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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 17
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 17
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 .FEDERATED'S CORPORATE BOND
.DFA LARGE VALUE PORTFOLIO FUND
.DFA INTERNATIONAL VALUE .FEDERATED'S U.S.
PORTFOLIO GOVERNMENT BOND FUND
.DFA INTERNATIONAL SMALL .MONTGOMERY GROWTH PORTFOLIO
PORTFOLIO .MONTGOMERY EMERGING MARKETS
.DFA SHORT-TERM FIXED PORTFOLIO
PORTFOLIO .WANGER U.S. SMALL CAP ADVISOR
.DFA GLOBAL BOND PORTFOLIO .WANGER INTERNATIONAL SMALL CAP
.FEDERATED'S EQUITY GROWTH ADVISOR
AND INCOME FUND .WEISS, PECK & GREER CORE LARGE-
.FEDERATED'S UTILITY FUND CAP STOCK PORTFOLIO
.FEDERATED'S PRIME MONEY .WEISS, PECK & GREER CORE SMALL-
FUND CAP STOCK PORTFOLIO
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 February 1, 1996
fm-0989
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
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
The Montgomery Funds III................................................... 13
Wanger Advisors Trust...................................................... 13
Tomorrow Funds Retirement Trust............................................ 13
The Portfolios............................................................. 13
CONTRACT FEATURES.......................................................... 16
Right to Cancel Period................................................... 16
Contract Application and Purchase Payments............................... 16
Purchasing by Wire....................................................... 17
Allocation of Purchase Payments.......................................... 17
Charges and Deductions................................................... 17
Accumulated Value........................................................ 19
Exchanges Among the Portfolios........................................... 19
Full and Partial Withdrawals............................................. 20
Systematic Withdrawal Option............................................. 20
Dollar Cost Averaging Option............................................. 21
IRS-Required Distributions............................................... 21
Minimum Balance Requirement.............................................. 22
Designation of an Annuitant's Beneficiary................................ 22
Death of Annuitant Prior to Annuity Date................................. 22
Annuity Date............................................................. 23
Lump Sum Payment Option.................................................. 23
Annuity Payment Options.................................................. 23
Deferment of Payment..................................................... 24
FEDERAL TAX CONSIDERATIONS................................................. 24
GENERAL INFORMATION........................................................ 29
APPENDIX A--The General Account............................................ A-1
</TABLE>
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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
3
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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) The Montgomery Funds
III (advised by Montgomery Asset Management, L.P.), (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 17 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 Montgomery Variable Series: Growth Fund (the
"Montgomery Growth Portfolio") and the Montgomery Variable Series: Emerging
Markets Fund (the "Montgomery Emerging Markets Portfolio") of The Montgomery
Funds III; 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.
4
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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 17 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.
5
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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 17
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 24
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 17 Subaccounts of the
Separate Account and/or the General Account Guaranteed Options. The Subaccounts
in turn invest exclusively in the following 17 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 Montgomery Growth Portfolio, the Montgomery
Emerging Markets 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
6
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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 16
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 16
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
17, 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 22
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 17
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 20
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 17). 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 17.
<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.
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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%
Montgomery Growth Portfolio**.................. 1.00% 0.25% 1.25%
Montgomery Emerging Markets Portfolio**........ 1.25% 0.50% 1.75%
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 figures above are based on estimated expenses for fiscal year 1996 (as
a percentage of each Portfolio's average net assets after fee waiver and/or
expense reimbursement). 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: 1.00%, 0.56%, and 1.56%, respectively, for the
Montgomery Growth Portfolio and 1.25%, 0.95%, and 2.20%, respectively, for
the Montgomery Emerging Markets 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
Montgomery Growth Portfolio................................ $22.27 $68.44
Montgomery Emerging Markets Portfolio...................... $27.28 $83.52
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 17 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>
THE MONTGOMERY FUNDS III (ADVISED BY MONTGOMERY ASSET MANAGEMENT, L.P.)
The Montgomery Funds III (the "Montgomery Fund"), an open-end management
investment company, was organized as a Delaware business trust in 1994 and is
registered under the 1940 Act. The Montgomery Fund consists of two
professionally managed investment portfolios available as part of The Advisor's
Edge: the Montgomery Growth Portfolio and the Montgomery Emerging Markets
Portfolio. Montgomery Asset Management, L.P. ("MAM"), a limited partner of
Montgomery Asset Management, Inc., was organized as a California limited
partnership in 1990 and is the Montgomery Fund's investment advisor. MAM has
general oversight responsibility for the investment advisory services provided
to the Montgomery Fund. In addition, MAM 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.
MONTGOMERY VARIABLE SERIES: GROWTH FUND ("MONTGOMERY GROWTH PORTFOLIO")
The investment objective of the Montgomery Growth Portfolio is capital
appreciation, which, under normal conditions it seeks by investing at least 65%
of its total assets in the equity securities of domestic companies. The
Portfolio emphasizes investments in common stocks but also invests in other
types of equity securities. In addition to capital appreciation, the Portfolio
emphasizes value.
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND ("MONTGOMERY EMERGING MARKETS
PORTFOLIO")
The investment objective of the Montgomery Emerging Markets Portfolio is
capital appreciation, which, under normal conditions it seeks by investing at
least 65% of its total assets in equity securities of companies in countries
having emerging markets. For these purposes, the Portfolio defines an emerging
market country as having an economy that is or would be considered by the World
Bank or the United Nations to be emerging or developing. The Portfolio invests
primarily in common stock but may also invest in other types of equity
securities, and in certain types of debt securities issued by the governments
of emerging market countries that are or may be eligible for conversion into
investments in emerging market companies under debt conversion programs
sponsored by such governments.
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.
15
<PAGE>
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.
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
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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 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
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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.
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 state assesses a Premium Tax
on all initial and additional Purchase Payments:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
South Dakota................................ 1.25%
</TABLE>
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
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<PAGE>
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 24.) Based upon these expectations, no
charge is currently being made to the Separate Account for corporate federal
income taxes that may be attributable to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for 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.
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<PAGE>
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.
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 24.)
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 24.)
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.
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<PAGE>
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 24 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 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.
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<PAGE>
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);
(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
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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
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.
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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;
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
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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 26, 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.
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
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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 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.
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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 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
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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.
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
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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.
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
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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.
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 & Johnson, LLP 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.
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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>
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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.
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The Market Value Adjustment ("MVA") Factor for the Five-Year Guaranteed Index
Rate Option will be as follows:
N (B - E)
-- X -------
12 1 + E
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
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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.
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