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As Filed With The Securities And Exchange Commission On December 31, 1996
Registration No. 33-80958
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 5
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
(Formerly National Home Life Assurance Company Separate Account V)
(Exact Name of Registrant)
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(Formerly National Home Life Assurance Company)
(Name of Depositor)
20 Moores Road
Frazer, Pennsylvania 19355
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number (800) 523-7900
Kimberly A. Scouller, Esquire
Providian Life and Health Insurance Company
400 West Market Street
P.O. Box 32830
Louisville, Kentucky 40232
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esquire
Ann B. Furman, Esquire
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Offering:
As soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[x] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[_] On ________________, pursuant to paragraph (b)(1)(v) of Rule 485.
[_] 60 Days after filing pursuant to paragraph (a)(1) of Rule 485.
[_] On ________________, pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
registered an indefinite amount of securities being offered. Registrant filed
the Rule 24f-2 notice for the fiscal year ended December 31, 1995, on February
27, 1996.
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This post-effective amendment shall not supercede or effect this Registration
Statement as it applies to Providian Advisor's Edge Variable Annuity.
<PAGE>
PURSUANT TO RULE 481
Showing Location in Part A (Prospectus) and Part B
(Statement of Additional Information) of Registration
Statement of Information Required by Form N-4
<TABLE>
<CAPTION>
PART A
Item of
Form N-4 Prospectus Caption
- -------- ------------------
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1. Cover Page................................................ Cover Page
2. Definitions............................................... GLOSSARY
3. Synopsis.................................................. HIGHLIGHTS; FEE TABLE; Performance Measures
4. Condensed Financial Information........................... Not Applicable
5. General Description of Registrant, Depositor, and
Portfolio Companies....................................... Providian Life and Health Insurance Company,
Providian Life and Health Insurance Company
Separate Account V; Providian Series Trust;
The Portfolios; Voting Rights
6. Deductions................................................ Charges and Deductions; FEDERAL TAX CONSIDERATIONS;
FEE TABLE
7. General Description of Variable Annuity Contracts......... CONTRACT FEATURES; Distribution-at-Death Rules;
Voting Rights; Allocation of Purchase Payments;
Exchanges Among the Portfolios; Additions,
Deletions, or Substitutions of Investments
8. Annuity Period............................................ Annuity Payment Options
9. Death Benefit............................................. Death of Annuitant Prior to Annuity Date
10. Purchases and Contract Value.............................. Contract Purchase and Purchase Payments;
Accumulated Value
11. Redemptions............................................... Full and Partial Withdrawals; Annuity Payment
Options; Right to Cancel Period
12. Taxes..................................................... FEDERAL TAX CONSIDERATIONS
13. Legal Proceedings......................................... Part B: Legal Proceedings
14. Table of Contents of the Statement of Additional
Information............................................... Table of Contents of PGA Retirement Annuity
Statement of Additional Information
PART B
Item of Statement of Additional
Form N-4 Information Caution
- --------....................................................... -----------------------
15. Cover Page................................................ Cover Page
16. Table of Contents......................................... Table of Contents
17. General Information and History........................... THE COMPANY
18. Services.................................................. Part A: Auditors; Part B: SAFEKEEPING OF
ACCOUNT ASSETS; DISTRIBUTION OF THE CONTRACTS
19. Purchase of Securities Being Offered...................... DISTRIBUTION OF THE CONTRACTS; Exchanges
20. Underwriters.............................................. DISTRIBUTION OF THE CONTRACTS
21. Calculation of Performance Data........................... PERFORMANCE INFORMATION
22. Annuity Payments.......................................... Computations of Annuity Income Payments
23. Financial Statements...................................... FINANCIAL STATEMENTS
</TABLE>
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
PROSPECTUS
FOR THE
PGA RETIREMENT ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The PGA Retirement 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 5
investment company Portfolios. 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 $3,000.
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) plus a 5 day grace period to allow for mail
delivery during which you may cancel your investment in the Contract.
Your Net Purchase Payments for the Contract may be allocated among 5
Subaccounts of Providian Life and Health Insurance Company's Separate Account
V. Assets of each Subaccount are invested in one of the following Portfolios:
n CAPITAL PRESERVATION PORTFOLIO
n INCOME ORIENTED PORTFOLIO
n GROWTH AND INCOME PORTFOLIO
n CAPITAL GROWTH PORTFOLIO
n MAXIMUM APPRECIATION PORTFOLIO
Depending upon the state of issue and provisions of your Contract, your
initial Net Purchase Payment(s), when your Contract is issued, either will be
(i) invested in a sixth Subaccount, the Money Market Fund, during your Right
to Cancel Period or (ii) invested immediately in your chosen Portfolio(s).
(The Money Market Fund and the Portfolios are collectively referred to as
"Portfolios").
The Contract's Accumulated Value varies with the investment performance of the
Portfolio(s) you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals 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% federal tax penalty (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 the
Portfolios. Please read the Prospectus carefully and retain it 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 , 1997
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TABLE OF CONTENTS
<TABLE>
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PAGE
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GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 6
FEE TABLE.................................................................. 8
Financial Statements....................................................... 9
Performance Measures....................................................... 9
Additional Performance Measures............................................ 10
Yield and Effective Yield.................................................. 10
The Company and the Separate Account....................................... 11
Providian Series Trust..................................................... 11
The Portfolios............................................................. 11
The Money Market Fund...................................................... 12
CONTRACT FEATURES.......................................................... 12
Right to Cancel Period................................................... 12
Contract Purchase and Purchase Payments.................................. 12
Purchasing by Wire....................................................... 13
Allocation of Purchase Payments.......................................... 13
Charges and Deductions................................................... 13
Accumulated Value........................................................ 15
Exchanges Among the Portfolios........................................... 15
Full and Partial Withdrawals............................................. 16
Systematic Withdrawal Option............................................. 16
IRS-Required Distributions............................................... 17
Minimum Balance Requirement.............................................. 17
Designation of an Annuitant's Beneficiary................................ 17
Death of Annuitant Prior to Annuity Date................................. 18
Annuity Date............................................................. 18
Lump Sum Payment Option.................................................. 18
Annuity Payment Options.................................................. 18
Deferment of Payment..................................................... 19
FEDERAL TAX CONSIDERATIONS................................................. 20
GENERAL INFORMATION........................................................ 23
</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
ending 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 ), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page ), 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 ).
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. 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.
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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.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount.
General Account - The account which contains all of our assets other than
those held in our separate accounts.
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 Trust. The Trust currently
offers 6 series in the PGA Retirement Annuity: the Capital Preservation
Portfolio, the Income Oriented Portfolio, the Growth and Income Portfolio, the
Capital Growth Portfolio, the Maximum Appreciation Portfolio, and the Money
Market Fund (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/Fund.
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 $3,000 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 $500 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.
Qualified Contract - An annuity contract as defined under Sections 403(b) and
408(b) of the Internal Revenue Code of 1986, as amended (the "Code").
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 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 Portfolios.
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Surrender Value - The Accumulated Value less any Premium Taxes incurred but
not yet deducted.
Trust - The Providian Series Trust.
Underlying Funds - Four series of the Trust in which the Portfolios, other
than the Money Market Fund, invest. The four series are the High Quality Stock
Fund, Fixed Income Fund, International Active Fund, and Money Market Fund.
Valuation Period - The performance of your Contract is measured by using the
Accumulation Unit Value. This value is calculated at the close of each
Business Day. 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 ).
PGA RETIREMENT ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in 5
investment company Portfolios. 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 Portfolio(s). The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract.
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 .)
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 5 Subaccounts of the
Separate Account. The Subaccounts in turn invest exclusively in the following
5 Portfolios offered by the Trust: the Capital Preservation Portfolio, the
Income Oriented Portfolio, the Growth and Income Portfolio, the Capital Growth
Portfolio, and the Maximum Appreciation Portfolio. In certain states, your
investment will be invested in the Money Market Fund during the Right to
Cancel Period. The assets of each Portfolio are separate. Each Portfolio has
distinct investment objectives and policies as described in the prospectus for
the Portfolios. (See page .)
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in
the Contract. 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.
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. The Annuitant may not be older than age 75.
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, you will need to provide the necessary information
to us in a customer order form. You will need to select an Annuitant. The
Annuitant may not be older than age 75 at the time the Contract is issued. The
minimum initial Purchase Payment is $3,000 for Non-Qualified Contracts, and
$2,000 for Qualified Contracts (or $50
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monthly by payroll deduction for Qualified Contracts). Subsequent Purchase
Payments must be at least $500 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. (See page .)
ALLOCATION OF PURCHASE PAYMENTS
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Money Market Fund until the
expiration of the Right to Cancel Period of 10 days (30 or more days in some
instances, as specified in your Contract) plus a 5-day grace period to allow
for mail delivery, and then invested according to your initial allocation
instructions.
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in the
Portfolio(s) you selected 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. 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. (See
page .)
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) plus a 5 day grace period to
allow for mail delivery, during which you may cancel your investment in the
Contract. To cancel your investment, please return your Contract to us. When
we receive the Contract, (1) if the state of issue of your Contract is CA, GA,
ID, LA, MI, MO, NE, NH, NC, OK, OR, SC, UT, VA or WV, then for any amount of
your initial Purchase Payment(s) invested in the Money Market Fund, 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,
and (2) for any amount of your initial Purchase Payment(s) invested in the
Portfolio(s) 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. (See page .)
EXCHANGES
You may make unlimited Exchanges among the Portfolios, provided you maintain a
minimum balance of $1,000 in each Subaccount 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 below $1,000, or that remaining amount will be
transferred to your other Subaccounts on a pro rata basis. (See also "Charges
and Deductions," page .)
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 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
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 ending 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. (See page .)
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
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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 Portfolio(s) selected. (See page .)
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 .55%. 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, as well as portions of the management, advisory and other fees,
which reflect the costs of operating the Portfolios. (See page .)
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% federal tax penalty (and a portion
thereof may be subject to ordinary income taxes). (See page .)
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 ). 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 Portfolios. For a complete discussion of Contract
costs and expenses, see "Charges and Deductions," page .
<TABLE>
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CONTRACTOWNER TRANSACTION EXPENSES
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
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge....................................... .55%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .70%
</TABLE>
PORTFOLIO ANNUAL EXPENSES
Except for the Money Market Fund, the Portfolios will operate at a zero
expense level during the first three years of operations. However, while those
Portfolios are expected to operate without expenses, including management
fees, Contract Owners in those Portfolios bear indirectly the expenses of the
Underlying Funds in which those Portfolios invest. The following chart
illustrates the indirect expense ratio that each Portfolio, except the Money
Market Fund, is
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estimated to incur based on certain allocations among the Underlying Funds.
Except as may be indicated, the figures below are based on estimated expenses
for the first fiscal year of operation (as a percentage of each such
Portfolio's average net assets after fee waiver and/or expense reimbursement).
<TABLE>
<CAPTION>
TOTAL
PORTFOLIO
ANNUAL
EXPENSES
---------
<S> <C>
Capital Preservation Portfolio.................................. 0.77%*
Income Oriented Portfolio....................................... 0.89%*
Growth and Income Portfolio..................................... 0.90%*
Capital Growth Portfolio........................................ 0.94%*
Maximum Appreciation Portfolio.................................. 0.96%*
</TABLE>
* These numbers are based on an agreement by Providian Investment Advisors,
Inc. (the "Adviser") to limit the other expenses of each Underlying Fund
to 0.25% during the first three years of operations. In the absence of
this agreement and the agreement that the Portfolio will operate at a
zero expense level during the first three years of operations, it is
estimated that the total Portfolio annual expenses would have been as
follows: Capital Preservation Portfolio 4.40%; Income Oriented Portfolio
4.30%; Growth and Income Portfolio 4.19%; Capital Growth Portfolio 4.23%;
and Maximum Appreciation Portfolio 4.66%.
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 continue the Contract or withdraw the
entire value of your Contract at the end of the applicable period as a lump
sum or under one of the Contract's Annuity Payment Options.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
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Capital Preservation Portfolio............................. $22.22 $67.99
Income Oriented Portfolio.................................. $23.47 $71.80
Growth and Income Portfolio................................ $23.60 $72.17
Capital Growth Portfolio................................... $23.85 $72.93
Maximum Appreciation Portfolio............................. $24.10 $73.69
</TABLE>
The Annual Contract Fee in these examples is estimated and reflects a
percentage equal to the total amount of fees collected during a calendar year
divided by the total average net assets of the Portfolios during the same
calendar year. The fee is assumed to remain the same in each year of the above
periods. (With respect to partial year periods, if any, in the examples, the
Annual Contract Fee is pro-rated to reflect only the applicable portion of the
partial year period.) 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.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company (as well as
the Independent Auditors' Report thereon) are contained in the Statement of
Additional Information. No financial statements are included for the Separate
Account because, as of the date of this Prospectus, the Subaccounts of the
Separate Account offered by the PGA Retirement Annuity had not commenced
operations, and consequently had no assets or liabilities.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Money Market Fund, 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.
9
<PAGE>
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 and Subaccount's yield and total return, and a list of the indexes
and other benchmarks used in evaluating a Portfolio's and Subaccount's
performance.
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, including Total Return Year-to-Date with respect to certain
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"), 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.
YIELD AND EFFECTIVE YIELD
From time to time a Portfolio may advertise its yield and total return
investment performance. For each Subaccount 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.
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, including Morningstar, Inc. Performance figures will be calculated
in accordance with standardized methods established by each reporting service.
10
<PAGE>
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 $26.8 billion as of December 31, 1995.
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 6 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Trust. 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.
PROVIDIAN SERIES TRUST
The Trust is a diversified investment company presently consisting of 9
separate series each having different investment objectives and policies. This
Contract offers 6 series of shares, each a professionally managed investment
Portfolio. Except for the Money Market Fund, each Portfolio seeks to achieve
its objective by investing in a number of other series offered by the Trust.
The Money Market Fund is available only for the purposes of depositing and
holding initial purchase payments during the Right to Cancel Period for the
Contracts issued in certain states. The Adviser has retained Federated
Advisers to serve as sub-adviser to the Money Market Fund and Atlanta Capital
Management Company, L.L.C. ("Atlanta Capital") to serve as sub-adviser for the
other Portfolios. Subject to the supervision and direction of the Board of
Trustees of the Trust, Atlanta Capital determines how each of its Portfolio's
assets will be invested in the Underlying Funds. Atlanta Capital receives a
fee, which is paid by the Adviser and is a percentage of the annual net asset
value of the Underlying Funds in which Atlanta Capital serves as sub-adviser
and the Portfolios invest. The advisory fee is deducted automatically from the
assets of the Underlying Funds, and is therefore paid indirectly by the
Portfolios. Similarly, Federated Advisers receives a fee, which is paid by the
Adviser and is a percentage of the annual net asset value of the Money Market
Fund.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUS)
For more information concerning the risks associated with each Portfolio's
investments, please refer to the prospectus for the Portfolios.
THE CAPITAL PRESERVATION PORTFOLIO-seeks high current income with low
volatility of principal.
THE INCOME ORIENTED PORTFOLIO-seeks income and, secondarily, long term growth
of capital.
11
<PAGE>
THE GROWTH AND INCOME PORTFOLIO-seeks growth of capital and income.
THE CAPITAL GROWTH PORTFOLIO-seeks long term growth of capital and,
secondarily, current income.
THE MAXIMUM APPRECIATION PORTFOLIO-seeks capital appreciation.
THE MONEY MARKET FUND-seeks current income, a stable share price, and daily
liquidity. The Money Market Fund invests in corporate, bank, and government
instruments that present minimal credit risk. AN INVESTMENT IN THE MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN
BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET
VALUE OF $1.00 PER SHARE.
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 Portfolios. THE
PORTFOLIOS' PROSPECTUS SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may, in the future, 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 Portfolios 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
Portfolios 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)
plus a 5 day grace period to allow for mail delivery. 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. 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, OR, SC, UT, VA or WV, then
for any amount of your initial Purchase Payment(s) invested in the Money
Market Fund, 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, and (2) for any amount of your initial Purchase
Payment(s) invested in the Portfolio(s) 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.
CONTRACT PURCHASE AND PURCHASE PAYMENTS
If you wish to purchase a Contract, you should complete the customer order
form and forward it and the initial Purchase Payment to such address as the
Company may from time to time designate. If you wish to make personal delivery
by hand or courier to the Company of the customer order form and the initial
Purchase Payment (rather than through the mail), you 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 $3,000 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). To
obtain a customer order form, please call our Administrative Offices at 1-800-
866-6007.
12
<PAGE>
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within 2 Business Days after receipt of the customer
order form and the initial Purchase Payment in good order. The Company
reserves the right to reject any customer order form or initial Purchase
Payment. Following issuance, the Contract will be mailed to you along with a
Contract acknowledgment form, which you should complete, sign and return in
accordance with its instructions. Please note that until the Company receives
the acknowledgment form signed by the Owner and any Joint Owner, the Owner and
any Joint Owner must obtain a signature guarantee on their written signed
request in order to exercise any rights under the Contract.
If the initial Purchase Payment cannot be credited within 5 Business Days
because the customer order form is incomplete, we will contact the applicant,
explain the reason for the delay and will refund the initial Purchase Payment,
unless the applicant instructs us to retain the initial Purchase Payment and
credit it as soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity
Date, as long as the Annuitant is living. Additional Purchase Payments must be
for at least $500 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 decide how your Net Purchase Payments will be allocated. You may allocate
each Net Purchase Payment to one of the Portfolios by sending us the
appropriate Company form or by complying with other designated Company
procedures. If an additional Net Purchase Payment is not accompanied by
allocation instructions, it will be allocated to the same Portfolio(s) as your
prior Net Purchase Payments are invested at that time, unless otherwise
directed by you in writing in advance.
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Money Market Fund until the
expiration of the Right to Cancel Period of 10 days (30 or more days in some
instances, as set forth in your Contract) plus a 5-day grace period to allow
for mail delivery, and then invested according to your initial allocation
instructions.
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in your
Portfolio(s) 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.
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts.
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 .55% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to the Company surplus and will be used for any lawful purpose,
including any shortfall on the costs of distributing the Contracts.
13
<PAGE>
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.
The Annual Contract Fee is deducted proportionately from the Subaccounts. For
any Contract with amounts allocated to the Subaccounts, the $30 fee is
assessed per Contract, not per Portfolio chosen. The Annual Contract Fee will
be deducted from each Subaccount on each Contract Anniversary and upon
surrender, on a pro rata basis based on the number of months that have passed
since the last anniversary date. 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, provided that after an Exchange no Portfolio 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 AND TO TRANSACTION OR BALANCE REQUIREMENTS
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 or with a waiver or modification of certain minimum or maximum purchase
and transaction amounts or balance requirements. 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 or waiver or
modification of transaction or balance requirements be permitted where such
reduction, elimination, waiver or modification 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 on Non-Qualified Contracts:
<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
14
<PAGE>
against the Accumulated Value if the Contract Owner chooses an Annuity Payment
Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
PERCENTAGE PERCENTAGE
---------- -------------
<S> <C> <C>
Alabama.......................................... 1.00% 1.00%
California....................................... 0.50% 2.35%
District of Columbia............................. 2.25% 2.25%
Kansas........................................... 0.00% 2.00%
Kentucky......................................... 2.00% 2.00%
Maine............................................ 0.00% 2.00%
Nevada........................................... 0.00% 3.50%
West Virginia.................................... 1.00% 1.00%
Wyoming.......................................... 0.00% 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 .) 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 the Trust'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)
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, and (v) 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. Requests for Exchanges, received by mail or by telephone,
prior to the close of the New York Stock Exchange (generally 4:00 P.M. Eastern
time) are processed at the close of business that same day. Requests received
after the close of the New York Stock Exchange are processed the next Business
Day. If you experience difficulty in making a telephone Exchange your Exchange
request may be made by regular or express mail. It will be processed on the
date received.
To take advantage of the privilege of initiating transactions by telephone,
you must first elect the privilege by completing the appropriate section of
the Contract acknowledgment form, which you will receive with your Contract.
You may also complete 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 or the appropriate section of the Contract acknowledgment form.
15
<PAGE>
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. The Company, the Adviser, the Trust,
the Portfolios, Atlanta Capital, and Federated Advisers shall not be liable
for any loss, cost or expense for action on telephone instructions that are
believed to be genuine in accordance with these procedures.
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,
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 .)
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. Your proceeds will normally be processed and mailed to
you within 2 Business Days after the receipt of the request but in no event
will it be later than 7 calendar days, subject to postponement in certain
circumstances. (See "Deferment of Payment," page .)
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 .)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of
the Contract (taking into account any prior withdrawals) may be more or less
than the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the
day and at the frequency indicated on the Systematic Withdrawal Request Form.
The start date for the systematic withdrawals must be between the first and
twenty-eighth day of the month. You may discontinue the Systematic Withdrawal
Option at any time by notifying us in writing at least 30 days prior to your
next scheduled withdrawal date.
Each systematic withdrawal is subject to federal income taxes on the taxable
portion, and may be subject to a 10% federal tax penalty if you are under age
59 1/2. You may elect to have federal income taxes withheld from each
withdrawal at a 10% rate on the Systematic Withdrawal Request Form. For a
discussion of the tax consequences of withdrawals, see "Federal Tax
Considerations" on page of the Prospectus. You may wish to consult a tax
adviser regarding any tax consequences that might result prior to electing the
Systematic Withdrawal Option.
16
<PAGE>
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.
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 5 years after date
of death or be paid under an Annuity Payment Option under which payments will
begin within 1 year of the Contract Owner's death and will be made for the
life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason
of death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
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 customer order form. 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.
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DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and
is payable upon receipt of due Proof of Death of the Annuitant as well as
proof that the Annuitant died prior to the Annuity Date. Upon receipt of this
proof, the Death Benefit will be paid within seven days, or as soon thereafter
as the Company has sufficient information about the Annuitant's Beneficiary to
make the payment. The Annuitant's Beneficiary may receive the amount payable
in a lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the
sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period ending 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, 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, 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.
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Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $3,000, 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 7 days from the date the election becomes effective
except that the Company may be permitted to defer such payment if: (1)
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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.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax adviser regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation
is made regarding the likelihood of continuation of the federal income tax
laws, the Treasury regulations or the current interpretations by the Internal
Revenue Service. We reserve the right to make uniform changes in the Contract
to the extent necessary to continue to qualify the Contract as an annuity. For
a discussion of federal income taxes as they relate to the Funds, please see
the accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons," page , and
"Diversification Standards," page .)
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
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affecting the timing and payment under the Contracts; (ii) attributable to the
taxpayer's becoming disabled within the meaning of Code Section 72(m)(7);
(iii) that are part of a series of substantially equal periodic payments made
at least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi)
under an immediate annuity contract as defined in Section 72(u)(4); or (vii)
that are purchased by an employer on termination of certain types of qualified
plans and that are held by the employer until the employee separates from
service. Other tax penalties may apply to certain distributions as well as to
certain contributions and other transactions under Qualified Contracts.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the year
in which the modification occurs will be increased by an amount (as determined
under Treasury Regulations) equal to the tax that would have been imposed but
for item (iii) above, plus interest for the deferral period. The foregoing
rule applies if the modification takes place (a) before the close of the
period that is five years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Separate Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of the Separate
Account are reinvested and taken into account in determining the Accumulated
Value. Under existing federal income tax law, the Separate Account's
investment income, including realized net capital gains, is not taxed to the
Company. The Company reserves the right to make a deduction for taxes should
they be imposed with respect to such items in the future.
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract, a Contract must generally
provide the following two distribution rules: (a) if any Contract Owner dies
on or after the Annuity Date and before the entire interest in the Contract
has been distributed, the remaining portion of such interest must be
distributed at least as quickly as the method in effect on the Contract
Owner's death; and (b) if any Contract Owner dies before the Annuity Date, the
entire interest must generally be distributed within five years after the date
of death. To the extent such interest is payable to the Owner's Designated
Beneficiary, however, such interests may be annuitized over the life of that
Owner's Designated Beneficiary or over a period not extending beyond the life
expectancy of that Owner's Designated Beneficiary, so long as distributions
commence within one year after the Contract Owner's death. If the Owner's
Designated Beneficiary is the spouse of the Contract Owner, the Contract
(together with the deferral on tax on the accrued and future income
thereunder) may be continued unchanged in the name of the spouse as Contract
Owner. The term Owner's Designated Beneficiary 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).
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CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. If an employer is the nominal owner of a Contract, and the
beneficial owners are employees, then the Contract is not treated as being
held by a non-natural person. The rule also does not apply where the Contract
is acquired by the estate of a decedent, where the Contract is a qualified
funding asset for structured settlements, where the Contract is purchased on
behalf of an employee upon termination of a qualified plan, and in the case of
an immediate annuity.
ASSIGNMENTS
A transfer of ownership of a Contract, a collateral assignment or the
designation of an Annuitant or other beneficiary who is not also the Contract
Owner may result in tax consequences to the Contract Owner, Annuitant or
beneficiary that are not discussed herein. A Contract Owner contemplating such
a transfer or assignment of a Contract should contact a tax adviser 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 adviser 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), one year after the 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. The Company believes that under this rule,
the Separate Account must be tested for compliance with the percentage
limitations by "looking through" both the shares in Portfolios that are held
by the Separate Account and the shares in the Underlying Funds that are held
by the Portfolios to the investment assets held by the Underlying Funds. 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.
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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, or of another
registered, open-end management investment company, if the shares of the
Portfolios are no longer available for investment, or, if in the Company's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
New portfolios may be established at the discretion of the Company. Any new
portfolios will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be
necessary or appropriate to reflect such substitution or change. Furthermore,
if deemed to be in the best interests of persons having voting rights under
the Contracts, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be deregistered
under the 1940 Act in the event such registration is no longer required, or
may be combined with one or more other separate accounts.
VOTING RIGHTS
The Trust does not hold regular meetings of shareholders. The Trustees of the
Trust 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 the Trust in accordance with instructions received
from persons having voting interests in the corresponding Portfolio. Trust
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
Portfolio. Voting instructions will be solicited by written communication
prior to such meeting in accordance with procedures established by the Trust.
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 PGA RETIREMENT ANNUITY
VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 2
Computation of Variable Annuity Income Payments......................... 2
Exchanges............................................................... 3
Exceptions to Charges and to Transaction or Balance Requirements........ 3
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 5
30-Day Yield for Subaccounts............................................ 5
Standardized Average Annual Total Return for Subaccounts................ 5
ADDITIONAL PERFORMANCE MEASURES........................................... 7
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return..................................................... 7
Non-Standardized Total Return Year-to-Date.............................. 8
Non-Standardized One Year Return........................................ 9
PERFORMANCE COMPARISONS................................................... 10
SAFEKEEPING OF ACCOUNT ASSETS............................................. 12
THE COMPANY............................................................... 12
STATE REGULATION.......................................................... 12
RECORDS AND REPORTS....................................................... 13
DISTRIBUTION OF THE CONTRACTS............................................. 13
LEGAL PROCEEDINGS......................................................... 13
OTHER INFORMATION......................................................... 13
FINANCIAL STATEMENTS...................................................... 13
</TABLE>
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
FOR THE PGA RETIREMENT ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the PGA Retirement Annuity contract (the "Contract")
offered by Providian Life and Health Insurance Company (the "Company"). You may
obtain a copy of the Prospectus dated __________, 1997, by calling 1-800-866-
6007 or by writing to our Administrative Offices, P.O. Box 32700, Louisville,
Kentucky 40232. Terms used in the current Prospectus for the Contract are
incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
____________, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
THE CONTRACT
Computation of Variable Annuity Income Payments
Exchanges
Exceptions to Charges and to Transaction or Balance Requirements
GENERAL MATTERS
Non-Participating
Misstatement of Age or Sex
Assignment
Annuity Data
Annual Statement
Incontestability
Ownership
PERFORMANCE INFORMATION
30-Day Yield for Subaccounts
Standardized Average Annual Total Return for Subaccounts
ADDITIONAL PERFORMANCE MEASURES
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return
Non-Standardized Total Return Year-to-Date
Non-Standardized One Year Return
PERFORMANCE COMPARISONS
SAFEKEEPING OF ACCOUNT ASSETS
THE COMPANY
STATE REGULATION
RECORDS AND REPORTS
DISTRIBUTION OF THE CONTRACT
LEGAL PROCEEDINGS
OTHER INFORMATION
FINANCIAL STATEMENTS
<PAGE>
THE CONTRACT
In order to supplement the description in the Prospectus, the following provides
additional information about the Contract which may be of interest to Contract
Owners.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent the
guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the Accumulated
Value (or the portion of the Accumulated Value used to provide variable
payments) is applied under the Annuity Tables contained in your Contract
corresponding to the Annuity Payment Option elected by the Contract Owner and
based on an assumed interest rate of 4%. This will produce a dollar amount which
is the first monthly payment. The Company may, at the time annuity income
payments are computed, offer more favorable rates in lieu of the guaranteed
rates specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set forth
below) is made. After the first Annuity Payment, the dollar amount of each
subsequent Annuity Payment is equal to the number of Annuity Units multiplied by
the Annuity Unit Value for the Subaccount ten Business Days before the due date
of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date money was first deposited in that Subaccount. The Annuity Unit Value
for any subsequent Business Day is equal to (a) times (b) times (c), where
(a) = the Annuity Unit Value for the immediately preceding Business Day;
(b) = the Net Investment Factor for the day; and
(c) = the investment result adjustment factor (.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in
determining the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a) = any increase or decrease in the value of the Subaccount due to
investment results;
(b) = a daily charge assessed at an annual rate of .55% for the mortality
and expense risks assumed by the Company; and
<PAGE>
(c) = a daily charge for the cost of administering the Contract
corresponding to an annual charge of .15% of the value of the
Subaccount, plus the Annual Contract Fee.
The Annuity Tables contained in the Contract are based on the 1983 Table "A"
Mortality Table projected for mortality improvement to the year 2000 using
Projection Scale G and an interest rate of 4% a year; except that in
Massachusetts and Montana, the Annuity Tables contained in the Contract are
based on a 60% female/40% male blending of the above for all annuitants of
either gender.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of another Subaccount
then available. The written request for an Exchange must be received by us,
however, at least 10 Business Days prior to the first payment date on which the
Exchange is to take effect. This Exchange shall result in the same dollar amount
as that of the Annuity Payment on the date of Exchange (the "Exchange Date").
Each year you may make an unlimited number of free Exchanges between
Subaccounts. A $15 fee is currently imposed for Exchanges in excess of twelve
per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, the
Company will establish a value for the current Subaccounts by multiplying the
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing the
Annuity Unit Value of the new Subaccounts into the value previously calculated
for the existing Subaccounts.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The Company may reduce administrative charges or other deductions from Purchase
Payments in certain situations where the Company expects to realize significant
economies of scale or other economic benefits with respect to the sale of
Contracts. The Company may reduce administrative charges and fees on sales to
directors, officers and bona fide full-time employees (and their spouses and
minor children) of the Company, its ultimate parent company, Providian
Corporation, and their affiliates and certain sales representatives for the
Contract. The Company also may also grant waivers or modifications of certain
minimum or maximum purchase or transaction amounts or balance requirements in
these circumstances.
Notwithstanding the above, any variations in administrative charges or other
deductions from Purchase Payments or in the minimum or maximum transaction or
balance requirements shall reflect differences in costs or services and shall
not be unfairly discriminatory against any person.
2
<PAGE>
GENERAL MATTERS
NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the Contracts
will not share in the profits or surplus earnings of the Company.
MISSTATEMENT OF AGE OR SEX
The Company may require proof of age and sex before making Annuity Payments. If
the Annuitant's stated age, sex or both in the Contract are incorrect, the
Company will change the annuity benefits payable to those benefits which the
Purchase Payments would have purchased for the correct age and sex. In the case
of correction of the stated age and/or sex after payments have commenced, the
Company will (1) in the case of underpayment, pay the full amount due with the
next payment; (2) in the case of overpayment, deduct the amount due from one or
more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the validity
of any assignment. No assignment will be recognized until the Company receives
the appropriate Company form notifying the Company of such assignment. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum notwithstanding any settlement agreement in effect at
the time assignment was executed. The Company shall not be liable as to any
payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and any Purchase
Payments, charges, Exchanges or withdrawals during the year. This report will
also give you any other information required by law or regulation. You may ask
for an annual statement like this at any time. We will also send you quarterly
statements. However, we reserve the right to discontinue quarterly statements at
any time.
3
<PAGE>
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
OWNERSHIP
The Contract Owner on the Contract Date is the Annuitant, unless otherwise
specified in the application. The Contract Owner may specify a new Contract
Owner by sending us the appropriate Company form at any time thereafter. The
term Contract Owner also includes any person named as a Joint Owner. A Joint
Owner shares ownership in all respects with the Contract Owner. During the
Annuitant's lifetime, all rights and privileges under this Contract may be
exercised solely by the Contract Owner. Upon the death of the Contract Owner,
ownership is retained by the surviving Joint Owner or passes to the Owner's
Designated Beneficiary, if one has been designated by the Contract Owner. If no
Owner's Designated Beneficiary has been selected or if no Owner's Designated
Beneficiary is living, then the Owner's Designated Beneficiary is the Contract
Owner's estate. From time to time the Company may require proof that the
Contract Owner is still living.
PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and the total
return of all Subaccounts, may appear in reports or promotional literature to
current or prospective Contract Owners.
Where applicable in calculating performance information, the Annual Contract Fee
is reflected as a percentage equal to the total amount of fees collected during
a calendar year divided by the total average net assets of the Portfolios during
the same calendar year. The fee is assumed to remain the same in each year of
the applicable period. (With respect to partial year periods, if any, in the
examples, the Annual Contract Fee is pro-rated to reflect only the applicable
portion of the partial year period.)
30-DAY YIELD FOR SUBACCOUNTS
Quotations of yield for the Subaccounts will be based on all investment income
per Unit earned during a particular 30-day period, less expenses accrued during
the period ("net investment income"), and will be computed by dividing net
investment income by the value of a Unit on the last day of the period,
according to the following formula:
a - b
YIELD = 2[(----- + 1)/6/ - 1]
cd
4
<PAGE>
Where:
[a] = the net investment income earned during the period by the Portfolio
attributable to shares owned by a Subaccount;
[b] = the expenses accrued for the period (net of reimbursement);
[c] = the average daily number of Units outstanding during the period;
and
[d] = the maximum offering price per Accumulation Unit on the last day of
the period.
Yield on the Subaccount is earned from the increase in net asset value of shares
of the Portfolio in which the Subaccount invests and from dividends declared and
paid by the Portfolio, which are automatically reinvested in shares of the
Portfolio.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR SUBACCOUNTS
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes, if
any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the life of the Subaccount), calculated pursuant to the formula:
P(1 + T)/n/ = ERV
Where:
[P] = a hypothetical initial Purchase Payment of $1,000;
[T] = an average annual total return;
[n] = the number of years; and
5
<PAGE>
[ERV] = the ending redeemable value of a hypothetical $1,000 Purchase
Payment made at the beginning of the period (or fractional
portion thereof).
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the percentage
change in the value of an Accumulation Unit) for one or more Subaccounts with
respect to one or more periods. The Company may also show Non-Standardized
Actual Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year, the
Non-Standardized Actual Total Return and the Non-Standardized Actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Actual Average Annual Total
Return is the effective annual compounded rate of return for the periods stated.
Because the value of an Accumulation Unit reflects the Separate Account and
Portfolio expenses (See Fee Table in the Prospectus), the Non-Standardized
Actual Total Return and Non-Standardized Actual Average Annual Total Return also
reflect these expenses. However, these percentages do not reflect the Annual
Contract Fee or Premium Taxes (if any), which if included would reduce the
percentages reported by the Company.
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
The Company may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more Subaccounts with
respect to one or more non-standardized base periods commencing at the beginning
of a calendar year. Total Return YTD figures reflect the percentage change in
actual Accumulation Unit Values during the relevant period. These percentages
reflect a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Fee or Premium Taxes (if any), which if included
would reduce the percentages reported by the Company.
NON-STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts with respect to one or more non-standardized base periods commencing
at the beginning of a calendar year (or date of inception, if during the
relevant year) and ending at the end of such calendar year. One Year Return
figures reflect the percentage change in actual Accumulation Unit Values during
the relevant period. These percentages reflect a deduction for the Separate
Account and Portfolio expenses, but do not include the Annual Contract Fee or
Premium Taxes (if any), which if included would reduce the percentages reported
by the Company.
6
<PAGE>
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of Providian Life and Health Insurance Company as
determined by one or more of the ratings services listed below, or other
recognized rating services. Reports and promotional literature may also contain
other information including (i) the ranking of any Subaccount derived from
rankings of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other person who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of tax-
deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Each Subaccount's performance depends on, among other things, the performance of
the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
. the relative amount of the Portfolio's cash flow.
From time to time, we may advertise the performance of the Subaccounts and the
underlying Portfolios as compared to similar funds or portfolios using certain
indexes, reporting services and financial publications, and we may advertise
rankings or ratings issued by certain services and/or other institutions. These
may include, but are not limited to, the following:
7
<PAGE>
. DOW JONES INDUSTRIAL AVERAGE ("DJIA"), an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by Dow Jones & Company, it is cited as a
principal indicator of market conditions.
. STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, which can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's index assumes reinvestments of
all dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
into the Standard & Poor's figures.
. LIPPER ANALYTICAL SERVICES, INC., a reporting service that ranks funds
in various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest rate
is used. Rates are subject to change at any time specified by the
institution.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, an index comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly issued,
fixed-rate, non-convertible domestic bonds of companies in industry, public
utilities and finance. The average maturity of these bonds approximates
nine years. Tracked by Shearson Lehman, Inc., the index calculates total
returns for one month, three month, twelve month, and ten year periods and
year-to-date.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (LONG-TERM) INDEX, an index composed
of the same types of issues as defined above.
8
<PAGE>
However, the average maturity of the bonds included in this index
approximates 22 years.
. SHEARSON LEHMAN GOVERNMENT INDEX, an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
. MORNINGSTAR, INC., an independent rating service that publishes the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
. MONEY, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money ranking
in advertising and sales literature.
. STANDARD & POOR'S UTILITY INDEX, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price
of the stocks. The index also provides figures for changes in price from
the beginning of the year to date, and for a twelve month period.
. DOW JONES UTILITY INDEX, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The
index also provides the highs and lows for each of the past five years.
. THE CONSUMER PRICE INDEX, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the Funds'
Prospectuses to obtain a more complete view of each Portfolio's performance
before investing. Of course, when comparing each Portfolio's performance to any
index, conditions such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons. Unmanaged indexes may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
When comparing funds using reporting services, or total return and yield, or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
9
<PAGE>
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Company. The Assets are
kept physically segregated and held separate and apart from the Company's
General Account assets. The General Account contains all of the assets of the
Company. Records are maintained of all purchases and redemptions of eligible
Portfolio shares held by each of the Subaccounts and the General Account.
THE COMPANY
Providian Corporation owns a 4% interest in the Company and 61%, 15% and 20%
interests, respectively, are held by Commonwealth Life Insurance Company,
Peoples Security Life Insurance Company and Capital Liberty, L.P. Commonwealth
Life Insurance Company and Peoples Security Life Insurance Company are each
wholly-owned by Providian Corporation. A 5% interest in Capital Liberty, L.P. is
owned by Providian Corporation, which is the general partner, and 76% and 19%
interests, respectively, are held by two limited partners, Commonwealth Life
Insurance Company and Peoples Security Life Insurance Company, which are both
wholly-owned by Providian Corporation.
STATE REGULATION
The Company is a stock life insurance company organized under the laws of
Missouri, and is subject to regulation by the Missouri State Department of
Insurance. An annual statement is filed with the Missouri Commissioner of
Insurance on or before March 1st of each year covering the operations and
reporting on the financial condition of the Company as of December 31st of the
preceding calendar year. Periodically, the Missouri Commissioner of Insurance
examines the financial condition of the Company, including the liabilities and
reserves of the Separate Account.
In addition, the Company is subject to the insurance laws and regulations of all
the states where it is licensed to operate. The availability of certain contract
rights and provisions depends on state approval and/or filing and review
processes. Where required by state law or regulation, the Contracts will be
modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained by
the Company or by its Administrator. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under that
Act or by any other applicable law or regulation.
10
<PAGE>
DISTRIBUTION OF THE CONTRACTS
Providian Securities Corporation ("PSC"), the principal underwriter of the
Contracts, is ultimately a wholly owned subsidiary of Providian Corporation. PSC
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
The Contracts are offered to members and employees of the Professional Golfers
Association of America and to certain key employees of golf courses through
persons or entities licensed under the federal securities laws and state
insurance laws that have generally entered into agreements with PSC. The
offering of the Contracts is continuous and PSC does not anticipate
discontinuing the offering of the Contracts. However, PSC does reserve the right
to discontinue the offering of the Contracts.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The Subaccounts described in the Contract Prospectus have not yet commenced
operations, and consequently have no assets or liabilities. Accordingly, no
financial statements are included for the Separate Account in this Statement of
Additional Information. The audited statutory-basis financial statements of the
Company for the periods ended December 31, 1995 and 1994, respectively,
including the Reports of Independent Auditors thereon, which are included in
this Statement of Additional Information, should be considered only as bearing
on the ability of the Company to meet its obligations under the Contracts. They
should not be considered as bearing on the investment performance of the assets
to be held in the Separate Account.
11
<PAGE>
Statutory-Basis Financial Statements
Providian Life and Health Insurance Company
Years ended December 31, 1995 and 1994
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Statutory-Basis Financial Statements
Years ended December 31, 1995 and 1994
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors.................................. 1
Audited Financial Statements
Balance Sheets (Statutory-Basis)................................ 3
Statements of Operations (Statutory-Basis)...................... 4
Statements of Changes in Capital and Surplus (Statutory-Basis).. 5
Statements of Cash Flows (Statutory-Basis)...................... 6
Notes to Financial Statements................................... 7
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors
Providian Life and Health Insurance Company
We have audited the accompanying statutory-basis balance sheets of Providian
Life and Health Insurance Company (formerly National Home Life Assurance
Company) as of December 31, 1995 and 1994, and the related statutory-basis
statements of operations, changes in capital and surplus, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits of the accompanying statutory-basis financial statements
in accordance with generally accepted auditing standards; however, as discussed
in the following paragraph, we were not engaged to determine or audit the
effects of the variances between statutory accounting practices and generally
accepted accounting principles. Generally accepted auditing standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion on the accompanying statutory-
basis financial statements.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Missouri Department of Insurance. When
statutory-basis financial statements are presented for purposes other than for
filing with a regulatory agency, generally accepted auditing standards require
that the auditors' report on such statements indicate whether they are presented
in conformity with generally accepted accounting principles. The accounting
practices used by the Company vary from generally accepted accounting principles
as explained in Note 1, and the Company has not determined the effects of those
variances. Accordingly, we were not engaged to audit, and we did not audit, the
effects of those variances. Since the accompanying financial statements do not
purport to be a presentation in conformity with generally accepted accounting
principles, we are not in a position to express, and we do not express, an
opinion on the financial statements referred to above as to fair presentation of
financial
1
<PAGE>
position, results of operations, or cash flows in conformity with generally
accepted accounting principles.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the financial position of Providian
Life and Health Insurance Company at December 31, 1995 and 1994, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with accounting practices prescribed or
permitted by the Missouri Department of Insurance.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 23, 1996
2
<PAGE>
Providian Life and Health Insurance Company
Balance Sheets (Statutory-Basis)
<TABLE>
<CAPTION>
DECEMBER 31
1995 1994
------------------------
ADMITTED ASSETS (In Thousands)
<S> <C> <C>
Cash and invested assets:
Bonds $ 4,410,245 $4,307,195
Preferred stocks 27,719 72,508
Common stocks 408,298 297,906
Mortgage loans 2,756,891 2,013,375
Real estate 25,065 27,152
Policy loans 158,774 151,132
Cash and short-term investments 205,266 113,531
Other invested assets 125,052 127,620
------------------------
Total cash and invested assets 8,117,310 7,110,419
Deferred and uncollected premiums 45,849 43,340
Accrued investment income 99,001 93,066
Other receivables 50,942 154,174
Federal income taxes recoverable from parent 3,725 17,459
Other admitted assets 4,581 4,054
Separate account assets 1,741,564 1,114,835
------------------------
Total admitted assets $10,062,972 $8,537,347
========================
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate policy reserves $ 5,608,366 $4,908,607
Policy and contract claims 37,947 35,302
Policyholder contract deposits 1,519,204 1,494,308
Other policy or contract liabilities 318,911 300,304
Amounts due to affiliates 18,882 18,665
Asset valuation reserve 89,486 47,482
Interest maintenance reserve - 15,868
Accrued expenses and other liabilities 152,118 71,764
Separate account liabilities 1,741,564 1,114,835
------------------------
Total liabilities 9,486,478 8,007,135
Capital and surplus:
Common stock, $11 par value, 1,145,000 and 230,000 shares
authorized, issued and outstanding in 1995 and 1994,
respectively 12,595 2,530
Preferred stock, $11 par value, 2,290,000 shares
authorized, issued and outstanding in 1995 25,190 -
Paid-in surplus 2,583 41,838
Unassigned surplus 536,126 485,844
------------------------
Total capital and surplus 576,494 530,212
------------------------
Total liabilities and capital and surplus $10,062,972 $8,537,347
========================
</TABLE>
See accompanying notes.
3
<PAGE>
Providian Life and Health Insurance Company
Statements of Operations (Statutory--Basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------------------------------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Premiums earned:
Life and annuity $ 264,020 $ 181,143 $ 258,471
Accident and health 159,550 162,742 173,168
Annuity fund deposits 803,537 1,223,232 1,073,837
Net investment income 570,009 472,691 451,417
Commissions and expense allowances
on reinsurance ceded 7,164 16,186 17,230
Amortization of interest maintenance reserve 4,798 7,476 3,006
Other income 455 10 103
------------------------------------
1,809,533 2,063,480 1,977,232
Benefits and expenses:
Accident and health, life and other benefits 1,323,996 986,601 1,033,991
(Decrease) increase in aggregate policy reserves (142,665) 613,678 328,584
Commissions and expense allowances
on reinsurance assumed 66,988 54,690 61,658
General insurance and other expenses 140,495 120,830 139,103
Reinsurance recapture fee 66,672 - -
Net transfers to separate accounts 316,222 162,973 314,382
------------------------------------
1,771,708 1,938,772 1,877,718
Net gain from operations before federal
income taxes 37,825 124,708 99,514
Federal income tax expense 18,222 50,351 46,866
------------------------------------
Net gain from operations 19,603 74,357 52,648
Net realized capital losses, net of income taxes
(1995--($14,998); 1994--($7,311); 1993--
$25,997) and excluding gains (losses)
transferred to the interest maintenance reserve
(1995--($21,644); 1994--($6,786); 1993--
$28,652) (609) (15,867) (2,547)
------------------------------------
Net income $ 18,994 $ 58,490 $ 50,101
=====================================
</TABLE>
See accompanying notes.
4
<PAGE>
Providian Life and Health Insurance Company
Statements of Changes in Capital and Surplus (Statutory--Basis)
<TABLE>
<CAPTION>
COMMON PREFERRED PAID-IN UNASSIGNED
STOCK STOCK SURPLUS SURPLUS
--------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balances, January 1, 1993 $ 2,530 $ - $ 41,838 $359,543
Net income - - - 50,101
Change in net unrealized gains
on investments - - - 838
Decrease in nonadmitted assets - - - 1,643
Change in reserves due to
change in valuation basis - - - 6,582
Increase in asset valuation
reserve - - - (6,330)
Prior year federal income tax
adjustment - - - (3,448)
--------------------------------------------
Balances, December 31, 1993 2,530 - 41,838 408,929
Net income - - - 58,490
Change in net unrealized gains
on investments - - - 24,538
Increase in nonadmitted assets - - - (3,283)
Increase in asset valuation
reserve - - - (2,830)
--------------------------------------------
Balances, December 31, 1994 2,530 - 41,838 485,844
Purchase and retirement of
common stock (11) - (3,989) -
Stock split/dividend 10,076 25,190 (35,266) -
Net income - - - 18,994
Change in net unrealized gains
on investments - - - 96,430
Change in reserves due to
change in valuation basis - - - (802)
Prior year federal income tax
adjustment - - - (5,092)
Increase in nonadmitted assets - - - (17,244)
Increase in asset valuation
reserve - - - (42,004)
--------------------------------------------
Balances, December 31, 1995 $12,595 $25,190 $ 2,583 $536,126
============================================
</TABLE>
See accompanying notes.
5
<PAGE>
Providian Life and Health Insurance Company
Statements of Cash Flows (Statutory--Basis)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
-------------------------------------
<S> <C> <C> <C>
(In Thousands)
Cash and short-term investments provided
Operations:
Premiums and annuity fund deposits $1,224,560 $1,574,914 $1,499,353
Net investment income received 564,587 481,560 440,139
Allowances and reserve adjustments received on
reinsurance ceded 7,195 16,168 17,337
Other income received 455 - -
-------------------------------------
1,796,797 2,072,642 1,956,829
Benefits paid 1,320,679 991,357 1,044,195
General insurance and other expenses 197,177 171,197 196,101
Federal income taxes (recovered) paid (10,510) 64,311 28,719
Net increase in policy loans and premium notes 7,283 4,298 11,752
Paid reinsurance reserves and other items 1,305 39 997
Net transfer to separate accounts 327,365 147,516 308,635
-------------------------------------
1,843,299 1,378,718 1,590,399
-------------------------------------
Total cash (applied) provided by operations (46,502) 693,924 366,430
Investments sold, matured or repaid 3,662,934 2,096,056 7,767,911
Other cash provided:
Increase in amounts due to affiliates - 4,402 -
Net increase in broker receivables/payables 114,177 - -
Accounts receivable - other invested assets 83,606 - -
Cash received in reinsurance recapture transaction 30,095 - -
Net cash and short-term investments received from
reinsurance assumed 303,376 - -
Other items 7,764 15,530 50,655
-------------------------------------
Total other cash provided 539,018 19,932 50,655
-------------------------------------
Total cash and short-term investments provided 4,155,450 2,809,912 8,184,996
Cash and short-term investments applied:
Investments acquired 4,029,433 2,533,051 8,244,557
Other cash applied:
Decrease in amounts due to affiliates 15,506 - 23,314
Net decrease in broker receivables/payables - 101,703 -
Accounts receivable - other invested assets - 83,606 -
Redemption of common stock 4,000 - -
Other items 14,776 16,282 38,001
-------------------------------------
Total other cash applied 34,282 201,591 61,315
-------------------------------------
Total cash and short-term investments applied 4,063,715 2,734,642 8,305,872
-------------------------------------
Increase (decrease) in cash and short-term investments 91,735 75,270 (120,876)
Cash and short-term investments:
Beginning of year 113,531 38,261 159,137
-------------------------------------
End of year $ 205,266 $ 113,531 $ 38,261
=====================================
</TABLE>
See accompanying notes.
6
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES
ORGANIZATION
Providian Life and Health Insurance Company (PLH), formerly National Home Life
Assurance Company, is a life and health insurance company domiciled in Missouri.
Prior to the transaction discussed in the following paragraph, PLH was wholly
owned by a limited partnership, Capital Liberty Limited Partnership (CLLP),
consisting of Providian Corporation (PVN) and two of its wholly owned insurance
subsidiaries, Peoples Security Life Insurance Company (PSI) and Commonwealth
Life Insurance Company (CLICO). PLH wholly owns an insurance subsidiary,
Veterans Life Insurance Company (VLIC), which wholly owns an insurance
subsidiary, First Providian Life and Health Insurance Company (FPLH), formerly
National Home Life Assurance Company of New York, and a non-insurance
subsidiary. On December 20, 1995, PLH executed a stock split/dividend whereby
four additional shares of common and ten shares of preferred stock (a total of
916,000 common and 2,290,000 preferred shares) were issued for each existing
share of common stock. CLLP retained the newly issued preferred stock and the
previously held common shares, now representing a 20% interest in PLH, and
distributed the additional common shares to its partners as follows: 174,705
shares (15.2%) to PSI, 698,820 shares (60.7%) to CLICO, and 42,475 shares (4.1%)
to PVN.
NATURE OF OPERATIONS
PLH sells and services life and accident and health insurance products,
primarily utilizing direct response methods, such as television, telephone, mail
and third-party programs to reach low to middle income households nationwide.
PLH also sells and services group and individual accumulation products,
primarily utilizing brokers, fund managers, financial planners, and stock
brokerage firms.
MANAGEMENT'S ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Significant estimates are utilized in the calculation of
benefit reserves and the allowance for uncollectible mortgage loans. It is
reasonably possible that these estimates may change in the near term, thereby
possibly having a material effect on the financial statements.
7
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION
The accompanying financial statements of PLH have been prepared in accordance
with the accounting practices prescribed or permitted by the Missouri Department
of Insurance. Such practices vary from generally accepted accounting principles
(GAAP). The more significant variances from GAAP are as follows:
INVESTMENTS
Investments in bonds and mandatorily redeemable preferred stocks are reported
at amortized cost or fair value based on their National Association of
Insurance Commissioners (NAIC) rating; for GAAP, such fixed maturity
investments are designated at purchase as held-to-maturity, trading or
available-for-sale. Held-to-maturity fixed investments are reported at
amortized cost, and the remaining fixed maturity investments are reported at
fair value with unrealized holding gains and losses reported in operations
for those designated as trading and as a separate component of shareholders'
equity for those designated as available-for-sale.
Fair values of investments in bonds and stocks are generally based on values
specified by the Securities Valuation Office (SVO) of the NAIC, rather than
on values provided by outside broker confirmations or internally calculated
estimates. However, for certain investments, the NAIC does not provide a
value and PLH uses either admitted asset investment amounts (i.e., statement
values) as allowed by the NAIC, fair values provided by outside broker
confirmations or internally calculated estimates. Investments in real estate
are reported net of related obligations rather than on a gross basis. Real
estate owned and occupied by PLH is included in investments rather than
reported as an operating asset, and investment income and operating expense
include amounts representing rent for PLH's occupancy of such real estate.
Changes between cost and admitted asset investment amounts are credited and
charged directly to unassigned surplus rather than to a separate surplus
account.
Valuation allowances are established for mortgage loans based on the
difference between the unpaid loan balance and the estimated fair value of
the underlying real estate when such loans are determined to be in default as
to scheduled payments. Under GAAP, valuation allowances would be established
when PLH determines it is probable that it will be unable to collect all
amounts due (both principal and interest) according to the contractual terms
of the loan agreement. Such allowances are generally based on the estimated
fair value of the underlying real estate (collateral).
8
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
The initial valuation allowance and subsequent changes in the allowance for
mortgage loans are charged or credited directly to unassigned surplus, rather
than being included as a component of earnings as would be required under
GAAP.
Under a formula prescribed by the NAIC, PLH defers the portion of realized
capital gains and losses attributable to changes in the general level of
interest rates on sales of certain liabilities and fixed income investments,
principally bonds and mortgage loans, and amortizes such deferrals into
income on a straight-line basis over the remaining period to maturity based
on groupings of individual liabilities or investments sold. The net
accumulated unamortized balance of such deferrals is reported as an "interest
maintenance reserve" (IMR) in the accompanying balance sheet. Realized gains
and losses are reported in income net of tax and transfers to the IMR. The
"asset valuation reserve" (AVR) is also determined by a NAIC prescribed
formula and is reported as a liability rather than a valuation allowance. The
AVR represents a provision for possible fluctuations in the value of bonds,
equity securities, mortgage loans, real estate and other invested assets.
Changes to the AVR are charged or credited directly to unassigned surplus.
Under GAAP, realized gains and losses are reported in the income statement on
a pretax basis in the period that the asset giving rise to the gain or loss
is sold and direct write-downs are recorded (or valuation allowances are
provided, where appropriate under GAAP) when there has been a decline in
value deemed to be other than temporary, in which case, write-downs (or
provisions) for such declines are charged to income.
SUBSIDIARIES
The accounts and operations of PLH's subsidiaries are not consolidated with
the accounts and operations of PLH as would be required under GAAP.
POLICY ACQUISITION COSTS
Costs of acquiring and renewing business are expensed when incurred. Under
GAAP, acquisition costs related to traditional life insurance, to the extent
recoverable from future policy revenues, are deferred and amortized over the
premium-paying period of the related policies using assumptions consistent
with those used in computing policy benefit reserves. For universal life
insurance and investment-type contracts, to the extent recoverable from
future gross profits, deferred policy acquisition costs are amortized
generally in proportion to the present value of expected gross profits from
surrender charges and investment, mortality and expense margins.
9
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
NONADMITTED ASSETS
Certain assets designated as "nonadmitted," principally agents' debit
balances and furniture and equipment, are excluded from the balance sheets
and are charged directly to unassigned surplus.
PREMIUMS
Revenues for universal life policies and investment-type contracts consist of
the entire premium received and benefits represent the death benefits paid
and the change in policy reserves. Under GAAP, premiums received in excess of
policy charges are not recognized as premium revenue and benefits represent
the excess of benefits paid over the policy account value and interest
credited to the account values.
BENEFIT RESERVES
Certain policy reserves are calculated using prescribed interest and
mortality assumptions rather than on expected experience and actual account
balances as is required under GAAP.
INCOME TAXES
Deferred income taxes are not provided for differences between the financial
statement and the tax bases of assets and liabilities.
The effects of the foregoing variances from GAAP on the accompanying statutory-
basis financial statements have not been determined.
Other significant accounting policies followed in preparing the accompanying
statutory-basis financial statements are as follows:
INVESTMENTS
Bonds, preferred stocks, common stocks, mortgage loans, real estate, short-
term investments and derivative financial instruments are stated at values
prescribed by the NAIC, as follows:
Bonds not backed by other loans are stated at amortized cost using the
interest method.
10
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Loan-backed bonds and structured securities are valued at amortized cost
using the interest method. Anticipated prepayments are considered when
determining the amortization of related discounts or premiums. Prepayment
assumptions are obtained from dealer survey values or internal estimates
and are consistent with the current interest rate and economic
environment. The retrospective adjustment method is used to value such
securities.
Short-term investments include investments with maturities of less than
one year at the date of acquisition. Short-term investments and cash are
carried at cost.
Preferred stocks are carried at cost. In addition, certain bonds and
preferred stocks are carried at the lower of cost (or amortized cost) or
the NAIC designated fair value.
Common stocks are carried at the NAIC designated fair value, except that
investments in unconsolidated subsidiaries and affiliates in which PLH
has an interest of 20 percent or more are carried on the equity basis.
Derivative financial instruments, consisting primarily of interest rate
swap agreements, are valued in accordance with NAIC guidelines, which is
on a basis consistent with the asset or liability being hedged.
Mortgage loans in good standing and policy loans are carried at unpaid
principal balances while statutorily delinquent mortgages are carried at
their unpaid principal balance less the related valuation allowance.
Real estate is carried at the lower of cost (less depreciation for
occupied and investment real estate, generally calculated using the
straight-line method) or net realizable value, and is net of related
obligations, if any.
Bond and other loan interest is credited to income as it accrues. Dividends
on common and preferred stocks are credited to income on ex-dividend dates.
For securities, PLH follows the guidelines of the NAIC for each security on
an individual basis in determining the admitted or nonadmitted status of
accrued income amounts. For interest rate exchange agreements, interest is
credited to income as it accrues. For mortgage loans, PLH's policy is to
accrue investment income due for a maximum of three months from the last
payment date. At December 31, 1995 and 1994, the total amount excluded from
accrued investment income for delinquent mortgage loans was approximately
$314,000 and $4,172,000, respectively.
11
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Net income includes realized gains and losses on investments sold, net of tax
and transfers to the IMR. The cost of investments sold is determined on a
first-in, first-out basis.
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying
financial statements represent funds that are separately administered,
principally for annuity contracts, and for which the contract holder, rather
than PLH, bears the investment risk. Separate account contract holders have
no claim against the assets of the general account of PLH. Separate account
assets are reported at fair value. The operations of the separate accounts
are not included in the accompanying financial statements. Fees charged on
separate account policyholder deposits are included in net transfers to
separate accounts in the accompanying statements of operations.
POLICY RESERVES
Unearned premiums represent the portion of premiums written which are
applicable to the unexpired terms of accident and health policies in force,
calculated principally by the application of monthly pro rata fractions.
Liabilities for unearned premiums are included in aggregate policy reserves.
PLH waives deduction of deferred fractional premiums upon death of insureds.
PLH's policy is not to return any portion of the final premium beyond the
date of death. Surrender values are not promised in excess of the legally
computed reserves. Additional premiums are charged for policies issued on
substandard lives according to underwriting classification. Mean reserves are
determined by computing the regular mean reserve for the plan at the issued
age and holding in addition one-half of the extra premium charged for the
year.
The tabular interest has been determined from the basic data for the
calculation of policy reserves. The tabular less actual reserve released and
the tabular cost have been determined by formula as described in the NAIC
instructions.
12
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
Policy reserves also include single premium and flexible premium annuity
contracts and structured settlement contracts. The single premium and
flexible premium contracts contain surrender charges for the first six to
seven years of the contract. These contract reserves are held at the contract
value that accrues to the policyholder. Structured settlement contracts
contain no surrender charge. Policy reserves on these contracts are
determined based on the expected future cash flows discounted at the
applicable statutorily defined mortality and interest rates. Annual effective
rates credited to these annuity contracts ranged from 4.0 percent to 8.0
percent during 1995.
POLICY AND CONTRACT CLAIMS
Policy and contract claims, principally related to accident and health
policies, include amounts determined on an individual case basis for reported
losses and estimates of incurred but not reported losses developed on the
basis of experience. These estimates are subject to the effects of trends in
claim severity and frequency. Although considerable variability is inherent
in such estimates, management believes that the reserves for claims and claim
expenses are adequate. The methods of making such estimates and establishing
the resulting reserves are continually reviewed and updated, and any
adjustments resulting therefrom are reflected in earnings currently.
POLICYHOLDER CONTRACT DEPOSITS
Policyholder contract deposits is comprised of guaranteed investment
contracts (GICs). The GICs consist of three types. One type is guaranteed as
to principal along with interest guarantees based upon predetermined indices.
The second type guarantees principal and interest, but also includes a
penalty if the contract is surrendered early. The third type guarantees
principal and interest and is non-surrenderable before the fixed maturity
date. Policy reserves on the GICs are determined following the retrospective
deposit method and consist of contract values that accrue to the benefit of
the policyholder. Annual effective rates credited to these GICs ranged from
5.5 percent to 7.8 percent during 1995.
PREMIUMS, BENEFITS AND EXPENSES
For individual and most group life policies, premiums are reported as earned
on the policy/certificate anniversary. For individual and group annuities,
premiums and
13
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
annuity fund deposits are recorded as earned when collected. For individual
and group accident and health policies, premiums are recorded as earned on a
pro rata basis over the coverage period for which the premiums were collected
or due. Benefit claims (including an estimated provision for claims incurred
but not reported), policy reserve changes and expenses are charged to income
as incurred.
REINSURANCE
Reinsurance premiums, benefits and expenses are accounted for in a manner
consistent with that used in accounting for original policies issued and the
terms of the reinsurance contracts. Premiums, benefits, expenses and the
reserves for policy and contract liabilities and unearned premiums are
recorded net of reinsured amounts.
GUARANTY FUND ASSESSMENTS
Periodically, PLH is assessed by various state guaranty funds as part of
those funds' activities to collect funds from solvent insurance companies to
cover certain losses to policyholders that resulted from the insolvency or
rehabilitation of other insurance companies. Each state guaranty fund
operates independently of any other state guaranty fund; as such, the methods
by which assessments are levied against PLH vary from state to state. Also,
some states permit guaranty fund assessments to be partially recovered
through reductions in future premium taxes. At December 31, 1995 and 1994,
PLH has established an estimated liability for guaranty fund assessments for
those insolvencies or rehabilitations that have actually occurred prior to
that date. The estimated liability is determined using preliminary
information received from the various state guaranty funds and the National
Organization of Life and Health Insurance Guaranty Associations. Because
there are many uncertainties regarding the ultimate assessments that will be
assessed against PLH, the ultimate assessments for those insolvencies or
rehabilitations that occurred prior to December 31, 1995 may vary from the
estimated liability included in the accompanying financial statements. The
estimated liability for guaranty fund assessments recorded at December 31,
1995 and 1994 was $11,571,000 and $11,139,000, respectively.
14
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES (CONTINUED)
PERMITTED STATUTORY ACCOUNTING PRACTICES
PLH's statutory-basis financial statements are prepared in accordance with
accounting practices prescribed or permitted by the Missouri Department of
Insurance. "Prescribed" statutory accounting practices include state laws,
regulations, and general administrative rules, as well as a variety of
publications of the NAIC. "Permitted" statutory accounting practices
encompass all accounting practices that are not prescribed; such practices
may differ from state to state, may differ from company to company within a
state, and may change in the future. The NAIC currently is in the process of
recodifying statutory accounting practices, the result of which is expected
to constitute the only source of "prescribed" statutory accounting practices.
Accordingly, that project, which is expected to be completed in 1997, will
likely change, to some extent, prescribed statutory accounting practices, and
may result in changes to the accounting practices that PLH uses to prepare
its statutory-basis financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation.
2. INVESTMENTS
The tables below contain amortized cost (carrying value or statement value) and
fair value information on bonds.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
DECEMBER 31, 1995
U.S. government obligations $ 457,122 $ 9,764 $ 5 $ 466,881
States and political 37,957 1,399 280 39,076
subdivisions
Foreign government 71,821 4,024 34 75,811
obligations*
Corporate and other 2,828,447 93,238 11,053 2,910,632
Foreign corporate* 259,804 14,063 2,223 271,644
Mortgage-backed 755,094 - - 755,094
------------------------------------------------------
$4,410,245 $122,488 $13,595 $4,519,138
======================================================
</TABLE>
15
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
U.S. government obligations $ 280,081 $ 272 $ 16,404 $ 263,949
States and political 60,708 260 4,398 56,570
subdivisions
Foreign government 66,401 120 4,951 61,570
obligations*
Corporate and other 2,754,441 15,388 188,532 2,581,297
Foreign corporate* 259,782 442 20,983 239,241
Mortgage-backed 885,782 3,275 47,803 841,254
----------------------------------------------------
$4,307,195 $19,757 $283,071 $4,043,881
====================================================
</TABLE>
* Substantially all are U.S. dollar denominated.
The amortized cost and fair value of bonds at December 31, 1995, by contractual
maturity, are shown below. Actual maturities may differ from contractual
maturities because certain borrowers may have the right to call or prepay
obligations, sometimes without call or prepayment penalties.
AMORTIZED FAIR
COST VALUE
--------------------------
(In Thousands)
Due in one year or less $ 31,763 $ 31,813
Due after one year through 767,315 772,576
five years
Due after five years through 1,103,712 1,115,424
ten years
Due after ten years 1,752,361 1,844,231
--------------------------
3,655,151 3,764,044
Mortgage-backed securities 755,094 755,094
--------------------------
$4,410,245 $4,519,138
==========================
Proceeds during 1995 and 1994 from sales, maturities and calls of bonds were
$2,842,536,000 and $1,674,690,000, respectively. Gross gains of $60,899,000 and
$28,226,000 and gross losses of $35,199,000 and $37,882,000, in 1995 and 1994,
respectively, were realized on those sales.
16
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The change in unrealized gains and losses on investments in common stocks and on
investments in subsidiaries is credited or charged directly to unassigned
surplus and does not affect net income. The cost and fair value of those
investments at December 31, 1995 and 1994 are as follows:
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------
(In Thousands)
DECEMBER 31, 1995
Common stocks $ 41,619 $ 662 $796 $ 41,485
Subsidiaries 197,949 168,864 - 366,813
---------------------------------------------
$239,568 $169,526 $796 $408,298
=============================================
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------------------------------------------
(In Thousands)
DECEMBER 31, 1994
Common stocks $ 23,713 $ 313 $775 $ 23,251
Subsidiaries 197,949 76,706 - 274,655
---------------------------------------------
$221,662 $ 77,019 $775 $297,906
=============================================
The cost of preferred stocks of unaffiliated companies was $27,719,000 and
$72,508,000 at December 31, 1995 and 1994, respectively, and the related fair
value was $27,199,000 and $61,502,000 at December 31, 1995 and 1994,
respectively. There was no difference between cost and statement value of
preferred stocks at December 31, 1995 and 1994.
Included in investments are securities having admitted asset values of
$4,494,000 at December 31, 1995 which were on deposit with various state
insurance departments to satisfy regulatory requirements.
The carrying value of mortgage loans is net of an allowance for loan losses of
$771,000 and $9,137,000 at December 31, 1995 and 1994, respectively. The maximum
and minimum lending rates for residential mortgage loans made during 1995 were
11.5 percent and 4.9 percent, respectively, while the maximum and minimum
lending rates for
17
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
commercial mortgage loans made during 1995 were 9.6 percent and 7.1 percent,
respectively. The maximum percentage of any one loan to the value of collateral
at the time of the loan, exclusive of insured, guaranteed or purchase money
mortgages was 80 percent. Hazard insurance is required on all properties covered
by mortgage loans at least equal to the excess of the loan over the maximum loan
which would be permitted by law on the land without buildings. As of December
31, 1995, PLH held $1,746,000 of mortgages with interest more than one year
overdue amounting to $215,000. As of December 31, 1995, there were no taxes,
assessments, or other amounts advanced by PLH on account of mortgage loans which
were not included in mortgage loan totals. During 1995, $715,000 of taxes and
maintenance expenses were paid by PLH on property acquired through foreclosure.
During 1995, PLH did not reduce interest rates on any outstanding mortgages.
3. FINANCIAL INSTRUMENTS
PLH utilizes a variety of financial instruments in its asset/liability
management process and to meet its customers' financing needs. The
asset/liability management process focuses on the management of a variety of
risks, including interest rate, market and credit risks. Effective management of
these risks is an important determinant of profitability. Instruments used in
this process and to meet the customers' financing and investing needs include
derivative financial instruments, primarily interest rate swap agreements and
futures contracts, and commitments to extend credit. All of these instruments
involve (to varying degrees) elements of market and credit risks in excess of
the amounts recognized in the accompanying financial statements at a given point
in time. The contract or notional values of all of these instruments reflect the
extent of involvement in the various types of financial instruments.
PLH's exposure to market risk (including interest rate risk) is the risk of
market volatility and potential disruptions in the market which may result in
certain instruments being less valuable. PLH monitors and controls its exposure
to this risk primarily through the use of cash flow stress testing, total
portfolio analysis of net duration levels, a monthly mark-to-market process and
ongoing monitoring of interest rate movements.
PLH's exposure to credit risk is the risk of loss from a counterparty failing to
perform according to the terms of the contract. This exposure
18
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
3. FINANCIAL INSTRUMENTS (CONTINUED)
includes settlement risk (risk that the counterparty defaults after PLH has
delivered funds or securities under the terms of the contract) which results in
an accounting loss and replacement cost risk (cost to replace the contract at
current market rates should the counterparty default prior to the settlement
date). There is no off-balance sheet exposure to credit risk that would result
in an immediate accounting loss (settlement risk) associated with counterparty
non-performance on interest rate swap agreements and futures. Interest rate swap
agreements are subject to replacement cost risk, which equals the cost to
replace those contracts in a net gain position should a counterparty default.
Default by a counterparty would not result in an immediate accounting loss.
These instruments, as well as futures, are subject to market risk, which is the
possibility that future changes in market prices may make the instruments less
valuable. Credit loss exposure resulting from non-performance by a counterparty
for commitments to extend credit is represented by the contractual amounts of
the instruments.
The credit risk on all financial instruments, whether on- or off-balance sheet,
is controlled through an ongoing credit review, approval and monitoring process.
PLH determines, on an individual counterparty basis, the need for collateral or
other security to support financial instruments with credit risk, and
establishes individual and aggregate counterparty exposure limits. In order to
limit exposure associated with counterparty non-performance on interest rate
swap agreements, PLH enters into master netting agreements with its
counterparties. These master netting agreements provide that, upon default of
either party, contracts in gain positions will be offset with contracts in loss
positions and the net gain or loss will be received or paid, respectively.
Assuming every counterparty defaulted, the cost of replacing those interest rate
contracts in a net gain position, after consideration of the aforementioned
master netting agreements, was $51,709,000 and $698,000 at December 31, 1995 and
1994, respectively.
PLH manages interest rate risk through the use of duration analysis. Duration is
a key portfolio management tool and is measured for both assets and liabilities.
For the simplest forms of assets or liabilities, duration is proportional to
their weighted average life, with weights equal to the discounted present value
of estimated cash flows. This methodology causes near-term cash flows to have a
greater proportional weight than cash flows further in the future. For more
complex assets and liabilities with optional cash flows, for example, callable
bonds, mortgage-backed securities, or traditional insurance liabilities,
additional adjustments are made in estimating an effective duration number. PLH
uses
19
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
3. FINANCIAL INSTRUMENTS (CONTINUED)
derivatives as a less costly and less burdensome alternative to restructuring
the underlying cash instruments to manage interest rate risk based upon the
aggregate net duration level of its aggregate portfolio. Information is provided
below for each significant derivative product type.
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payments, without an exchange of the underlying principal
amount. PLH also enters into basis swap agreements where amounts received are
based primarily upon six month or less LIBOR and pays an amount based on either
a short-term Treasury or Prime Rate. The amounts to be paid or received as a
result of these agreements are accrued and recognized in the accompanying
statements of operations through net investment income. Gains or losses realized
on closed or terminated agreements are deferred and amortized as a component of
the IMR.
Futures are contracts which call for the delayed delivery of securities in which
the seller agrees to deliver on a specified future date, a specified instrument
at a specified price. The daily change in fair value of futures contracts is
used to adjust the net duration level of the overall portfolio and is deferred
and amortized as a component of the IMR. The net deferred (loss) gain on these
contracts was $(56,112,000) and $14,707,000 during 1995 and 1994, respectively.
The daily change in fair value for futures used as accounting hedges for
products that provide a return based on the market performance of a designated
index is recognized in the accompanying statement of operations through net
realized investment losses. Margin requirements on futures contracts, equal to
the change in fair value, are usually settled on a daily basis.
20
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
3. FINANCIAL INSTRUMENTS (CONTINUED)
The following table summarizes the activity by notional or contract value in
derivative products for 1995 and 1994:
RECEIVE PAY FIXED/
FIXED/PAY RECEIVE
FLOATING FLOATING BASIS FUTURES
---------------------------------------------
(In Thousands)
Balances, December 31, 1993 $1,395,000 $1,257,000 $56,000 $ 39,000
Additions 1,647,000 - 18,000 4,226,000
Maturities 18,000 - 9,000 -
Terminations 2,325,000 1,257,000 - 3,595,000
---------------------------------------------
Balances, December 31, 1994 699,000 - 65,000 670,000
Additions 623,000 250,000 94,000 1,201,000
Maturities 1,000 - 50,000 -
Terminations - - 44,000 1,821,000
---------------------------------------------
Balances, December 31, 1995 $1,321,000 $ 250,000 $65,000 $ 50,000
=============================================
During 1994, PLH terminated or closed certain interest rate swap agreements
which were accounted for as hedges. The net deferred gains on these agreements
during 1994 were $7,425,000 and are being amortized to investment income over
the expected remaining life of the related investment, generally four to ten
years, as a component of the IMR.
COMMITMENTS
Commitments to extend credit consist of agreements to lend to a customer at some
future time, subject to established contractual conditions. Since it is likely
some commitments may expire or be withdrawn without being fully drawn upon, the
total commitment amounts do not necessarily represent future cash requirements.
PLH evaluates individually each customer's creditworthiness. Collateral may be
obtained, if deemed necessary, based on a credit evaluation of the counterparty.
The collateral may include commercial and/or residential real estate. At
December 31, 1995 and 1994, commitments to extend credit were $85,285,000 and
$359,793,000, respectively.
21
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
3. FINANCIAL INSTRUMENTS (CONTINUED)
CONCENTRATIONS OF CREDIT RISK
PLH limits credit risk by diversifying its investment portfolio among common and
preferred stocks, public bonds, private placement securities, and commercial and
residential mortgage loans. It further diversifies these portfolios between and
within industry sectors, by geography and by property type. Credit risk is also
limited by maintaining stringent underwriting standards and purchasing insurance
protection in certain cases. In addition, PLH establishes credit approval
processes, limits and monitoring procedures on an individual counterparty basis.
As a result, management believes that significant concentrations of credit risk
do not exist.
4. FEDERAL INCOME TAXES
PLH and its subsidiaries (FPLH and VLIC) file a consolidated federal income tax
return. Under a written agreement, PLH and its affiliates allocate the federal
income tax liability among the members of the consolidated return group in the
ratio that each member's separate return tax liability for the year bears to the
sum of the separate return tax liabilities of all members, with current credits
for net operating losses. The final settlement under this agreement is made
after the annual filing of the consolidated U.S. Corporate Income Tax Return.
Income before income taxes differs from taxable income principally due to
differences between the treatment of investments for statutory and tax purposes,
policy acquisition costs, and differences in policy and contract liabilities.
At December 31, 1995, PLH recorded a receivable for federal income taxes of
approximately $3,725,000. The receivable resulted primarily from updated
estimates used in the 1995 and 1994 tax accrual calculations and a tax capital
loss of approximately $28,800,000. The tax capital loss is expected to be
carried back and fully utilized against tax capital gains in the carryback
period.
Included in the statement of changes in capital and surplus are certain
adjustments totaling $5,092,013 at December 31, 1995 relating to the settlement
of the 1991/1992 IRS audit. No adjustments were necessary at December 31, 1994.
At December 31, 1995, accumulated earnings of PLH for federal income tax
purposes included $17,425,000 of "Policyholders' Surplus," a special memorandum
tax account.
22
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
4. FEDERAL INCOME TAXES (CONTINUED)
This memorandum account balance has not been currently taxed, but income taxes
computed at current rates will become payable if this surplus is distributed.
Provisions of the Deficit Reduction Act of 1984 (the "Act") do not permit
further additions to the Policyholders' Surplus account. "Shareholders' Surplus"
is also a special memorandum tax account, and generally represents an
accumulation of taxable income (net of tax thereon) plus the dividends-received
deduction, tax-exempt interest, and certain other special deductions as provided
by the Act. At December 31, 1995, the balance in the Shareholders' Surplus
account amounted to approximately $621,075,000. There is no present intention to
make distributions in excess of Shareholders' Surplus.
5. RELATED PARTY TRANSACTIONS
PLH has entered into an agreement with its affiliates whereby PLH performs
administrative services, management support services, and marketing services for
its affiliates. PLH, as compensation, receives an amount equal to the actual
cost of providing such services. This cost is allocated on a pro rata basis to
each affiliate receiving these services. Amounts received were $68,000,000 in
1995, $44,000,000 in 1994 and $73,300,000 in 1993; such amounts are classified
as reductions of general insurance and other expenses in the accompanying
statements of operations.
On November 1, 1995, PLH executed a Revolving Credit Note with FPLH allowing for
FPLH to borrow from PLH up to $5,000,000. The note is a demand note expiring
November 1, 1996 with interest payable at the prime rate. At December 31, 1995,
there was no outstanding balance. There was no interest earned by PLH during
1995 on this note.
PLH participates in a short-term investment agreement with PVN and other
affiliates which provides for the centralization of short-term investment
operations. PLH retains the right to participate in or withdraw its funds on a
daily basis. PLH had invested $2,400,000 and $21,900,000 in this short-term
agreement as of December 31, 1995 and 1994, respectively.
PLH participates in various benefit plans sponsored by PVN and the related costs
allocated to PLH are not significant.
PLH has 2,290,000 shares of redeemable preferred stock outstanding, all of which
are owned by CLLP. The preferred stock has a par value of $11 per share and a
liquidation value of $240 per share. CLLP is entitled to receive a cumulative
dividend equal to 8 1/2 percent per annum of the liquidation value of the
preferred stock. PLH may redeem all or any portion of the preferred stock at the
liquidation value commencing December 18, 2000.
On December 13, 1995, PLH redeemed 1,000 shares of its common stock held by its
wholly owned subsidiary, VLIC, for $4,000,000.
23
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
On November 8, 1994, PLH made a surplus contribution of $101,000,000
($50,000,000 in cash and $51,000,000 in securities) to VLIC.
Prior to April 1, 1995, PLH was a party to various reinsurance agreements with
VLIC whereby PLH ceded pro rata portions of certain blocks of its life and
health business on a coinsurance basis. The agreements were amended effective
April 1, 1995 whereby PLH recaptured the business. This recapture resulted in
PLH recording $159,169,000 of liabilities related to the business and
$92,497,000 of assets supporting the block of business. The $66,672,000
difference between the liabilities and assets recorded represents a recapture
fee incurred by PLH to compensate VLIC for the present value of the future cash
flows on the business recaptured by PLH.
The following table summarizes the amounts reflected in the statements of
operations from these reinsurance agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1995 1994 1993
--------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income ceded $ 15,049 $ 37,573 $ 37,333
Life and accident and
health benefits ceded (10,582) (28,601) (28,874)
Commissions and expense allowances (6,029) (14,794) (15,926)
on reinsurance ceded
Reserve adjustments on
reinsurance ceded - (2,626) (1,963)
Reinsurance recapture fee 66,672 - -
</TABLE>
PLH entered into two indemnity reinsurance agreements with CLICO in 1987 whereby
PLH assumes 100% of the risks reinsured on all structured settlement policies
issued during 1987 by CLICO. The agreements were amended in 1988 whereby PLH
also assumes 100% of the risks reinsured on all structured settlement, pension
buyout, and single premium immediate annuities issued subsequent to 1987 by
CLICO. The agreements were also amended in 1988 to change the agreements from
indemnity reinsurance to coinsurance. The agreements were also amended in 1992
whereby CLICO recaptured structured settlements issued in 1991 and in the first
five months of
24
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
1992. The following table summarizes the amounts reflected in the statements of
operations from these agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $(66,091) $(23,719) $(76,519)
Annuity benefits assumed 61,307 55,802 52,493
Commissions and expense allowance
on reinsurance assumed 5,291 3,784 6,393
Change in policy reserves assumed 71,056 29,618 81,199
</TABLE>
PLH entered into a reinsurance agreement with CLICO in 1988 on a coinsurance
basis whereby PLH assumes 100% of the risks on all credit life and disability
policies issued prior to January 1, 1989 by CLICO. The agreements were amended
in 1990 whereby PLH also assumes 100% of the risks on all credit life and
disability policies issued between January 1, 1989 and March 31, 1990,
inclusive. The following table summarizes the amounts reflected in the
statements of operations from this agreement:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $ 11 $ 10 $ (117)
Life and accident and health
benefits assumed 176 431 1,277
Commissions and expense allowances (6) (19) (104)
on reinsurance assumed
Change in policy reserves assumed (345) (668) (1,701)
</TABLE>
PLH entered into a reinsurance agreement with CLICO in 1990 on a coinsurance
basis whereby PLH assumes 100% of the risk on certain guaranteed investment
contracts issued by CLICO. The agreement was amended in 1995 to provide CLICO
with profit sharing on the assumed business of up to 20 basis points per year
of the account value.
25
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
The amount of profit sharing paid to CLICO in 1995 was $1,589,000. In addition,
the agreement was amended to provide CLICO with reimbursement of extraordinary
expenses related to the assumed policies, including guaranty fund assessment
payments. There were no expense reimbursements made to CLICO in 1995. The
following table summarizes amounts reflected in the statements of operations
from this reinsurance agreement:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $(289,272) $(698,338) $(207,489)
Life and other benefits assumed 276,351 76,342 234,937
Commissions and expense allowances 350 1,110 1,910
on reinsurance assumed
Change in policyholder contract
deposits assumed 104,113 (658,482) 4,496
</TABLE>
PLH entered into indemnity reinsurance agreements with PSI in 1987 whereby PLH
assumed 100 percent of the risks reinsured on all structured settlement
contracts issued during 1987. The agreements were amended in 1988 whereby PLH
also assumed 100 percent of the risks reinsured on all structured settlement,
pension buyout and single premium immediate annuities issued subsequent to 1987.
The agreements were also amended in 1988 to change the agreements from indemnity
reinsurance to coinsurance. The following table summarizes amounts reflected in
the statements of operations from these reinsurance agreements:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $(1,231) $ 291 $ 503
Annuity and other benefits assumed 8,007 7,443 7,563
Commissions and expense allowances
on reinsurance assumed 10 5 21
Change in policyholder contract
deposits assumed 116 (666) 169
</TABLE>
26
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
Effective June 30, 1995, PLH entered into a coinsurance agreement with PSI
whereby PLH assumed 100 percent of the risk of business reinsured by PSI from
North American Security Life (NASL). This agreement coinsures existing deposits
of NASL's fixed annuities and the fixed account portion of their variable
annuity product business. In addition, this agreement includes prospective
coinsurance of additional annual fixed annuity deposits from the future sales of
NASL's fixed and variable annuities. This agreement also contains a provision
which provides PSI with profit sharing on the assumed business of up to 10 basis
points of account value. There were no profit sharing amounts payable in 1995.
Under the agreement, PLH received cash and invested assets in exchange for its
coinsurance of $724,700,000 of fixed annuity deposits. At December 31, 1995,
there were $728,700,000 of fixed annuity deposits outstanding which were
coinsured by PLH. The following table summarizes amounts reflected in the
statements of operations from this reinsurance agreement:
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE YEAR
ENDED DECEMBER 31, 1995
------------------------------
(In Thousands)
<S> <C>
Premium income assumed $(72,339)
Annuity benefits assumed 98,519
Commissions and expense allowances
on reinsurance assumed 1,441
Change in policyholder contract deposits assumed (1,715)
</TABLE>
PLH entered into two separate reinsurance agreements with two affiliates,
Academy Life Insurance Company (ALIC) and Pension Life Insurance Company of
America (PLIC), in 1992, both on a coinsurance funds withheld basis. On April 1,
1993, the reinsurance agreements were amended from a coinsurance funds withheld
basis to a coinsurance nonfunds withheld basis. On April 1, 1993, PLH received
funds in the amount of $23,000,000 under the terms of these reinsurance
agreements. The following table summarizes the amounts reflected in the
statements of operations from these reinsurance agreements:
27
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
EXPENSE (REVENUE) FOR THE
YEAR ENDED DECEMBER 31
1995 1994 1993
---------------------------------
(In Thousands)
<S> <C> <C> <C>
Premium income assumed $(49,325) $(53,051) $(71,128)
Life, accident and health and other
benefit assumed 31,421 33,457 37,926
Commissions and expense allowances
on reinsurance assumed 12,349 12,438 26,966
Change in policy reserves assumed 1,588 4,122 3,269
Other income assumed (1,030) (3,475) (1,019)
</TABLE>
Policy reserves and policy and contract claims exclude liabilities relating to
reinsurance ceded to affiliates of approximately $160,000,000 at December 31,
1994. No such amounts were ceded as of December 31, 1995. While these amounts
have been excluded from liabilities, PLH remains liable in the event the
reinsuring companies are unable to meet their obligations.
6. REINSURANCE
Certain premiums and benefits are assumed from and ceded to other nonaffiliated
insurance companies under various reinsurance agreements. The ceded reinsurance
agreements provide PLH with increased capacity to write larger risks.
PLH's assumed and ceded reinsurance agreements with affiliated and nonaffiliated
insurance companies reduced (increased) certain items in the accompanying
financial statements by the following amounts:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------
(In Thousands)
<S> <C> <C> <C>
ASSUMED:
Policy and contract liabilities* $3,153,667 $1,978,629 $1,284,940
Claim reserves* 11,512 9,748 8,306
Advance premiums* 921 787 408
Unearned premium reserves* 8,114 7,226 6,609
</TABLE>
*At year end.
28
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE (CONTINUED)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------
(In Thousands)
<S> <C> <C> <C>
CEDED:
Benefits paid or provided $12,679 $ 30,889 $ 30,274
Commissions and expense allowances
on reinsurance ceded (7,164) (16,186) (17,230)
Other income-reserves on
ceded business 1,305 (39) (37)
Policy and contract liabilities* 2,682 164,604 174,624
Claim reserves* 469 1,120 1,441
Advance premiums* 11 55 54
Unearned premium reserves* 19 533 554
</TABLE>
*At year end.
Amounts payable or recoverable for reinsurance on paid or unpaid life and health
claims are not subject to periodic or maximum limits. At December 31, 1995, PLH
reinsurance recoverables are not material and no individual reinsurer owed PLH
an amount equal to or greater than 3% of PLH's surplus.
For all short-duration contracts, the effect of all reinsurance agreements on
accident and health premiums written and earned in 1995, 1994 and 1993 was as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
PREMIUMS PREMIUMS PREMIUMS
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
-------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Direct $101,345 $101,452 $111,163 $111,099 $124,725 $125,110
Assumed 62,667 61,773 56,762 55,946 50,951 52,250
Ceded (3,140) (3,675) (4,283) (4,303) (4,184) (4,192)
-------------------------------------------------------------------
Net $160,872 $159,550 $163,642 $162,742 $171,492 $173,168
===================================================================
</TABLE>
29
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
6. REINSURANCE (CONTINUED)
For all long-duration contracts, the effect of reinsurance on life and annuity
premiums earned in 1995, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
PREMIUMS EARNED PREMIUMS EARNED PREMIUMS EARNED
-----------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Direct $138,553 $134,011 $147,943
Assumed 140,738 84,332 146,994
Ceded (15,271) (37,200) (36,466)
-----------------------------------------------------
Net $264,020 $181,143 $258,471
=====================================================
</TABLE>
PLH remains obligated for amounts ceded in the event that the reinsurers do not
meet their obligations.
7. LIFE AND ANNUITY RESERVES AND DEPOSIT FUND LIABILITIES
The withdrawal provisions of PLH's annuity reserves and deposit fund liabilities
at December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
-----------------------
(In Thousands)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $1,269,197 16.1%
At book value less surrender charge 567,158 7.2%
At market value 2,416,018 30.6%
-----------------------
4,252,373 53.9%
Subject to discretionary withdrawal (without adjustment)
at book value with minimal or no charge or adjustment 2,064,845 26.2%
Not subject to discretionary withdrawal 1,567,088 19.9%
-----------------------
Total annuity reserves and deposit fund liabilities
before reinsurance 7,884,306 100.0%
==========
Less reinsurance -
------------
Net annuity reserves and deposit fund liabilities $7,884,306*
============
</TABLE>
*Includes $1,710,866,000 of annuities reported in PLH's separate account
liability.
30
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
7. LIFE AND ANNUITY RESERVES AND DEPOSIT FUND LIABILITIES (CONTINUED)
The above amount subject to discretionary withdrawal with market value
adjustment includes approximately $598,000 at December 31, 1995 of floating rate
GIC liabilities with credited rates that vary in response to changes in
stipulated indexes and which self-adjust in response to market changes making
their market value and book value essentially equal.
As of December 31, 1995, PLH has $143,808,000 of insurance in force for which
the gross premiums are less than the net premiums according to the standard of
valuation set by the State of Missouri.
8. SEPARATE ACCOUNTS
Separate accounts held by PLH primarily represent funds held for individual
policyholders. The separate accounts do not have any minimum guarantees and the
investment risks associated with market value changes are borne entirely by the
policyholder. Information regarding the separate accounts of PLH as of and for
the year ended December 31, 1995 is as follows:
<TABLE>
<CAPTION>
NONINDEXED
GUARANTEE NON-
MORE THAN 4% GUARANTEED TOTAL
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
Premiums, deposits and other
considerations $ 75,292 $ 338,974 $ 414,266
========================================
Reserves for separate accounts* $258,192 $1,471,721 $1,729,913
========================================
Reserves for separate accounts by
withdrawal characteristics:
Subject to discretionary withdrawal
(with adjustment):
With market value adjustment $258,192 $ - $ 258,192
At market value - 1,471,721 1,471,721
----------------------------------------
Total separate account liabilities $258,192 $1,471,721 $1,729,913
========================================
</TABLE>
*Reserves for separate accounts are exclusive of $11,651,000 which represents
transfers due the general account and other amounts payable as of December 31,
1995.
31
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
8. SEPARATE ACCOUNTS (CONTINUED)
A reconciliation of the amounts transferred to and from PLH's separate accounts
for the year ended December 31, 1995 is presented below:
<TABLE>
<CAPTION>
1995
--------------
(In Thousands)
<S> <C>
Transfers as reported in the Summary of Operations of
PLH's Separate Accounts Annual Statement:
Transfers to separate accounts $ 414,266
Transfers from separate accounts (105,966)
--------------
Net transfers to separate accounts 308,300
Reconciling adjustments:
Fees paid to external fund manager (1,254)
Transfers to modified separate account (6,668)
--------------
(7,922)
--------------
Transfers as reported in the Summary of Operations
of PLH's Life, Accident & Health Annual Statement $ 316,222
==============
</TABLE>
9. PREMIUMS AND ANNUITY CONSIDERATIONS DEFERRED AND UNCOLLECTED
Deferred and uncollected life insurance premiums and annuity considerations as
of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
NET OF
TYPE GROSS LOADING LOADING
- ---------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Ordinary new $ 3,513 $ 2,476 $ 1,037
Ordinary renewal 17,162 4,674 12,488
----------------------------
Total ordinary 20,675 7,150 13,525
----------------------------
Group new business 6,425 3,566 2,859
Group renewal 40,447 10,982 29,465
----------------------------
Total group 46,872 14,548 32,324
----------------------------
Total $ 67,547 $ 21,698 $ 45,849
============================
</TABLE>
32
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
10. STATUTORY RESTRICTIONS ON DIVIDENDS
PLH is subject to limitations, imposed by the State of Missouri, on the payment
of dividends to its parent company. Generally, dividends during any year may not
be paid, without prior regulatory approval, in excess of the greater of (1) 10
percent of PLH's statutory capital and surplus as of the preceding December 31,
or (2) PLH's statutory net income for the preceding year. Subject to
availability of unassigned surplus at the time of such dividend, the maximum
payment which may be made in 1996, without prior approval, is $57,649,000.
11. CONTINGENCIES
In the ordinary course of business, PLH is a defendant in litigation principally
involving insurance policy claims for damages, including compensatory and
punitive damages. In the opinion of management, the outcome of such litigation
will not result in a loss which would be material to PLH's financial position at
December 31, 1995.
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used in estimating fair value
disclosures for the following financial instruments:
BONDS, PREFERRED STOCKS AND COMMON STOCKS
The fair values of bonds, preferred stocks and common stocks are generally
based on published quotations of the SVO of the NAIC. However, for certain
investments, the SVO does not provide a value and PLH uses either admitted
asset investment amounts (i.e., statement values) as allowed by the NAIC,
values provided by outside broker confirmations or internally calculated
estimates. The fair values of PLH's bonds, preferred stocks and common
stocks are disclosed in Note 2.
MORTGAGE LOANS
The fair values of commercial and residential mortgage loans are estimated
utilizing discounted cash flow calculations, using current market interest
rates for loans with similar terms to borrowers of similar credit quality.
POLICY LOANS
The carrying values of policy loans reported in the accompanying balance
sheets approximate their fair values.
33
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
CASH, SHORT-TERM INVESTMENTS AND OTHER INVESTED ASSETS
The carrying values of cash, short-term investments and other invested
assets reported in the accompanying balance sheets approximate their fair
values.
INVESTMENT CONTRACTS
The fair values of floating rate guaranteed investment contracts approximate
their carrying values. The fair values of fixed rate guaranteed investment
contracts and investment-type fixed annuity contracts are estimated using
discounted cash flow calculations, based on current interest rates for
similar contracts. The fair values of variable annuity contracts approximate
their carrying values.
DERIVATIVE FINANCIAL INSTRUMENTS
The fair values for derivative financial instruments are based on pricing
models or formulas using current assumptions.
The carrying values and fair values of PLH's investments in commercial and
residential mortgage loans are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
------------------------
(In Thousands)
<S> <C> <C>
DECEMBER 31, 1995
Commercial mortgages $1,495,755 $1,527,424
Residential mortgages 1,261,136 1,267,627
------------------------
$2,756,891 $2,795,051
========================
DECEMBER 31, 1994
Commercial mortgages $1,442,685 $1,468,697
Residential mortgages 570,690 545,640
------------------------
$2,013,375 $2,014,337
========================
</TABLE>
The fair values of interest rate swap agreements were $51,540,000 and
$(20,833,000) at December 31, 1995 and 1994, respectively. These instruments are
primarily off-balance sheet and as such, are not recorded in the accompanying
financial statements.
34
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values and fair values of PLH's liabilities for investment-type
contracts are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
------------------------
(In Thousands)
<S> <C> <C>
DECEMBER 31, 1995
Fixed annuity contracts $3,667,197 $3,801,151
Guaranteed investment contracts 1,519,204 1,546,248
Variable annuity contracts 1,471,722* 1,471,722
------------------------
$6,658,123 $6,819,121
========================
DECEMBER 31, 1994
Fixed annuity contracts $3,103,331 $3,098,958
Guaranteed investment contracts 1,494,308 1,473,202
Variable annuity contracts 944,261* 944,261
------------------------
$5,541,900 $5,516,421
========================
</TABLE>
*Included in PLH's separate account liabilities.
The fair values for PLH's insurance contracts other than investment contracts
are not required to be disclosed. However, the fair values of liabilities under
all insurance contracts are taken into consideration in PLH's overall management
of interest rate risk, such that PLH's exposure to changing interest rates is
minimized through the matching of investment maturities with amounts due under
insurance contracts.
35
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Part A. None
Part B. All financial statements required to be filed are included in
Part B.
Part C. None
(b) Exhibits.
(1) Resolution of the Board of Directors of National Home Life Assurance
Company ("National Home") authorizing establishment of the
Separate Account./1/
(2) Not Applicable.
(3) Distribution Agreement.
(a) Form of Selling Agreement./5/
(4) (a) Form of variable annuity contract (A Unit)./6/
(b) Form of variable annuity contract (B Unit)./6/
(5) (a) Form of Application./7/
(b) 403(b) Rider./5/
(c) Individual Retirement Annuity Rider./5/
(6) (a) Articles of Incorporation of National Home./1/
(b) Amendment to Articles of Incorporation of National Home./1/
(c) Amended and Restated Articles of Incorporation of National
Home./1/
(d) Amended and Restated Articles of Incorporation of Providian
Life and Health Insurance Company.
(7) Not Applicable.
(8) (a) Form of Participation Agreement for the Funds./6/
(b) Participation Agreement Among DFA Investment Dimensions Group,
Inc., Dimensional Fund Advisors, Inc., DFA Securities Inc. and
National Home Life Assurance Company dated as of June 29,
1994./8/
(c) Participation Agreement Among Insurance Management Series,
Federated Advisors, Federated Securities Corp. and National
Home Life Assurance Company dated as of May 17, 1994./8/
(d) Participation Agreement Among Insurance Investment Products
Trust, SEI Financial Services Company and National Home Life
Assurance Company dated as of January 1, 1995./10/
(e) Participation Agreement Among Wanger Advisors Trust and
National Home Life Assurance Company dated as of May 19, 1995.
/10/
(f) Participation Agreement Among Tomorrow Funds Retirement Trust,
Weiss, Peck & Greer, L.L.C. and Providian Life and Health
Insurance Company dated as of September 11, 1995./10/
(g) Participation Agreement among Montgomery Funds III, Montgomery
Asset Management, L.P., and Providian Life and Health Insurance
Company dated as of January 31, 1996./11/
(9) (a) Opinion and Consent of Counsel./12/
(b) Consent of Counsel./12/
(10) Consent of Independent Auditors./12/
- -----------
/1/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account V, File No. 33-45862.
/2/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account II, File No. 33-7033.
/3/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/4/ Incorporated by reference from Post-Effective Amendment No. 5 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/5/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-45862.
/6/ Incorporated by reference from the Registration Statement of National
Home Life Assurance Company Separate Account V, File No. 33-72838, filed on
December 10, 1993.
/7/ Incorporated by reference from the Registration Statement of National
Home Life Assurance Company Separate Account V, File No. 33-79502, filed on
May 27, 1994.
/8/ Incorporated by reference from the Post-Effective Amendment No. 1 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-80958, filed April 28, 1995.
/9/ Incorporated by reference from Post-Effective Amendment No. 2 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-80958, Filed September 19, 1995.
/10/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-80958.
/11/ Incorporated by reference from Post-Effective Amendment No. 4 to the
Registration Statement of Providian Life and Health Insurance Company
Separate Account V, File No. 33-80958.
/12/ Filed herewith.
<PAGE>
(13) No Financial Statements are omitted from Item 23.
(14) Not Applicable.
(15) Not Applicable.
(16) Not Applicable.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Chairman of the Board and CEO Shailesh J. Mehta
President David J. Miller
Chief Operating Officer Stephen J. Leaman
Vice President and Controller Jean A. Young
Senior Vice President Robert A. Long
Senior Vice President/Human Resources
Corporate Communications John H. Rogers
Senior Vice President Martin Renninger
Senior Vice President Paul Yakulis
Vice President, General Counsel
and Secretary David R. Aplington
Vice President Brian Alford
Vice President Edward A. Biemer
Vice President Rita Biesiot
Vice President, Treasurer & CFO Dennis E. Brady
Vice President Charles N. Coatsworth
Vice President and Associate General Counsel Julie S. Congdon
Vice President Stephen F. Eulie
Vice President Shirley W. Lanier
Vice President Richard A. Babyak
Vice President Karen H. Fleming
Vice President Carolyn M. Kerstein
Vice President Michael F. Lane
Vice President G. Douglas Magnum, Jr.
Vice President Kevin P. McGlynn
Vice President Douglas S. Menges
Vice President Thomas B. Nesspor
Vice President John R. Pegues
Vice President and Actuary John C. Prestwood, Jr.
<PAGE>
Vice President Frank J. Rosa
Vice President Douglas A. Sarcia
Vice President Nancy B. Schuckert
Vice President Joseph D. Strenk
Vice President William W. Strickland
Vice President Oris Stuart, III
Vice President Anita R. Tilley
Vice President William C. Tomilin
Vice President Anita Gambis
Vice President Susan Martin
Vice President G. Eric O'Brien
Vice President Harold Peterson, Jr.
Assistant Vice President Janice Boehmler
Assistant Vice President James P. Greaton
Vice President/Underwriting William J. Kline
Assistant Vice President Joan G. Chandler
Assistant Vice President &
Assistant Treasurer John A. Mazzuca
Assistant Vice President Harvey Waite
Assistant Vice President Geralyn Barbato
Assistant Vice President Mary Ellen Fahringer
Assistant Treasurer Elaine J. Robinson
Assistant Controller Joseph C. Noone
Second Vice President Cindy L. Chanley
Second Vice President Michael K. Mingus
Second Vice President/Investments Terri L. Allen
Second Vice President/Investments Tom Bauer
Second Vice President/Investments Kirk W. Buese
Second Vice President/Investments Curt M. Burns
Second Vice President/Investments William S. Cook
Second Vice President/Investments Deborah A. Dias
Second Vice President/Investments Eric B. Goodman
<PAGE>
Second Vice President/Investments James Grant
Second Vice President/Investments Theodore M. Haag
Second Vice President/Investments Frederick B. Howard
Second Vice President/Investments Diane J. Hulls
Second Vice President/Investments William H. Jenkins
Second Vice President/Investments Caroline A. Johnson
Second Vice President/Investments Frederick C. Kessell
Second Vice President/Investments Tim Kuussalo
Second Vice President/Investments Mark E. Lamb
Second Vice President/Investments Lisa M. Longino
Second Vice President/Investments Monika Machon
Second Vice President/Investments James D. MacKinnon
Second Vice President/Investments Jack McCabe
Second Vice President/Investments James G. Nickerson
Second Vice President/Investments Wayne R. Nelis
Second Vice President/Investments Douglas H. Owen, Jr.
Second Vice President/Investments Debra K. Pellman
Second Vice President/Investments Robert Saunders
Second Vice President/Investments Brad H. Seibel
Second Vice President/Investments Michael B. Simpson
Second Vice President/Investments Jon L. Skaggs
Second Vice President/Investments James A. Skufca
Second Vice President/Investments Robert A. Smedley
Second Vice President/Investments Bradley L. Stofferahn
Second Vice President/Investments Randall K. Waddell
Second Vice President/Investments Tammy C. Wetterer
Second Vice President/Special Markets Kim A. Bivins
Second Vice President/Special Markets Gregory Lee Chapman
Second Vice President/Special Markets John B. Cobb, III
Second Vice President/Special Markets Gregory M. Curry
Second Vice President/Special Markets Julie Ford
Second Vice President/Special Markets Lauren M. S. Kaltman
Second Vice President/Special Markets Rosa Marie Mathison
Second Vice President/Special Markets Paul Farley Olschwanger
Second Vice President/Special Markets Lisa L. Patterson
Second Vice President/Special Markets Rhonda L. Pritchett
<PAGE>
Second Vice President/Special Markets Prentice J. Siegel
Second Vice President/Special Markets Harvey Willis
Second Vice President/Special Markets Thomas E. Walsh
Second Vice President and Assistant
Secretary Edward P. Reiter
Assistant Secretary L. Jude Clark
Assistant Secretary Mary Ann Malinyak
Assistant Secretary Colleen S. Lyons
Assistant Secretary John F. Reesor
Assistant Secretary Kimberly A. Scouller
Assistant Secretary R. Michael Slaven
Assistant Secretary Carolyn Wetterer
Product Compliance Officer James T. Bradley
Advertising Compliance Officer Nancy E. Partington
DIRECTORS:
- ---------
David R. Aplington
Dennis E. Brady
Robert A. Long
Stephen J. Leaman
Shailesh J. Mehta
David J. Miller
Thomas B. Nesspor
John H. Rogers
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT.
The Depositor, Providian Life and Health Insurance Company ("Providian Life and
Health"), is directly and indirectly wholly owned by Providian Corporation. The
Registrant is a segregated asset account of Providian Life and Health.
The following chart indicates the persons controlled by or under common control
with Providian Life and Health:
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation Percent of Voting Securities Owned
<S> <C> <C>
Providian Corporation Delaware 100% Publicly Owned
Providian Agency Group, Inc. Kentucky 100% Providian Corporation
College Resource Group, Inc. Kentucky 100% Providian Agency Group, Inc.
Knight Insurance Agency, Inc. Massachusetts 100% College Resource Group, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Knight Tuition Payment
Plans, Inc. Massachusetts 100% Knight Insurance Agency, Inc.
Knight Insurance Agency
(New Hampshire), Inc. New Hampshire 100% Knight Insurance Agency, Inc.
Peoples Security Life
Insurance Company North Carolina 100% Capital General Development Corp.
Agency Holding II, Inc. Delaware 100% Peoples Security Life Insurance
Company
Agency Investments II, Inc. Delaware 100% Agency Holding II, Inc.
Agency Holding III, Inc. Delaware 100% Peoples Security Life Insurance
Company
Agency Investments III, Inc. Delaware 100% Agency Holding III, Inc.
Ammest Realty Corporation Texas 100% Peoples Security Life Insurance
Company
Providian Assignment Corporation Kentucky 100% Providian Corporation
Providian Capital Management,
Inc. Delaware 100% Providian Corporation
Providian Capital Management
Real Estate Services, Inc. Delaware 100% Providian Capital Management, Inc.
Capital Real Estate
Development Corporation Delaware 100% Providian Corporation
KB Currency Advisors, Inc. Delaware 33 1/3% Capital Real Estate Development
Corporation
33 1/3% Jonathan M. Berg
33 1/3% Andrew J. Krieger
Capital General
Development Corporation Delaware 100% Providian Corporation
Commonwealth Life Insurance
Company Kentucky 100% Capital General Development
Corporation
Agency Holding I, Inc. Delaware 100% Commonwealth Life Insurance Company
Agency Investments I, Inc. Delaware 100% Agency Holding I, Inc.
Commonwealth Agency, Inc. Kentucky 100% Commonwealth Life Insurance Company
Capital 200 Block Corporation Delaware 100% Providian Corporation
Providian Services, Inc. Pennsylvania 100% Providian Corporation
Providian Securities
Corporation Pennsylvania 100% Capital Values Financial Services,
Inc.
Wannalancit Corp. Massachusetts 100% Providian Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Capital Broadway Corporation Kentucky 100% Providian Corporation
Providian Investment
Advisors, Inc. Delaware 100% Providian Corporation
Capital Security Life
Insurance Company North Carolina 100% Providian Corporation
Security Trust Life
Insurance Company Kentucky 100% Capital Security Life Insurance
Company
Independence Automobile
Association, Inc. Florida 100% Capital Security Life Insurance
Company
Independence Automobile
Club, Inc. Georgia 100% Capital Security Life Insurance
Company
Southlife, Inc. Tennessee 100% Providian Corporation
Providian Bancorp, Inc. Delaware 100% Providian Corporation
First Deposit Service
Corporation California 100% Providian Bancorp, Inc.
First Deposit Life
Insurance Company Arkansas 100% Providian Bancorp, Inc.
First Deposit National Bank United States 100% Providian Bancorp, Inc.
Winnisquam Community
Development Corporation New Hampshire 96% First Deposit National Bank
4% First New Hampshire Bank
Providian National Bank United States 100% Providian Bancorp, Inc.
Providian National Bancorp California 100% Providian Bancorp, Inc.
Commonwealth Premium Finance California 100% Providian National Bancorp
Providian Credit Services, Inc. Utah 100% Providian Bancorp, Inc.
Providian Credit Corporation Delaware 100% Providian Bancorp, Inc.
National Liberty Corporation Pennsylvania 100% Providian Corporation
National Home Life
Corporation Pennsylvania 100% National Liberty Corporation
Compass Rose Development
Corporation Pennsylvania 100% National Liberty Corporation
Association Consultants, Inc. Illinois 100% National Liberty Corporation
Valley Forge Associates, Inc. Pennsylvania 100% National Liberty Corporation
Veterans Benefits Plans, Inc. Pennsylvania 100% National Liberty Corporation
Veterans Insurance Services,
Inc. Delaware 100% National Liberty Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Financial Planning
Services, Inc. Washington, D. C. 100% National Liberty Corporation
Providian Auto and
Home Insurance Company Missouri 100% Providian Corporation
Academy Insurance Group,
Inc. Delaware 100% Providian Auto and Home Insurance
Company
Academy Life Insurance
Company Missouri 100% Providian Corporation
Pension Life Insurance
Company of America New Jersey 100% Academy Insurance Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Group, Inc.
Ammest Development
Corporation, Inc. Kansas 100% Academy Insurance Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance Group, Inc.
Ammest Massachusetts
Insurance Agency, Inc. Massachusetts 100% Academy Insurance Group, Inc.
AMMEST Realty, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
AMPAC, Inc. Texas 100% Academy Insurance Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Financial Group, Inc.
Military Associates, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Group, Inc.
Unicom Administrative
Services, Inc. Pennsylvania 100% Academy Insurance Group, Inc.
Unicom Administrative
Services GmbH Germany 100% Unicom Administrative Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Providian Property and
Casualty Insurance Company Kentucky 100% Providian Auto and Home Insurance
Company
Providian Fire Insurance
Company Kentucky 100% Providian Property and Casualty
Insurance Company
Capital Liberty, L.P. Delaware 5% Providian Corporation (General
Partnership Interests)
76% Commonwealth Life Insurance Company
(Limited Partnership Interests)
19% Peoples Security Life Insurance
Company (Limited Partnership Interests)
Providian Life and Health
Insurance Company Missouri 4% Providian Corporation
61% Commonwealth Life Insurance Company
20% Capital Liberty, L.P.
15% Peoples Security Life Insurance Company
Veterans Life Insurance Company Illinois 100% Providian Life and Health Insurance
Company
First Providian Life and
Health Insurance Company New York 100% Veterans Life Insurance Company
Benefit Plans, Inc. Delaware 100% Providian Corporation
DurCo Agency, Inc. Virginia 100% Benefit Plans, Inc.
</TABLE>
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of December 10, 1996, there were 691 Adivsor's Edge Contract Owners and to
date there are no PGA Retirement Annuity Contract Owners.
ITEM 28. INDEMNIFICATION
Item 28 is incorporated by reference from the Post-Effective Amendment No. 6 to
the Registration Statement of the National Home Life Assurance Company Separate
Account II, File No. 33-7033.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Providian Securities Corporation, which serves as the principal
underwriter for the variable annuity contracts funded by Separate
Account V, also serves as the principal underwriter for variable life
insurance policies funded by Separate Account I and for Separate
Account II of Providian Life and Health.
(b) Directors and Officers
<TABLE>
<CAPTION>
Positions and Officers
Name with Underwriter
---- ----------------------
<S> <C>
Jeffrey P. Lammers President, Assistant Secretary
and Director
Kimberly A. Scouller Vice President and Chief Compliance Officer
Michael F. Lane Vice President
Harvey E. Willis Vice President and Secretary
Sarah J. Strange Vice President
Elaine J. Robinson Treasurer
Michael G. Ayers Controller
Robert L. Walker Director
Frederick C. Kessell Director
Mark Nerderman Vice President
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the Administrative Offices of Providian Life and Health in Louisville,
Kentucky.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted;
(b) The Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information;
(c) The Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
<PAGE>
(d) The Registrant hereby undertakes to rely on the no-action letter dated
November 28, 1988 (Ref. No. IP-6-88) with respect to language concerning
withdrawal restrictions applicable to Code Section 403(b) plans. Providian Life
and Health has complied with conditions 1 through 4 of the no-action letter.
(e) The Registrant hereby undertakes that no Director has resigned due to a
disagreement with the Registrant or any matter relating to the Separate
Account's operations, policies or practices.
(f) Providian Life and Health Insurance Company represents that the fees
and charges deducted under the contracts in this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by Providian Life and Health
Insurance Company.
<PAGE>
SIGNATURES
AS REQUIRED BY THE SECURITIES ACT OF 1933 AND THE INVESTMENT COMPANY ACT OF
1940, THE REGISTRANT, PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE
ACCOUNT V, CERTIFIES THAT IT MEETS THE REQUIREMENT OF SECURITIES ACT RULE
485(B) FOR EFFECTIVENESS OF THIS AMENDED REGISTRATION STATEMENT AND HAS CAUSED
THIS AMENDED REGISTRATION STATEMENT TO BE SIGNED IN THE COUNTY OF CHESTER AND
COMMONWEALTH OF PENNSYLVANIA ON THE 30TH DAY OF DECEMBER 1996.
PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY SEPARATE ACCOUNT V
(Registrant)
By: Providian Life and Health Insurance
Company
/s/ David J. Miller*
By: ______________________________
David J. Miller, President
PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY (DEPOSITOR)
/s/ David J. Miller*
By: ______________________________
David J. Miller, President
/s/ R. Michael Slaven
* By: ______________________________
R. Michael Slaven
Attorney-in-fact
13
<PAGE>
AS REQUIRED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN DULY SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Shailesh J. Mehta* Director, Chairman of the December 30, 1996
____________________________________ Board and Chief Executive
Shailesh J. Mehta Officer
/s/ David J. Miller* Director and President December 30, 1996
____________________________________
David J. Miller
/s/ Stephen J. Lemmen* Director and Chief Operating December 30, 1996
____________________________________ Officer
Stephen J. Lemmen
/s/ Robert A. Long* Director and Senior Vice December 30, 1996
____________________________________ President
Robert A. Long
/s/ John H. Rogers* Director and Senior Vice December 30, 1996
____________________________________ President
John H. Rogers
/s/ Thomas B. Nesspor* Director and Vice President December 30, 1996
____________________________________
Thomas B. Nesspor
/s/ David R. Aplington* Director, Vice President and December 30, 1996
____________________________________ General Counsel
David R. Aplington
/s/ Jean A. Young* Vice President and December 30, 1996
____________________________________ Controller (Chief
Jean A. Young Accounting Officer)
/s/ Dennis E. Brady* Director, Vice President, December 30, 1996
____________________________________ Treasurer and CFO
Dennis E. Brady
</TABLE>
*By: /s/ R. Michael Slaven
---------------------
R. Michael Slaven
Attorney-in-fact
14
<PAGE>
SEPARATE ACCOUNT V
THE PGA RETIREMENT VARIABLE ANNUITY
INDEX TO EXHIBITS
EXHIBIT 9(a) OPINION AND CONSENT OF COUNSEL
EXHIBIT 9(b) CONSENT OF COUNSEL
EXHIBIT 10 CONSENT OF INDEPENDENT AUDITORS
<PAGE>
[LETTERHEAD OF PROVIDIAN CORPORATION]
EXHIBIT 9(a)
December 30, 1996
Providian Life and Health Insurance Company
Administrative Offices
20 Moores Road
Frazer, Pennsylvania 19355
RE: PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V (PGA RETIREMENT ANNUITY) - OPINION AND CONSENT
To Whom It May Concern:
This opinion and consent is furnished in connection with the filing of Post-
Effective Amendment No. 5 (the "Amendment") to the Registration Statement on
Form N-4, File No. 33-80958 (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Act"), of Providian Life and Health Insurance
Company Separate Account V ("Separate Account V"). Separate Account V receives
and invests premiums allocated to it under a flexible premium multi-funded
annuity contract (the "Annuity Contract"). The Annuity Contract is offered in
the manner described in the prospectus contained in the Registration Statement
(the "Prospectus").
In my capacity as legal adviser to Providian Life and Health Insurance Company,
I hereby confirm the establishment of Separate Account V pursuant to a
resolution adopted by the Board of Directors of Providian Life and Health
Insurance Company for a separate account for assets applicable to the Annuity
Contract, pursuant to the provisions of Section 376.309 of the Missouri
Insurance Statutes. In addition, I have made such examination of the law in
addition to consultation with outside counsel and have examined such corporate
records and such other documents as I consider appropriate as a basis for the
opinion hereinafter expressed. On the basis of such examination, it is my
professional opinion that:
1. Providian Life and Health Insurance Company is a corporation duly organized
and validly existing under the laws of the State of Missouri.
2. Separate Account V is an account established and maintained by Providian
Life and Health Insurance Company pursuant to the laws of the State of
Missouri, under which income, capital gains and capital losses incurred on
the assets of Separate Account V are credited to or charged against the
assets of Separate
<PAGE>
Providian Life and Health Insurance Company
Separate Account V
December 30, 1996
Page 2
Account V, without regard to the income, capital gains or capital
losses arising out of any other business which Providian Life and Health
Insurance Company may conduct.
3. Assets allocated to Separate Account V will be owned by Providian Life and
Health Insurance Company. The assets in Separate Account V attributable to
the Annuity Contract generally are not chargeable with liabilities arising
out of any other business which Providian Life and Health Insurance Company
may conduct. The assets of Separate Account V are available to cover the
general liabilities of Providian Life and Health Insurance Company only to
the extent that the assets of Separate Account V exceed the liabilities
arising under the Annuity Contracts.
4. The Annuity Contracts have been duly authorized by Providian Life and
Health Insurance Company and, when sold in jurisdictions authorizing such
sales, in accordance with the Registration Statement, will constitute
validly issued and binding obligations of Providian Life and Health
Insurance Company in accordance with their terms.
5. Owners of the Annuity Contracts as such, will not be subject to any
deductions, charges or assessments imposed by Providian Life and Health
Insurance Company other than those provided in the Annuity Contract.
I hereby consent to the use of this opinion as an exhibit to the Amendment and
to the reference to my name under the heading "Legal Matters" in the Prospectus.
Very truly yours,
/s/ Kimberly A. Scouller
Kimberly A. Scouller
Assistant General Counsel
/maz
<PAGE>
EXHIBIT 9(b)
JORDEN BURT BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400-EAST
WASHINGTON, D.C. 20007-0805
(202) 965-8100
TELECOPIER (202) 965-8104
December 30, 1996
Providian Life and Health
Insurance Company
20 Moores Road
Frazer, Pennsylvania 19355
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 5 to the
Registration Statement on Form N-4 (file No.33-80958) filed by Providian Life
and Health Insurance Company and Providian Life and Health Insurance Company
Separate Account V with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/ Jorden Burt Berenson & Johnson LLP
Jorden Burt Berenson & Johnson LLP
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Exhibit No. (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Auditors" and to the
use of our report dated April 23, 1996, with respect to the statutory-basis
financial statements of Providian Life and Health Insurance Company in the
Registration Statement (Form N-4) and related Prospectus of Providian Life and
Health Insurance Company Separate Account V for the PGA Retirement Annuity.
/s/ ERNST & YOUNG LLP
Louisville, Kentucky
December 30, 1996
