority of
the Trust Board, or a majority of disinterested Trust Board members, that an
irreconcilable material conflict exists among the interests of (x) all Product
Owners or (y) the interests of the Participating Insurance Companies and/or
Qualified Entities investing in the Trust; (iii) in the event that the shares of
another investment company are substituted for series shares in accordance with
the terms of the Contracts upon the (x) requisite vote of the Contract Owners
having an interest in the affected Series and the written consent of the Trust
(unless otherwise required by applicable law) or (y) upon issuance of an SEC
exemptive order pursuant to Section 26(b) of the 1940 Act permitting such
substitution; or (iv) as required by state and/or federal laws or regulations or
judicial or other legal precedent of general application.
(b) The Company shall not, without prior written notice to the Trust
(unless otherwise required by applicable law), take any action to operate the
Account as a management investment company under the 1940 Act.
(c) The Company shall not, without the prior written consent of the
Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the Trust's
investment adviser.
(d) Notwithstanding Section 2.7(a) of this Agreement, the Company and
the Trust acknowledge that the arrangement contemplated by this Agreement is not
exclusive; Trust shares may be sold to other insurance companies; and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are substantially different from the
investment objectives and policies of the Trust; or (b) the Company gives the
Trust 45 days written notice of its intention to make such other investment
company available as a funding vehicle for the Contracts; or (c) such other
investment company was available as a funding vehicle for the Contracts prior to
the date of this Agreement and appears on Schedule 3 to this Agreement; or (d)
the Trust consents to the use of such other investment company, such consent not
to be unreasonably withheld.
6
<PAGE>
2.8. The Trust shall sell Trust shares only to Participating
Insurance Companies and their separate accounts and to Qualified Entities. The
Trust shall not sell Trust shares to any insurance company or separate account
unless an agreement containing provisions substantially the same as Article V
and Article VII of this Agreement is in effect to govern such sales.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
------------------------------
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under Missouri law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under
Massachusetts law; (ii) the Trust 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act; (vi) the Trust currently
qualifies as a "regulated investment company" under Subchapter M of the Code and
is in compliance with Section 817(h) of the Code; and (vii) the Trust's
investment policies are in material compliance with any investment restrictions
set forth on Schedule 4 to this Agreement. Subject to Section 4.5 of this
Agreement, the Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. Further, the Trust shall register and qualify its shares for sale under
the securities laws of any state only if and to the extent that such
registration and qualification is deemed to be advisable by the Trust.
7
<PAGE>
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
3.4. Each party represents and warrants that all of its directors,
officers and employees dealing with the money and/or securities of the Trust are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Trust in an amount not less than the
amount required by the federal securities laws or any self-regulatory
organization applicable to such party. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company. Each party agrees to make reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and each agrees to
notify the other party promptly in the event that such coverage no longer
applies.
ARTICLE IV. FILINGS, INFORMATION AND EXPENSES
---------------------------------
4.1. The Trust shall amend the Trust Registration Statement and the
Trust 1940 Act Registration Statement from time to time as required in order to
effect the continuous offering of Trust shares and to maintain the Trust's
registration under the 1940 Act for so long as Trust shares are sold or any
Trust shares are outstanding.
4.2. The Company shall amend the Contracts Registration Statement and
the Account 1940 Act Registration Statement from time to time as required in
order to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify
8
<PAGE>
and obtain approval of the Contracts for sale to the extent required by
applicable insurance and securities laws of the various states.
4.3. The Trust shall provide the Company with as many copies of the
Trust Prospectus as the Company may reasonably request. If requested by the
Company in lieu thereof, the Trust shall provide such documentation (including a
final copy of the Trust Prospectus in 8-1/2" X 11" size camera-ready form at the
Trust's expense) and other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the Trust Prospectus is more
frequently amended) to have the Contracts Prospectus and Trust Prospectus
printed together in one document.
4.4. The Company shall deliver Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, and all
amendments or supplements to any of the foregoing to Contract Owners and
prospective Contract Owners, all in accordance with the federal securities laws.
4.5. The Company shall inform the Trust of any investment
restrictions imposed by Missouri insurance law that may become applicable to the
Trust from time to time as a result of the Account's investment therein
(including, but not limited to, restrictions with respect to fees and expenses
and investment policies), other than those set forth on Schedule 4 to this
Agreement. In addition, the Company shall inform the Trust of any other
investment restrictions imposed by state insurance law that the Company is aware
may become applicable to the Trust from time to time as a result of the
Account's investment therein (including, but not limited to, restrictions with
respect to fees and expenses and investment policies), other than those set
forth on Schedule 4 to this Agreement. Upon receipt of any such information
from the Company, the Trust shall determine whether it is in the best interests
of shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust, acting reasonably and in good faith, determines
that it is not in the best interests of shareholders, the Trust shall so inform
the Company, and the Trust and the Company shall discuss alternative
accommodations in the circumstances. If the Trust determines that it is in the
best interests of shareholders to comply with such restrictions, the Trust and
the Company shall amend Schedule 4 to this Agreement to reflect such
restrictions. The Trust shall comply with Schedule 4 to this Agreement as in
effect from time to time.
4.6. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such party pursuant to this
Agreement) shall be paid by the such party to the extent permitted by law.
9
<PAGE>
(a) Expenses assumed by the Trust include, but are not limited to, the
costs of: registration and qualification of the Trust shares under the federal
securities laws; preparation and filing with the SEC of the Trust Prospectus,
Trust Registration Statement, Trust proxy materials and shareholder reports; the
printing and mailing of all proxy statements and periodic reports; the
preparation of camera-ready copy of Trust Prospectuses and Statements of
Additional Information required to be provided by the Trust to its then-current
shareholders; preparation of all statements and notices required by any Federal
or state securities law; all taxes on the issuance or transfer of Trust shares;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Trust; and any expenses permitted to be paid or
assumed by the Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act. The Trust shall pay no fee or other compensation to the Company under this
Agreement, and shall not be charged for the costs of printing and mailing to
prospective Contract Owners copies of the Trust Prospectus, Trust Statement of
Additional Information, notices, proxy statements, periodic reports, or other
printed materials.
(b) Expenses assumed by the Company include, but are not limited to,
the costs of: registration and qualification of the Contracts under the federal
securities laws; preparation and filing with the SEC of the Contracts
Prospectus, Contracts Registration Statement, and Contract Owner reports;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Contracts; and the printing and mailing of all
periodic reports, Contracts Prospectuses, Statements of Additional Information,
and notices to current and prospective Contract Owners required by any Federal
or state insurance law other than those paid for by the Trust.
4.7. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust
for such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Company shall no longer
use the material subject to such revocation. The Trust may delegate its rights
and responsibilities under this provision to the Investment Adviser.
4.8. No piece of advertising or sales literature or other promotional
material in which the Company is named shall be used, except with the prior
written consent of the Company. Any such
10
<PAGE>
piece shall be furnished to the Company for such consent prior to its use. The
Company shall respond to any request for written consent on a prompt and timely
basis, but failure to respond shall not relieve the Trust of the obligation to
obtain the prior written consent of the Company. The Company may at any time in
its sole discretion revoke such written consent, and upon notification of such
revocation, the Trust shall no longer use the material subject to such
revocation.
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.7 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account
or the Contracts other than the information or representations contained in the
Contracts Registration Statement or Contracts Prospectus or in reports of the
Account which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Company.
4.11. Each party shall provide to the other at least one complete
copy of all Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations of voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, that relate to
the Trust, the Contracts or the Account, as the case may be, promptly after the
filing by or on behalf of such party of such document with the SEC or other
regulatory authorities. Each party shall provide to the other any complaints
from Contract Owners pertaining to the Contracts.
4.12. Each party shall provide to the other upon request copies of
draft versions of any Registration Statements, Prospectuses, Statements of
Additional Information, periodic and other shareholder or Contract Owner
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments or supplements to any of
11
<PAGE>
the above, to the extent that the other party reasonably needs such information
for purposes of preparing a report or other filing to be filed with or submitted
to a regulatory agency. If a party requests any such information before it has
been filed, the other party will provide the requested information if then
available and in the version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature
or other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
4.15. No party shall use any other party's names, logos, trademarks
or service marks, whether registered or unregistered, without the prior written
consent of such party.
4.16. To the extent required by applicable law, including the
administrative requirements of regulatory authorities, or as mutually agreed
between the Company and the Trust, the Company reserves the right to modify the
Contracts in any respect whatsoever. The Company reserves the right in its sole
discretion to suspend the sale of Contracts, in whole or in part, or to accept
or reject any application for the purchase of a Contract. The Company agrees to
notify the Trust promptly upon the occurrence of any event the Company believes
might necessitate a material modification of the Contracts or suspension of
Contract sales; in the case of an anticipated material modification of the
Contracts, written notice of such modification shall be provided to the Trust at
least sixty (60) days prior to the date that such material modification of the
Contracts shall be effective.
ARTICLE V. VOTING OF TRUST SHARES
----------------------
With respect to any matter put to vote by the holders of Trust shares
or Series shares ("Voting Shares"), the Company shall:
12
<PAGE>
(a) solicit voting instructions from Contract Owners to which Voting
Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract Owners
in accordance with instructions or proxies timely received from such Contract
Owners;
(c) vote Voting Shares of each Series attributable to Contract Owners
for which no instructions have been received in the same proportion as Voting
Shares of such Series for which instructions have been timely received; and
(d) vote Voting Shares of each Series held by the Company on its own
behalf or on behalf of the Account that are not attributable to Contract Owners
in the same proportion as Voting Shares of such Series for which instructions
have been timely received.
The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
13
<PAGE>
ARTICLE VI. COMPLIANCE WITH CODE
6.1. The Trust shall comply with Section 817(h) of the Code and the
regulations issued thereunder to the extent applicable to the Trust as a fund
underlying the Account, and shall notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
6.2. The Trust shall maintain its qualification as a registered
investment company (under Subchapter M of the Code or any successor or similar
provision), and shall notify the Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
6.3. The Company shall ensure the continued treatment of the
Contracts as annuity contracts or life insurance policies, whichever is
appropriate, under applicable provisions of the Code and shall notify the Trust
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
ARTICLE VII. POTENTIAL CONFLICTS
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
ARTICLE VIII. INDEMNIFICATION
14
<PAGE>
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls the Trust within the meaning of such term under Section 15
of the 1933 Act (but not any Participating Insurance Companies or Qualified
Entities) and any officer, trustee, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other promotional material
for the Contracts or the Contracts themselves (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the Trust for
use in the Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature or promotional material for the Contracts (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Trust Registration Statement, Trust Prospectus or
sales literature or other promotional material of the Trust (or any amendment or
supplement to any of the foregoing), or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances in which
they were made, if such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Trust by or on behalf of
the Company; or
(c) arise out of or are based upon any wrongful conduct of the Company
or persons under its control (or subject to its authorization or supervision)
with respect to the sale or distribution of the Contracts or Trust shares; or
15
<PAGE>
(d) arise as a result of any failure by the Company, or persons under
its control (or subject to its authorization), to perform its obligations under
the terms of this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the undertaking specified in Article VI
of this Agreement, unless such failure is a result of the Trust's material
breach of this Agreement); or
(e) arise out of any material breach by the Company of this Agreement,
including but not limited to any failure to transmit a request for redemption or
purchase of Trust shares on a timely basis in accordance with the procedures set
forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls the Company within the meaning of such term under Section 15
of the 1933 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus or sales literature or other promotional material of
the Trust (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such statement or
omission or alleged statement or alleged omission was made in reliance upon and
in conformity with information furnished in writing by or on behalf of the
Company to the Trust for use in the Trust Registration Statement, Trust
Prospectus or sales literature or promotional material for the Trust (or any
amendment or supplement to any of the foregoing) or
16
<PAGE>
otherwise for use in connection with the sale of the Contracts or Trust shares;
or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement, Contracts
Prospectus or sales literature or other promotional material for the Contracts
(or any amendment or supplement to any of the foregoing), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission was made in
reliance upon information furnished in writing by or on behalf of the Trust to
the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or
persons under its control (or subject to its authorization) with respect to the
sale or distribution of the Contracts or the Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertakings
specified in Article VI of this Agreement, unless such failure is a result of
the Company's material breach of this Agreement); or
(e) arise out of any material breach by the Trust of this Agreement.
For purposes of Section 8.2(c) above, persons under the Trust's control or
subject to its authorization shall not include any persons under the Company's
control or subject to the Company's authorization or supervision.
This indemnification will be in addition to any liability that the
Trust may otherwise have; provided, however, that no person otherwise entitled
to indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification
("indemnified party") under this Article VIII of notice of the commencement of
any action, if a claim in respect thereof is to be made by the indemnified party
against any person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify
17
<PAGE>
the indemnifying party will not relieve it from any liability under this Article
VIII, except to the extent that the omission results in a failure of actual
notice to the indemnifying party and such indemnifying party is damaged solely
as a result of the failure to give such notice. The indemnifying party, upon the
request of the indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Massachusetts,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933
Act, 1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof shall
be limited, interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
18
<PAGE>
10.1. This Agreement shall not terminate as to any Series of the
Trust until the Account no longer invests in that Series and the Company has
confirmed in writing to the Trust that it no longer intends to invest in such
Series. However, certain obligations of, or restrictions on, the parties to
this Agreement may terminate as provided in Sections 10.2 and 10.3 and the
Company may be required to redeem shares pursuant to Section 10.4 or in
circumstances contemplated by Article VII.
10.2. The obligation of the Trust to make Series shares available to
the Company for purchase pursuant to Article II of this Agreement shall
terminate at the option of the Trust upon written notice to the Company as
provided below:
(a) at any time more than two years after the date of this
Agreement, upon 60 days prior written notice;
(b) upon institution of formal proceedings against the Company by
the NASD, the SEC, the insurance commission of any state or any other regulatory
body regarding the Company's duties under this Agreement or related to the sale
of the Contracts, the operation of the Account, the administration of the
Contracts or the purchase of Trust shares, or an expected or anticipated ruling,
judgment or outcome which would, in the Trust's reasonable judgment exercised in
good faith, materially impair the Company's ability to meet and perform the
Company's obligations and duties hereunder, such termination effective upon 15
days prior written notice;
(c) in the event that any Contracts are not registered, issued, sold,
or administered in accordance with applicable Federal and/or state law,
including Federal income tax law ("Non-Complying Contracts"), then with respect
to such Non-Complying Contracts, such termination effective upon 5 days prior
written notice;
(d) if the Trust shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material adverse
change in its business or financial condition or (2) the Company shall have been
the subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Trust, such termination
effective upon 30 days prior written notice;
(e) upon the Company's assignment of this Agreement (including,
without limitation, any transfer of the Contracts or the Account to another
insurance company pursuant to an assumption reinsurance agreement) unless the
Trust consents thereto, such termination effective upon 30 days prior written
notice;
19
<PAGE>
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of the Trust
within 30 days after written notice of such breach has been delivered to the
Company; or
(g) upon termination, as to a Series, pursuant to Section 10.1 or
notice from the Company pursuant to Section 10.3, such termination hereunder
effective upon 15 days prior written notice unless a longer notice and cure
period is provided in Section 10.1 or Section 10.3, as applicable, in which case
the longer notice and cure period shall apply.
Notwithstanding an exercise of its option to terminate its obligation to make
Shares available to the Company, the Trust shall continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Trust, redeem investments in the
Trust and/or invest in the Trust upon the making of additional purchase payments
under the Existing Contracts. Existing Contracts shall not include Non-
Complying Contracts, if any. In the event that the Trust terminates this
Agreement, the Trust shall promptly notify the Company whether the Trust is
electing to make Trust shares available after termination for Non-Complying
Contracts (or a class thereof). In determining whether to make Shares available
for such Non-Complying Contracts (or a class thereof), the Trust shall act in
good faith giving due consideration to the interests of owners of such Non-
Complying Contracts (or a class thereof).
10.3. Subject to compliance with applicable law, the Company may
elect to cease investing in a Series or the Trust or promoting a Series or the
Trust as an investment option under the Contracts, or withdraw its investment in
a Series or the Trust, upon the occurrence of one of the following events, upon
30 days prior written notice to the Trust, unless otherwise provided below:
(a) at any time more than two years after the effective date of this
Agreement, upon 60 days prior written notice;
(b) as to a Series, if shares of such Series are not reasonably
available to meet the requirements of the Contracts as determined by the
Company, and the Trust, after receiving written notice from the Company of such
non-availability, fails to make available a sufficient number of Trust shares to
meet the requirements of the Contracts within 10 days after receipt thereof, it
being understood that, in such event, the Company's rights pursuant to this
Section 10.3 shall be limited to such Series;
20
<PAGE>
(c) as to the Trust, upon institution of formal proceedings against
the Trust by the NASD, the SEC or any state securities or insurance commission
or any other regulatory body, upon 15 days prior written notice;
(d) as to a Series or the Trust, as applicable, if such Series or the
Trust ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code, or under any successor or similar provision, or if such Series or the
Trust may fail to so qualify, and the Trust, upon written request, fails to
provide reasonable assurance acceptable to the Company that it will take action
to cure or correct such failure, it being understood that, if the event does not
involve all Series, the Company's rights pursuant to this Section 10.3 shall be
limited to the affected Series;
(e) as to a Series or the Trust, as applicable, if such Series or the
Trust fails to meet the diversification requirements specified in Section 817(h)
of the Code and any regulations thereunder and the Trust, upon written request,
fails to provide reasonable assurance acceptable to the Company that it will
take action to cure or correct such failure, it being understood that, if the
event does not involve all Series, the Company's rights pursuant to this Section
10.3 shall be limited to the affected Series;
(f) as to a Series or the Trust, as applicable, if such Series or
Trust ceased to qualify as a Regulated Investment Company or failed to meet the
diversification requirements specified in Section 817(h) of the Code, and the
Trust failed to cure such failure within the time period agreed upon when
reasonable assurances were accepted by the Company, it being understood that, if
the failure does not involve all Series, the Company's rights pursuant to this
Section 10.3 shall be limited to the affected Series;
(g) as to a Series or the Trust, as applicable, if the Trust informs
the Company pursuant to Section 4.5 that such Series or the Trust will not
comply with investment restrictions as requested by the Company and the Trust
and the Company are unable to agree upon any reasonable alternative
accommodations, it being understood that, if the event does not involve all
Series, the Company's rights pursuant to this Section 10.3 shall be limited to
the affected Series;
(h) if the Trust is in material breach of a provision of this
Agreement, which breach has not been cured to the satisfaction of the Company
within 30 days after written notice of such breach has been delivered to the
Trust;
21
<PAGE>
(i) with respect to any Series, in the event any of the Series shares
are not registered, issued or sold in accordance with applicable state and/or
Federal law or such law precludes the use of such Series shares as the
underlying investment medium of the Contracts, such termination effective upon 5
days prior written notice; or
(j) if the Company shall determine, in its sole judgment exercised in
good faith, that either (1) the Trust or the Investment Adviser shall have
suffered a material adverse change in its business or financial condition or (2)
the Trust or the Investment Adviser shall have been the subject of material
adverse publicity which is likely to have a material adverse impact upon the
business and operations of the Contracts, such termination effective upon 30
days prior written notice.
10.4. The parties understand and acknowledge that it is essential for
compliance with Section 817(h) of the Code that the Contracts qualify as annuity
contracts or life insurance policies, as applicable, under the Code.
Accordingly, if any of the Contracts cease to qualify as annuity contracts or
life insurance policies, as applicable, under the Code, or if any such Contracts
may fail to so qualify (in either case, other than solely as a result of the
Trust's failure to comply with Section 817(h) of the Code), the Trust shall have
the right to require the Company to redeem Trust shares attributable to such
Non-Complying Contracts upon notice to the Company and the Company shall so
redeem such shares in order to ensure that the Trust complies with the
provisions of Section 817(h) of the Code applicable to ownership of Trust
Shares. Notice to the Company shall specify the period of time the Company has
to redeem the Trust shares or to make other arrangements satisfactory to the
Trust and its counsel, such period of time to be determined with reference to
the requirements of Section 817(h) of the Code. The Company agrees to redeem
Trust shares in the circumstances described herein.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect, as appropriate, changes in or relating
to the Contracts or Series, or additions of new classes of Contracts to be
issued by the Company through separate accounts investing in the Trust. The
provisions of this Agreement shall be equally applicable to each such class of
Contracts, Series and Accounts, effective as of the date of amendment of such
Schedule, unless the context otherwise requires.
22
<PAGE>
ARTICLE XII. NON-LIABILITY OF TRUSTEES AND SHAREHOLDERS
Any obligation of the Trust hereunder shall be binding only upon the
assets of the Trust (or applicable Series thereof) and shall not be binding upon
any trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
Merrillyn J. Kosier
Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
Dale E. Cooper
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
with a copy to:
Earl W. Baucom
Chief Financial Officer
National Home Life Assurance Company
Valley Forge, Pennsylvania 19493
ARTICLE XIV. MISCELLANEOUS
14.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate
23
<PAGE>
any of the provisions hereof or otherwise affect their construction or effect.
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
14.4. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
14.5. Subject to the requirements of legal process and regulatory
authority, the Trust shall treat as confidential the names and addresses of the
Contract Owners and all information reasonably identified as confidential in
writing by the Company and except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
14.6. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party hereto without the prior written consent of all
other parties.
14.7. Notwithstanding the provisions of Article VII of this
Agreement, the Trust acknowledges that it has no intention to file an
application with SEC to permit Trust shares to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies.
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized officer
on the date specified below.
NATIONAL HOME LIFE ASSURANCE COMPANY
(COMPANY)
May 31, 1995 /s/ Dale Cooper
Date: ____________ By: ___________________________
Name: Dale Cooper
Title: Vice President
WANGER ADVISORS TRUST
(TRUST)
May 31, 1995 /s/ Charles P. McQuaid
Date: ___________ By: ____________________________
Name: Charles P. McQuaid
Title: Senior Vice President
25
<PAGE>
SCHEDULE 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
================================================================================
Name of Account and Date SEC 1940 Act Type of
Subaccounts Established by Registration Product
Board of Number Supported by
Directors of Account
the Company
================================================================================
National Home Life February 14, 1992 811-6564 Variable Annuity
Assurance Company
Separate Account V
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
================================================================================
Effective as of _____________, the following separate accounts are hereby added
to this Schedule 1 and made subject to the Agreement:
================================================================================
Name of Account and Date SEC 1940 Act Type of
Subaccounts Established by Registration Product
Board of Number Supported by
Directors of Account
the Company
================================================================================
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
______________________ _____________________________________
Wanger Advisors Trust National Home Life Assurance Company
i
<PAGE>
SCHEDULE 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
================================================================================
SEC 1933 Act Registration Name of Supporting
Contract Marketing Name Number Account
================================================================================
National Home Life File No. 33-80958 National Home Life
Advisor's Edge Assurance Company
Separate Account V
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
================================================================================
Effective as of _______, the following classes of Contracts are hereby added to
this Schedule 2 and made subject to the Agreement:
================================================================================
SEC 1933 Act Registration Name of Supporting
Contract Marketing Name Number Account
================================================================================
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
================================================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
______________________ _____________________________________
Wanger Advisors Trust National Home Life Assurance Company
ii
<PAGE>
SCHEDULE 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
=======================================================================
Contracts Marketing Name Trust Series
=======================================================================
National Home Life . Wanger U.S. Small Cap Advisor
Advisor's Edge
. Wanger International Small Cap Advisor
- - - -----------------------------------------------------------------------
- - - -----------------------------------------------------------------------
=======================================================================
Effective as of the date the Agreement was executed, the following other funding
vehicles are available under the Contracts:
===========================================================================
Contracts Marketing Name Funding Vehicle
===========================================================================
National Home Life . DFA Investment Dimensions Group, Inc.
Advisor's Edge
. Insurance Management Series (Federated)
. Insurance Investment Products Trust (SEI)
- - - ---------------------------------------------------------------------------
- - - ---------------------------------------------------------------------------
===========================================================================
Effective as of __________________, this Schedule 3 is hereby amended to reflect
the following changes in Trust Series:
========================================================
Contracts Marketing Name Trust Series
========================================================
- - - --------------------------------------------------------
- - - --------------------------------------------------------
========================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
______________________ _____________________________________
Wanger Advisors Trust National Home Life Assurance Company
iii
<PAGE>
SCHEDULE 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following Missouri
investment restrictions are applicable to the Trust:
NONE
Effective as of ___________________, this Schedule 4 is hereby amended to
reflect the following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
______________________ _____________________________________
Wanger Advisors Trust National Home Life Assurance Company
iv
<PAGE>
PARTICIPATION AGREEMENT
Among
TOMORROW FUNDS RETIREMENT TRUST,
WEISS, PECK & GREER, L.L.C.
And
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
- - - ------- ----------- ----
<S> <C> <C>
1 Sales of Fund Shares 1
2 Proxy Solicitations and Voting 3
3 Representations and Warranties 4
4 Sales Material and Information 7
5 Fees and Expenses 10
6 Indemnification 12
7 Potential Conflicts 17
8 Term and Termination 20
9 Notices 23
10 Miscellaneous 24
</TABLE>
<PAGE>
THIS AGREEMENT, made and entered into this 11th day of September, 1995, by
and among Providian Life and Health Insurance Company ("Company"), on its own
behalf and on behalf of Providian Life and Health Insurance Company Separate
Account V, a segregated asset account of the Company ("Account"); Tomorrow Funds
Retirement Trust ("Fund"), on its own behalf and on behalf of each of its series
listed on Schedule A hereto, as amended from time to time ("Portfolios"); and
the Fund's investment adviser, Weiss, Peck & Greer, L.L.C.
("Adviser")(collectively, "Parties").
Company, Fund and Adviser intending to be legally bound, hereby agree as
follows:
1. Sales of Fund Shares
1.1 Fund shares shall be sold by the respective Portfolios and purchased
by Company for the appropriate subaccount of the Account at the net asset value
next computed after receipt by Fund or its designee of each order of the Account
or its designee, in accordance with the provisions of this Agreement and the
then current prospectuses of the Fund and the variable annuity contract that
uses the Fund as an underlying investment medium (the "Contracts"). Company may
purchase Fund shares for its own account subject to (a) receipt of prior written
approval by Adviser, (b) such purchases being in accordance with the then
current prospectuses of the Fund and the Contracts and (c) shall be in addition
to purchases for the Account. For purposes of this Section 1.1, Company shall be
the designee of Fund for receipt of orders from the Account and receipt by such
designee shall constitute receipt by Fund; provided that Company receives the
order by 4:00 p.m. Louisville (Eastern) time and Fund receives notice from
Company by telephone or facsimile (or by such other means as Fund and Company
may agree in writing) of such order no later than 10:00 a.m. Louisville
(Eastern) time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which Fund
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission (the "SEC"). Wire orders for payment for shares purchased
will be sent to Fund prior to 3:00 p.m. Louisville (Eastern) time on the same
Business Day that
<PAGE>
Company communicates the orders to Fund in accordance with instructions provided
by Fund to Company.
1.2 Fund will redeem the shares when requested on behalf of Company or the
corresponding subaccount of the Account at the net asset value next computed
after receipt by Fund or its designee of each request for redemption, in
accordance with the provisions of this Agreement and the then current
prospectuses of the Fund and the Contracts. For purposes of this Section 1.2,
Company shall be the designee of Fund for receipt of requests for redemption
from Account and receipt by such designee shall constitute receipt by Fund;
provided that Company receives the request for redemption by 4:00 p.m.
Louisville (Eastern) time and Fund receives notice from Company by telephone or
facsimile (or by such other means as Fund and Company may agree in writing) of
such request for redemption no later than 10:00 a.m. Louisville (Eastern) time.
Fund will use its best efforts to transmit to Company the proceeds of all
redemption orders placed by Company by 3:00 p.m. Louisville (Eastern) time on
the same Business Day that Company communicates the requests to Fund by wire
transfer in accordance with written instructions provided by Company to Fund. In
no event shall payment be delayed for a greater period than permitted by the
Investment Company Act of 1940 or the rules, orders or regulations thereunder
(the "1940 Act"). The Board of Trustees of Fund (the "Board") may refuse to sell
shares of Fund or any Portfolio to any person, or suspend or terminate the
offering of shares of or liquidate any particular Portfolio or Fund if such
action is required by law or by regulatory authorities having jurisdiction or is
in the sole discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and applicable state laws, deemed necessary and
in the best interests of the shareholders of the Fund or Portfolio.
1.3 Company agrees to purchase and redeem the shares of each Portfolio in
accordance with the provisions of this Agreement, of the Contracts and of the
then current prospectuses for the Contracts and Fund. Except as necessary to
implement transactions
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initiated by Contract owners, or as otherwise permitted by state and/or federal
laws or regulations, Company shall not redeem Fund shares attributable to the
Contracts.
1.4 Issuance and transfer of Fund shares will be by book entry only. Stock
certificates will not be issued to the Company or the Account. Shares ordered
from Fund will be recorded in appropriate book entry titles for the Account.
1.5 Fund shall furnish prompt notice followed by written confirmation to
Company or its delegates of any income, dividends or capital gain distributions
payable on the Fund's shares. Company hereby elects to receive all such
dividends and distributions as are payable on shares of a Portfolio in
additional shares of that Portfolio. Fund shall notify Company or its delegates
of the number of shares so issued as payment of such dividends and
distributions.
1.6 Fund shall use its best efforts to make the net asset value per share
for each Portfolio available to Company or its delegates by 6:00 p.m. Louisville
(Eastern) time on each business day of Fund.
1.7 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive. Fund's shares may be sold to other insurance
companies (subject to Section 7 hereof) and the cash value of the Contracts may
be invested in other investment companies.
2. Proxy Solicitations and Voting
2.1 Subject to Section 1.2 above, Adviser and Fund agree that the terms on
which shares of the Fund are offered to the Account will not be materially
altered without the prior written consent of Company, which consent will not be
unreasonably withheld, during any period in which Fund shares are held by the
Account.
2.2 If and to the extent required by law the Company shall:
(i) solicit voting instructions from purchasers of the Contracts
("Owners");
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(ii) vote the Fund shares in accordance with instructions received
from Owners;
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for
which instructions have been received; and
(iv) vote Fund shares held by the Company on its own behalf or on
behalf of the Account that are not attributable to Owners in the
same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for various contract owners The Company
shall be responsible for assuring that voting privileges for the Account are
calculated in a manner consistent with the Exemptive Order (hereafter defined).
The obligation to calculate voting privileges in a manner consistent with the
Exemptive Order will be a contractual obligation of all Participating Insurance
Companies (hereafter defined) under agreements governing participation in the
Fund.
2.3 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
3. Representations and Warranties
3.1 Company represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account
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under Section 376.309 of the Missouri Insurance Code and that it has and will
maintain the capacity to issue all Contracts that may be sold.
3.2 Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act") and that Providian
Securities Corporation, the principal underwriter for the Contracts, is
registered as a broker-dealer under the Securities Exchange Act of 1934 (the
"1934 Act").
3.3 Company represents and warrants that it has or will have registered
the Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
3.4 Company represents that the Contracts are currently treated as annuity
contracts, under applicable provisions of the Internal Revenue Code of 1986, as
amended ("Code"), and that it will maintain such treatment and that it will
notify Adviser and Fund promptly upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
3.5 Fund represents and warrants that it is lawfully established and
validly existing under the laws of the State of Delaware.
3.6 Fund represents and warrants that Fund shares sold pursuant to this
Agreement are registered under the 1933 Act and duly authorized for issuance;
that Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares; that Fund will sell such shares in compliance
with all applicable federal and state laws; and that, subject to Section 1.2
above, Fund is and will remain registered under and complies and will comply in
all material respects with the 1940 Act. Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by Fund.
3.7 Fund represents and warrants that it will comply with Section 817(h)
of the Code as amended from time to time and with all applicable regulations
promulgated
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thereunder. Fund will notify the Company immediately upon having a reasonable
basis for believing any Portfolio has ceased to comply or might not so comply
and will immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance with Section 817(h) within the grace period
afforded under Treasury Regulation (S)1.817-5.
3.8 Fund represents and warrants that it shall qualify as a Regulated
Investment Company under Subchapter M of the Code, and that it will maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will promptly notify Company upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
3.9 Fund represents and warrants that Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with applicable state
insurance laws of which it is aware, provided Fund shall have no obligation to
conduct an independent investigation, or of which Company has made it aware. If
Fund, acting reasonably and in good faith, determines that such compliance is
not in the best interests of contract owners of all separate accounts investing
in the Fund, Fund shall so inform the Company, and Fund and the Company shall
discuss alternative accommodations. If Fund and the Company cannot reasonably
agree on alternative accommodations, Fund, subject to Section 8.10, may
terminate this Agreement upon thirty (30) days' prior written notice to the
Company. Fund further represents that its operations are and shall at all times
remain in material compliance with the laws of the State of Delaware to the
extent required to perform this Agreement.
3.10 Adviser represents and warrants that it is and will be a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is and will be registered as a broker-dealer with the SEC. Adviser further
represents that it will sell and distribute Fund shares in accordance with all
applicable state and federal laws and regulations, including without limitation
the 1933 Act, the 1934 Act and the 1940 Act. Adviser represents that its
operations are and shall at all times remain in material compliance with the
laws of the State of Delaware to the extent required to perform this Agreement.
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3.11 Adviser represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
3.12 All parties hereto represent and warrant to each other that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of Fund in an amount not less than the amount required
by the applicable rules of the NASD and the federal securities laws. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. All parties hereto agree to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and each agrees to notify promptly the other
parties hereto in the event that such coverage no longer applies.
4. Sales Material and Information
4.1 The Company will furnish, or will cause to be furnished, to the Fund
and Adviser, each piece of sales literature or other promotional material in
which the Fund or Adviser is named, as soon as available prior to its intended
use; provided that with respect to sales literature or other promotional
material required to be filed with the SEC or other regulatory authorities, the
Company shall provide (a) drafts of such material as soon as available prior to
filing with the SEC or other regulatory authorities, (b) material revisions that
affect the Fund or the Adviser as soon as available and (c) final copies when
filed with the SEC or other regulatory authorities. The Fund and the Adviser
will promptly notify the Company in writing of any objections.
4.2 Fund and Adviser will furnish, or will cause to be furnished, to the
Company, each piece of sales literature or other promotional material in which
the Company or the Account is named, as soon as available prior to its intended
use; provided that with respect
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to sales literature or other promotional material required to be filed with the
SEC or other regulatory authorities, Fund shall provide (a) drafts of such
material as soon as available prior to filing with the SEC or other regulatory
authorities, (b) material revisions that affect the Company, the Account or the
Contracts as soon as available and (c) final copies when filed with the SEC or
other regulatory authorities. The Company will promptly notify the Fund and the
Adviser in writing of any objections.
4.3 Fund, the Adviser and their affiliates and agents shall not give any
information or make any representations on behalf of the Company or concerning
the Company, the Account or the Contracts, other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports of the Account or
reports prepared by Company for distribution to Owners, or in sales literature
or other promotional material approved by the Company or its designee, except
with the written permission of the Company. Fund and the Adviser shall promptly
provide the Company with copies of correspondence and reports of inquiries
concerning regulation of the Contracts and Owner complaints respecting the
Contracts.
4.4 The Company and its affiliates and agents shall not give any
information or make any representations on behalf of the Fund or concerning Fund
other than the information or representations contained in a registration
statement or prospectus for the Fund, as such registration statement and
prospectus may be amended or supplemented from tie to time, or in sales
literature or other promotional material approved by the Fund or its designee,
except with the written permission of the Fund.
4.5 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as materials published, or designed for use, in a
newspaper, magazine or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures or other
public media), sales literature (such as any written
8
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communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, or reprints or excerpts of any other advertisements,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any other
material constituting sales literature or advertising under NASD rules, the 1940
Act or the 1933 Act.
4.6 No Party shall use any other Party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior consent of
such Party.
4.7 Fund will promptly provide to Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to Fund or its shares, in final form as filed with the SEC, NASD and
other regulatory authorities. Fund agrees to notify Company of material changes
in the management of the Fund within a reasonable time prior to any such change
becoming effective.
4.8 Company will promptly provide to Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters and all amendments to any of the above, that relate to the Fund and the
Contracts, in final form as filed with the SEC, NASD and other regulatory
authorities. Company agrees to notify Fund of material changes in the management
of the Contracts within a reasonable time prior to any such changes becoming
effective.
4.9 To the extent required by applicable law, including the administrative
requirements of regulatory authorities, or as mutually agreed between Company
and
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Adviser, Company reserves the right to modify any of the Contracts in any
respect whatsoever. Company reserves the right in its sole discretion to suspend
the sale of any of the Contracts, in whole or in part, or to accept or reject
any application for the sale of a Contract. Company agrees to notify the other
Parties promptly upon the occurrence of any event Company believes might
necessitate a material modification or suspension.
4.10 The Parties agree to review the Contracts and the Fund during the
last calendar quarter of each year for possible changes and will make their
personnel reasonably available for this purpose.
5. Fees and Expenses
5.1 Fund or Adviser shall bear the cost of registration and qualification
of Fund's shares; preparation, and filing of Fund's prospectus and registration
statement, proxy materials and reports including postage; preparation of all
other statements and notices relating to Fund or Adviser required by any federal
or state law; payment of all applicable fees, including, without limitation, all
fees due under Rule 24f-2 relating to Fund; all taxes on the issuance or
transfer of Fund's shares. At least annually, the Fund or its designee shall
provide the Company, free of charge, with as many copies of the current
prospectus for the Fund's shares as the Company may reasonably request for
distribution to existing Owners whose Contracts are funded by such shares. The
Fund or its designee shall provide the Company, at the Company's expense, with
as many copies of the current prospectus for the Fund's shares as the Company
may reasonably request for distribution to prospective purchasers of Contracts.
If requested by the Company in lieu, thereof, the Fund or its designee shall
provide such documentation (including a 8-1/2 x 11 "camera ready" copy of the
new prospectus as set in type or, at the request of the Company, as a diskette
in the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the parties hereto once a year (or more frequently if the
prospectus for the Fund's shares or the Contracts is supplemented or amended) to
have the prospectus for the Contracts and the prospectus for the Fund's shares
printed together in one document. The Fund will bear the
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cost of printing the Fund's shares' prospectus portion of such document for
distribution to Owners of existing Contracts and will not bear the expense of
printing the portion of such document relating to the Account or any portion of
such document where used for distribution to prospective purchasers of the
Contracts. In the event that the Company requests that the Fund or its designee
provide the Fund's prospectus in a "camera ready" or diskette format, the Fund
shall be responsible for providing the prospectus in the format in which it is
accustomed to formatting prospectuses and shall bear the expense of providing
the prospectus in such format (e.g. typesetting expenses), and the Company shall
bear the expense of adjusting or changing the format to conform with any of its
prospectuses.
5.2 Company shall see to it that the Contracts are registered under the
1933 Act, and that the Account is registered as a unit investment trust in
accordance with the 1940 Act. Company shall bear the expenses for the costs of
preparation, filing, printing and mailing of Company's prospectus and
registration statement with respect to the Contracts; preparation of all other
statements and notices relating to the Account or the Contracts required by any
federal or state law; expenses for the solicitation and sale of the Contracts,
including all costs of printing and distributing all copies of advertisements,
prospectuses, Statements of Additional Information, proxy materials, and reports
to potential purchasers of the Contracts as required by applicable state and
federal law; payment of all applicable fees, including, without limitation, all
fees due under Rule 24f-2 relating to the Contracts; all costs of drafting,
filing and obtaining approvals of the Contracts in the various states under
applicable insurance laws; filing of annual reports on form N-SAR, and all other
costs associated with ongoing compliance with all such laws and its obligations
hereunder.
6. Indemnification
6.1 Indemnification By Company
6.1(a) Company agrees to indemnify and hold harmless Fund and Adviser and
each of their directors and officers, and each person, if any, who controls any
of them within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for
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purposes of this Section 6.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
Company) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the Contracts
or contained in the Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this paragraph 6.1(a) shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information furnished to
Company by or on behalf of Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company or persons under its
control, with respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Fund or any amendment
thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
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to make the statements therein not misleading, if such a statement or
omission was made in reliance upon and in conformity with information
furnished to Fund by or on behalf of Company for inclusion therein; or
(iv) arise out of, or as a result of, any failure by Company or
persons under its control to provide substantially the services and
furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of, or result from, any material breach of any
representation and/or warranty made by Company or persons under its
control in this Agreement or arise out of or result from any other
material breach of this Agreement by Company or persons under its
control;
as limited by and in accordance with the provisions of sections 6.1(b) and
6.1(c) hereof.
6.1(b) Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to Fund,
whichever is applicable, or to the extent of such Indemnified Party's
negligence.
6.1(c) Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Company of any such claim shall not
relieve Company from any liability which it may have to the Indemnified Party
otherwise than on
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account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, Company shall be entitled to participate, at
its own expense, in the defense of such action. Company also shall be entitled
to assume and to control the defense thereof with counsel reasonably
satisfactory to the Party named in the action. After notice from Company to such
Party of Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
Company will not be liable to such Party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
6.1(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of Fund shares or the Contracts or the operation of Fund.
6.2 Indemnification by Adviser
6.2(a) Adviser agrees to indemnify and hold harmless Company and each of
its directors and officers and each person, if any, who controls Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Adviser) or litigation (including legal and other expenses) to which
the Indemnified Parties may become subject under any statute, regulation, at
common law or otherwise, and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of Fund (or any
amendment or supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this section
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6.2(a) shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to Fund by or on behalf of
Company for use in the registration statement or prospectus for Fund or
in sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Adviser or Fund or persons under
their control, with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished to Company by or on behalf of Fund for inclusion therein; or
(iv) arise out of, or as a result of, any failure by Adviser, Fund
or persons under their control to provide substantially the services and
furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Adviser, Fund or persons under
their control in this Agreement or arise out of or result from
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any other material breach of this Agreement by Adviser, Fund or persons
under their control;
as limited by and in accordance with the provisions of Sections 6.2(b) and
6.2(c) hereof.
6.2(b) Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to Company
or the Account, whichever is applicable, or to the extent of such Indemnified
Party's negligence.
6.2(c) Adviser shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Adviser in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Adviser of any such claim shall not
relieve Adviser from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Adviser will be entitled to
participate, at its own expense, in the defense thereof. Adviser also shall be
entitled to assume and to control the defense thereof with counsel reasonably
satisfactory to the Party named in the action. After notice from Adviser to such
Party of Adviser's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
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6.2(d) The Indemnified Parties will promptly notify Adviser of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
7. Potential Conflicts
7.1 The Parties acknowledge that the Fund has filed an application with
the SEC to request an order (the "Exemptive Order") granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Fund shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and to plans that qualify to purchase share of the Fund
under Section 817(h) of the Code ("Qualified Plans"). It is anticipated that the
Exemptive Order, when and if issued, shall require the Fund and each
Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 7. If the Exemptive Order imposes
conditions on the Company materially different from those provided for in this
Section 7, and the Company elects not to comply with such materially different
conditions the Fund shall have the right to require the Company to redeem the
Account's investment in the Fund. Otherwise, the conditions and undertakings
imposed by the Exemptive Order shall govern this Agreement and the Parties agree
to amend this Agreement consistent therewith. The Fund will not enter into a
participation agreement with any other Participating Insurance Company unless it
imposes the same conditions and undertakings as are imposed on the Company under
Section 2.2 and Section 7. For purposes of this Agreement, a "Participating
Insurance Company" is any insurance company investing in the Fund on its behalf
or on behalf of a separate account including the Company.
7.2 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in
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applicable federal or state insurance, tax, or securities laws or regulations,
or a public ruling, private letter ruling or any similar action by insurance,
tax or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; (f) a decision by
a Participating Insurance Company to disregard the voting instructions of
contract owners; or (g) if applicable, a decision by a Qualified Plan to
disregard the voting instructions of plan participants. The Board shall promptly
inform the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
7.3 The Company will report any potential or existing conflicts to the
Board. The Company will assist the Board in carrying out its duties in this
regard by providing the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever Owner voting instructions
are disregarded by the Company. These responsibilities will be carried out with
a view only to the interests of the Owners.
7.4 If a majority of the Board or a majority of its disinterested trustees
determines that a material irreconcilable conflict exists, affecting the
Company, the Company shall, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested
trustees), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including: (a) withdrawing the assets
allocable to the Account from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, which may include another Portfolio of
the Fund, or another investment company; (b) submitting the question whether
such segregation should be implemented to a vote of all affected Owners and, as
appropriate, segregating the assets of any appropriate group (i.e. variable
annuity or variable life insurance contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected Owners the option of making such a change; and (c) establishing a
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new registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of the Company's decision to
disregard Owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, the Company may be required, at the
election of the Fund, to withdraw the Account's investment in such Fund, and no
charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Owners.
For purposes of this Section 7.4, a majority of the disinterested members
of the Board shall determine whether any proposed action adequately remedies any
irreconcilable material conflict but in no event will the Fund or the Adviser
(or any other investment adviser of the Fund) be required to establish a new
funding medium for any Contract. Further, the Company shall not be required by
this Section 7.4 to establish a new funding medium for the Contracts if an offer
to do so has been declined by vote of a majority of Owners materially adversely
affected by the irreconcilable material conflict.
7.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to the Company.
7.6 No less than annually, the Company shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed and shared funding on
terms and conditions materially different from those contained in the Exemptive
Order, the Fund and the Participating Insurance Companies, as appropriate, shall
take steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
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8. Term and Termination
8.1 The initial term of this Agreement shall be from the effective date of
the Fund's registration statement through the second anniversary of such date.
Unless terminated upon thirty (30) days' prior written notice to the other
Party, this Agreement shall thereafter automatically renew from year to year,
provided that any Party may terminate this Agreement without cause following the
initial term upon six (6) months' advance written notice to the other.
8.2 Notwithstanding any other provision of this Agreement, Adviser or the
Fund may terminate this Agreement for cause on not less than thirty (30) days'
prior written notice to the Company, unless Company has cured such cause within
thirty (30) days of receiving such notice, for any material breach by Company of
any representation, warranty, covenant or obligation hereunder.
8.3 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to Adviser and Fund unless Adviser or Fund has cured such cause
within thirty (30) days of receiving such notice, for any material breach by
Adviser or Fund of any representation, warranty, covenant or obligation
hereunder.
8.4 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Adviser with
respect to any Portfolio based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the requirements of the
Contracts.
8.5 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Adviser with
respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company.
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8.6 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Adviser with
respect to any Portfolio in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify.
8.7 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Adviser with
respect to any Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Paragraph 3.7.
8.8 Notwithstanding any other provision of this Agreement, Fund or Adviser
may terminate this Agreement by written notice to the Company, if either one or
both shall determine, in their sole judgment exercised in good faith, that the
Company has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity, or if formal proceedings against Company
have been instituted by the NASD, SEC or any state securities or insurance
department or any other regulatory body regarding Company's duties under this
Agreement or related to the sale of the Contracts, the operation of the Account
or the purchase of Fund shares; provided, however, that the Fund determines in
its sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of Company to
perform its obligations under this Agreement.
8.9 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Adviser, if the
Company shall determine, in its sole judgment exercised in good faith, that
either the Fund or the Adviser has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity, or if formal
proceedings against Fund or Adviser have been instituted by the
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NASD, SEC or any state securities or insurance department or any other
regulatory body; provided, however, that Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of Fund or Adviser to perform its
obligations under this Agreement.
8.10 Notwithstanding the termination of its obligation to make shares
available to the Company but subject to the rights and duties of the Fund's
Board as described in Section 1.2 above, the Fund shall continue to make Fund
shares available to the extent necessary to permit Owners in effect on the
effective date of such termination (hereinafter referred to as "Existing
Contracts") to reallocate investments in the Fund, redeem investments in the
Fund and/or invest in the Fund upon the making of additional purchase payments
under the Existing Contracts. Existing Contracts shall not include Non-Complying
Contracts, if any. In the event that the Fund terminates this Agreement, the
Fund shall promptly notify the Company whether the Fund is electing to make Fund
shares available after termination for Non-Complying Contracts (or a class
thereof). In determining whether to make Fund shares available for such Non-
Complying Contracts (or a class thereof), the Trust shall act in good faith
giving due consideration to the interests of Owners of such Non-Complying
Contracts (or a class thereof). For purposes of this Section 8.10, "Non-
Complying Contracts" are those Contracts that are not registered, issued, sold
or administered in accordance with applicable federal and/or state law.
8.11 The Company may withdraw the Account's investment in the Fund or a
Portfolio only: (i) as necessary to facilitate Owner requests; (ii) upon a
determination by a majority of the Board, or a majority of disinterested
trustees, that an irreconcilable material conflict exists among the interests of
(x) owners of contracts of all separate accounts investing in the Fund or (y)
the interests of the Participating Insurance Companies; (iii) upon requisite
vote of the Owners having an interest in the affected Portfolio to substitute
the shares of another investment company for Fund shares in accordance with the
terms of the Contracts; (iv) as required by state and/or federal laws or
regulations or judicial or other
22
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legal precedent of general application; or (v) as permitted by an order of the
SEC pursuant to Section 26(b) of the 1940 Act.
9. Notices
Any notice shall be deemed sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to Fund or Advisor:
Jay C. Nadel, Principal
Weiss, Peck & Greer, L.L.C.
One New York Plaza
New York, New York 10004
If to Company:
Michael Lane
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
With a copy to:
Earl W. Baucom
Chief Financial Officer
Providian Life and Health Insurance Company
Valley Forge, Pennsylvania 19493
10. Miscellaneous
10.1 The captions in this Agreement are included for convenience of
reference only and in no way affect the construction or effect of any provisions
hereof.
10.2 If any portion of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
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10.4 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance and securities regulators) and shall permit such authorities and
each party reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement.
10.5 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.6 Subject to the requirements of legal process and regulatory
authority, the Fund and Adviser shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by the Company hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the Company until such time as it may come into the public
domain.
10.7 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
10.8 In any dispute arising hereunder, each party waives its right to
demand a trial by jury and hereby consents to a bench trial of all such
disputes.
10.9 The terms of this Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of New York; provided,
however, that all performances rendered hereunder shall be subject to compliance
with all applicable state and federal laws and regulations.
10.10 Sections 6 and 8.10 hereof shall survive termination of this
Agreement.
10.11 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the trustees or officers of the Fund
or any Portfolio shall be personally liable hereunder. No Portfolio shall be
liable for the liabilities of any other Portfolio. All persons dealing with the
Fund or a Portfolio must look solely to the property
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of the Fund or that Portfolio, respectively, for enforcement of any claims
against the Fund or that Portfolio. It is also understood that each of the
Portfolios shall be deemed to be entering into a separate Agreement with the
Company so that it is as if each of the Portfolios had signed a separate
Agreement with the Company and that a single document is being signed simply to
facilitate the execution and administration of the Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date first set forth above.
Company:
PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY
/s/ Michael F. Lane
By: _____________________________
Michael F. Lane
Name: _____________________________
Vice President
Title: _____________________________
Fund:
TOMORROW FUNDS RETIREMENT TRUST, on behalf
of the Portfolios listed on Schedule A hereto,
severally and not jointly
/s/ Jay C. Nadel
By: _____________________________
Jay C. Nadel
Name: _____________________________
Executive Vice President
Title: _____________________________
Adviser:
WEISS, PECK & GREER, L.L.C.
/s/ Jay C. Nadel
By: _____________________________
Jay C. Nadel
Name: _____________________________
Principal
Title: _____________________________
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SCHEDULE A
Core Large Cap Stock Fund
Core Small Cap Stock Fund
<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 report dated April 21, 1995, with respect to the financial statements
of Providian Life and Health Insurance Company (formerly National Home Life
Assurance Company) Separate Account V - Advisor's Edge and the statutory-basis
financial statements of Providian Life and Health Insurance Company in Post
Effective Amendment No. 3 to the Registration Statement (Form N-4 No. 33-80958)
and related Prospectus of Providian Life and Health Insurance Company Separate
Account V - Advisor's Edge.
Louisville, Kentucky
November 15, 1995
