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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1997
REGISTRATION NO. 33-79502
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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. 4 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13 [X]
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
(EXACT NAME OF REGISTRANT)
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(NAME OF DEPOSITOR)
20 MOORES ROAD
FRAZER, PENNSYLVANIA 19355
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICE)
DEPOSITOR'S TELEPHONE NUMBER: (800) 523-7900
KIMBERLY A. SCOULLER, ESQUIRE
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
400 WEST MARKET STREET
P.O. BOX 32830
LOUISVILLE, KENTUCKY 40232
(NAME AND ADDRESS OF AGENT FOR SERVICE)
COPIES TO:
MICHAEL BERENSON, ESQUIRE
JORDEN BURT BERENSON & JOHNSON LLP
1025 THOMAS JEFFERSON STREET, N.W.
SUITE 400 EAST
WASHINGTON, D.C. 20007-0805
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[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.
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[_] On pursuant to paragraph (a)(2) of Rule 485.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
hereby declares that the Issuer has registered an indefinite amount of
securities under the Securities Act of 1933. The Registrant filed its Rule 24f-
2 Notice for the fiscal year ended December 31, 1996, on February 27, 1997.
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PURSUANT TO RULE 481
SHOWING LOCATION IN PART A (PROSPECTUS) AND PART B
(STATEMENT OF ADDITIONAL INFORMATION) OF REGISTRATION
STATEMENT OF INFORMATION REQUIRED BY FORM N-4
PART A
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<CAPTION> APPLICABLE CONTRACT
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 Condensed Financial Information
Information................
5. General Description of
Registrant, Depositor, and Providian Life and Health Insurance Company;
Portfolio Companies........ Providian Life and Health Insurance Company
Separate Account V; The Portfolios; Voting
Rights
6. Deductions................. Charges and Deductions; Federal Tax
Considerations; Fee Table
7. General Description of
Variable CONTRACT FEATURES; Distribution-at-Death Rules;
Annuity Contracts.......... 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 Contract Purchase and Purchase Payments;
Value...................... 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 Table of Contents of the Providian Marquee
of Additional Information.. Variable Annuity and the Providian Marquee
Variable Annuity--A Units Statement of
Additional Information
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF STATEMENT OF ADDITIONAL
FORM N-4 INFORMATION CAPTION
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15. Cover Page................ Cover Page
16. Table of Contents......... Table of Contents
17. General Information and THE COMPANY
History...................
18. Services.................. Part A: Auditors; Part B: SAFEKEEPING OF ACCOUNT
ASSETS; DISTRIBUTION OF THE CONTRACTS
19. Purchase of Securities DISTRIBUTION OF THE CONTRACTS; Exchanges
Being Offered.............
20. Underwriters.............. DISTRIBUTION OF THE CONTRACTS
21. Calculation of Performance PERFORMANCE INFORMATION
Data......................
22. Annuity Payments.......... Computations of Annuity Income Payments
23. Financial Statements...... FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
PROSPECTUS
FOR THE
PROVIDIAN MARQUEE VARIABLE ANNUITY A UNITS
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The Providian Marquee variable annuity A Unit 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 12 investment company Portfolios and our General Account. The Contract is an
individual variable annuity contract and is intended for retirement savings or
other long-term investment purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $5,000. The
minimum initial Purchase Payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (30 days
or more in some instances) plus a 5 day grace period to allow for mail delivery
during which you may cancel your investment in the Contract.
Your Purchase Payments for the Contract may be allocated among 12 Subaccounts
of Providian Life and Health Insurance Company's Separate Account V and three
fixed options available under the Company's General Account. Assets of each
Subaccount are invested in one of the following Portfolios (which are contained
within six open-end, diversified investment companies):
. T. Rowe Price Equity Income
. Fidelity VIP Money Market Portfolio
Portfolio
. T. Rowe Price New America Growth
. Fidelity VIP Equity-Income Portfolio
Portfolio
. T. Rowe Price International Stock
. Fidelity VIP Growth Portfolio Portfolio
. OpCap Advisors Managed Portfolio
. Fidelity VIP II Asset Manager . OpCap Advisors Small Cap
Portfolio Portfolio
. Dreyfus Growth and Income
Portfolio . OpCap Advisors U.S. Government
. Dreyfus Quality Bond Portfolio Income Portfolio
Depending upon the state of issue and provisions of your Contract, your initial
Net Purchase Payment(s) will, when your Contract is issued, either be (i)
invested in the Fidelity Money Market Portfolio during your Right to Cancel
Period and/or invested immediately in your chosen Guaranteed Rate Options or
(ii) invested immediately in your chosen Portfolios and fixed options (other
than the Guaranteed Equity Option).
The Contract's Accumulated Value varies with the investment performance of the
Portfolios you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed except to
the extent a portion of the Accumulated Value is allocated to the General
Account.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals of the Contract's Surrender Value may be made at any time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% penalty tax (and a portion may be subject to ordinary income taxes). The
Contract has an initial sales charge of up to 5.75%. 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.
Providian Marquee Contracts are offered in two versions with differing charge
structures and features. THIS PROSPECTUS DESCRIBES ONLY THE PROVIDIAN MARQUEE A
UNIT CONTRACT. Also available is a standard Providian Marquee contract which is
offered only by the appropriate prospectus. For further information see
"Alternate Contract Version" at page 7.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for each Fund.
Please read the Prospectuses carefully and retain them for future reference. A
Statement of Additional Information for the Contract Prospectus, which has the
same date as this Prospectus, has also been filed with the Securities and
Exchange Commission, is incorporated herein by reference and is available free
by calling our Administrative Offices at 1-800-866-6007. The Table of Contents
of the Statement of Additional Information is included at the end of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The date of this Prospectus is April 30, 1997. FM-0979(A)
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TABLE OF CONTENTS
Page
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GLOSSARY.................................................................... 2
HIGHLIGHTS.................................................................. 5
FEE TABLE................................................................... 8
Condensed Financial Information............................................. 10
Financial Statements........................................................ 10
Performance Measures........................................................ 10
Additional Performance Measures............................................. 11
Yield and Effective Yield................................................... 11
The Company and the Separate Account........................................ 12
Variable Insurance Products Fund and Variable Insurance Products Fund II.... 12
Dreyfus Variable Investment Fund............................................ 13
T. Rowe Price Equity Series, Inc............................................ 13
T. Rowe Price International Series, Inc..................................... 13
OCC Accumulation Trust...................................................... 13
The Portfolios.............................................................. 13
CONTRACT FEATURES........................................................... 15
Right to Cancel Period.................................................... 15
Contract Purchase and Purchase Payments................................... 15
Purchasing by Wire........................................................ 16
Allocation of Purchase Payments........................................... 16
General Account Guaranteed Options........................................ 16
Charges and Deductions.................................................... 17
Accumulated Value......................................................... 19
Exchanges Among the Portfolios............................................ 19
Full and Partial Withdrawals.............................................. 20
Systematic Withdrawal Option.............................................. 20
Dollar Cost Averaging Option.............................................. 20
IRS-Required Distributions................................................ 21
Minimum Balance Requirement............................................... 21
Designation of an Annuitant's Beneficiary................................. 21
Death of Annuitant Prior to Annuity Date.................................. 22
Annuity Date.............................................................. 22
Lump Sum Payment Option................................................... 23
Annuity Payment Options................................................... 23
Deferment of Payment...................................................... 24
FEDERAL TAX CONSIDERATIONS.................................................. 24
GENERAL INFORMATION......................................................... 29
APPENDIX A
The General Account....................................................... A-1
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GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less
any partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
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Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 23), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 23), the dollar amount of each Annuity Payment may change over time,
depending upon the investment experience of the Portfolio or Portfolios you
choose. Annuity Payments are based on the Contract's Accumulated Value as of
10 Business Days prior to the Annuity Date.
Annuity Unit - Unit of measure used to calculate Variable Annuity Payments
(see "Annuity Payment Options," page 23).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
Company ("we", "us", "our") - Providian Life and Health Insurance Company, a
Missouri stock company.
Contract Anniversary - Any anniversary of the Contract Date.
Contract Date - The date of issue of this Contract.
Contract Owner ("you", "your") - The person or persons designated as the
Contract Owner in the Contract. The term shall also include any person named
as Joint Owner. A Joint Owner shares ownership in all respects with the
Contract Owner. Prior to the Annuity Date, the Contract Owner has the right to
assign ownership, designate beneficiaries, make permitted withdrawals and
Exchanges among Subaccounts and Guaranteed Rate Options.
Contract Year - A period of 12 months starting with the Contract Date or any
Contract Anniversary.
Death Benefit - The greater of the Contract's Accumulated Value on the date
the Company receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit. If any portion of the Contract's Accumulated Value on the date we
receive proof of the Annuitant's death is derived from the Multi-Year
Guaranteed Rate Option, that portion of the Accumulated Value will be adjusted
by a positive Market Value Adjustment Factor (see "Multi-Year Guaranteed Rate
Option," at Appendix A), if applicable.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount or General Account Guaranteed Option.
Funds - Each of (i) Variable Insurance Products Fund, (ii) Variable Insurance
Products Fund II, (iii) Dreyfus Variable Investment Fund, (iv) T. Rowe Price
Equity Series, Inc., (v) T. Rowe Price International Series, Inc. and (vi) OCC
Accumulation Trust. The Separate Account invests in the Portfolios contained
within the Funds. (See "The General Account," at Appendix A.)
General Account - The account which contains all of our assets other than
those held in our separate accounts. (See "The General Account," at Appendix
A.)
General Account Guaranteed Option - Any of the following three General Account
options offered by your Contract and to which you may allocate your Net
Purchase Payments: the One-Year Guaranteed Rate Option, the Multi-Year
Guaranteed Rate Option and the Guaranteed Equity Option. The General Account
Guaranteed Options are available for sale in most, but not all, states and the
structure and characteristics of these options vary by state. (See "The
General Account," at Appendix A.)
Guaranteed Rate Options - The One-Year Guaranteed Rate Option and the Multi-
Year Guaranteed Rate Option.
Market Value Adjustment Factor - The formula applied to the Accumulated Value
in order to determine the net amount of any transfer or surrender under the
Multi-Year Guaranteed Rate Option. (See "Multi-Year Guaranteed Rate Option,"
at Appendix A.)
Net Purchase Payment - Any Purchase Payment less the applicable sales load and
Premium Tax, if any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
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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 portfolio of the Funds. The Funds currently
offer 12 portfolios in the Providian Marquee variable annuity: the VIP Money
Market Portfolio ("Fidelity Money Market"), the VIP Equity-Income Portfolio
("Fidelity Equity-Income") and the VIP Growth Portfolio ("Fidelity Growth") of
Variable Insurance Products Fund; the VIP II Asset Manager Portfolio
("Fidelity Asset Manager") of Variable Insurance Products Fund II; the Dreyfus
Growth and Income Portfolio ("Dreyfus Growth and Income") and the Dreyfus
Quality Bond Portfolio ("Dreyfus Quality Bond") of Dreyfus Variable Investment
Fund; the T. Rowe Price Equity Income Portfolio ("T. Rowe Price Equity
Income") and the T. Rowe Price New America Growth Portfolio ("T. Rowe Price
New America Growth") of T. Rowe Price Equity Series, Inc.; the T. Rowe Price
International Stock Portfolio ("T. Rowe Price International Stock") of T. Rowe
Price International Series, Inc.; and the OpCap Advisors Managed Portfolio
("OpCap Advisors Managed"), the OpCap Advisors Small Cap Portfolio ("OpCap
Advisors Small Cap") and the OpCap Advisors U.S. Government Income Portfolio
("OpCap Advisors U.S. Government Income") of OCC Accumulation Trust (each, a
"Portfolio" and collectively, the "Portfolios"). In this Prospectus, Portfolio
will also be used to refer to the Subaccount that invests in the corresponding
Portfolio.
Premium Tax - A regulatory tax that may be assessed by certain states on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $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
Separate Account V dedicated to the Contract. The Separate Account consists of
assets that are segregated by Providian Life and Health Insurance Company and,
for Contract Owners, invested in the Portfolios. The Separate Account is
independent of the general assets of the Company.
Subaccount - That portion of the Separate Account that invests in shares of
the Funds' Portfolios. Each Subaccount will only invest in a single Portfolio.
The investment performance of each Subaccount is linked directly to the
investment performance of one of the 12 Portfolios.
Surrender Value - The Accumulated Value, adjusted to reflect any applicable
Market Value Adjustment (see "Multi-Year Guaranteed Rate Option," at Appendix
A) for amounts allocated to the Multi-Year Guaranteed Rate Option, less any
early withdrawal charges for amounts allocated to the One-Year Guaranteed Rate
Option, less any amount allocated to the Guaranteed Equity Option, less any
Premium Taxes incurred but not yet deducted.
Valuation Period - The relative performance of your Contract is measured by
the Accumulation Unit Value. This value is calculated each Valuation Period. A
Valuation Period is defined as the period of time between the close of
business on one Business Day and the close of business on the following
Business Day.
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HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 2).
THE PROVIDIAN MARQUEE VARIABLE ANNUITY A UNITS
The Contract provides a vehicle for investing on a tax-deferred basis in 12
investment company Portfolios offered by the Funds and three General Account
Guaranteed Options offered by the Company. Monies may be subsequently
withdrawn from the Contract either as a lump sum or as annuity income as
permitted under the Contract. Accumulated Values and Annuity Payments depend
on the investment experience of the selected Portfolios and/or the guarantees
of the General Account Guaranteed Options. The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract except to the extent of the portion of your
Accumulated Value allocated to the General Account. The General Account
Guaranteed Options are available for sale in most, but not all, states.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement but also for other long-term
investment purposes. The tax-deferred feature of the Contract is most
attractive to investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract and a Non-
Qualified Contract. Both Qualified and Non-Qualified Contracts offer tax-
deferral on increases in the Contract's value prior to withdrawal or
distribution - however, Purchase Payments made by Contract Owners of Qualified
Contracts may be excludible or deductible from gross income in the year such
payments are made, subject to certain statutory restrictions and limitations.
(See "Federal Tax Considerations," page 24)....................... Page 24
GENERAL ACCOUNT GUARANTEED OPTIONS
THE AVAILABILITY, STRUCTURE AND FEATURES OF THE GENERAL ACCOUNT GUARANTEED
OPTIONS VARY BY STATE. CHECK WITH YOUR SALES REPRESENTATIVE FOR DETAILS OF THE
AVAILABILITY AND CHARACTERISTICS OF THESE OPTIONS BEFORE PURCHASING.
If your state of issue is any state other than those listed in the immediately
following sentence, then your General
Account Guaranteed Options are described in Part 1 of Appendix A. If your
state of issue is DC, IN, MD, MA, OK, PA, TX or VA, then your General Account
Guaranteed Options are described in Part 2 of Appendix A. Please read Appendix
A and the relevant Part 1 or Part 2 carefully.
In certain marketing and customer communication materials, including the
customer order form and the Contract, used in the states listed in the second
sentence of the paragraph immediately above, the One-Year Guaranteed Rate
Option may be titled the "One-Year Guaranteed Index Rate Option"; the Multi-
Year Guaranteed Rate Option may be titled the "Five-Year Guaranteed Index Rate
Option"; and the Guaranteed Equity Option may be titled the "Five-Year
Guaranteed Equity Option."
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 12 Subaccounts of the
Separate Account and/or the General Account Guaranteed Options. The
Subaccounts in turn invest exclusively in the following 12 Portfolios offered
by the Funds: Fidelity Money Market, Fidelity Equity-Income, Fidelity Growth,
Fidelity Asset Manager, Dreyfus Growth and Income, Dreyfus Quality Bond, T.
Rowe Price Equity Income, T. Rowe Price New America Growth, T. Rowe Price
International Stock, OpCap Advisors Managed, OpCap Advisors Small Cap and
OpCap Advisors U.S. Government Income. The assets of each Portfolio are
separate, and each Portfolio has distinct investment objectives and policies
as described in the corresponding Fund or Portfolio Prospectus. The General
Account Guaranteed Options are available for sale in most, but not all,
states............................................................ Page 13
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 and General Account Guaranteed Options.
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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, please consult your agent who will 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. The minimum initial
Purchase Payment is $5,000 for Non-Qualified Contracts and $2,000 (or $50
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................................................ Page 15
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 Fidelity Money Market until the
expiration of the Right to Cancel Period of 10 to 30 days or more in some
instances as specified in your Contract when issued (plus a 5 day grace period
to allow for mail delivery) and then invested according to your initial
allocation instructions (except that any accrued interest will remain in
Fidelity Money Market if it is selected as an initial allocation option),
provided that portions of your initial Net Purchase Payment(s) allocated to
the Guaranteed Rate Options will be invested immediately upon our receipt
thereof in order to lock in the rates then applicable to such options. Please
note that immediate investment is not applicable with respect to amounts
allocated to the Guaranteed Equity Option.
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
Portfolios and Guaranteed Rate Options immediately upon our receipt thereof,
IN WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO
THE PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that immediate
investment is not available with respect to any amounts allocated to THE
GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR THE GUARANTEE 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............................................ Page 15
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 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 or to
the agent from whom you purchased the Contract. When we receive the Contract,
(1) if the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH,
NC, OK, OR, SC, UT, VA or WV, then for any amount of your initial Purchase
Payment(s) invested in Fidelity Money Market, we will return the Accumulated
Value of the amount of your Purchase Payment(s) so invested, or if greater,
the amount of your Purchase Payment(s) so invested, (2) for any amount of your
initial Purchase Payment(s) invested in the Portfolios immediately following
receipt by us, we will return the Accumulated Value of your Purchase
Payment(s) so invested plus any loads, fees and/or Premium Taxes that may have
been subtracted from such amount, and (3) for any amount of your initial
Purchase Payment(s) invested in the Guaranteed Rate Options immediately
following receipt by us, we will refund the Accumulated Value of your Purchase
Payment(s) so invested............................................ Page 15
EXCHANGES
You may make unlimited Exchanges among the Portfolios or into the General
Account Guaranteed Options, provided you maintain a minimum balance of $250 in
each Subaccount or $1,000 in each General Account Guaranteed Option,
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respectively, to which you have allocated a portion of your Accumulated Value.
No fee is currently imposed for such Exchanges; however, we reserve the right
to charge a $15 fee for Exchanges in excess of 12 per Contract Year. Exchanges
must not reduce the value of any allocation to any Subaccount or General
Account Guaranteed Option below $250 or $1,000, respectively, or that
remaining amount will be transferred to your other Subaccounts or General
Account Guaranteed Options on a pro rata basis. The Guaranteed Equity Option
is illiquid for the entire guarantee period, and transfers from the Guaranteed
Rate Options may be subject to additional limitations and charges. (See also
"Charges and Deductions," page 17, and "The General Account," at Appendix A)...
Page 19
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value (plus any
positive Market Value Adjustment applicable under the Multi-Year Guaranteed
Rate Option) or the Adjusted Death Benefit on the date we receive due proof of
the Annuitant's death. During the first six Contract Years, the Adjusted Death
Benefit will be the sum of all Net Purchase Payments made, less any partial
withdrawals taken. During each subsequent six- year period, the Adjusted Death
Benefit will be the Death Benefit on the last day of the previous six-year
period plus any Net Purchase Payments made, less any partial withdrawals taken
during the current six-year period. After the Annuitant attains age 75, the
Adjusted Death Benefit will remain equal to the Death Benefit on the last day
of the six-year period before age 75 occurs plus any Net Purchase Payments
subsequently made, less any partial withdrawals subsequently taken. The
Annuitant's Beneficiary may elect to receive these proceeds as a lump sum or
as Annuity Payments. If the Annuitant dies on or after the Annuity Date, any
unpaid payments certain will be paid, generally to the Annuitant's
Beneficiary, in accordance with the Contract.......................Page 22
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your annuity. We provide you with a variety of options as it relates
to those payments. At your discretion, payments may be either fixed or
variable or both. Fixed payouts are guaranteed for a designated period or for
life (either single or joint). Variable payments will vary depending on the
performance of the underlying Portfolio or Portfolios selected.....Page 23
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-866-6007 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming
any financial transactions that take place, as well as quarterly statements
and an annual statement.
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
Providian Marquee A Unit Contracts have a front-end sales load of up to 5.75%
and an annual mortality and expense risk charge of .65%.
Contracts also include administrative charges and policy fees which pay for
administering the Contracts, and management, advisory and other fees, which
reflect the costs of the Funds.....................................Page 17
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior
to age 59 1/2 may be subject to a 10% penalty tax (and a portion may be
subject to ordinary income taxes)..................................Page 20
ALTERNATE CONTRACT VERSION
Providian Marquee Contracts are offered in two versions with differing charge
structures and features. THIS PROSPECTUS DESCRIBES ONLY THE PROVIDIAN MARQUEE
A UNIT CONTRACT. Also available is a standard Providian Marquee
7
<PAGE>
Contract. Standard contracts have no initial sales loads, but are subject to
withdrawal or surrender charges of up to 6% during the first 6 years. Standard
contracts also have increased annual mortality and expense risk charges of
1.25%. Other differences apply to the General Account Guaranteed Options and
annual permitted additions. Standard Providian Marquee contracts are offered
only by the appropriate Providian Marquee prospectus. (Standard Providian
Marquee contracts may occasionally be described as B Unit contracts in certain
marketing materials and trade publications and in the Statement of Additional
Information.) For full details regarding such contracts, please see the
applicable Providian Marquee prospectus, which may be obtained from your agent
or by calling our Administrative Offices at 1-800-866-6007.
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. The
purpose of this table is to assist you in understanding the various costs and
expenses that you would bear directly or indirectly as a purchaser of the
Contract. The fee table reflects all expenses for both the Separate Account and
the Funds. For a complete discussion of Contract costs and expenses, including
charges applicable to the General Account Guaranteed Options, see "Charges and
Deductions," page 15.
<TABLE>
<CAPTION>
FEE
AMOUNT
CONTRACTOWNER TRANSACTION EXPENSES ------
<S> <C>
Sales Load Imposed on Purchases (under $100,000)..................... 5.75%*
Contingent Deferred Sales Load (surrender charge).................... None
Exchange Fees........................................................ None
ANNUAL CONTRACT FEE.................................................. $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge.................................... .65%
Administrative Charge................................................ .15%
----
Total Annual Separate Account Expenses............................... .80%**
</TABLE>
*A Unit Contract purchases of $100,000 or more will carry a reduced sales load,
see "Charges and Deductions," page 15.
**Separate Account Annual Expenses are not charged against the General Account
Guaranteed Options.
PORTFOLIO ANNUAL EXPENSES
Except as indicated, the figures below are based on expenses for fiscal year
1996 (as a percentage of each Portfolio's average net assets after fee waiver
and/or expense reimbursement limitation, if applicable).
<TABLE>
<CAPTION>
MANAGEMENT
AND ADVISORY OTHER TOTAL PORTFOLIO
EXPENSES EXPENSES ANNUAL EXPENSES
------------ -------- ---------------
<S> <C> <C> <C>
Fidelity Money Market*.. 0.21% 0.09% 0.30%
Fidelity Equity-Income*. 0.51% 0.70% 0.58%
Fidelity Growth*........ 0.61% 0.80% 0.69%
Fidelity Asset Manager*. 0.64% 0.10% 0.74%
Dreyfus Growth and
Income**............... 0.75% 0.08% 0.83%
Dreyfus Quality Bond**.. 0.65% 0.14% 0.79%
T. Rowe Price Equity
Income................. 0.85% 0.00% 0.85%
T. Rowe Price New
America Growth......... 0.85% 0.00% 0.85%
T. Rowe Price
International Stock.... 1.05% 0.00% 1.05%
OpCap Advisors
Managed***............. 0.80% 0.10% 0.90%
OpCap Advisors Small
Cap***................. 0.80% 0.22% 1.02%
OpCap Advisors U.S.
Government Income***... 0.60% 0.42% 1.02%
</TABLE>
*A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented
in the table would have been 0.56% for Equity-Income Portfolio, 0.67% for
Growth Portfolio, and 0.73% for Asset Manager Portfolio.
8
<PAGE>
**From time to time, the Dreyfus Growth and Income and Quality Bond
Portfolios' investment adviser in its sole discretion may waive all or part
of its fees and/or voluntarily assume certain of the Portfolios' expenses.
For a more complete description of the Portfolios' fees and expenses, see
the Dreyfus Variable Investment Fund's Prospectus.
***The annual expenses of OCC Accumulation Trust Portfolios (the "Portfolios")
as of December 31, 1996 have been restated to reflect new management fee and
expense limitation arrangements in effect as of May 1, 1996. Additionally,
Other Expenses are shown gross of certain expense offsets afforded the
Portfolios which effectively lowered overall custody expenses. Effective May
1, 1996, the expenses of the Portfolios were contractually limited by OpCap
Advisors so that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.25% of their respective average daily net
assets. Furthermore, through December 31, 1997, the annualized operating
expenses of the U.S. Government Income, Managed and Small Cap Portfolios
will be voluntarily limited by OpCap Advisors so that annualized operating
expenses (net of any expense offsets) of these Portfolios do not exceed
1.00% of their respective average daily net assets. Without such contractual
and voluntary expense limitations and without giving effect to any expense
offsets, the Management Fees, Other Expenses and Total Portfolio Annual
Expenses incurred for the fiscal year ended December 31, 1996 would have
been; 0.60%, 1.74% and 2.34%, respectively, for the U.S. Government Income
Portfolio; 0.80%, 0.10% and 0.90%, respectively, for the Managed Portfolio;
and 0.80%, 0.26% and 1.06%, respectively, for the Small Cap Portfolio.
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>
10
1 YEAR 3 YEARS 5 YEARS YEARS
------ ------- ------- -------
<S> <C> <C> <C> <C>
Fidelity Money Market...................... $68.74 $92.42 $117.83 $189.79
Fidelity Equity-Income..................... $71.41 $100.62 $131.81 $219.39
Fidelity Growth............................ $72.45 $103.82 $137.24 $230.76
Fidelity Asset Manager..................... $72.93 $105.27 $139.70 $235.89
Dreyfus Growth and Income.................. $73.78 $107.88 $144.11 $245.05
Dreyfus Quality Bond....................... $73.40 $106.72 $142.15 $240.99
T. Rowe Price Equity Income................ $73.97 $108.45 $145.09 $247.07
T. Rowe Price New America Growth........... $73.97 $108.45 $145.09 $247.07
T. Rowe Price International Stock.......... $75.87 $114.21 $154.80 $267.04
OpCap Advisors Managed..................... $74.45 $109.90 $147.53 $252.10
OpCap Advisors Small Cap................... $75.59 $113.35 $153.35 $264.07
OpCap Advisors U.S. Government Income...... $75.59 $113.35 $153.35 $264.07
</TABLE>
The Annual Contract Fee is reflected in these examples 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 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, 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.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1994 THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
FIDELITY FIDELITY DREYFUS DREYFUS
MONEY FIDELITY ASSET FIDELITY GROWTH AND QUALITY
MARKET EQUITY-INCOME MANAGER GROWTH INCOME BOND
-------- ------------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date*........... 10.000 10.000 10.000 10.000 10.000 10.000
12/31/94.............. 10.152 9.838 9.741 10.670 9.669 10.171
12/31/95.............. 10.664 13.185 11.302 14.329 15.534 12.150
12/31/96.............. 11.151 14.947 12.849 16.305 18.608 12.429
Number of units
outstanding as of:
12/31/94.............. 20,725 200 1,006 2,452 1,095 100
12/31/95.............. 224,406 35,785 8,531 11,298 13,983 1,525
12/31/96.............. 105,415 49,090 13,610 30,252 47,193 8,700
<CAPTION>
OPCAP
TRP TRP TRP NEW OPCAP OPCAP ADVISORS
EQUITY INTERNATIONAL AMERICA ADVISORS ADVISORS U.S. GOV'T.
INCOME STOCK GROWTH MANAGED SMALL CAP. INCOME**
-------- ------------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date*........... 10.000 10.000 10.000 10.000 10.000 10.000
12/31/94.............. 10.000 9.672 9.825 9.849 10.232 9.996
12/31/95.............. 13.369 10.668 14.727 14.221 11.696 10.595
12/31/96.............. 15.856 12.138 17.543 17.320 13.775 10.829
Number of units
outstanding as of:
12/31/94.............. 587 2,715 206 794 1,749 0
12/31/95.............. 16,794 9,886 4,670 15,926 4,223 1,849
12/31/96.............. 23,987 40,656 22,858 36,117 28,989 4,379
</TABLE>
* Date of commencement of operations for Fidelity Money Market was 7/20/94;
for T. Rowe Price International, Fidelity Growth and Fidelity Asset Manager
was 8/1/94; for Dreyfus Growth and Income was 9/26/94; for Fidelity Equity-
Income, T. Rowe Price Equity Income, T. Rowe Price New America Growth, OpCap
Advisors Managed and OpCap Advisors Small Cap was 11/17/94; and for Dreyfus
Quality Bond and OpCap Advisors U.S. Government Income was 11/18/94.
** The OpCap Advisors U.S. Government Income Portfolio had activity in 1994 but
no Accumulation Units were outstanding at 12/31/94.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company and the
financial statements of the Separate Account (as well as the Independent
Auditors' Reports thereon) are contained in the Statement of Additional
Information.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Fidelity Money Market Subaccount, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
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 (the "SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated
10
<PAGE>
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 all applicable sales loads, 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 ("YTD") 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 do not reflect the
Annual Contract Fee, any sales loads or Premium Taxes (if any) which, if
included, would reduce the percentages reported.
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. These returns do not include
the Annual Contract Fee, any sales loads or Premium Taxes (if any) which, if
included, would reduce the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of the Fidelity Money Market Portfolio. "Yield" refers to
the income generated by an investment in Fidelity Money Market over a seven-day
period, which is then "annualized." That is, the amount of income generated by
the investment during that week is assumed to be generated each week over a 52-
week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in Fidelity Money Market is assumed to be reinvested. Therefore the
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. These figures do not reflect
the Annual Contract Fee, any sales loads or Premium Taxes (if any) which, if
included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than Fidelity Money
Market for which the Company advertises yield, the Company shall furnish a
yield quotation referring to the Portfolio computed in the following manner:
the net investment income per Accumulation Unit earned during a recent one
month period is divided by the Accumulation Unit Value on the last day of the
period.
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.
11
<PAGE>
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
THE COMPANY AND THE SEPARATE ACCOUNT
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Missouri on August 6, 1920. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in 49 states, the District of Columbia and Puerto
Rico. The Company is 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 $29 billion as of
December 31, 1996.
On December 28, 1996, Providian executed a Plan and Agreement of Merger and
Reorganization (the "Merger Agreement") with AEGON N.V., an international
insurance company headquartered in The Hague, The Netherlands. Under the
Merger Agreement, Providian's insurance operations, including the operations
of the Company, will merge with a wholly owned subsidiary of AEGON. Providian
will be the surviving corporation of the merger and will become a wholly owned
subsidiary of AEGON. The merger of Providian's insurance businesses with AEGON
is conditioned upon several events, including shareholder and various
regulatory approvals. Providian anticipates that the closing of the
transaction will occur in mid-1997. Because consummation of the merger is
subject to the above conditions, no representations can be made as to whether,
or when, the merger will be completed or as to the possible impact of the
merger on the financial position and results of operations of the Company
should the merger occur.
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 12 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund and Variable Insurance Products Fund II
(each, a "Fidelity Fund" and collectively, the "Fidelity Funds") are
diversified, open-end management investment companies organized by Fidelity
Management & Research Company ("FMR") and registered under the 1940 Act. Each
Fidelity Fund consists of several investment portfolios, including the Money
Market, Equity-Income, Growth and Asset Manager Portfolios available as part
of the Providian Marquee. FMR serves as the Fidelity Funds' investment
adviser. ("VIP" and "VIP II" refer to Variable Insurance Products Fund and
Variable Insurance Products Fund II.)
12
<PAGE>
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end management investment company
organized under the 1940 Act. The Dreyfus Variable Investment Fund consists of
thirteen separate investment portfolios, including the Growth and Income and
Quality Bond Portfolios, which are the only portfolios available as part of the
Providian Marquee. The Dreyfus Corporation serves as this Fund's investment
adviser.
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Series Inc. is a Maryland corporation organized in 1994
and is registered with the Securities and Exchange Commission under the 1940
Act as a diversified, open-end management investment company, commonly known as
a "mutual fund." Currently, the fund consists of the Equity Income and New
America Growth Portfolios, each of which represents a separate class of shares
having different objectives and investment policies, and both of which are
available as part of the Providian Marquee. T. Rowe Price Associates, Inc. is
responsible for the selection and management of this Fund's portfolio
investments and serves as the Fund's investment adviser.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Series, Inc. is a Maryland corporation organized in
1994 and is registered with the Securities and Exchange Commission under the
1940 Act as a diversified, open-end management investment company, commonly
known as a "mutual fund." The corporation is a series fund and has the
authority to issue other series in addition to the International Stock
Portfolio currently available as part of the Providian Marquee. Rowe Price-
Fleming International, Inc. is responsible for selection and management of this
Fund's portfolio investments and serves as the Fund's investment adviser.
OCC ACCUMULATION TRUST
OCC Accumulation Trust is a Massachusetts business trust and is registered with
the Securities and Exchange Commission under the 1940 Act as a diversified,
open-end management investment company. The Fund receives investment advice
with respect to each of its portfolios from OpCap Advisors, a subsidiary of
Oppenheimer Capital, a registered investment adviser. The Fund currently
consists of seven series, including the OpCap Advisors Managed, OpCap Advisors
Small Cap and OpCap Advisors Government Income Portfolios available as part of
the Providian Marquee. The OCC Accumulation Trust was formerly known as the
Quest For Value Accumulation Trust.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH EACH PORTFOLIO'S
INVESTMENTS, PLEASE REFER TO THE APPLICABLE UNDERLYING FUND PROSPECTUS.
VIP MONEY MARKET PORTFOLIO ("FIDELITY MONEY MARKET")
Fidelity Money Market seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. It invests only in
high-quality U.S. dollar denominated money market instruments of domestic and
foreign issuers.
VIP EQUITY-INCOME PORTFOLIO ("FIDELITY EQUITY-INCOME")
Fidelity Equity-Income seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
VIP GROWTH PORTFOLIO ("FIDELITY GROWTH")
Fidelity Growth seeks to achieve capital appreciation normally through the
purchase of common stocks (although the Portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
13
<PAGE>
VIP II ASSET MANAGER PORTFOLIO ("FIDELITY ASSET MANAGER")
Fidelity Asset Manager seeks high total return with reduced risk over the long-
term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
DREYFUS GROWTH AND INCOME PORTFOLIO ("DREYFUS GROWTH AND INCOME")
Dreyfus Growth and Income is a non-diversified Portfolio, the goal of which is
long-term capital growth, current income and growth of income, consistent with
reasonable investment risk. The Portfolio invests in equity and debt securities
and money market instruments of domestic and foreign issuers.
DREYFUS QUALITY BOND PORTFOLIO ("DREYFUS QUALITY BOND")
Dreyfus Quality Bond is a diversified Portfolio, the goal of which is to
provide the maximum amount of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity. The Dreyfus Quality
Bond Portfolio invests in debt obligations of corporations, the U.S. Government
and its agencies and instrumentalities, and major U.S. banking institutions.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ("T. ROWE PRICE EQUITY INCOME")
T. Rowe Price Equity Income seeks to provide substantial dividend income as
well as long-term capital appreciation by investing primarily in dividend-
paying common stocks of established companies. In pursuing its objective, the
Portfolio emphasizes companies with favorable prospects for both increasing
dividend income and capital appreciation.
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO ("T. ROWE PRICE NEW AMERICA GROWTH")
T. Rowe Price New America Growth seeks long-term growth of capital through
investments primarily in the common stocks of U.S. growth companies which
operate in service industries. In pursuing its objective, this Portfolio
invests primarily in companies deriving a majority of their revenues or
operating earnings from service-related activities and in companies whose
prospects are closely tied to service industries. This Portfolio may also
invest up to 25% of its assets in non-service related growth companies in
pursuit of capital appreciation whose earnings are believed to hold the
prospect of superior growth.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ("T. ROWE PRICE INTERNATIONAL
STOCK")
T. Rowe Price International Stock seeks long-term growth of capital, through
investments primarily in common stocks of established, non-U.S. companies.
OPCAP ADVISORS OCC ACCUMULATION TRUST MANAGED PORTFOLIO ("OPCAP ADVISORS
MANAGED")
OpCap Advisors Managed seeks to achieve growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary over time based on the
investment manager's assessments of the relative outlook for such investments.
OPCAP ADVISORS OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO ("OPCAP ADVISORS
SMALL CAP")
OpCap Advisors Small Cap seeks capital appreciation through investments in a
diversified portfolio consisting primarily of equity securities of companies
with market capitalizations under $1 billion.
OPCAP ADVISORS OCC ACCUMULATION TRUST U.S. GOVERNMENT INCOME PORTFOLIO ("OPCAP
ADVISORS U.S. GOVERNMENT INCOME")
The investment objective of OpCap Advisors U.S. Government Income is to seek a
high level of current income together with the protection of capital. This
Portfolio seeks to achieve its investment objective by investing exclusively in
debt obligations, including mortgage-backed securities, issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
14
<PAGE>
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services, total expenses and
charges can be found in the current prospectuses for the corresponding Funds.
THE FUNDS' OR PORTFOLIOS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY
DECISION IS MADE CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A
PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise between the interests
of the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
CONTRACT FEATURES
The rights and benefits under the Contract are as 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, or to the agent from whom you purchased the Contract. Upon
cancellation, the Contract is treated as void from the Contract Date and when
we receive the Contract, (1) if the state of issue of your Contract is CA, GA,
ID, LA, MI, MO, NE, NH, NC, OK, OR, SC, UT, VA or WV, then for any amount of
your initial Purchase Payment(s) invested in Fidelity Money Market, we will
return the Accumulated Value of the amount of your Purchase Payment(s) so
invested, or if greater, the amount of your Purchase Payment(s) so invested,
(2) for any amount of your initial Purchase Payment(s) invested in the
Portfolios immediately following receipt by us, we will return the Accumulated
Value of your Purchase Payment(s) so invested plus any loads, fees and/or
Premium Taxes that may have been subtracted from such amount, and (3) for any
amount of your initial Purchase Payment(s) invested in the Guaranteed Rate
Options immediately following receipt by us, we will refund the Accumulated
Value of your Purchase Payment(s) so invested.
CONTRACT PURCHASE AND PURCHASE PAYMENTS
If you wish to purchase a Contract, you should consult your agent who will
provide the necessary information to us in a customer order form and forward
your 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 your initial Purchase Payment (rather than through the mail),
you must do so at our Administrative Offices, 400 West Market Street,
Louisville, KY 40202. Your initial Purchase Payment for a Non-Qualified
Contract must be equal to or greater than the $5,000 minimum investment
requirement. The initial Purchase Payment for a Qualified Contract must be
equal to or greater than $2,000 (or you may establish a payment schedule of
$50 a month by payroll deduction).
The Contract will be issued and the initial Purchase Payment less any sales
load or Premium Taxes will be credited within two 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 acknowledgement form, which you should complete, sign and
return in accordance with its instructions. Please note that until the Company
receives the acknowledgement 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.
15
<PAGE>
If the initial Purchase Payment cannot be credited because the customer order
form is incomplete, we will contact you, explain the reason for the delay and
will refund the initial Purchase Payment within five Business Days, unless you
instruct 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. Any additional Purchase Payments
must be for at least $500 for Non-Qualified Contracts or $50 for Qualified
Contracts. If additional Purchase Payments are received prior to the close of
the New York Stock Exchange (generally 4:00 P.M. Eastern time) they will be
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.
The Company reserves the right to refuse to issue this Contract in cases
involving an exchange for another Contract. In cases where a Contract Owner or
former Contract Owner requests the Company to reverse a surrender or
withdrawal transaction, whether full or partial, the Company reserves the
right to refuse such requests or grant such requests on the condition that the
Contract's Accumulated Value be adjusted to reflect appropriate investment
results, administrative costs or loss of interest during the relevant period.
PURCHASING BY WIRE
For wiring instructions please contact our Administrative Offices at 1-800-
866-6007.
ALLOCATION OF PURCHASE PAYMENTS
You instruct your agent how your Net Purchase Payments will be allocated. You
may allocate each Net Purchase Payment to one or more of the Portfolios or the
General Account Guaranteed Options as long as such portions are whole number
percentages provided that each allocation to a General Account Guaranteed
Option is at least $1,000 and that no Portfolio or General Account Guaranteed
Option may contain a balance less than $250 or $1,000, respectively. You may
choose not to allocate any monies to a particular Portfolio. You may change
allocation instructions for future Net Purchase Payments by sending us the
appropriate Company form or by complying with other designated Company
procedures. The General Account Guaranteed Options are available for sale in
most, but not all, states. Please note that immediate investment is not
applicable to amounts allocated to the Guaranteed Equity Option.
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 Fidelity Money Market until the
expiration of the Right to Cancel Period of 10 to 30 days (plus a five day
grace period to allow for mail delivery) or more in some instances as
specified in your Contract after the issuance of your Contract and then
invested according to your initial allocation instructions (except that any
accrued interest will remain in Fidelity Money Market if it is selected as an
initial allocation option), provided that portions of your initial Net
Purchase Payment(s) allocated to the Guaranteed Rate Options will be invested
immediately upon our receipt thereof in order to lock in the rates then
applicable to such options.
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in your
Portfolios and Guaranteed Rate Options immediately upon our receipt thereof,
IN WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO
THE PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that immediate
investment is not available with respect to any amounts allocated to THE
GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR THE GUARANTEE PERIOD.)
GENERAL ACCOUNT GUARANTEED OPTIONS
THE AVAILABILITY, STRUCTURE AND FEATURES OF THE GENERAL ACCOUNT GUARANTEED
OPTIONS VARY BY STATE. CHECK WITH YOUR SALES REPRESENTATIVE FOR DETAILS OF THE
AVAILABILITY AND CHARACTERISTICS OF THESE OPTIONS BEFORE PURCHASING.
If your state of issue is any state other than those listed in the immediately
following sentence, then your General Account Guaranteed Options are described
in Part 1 of Appendix A. If your state of issue is DC, IN, MD, MA, OK, PA, TX
or VA, then your General Account Guaranteed Options are described in Part 2 of
Appendix A. Please read Appendix A and the relevant Part 1 or Part 2
carefully.
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<PAGE>
In certain marketing and customer communication materials, including the
customer order form and the Contract, used in the states listed in the second
sentence of the paragraph immediately above, the One-Year Guaranteed Rate
Option may be titled the "One-Year Guaranteed Index Rate Option"; the Multi-
Year Guaranteed Rate Option may be titled the "Five-Year Guaranteed Index Rate
Option"; and the Guaranteed Equity Option may be titled the "Five-Year
Guaranteed Equity Option."
CHARGES AND DEDUCTIONS
There are no withdrawal or surrender charges for Contracts (although certain
charges or restrictions may apply to your Contract's General Account
Guaranteed Options). For Contracts, the following percentages of each Purchase
Payment are deducted as a sales load:
<TABLE>
<CAPTION>
AGGREGATED PURCHASE PAYMENTS SALES LOAD
---------------------------- ----------
<S> <C>
$0-$99,999.................................. 5.75%
$100,000-$249,999........................... 4.75%
$250,000-$499,999........................... 3.75%
$500,000-$999,999........................... 2.75%
$1 Million +................................ 1.75%
</TABLE>
These Purchase Payment breakpoints will be applied on an aggregated basis, so
that all prior Purchase Payments will be added to the amount of any additional
Purchase Payment before the breakpoint calculation is made. (Example: An
$80,000 Purchase Payment is initially received. An additional Purchase Payment
of $40,000 is made the following year, bringing the aggregate amount of
Purchase Payments to $120,000. A sales load of 4.75% will apply to the entire
$40,000 Purchase Payment.) Growth in your Accumulated Value is not added into
this calculation, and partial withdrawals are not subtracted from this
calculation.
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 .65% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to the Company surplus and will be used for any lawful purpose,
including any shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
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 on each Contract Anniversary and upon surrender, on a pro rata
basis, from each Subaccount. These deductions represent reimbursement for the
costs expected to be incurred over the life of the Contract for issuing and
maintaining each Contract and the Separate Account.
17
<PAGE>
EXCHANGES
Each Contract Year you may make an unlimited number of free Exchanges between
Portfolios and/or General Account Guaranteed Options, provided that after an
Exchange no Portfolio or General Account Guaranteed Option may contain a
balance less than $250 or $1,000, respectively. We reserve the right to charge
a $15 fee in the future for Exchanges in excess of 12 per Contract Year.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The sales load or other 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 sales and/or
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
and certain sales representatives for the Contract are permitted to purchase
Contracts with substantial reduction of the sales load, contingent deferred
sales load or other 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 the sales load, contingent
deferred sales loads or other 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.
At the time of the filing of this Prospectus, the following state assesses a
Premium Tax on all initial and additional Purchase Payments on Non-Qualified
Contracts:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
South Dakota.................. 0% 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. At
the time of the filing of this Prospectus, the following states assess a
Premium Tax against the Accumulated Value if the Contract Owner chooses an
Annuity Payment Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
California.................... .50% 2.35%
District of Columbia.......... 2.25% 2.25%
Kansas........................ 0% 2.00%
Kentucky...................... 2.00% 2.00%
Maine......................... 0% 2.00%
Nevada........................ 0% 3.50%
West Virginia................. 1.00% 1.00%
Wyoming....................... 0% 1.00%
</TABLE>
Under present laws, the Company will incur state or local taxes (in addition to
the Premium Taxes described above) in several states. At present, the Company
does not charge the Contract Owner for these taxes. If there is a change in
state or local tax laws, charges for such taxes may be made. The Company does
not expect to incur any federal income tax liability attributable to investment
income or capital gains retained as part of the reserves under the Contracts.
(See "Federal Tax Considerations," page 24.) Based upon these expectations, no
charge is currently being made to the Separate Account for federal income taxes
that may be attributable to the Separate Account.
18
<PAGE>
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a charge
may be made in future years for any federal income taxes incurred by the
Company. This might become necessary if the tax treatment of the Company is
ultimately determined to be other than what the Company currently believes it
to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflect the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in each Fund's Prospectus and
Statement of Additional Information.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s) and
the interest credited to the General Account Guaranteed Options during the
Valuation Period; and reduced by: (i) any decrease in the Accumulated Value due
to investment results of the selected Portfolio(s), (ii) a daily charge to
cover the mortality and expense risks assumed by the Company, (iii) any charge
to cover the cost of administering the Contract, (iv) any partial withdrawals,
(v) any Market Value Adjustment or other deduction due to early Exchanges from
the Guaranteed Rate Options and, if exercised by the Company, (vi) any charges
for any Exchanges made after the first twelve in any Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds and, as permitted, the General Account Guaranteed
Options. Requests for Exchanges, received by mail or by telephone, prior to the
close of the New York Stock Exchange (generally 4:00 P.M. Eastern time) are
processed at the close of business that same day. Requests received after the
close of the New York Stock Exchange are processed the next Business Day. If
you experience difficulty in making a telephone Exchange your Exchange request
may be made by regular or express mail. It will be processed on the date
received.
To take advantage of the privilege of initiating transactions by telephone, you
must first elect the privilege by completing the appropriate section of the
Contract acknowledgement 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 acknowledgement form.
The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Prior to the acceptance of any request,
the caller will be asked by a customer service representative for his or her
Contract number and social security number. In addition, telephone
communications from a third party authorized to transact in an account will
undergo reasonable procedures to confirm that instructions are genuine. The
third party caller will be asked for his or her name, company affiliation (if
appropriate), the Contract number to which he or she is referring, and the
social security number of the Contract Owner. All calls will be recorded, and
this information will be verified with the Contract Owner's records prior to
processing a transaction. Furthermore, all transactions performed by a customer
service representative will be verified with the Contract Owner through a
written confirmation statement. Neither the Company nor the Funds shall be
liable for any loss, cost or expense for action on telephone instructions that
are believed to be genuine in accordance with these procedures.
For information concerning Exchanges to and from the General Account Guaranteed
Options, see "The General Account," at Appendix A.
19
<PAGE>
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of the
Surrender Value by sending a written request to our Administrative Offices.
Full or partial withdrawals may only be made before the Annuity Date and all
partial withdrawal requests must be for at least $500. The amount available for
full or partial withdrawal is the Surrender Value at the end of the Valuation
Period during which the written request for withdrawal is received. The
Surrender Value is an amount equal to the Accumulated Value, adjusted to
reflect any applicable Market Value Adjustment for amounts allocated to the
Multi-Year Guaranteed Rate Option, less any early withdrawal charges for
amounts allocated to the One-Year Guaranteed Rate Option, less any amount
allocated to the Guaranteed Equity Option, less any Premium Taxes incurred but
not yet deducted. The withdrawal amount may be paid in a lump sum to you, or if
elected, all or any part may be paid out under an Annuity Payment Option. (See
"Annuity Payment Options," page 23).
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. You may not make any full or partial withdrawals from
the Guaranteed Equity Option before the end of the guarantee period. Your
proceeds will normally be processed and mailed to you within two Business Days
after the receipt of the request but in no event will it be later than seven
calendar days, subject to postponement in certain circumstances. (See
"Deferment of Payment," page 22).
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 10% from the taxable portion of any
full or partial withdrawal and remit that amount to the federal government.
Moreover, the Code provides that a 10% penalty tax may be imposed on certain
early withdrawals. (See "Federal Tax Considerations," page 24).
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of the
Contract (taking into account any prior withdrawals) may be more or less than
the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semiannual 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.
Like any other partial withdrawal, each systematic withdrawal is subject to
taxes on earnings. If the owner has not provided the Company with a written
election not to have federal income taxes withheld, the Company must by law
withhold 10% from the taxable portion of the systematic withdrawal and remit
that amount to the federal government. Moreover, the Code provides that a 10%
penalty tax may be imposed on certain early withdrawals. (See "Federal Tax
Considerations," page 24.) You may wish to consult a tax adviser regarding any
tax consequences that might result prior to electing the Systematic Withdrawal
Option.
We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for such
service.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in Fidelity Money Market, you
may choose to have a specified dollar amount transferred from this Portfolio to
other Portfolios in the Separate Account or to the General Account
20
<PAGE>
Guaranteed Options on a monthly basis. The main objective of Dollar Cost
Averaging is to shield your investment from short term price fluctuations.
Since the same dollar amount is transferred to other Portfolios each month,
more units are purchased in a Portfolio if the value per unit is low and less
units are purchased if the value per unit is high. Therefore, a lower average
cost per unit may be achieved over the long term. This plan of investing allows
investors to take advantage of market fluctuations but does not assure a profit
or protect against a loss in declining markets.
This Dollar Cost Averaging Option may be elected on the customer order form or
at a later date. The minimum amount that may be transferred each month into any
Portfolio or General Account Guaranteed Option is $250. The maximum amount
which may be transferred is equal to the Accumulated Value in Fidelity Money
Market when elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel this
option by sending the appropriate Company form to our Administrative Offices
which must be received at least seven days before the next transfer date.
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within five years after
date of death or be paid under an Annuity Payment Option under which payments
will begin within one year of the Contract Owner's death and will be made for
the life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason of
death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $250 (or $1,000
in the case of any General Account Guaranteed Option balance), due to a partial
withdrawal or Exchange, to the remaining Portfolios held under that Contract on
a pro rata basis. In the event that the entire value of the Contract falls
below $1,000, you may be notified that the Accumulated Value of your account is
below the Contract's minimum requirement. You would then be allowed 60 days to
make an additional investment before the account is liquidated. Proceeds would
be promptly paid to the Contract Owner. The full proceeds would be taxable as a
withdrawal. We will not exercise this right with respect to Qualified
Contracts.
DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the 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.
21
<PAGE>
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died, that
share of the Death Benefit will be paid equally to the survivor(s);
(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) If an Annuitant's Beneficiary dies at the same time as the Annuitant,
the proceeds will be paid as though the Annuitant's Beneficiary had
died first. If an Annuitant's Beneficiary dies within 15 days after the
Annuitant's death and before the Company receives due proof of the
Annuitant's death, proceeds will be paid as though the Annuitant's
Beneficiary had died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's named
beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her estate.
If a Life Annuity with Period Certain option was elected, and if the Annuitant
dies on or after the Annuity Date, any unpaid payments certain will be paid to
the Annuitant's Beneficiary or your designated Payee.
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and is
payable upon receipt of due Proof of Death of the Annuitant as well as proof
that the Annuitant died prior to the Annuity Date. Upon receipt of this proof,
the Death Benefit will be paid within seven days, or as soon thereafter as the
Company has sufficient information about the Annuitant's Beneficiary to make
the payment. The Annuitant's Beneficiary may receive the amount payable in a
lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the sum
of all Net Purchase Payments made, less any partial withdrawals taken. During
each subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six year period before
age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date, 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 Annuity Payment Options available for Qualified Contracts may also be
controlled by endorsements, the plan or applicable law.
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LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated Value,
adjusted for any Market Value Adjustment or other deductions applicable to
amounts allocated to a General Account Guaranteed Option, less any amount
allocated to the Guaranteed Equity Option, less any Premium Taxes incurred but
not yet deducted.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the life
of two Annuitants and thereafter for the life of the survivor, ceasing with the
last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from 10
to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each payment.
Since payments to older Annuitants are expected to be fewer in number, the
amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one option,
the Company must be told what part of the Accumulated Value is to be paid under
each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must by
law withhold such taxes from the taxable portions of such Annuity Payment and
remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with Period
Certain Option and the annuity benefit sections of the Contract. That portion
of the Accumulated Value that has been held in a Portfolio prior to the Annuity
Date will be applied under a Variable Annuity Option based on the performance
of that Portfolio. Subject to approval by the Company, you may select any other
Annuity Payment Option then being offered by the Company. All Fixed Annuity
Payments and the initial Variable Annuity Payment are guaranteed to be not less
than as provided by the Annuity Tables and the Annuity Payment Option elected
by the Contract Owner. The minimum payment, however, is $100. If the
Accumulated Value is less than $5,000, or less than $2,000 for Texas Contract
Owners, the Company has the right to pay that amount in a lump sum. From time
to time, the Company may require proof that the Annuitant or Contract Owner is
living. Annuity Payment Options are not available to: (1) an assignee; or (2)
any other than a natural person, except with the consent of the Company.
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We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity Tables
found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the value
of the initial Variable Annuity Payment, are based on an assumed interest rate
of 4%. If the actual net investment experience exactly equals the assumed
interest rate, then the Variable Annuity Payments will remain the same (equal
to the first Annuity Payment). However, if actual investment experience exceeds
the assumed interest rate, the Variable Annuity Payments will increase;
conversely, they will decrease if the actual experience is lower. The method of
computation of Variable Annuity Payments is described in more detail in the
Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for shorter
guaranteed periods than for longer guaranteed periods, and greater for life
annuities than for joint and survivor annuities, because they are expected to
be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-866-6007.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within seven days from the date the election becomes
effective except that the Company may be permitted to defer such payment if:
(1) the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the New York Stock Exchange is otherwise restricted; or
(2) an emergency exists as defined by the SEC, or the SEC requires that trading
be restricted; or (3) the SEC permits a delay for the protection of Contract
Owners.
As to amounts allocated to the General Account, we may, at any time, defer
payment of the Surrender Value for up to six months after we receive a request
for it. We will allow interest of at least 4% annually on any Surrender Value
payment derived from the General Account that we defer 30 days or more.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax adviser regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the federal income tax laws,
the Treasury regulations or the current interpretations by the Internal Revenue
Service. We reserve the right to make uniform changes in the Contract to the
extent necessary to continue to qualify the Contract as an annuity. For a
discussion of federal income taxes as they relate to the Funds, please see the
accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons," page 26 and
"Diversification Standards," page 27).
Section 72 provides that the proceeds of a full or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to the
extent the amounts held under the Contract exceed the "investment in the
Contract,"
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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. Partial withdrawals are generally taken out of
earnings first and then purchase payments.
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected
amount of Annuity Payments for the term of the Contract. That ratio is then
applied to each payment to determine the non-taxable portion of the payment.
The remaining portion of each payment is taxed at ordinary income tax rates.
For Variable Annuity Payments, in general, the taxable portion is 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 is required unless the
recipient elects not to have any amounts withheld and properly notifies the
Company of that election. In certain situations, taxes will be withheld on
distributions to non-resident aliens at a 30% flat rate unless an exemption
from withholding applies under the applicable tax treaty.
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals (i) made on or after the death of the Contract Owner or, where the
Contract Owner is not an individual, the death of the Annuitant, who is defined
as the individual the events in whose life are of primary importance in
affecting the timing and payment under the Contracts; (ii) attributable to the
taxpayer's becoming disabled within the meaning of Code Section 72(m)(7); (iii)
that are part of a series of substantially equal periodic payments made at
least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi) under
an immediate annuity contract as defined in Section 72(u)(4); (vii) allocable
to the investment in the Contract prior to August 14, 1982; or (viii) that are
purchased by an employer on termination of certain types of qualified plans and
that are held by the employer until the employee separates from service. Other
tax penalties may apply to certain 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 penalty tax that would have been
imposed but for item (iii) above, plus interest for the deferral period. The
foregoing rule applies if the modification takes place (a) before the close of
the period that is five years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
THE COMPANY'S 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.
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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 death of the "primary
Annuitant" (as defined under the Code) is treated as the death of the Contract
Owner. The primary Annuitant is the individual who is of primary importance in
affecting the timing or the amount of payout under a Contract. In addition,
when the Contract Owner is not an individual, a change in the primary
Annuitant is treated as the death of the Contract Owner. Finally, in the case
of joint Contract Owners, the distribution will be required at the death of
the first of the Contract Owners.
TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger tax on the gain in
the Contract to the Contract Owner at the time of such transfer. The
investment in the Contract of the transferee will be increased by any amount
included in the Contract Owner's income. This provision, however, does not
apply to those transfers between spouses or incident to a divorce which are
governed by Code Section 1041(a).
CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. If an employer is the nominal owner of a Contract, and the
beneficial owners are employees, then the Contract is not treated as being
held by a non-natural person. The rule also does not apply where the Contract
is acquired by the estate of a decedent, where the Contract is a qualified
funding asset for structured settlements, where the Contract is purchased on
behalf of an employee upon termination of a qualified plan, and in the case of
an immediate annuity, as defined under Section 72(u)(4) of the Code.
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
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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. The
aggregation rules do not apply to immediate annuities as defined under Section
72(u)(4) of the Code. Accordingly, a Contract Owner should consult a tax
adviser before purchasing more than one Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, the Separate Account will be
required to diversify its investments. The Regulations generally require that
on the last day of each quarter of a calendar year, no more than 55% of the
value of the Separate Account is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. A "look-through" rule applies that suggests that each
Subaccount of the Separate Account will be tested for compliance with the
percentage limitations by looking through to the assets of the Portfolios in
which each such division invests. All securities of the same issuer are
treated as a single investment. Each government agency or instrumentality will
be treated as a separate issuer for purposes of those limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to remain in compliance. For these
reasons, the Company reserves the right to modify the Contracts, as necessary,
to prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations (Code Section
501(c)(3) organizations) for their employees under Section 403(b) of the Code;
except, as discussed below and subject to any conditions in an employer's
plan, a Contract used in connection with a Section 403(b) Plan offers the same
benefits and is subject to the same charges described in this Prospectus.
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
Under your 403(b) Contract, you may borrow against your Contract's Surrender
Value after the first Contract Year. No additional loans will be extended
until prior loan balances are paid in full. The loan amount must be at least
$1,000 and your Contract must have a minimum vested Accumulated Value of
$2,000. The loan amount may not exceed the lesser of (a) or (b), where (a) is
50% of the Contract's vested Accumulated Value on the date on which the loan
is made, and (b) is $50,000 reduced by the excess, if any, of the highest
outstanding balance of loans during the one-year period ending on the day
before the current loan is made over the outstanding balance of loans on the
date the current loan is made. If you are married, your spouse must consent in
writing to a loan request. This consent must be given within the 90-day period
before the loan is to be made.
On the first Business Day of each calendar month, the Company will determine a
loan interest rate. The loan interest rate for the calendar month in which the
loan is effective will apply for one year from the loan effective date.
Annually on the anniversary of the loan effective date, the rate will be
adjusted to equal the loan interest rate determined for the month in which the
loan anniversary occurs.
Principal and interest on loans must be repaid in substantially level
payments, not less frequently than quarterly over a five year term except for
certain loans for the purchase of a principal residence. If the loan interest
rate is adjusted,
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future payments will be adjusted so that the outstanding loan balance is
amortized in equal quarterly installments over the remaining term. A $40
processing fee is charged for each loan. The remainder of each repayment will
be credited to the individual account.
If a loan payment is not made when due, interest will continue to accrue. The
defaulted payment plus accrued interest will be deducted from any future
distributions under the Contract and paid to us. Any loan payment which is not
made when due, plus interest, will be treated as a distribution, as permitted
by law. The loan payment may be taxable to the borrower, and may be subject to
the early withdrawal tax penalty. When a loan is made, unless instructed to the
contrary by the Annuitant, the number of Accumulation Units equal to the loan
amount will be withdrawn from the individual account and placed in the
Collateral Fixed Account. Accumulation Units taken from the individual account
to provide a loan do not participate in the investment experience of the
related Portfolios or the guarantees of the General Account Guaranteed Options.
The loan amount will be withdrawn on a pro rata basis first from the Portfolios
to which Accumulated Value has been allocated, and if that amount is
insufficient, collateral will then be transferred from the General Account
Guaranteed Options--except the Guaranteed Equity Option. As with any
withdrawal, Market Value Adjustments or other deductions applicable to amounts
allocated to General Account Guaranteed Options may be applied and no amounts
may be withdrawn from the Guaranteed Equity Option. Until the loan is repaid in
full, that portion of the Collateral Fixed Account shall be credited with
interest at a rate of 2% less than the loan interest rate applicable to the
loan--however, the interest rate credited will never be less than the General
Account Guaranteed Option's guaranteed rate of 3%.
A bill in the amount of the quarterly principal and interest will be mailed
directly to you in advance of the payment due date. The initial quarterly
repayment will be due three months from the loan date. The loan date will be
the date that the Company receives the loan request form in good order. Payment
is due within 30 calendar days after the due date. Subsequent quarterly
installments are based on the first due date.
When repayment of principal is made, Accumulation Units will be reallocated on
a current value basis among the same investment Portfolios and/or General
Account Guaranteed Options and in the same proportion as when the loan was
initially made, unless the Annuitant specifies otherwise. If a repayment in
excess of a billed amount is received, the excess will be applied towards the
principal portion of the outstanding loan. Payments received which are less
than the billed amount will not be accepted and will be returned to you.
If a partial surrender is taken from your individual account due to nonpayment
of a billed quarterly installment, the date of the surrender will be the first
business day following the 30 calendar day period in which the repayment was
due.
Prepayment of the entire loan is allowed. At the time of prepayment, the
Company will bill you for any accrued interest. The Company will consider the
loan paid when the loan balance and accrued interest are paid.
If the individual account is surrendered or if the Annuitant dies with an
outstanding loan balance, the outstanding loan balance and accrued interest
will be deducted from the Surrender Value or the Death Benefit, respectively.
If the individual account is surrendered, with an outstanding loan balance, due
to the Contract Owner's death or the election of an Annuity Payment Option, the
outstanding loan balance and accrued interest will be deducted.
The Company may require that any outstanding loan be paid if the individual
account value falls below an amount equal to 25% of total loans outstanding.
The Code requires the aggregation of all loans made to an individual employee
under a single employer-sponsored 403(b) Plan. However, since the Company has
no information concerning the outstanding loans that you may have with other
companies, it will only use the information available under Contracts issued by
the Company.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are also allowed if the Contract Owner can show "hardship," as
defined by the Internal Revenue Service, but the surrender is limited to the
lesser of Purchase Payments made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a surrender is permitted under these
provisions, a 10% federal tax penalty may be
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assessed on the withdrawn amount if it does not otherwise meet the exceptions
to the penalty tax provisions. (See "Taxation of Annuities in General," page
23).
Under the Code, you may request a full or partial surrender of an amount equal
to the individual account cash value as of December 31, 1988 (the
"grandfathered" amount), subject to the terms of the 403(b) Plan. Although the
Code surrender restrictions do not apply to this amount, a 10% federal penalty
tax may be assessed on the withdrawn amount if it does not otherwise meet the
exceptions to the penalty tax provisions (See "Taxation of Annuities in
General," page 23).
The Company believes that the Code surrender restrictions do not apply to tax-
free transfers pursuant to Revenue Ruling 90-24. The Company further believes
that the surrender restrictions will not apply to any "grandfathered" amount
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio of the Funds, or of
another registered, open-end management investment company, if the shares of
the Portfolios are no longer available for investment, or, if in the Company's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
New Portfolios may be established at the discretion of the Company. Any new
Portfolios will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be necessary
or appropriate to reflect such substitution or change. Furthermore, if deemed
to be in the best interests of persons having voting rights under the
Contracts, the Separate Account may be operated as a management company under
the 1940 Act or any other form permitted by law, may be deregistered under the
1940 Act in the event such registration is no longer required, or may be
combined with one or more other separate accounts.
VOTING RIGHTS
The Funds do not hold regular meetings of shareholders. The Directors/Trustees
of each Fund may call special meetings of shareholders as may be required by
the 1940 Act or other applicable law. To the extent required by law, the
Portfolio shares held in the Separate Account will be voted by the Company at
shareholder meetings of each Fund in accordance with instructions received from
persons having voting interests in the corresponding Portfolio. Fund shares as
to which no timely instructions are received or shares held by the Company as
to which Contract Owners have no beneficial interest will be voted in
proportion to the voting instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the Annuity
Date will be determined by dividing the reserve for such Contract allocated to
the Portfolio by the net asset value per share of the corresponding Portfolio.
After the Annuity Date, the votes attributable to a Contract decrease as the
reserves allocated to the Portfolio decrease. In determining the number of
votes, fractional shares will be recognized.
29
<PAGE>
The number of votes of the Portfolio that are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the corresponding
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by such Fund.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
the Company and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt Berenson & 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.
30
<PAGE>
TABLE OF CONTENTS FOR THE PROVIDIAN MARQUEE VARIABLE ANNUITY
AND THE PROVIDIAN MARQUEE VARIABLE ANNUITY A-UNITS
STATEMENT OF ADDITIONAL INFORMATION
PAGE
THE CONTRACTS.............................................................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........................................................4
Money Market Subaccount Yields.............................................5
30-Day Yield for Non-Money Market Subaccounts..............................5
Standardized Average Annual Total Return for Market 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................................10
Non-Standardized One Year Return..........................................11
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return.................................12
Individualized Computer Generated Illustrations...........................32
PERFORMANCE COMPARISONS.......................................................32
SAFEKEEPING OF ACCOUNT ASSETS.................................................34
THE COMPANY...................................................................34
STATE REGULATION..............................................................34
RECORDS AND REPORTS...........................................................35
DISTRIBUTION OF THE CONTRACTS.................................................35
LEGAL PROCEEDINGS.............................................................35
OTHER INFORMATION.............................................................35
FINANCIAL STATEMENTS..........................................................35
Audited Financial Statements..............................................35
31
<PAGE>
APPENDIX A
THE GENERAL ACCOUNT
Because of applicable exemptive and exclusionary provisions, interests in the
General Account have not been registered under the Securities Act of 1933
("1933 Act"), nor under the 1940 Act. Thus, neither our General Account, nor
any interest therein are generally subject to regulation under the provisions
of the 1933 Act or the 1940 Act. Accordingly, the Company has been advised
that the staff of the SEC has not reviewed the disclosure in this Appendix
relating to the General Account. These disclosures regarding the General
Account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
Note: The General Account Guaranteed Options, or certain of them, are
currently available for sale in most, but not all, states. Please check with
your sales representative for details of the availability of these features
before purchasing.
Note: The following descriptions of the General Account Guaranteed Options
apply to Contracts issued on or after May 1, 1997. Contract Holders with
Contracts issued before that date should refer to the discussion of the
General Account Guaranteed Options in the prospectus which preceded or
accompanied their purchase of the Contract.
The General Account contains all of the assets of the Company other than those
in the separate accounts we establish. The Company has sole discretion to
invest the assets of the General Account, subject to applicable law.
Allocation of any amounts to the General Account does not entitle you to share
directly in the investment experience of these assets.
There are three fixed options under the General Account: the One-Year
Guaranteed Rate Option, the Multi-Year Guaranteed Rate Option, and the
Guaranteed Equity Option, each described below:
PART 1
If your state of issue is any state other than DC, IN, MD, MA, OK, PA, TX or
VA, this Part 1 describes the General Account Guaranteed Options applicable to
your Contract. Check with your sales representative for additional details
regarding availability. For other states, please see Part 2 to this Appendix.
---
One-Year Guaranteed Rate Option
You may allocate your Accumulated Value to this option at any time. Any
allocations you make to the one-year guarantee period must be at least $1,000
and you must maintain a minimum balance of $1,000 in each one-year guarantee
period. The Accumulated Value you allocate under this option earns interest at
a rate declared by the Company at the time your allocation is made with a
guarantee that the Accumulated Value in this General Account Guaranteed Option
will not be less than the amounts allocated, plus 3% annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the one-year guarantee
period. However, for any amounts so transferred and for full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the one-year guarantee period, we will deduct an amount
equal to the interest earned on the amount transferred or withdrawn during the
previous 90 days at the applicable one-year rate, subject to a guarantee that
any amounts allocated to this General Account Guaranteed Option will earn
interest of at least 3% annually.
If you have more than one allocation in this option, you may choose which
allocation or allocations any exchanges or surrenders are to be made from. If
you do not specify which allocation or allocations to take the exchanges or
surrenders from, we will first take from the allocation with the shortest time
remaining until the end of its guarantee period and then from the allocation
or allocations with the next shortest time remaining until the amount of the
exchange or withdrawal is reached.
At the end of the one-year guarantee period, you may, without loss of
interest, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Notice of such
an election must be provided to the Company by phone or in writing no later
than 10 days after the end of the one-year guarantee period (and each
subsequent one-year guarantee period). If no such election is made, your
Accumulated Value will automatically be renewed under this option for the next
one-year guarantee period.
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Multi-Year Guaranteed Rate Option
You may allocate your Accumulated Value to this option at any time. You may
select any guarantee period then offered. The Company currently expects to
offer guarantee periods of two to ten years, inclusive but reserves the right
to change such offerings in its discretion. Any allocations you make to a
guarantee period must be at least $1,000 and you must maintain a minimum
balance of $1,000 in each guarantee period. The Accumulated Value you allocate
under this option earns interest at a rate declared by the Company applicable
to the guarantee period you select at the time your allocation is made with a
guarantee that the Accumulated Value in this General Account Guaranteed Option
will not be less than the amount initially allocated, plus 3%, compounded
annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the selected guarantee
period. However, for any amounts so transferred we will apply a Market Value
Adjustment (as described below) against such amounts. For full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the selected guarantee period, we will apply a Market
Value Adjustment (as described below) against such amounts withdrawn.
The Market Value Adjustment ("MVA") Factor for the Multi-Year Guaranteed Rate
Option will be as follows:
N X (B--E)
12
where N = the number of months left in the guarantee period at the time of the
transfer or surrender (including any partial months which will count as
full months for purposes of this calculation).
B = the interest rate in effect for the applicable guarantee period which
was declared on the date of the applicable allocation.
E = the constant maturity Treasury rate for the duration equal to that of
the applicable guarantee period (or, if not published, the published
constant maturity rate of the next longest maturity).
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option. Generally, if the
declared interest rate at the beginning of the guarantee period is lower than
the applicable constant maturity Treasury rate prevailing at the time of the
transfer or surrender, then the application of the MVA will result in a lower
payment upon transfer or surrender. Similarly, if the declared rate at the
beginning of the guarantee period is higher than the prevailing applicable
constant maturity Treasury rate at the time of transfer or surrender, then the
application of the MVA will result in a higher payment upon transfer or
surrender.
The following is an example of how your Accumulated Value under the Multi-Year
Guaranteed Rate Option with a five-year guarantee period is affected by a
positive Market Value Adjustment:
Assume an initial allocation of $100,000 when the declared interest rate of a
five-year guarantee period is 8%. At the end of 12 months, your Accumulated
Value is $108,000. Assume also you surrender at the end of one year with 48
months of the guarantee period remaining and the five-year constant maturity
Treasury rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X 08 - .07 = 4 X .01 = .04
12
Adjustment = $108,000 x .04 = $4,320
= $108,000 + $4,320 = $112,320 = Net amount of transfer or
surrender
The following is an example of how your Accumulated Value under the Multi-Year
Guaranteed Rate Option with a five year guarantee period is affected by a
negative Market Value Adjustment:
Assume an initial allocation of $100,000 when the declared interest rate for a
five-year guarantee period is 8%. At the end of 12 months, your Accumulated
Value is $108,000. Assume also you surrender at the end of one year with 48
months remaining in the guarantee period and the five-year constant maturity
Treasury rate is 9%.
Accumulated Value = $108,000
MVA Factor = 48 X 08 - .09 = 4 X -.01 = -.04
12
Adjustment = $108,000 x -.04 = -$4,320
= $108,000 - $4,320 = $103,680 = Net amount of transfer or
surrender
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Notwithstanding application of a negative Market Value Adjustment, any Net
Purchase Payments allocated to this General Account Guaranteed Option will earn
interest of at least 3%, compounded annually.
If you have more than one allocation in this option, you may choose which
allocation or allocations any exchanges or surrenders are to be made from. If
you do not specify which allocation or allocations to take the exchanges or
surrenders from, we will first take from the allocation with the shortest time
remaining until the end of its guarantee period and then from the allocation or
allocations with the next shortest time remaining until the amount of the
exchange or withdrawal is reached.
At the end of the selected guarantee period and within a ten-day period
starting on the first day of any automatic renewal (as described below), you
may, without loss of interest, elect to transfer any or all of your Accumulated
Value under this option to any of the Subaccounts or transfer to another
General Account Guaranteed Option or renew your participation in this option
for any guarantee period then available whose ending date is not later than the
Annuity Date at a rate the Company declares at the time of renewal. Such
election may also be provided in writing to the Company before the end of the
guarantee period (and each subsequent guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for another guarantee period of the same duration as the one just ended at a
rate we declare at the time of the renewal. In cases where such a renewal would
result in a guarantee period whose ending date is later than the Annuity Date,
we will transfer the value of that allocation to the Federated Money Market
Portfolio.
Guaranteed Equity Option
You may allocate your Accumulated Value to this option as of the first business
day of each month. Any allocations you make must be at least $1,000.
On the date you make an allocation to this option the Company will declare: (a)
the duration of the guarantee period applicable to the allocation; (b) the
duration of the Averaging Period and (c) the Participation Rate. (The Averaging
Period and the Participation Rate are described below.) Each allocation will
have its own guarantee period, Averaging Period and Participation Rate.
During the guarantee period applicable to Accumulated Value allocated to this
option, the Company will credit interest at a guaranteed annual effective rate
of 3%, compounded annually. At the end of the guarantee period we will credit
additional interest in an amount equal to the amount by which (x) exceeds (y),
where (x) equals a declared portion of the percentage change in the S&P 500
Composite Stock Price Index ("S&P 500 Index") from its value on the date
Accumulated Value is allocated to a value determined at the end of the
guarantee period multiplied by the amount allocated (all calculated as
described below); and (y) equals the total amount of interest credited during
the guarantee period.
The amount (x) in the preceding paragraph is equal to the amount allocated to
the applicable guarantee period multiplied by the following factor:
PR x [(EV//SV)-1]
where PR = the Participation Rate;
EV= the average closing values of the S&P 500 Index on the last business
day of each month during the Averaging Period; and
SV = the closing value of the S&P 500 Index on the date Accumulated Value
is allocated to this option.
The "Participation Rate" is the rate at which you participate in the percentage
change of the S&P 500 Index for an allocation as used in the calculation above.
It will be declared by the Company with respect to each allocation to this
option. In no event will the Participation Rate be less than 0%.
The "Averaging Period" is the number of months prior to the end of an
allocation's guarantee period that we will use to determine the ending value of
the S&P 500 Index for that allocation's guarantee period for purposes of this
option as used in the calculation above. It will be declared by the Company
with respect to each allocation to this option. In no event will the Averaging
Period be less than one.
A-3
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("S&P" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed
for use by the Company.)
THIS OPTION IS ILLIQUID FOR THE ENTIRE GUARANTEE PERIOD AND, ACCORDINGLY, DOES
NOT PERMIT ANY EXCHANGES OR REALLOCATIONS OF ACCUMULATED VALUE TO THE
SUBACCOUNTS OR OTHER GENERAL ACCOUNT GUARANTEED OPTIONS OR FULL OR PARTIAL
WITHDRAWALS DURING SUCH GUARANTEE PERIOD. However, during such guarantee
period, the Accumulated Value allocated under this option may be annuitized
under any of the Annuity Payment Options.
(The S&P 500 Index is a stock price index. Its composition and calculation
does not include dividends, if any, paid upon component stocks of the index
nor reinvestment, if any, or such dividends.)
At the end of the guarantee period, you may, without loss of earnings, elect
to transfer all or part of your Accumulated Value under this option to any of
the Subaccounts, transfer into another General Account Guaranteed Option or
renew your participation in this option. Such election must be received by the
Company no later than 30 days prior to the end of the guarantee period. If no
election is received, your Accumulated Value will automatically be transferred
to the Federated Prime Money Portfolio.
PART 2
If your state of issue is DC, IN, MD, MA, OK, PA, TX or VA, this Part 2
describes the General Account Guaranteed Options applicable to your Contract.
Check with your sales representative for additional details regarding
availability. For other states, please see Part 1 to this Appendix.
One-Year Guaranteed Rate Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, the One-Year Guaranteed Rate Option may be
titled the "One-Year Guaranteed Index Rate Option" and this term is used in
the description below.
You may allocate your Accumulated Value to this option at any time. The
Accumulated Value you allocate under this option earns interest equal to 90%
of the one-year constant maturity Treasury rate at the time your allocation is
made with a guarantee that the Accumulated Value in this General Account
Guaranteed Option will not be less than the amounts allocated, plus 3%,
compounded annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the one-year guarantee
period. However, for any amounts so transferred we will deduct an amount equal
to the interest the transferred value earned over the previous 90 days at the
applicable one-year rate. For full and partial withdrawals of amounts
allocated to this General Account Guaranteed Option prior to the end of the
one-year guarantee period, we will deduct an amount equal to the interest
earned on the amount withdrawn during the previous 90 days at the applicable
one-year rate subject to a guarantee that any amounts allocated to this
General Account Guaranteed Option will earn interest of at least 3% compounded
annually.
At the end of the one-year guarantee period, you may, without loss of
interest, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Notice of such
an election must be provided to the Company no later than 15 days after the
end of the one-year guarantee period (and each subsequent one-year guarantee
period). If no such election is made, your Accumulated Value will
automatically be renewed under this option for the next one-year guarantee
period.
Multi-Year Guaranteed Rate Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, the Multi-Year Guaranteed Rate Option may be
titled the "Five-Year Guaranteed Index Rate Option" and this term is used in
the description below.
A-4
<PAGE>
You may allocate your Accumulated Value to this option at any time. The only
available guarantee period is five-years. The Accumulated Value you allocate
under this option earns interest equal to 100% of the five-year constant
maturity Treasury rate at the time your allocation is made with a guarantee
that the Accumulated Value in this General Account Guaranteed Option will not
be less than the amount initially allocated, plus 3%, compounded annually.
You may allocate any or all of your Accumulated Value from this General Account
Guaranteed Option to any of the Subaccounts or other General Account Guaranteed
Options at any time before the end of the five-year guarantee period. However,
for any amounts so transferred we will apply a Market Value Adjustment (as
described below) against such amounts. For full and partial withdrawals of
amounts allocated to this General Account Guaranteed Option prior to the end of
the five-year guarantee period, we will apply a Market Value Adjustment (as
described below) against such amounts withdrawn.
The Market Value Adjustment ("MVA") Factor for the Five-Year Guaranteed Index
Rate Option will be as follows:
<TABLE>
<S> <C> <C>
N X (B - E)
--- -------
12 1 + E
</TABLE>
where N
= the number of months left in the five-year guarantee period at the time
of the transfer or surrender (including any partial months which will
count as full months for purposes of this calculation);
B
= the applicable five-year constant maturity Treasury rate at the
beginning of the five-year guarantee period; and
E
= the applicable five-year constant maturity Treasury rate at the time of
the transfer or surrender.
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option. Generally, if the five-
year constant maturity Treasury rate at the beginning of the five-year
guarantee period is lower than the five-year constant maturity Treasury rate
prevailing at the time of the transfer or surrender, then the application of
the MVA will result in a lower payment upon transfer or surrender. Similarly,
if the five-year constant maturity Treasury rate at the beginning of the five-
year guarantee period is higher than the prevailing five-year constant maturity
Treasury rate at the time of transfer or surrender, then the application of the
MVA will result in a higher payment upon transfer or surrender.
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a positive Market Value Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months of
the guarantee period remaining and the five-year constant maturity Treasury
rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .07 = 4 X .00935 = .0374
12 1 + .07
Adjustment = $108,000 X .0374 = $4,039
= $108,000 + $4,039 = $112,039 = Net amount of transfer or
surrender
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a negative Market Value Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months
remaining in the guarantee period and the five-year constant maturity Treasury
rate is 9%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .09 = 4 X -.00917 = -.0367
12 1 + .09
A-5
<PAGE>
Adjustment = $108,000 X -.0367 = -$3,964
= $108,000 - $3,964 = $104,036 = Net amount of transfer or
surrender.
Notwithstanding application of a negative Market Value Adjustment under the
Five-Year Guaranteed Index Rate Option, any Net Purchase Payments allocated to
this General Account Guaranteed Option will earn interest of at least 3%,
compounded annually.
At the end of the five-year guarantee period, you may, without loss of
interest, elect to transfer any or all of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Such election
must be provided to the Company before the end of the five-year guarantee
period (and each subsequent five-year guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for the next five-year guarantee period.
Guaranteed Equity Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, and the Guaranteed Equity Option may be
titled the "Five-Year Guaranteed Equity Option" and this term is used in the
description below.
You may allocate your Accumulated Value to this option as of the first business
day of each month. During the five-year guarantee period applicable to
Accumulated Value allocated to this option, we will credit interest at a
guaranteed annual effective rate of 3%, compounded annually. At the end of the
five-year guarantee period we will credit additional interest in an amount
equal to the amount by which (a) exceeds (b), where: (a) equals the percentage
change in the S&P 500(R) Composite Stock Price Index ("S&P 500(R) Index") from
the date Accumulated Value is allocated to the end of the five-year guarantee
period, multiplied by the amount allocated; and (b) equals the total amount of
interest credited during the five-year guarantee period. ("S&P 500(R)" is a
trademark of The McGraw-Hill Companies, Inc. and has been licensed for use by
the Company.)
THIS OPTION IS ILLIQUID FOR THE ENTIRE FIVE-YEAR GUARANTEE PERIOD AND,
ACCORDINGLY, DOES NOT PERMIT ANY EXCHANGES OR REALLOCATIONS OF ACCUMULATED
VALUE TO THE SUBACCOUNTS OR OTHER GENERAL ACCOUNT GUARANTEED OPTIONS OR FULL OR
PARTIAL WITHDRAWALS DURING SUCH FIVE-YEAR PERIOD. However, during such
guarantee period, the Accumulated Value allocated under this option may be
annuitized under any of the Annuity Payment Options.
At the end of the five-year guarantee period, you may, without loss of
earnings, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts, transfer into another General Account
Guaranteed Option or renew your participation in this option. Such election
must be received by the Company no later than 30 days prior to the end of the
five-year guarantee period. If no election is received, your Accumulated Value
will automatically be transferred to Fidelity Money Market. This option may not
be available at all times.
DISCLAIMER REGARDING STANDARD & POOR'S(R) 500 INDEX
The Guaranteed Equity Option (the "GEO") is not sponsored, endorsed, sold or
promoted by Standard & Poor's Corporation ("S&P"). S&P makes no representation
or warranty, express or implied, to investors in the GEO or any member of the
public regarding the advisability of investing in securities generally or in
the GEO particularly or the ability of the S&P 500(R) Index to track general
stock market performance. S&P's only relationship to Providian Life and Health
Insurance Company is the licensing of certain trademarks and trade names of S&P
and of the S&P 500(R) Index which is determined, composed and calculated by S&P
without regard to Providian Life and Health Insurance Company or the GEO. S&P
has no obligation to take the needs of Providian Life and Health Insurance
Company or the investors in the GEO into consideration in determining,
composing or calculating the S&P 500(R) Index. S&P is not responsible for and
has not participated in the determination of the timing of the issuance or
sale, or quantities of the GEO or in the determination or calculation of the
equation by which the GEO is to be converted into cash. S&P has no obligation
or liability in connection with the administration, marketing or trading of the
GEO.
A-6
<PAGE>
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500(R)
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY, INVESTORS IN THE GEO, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF
THE S&P 500(R) INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500(R) INDEX
OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
PROSPECTUS
FOR THE
PROVIDIAN MARQUEE VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The Providian Marquee variable annuity contract (the "Contract"), offered
through Providian Life and Health Insurance Company (the "Company", "us", "we"
or "our"), provides a vehicle for investing on a tax-deferred basis in 12
investment company Portfolios and our General Account. The Contract is an
individual variable annuity contract and is intended for retirement savings or
other long-term investment purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $5,000.
The minimum initial Purchase Payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (30
days or more in some instances) plus a 5 day grace period to allow for mail
delivery during which you may cancel your investment in the Contract.
Your Purchase Payments for the Contract may be allocated among 12 Subaccounts
of Providian Life and Health Insurance Company's Separate Account V and three
fixed options available under the Company's General Account. Assets of each
Subaccount are invested in one of the following Portfolios (which are
contained within six open-end, diversified investment companies):
. T. Rowe Price Equity Income
. Fidelity VIP Money Market Portfolio
Portfolio
. T. Rowe Price New America Growth
. Fidelity VIP Equity-Income Portfolio
Portfolio
. T. Rowe Price International Stock
. Fidelity VIP Growth Portfolio Portfolio
. OpCap Advisors Managed Portfolio
. Fidelity VIP II Asset Manager . OpCap Advisors Small Cap
Portfolio Portfolio
. Dreyfus Growth and Income
Portfolio . OpCap Advisors U.S. Government
. Dreyfus Quality Bond Portfolio Income Portfolio
Depending upon the state of issue and provisions of your Contract, your
initial Net Purchase Payment(s) will, when your Contract is issued, either be
(i) invested in the Fidelity Money Market Portfolio during your Right to
Cancel Period and/or invested immediately in your chosen Guaranteed Rate
Options or (ii) invested immediately in your chosen Portfolios and fixed
options (other than the Guaranteed Equity Option).
The Contract's Accumulated Value varies with the investment performance of the
Portfolios you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed except to
the extent a portion of the Accumulated Value is allocated to the General
Account.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals of the Contract's Surrender Value may be made at any time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% penalty tax (and a portion may be subject to ordinary income taxes) and
may be subject to a surrender charge of up to 6%. 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.
Providian Marquee Contracts are offered in two versions with differing charge
structures and features. THIS PROSPECTUS DESCRIBES ONLY THE STANDARD PROVIDIAN
MARQUEE CONTRACT. Also available is an A Unit Contract which is offered only
by an A Unit prospectus. For further information see "Alternate Contract
Version" at page 7.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for each Fund.
Please read the Prospectuses carefully and retain them for future reference. A
Statement of Additional Information for the Contract Prospectus, which has the
same date as this Prospectus, has also been filed with the Securities and
Exchange Commission, is incorporated herein by reference and is available free
by calling our Administrative Offices at 1-800-866-6007. The Table of Contents
of the Statement of Additional Information is included at the end of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
The date of this Prospectus is April 30, 1997. FM-0979(B)
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
GLOSSARY.................................................................... 2
HIGHLIGHTS.................................................................. 5
FEE TABLE................................................................... 8
Condensed Financial Information............................................. 10
Financial Statements........................................................ 10
Performance Measures........................................................ 10
Additional Performance Measures............................................. 11
Yield and Effective Yield................................................... 11
The Company and the Separate Account........................................ 12
Variable Insurance Products Fund and Variable Insurance Products Fund II.... 12
Dreyfus Variable Investment Fund............................................ 12
T. Rowe Price Equity Series, Inc............................................ 13
T. Rowe Price International Series, Inc..................................... 13
OCC Accumulation Trust...................................................... 13
The Portfolios.............................................................. 13
CONTRACT FEATURES........................................................... 15
Right to Cancel Period.................................................... 15
Contract Purchase and Purchase Payments................................... 15
Purchasing by Wire........................................................ 15
Allocation of Purchase Payments........................................... 16
General Account Guaranteed Options........................................ 16
Charges and Deductions.................................................... 16
Accumulated Value......................................................... 18
Exchanges Among the Portfolios............................................ 19
Full and Partial Withdrawals.............................................. 19
Systematic Withdrawal Option.............................................. 20
Dollar Cost Averaging Option.............................................. 20
IRS-Required Distributions................................................ 21
Minimum Balance Requirement............................................... 21
Designation of an Annuitant's Beneficiary................................. 21
Death of Annuitant Prior to Annuity Date.................................. 22
Annuity Date.............................................................. 22
Lump Sum Payment Option................................................... 22
Annuity Payment Options................................................... 22
Deferment of Payment...................................................... 24
FEDERAL TAX CONSIDERATIONS.................................................. 24
GENERAL INFORMATION......................................................... 28
APPENDIX A
The General Account....................................................... A-1
</TABLE>
GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less
any partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
2
<PAGE>
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 22), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 22), 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 22).
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 and Guaranteed Rate Options.
Contract Year - A period of 12 months starting with the Contract Date or any
Contract Anniversary.
Death Benefit - The greater of the Contract's Accumulated Value on the date
the Company receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit. If any portion of the Contract's Accumulated Value on the date we
receive proof of the Annuitant's death is derived from the Multi-Year
Guaranteed Rate Option, that portion of the Accumulated Value will be adjusted
by a positive Market Value Adjustment Factor (see "Multi-Year Guaranteed Rate
Option," at Appendix A), if applicable.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount or General Account Guaranteed Option.
Funds - Each of (i) Variable Insurance Products Fund, (ii) Variable Insurance
Products Fund II, (iii) Dreyfus Variable Investment Fund, (iv) T. Rowe Price
Equity Series, Inc., (v) T. Rowe Price International Series, Inc. and (vi) OCC
Accumulation Trust. The Separate Account invests in the Portfolios contained
within the Funds. (See "The General Account," at Appendix A.)
General Account - The account which contains all of our assets other than
those held in our separate accounts. (See "The General Account," at Appendix
A.)
General Account Guaranteed Option - Any of the following three General Account
options offered by your Contract and to which you may allocate your Net
Purchase Payments: the One-Year Guaranteed Rate Option, the Multi-Year
Guaranteed Rate Option and the Guaranteed Equity Option. The General Account
Guaranteed Options are available for sale in most, but not all, states and the
structure and characteristics of these options vary by state. (See "The
General Account," at Appendix A.)
Guaranteed Rate Options - The One-Year Guaranteed Rate Option and the Multi-
Year Guaranteed Rate Option.
Market Value Adjustment Factor - The formula applied to the Accumulated Value
in order to determine the net amount of any transfer or surrender under the
Multi-Year Guaranteed Rate Option. (See "Multi-Year Guaranteed Rate Option,"
at Appendix A.)
Net Purchase Payment - Any Purchase Payment less the Premium Tax, if any.
3
<PAGE>
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 portfolio of the Funds. The Funds currently
offer 12 portfolios in the Providian Marquee variable annuity: the VIP Money
Market Portfolio ("Fidelity Money Market"), the VIP Equity-Income Portfolio
("Fidelity Equity-Income") and the VIP Growth Portfolio ("Fidelity Growth") of
Variable Insurance Products Fund; the VIP II Asset Manager Portfolio ("Fidelity
Asset Manager") of Variable Insurance Products Fund II; the Dreyfus Growth and
Income Portfolio ("Dreyfus Growth and Income") and the Dreyfus Quality Bond
Portfolio ("Dreyfus Quality Bond") of Dreyfus Variable Investment Fund; the T.
Rowe Price Equity Income Portfolio ("T. Rowe Price Equity Income") and the T.
Rowe Price New America Growth Portfolio ("T. Rowe Price New America Growth") of
T. Rowe Price Equity Series, Inc.; the T. Rowe Price International Stock
Portfolio ("T. Rowe Price International Stock") of T. Rowe Price International
Series, Inc.; and the OpCap Advisors Managed Portfolio ("OpCap Advisors
Managed"), the OpCap Advisors Small Cap Portfolio ("OpCap Advisors Small Cap")
and the OpCap Advisors U.S. Government Income Portfolio ("OpCap Advisors U.S.
Government Income") of OCC Accumulation Trust (each, a "Portfolio" and
collectively, the "Portfolios"). In this Prospectus, Portfolio will also be
used to refer to the Subaccount that invests in the corresponding Portfolio.
Premium Tax - A regulatory tax that may be assessed by certain states on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of a
court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other proof
of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment is
$5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or $50
monthly by payroll deduction for Qualified Contracts); each additional Purchase
Payment must be at least $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
Separate Account V dedicated to the Contract. The Separate Account consists of
assets that are segregated by Providian Life and Health Insurance Company and,
for Contract Owners, invested in the Portfolios. The Separate Account is
independent of the general assets of the Company.
Subaccount - That portion of the Separate Account that invests in shares of the
Funds' Portfolios. Each Subaccount will only invest in a single Portfolio. The
investment performance of each Subaccount is linked directly to the investment
performance of one of the 12 Portfolios.
Surrender Value - The Accumulated Value, adjusted to reflect any applicable
Market Value Adjustment (see "Multi-Year Guaranteed Rate Option," at Appendix
A) for amounts allocated to the Multi-Year Guaranteed Rate Option, less any
early withdrawal charges for amounts allocated to the One-Year Guaranteed Rate
Option, less any amount allocated to the Guaranteed Equity Option, less any
applicable contingent deferred sales load (i.e., surrender charge) and any
Premium Taxes incurred but not yet deducted.
Valuation Period - The relative performance of your Contract is measured by the
Accumulation Unit Value. This value is calculated each Valuation Period. A
Valuation Period is defined as the period of time between the close of business
on one Business Day and the close of business on the following Business Day.
4
<PAGE>
HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 2).
THE PROVIDIAN MARQUEE VARIABLE ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in 12
investment company Portfolios offered by the Funds and three General Account
Guaranteed Options offered by the Company. Monies may be subsequently
withdrawn from the Contract either as a lump sum or as annuity income as
permitted under the Contract. Accumulated Values and Annuity Payments depend
on the investment experience of the selected Portfolios and/or the guarantees
of the General Account Guaranteed Options. The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract except to the extent of the portion of your
Accumulated Value allocated to the General Account. The General Account
Guaranteed Options are available for sale in most, but not all, states.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement but also for other long-term
investment purposes. The tax-deferred feature of the Contract is most
attractive to investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract and a Non-
Qualified Contract. Both Qualified and Non-Qualified Contracts offer tax-
deferral on increases in the Contract's value prior to withdrawal or
distribution - however, Purchase Payments made by Contract Owners of Qualified
Contracts may be excludible or deductible from gross income in the year such
payments are made, subject to certain statutory restrictions and limitations.
(See "Federal Tax Considerations," page 24)....................... Page 24
GENERAL ACCOUNT GUARANTEED OPTIONS
THE AVAILABILITY, STRUCTURE AND FEATURES OF THE GENERAL ACCOUNT GUARANTEED
OPTIONS VARY BY STATE. CHECK WITH YOUR SALES REPRESENTATIVE FOR DETAILS OF THE
AVAILABILITY AND CHARACTERISTICS OF THESE OPTIONS BEFORE PURCHASING.
If your state of issue is any state other than those listed in the
immediately following sentence, then your General
---
---
Account Guaranteed Options are described in Part 1 of Appendix A. If your
state of issue is DC, IN, MD, MA, OK, PA, TX, or VA, then your General Account
Guaranteed Options are described in Part 2 of Appendix A. Please read Appendix
A and the relevant Part 1 or Part 2 carefully.
In certain marketing and customer communication materials, including the
customer order form and the Contract, used in the states listed in the second
sentence of the paragraph immediately above, the One-Year Guaranteed Rate
Option may be titled the "One-Year Guaranteed Index Rate Option"; the Multi-
Year Guaranteed Rate Option may be titled the "Five-Year Guaranteed Index Rate
Option"; and the Guaranteed Equity Option may be titled the "Five-Year
Guaranteed Equity Option."
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 12 Subaccounts of the
Separate Account and/or the General Account Guaranteed Options. The
Subaccounts in turn invest exclusively in the following 12 Portfolios offered
by the Funds: Fidelity Money Market, Fidelity Equity-Income, Fidelity Growth,
Fidelity Asset Manager, Dreyfus Growth and Income, Dreyfus Quality Bond, T.
Rowe Price Equity Income, T. Rowe Price New America Growth, T. Rowe Price
International Stock, OpCap Advisors Managed, OpCap Advisors Small Cap and
OpCap Advisors U.S. Government Income. The assets of each Portfolio are
separate, and each Portfolio has distinct investment objectives and policies
as described in the corresponding Fund or Portfolio Prospectus. The General
Account Guaranteed Options are available for sale in most, but not all,
states................................................................. Page 13
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 and General Account Guaranteed Options.
5
<PAGE>
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, please consult your agent who will 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. The minimum initial
Purchase Payment is $5,000 for Non-Qualified Contracts, and $2,000 (or $50
monthly by payroll deduction) for Qualified Contracts; subsequent Purchase
Payments must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Additional Purchase Payments after the first Contract
Year are limited to $10,000 annually. You may make subsequent Purchase
Payments at any time before the Contract's Annuity Date, as long as the
Annuitant specified in the Contract is living.......................... Page 15
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 Fidelity Money Market until the
expiration of the Right to Cancel Period of 10 to 30 days or more in some
instances as specified in your Contract when issued (plus a 5 day grace period
to allow for mail delivery) and then invested according to your initial
allocation instructions (except that any accrued interest will remain in
Fidelity Money Market if it is selected as an initial allocation option),
provided that portions of your initial Net Purchase Payment(s) allocated to
the Guaranteed Rate Options will be invested immediately upon our receipt
thereof in order to lock in the rates then applicable to such options. (Please
note that immediate investment is not applicable with respect to amounts
allocated to the Guaranteed Equity Option.)
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
Portfolios and Guaranteed Rate Options immediately upon our receipt thereof,
IN WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO
THE PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that immediate
investment is not available with respect to any amounts allocated to THE
GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR THE GUARANTEE 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............................................ Page 16
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 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 or to
the agent from whom you purchased the Contract. When we receive the Contract,
(1) if the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH,
NC, OK, OR, SC, UT, VA or WV, then for any amount of your initial Purchase
Payment(s) invested in Fidelity Money Market, we will return the Accumulated
Value of the amount of your Purchase Payment(s) so invested, or if greater,
the amount of your Purchase Payment(s) so invested, (2) for any amount of your
initial Purchase Payment(s) invested in the Portfolios immediately following
receipt by us, we will return the Accumulated Value of your Purchase
Payment(s) so invested plus fees and/or Premium Taxes that may have been
subtracted from such amount, and (3) for any amount of your initial Purchase
Payment(s) invested in the Guaranteed Rate Options immediately following
receipt by us, we will refund the Accumulated Value of your Purchase
Payment(s) so invested............................................ Page 15
EXCHANGES
You may make unlimited Exchanges among the Portfolios or into the General
Account Guaranteed Options, provided you maintain a minimum balance of $250 in
each Subaccount or $1,000 in each General Account Guaranteed Option,
respectively, to which you have allocated a portion of your Accumulated Value.
No fee is currently imposed for such Exchanges; however, we reserve the right
to charge a $15 fee for Exchanges in excess of 12 per Contract Year.
6
<PAGE>
Exchanges must not reduce the value of any allocation to any Subaccount or
General Account Guaranteed Option below $250 or $1,000, respectively, or that
remaining amount will be transferred to your other Subaccounts or General
Account Guaranteed Options on a pro rata basis. The Guaranteed Equity Option is
illiquid for the entire guarantee period, and transfers from the Guaranteed
Rate Options may be subject to additional limitations and charges. (See also
"Charges and Deductions," page 16, and "The General Account," at Appendix A)....
Page 19
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value (plus any
positive Market Value Adjustment applicable under the Multi-Year Guaranteed
Rate Option) or the Adjusted Death Benefit on the date we receive due proof of
the Annuitant's death. During the first six Contract Years, the Adjusted Death
Benefit will be the sum of all Net Purchase Payments made, less any partial
withdrawals taken. During each subsequent six-year period, the Adjusted Death
Benefit will be the Death Benefit on the last day of the previous six-year
period plus any Net Purchase Payments made, less any partial withdrawals taken
during the current six-year period. After the Annuitant attains age 75, the
Adjusted Death Benefit will remain equal to the Death Benefit on the last day
of the six-year period before age 75 occurs plus any Net Purchase Payments
subsequently made, less any partial withdrawals subsequently taken. The
Annuitant's Beneficiary may elect to receive these proceeds as a lump sum or as
Annuity Payments. If the Annuitant dies on or after the Annuity Date, any
unpaid payments certain will be paid, generally to the Annuitant's Beneficiary,
in accordance with the Contract.....................................Page 21
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 annuity. We provide you with a variety of options as it relates
to those payments. At your discretion, payments may be either fixed or variable
or both. Fixed payouts are guaranteed for a designated period or for life
(either single or joint). Variable payments will vary depending on the
performance of the underlying Portfolio or Portfolios selected...........Page 22
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
Providian Marquee Contracts have an annual mortality and expense risk charge of
1.25%. There is no front-end sales load and up to 10% of the Accumulated Value
can be withdrawn once per year without a surrender charge. However, additional
withdrawals are subject to a surrender charge of up to 6% during the first six
Contract Years.
Contracts also include administrative charges and policy fees which pay for
administering the Contracts, and management, advisory and other fees, which
reflect the costs of the Funds...........................................Page 16
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior to
age 59 1/2 may be subject to a 10% penalty tax (and a portion may be subject to
ordinary income taxes)...................................................Page 19
ALTERNATE CONTRACT VERSION
Providian Marquee Contracts are offered in two versions with differing charge
structures and features. THIS PROSPECTUS DESCRIBES ONLY THE STANDARD PROVIDIAN
MARQUEE CONTRACT. (This version may occasionally be described as a B Unit
Contract in certain marketing materials and trade publications and in the
Statement of Additional Information.) Also available is an A Unit Contract. A
Unit contracts have a front-end sales load of up to 5.75%, but have no
withdrawal or surrender charges from variable portfolios and are subject to a
decreased annual mortality and expense risk charge of .65%. Other differences
apply to the General Account Guaranteed Options and annual permitted additions.
A Units Contracts are offered only by an A Unit prospectus. For full details
regarding the A Unit Contracts, please see an A Unit prospectus, which may be
obtained from your agent or by calling our Administrative Offices at 1-800-866-
6007.
7
<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.
The purpose of this table is to assist you in understanding the various costs
and expenses that you would bear directly or indirectly as a purchaser of the
Contract. The fee table reflects all expenses for both the Separate Account
and the Funds. For a complete discussion of Contract costs and expenses,
including charges applicable to the General Account Guaranteed Options, see
"Charges and Deductions," page 16.
<TABLE>
<CAPTION>
FEE
AMOUNT
CONTRACTOWNER TRANSACTION EXPENSES ------
<S> <C>
Sales Load Imposed on Purchases (under $100,000)..................... None
Contingent Deferred Sales Load (surrender charge).................... 6%*
Exchange Fees........................................................ None
ANNUAL CONTRACT FEE.................................................. $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge.................................... 1.25%
Administrative Charge................................................ .15%
----
Total Annual Separate Account Expenses............................... 1.40%**
</TABLE>
*Up to 10% of the Accumulated Value as of the last Contract Anniversary (10%
of the initial Net Purchase Payment during the first Contract Year) can be
withdrawn once per year without a surrender charge. Additional withdrawals
in the first Contract Year are subject to a 6% charge. The charge decreases
1% per year until after the sixth Contract Year there is no surrender
charge. The total surrender charges assessed will not exceed 8.5% of the
Purchase Payments under the Contract.
**Separate Account Annual Expenses are not charged against the General Account
Guaranteed Options.
PORTFOLIO ANNUAL EXPENSES
Except as indicated, the figures below are based on expenses for fiscal year
1996 (as a percentage of each Portfolio's average net assets after fee waiver
and/or expense reimbursement limitation, if applicable).
<TABLE>
<CAPTION>
MANAGEMENT
AND ADVISORY OTHER TOTAL PORTFOLIO
EXPENSES EXPENSES ANNUAL EXPENSES
------------ -------- ---------------
<S> <C> <C> <C>
Fidelity Money Market*.. 0.21% 0.09% 0.30%
Fidelity Equity-Income*. 0.51% 0.07% 0.58%
Fidelity Growth*........ 0.61% 0.08% 0.69%
Fidelity Asset Manager*. 0.64% 0.10% 0.74%
Dreyfus Growth and
Income**............... 0.75% 0.08% 0.83%
Dreyfus Quality Bond**.. 0.65% 0.14% 0.79%
T. Rowe Price Equity
Income................. 0.85% 0.00% 0.85%
T. Rowe Price New
America Growth......... 0.85% 0.00% 0.85%
T. Rowe Price
International Stock.... 1.05% 0.00% 1.05%
OpCap Advisors
Managed***............. 0.80% 0.10% 0.90%
OpCap Advisors Small
Cap***................. 0.80% 0.22% 1.02%
OpCap Advisors U.S.
Government Income***... 0.60% 0.42% 1.02%
</TABLE>
*A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest
earned on uninvested cash balances was used to reduce custodian and
transfer agent expenses. Including these reductions, the total operating
expenses presented in the table would have been 0.56% for Equity-Income
Portfolio, 0.67% for Growth Portfolio and 0.73% for Asset Manager
Portfolio.
**From time to time, the Dreyfus Growth and Income and Quality Bond
Portfolios' investment adviser in its sole discretion may waive all or part
of its fees and/or voluntarily assume certain of the Portfolios' expenses.
For a more complete description of the Portfolios' fees and expenses, see
the Dreyfus Variable Investment Fund's Prospectus.
8
<PAGE>
***The annual expenses of OCC Accumulation Trust Portfolios (the "Portfolios")
as of December 31, 1996 have been restated to reflect new management fee and
expense limitation arrangements in effect as of May 1, 1996. Additionally,
Other Expenses are shown gross of certain expense offsets afforded the
Portfolios which effectively lowered overall custody expenses. Effective May
1, 1996, the expenses of the Portfolios were contractually limited by OpCap
Advisors so that their respective annualized operating expenses (net of any
expense offsets) do not exceed 1.25% of their respective average daily net
assets. Furthermore, through December 31, 1997, the annualized operating
expenses of the U.S. Government Income, Managed and Small Cap Portfolios
will be voluntarily limited by OpCap Advisors so that annualized operating
expenses (net of any expense offsets) of these Portfolios do not exceed
1.00% of their respective average daily net assets. Without such contractual
and voluntary expense limitations and without giving effect to any expense
offsets, the Management Fees, Other Expenses and Total Portfolio Annual
Expenses incurred for the fiscal year ended December 31, 1996 would have
been 0.60%, 1.74% and 2.34%, respectively, for the U.S. Government Income
Portfolio; 0.80%, 0.10% and 0.90%, respectively, for the Managed Portfolio;
and 0.80%, 0.26% and 1.06%, respectively, for the Small Cap Portfolio.
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.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Fidelity Money Market..................... $73.83 $ 95.12 $116.42 $241.57
Fidelity Equity-Income.................... $78.47 $103.30 $130.47 $270.06
Fidelity Growth........................... $77.50 $106.49 $135.94 $281.01
Fidelity Asset Manager.................... $77.97 $107.94 $138.41 $285.95
Dreyfus Growth and Income................. $78.82 $110.54 $142.84 $294.75
Dreyfus Quality Bond...................... $78.44 $109.39 $140.88 $290.85
T. Rowe Price Equity Income............... $79.01 $111.12 $143.83 $296.70
T. Rowe Price New America Growth.......... $79.01 $111.12 $143.83 $296.70
T. Rowe Price International Stock......... $80.88 $116.87 $153.59 $315.90
OpCap Advisors Managed.................... $79.47 $112.56 $146.28 $301.54
OpCap Advisors Small Cap.................. $80.60 $116.01 $152.14 $313.05
OpCap Advisors U.S. Government Income..... $80.60 $116.01 $152.14 $313.06
</TABLE>
The following example illustrates the expenses that you would incur on a $1,000
Purchase Payment over various periods, assuming (1) a 5% annual rate of return
and (2) you do not surrender your Contract or you annuitize at the end of each
period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Fidelity Money Market..................... $17.95 $55.54 $ 95.52 $206.97
Fidelity Equity-Income.................... $20.77 $64.10 $109.95 $236.64
Fidelity Growth........................... $21.87 $67.44 $115.56 $248.05
Fidelity Asset Manager.................... $22.37 $68.95 $118.10 $253.19
Dreyfus Growth and Income................. $23.28 $71.68 $122.66 $262.38
Dreyfus Quality Bond...................... $22.87 $70.47 $120.64 $258.31
T. Rowe Price Equity Income............... $23.48 $72.28 $123.67 $264.41
T. Rowe Price New America Growth.......... $23.48 $72.28 $123.67 $264.41
T. Rowe Price International Stock......... $25.48 $78.30 $133.71 $284.47
OpCap Advisors Managed.................... $23.98 $73.79 $126.19 $269.47
OpCap Advisors Small Cap.................. $25.18 $77.40 $132.21 $281.49
OpCap Advisors U.S. Government Income..... $25.18 $77.40 $132.21 $281.49
</TABLE>
The Annual Contract Fee is reflected in these examples 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 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, 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.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1994 THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
DREYFUS
FIDELITY FIDELITY GROWTH DREYFUS
MONEY FIDELITY ASSET FIDELITY AND QUALITY
MARKET EQUITY-INCOME MANAGER GROWTH INCOME BOND
--------- ------------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date***......... 10.041 10.000 10.000 10.000 10.000 10.000
12/31/94.............. 10.144 9.677 9.604 10.159 9.472 9.910
12/31/95.............. 10.592 12.892 11.076 13.562 14.977 11.769
12/31/96.............. 11.010 14.527 12.516 15.338 17.831 11.966
Number of units
outstanding as of:
12/31/94.............. 81,408 14,705 45,464 21,033 9,468 7,987
12/31/95.............. 1,284,076 487,004 298,894 522,172 302,521 167,901
12/31/96.............. 1,548,218 1,184,506 518,430 1,253,800 909,709 450,012
<CAPTION>
OPCAP
OPCAP ADVISORS
TRP TRP TRP NEW OPCAP ADVISORS U.S.
EQUITY INTERNATIONAL AMERICA ADVISORS SMALL GOV'T.
INCOME STOCK GROWTH MANAGED CAP. INCOME
--------- ------------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date***......... 10.000 10.000 10.000 10.000 10.000 10.000
12/31/94.............. 9.797 9.518 10.000 9.699 10.166 0
12/31/95.............. 13.020 10.435 14.899 13.921 11.551 11.007
12/31/96.............. 15.348 11.802 17.642 16.852 13.522 11.182
Number of units
outstanding as of:
12/31/94.............. 3,274 23,019 1,503 19,221 11,734 N/A
12/31/95.............. 162,561 460,990 235,983 426,184 349,767 52,450
12/31/96.............. 470,214 1,270,362 747,969 926,772 648,328 141,598
</TABLE>
*** Date of commencement of operations for Fidelity Money Market was 8/2/94,
for Fidelity Equity-Income, Fidelity Growth, Dreyfus Quality Bond and T. Rowe
Price International was 8/17/94; for Dreyfus Growth and Income was 8/31/94;
for T. Rowe Price Equity Income was 9/1/94; for Fidelity Asset Manager was
9/14/94; for OpCap Advisors Managed was 11/3/94; for OpCap Advisors Small Cap
was 11/4/94; for T. Rowe Price New America Growth was 12/30/94; and for OpCap
U.S. Government Income was 11/18/94. The OpCap Advisors U.S. Government
Income Portfolio had activity in 1994 but no Accumulation Units were
outstanding at 12/31/94.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company and the
financial statements of the Separate Account (as well as the Independent
Auditors' Reports thereon) are contained in the Statement of Additional
Information.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Fidelity Money Market Subaccount, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
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 (the "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 all applicable sales loads
(including the contingent deferred sales load), the Annual Contract Fee and all
other Portfolio, Separate Account and Contract level charges except Premium
Taxes, if any.
10
<PAGE>
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 ("YTD") 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 do not reflect the
Annual Contract Fee, any sales loads or Premium Taxes (if any) which, if
included, would reduce the percentages reported.
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. These returns do not include
the Annual Contract Fee, any sales loads or Premium Taxes (if any) which, if
included, would reduce the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of the Fidelity Money Market Portfolio. "Yield" refers to
the income generated by an investment in Fidelity Money Market over a seven-day
period, which is then "annualized." That is, the amount of income generated by
the investment during that week is assumed to be generated each week over a 52-
week period and is shown as a percentage of the investment. The "effective
yield" is calculated similarly but, when annualized, the income earned by an
investment in Fidelity Money Market is assumed to be reinvested. Therefore the
effective yield will be slightly higher than the yield because of the
compounding effect of this assumed reinvestment. These figures do not reflect
the Annual Contract Fee, any sales loads or Premium Taxes (if any) which, if
included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than Fidelity Money
Market for which the Company advertises yield, the Company shall furnish a
yield quotation referring to the Portfolio computed in the following manner:
the net investment income per Accumulation Unit earned during a recent one
month period is divided by the Accumulation Unit Value on the last day of the
period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
11
<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 49 states, the District of Columbia and Puerto
Rico. The Company is owned, directly and indirectly, by Providian Corporation
("Providian"), a publicly-held diversified consumer financial services company
whose shares are traded on the New York Stock Exchange with assets of $29
billion as of December 31, 1996.
On December 28, 1996, Providian executed a Plan and Agreement of Merger and
Reorganization (the "Merger Agreement") with AEGON N.V., an international
insurance company headquartered in The Hague, The Netherlands. Under the
Merger Agreement, Providian's insurance operations, including the operations
of the Company, will merge with a wholly owned subsidiary of AEGON. Providian
will be the surviving corporation of the merger and will become a wholly owned
subsidiary of AEGON. The merger of Providian's insurance businesses with AEGON
is conditioned upon several events, including shareholder and various
regulatory approvals. Providian anticipates that the closing of the
transaction will occur in mid-1997. Because consummation of the merger is
subject to the above conditions, no representations can be made as to whether,
or when, the merger will be completed or as to the possible impact of the
merger on the financial position and results of operations of the Company
should the merger occur.
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 12 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund and Variable Insurance Products Fund II
(each, a "Fidelity Fund" and collectively, the "Fidelity Funds") are
diversified, open-end management investment companies organized by Fidelity
Management & Research Company ("FMR") and registered under the 1940 Act. Each
Fidelity Fund consists of several investment portfolios, including the Money
Market, Equity-Income, Growth and Asset Manager Portfolios available as part
of the Providian Marquee. FMR serves as the Fidelity Funds' investment
adviser. ("VIP" and "VIP II" refer to Variable Insurance Products Fund and
Variable Insurance Products Fund II, respectively.)
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end management investment company
organized under the 1940 Act. The Dreyfus Variable Investment Fund consists of
thirteen separate investment portfolios, including the Growth and Income and
Quality Bond Portfolios, which are the only portfolios available as part of
the Providian Marquee. The Dreyfus Corporation serves as this Fund's
investment adviser.
12
<PAGE>
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Series Inc. is a Maryland corporation organized in 1994
and is registered with the Securities and Exchange Commission under the 1940
Act as a diversified, open-end management investment company, commonly known as
a "mutual fund." Currently, the fund consists of the Equity Income and New
America Growth Portfolios, each of which represents a separate class of shares
having different objectives and investment policies, and both of which are
available as part of the Providian Marquee. T. Rowe Price Associates, Inc. is
responsible for the selection and management of this Fund's portfolio
investments and serves as the Fund's investment adviser.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Series, Inc. is a Maryland corporation organized in
1994 and is registered with the Securities and Exchange Commission under the
1940 Act as a diversified, open-end management investment company, commonly
known as a "mutual fund." The corporation is a series fund and has the
authority to issue other series in addition to the International Stock
Portfolio currently available as part of the Providian Marquee. Rowe Price-
Fleming International, Inc. is responsible for selection and management of this
Fund's portfolio investments and serves as the Fund's investment adviser.
OCC ACCUMULATION TRUST
OCC Accumulation Trust is a Massachusetts business trust and is registered with
the Securities and Exchange Commission under the 1940 Act as a diversified,
open-end management investment company. The Fund receives investment advice
with respect to each of its portfolios from OpCap Advisors, a subsidiary of
Oppenheimer Capital, a registered investment adviser. The Fund currently
consists of seven series, including the OpCap Advisors Managed, OpCap Advisors
Small Cap and OpCap Advisors Government Income Portfolios available as part of
the Providian Marquee. The OCC Accumulation Trust was formerly known as the
Quest For Value Accumulation Trust.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH EACH PORTFOLIO'S
INVESTMENTS, PLEASE REFER TO THE APPLICABLE UNDERLYING FUND PROSPECTUS.
VIP MONEY MARKET PORTFOLIO ("FIDELITY MONEY MARKET")
Fidelity Money Market seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. It invests only in
high-quality U.S. dollar denominated money market instruments of domestic and
foreign issuers.
VIP EQUITY-INCOME PORTFOLIO ("FIDELITY EQUITY-INCOME")
Fidelity Equity-Income seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the Portfolio
will also consider the potential for capital appreciation. The Portfolio's goal
is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
VIP GROWTH PORTFOLIO ("FIDELITY GROWTH")
Fidelity Growth seeks to achieve capital appreciation normally through the
purchase of common stocks (although the Portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
VIP II ASSET MANAGER PORTFOLIO ("FIDELITY ASSET MANAGER")
Fidelity Asset Manager seeks high total return with reduced risk over the long-
term by allocating its assets among domestic and foreign stocks, bonds and
short-term fixed income instruments.
DREYFUS GROWTH AND INCOME PORTFOLIO ("DREYFUS GROWTH AND INCOME")
Dreyfus Growth and Income is a non-diversified Portfolio, the goal of which is
long-term capital growth, current income and growth of income, consistent with
reasonable investment risk. The Portfolio invests in equity and debt securities
and money market instruments of domestic and foreign issuers.
13
<PAGE>
DREYFUS QUALITY BOND PORTFOLIO ("DREYFUS QUALITY BOND")
Dreyfus Quality Bond is a diversified Portfolio, the goal of which is to
provide the maximum amount of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity. The Dreyfus Quality
Bond Portfolio invests in debt obligations of corporations, the U.S. Government
and its agencies and instrumentalities, and major U.S. banking institutions.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ("T. ROWE PRICE EQUITY INCOME")
T. Rowe Price Equity Income seeks to provide substantial dividend income as
well as long-term capital appreciation by investing primarily in dividend-
paying common stocks of established companies. In pursuing its objective, the
Portfolio emphasizes companies with favorable prospects for both increasing
dividend income and capital appreciation.
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO ("T. ROWE PRICE NEW AMERICA GROWTH")
T. Rowe Price New America Growth seeks long-term growth of capital through
investments primarily in the common stocks of U.S. growth companies which
operate in service industries. In pursuing its objective, this Portfolio
invests primarily in companies deriving a majority of their revenues or
operating earnings from service-related activities and in companies whose
prospects are closely tied to service industries. This Portfolio may also
invest up to 25% of its assets in non-service related growth companies in
pursuit of capital appreciation whose earnings are believed to hold the
prospect of superior growth.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ("T. ROWE PRICE INTERNATIONAL
STOCK")
T. Rowe Price International Stock seeks long-term growth of capital, through
investments primarily in common stocks of established, non-U.S. companies.
OPCAP ADVISORS OCC ACCUMULATION TRUST MANAGED PORTFOLIO ("OPCAP ADVISORS
MANAGED")
OpCap Advisors Managed seeks to achieve growth of capital over time through
investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary over time based on the
investment manager's assessments of the relative outlook for such investments.
OPCAP ADVISORS OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO ("OPCAP ADVISORS
SMALL CAP")
OpCap Advisors Small Cap seeks capital appreciation through investments in a
diversified portfolio consisting primarily of equity securities of companies
with market capitalizations under $1 billion.
OPCAP ADVISORS OCC ACCUMULATION TRUST U.S. GOVERNMENT INCOME PORTFOLIO ("OPCAP
ADVISORS U.S. GOVERNMENT INCOME")
The investment objective of OpCap Advisors U.S. Government Income is to seek a
high level of current income together with the protection of capital. This
Portfolio seeks to achieve its investment objective by investing exclusively in
debt obligations, including mortgage-backed securities, issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of the
Portfolios and the investment advisory services, total expenses and charges can
be found in the current prospectuses for the corresponding Funds. THE FUNDS' OR
PORTFOLIOS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise between the interests
of the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
14
<PAGE>
CONTRACT FEATURES
The rights and benefits under the Contract are as 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, or to the agent from whom you purchased the Contract. Upon
cancellation, the Contract is treated as void from the Contract Date and when
we receive the Contract, (1) if the state of issue of your Contract is CA, GA,
ID, LA, MI, MO, NE, NH, NC, OK, OR, SC, UT, VA or WV, then for any amount of
your initial Purchase Payment(s) invested in Fidelity Money Market, we will
return the Accumulated Value of the amount of your Purchase Payment(s) so
invested, or if greater, the amount of your Purchase Payment(s) so invested,
(2) for any amount of your initial Purchase Payment(s) invested in the
Portfolios immediately following receipt by us, we will return the Accumulated
Value of your Purchase Payment(s) so invested plus any fees and/or Premium
Taxes that may have been subtracted from such amount, and (3) for any amount
of your initial Purchase Payment(s) invested in the Guaranteed Rate Options
immediately following receipt by us, we will refund the Accumulated Value of
your Purchase Payment(s) so invested.
CONTRACT PURCHASE AND PURCHASE PAYMENTS
If you wish to purchase a Contract, you should consult your agent who will
provide the necessary information to us in a customer order form and forward
your 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 your initial Purchase Payment (rather than through the mail),
you must do so at our Administrative Offices, 400 West Market Street,
Louisville, KY 40202. Your initial Purchase Payment for a Non-Qualified
Contract must be equal to or greater than the $5,000 minimum investment
requirement. The initial Purchase Payment for a Qualified Contract must be
equal to or greater than $2,000 (or you may establish a payment schedule of
$50 a month by payroll deduction).
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within two Business Days after 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 acknowledgement form, which you should complete, sign and return in
accordance with its instructions. Please note that until the Company receives
the acknowledgement 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 because the customer order
form is incomplete, we will contact you, explain the reason for the delay and
will refund the initial Purchase Payment within five Business Days, unless you
instruct 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. Any additional Purchase Payments
must be for at least $500 for Non-Qualified Contracts or $50 for Qualified
Contracts and are limited to $10,000 annually after the first Contract
Anniversary. If additional Purchase Payments are received prior to the close
of the New York Stock Exchange (generally 4:00 P.M. Eastern time) they will be
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.
The Company reserves the right to refuse to issue this Contract in cases
involving an exchange for another Contract. In cases where a Contract Owner or
former Contract Owner requests the Company to reverse a surrender or
withdrawal transaction, whether full or partial, the Company reserves the
right to refuse such requests or grant such requests on the condition that the
Contract's Accumulated Value be adjusted to reflect appropriate investment
results, administrative costs or loss of interest during the relevant period.
PURCHASING BY WIRE
For wiring instructions please contact our Administrative Offices at 1-800-
866-6007.
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<PAGE>
ALLOCATION OF PURCHASE PAYMENTS
You instruct your agent how your Net Purchase Payments will be allocated. You
may allocate each Net Purchase Payment to one or more of the Portfolios or the
General Account Guaranteed Options as long as such portions are whole number
percentages provided that each allocation to a General Account Guaranteed
Option is at least $1,000 and that no Portfolio or General Account Guaranteed
Option may contain a balance less than $250 or $1,000, respectively. You may
choose not to allocate any monies to a particular Portfolio. You may change
allocation instructions for future Net Purchase Payments by sending us the
appropriate Company form or by complying with other designated Company
procedures. The General Account Guaranteed Options are available for sale in
most, but not all, states. (Please note that immediate investment is not
applicable to amounts allocated to the Guaranteed Equity Option.)
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 Fidelity Money Market until the
expiration of the Right to Cancel Period of 10 to 30 days (plus a five day
grace period to allow for mail delivery) or more in some instances as
specified in your Contract after the issuance of your Contract and then
invested according to your initial allocation instructions (except that any
accrued interest will remain in Fidelity Money Market if it is selected as an
initial allocation option), provided that portions of your initial Net
Purchase Payment(s) allocated to the Guaranteed Rate Options will be invested
immediately upon our receipt thereof in order to lock in the rates then
applicable to such options.
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in your
Portfolios and Guaranteed Rate Options immediately upon our receipt thereof,
IN WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO
THE PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that immediate
investment is not available with respect to any amounts allocated to THE
GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR THE GUARANTEE PERIOD.)
GENERAL ACCOUNT GUARANTEED OPTIONS
THE AVAILABILITY, STRUCTURE AND FEATURES OF THE GENERAL ACCOUNT GUARANTEED
OPTIONS VARY BY STATE. CHECK WITH YOUR SALES REPRESENTATIVE FOR DETAILS OF THE
AVAILABILITY AND CHARACTERISTICS OF THESE OPTIONS BEFORE PURCHASING.
If your state of issue is any state other than those listed in the
immediately following sentence, then your General
---
---
Account Guaranteed Options are described in Part 1 of Appendix A. If your
state of issue is DC, IN, MD, MA, OK, PA, TX or VA, then your General Account
Guaranteed Options are described in Part 2 of Appendix A. Please read Appendix
A and the relevant Part 1 or Part 2 carefully.
In certain marketing and customer communication materials, including the
customer order form and the Contract, used in the states listed in the second
sentence of the paragraph immediately above, the One-Year Guaranteed Rate
Option may be titled the "One-Year Guaranteed Index Rate Option"; the Multi-
Year Guaranteed Rate Option may be titled the "Five-Year Guaranteed Index Rate
Option"; and the Guaranteed Equity Option may be titled the "Five-Year
Guaranteed Equity Option."
CHARGES AND DEDUCTIONS
For Providian Marquee Contracts, no sales load is deducted from Purchase
Payments and up to 10% of the Accumulated Value as of the Contract Date, or,
if more recent, the last Contract Anniversary, can be withdrawn once per year
without a surrender charge, subject to the charges and restrictions of the
General Account Guaranteed Options. Additional withdrawals are subject to a
surrender charge according to the following schedule:
<TABLE>
<CAPTION>
SURRENDER
CONTRACT YEAR CHARGE
------------- ---------
<S> <C>
1............................................ 6%
2............................................ 5%
3............................................ 4%
4............................................ 3%
5............................................ 2%
6............................................ 1%
7............................................ 0%
</TABLE>
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<PAGE>
The total surrender charges assessed will not exceed 8.5% of the Purchase
Payments under the Contract. There will be no surrender charge assessed on the
death of the Annuitant or after the sixth Contract Year.
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 1.25% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on us.
Conversely, if the charge proves more than sufficient, any excess will be added
to the Company surplus and will be used for any lawful purpose, including any
shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
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 on each Contract Anniversary and upon surrender, on a pro rata basis,
from each Subaccount. These deductions represent reimbursement for the costs
expected to be incurred over the life of the Contract for issuing and
maintaining each Contract and the Separate Account.
EXCHANGES
Each Contract Year you may make an unlimited number of free Exchanges between
Portfolios and/or General Account Guaranteed Options, provided that after an
Exchange no Portfolio or General Account Guaranteed Option may contain a
balance less than $250 or $1,000, respectively. We reserve the right to charge
a $15 fee in the future for Exchanges in excess of 12 per Contract Year.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The contingent deferred sales load or other 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 sales and/or 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 and certain sales representatives for the
Contract are permitted to purchase Contracts with substantial reduction of the
sales load, contingent deferred sales load or other 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 the contingent deferred sales
loads or other 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.
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<PAGE>
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.
At the time of the filing of this Prospectus, the following state assesses a
Premium Tax on all initial and additional Purchase Payments on Non-Qualified
Contracts:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
South Dakota.................. 0% 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. At
the time of the filing of this Prospectus, the following states assess a
Premium Tax against the Accumulated Value if the Contract Owner chooses an
Annuity Payment Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
California.................... .50% 2.35%
District of Columbia.......... 2.25% 2.25%
Kansas........................ 0% 2.00%
Kentucky...................... 2.00% 2.00%
Maine......................... 0% 2.00%
Nevada........................ 0% 3.50%
West Virginia................. 1.00% 1.00%
Wyoming....................... 0% 1.00%
</TABLE>
Under present laws, the Company will incur state or local taxes (in addition to
the Premium Taxes described above) in several states. At present, the Company
does not charge the Contract Owner for these taxes. If there is a change in
state or local tax laws, charges for such taxes may be made. The Company does
not expect to incur any federal income tax liability attributable to investment
income or capital gains retained as part of the reserves under the Contracts.
(See "Federal Tax Considerations," page 24.) Based upon these expectations, no
charge is currently being made to the Separate Account for federal income taxes
that may be attributable to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a charge
may be made in future years for any federal income taxes incurred by the
Company. This might become necessary if the tax treatment of the Company is
ultimately determined to be other than what the Company currently believes it
to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflect the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in each Fund's Prospectus and
Statement of Additional Information.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s) and
the interest credited to the General Account Guaranteed Options during the
Valuation Period; and reduced by: (i) any decrease in the Accumulated Value due
to investment results of the selected Portfolio(s), (ii) a daily charge to
cover the mortality and expense risks assumed by the Company, (iii) any charge
to
18
<PAGE>
cover the cost of administering the Contract, (iv) any partial withdrawals, (v)
any Market Value Adjustment or other deduction due to early Exchanges from the
Guaranteed Rate Options and, if exercised by the Company, (vi) any charges for
any Exchanges made after the first twelve in any Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds and, as permitted, the General Account Guaranteed
Options. Requests for Exchanges, received by mail or by telephone, prior to the
close of the New York Stock Exchange (generally 4:00 P.M. Eastern time) are
processed at the close of business that same day. Requests received after the
close of the New York Stock Exchange are processed the next Business Day. If
you experience difficulty in making a telephone Exchange your Exchange request
may be made by regular or express mail. It will be processed on the date
received.
To take advantage of the privilege of initiating transactions by telephone, you
must first elect the privilege by completing the appropriate section of the
Contract acknowledgement 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 acknowledgement form.
The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Prior to the acceptance of any request,
the caller will be asked by a customer service representative for his or her
Contract number and social security number. In addition, telephone
communications from a third party authorized to transact in an account will
undergo reasonable procedures to confirm that instructions are genuine. The
third party caller will be asked for his or her name, company affiliation (if
appropriate), the Contract number to which he or she is referring, and the
social security number of the Contract Owner. All calls will be recorded, and
this information will be verified with the Contract Owner's records prior to
processing a transaction. Furthermore, all transactions performed by a customer
service representative will be verified with the Contract Owner through a
written confirmation statement. Neither the Company nor the Funds shall be
liable for any loss, cost or expense for action on telephone instructions that
are believed to be genuine in accordance with these procedures.
For information concerning Exchanges to and from the General Account Guaranteed
Options, see "The General Account," at Appendix A.
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of the
Surrender Value by sending a written request to our Administrative Offices.
Full or partial withdrawals may only be made before the Annuity Date and all
partial withdrawal requests must be for at least $500. The amount available for
full or partial withdrawal is the Surrender Value at the end of the Valuation
Period during which the written request for withdrawal is received. The
Surrender Value is an amount equal to the Accumulated Value, adjusted to
reflect any applicable Market Value Adjustment for amounts allocated to the
Multi-Year Guaranteed Rate Option, less any early withdrawal charges for
amounts allocated to the One-Year Guaranteed Rate Option, less any amount
allocated to the Guaranteed Equity Option, less any applicable contingent
deferred sales load (i.e., surrender charge), 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 22).
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. You may not make any full or partial withdrawals from
the Guaranteed Equity Option before the end of the guarantee period. Your
proceeds will normally be processed and mailed to you within two Business Days
after the receipt of the request but in no event will it be later than seven
calendar days, subject to postponement in certain circumstances. (See
"Deferment of Payment," page 24).
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank. If, at the
time the Contract Owner requests a full or partial withdrawal, he has not
provided the Company with a written election not to have federal income taxes
withheld, the Company must by law
19
<PAGE>
withhold 10% from the taxable portion of any full or partial withdrawal and
remit that amount to the federal government. Moreover, the Code provides that a
10% penalty tax may be imposed on certain early withdrawals. (See "Federal Tax
Considerations," page 24).
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of the
Contract (taking into account any prior withdrawals) may be more or less than
the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semiannual 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.
A surrender charge will apply when withdrawals in any of the first six Contract
Years exceed 10% of that year's beginning Accumulated Value. (See "Charges and
Deductions," page 16.) Like any other partial withdrawal, each systematic
withdrawal is subject to taxes on earnings. If the owner has not provided the
Company with a written election not to have federal income taxes withheld, the
Company must by law withhold 10% from the taxable portion of the systematic
withdrawal and remit that amount to the federal government. Moreover, the Code
provides that a 10% penalty tax may be imposed on certain early withdrawals.
(See "Federal Tax Considerations," page 24.) You may wish to consult a tax
adviser regarding any tax consequences that might result prior to electing the
Systematic Withdrawal Option.
We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for such
service.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in Fidelity Money Market, you
may choose to have a specified dollar amount transferred from this Portfolio to
other Portfolios in the Separate Account or to the General Account Guaranteed
Options on a monthly basis. The main objective of Dollar Cost Averaging is to
shield your investment from short term price fluctuations. Since the same
dollar amount is transferred to other Portfolios each month, more units are
purchased in a Portfolio if the value per unit is low and less units are
purchased if the value per unit is high. Therefore, a lower average cost per
unit may be achieved over the long term. This plan of investing allows
investors to take advantage of market fluctuations but does not assure a profit
or protect against a loss in declining markets.
This Dollar Cost Averaging Option may be elected on the customer order form or
at a later date. The minimum amount that may be transferred each month into any
Portfolio or General Account Guaranteed Option is $250. The maximum amount
which may be transferred is equal to the Accumulated Value in Fidelity Money
Market when elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel this
option by sending the appropriate Company form to our Administrative Offices
which must be received at least seven days before the next transfer date.
20
<PAGE>
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within five years after
date of death or be paid under an Annuity Payment Option under which payments
will begin within one year of the Contract Owner's death and will be made for
the life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason of
death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $250 (or $1,000
in the case of any General Account Guaranteed Option balance), due to a partial
withdrawal or Exchange, to the remaining Portfolios held under that Contract on
a pro rata basis. In the event that the entire value of the Contract falls
below $1,000, you may be notified that the Accumulated Value of your account is
below the Contract's minimum requirement. You would then be allowed 60 days to
make an additional investment before the account is liquidated. Proceeds would
be promptly paid to the Contract Owner. The full proceeds would be taxable as a
withdrawal. We will not exercise this right with respect to Qualified
Contracts.
DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the 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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<PAGE>
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and is
payable upon receipt of due Proof of Death of the Annuitant as well as proof
that the Annuitant died prior to the Annuity Date. Upon receipt of this proof,
the Death Benefit will be paid within seven days, or as soon thereafter as the
Company has sufficient information about the Annuitant's Beneficiary to make
the payment. The Annuitant's Beneficiary may receive the amount payable in a
lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the sum
of all Net Purchase Payments made, less any partial withdrawals taken. During
each subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six year period before
age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date, 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 Annuity Payment Options available for Qualified Contracts may also be
controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated Value,
adjusted for any Market Value Adjustment or other deductions applicable to
amounts allocated to a General Account Guaranteed Option, less any amount
allocated to the Guaranteed Equity Option, less any applicable deferred sales
load (i.e., surrender charge) and 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.
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<PAGE>
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from 10
to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each payment.
Since payments to older Annuitants are expected to be fewer in number, the
amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one option,
the Company must be told what part of the Accumulated Value is to be paid under
each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must by
law withhold such taxes from the taxable portions of such Annuity Payment and
remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with Period
Certain Option and the annuity benefit sections of the Contract. That portion
of the Accumulated Value that has been held in a Portfolio prior to the Annuity
Date will be applied under a Variable Annuity Option based on the performance
of that Portfolio. Subject to approval by the Company, you may select any other
Annuity Payment Option then being offered by the Company. All Fixed Annuity
Payments and the initial Variable Annuity Payment are guaranteed to be not less
than as provided by the Annuity Tables and the Annuity Payment Option elected
by the Contract Owner. The minimum payment, however, is $100. If the
Accumulated Value is less than $5,000, or less than $2,000 for Texas Contract
Owners, the Company has the right to pay that amount in a lump sum. From time
to time, the Company may require proof that the Annuitant or Contract Owner is
living. Annuity Payment Options are not available to: (1) an assignee; or (2)
any other than a natural person, except with the consent of the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity Tables
found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the value
of the initial Variable Annuity Payment, are based on an assumed interest rate
of 4%. If the actual net investment experience exactly equals the assumed
interest rate, then the Variable Annuity Payments will remain the same (equal
to the first Annuity Payment). However, if actual investment experience exceeds
the assumed interest rate, the Variable Annuity Payments will increase;
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.
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DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within seven days from the date the election becomes
effective except that the Company may be permitted to defer such payment if:
(1) the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the New York Stock Exchange is otherwise restricted; or
(2) an emergency exists as defined by the SEC, or the SEC requires that trading
be restricted; or (3) the SEC permits a delay for the protection of Contract
Owners.
As to amounts allocated to the General Account, we may, at any time, defer
payment of the Surrender Value for up to six months after we receive a request
for it. We will allow interest of at least 4% annually on any Surrender Value
payment derived from the General Account that we defer 30 days or more.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax adviser regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the federal income tax laws,
the Treasury regulations or the current interpretations by the Internal Revenue
Service. We reserve the right to make uniform changes in the Contract to the
extent necessary to continue to qualify the Contract as an annuity. For a
discussion of federal income taxes as they relate to the Funds, please see the
accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons," page 26 and
"Diversification Standards," page 26).
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. Partial withdrawals are generally taken out of
earnings first and then purchase payments.
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which establishes
the ratio that the investment in the Contract bears to the total expected
amount of Annuity Payments for the term of the Contract. That ratio is then
applied to each payment to determine the non-taxable portion of the payment.
The remaining portion of each payment is taxed at ordinary income tax rates.
For Variable Annuity Payments, in general, the taxable portion is 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.
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Withholding of federal income taxes on all distributions is required unless the
recipient elects not to have any amounts withheld and properly notifies the
Company of that election. In certain situations, taxes will be withheld on
distributions to non-resident aliens at a 30% flat rate unless an exemption
from withholding applies under the applicable tax treaty.
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals (i) made on or after the death of the Contract Owner or, where the
Contract Owner is not an individual, the death of the Annuitant, who is defined
as the individual the events in whose life are of primary importance in
affecting the timing and payment under the Contracts; (ii) attributable to the
taxpayer's becoming disabled within the meaning of Code Section 72(m)(7); (iii)
that are part of a series of substantially equal periodic payments made at
least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi) under
an immediate annuity contract as defined in Section 72(u)(4); (vii) allocable
to the investment in the Contract prior to August 14, 1982; or (viii) that are
purchased by an employer on termination of certain types of qualified plans and
that are held by the employer until the employee separates from service. Other
tax penalties may apply to certain 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 penalty tax that would have been
imposed but for item (iii) above, plus interest for the deferral period. The
foregoing rule applies if the modification takes place (a) before the close of
the period that is five years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
THE COMPANY'S 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 death of the "primary
Annuitant" (as defined under the Code) is treated as the death of the Contract
Owner. The primary Annuitant is the individual who is of primary importance in
affecting the timing or the amount of payout under a Contract. In 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.
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TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger tax on the gain in
the Contract to the Contract Owner at the time of such transfer. The investment
in the Contract of the transferee will be increased by any amount included in
the Contract Owner's income. This provision, however, does not apply to those
transfers between spouses or incident to a divorce which are governed by Code
Section 1041(a).
CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. If an employer is the nominal owner of a Contract, and the
beneficial owners are employees, then the Contract is not treated as being held
by a non-natural person. The rule also does not apply where the Contract is
acquired by the estate of a decedent, where the Contract is a qualified funding
asset for structured settlements, where the Contract is purchased on behalf of
an employee upon termination of a qualified plan, and in the case of an
immediate annuity, as defined under Section 72(u)(4) of the Code.
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. The aggregation rules do not apply to immediate
annuities as defined under Section 72(u)(4) of the Code. Accordingly, a
Contract Owner should consult a tax adviser before purchasing more than one
Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, the Separate Account will be
required to diversify its investments. The Regulations generally require that
on the last day of each quarter of a calendar year, no more than 55% of the
value of the Separate Account is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is represented
by any three investments, and no more than 90% is represented by any four
investments. A "look-through" rule applies that suggests that each Subaccount
of the Separate Account will be tested for compliance with the percentage
limitations by looking through to the assets of the Portfolios in which each
such division invests. All securities of the same issuer are treated as a
single investment. Each government agency or instrumentality will be treated as
a separate issuer for purposes of those limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to
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remain in compliance. For these reasons, the Company reserves the right to
modify the Contracts, as necessary, to prevent the Contract Owner from being
considered the owner of assets of the Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by public
school systems and certain tax-exempt organizations (Code Section 501(c)(3)
organizations) for their employees under Section 403(b) of the Code; except, as
discussed below and subject to any conditions in an employer's plan, a Contract
used in connection with a Section 403(b) Plan offers the same benefits and is
subject to the same charges described in this Prospectus.
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
Under your 403(b) Contract, you may borrow against your Contract's Surrender
Value after the first Contract Year. No additional loans will be extended until
prior loan balances are paid in full. The loan amount must be at least $1,000
and your Contract must have a minimum vested Accumulated Value of $2,000. The
loan amount may not exceed the lesser of (a) or (b), where (a) is 50% of the
Contract's vested Accumulated Value on the date on which the loan is made, and
(b) is $50,000 reduced by the excess, if any, of the highest outstanding
balance of loans during the one-year period ending on the day before the
current loan is made over the outstanding balance of loans on the date of the
current loan. If you are married, your spouse must consent in writing to a loan
request. This consent must be given within the 90-day period before the loan is
to be made.
On the first Business Day of each calendar month, the Company will determine a
loan interest rate. The loan interest rate for the calendar month in which the
loan is effective will apply for one year from the loan effective date.
Annually on the anniversary of the loan effective date, the rate will be
adjusted to equal the loan interest rate determined for the month in which the
loan anniversary occurs.
Principal and interest on loans must be repaid in substantially level payments,
not less frequently than quarterly, over a five year term except for certain
loans for the purchase of a principal residence. If the loan interest rate is
adjusted, future payments will be adjusted so that the outstanding loan balance
is amortized in equal quarterly installments over the remaining term. A $40
processing fee is charged for each loan. The remainder of each repayment will
be credited to the individual account.
If a loan payment is not made when due, interest will continue to accrue. The
defaulted payment plus accrued interest will be deducted from any future
distributions under the Contract and paid to us. Any loan payment which is not
made when due, plus interest, will be treated as a distribution, as permitted
by law. The loan payment may be taxable to the borrower, and may be subject to
the early withdrawal tax penalty. When a loan is made, unless instructed to the
contrary by the Annuitant, the number of Accumulation Units equal to the loan
amount will be withdrawn from the individual account and placed in the
Collateral Fixed Account. Accumulation Units taken from the individual account
to provide a loan do not participate in the investment experience of the
related Portfolios or the guarantees of the General Account Guaranteed Options.
The loan amount will be withdrawn on a pro rata basis first from the Portfolios
to which Accumulated Value has been allocated, and if that amount is
insufficient, collateral will then be transferred from the General Account
Guaranteed Options--except the Guaranteed Equity Option. As with any
withdrawal, Market Value Adjustments or other deductions applicable to amounts
allocated to General Account Guaranteed Options may be applied and no amounts
may be withdrawn from the Guaranteed Equity Option. Until the loan is repaid in
full, that portion of the Collateral Fixed Account shall be credited with
interest at a rate of 2% less than the loan interest rate applicable to the
loan--however, the interest rate credited will never be less than the General
Account Guaranteed Option's guaranteed rate of 3%.
A bill in the amount of the quarterly principal and interest will be mailed
directly to you in advance of the payment due date. The initial quarterly
repayment will be due three months from the loan date. The loan date will be
the date that the Company receives the loan request form in good order. Payment
is due within 30 calendar days after the due date. Subsequent quarterly
installments are based on the first due date.
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When repayment of principal is made, Accumulation Units will be reallocated on
a current value basis among the same investment Portfolios and/or General
Account Guaranteed Options and in the same proportion as when the loan was
initially made, unless the Annuitant specifies otherwise. If a repayment in
excess of a billed amount is received, the excess will be applied towards the
principal portion of the outstanding loan. Payments received which are less
than the billed amount will not be accepted and will be returned to you.
If a partial surrender is taken from your individual account due to nonpayment
of a billed quarterly installment, the date of the surrender will be the first
business day following the 30 calendar day period in which the repayment was
due.
Prepayment of the entire loan is allowed. At the time of prepayment, the
Company will bill you for any accrued interest. The Company will consider the
loan paid when the loan balance and accrued interest are paid.
If the individual account is surrendered or if the Annuitant dies with an
outstanding loan balance, the outstanding loan balance and accrued interest
will be deducted from the Surrender Value or the Death Benefit, respectively.
If the individual account is surrendered, with an outstanding loan balance, due
to the Contract Owner's death or the election of an Annuity Payment Option, the
outstanding loan balance and accrued interest will be deducted.
The Company may require that any outstanding loan be paid if the individual
account value falls below an amount equal to 25% of total loans outstanding.
The Code requires the aggregation of all loans made to an individual employee
under a single employer-sponsored 403(b) Plan. However, since the Company has
no information concerning the outstanding loans that you may have with other
companies, it will only use the information available under Contracts issued by
the Company.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are also allowed if the Contract Owner can show "hardship," as
defined by the Internal Revenue Service, but the surrender is limited to the
lesser of Purchase Payments made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a surrender is permitted under these
provisions, a 10% federal tax penalty may be assessed on the withdrawn amount
if it does not otherwise meet the exceptions to the penalty tax provisions.
(See "Taxation of Annuities in General," page 24).
Under the Code, you may request a full or partial surrender of an amount equal
to the individual account cash value as of December 31, 1988 (the
"grandfathered" amount), subject to the terms of the 403(b) Plan. Although the
Code surrender restrictions do not apply to this amount, a 10% federal penalty
tax may be assessed on the withdrawn amount if it does not otherwise meet the
exceptions to the penalty tax provisions (See "Taxation of Annuities in
General," page 24).
The Company believes that the Code surrender restrictions do not apply to tax-
free transfers pursuant to Revenue Ruling 90-24. The Company further believes
that the surrender restrictions will not apply to any "grandfathered" amount
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio of the Funds, or of
another registered, open-end management investment company, if the shares of
the Portfolios are no longer available for investment, or, if in the Company's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
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New Portfolios may be established at the discretion of the Company. Any new
Portfolios will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be necessary
or appropriate to reflect such substitution or change. Furthermore, if deemed
to be in the best interests of persons having voting rights under the
Contracts, the Separate Account may be operated as a management company under
the 1940 Act or any other form permitted by law, may be deregistered under the
1940 Act in the event such registration is no longer required, or may be
combined with one or more other separate accounts.
VOTING RIGHTS
The Funds do not hold regular meetings of shareholders. The Directors/Trustees
of each Fund may call special meetings of shareholders as may be required by
the 1940 Act or other applicable law. To the extent required by law, the
Portfolio shares held in the Separate Account will be voted by the Company at
shareholder meetings of each Fund in accordance with instructions received from
persons having voting interests in the corresponding Portfolio. Fund shares as
to which no timely instructions are received or shares held by the Company as
to which Contract Owners have no beneficial interest will be voted in
proportion to the voting instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the Annuity
Date will be determined by dividing the reserve for such Contract allocated to
the Portfolio by the net asset value per share of the corresponding Portfolio.
After the Annuity Date, the votes attributable to a Contract decrease as the
reserves allocated to the Portfolio decrease. In determining the number of
votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the corresponding
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by such Fund.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
the Company and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt Berenson & Johnson LLP of Washington, D.C., has provided legal
advice relating to the federal securities laws applicable to the issue and sale
of the Contracts. All matters of Missouri law pertaining to the validity of the
Contract and the Company's right to issue such Contracts have been passed upon
by Kimberly A. Scouller, Esquire, on behalf of the Company.
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TABLE OF CONTENTS FOR THE PROVIDIAN MARQUEE VARIABLE ANNUITY
AND PROVIDIAN MARQUEE VARIABLE ANNUITY A-UNITS
STATEMENT OF ADDITIONAL INFORMATION
PAGE
THE CONTRACTS..................................................................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........................................................4
Money Market Subaccount Yields...............................................5
30-Day Yield for Non-Money Market Subaccounts................................5
Standardized Average Annual Total Return for Market 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..................................10
Non-Standardized One Year Return............................................11
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return...................................12
Individualized Computer Generated Illustrations.............................32
PERFORMANCE COMPARISONS.......................................................32
SAFEKEEPING OF ACCOUNT ASSETS.................................................34
THE COMPANY...................................................................34
STATE REGULATION..............................................................34
RECORDS AND REPORTS...........................................................35
DISTRIBUTION OF THE CONTRACTS.................................................35
LEGAL PROCEEDINGS.............................................................35
OTHER INFORMATION.............................................................35
FINANCIAL STATEMENTS..........................................................35
Audited Financial Statements................................................35
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APPENDIX A
THE GENERAL ACCOUNT
Because of applicable exemptive and exclusionary provisions, interests in the
General Account have not been registered under the Securities Act of 1933
("1933 Act"), nor under the 1940 Act. Thus, neither our General Account, nor
any interest therein are generally subject to regulation under the provisions
of the 1933 Act or the 1940 Act. Accordingly, the Company has been advised
that the staff of the SEC has not reviewed the disclosure in this Appendix
relating to the General Account. These disclosures regarding the General
Account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
Note: The General Account Guaranteed Options, or certain of them, are
currently available for sale in most, but not all, states. Please check with
your sales representative for details of the availability of these features
before purchasing.
Note: The following descriptions of the General Account Guaranteed Options
apply to Contracts issued on or after May 1, 1997. Contract Holders with
Contracts issued before that date should refer to the discussion of the
General Account Guaranteed Options in the prospectus which preceded or
accompanied their purchase of the Contract.
The General Account contains all of the assets of the Company other than those
in the separate accounts we establish. The Company has sole discretion to
invest the assets of the General Account, subject to applicable law.
Allocation of any amounts to the General Account does not entitle you to share
directly in the investment experience of these assets.
There are three fixed options under the General Account: the One-Year
Guaranteed Rate Option, the Multi-Year Guaranteed Rate Option, and the
Guaranteed Equity Option, each described below:
PART 1
If your state of issue is any state other than DC, IN, MD, MA, OK, PA, TX or
VA, this Part 1 describes the General Account Guaranteed Options applicable to
your Contract. Check with your sales representative for additional details
regarding availability. For other states, please see Part 2 to this Appendix.
One-Year Guaranteed Rate Option
You may allocate your Accumulated Value to this option at any time. Any
allocations you make to the one-year guarantee period must be at least $1,000
and you must maintain a minimum balance of $1,000 in each one-year guarantee
period. The Accumulated Value you allocate under this option earns interest at
a rate declared by the Company at the time your allocation is made with a
guarantee that the Accumulated Value in this General Account Guaranteed Option
will not be less than the amounts allocated, plus 3% annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the one-year guarantee
period. However, for any amounts so transferred and for full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the one-year guarantee period, we will deduct an amount
equal to the interest earned on the amount transferred or withdrawn during the
previous 90 days at the applicable one-year rate, subject to a guarantee that
any amounts allocated to this General Account Guaranteed Option will earn
interest of at least 3% annually. For full and partial withdrawals of amounts
allocated to this General Account Guaranteed Option, we will also deduct any
applicable surrender charge.
If you have more than one allocation in this option, you may choose which
allocation or allocations any exchanges or surrenders are to be made from. If
you do not specify which allocation or allocations to take the exchanges or
surrenders from, we will first take from the allocation with the shortest time
remaining until the end of its guarantee period and then from the allocation
or allocations with the next shortest time remaining until the amount of the
exchange or withdrawal is reached.
At the end of the one-year guarantee period, you may, without loss of
interest, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Notice of such
an election must be provided to the Company by phone or in writing no later
than 10 days after the end of the one-year guarantee period (and each
subsequent one-year guarantee period). If no such election is made, your
Accumulated Value will automatically be renewed under this option for the next
one-year guarantee period.
A-1
<PAGE>
Multi-Year Guaranteed Rate Option
You may allocate your Accumulated Value to this option at any time. You may
select any guarantee period then offered. The Company currently expects to
offer guarantee periods of two to ten years, inclusive but reserves the right
to change such offerings in its discretion. Any allocations you make to a
guarantee period must be at least $1,000 and you must maintain a minimum
balance of $1,000 in each guarantee period. The Accumulated Value you allocate
under this option earns interest at a rate declared by the Company applicable
to the guarantee period you select at the time your allocation is made with a
guarantee that the Accumulated Value in this General Account Guaranteed Option
will not be less than the amount initially allocated, plus 3%, compounded
annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the selected guarantee
period. However, for any amounts so transferred we will apply a Market Value
Adjustment (as described below) against such amounts. For full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the selected guarantee period, we will apply a Market
Value Adjustment (as described below) against such amounts withdrawn and we
will deduct any applicable surrender charge.
The Market Value Adjustment ("MVA") Factor for the Multi-Year Guaranteed Rate
Option will be as follows:
N X (B--E)
12
where N=the number of months left in the guarantee period at the time of the
transfer or surrender (including any partial months which will count as
full months for purposes of this calculation).
B=the interest rate in effect for the applicable guarantee period which was
declared on the date of the applicable allocation.
E=the constant maturity Treasury rate for the duration equal to that of the
applicable guarantee period (or, if not published, the published constant
maturity rate of the next longest maturity).
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option. Generally, if the
declared interest rate at the beginning of the guarantee period is lower than
the applicable constant maturity Treasury rate prevailing at the time of the
transfer or surrender, then the application of the MVA will result in a lower
payment upon transfer or surrender. Similarly, if the declared rate at the
beginning of the guarantee period is higher than the prevailing applicable
constant maturity Treasury rate at the time of transfer or surrender, then the
application of the MVA will result in a higher payment upon transfer or
surrender.
The following is an example of how your Accumulated Value under the Multi-Year
Guaranteed Rate Option with a five-year guarantee period is affected by a
positive Market Value Adjustment:
Assume an initial allocation of $100,000 when the declared interest rate of a
five-year guarantee period is 8%. At the end of 12 months, your Accumulated
Value is $108,000. Assume also you surrender at the end of one year with 48
months of the guarantee period remaining and the five-year constant maturity
Treasury rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X 08 - .07 = 4 X .01 = .04
12
Adjustment = $108,000 x .04 = $4,320
= $108,000 + $4,320 = $112,320 = Net amount of transfer or
surrender (before application of a surrender charge)
The following is an example of how your Accumulated Value under the Multi-Year
Guaranteed Rate Option with a five year guarantee period is affected by a
negative Market Value Adjustment:
Assume an initial allocation of $100,000 when the declared interest rate for a
five-year guarantee period is 8%. At the end of 12 months, your Accumulated
Value is $108,000. Assume also you surrender at the end of one year with 48
months remaining in the guarantee period and the five-year constant maturity
Treasury rate is 9%.
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<PAGE>
Accumulated Value = $108,000
MVA Factor = 48 X 08 - .09 = 4 X- .01 = -.04
12
Adjustment = $108,000 X -.04 = -$4,320
= $108,000 - $4,320 = $103,680 = Net amount of transfer or
surrender (before application of a surrender charge)
Notwithstanding application of a negative Market Value Adjustment, any Net
Purchase Payments allocated to this General Account Guaranteed Option will
earn interest of at least 3%, compounded annually.
If you have more than one allocation in this option, you may choose which
allocation or allocations any exchanges or surrenders are to be made from. If
you do not specify which allocation or allocations to take the exchanges or
surrenders from, we will first take from the allocation with the shortest time
remaining until the end of its guarantee period and then from the allocation
or allocations with the next shortest time remaining until the amount of the
exchange or withdrawal is reached.
At the end of the selected guarantee period and within a ten-day period
starting on the first day of any automatic renewal (as described below), you
may, without loss of interest, elect to transfer any or all of your
Accumulated Value under this option to any of the Subaccounts or transfer to
another General Account Guaranteed Option or renew your participation in this
option for any guarantee period then available whose ending date is not later
than the Annuity Date at a rate the Company declares at the time of renewal.
Such election may also be provided in writing to the Company before the end of
the guarantee period (and each subsequent guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for another guarantee period of the same duration as the one just ended at a
rate we declare at the time of the renewal. In cases where such a renewal
would result in a guarantee period whose ending date is later than the Annuity
Date, we will transfer the value of that allocation to the Federated Money
Market Portfolio.
Guaranteed Equity Option
You may allocate your Accumulated Value to this option as of the first
business day of each month. Any allocations you make must be at least $1,000.
On the date you make an allocation to this option the Company will declare:
(a) the duration of the guarantee period applicable to the allocation; (b) the
duration of the Averaging Period and (c) the Participation Rate. (The
Averaging Period and the Participation Rate are described below.) Each
allocation will have its own guarantee period, Averaging Period and
Participation Rate.
During the guarantee period applicable to Accumulated Value allocated to this
option, the Company will credit 90% of the amount allocated plus interest at a
guaranteed annual effective rate of 3%, compounded annually. At the end of the
guarantee period we will credit an additional amount equal to the amount by
which (x) exceeds (y), where (x) equals the amount allocated plus a declared
portion of the percentage change in the S&P 500 Composite Stock Price Index
("S&P 500 Index") from its value on the date Accumulated Value is allocated to
a value determined at the end of the guarantee period multiplied by the amount
allocated (all calculated as described below); and (y) equals 90% of the
amount allocated plus the total amount of interest credited during the
guarantee period.
The amount (x) in the preceding paragraph is equal to (i) the amount allocated
to the applicable guarantee period plus (ii) the amount allocated multiplied
by the following factor:
PR X [(EV/SV)-1]
where PR = the Participation Rate;
EV= the average closing values of the S&P 500 Index on the last business
day of each month during the Averaging Period; and
SV= the closing value of the S&P 500 Index on the date Accumulated Value
is allocated to this option.
The "Participation Rate" is the rate at which you participate in the
percentage change of the S&P 500 Index for an allocation as used in the
calculation above. It will be declared by the Company with respect to each
allocation to this option. In no event will the Participation Rate be less
than 0%.
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<PAGE>
The "Averaging Period" is the number of months prior to the end of an
allocation's guarantee period that we will use to determine the ending value
of the S&P 500 Index for that allocation's guarantee period for purposes of
this option as used in the calculation above. It will be declared by the
Company with respect to each allocation to this option. In no event will the
Averaging Period be less than one.
("S&P" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed
for use by the Company.)
THIS OPTION IS ILLIQUID FOR THE ENTIRE GUARANTEE PERIOD AND, ACCORDINGLY, DOES
NOT PERMIT ANY EXCHANGES OR REALLOCATIONS OF ACCUMULATED VALUE TO THE
SUBACCOUNTS OR OTHER GENERAL ACCOUNT GUARANTEED OPTIONS OR FULL OR PARTIAL
WITHDRAWALS DURING SUCH GUARANTEE PERIOD. However, during such guarantee
period, the Accumulated Value allocated under this option may be annuitized
under any of the Annuity Payment Options.
(The S&P 500 Index is a stock price index. Its composition and calculation
does not include dividends, if any, paid upon component stocks of the index
nor reinvestment, if any, or such dividends.)
At the end of the guarantee period, you may, without loss of earnings, elect
to transfer all or part of your Accumulated Value under this option to any of
the Subaccounts, transfer into another General Account Guaranteed Option or
renew your participation in this option. Such election must be received by the
Company no later than 30 days prior to the end of the guarantee period. If no
election is received, your Accumulated Value will automatically be transferred
to the Federated Prime Money Portfolio.
PART 2
If your state of issue is DC, IN, MD, MA, OK, PA, TX or VA, this Part 2
describes the General Account Guaranteed Options applicable to your Contract.
Check with your sales representative for additional details regarding
availability. For other states, please see Part 1 to this Appendix.
One-Year Guaranteed Rate Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, the One-Year Guaranteed Rate Option may be
titled the "One-Year Guaranteed Index Rate Option" and this term is used in
the description below.
You may allocate your Accumulated Value to this option at any time. The
Accumulated Value you allocate under this option earns interest equal to 80%
of the one-year constant maturity Treasury rate at the time your allocation is
made with a guarantee that the Accumulated Value in this General Account
Guaranteed Option will not be less than the amounts allocated, plus 3%,
compounded annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the one-year guarantee
period. However, for any amounts so transferred we will deduct an amount equal
to the interest the transferred value earned over the previous 90 days at the
applicable one-year rate. For full and partial withdrawals of amounts
allocated to this General Account Guaranteed Option prior to the end of the
one-year guarantee period, we will deduct an amount equal to the interest
earned on the amount withdrawn during the previous 90 days at the applicable
one-year rate plus we will deduct any applicable surrender charge.
At the end of the one-year guarantee period, you may, without loss of
interest, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Notice of such
an election must be provided to the Company no later than 15 days after the
end of the one-year guarantee period (and each subsequent one-year guarantee
period). If no such election is made, your Accumulated Value will
automatically be renewed under this option for the next one-year guarantee
period.
Multi-Year Guaranteed Rate Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, the Multi-Year Guaranteed Rate Option may be
titled the "Five-Year Guaranteed Index Rate Option" and this term is used in
the description below.
A-4
<PAGE>
You may allocate your Accumulated Value to this option at any time. The only
available guarantee period is five-years. The Accumulated Value you allocate
under this option earns interest equal to 90% of the five-year constant
maturity Treasury rate at the time your allocation is made with a guarantee
that the Accumulated Value in this General Account Guaranteed Option will not
be less than the amount initially allocated, plus 3%, compounded annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the five-year guarantee
period. However, for any amounts so transferred we will apply a Market Value
Adjustment (as described below) against such amounts. For full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the five-year guarantee period, we will apply a Market
Value Adjustment (as described below) against such amounts withdrawn plus we
will deduct any applicable surrender charge.
The Market Value Adjustment ("MVA") Factor for the Five-Year Guaranteed Index
Rate Option will be as follows:
<TABLE>
<S> <C> <C>
N X (B - E)
--- -------
12 1 + E
</TABLE>
where N
=the number of months left in the five-year guarantee period at the time
of the transfer or surrender (including any partial months which will
count as full months for purposes of this calculation);
B =the applicable five-year constant maturity Treasury rate at the beginning
of the five-year guarantee period; and
E =the applicable five-year constant maturity Treasury rate at the time of
the transfer or surrender.
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option prior to the deduction
of any applicable surrender charge. Generally, if the five-year constant
maturity Treasury rate at the beginning of the five-year guarantee period is
lower than the five-year constant maturity Treasury rate prevailing at the
time of the transfer or surrender, then the application of the MVA will result
in a lower payment upon transfer or surrender. Similarly, if the five-year
constant maturity Treasury rate at the beginning of the five-year guarantee
period is higher than the prevailing five-year constant maturity Treasury rate
at the time of transfer or surrender, then the application of the MVA will
result in a higher payment upon transfer or surrender.
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a positive Market Value
Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months of
the guarantee period remaining and the five-year constant maturity Treasury
rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .07 = 4 X .00935 = .0374
12 1 + .07
Adjustment = $108,000 X .0374 = $4,039
= $108,000 + $4,039 = $112,039 = Net amount of transfer or
surrender (before application of a surrender charge)
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a negative Market Value
Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months
remaining in the guarantee period and the five-year constant maturity Treasury
rate is 9%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .09 = 4 X -.00917 = -.0367
12 1 + .09
Adjustment = $108,000 X -.0367 = -$3,964
= $108,000 - $3,964 = $104,036 = Net amount of transfer or
surrender (before application of a surrender charge)
A-5
<PAGE>
Notwithstanding application of a negative Market Value Adjustment under the
Five-Year Guaranteed Index Rate Option, any Net Purchase Payments allocated to
this General Account Guaranteed Option will earn interest of at least 3%,
compounded annually.
At the end of the five-year guarantee period, you may, without loss of
interest, elect to transfer any or all of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Such election
must be provided to the Company before the end of the five-year guarantee
period (and each subsequent five-year guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for the next five-year guarantee period.
Guaranteed Equity Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, and the Guaranteed Equity Option may be
titled the "Five-Year Guaranteed Equity Option" and this term is used in the
description below.
You may allocate your Accumulated Value to this option as of the first
business day of each month, provided however that, such allocation may occur
only after the sixth Contract Year. During the five-year guarantee period
applicable to Accumulated Value allocated to this option, we will credit
interest at a guaranteed annual effective rate of 3%, compounded annually. At
the end of the five-year guarantee period we will credit additional interest
in an amount equal to the amount by which (a) exceeds (b), where: (a) equals
the percentage change in the S&P 500(R) Composite Stock Price Index ("S&P
500(R) Index") from the date Accumulated Value is allocated to the end of the
five-year guarantee period, multiplied by the amount allocated; and (b) equals
the total amount of interest credited during the five-year guarantee period.
("S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use by the Company.)
THIS OPTION IS ILLIQUID FOR THE ENTIRE FIVE-YEAR GUARANTEE PERIOD AND,
ACCORDINGLY, DOES NOT PERMIT ANY EXCHANGES OR REALLOCATIONS OF ACCUMULATED
VALUE TO THE SUBACCOUNTS OR OTHER GENERAL ACCOUNT GUARANTEED OPTIONS OR FULL
OR PARTIAL WITHDRAWALS DURING SUCH FIVE-YEAR PERIOD. However, during such
guarantee period, the Accumulated Value allocated under this option may be
annuitized under any of the Annuity Payment Options.
At the end of the five-year guarantee period, you may, without loss of
earnings, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts, transfer into another General Account
Guaranteed Option or renew your participation in this option. Such election
must be received by the Company no later than 30 days prior to the end of the
five-year guarantee period. If no election is received, your Accumulated Value
will automatically be transferred to Fidelity Money Market. This option may
not be available at all times.
DISCLAIMER REGARDING STANDARD & POOR'S(R) 500 INDEX
The Guaranteed Equity Option (the "GEO") is not sponsored, endorsed, sold or
promoted by Standard & Poor's Corporation ("S&P"). S&P makes no representation
or warranty, express or implied, to investors in the GEO or any member of the
public regarding the advisability of investing in securities generally or in
the GEO particularly or the ability of the S&P 500(R) Index to track general
stock market performance. S&P's only relationship to Providian Life and Health
Insurance Company is the licensing of certain trademarks and trade names of
S&P and of the S&P 500(R) Index which is determined, composed and calculated
by S&P without regard to Providian Life and Health Insurance Company or the
GEO. S&P has no obligation to take the needs of Providian Life and Health
Insurance Company or the investors in the GEO into consideration in
determining, composing or calculating the S&P 500(R) Index. S&P is not
responsible for and has not participated in the determination of the timing of
the issuance or sale or quantities of the GEO or in the determination or
calculation of the equation by which the GEO is to be converted into cash. S&P
has no obligation or liability in connection with the administration,
marketing or trading of the GEO.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500(R) INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY, INVESTORS IN THE GEO, OR ANY
A-6
<PAGE>
OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500(R) INDEX OR ANY DATA
INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY
DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE S&P 500(R) INDEX OR ANY DATA INCLUDED THEREIN.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY
FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST
PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
A-7
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
PROVIDIAN MARQUEE VARIABLE ANNUITY
AND THE
PROVIDIAN MARQUEE VARIABLE ANNUITY A UNITS
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 Providian Marquee variable annuity contracts (the
"Contracts" and each a "Contract," respectively) offered by Providian Life and
Health Insurance Company (the "Company"). You may obtain a copy of the
Prospectus dated April 30, 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.
April 30, 1997
TABLE OF CONTENTS PAGE
- ----------------- ----
THE CONTRACTS............................................................... 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..................................................... 4
Money Market Subaccount Yields............................................. 5
30-Day Yield for Non-Money Market 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................................. 10
Non-Standardized One Year Return........................................... 11
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return.................................. 12
Individualized Computer Generated Illustrations............................ 32
PERFORMANCE COMPARISONS..................................................... 32
SAFEKEEPING OF ACCOUNT ASSETS............................................... 34
THE COMPANY................................................................. 34
STATE REGULATION............................................................ 34
RECORDS AND REPORTS......................................................... 35
DISTRIBUTION OF THE CONTRACTS............................................... 35
LEGAL PROCEEDINGS........................................................... 35
OTHER INFORMATION........................................................... 35
FINANCIAL STATEMENTS........................................................ 35
<PAGE>
THE CONTRACTS
In order to supplement the description in the applicable Prospectus and Appendix
A thereto, the following provides additional information about the Contracts
which may be of interest to Contract Owners.
PLEASE NOTE THE FOLLOWING INFORMATION IN CONNECTION WITH THIS STATEMENT OF
ADDITIONAL INFORMATION AND THE CONTRACT PROSPECTUSES.
The contract is offered in two versions: a standard Providian Marquee variable
annuity contract and a Providian Marquee A Unit variable annuity contract. A
separate prospectus describes each version of the Providian Marquee Contract.
In this Statement of Additional Information the standard Providian Marquee
Contract is described as a B Unit Contract and all references to B Unit
contracts herein should be considered as references to standard Providian
Marquee Contracts. (The term "B" Unit Contract is also used to describe the
standard Providian Marquee Contract in certain marketing materials and trade
publications.) Also, all references in this Statement of Additional Information
to A Unit Contracts are, and should be considered as, references to Providian
Marquee A Unit Contracts. Discussions in the Statement of Additional Information
where no reference is made to A or B Units should be considered applicable to
both versions of the Providian Marquee variable annuity contract.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent the
guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the
Accumulated Value (or the portion of the Accumulated Value used to provide
variable payments) is applied under the Annuity Tables contained in your
Contract corresponding to the Annuity Payment Option elected by the Contract
Owner and based on an assumed interest rate of 4%. This will produce a dollar
amount which is the first monthly payment. The Company may, at the time annuity
income payments are computed, offer more favorable rates in lieu of the
guaranteed rates specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set forth
below) is made. After the first Annuity Payment, the dollar amount of each
subsequent Annuity Payment is equal to the number of Annuity Units multiplied by
the Annuity Unit Value for the Subaccount ten Business Days before the due date
of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date money was first deposited in that Subaccount. The Annuity Unit
Value for any subsequent Business Day is equal to (a) times (b) times (c), where
(a) = the Annuity Unit Value for the immediately preceding Business Day;
(b) = the Net Investment Factor for the day;
(c) = the investment result adjustment factor (.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in
determining the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a) = any increase or decrease in the value of the Subaccount due to
investment results;
(b) = a daily charge for the mortality and expense risks assumed by the
Company corresponding to an annual rate according to the following
schedule:
A Unit Contracts .65%
B Unit Contracts 1.25%
(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 Contracts 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
2
<PAGE>
Massachusetts and Montana, the Annuity Tables contained in the Contract are
based on a 60% female/40% male blending of the above for all annuitants of
either gender.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of any other
Subaccount(s) then available. The written request for an Exchange must be
received by us, however, at least 10 Business Days prior to the first payment
date on which the Exchange is to take effect. An 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. We reserve the right to charge a $15 fee in the future 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 TRANSACTION OR BALANCE REQUIREMENTS
In addition to the Purchase Payment breakpoints discussed in the applicable
Prospectus, the Company may impose reduced sales loads, administrative charges
or other deductions from Purchase Payments in certain situations where the
Company expects to realize significant economies of scale or other economic
benefits with respect to the sales of Contracts. This is possible because sales
costs do not increase in proportion to the dollar amount of the Contracts sold.
For example, the per-dollar transaction cost for a sale of a Contract equal to
$5,000 is generally much higher than the per-dollar cost for a sale of Contract
equal to $1,000,000. As a result, the applicable sales charge declines as a
percentage of the dollar amount of Contracts sold as the dollar amount
increases.
The Company may also impose reduced sales loads and reduced administrative
charges and fees on sales to directors, officers and bona fide full-time
employees (and their spouses and minor children) of the Company, its ultimate
parent company, Providian Corporation, and certain of their affiliates and
certain sales representatives for the Contract. The Company may also grant
waivers or modifications of certain minimum or maximum purchase and transaction
amounts or balance requirements in these circumstances.
Notwithstanding the above, any variations in the sales loads, 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.
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
3
<PAGE>
stated age and/or sex after payments have commenced, the Company will (1) in the
case of underpayment, pay the full amount due with the next payment; (2) in the
case of overpayment, deduct the amount due from one or more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the validity
of any assignment. No assignment will be recognized until the Company receives
the appropriate Company form notifying the Company of such assignment. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum notwithstanding any settlement agreement in effect at
the time assignment was executed. The Company shall not be liable as to any
payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and/or the General
Account Guaranteed Options; and any Purchase Payments, charges, Exchanges or
withdrawals during the year. This report will also give you any other
information required by law or regulation. You may ask for an annual statement
like this at any time. We will also send you quarterly statements. However, we
reserve the right to discontinue quarterly statements at any time.
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
OWNERSHIP
The Contract Owner on the Contract Date is the Annuitant, unless otherwise
specified in the application. The Contract Owner may specify a new Contract
Owner by sending us the appropriate Company form at any time thereafter. The
term Contract Owner also includes any person named as a Joint Owner. A Joint
Owner shares ownership in all respects with the Contract Owner. During the
Annuitant's lifetime, all rights and privileges under this Contract may be
exercised solely by the Contract Owner. Upon the death of the Contract Owner,
ownership is retained by the surviving Joint Owner or passes to the Owner's
Designated Beneficiary, if one has been designated by the Contract Owner. If no
Owner's Designated Beneficiary has been selected or if no Owner's Designated
Beneficiary is living, then the Owner's Designated Beneficiary is the Contract
Owner's estate. From time to time the Company may require proof that the
Contract Owner is still living.
PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and effective
yield of the Fidelity Money Market Subaccount, the yield of the remaining
Subaccounts, and the total return of all Subaccounts, may appear in reports or
promotional literature to current or prospective Contract Owners.
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.)
Where applicable, the following inception dates are used in the calculation of
performance figures. For A Unit operations: 7/20/94 for the Fidelity Money
Market Portfolio; 8/1/94 for the T. Rowe Price International, Fidelity Growth
and Fidelity Asset Manager Portfolios; 9/26/94 for the Dreyfus Growth and Income
Portfolio; 11/17/94 for the Fidelity Equity-Income, T. Rowe Price Equity Income,
T. Rowe Price New America Growth, OpCap Advisors Managed and OpCap Advisors
Small Cap Portfolios; and 11/18/94 for the Dreyfus Quality Bond and OpCap
Advisors U.S. Government Income Portfolios; For B Unit operations: 8/2/94 for
the Fidelity Money Market Portfolio; 8/17/94 for the Fidelity Equity-Income,
Fidelity Growth, Dreyfus Quality Bond and T. Rowe Price International
Portfolios; 8/31/94 for the Dreyfus Growth and Income Portfolio; 9/1/94 for the
T. Rowe Price Equity Income Portfolio; 9/14/94 for the Fidelity Asset Manager
Portfolio; 11/3/94 for the OpCap Advisors Managed Portfolio; 11/4/94 for the
OpCap Small Cap Portfolio; 12/30/94 for the T. Rowe Price New America Growth
Portfolio; and 11/18/94 for the OpCap Advisors U.S. Government Income Portfolio.
4
<PAGE>
MONEY MARKET SUBACCOUNT YIELDS
Current yield for the Fidelity Money Market Subaccount will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular 7-day period, less a pro-rata share of Subaccount expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [((Base Period Return)+1)/365/7/] - 1
30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of a Unit on the last
day of the period, according to the following formula:
a - b
YIELD = 2[(----- + 1)/6/ - 1]
cd
Where:
[a] equals the net investment income earned during the period by the
Portfolio attributable to shares owned by a Subaccount
[b] equals the expenses accrued for the period (net of reimbursement)
[c] equals the average daily number of Units outstanding during the
period
[d] equals the maximum offering price per Accumulation Unit on the
last day of the period
Yield on a 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 SUBACCOUNT
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of all applicable sales loads (including the
contingent deferred sales load), the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes, if
any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the life of the Subaccount), calculated pursuant to the formula:
5
<PAGE>
P(1 + T)/n/ = ERV
Where:
(1) [P] equals a hypothetical initial Purchase Payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000
Purchase Payment made at the beginning of the period (or fractional
portion thereof)
The following tables show the Standardized Average Annual Total Return for the
Subaccounts for the period beginning at the inception of each Subaccount and
ending on December 31, 1996.
A UNIT PERFORMANCE FOR PERIOD ENDING DECEMBER 31, 1996
Subaccount 1 Year Since Inception
---------- ------ ---------------
Fidelity Money Market Portfolio -1.54% 2.00%
Fidelity Equity-Income Portfolio 6.75% 17.43%
Fidelity Growth Portfolio 7.14% 19.35%
Fidelity Asset Manager Portfolio 7.05% 8.14%
Dreyfus Growth and Income Portfolio 12.80% 28.06%
Dreyfus Quality Bond Portfolio -3.69% 7.66%
TRP Equity Income Portfolio 11.68% 20.74%
TRP New America Growth Portfolio 12.18% 26.68%
TRP International Stock Portfolio 7.14% 5.62%
OpCap Advisors Managed Portfolio 14.69% 25.88%
OpCap Advisors Small Cap Portfolio 10.90% 12.99%
OpCap Advisors Government Income Portfolio -3.77% 1.20%
6
<PAGE>
B UNIT PERFORMANCE FOR PERIOD ENDING DECEMBER 31, 1996
<TABLE>
<CAPTION>
Subaccount 1 Year Since Inception
---------- ------ ----------------
<S> <C> <C>
Fidelity Money Market Portfolio -0.83% 2.40%
Fidelity Equity-Income Portfolio 7.51% 15.12%
Fidelity Growth Portfolio 7.91% 18.27%
Fidelity Asset Manager Portfolio 7.82% 8.41%
Dreyfus Growth and Income Portfolio 13.61% 25.99%
Dreyfus Quality Bond Portfolio -2.99% 6.32%
TRP Equity Income Portfolio 12.48% 18.17%
TRP New America Growth Portfolio 12.98% 29.77%
TRP International Stock Portfolio 7.91% 5.68%
OpCap Advisors Managed Portfolio 15.51% 25.09%
OpCap Advisors Small Cap Portfolio 11.69% 12.97%
OpCap Advisors Government Income -3.08% 3.14%
Portfolio
</TABLE>
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the percentage
change in the value of an Accumulation Unit) for one or more Subaccounts with
respect to one or more periods. The Company may also show Non-Standardized
Actual Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year, the
Non-Standardized Actual Total Return and the Non-Standardized Actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Actual Average Annual Total
Return is the effective annual compounded rate of return for the periods stated.
Because the value of an Accumulation Unit reflects the Separate Account and
Portfolio expenses (See Fee Table in the Prospectus), the Non-Standardized
Actual Total Return and Non-Standardized Actual Average Annual Total Return also
reflect these expenses. However, these percentages do not reflect the Annual
Contract Fee, any sales loads or Premium Taxes (if any), which if included would
reduce the percentages reported by the Company.
7
<PAGE>
NON-STANDARDIZED ACTUAL TOTAL RETURN FOR PERIOD ENDING 12/31/96
<TABLE>
<CAPTION>
A UNITS One Year Since Inception
------- -------- ---------------
<S> <C> <C>
Fidelity Money Market Portfolio 4.57% 11.51%
Fidelity Equity-Income Portfolio 13.37% 49.47%
Fidelity Growth Portfolio 13.78% 63.05%
Fidelity Asset Manager Portfolio 13.68% 28.49%
Dreyfus Growth and Income Portfolio 19.78% 86.08%
Dreyfus Quality Bond Portfolio 2.30% 24.29%
TRP Equity Income Portfolio 18.60% 58.56%
TRP New America Growth Portfolio 19.13% 75.43%
TRP International Stock Portfolio 13.78% 21.38%
OpCap Advisors Managed Portfolio 21.79% 73.20%
OpCap Advisors Small Cap Portfolio 17.77% 37.75%
OpCap Advisors Government Income 2.21% 8.29%
Portfolio
B UNITS One Year Since Inception
------- -------- ---------------
Fidelity Money Market Portfolio 3.94% 10.10%
Fidelity Equity-Income Portfolio 12.68% 45.27%
Fidelity Growth Portfolio 13.10% 53.38%
Fidelity Asset Manager Portfolio 13.00% 25.16%
Dreyfus Growth and Income Portfolio 19.06% 78.31%
Dreyfus Quality Bond Portfolio 1.68% 19.66%
TRP Equity Income 17.88% 53.48%
TRP New America Growth Portfolio 18.41% 76.42%
TRP International Stock Portfolio 13.09% 18.02%
OpCap Advisors Managed Portfolio 21.05% 68.52%
OpCap Advisors Small Cap Portfolio 17.06% 35.22%
OpCap Advisors Government Income Portfolio 1.59% 11.82%
</TABLE>
8
<PAGE>
NON-STANDARDIZED ACTUAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDING 12/31/96
<TABLE>
<CAPTION>
A UNITS One Year Since Inception
------- -------- ---------------
<S> <C> <C>
Fidelity Money Market Portfolio 4.57% 4.77%
Fidelity Equity-Income Portfolio 13.37% 20.84%
Fidelity Growth Portfolio 13.78% 22.39%
Fidelity Asset Manager Portfolio 13.68% 10.92%
Dreyfus Growth and Income Portfolio 19.78% 31.53%
Dreyfus Quality Bond Portfolio 2.30% 10.80%
TRP Equity Income Portfolio 18.60% 24.25%
TRP New America Growth Portfolio 19.13% 30.35%
TRP International Stock Portfolio 13.78% 8.34%
OpCap Advisors Managed Portfolio 21.79% 29.52%
OpCap Advisors Small Cap Portfolio 17.77% 16.28%
OpCap Advisors Government Income Portfolio 2.21% 5.08%
B UNITS One Year Since Inception
------- -------- ---------------
Fidelity Money Market Portfolio 3.94% 4.06%
Fidelity Equity-Income Portfolio 12.68% 17.02%
Fidelity Growth Portfolio 13.10% 20.24%
Fidelity Asset Manager Portfolio 13.00% 10.26%
Dreyfus Growth and Income Portfolio 19.06% 28.08%
Dreyfus Quality Bond Portfolio 1.68% 8.13%
TRP Equity Income Portfolio 17.88% 20.15%
TRP New America Growth Portfolio 18.41% 32.93%
TRP International Stock Portfolio 13.09% 7.48%
OpCap Advisors Managed Portfolio 21.05% 27.31%
OpCap Advisors Small Cap Portfolio 17.06% 15.00%
OpCap Advisors Government Income Portfolio 1.59% 5.94%
</TABLE>
9
<PAGE>
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
The Company may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more Subaccounts with
respect to one or more non-standardized base periods commencing at the beginning
of a calendar year. Total Return YTD figures reflect the percentage change in
actual Accumulation Unit Values during the relevant period. These percentages
reflect a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Fee, any sales loads or Premium Taxes (if any),
which if included would reduce the percentages reported by the Company.
<TABLE>
<CAPTION>
Total Return YTD
A UNIT as of 12/31/96
------ --------------
<S> <C>
Fidelity Money Market Portfolio 4.57%
Fidelity Equity-Income Portfolio 13.37%
Fidelity Growth Portfolio 13.78%
Fidelity Asset Manager Portfolio 13.68%
Dreyfus Growth and Income Portfolio 19.78%
Dreyfus Quality Bond Portfolio 2.30%
TRP Equity Income Portfolio 18.60%
TRP New America Growth Portfolio 19.13%
TRP International Stock Portfolio 13.78%
OpCap Advisors Managed Portfolio 21.79%
OpCap Advisors Small Cap Portfolio 17.77%
OpCap Advisors Government Income Portfolio 2.21%
Total Return YTD
B UNIT as of 12/31/96
------ --------------
Fidelity Money Market Portfolio 3.94%
Fidelity Equity-Income Portfolio 12.68%
Fidelity Growth Portfolio 13.10%
Fidelity Asset Manager Portfolio 13.00%
Dreyfus Growth and Income Portfolio 19.06%
Dreyfus Quality Bond Portfolio 1.68%
TRP Equity Income Portfolio 17.88%
TRP New America Growth Portfolio 18.41%
TRP International Stock Portfolio 13.09%
OpCap Advisors Managed Portfolio 21.05%
OpCap Advisors Small Cap Portfolio 17.06%
OpCap Advisors Government Income Portfolio 1.59%
</TABLE>
10
<PAGE>
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, any
sales loads or Premium Taxes (if any), which if included would reduce the
percentages reported by the Company.
NON-STANDARDIZED
ONE YEAR RETURN
<TABLE>
<CAPTION>
A UNITS 1996 1995 1994 1993 1992 1991
------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Fidelity Money Market Portfolio 4.57% 5.04% 3.42% 2.40% 3.07% 5.24%
Fidelity Equity-Income Portfolio 13.37% 34.02% 6.21% 17.34% 15.95% 30.39%
Fidelity Growth Portfolio 13.78% 34.29% -0.82% 18.42% 8.45% 44.35%
Fidelity Asset Manager Portfolio 13.68% 16.03% -6.84% 20.26% 10.82% 21.58%
Dreyfus Growth and Income Portfolio 19.78% 60.67% N/A N/A N/A N/A
Dreyfus Quality Bond Portfolio 2.30% 19.46% -5.35% 14.41% 11.91% 13.21%
TRP Equity Income Portfolio 18.60% 33.69% N/A N/A N/A N/A
TRP New America Growth Portfolio 19.13% 49.89% N/A N/A N/A N/A
TRP International Stock Portfolio 13.78% 10.29% N/A N/A N/A N/A
OpCap Advisors Managed Portfolio 21.79% 44.40% N/A N/A N/A N/A
OpCap Advisors Small Cap Portfolio 17.77% 14.31% N/A N/A N/A N/A
OpCap Advisors U.S. Gov't Income Portfolio 2.21% 5.99% N/A N/A N/A N/A
B UNITS 1996 1995 1994 1993 1992 1991
------- ------ ------ ------ ------ ------ ------
Fidelity Money Market Portfolio 3.94% 4.42% 2.79% 1.78% 2.45% 4.60%
Fidelity Equity-Income Portfolio 12.68% 33.22% 5.57% 16.63% 15.25% 29.60%
Fidelity Growth Portfolio 13.10% 33.49% -1.42% 17.70% 7.79% 43.47%
Fidelity Asset Manager Portfolio 13.00% 15.33% -7.40% 19.53% 10.15% 20.84%
Dreyfus Growth and Income Portfolio 19.06% 59.65% N/A N/A N/A N/A
Dreyfus Quality Bond Portfolio 1.68% 18.75% -5.93% 13.72% 10.52% 12.52%
TRP Equity Income Portfolio 21.05% 32.89% N/A N/A N/A N/A
TRP New America Growth Portfolio 17.06% 48.99% N/A N/A N/A N/A
TRP International Stock Portfolio 13.09% 9.64% N/A N/A N/A N/A
OpCap Advisors Managed Portfolio 21.05% 43.53% N/A N/A N/A N/A
OpCap Advisors Small Cap Portfolio 17.06% 13.63% N/A N/A N/A N/A
OpCap Advisors U.S. Gov't Income Portfolio 1.59% 10.07% N/A N/A N/A N/A
</TABLE>
11
<PAGE>
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN*
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios (calculated beginning from the
end of the year of inception for each Portfolio) and may assume the Contract was
in existence prior to its inception date (which it was not). After the
Contract's inception date, actual Accumulation Unit Values are used for the
calculations. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. However, they reflect a deduction
for the Separate Account expenses and Portfolio expenses. They do not include
the Annual Contract Fee, any sales loads or Premium Taxes (if any), which if
included would reduce the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
<TABLE>
<CAPTION>
HYPOTHETICAL TOTAL RETURNS FOR PERIODS ENDING 12/31/96
(BASED ON SINGLE INITIAL PURCHASE)
Since Inception
A UNITS 1 Year 3 Year 5 Year Year-End
------- ------ ------ ------ ---------------
<S> <C> <C> <C> <C>
Fidelity Money Market Portfolio 4.57% 13.59% 19.92% 140.00%
Fidelity Equity-Income Portfolio 13.37% 61.52% 119.81% 234.48%
Fidelity Growth Portfolio 13.78% 51.57% 94.66% 282.69%
Fidelity Asset Manager Portfolio 13.68% 22.88% 63.78% 106.66%
Dreyfus Growth and Income Portfolio 19.78% N/A % N/A % 91.43%
Dreyfus Quality Bond Portfolio 2.30% 15.70% 46.93% 69.90%
TRP Equity Income Portfolio 18.60% N/A % N/A % 69.07%
TRP New America Growth Portfolio 19.13% N/A % N/A % 79.48%
TRP International Stock Portfolio 13.78% N/A % N/A % 27.07%
OpCap Advisors Managed Portfolio 21.79% 79.01% 130.82% 344.76%
OpCap Advisors Small Cap Portfolio 17.77% 32.19% 88.94% 200.25%
OpCap Advisors Government Income Portfolio 2.21% N/A % N/A % 14.72%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Since Inception
B UNITS 1 Year 3 Year 5 Year Year-End
------- ------ ------ ------ ---------------
<S> <C> <C> <C> <C>
Fidelity Money Market Portfolio 3.94% 11.58% 16.38% 119.49%
Fidelity Equity-Income Portfolio 12.68% 58.65% 113.31% 214.64%
Fidelity Growth Portfolio 13.10% 48.86% 88.94% 259.96%
Fidelity Asset Manager Portfolio 13.00% 20.69% 58.94% 97.78%
Dreyfus Growth and Income Portfolio 19.06% N/A N/A 88.40%
Dreyfus Quality Bond Portfolio 1.68% 13.63% 42.56% 63.56%
TRP Equity Income Portfolio 17.88% N/A N/A 66.31%
TRP New America Growth Portfolio 18.41% N/A N/A 76.53%
TRP International Stock Portfolio 13.09% N/A N/A 24.96%
OpCap Advisors Managed Portfolio 21.05% 75.84% 123.97% 322.96%
OpCap Advisors Small Cap Portfolio 17.06% 29.82% 83.35% 185.48%
OpCap Advisors Government Income Portfolio 1.59% N/A N/A 13.24%
HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/96
(BASED ON SINGLE INITIAL PURCHASE)
Since Inception
A UNITS 1 Year 3 Year 5 Year Year-End
------- ------- ------ ------ ---------------
Fidelity Money Market Portfolio 4.57% 4.34% 3.70% 6.11%
Fidelity Equity-Income Portfolio 13.37% 17.33% 17.06% 12.52%
Fidelity Growth Portfolio 13.78% 14.87% 14.25% 14.01%
Fidelity Asset Manager Portfolio 13.68% 7.11% 10.37% 10.42%
Dreyfus Growth and Income Portfolio 19.78% N/A N/A 27.55%
Dreyfus Quality Bond Portfolio 2.30% 4.98% 8.00% 8.72%
TRP Equity Income Portfolio 18.60% N/A N/A 20.99%
TRP New America Growth Portfolio 19.13% N/A N/A 23.64%
TRP International Stock Portfolio 13.78% N/A N/A 9.08%
OpCap Advisors Managed Portfolio 21.79% 21.42% 18.21% 19.38%
OpCap Advisors Small Cap Portfolio 17.77% 9.75% 13.57% 13.94%
OpCap Advisors Government Income Portfolio 2.21% N/A N/A 6.69%
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Since Inception
B UNITS 1 Year 3 Year 5 Year Year-End
------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C>
Fidelity Money Market Portfolio 3.94% 3.72% 3.08% 5.47%
Fidelity Equity-Income Portfolio 12.68% 16.63% 16.36% 11.85%
Fidelity Growth Portfolio 13.10% 14.18% 13.57% 13.33%
Fidelity Asset Manager Portfolio 13.00% 6.47% 9.71% 9.76%
Dreyfus Growth and Income Portfolio 19.06% N/A N/A 26.79%
Dreyfus Quality Bond Portfolio 1.68% 4.35% 7.35% 8.07%
TRP Equity Income Portfolio 17.88% N/A N/A 20.27%
TRP New America Growth Portfolio 18.41% N/A N/A 22.90%
TRP International Stock Portfolio 13.09% N/A N/A 8.42%
OpCap Advisors Managed Portfolio 21.05% 20.70% 17.50% 18.67%
OpCap Advisors Small Cap Portfolio 17.06% 9.09% 12.89% 13.26%
OpCap Advisors Government Income Portfolio 1.59% N/A N/A 6.04%
</TABLE>
Note: Advertisements and other sales literature for the Portfolios may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an investment
in the Portfolios based on monthly reinvestment of dividends over a specific
period of time.
* On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two investment
funds, the Old Trust and the Quest for Value Accumulation Trust (now known as
the OCC Accumulation Trust) that is included in the Contract (the
"New Trust"), at which time the New Trust commenced operations. The total net
assets for each of the OpCap Advisors Small Cap and OpCap Advisors Managed
Portfolios immediately after the transaction were $139,812,573 and $682,601,380,
respectively, with respect to the Old Trust and, with respect to the New Trust
were $8,129,274 and $51,345,102, for the OpCap Advisors Small Cap and OpCap
Advisors Managed Growth Portfolios, respectively. For the period prior to
September 16, 1994, the performance figures above for each of the OpCap Advisors
Small Cap and OpCap Advisors Managed Portfolios reflect the performance of the
corresponding Portfolios of the Old Trust.
Remainder of Page Intentionally Left Blank
14
<PAGE>
<TABLE>
<CAPTION>
FIDELITY EQUITY INCOME PORTFOLIO A-UNITS FIDELITY EQUITY INCOME PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1986 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1986
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ------------------ ----------------------- ----------------
One Average One Average A
Year Annual Year Annual UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- ------- -------- ---------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A 12/31/86 $50,000 N/A N/A N/A 0.00%
12/31/87 $ 4,000 $ 1,962 -1.92% -1.92% 12/31/87 $50,000 $ 49,040 -1.92% -1.92% -1.92%
12/31/88 $ 6,000 $ 4,822 21.73% 13.13% 12/31/88 $50,000 $ 59,695 21.73% 9.27% 21.73%
12/31/89 $ 8,000 $ 7,941 16.40% 14.69% 12/31/89 $50,000 $ 69,486 16.40% 11.59% 16.40%
12/31/90 $10,000 $ 8,354 -15.97% 1.74% 12/31/90 $50,000 $ 58,390 -15.97% 3.95% -15.97%
12/31/91 $12,000 $13,500 30.39% 10.18% 12/31/91 $50,000 $ 76,134 30.39% 8.77% 30.39%
12/31/92 $14,000 $17,973 15.95% 11.67% 12/31/92 $50,000 $ 88,282 15.95% 9.94% 15.95%
12/31/93 $16,000 $23,437 17.34% 12.92% 12/31/93 $50,000 $103,593 17.34% 10.97% 17.34%
12/31/94 $18,000 $27,018 6.21% 11.57% 12/31/94 $50,000 $110,030 6.21% 10.36% 6.21%
12/31/95 $20,000 $38,890 34.02% 15.14% 12/31/95 $50,000 $147,462 34.02% 12.77% 34.02%
12/31/96 $22,000 $46,355 13.37% 14.87% 12/31/96 $50,000 $167,171 13.37% 12.83% 13.37%
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FIDELITY GROWTH PORTFOLIO A-UNITS FIDELITY GROWTH PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1986 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1986
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ------------------ ----------------------- -----------------
One Average One Average A
Year Annual Year Annual UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- ------- -------- --------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A 12/31/86 $50,000 N/A N/A N/A 0.00%
12/31/87 $ 4,000 $ 2,057 2.83% 2.83% 12/31/87 $50,000 $ 51,415 2.83% 2.83% 2.83%
12/31/88 $ 6,000 $ 4,651 14.66% 10.49% 12/31/88 $50,000 $ 58,950 14.66% 8.58% 14.66%
12/31/89 $ 8,000 $ 8,677 30.46% 19.62% 12/31/89 $50,000 $ 76,906 30.46% 15.43% 30.46%
12/31/90 $10,000 $ 9,349 -12.44% 6.33% 12/31/90 $50,000 $ 67,341 -12.44% 7.73% -12.44%
12/31/91 $12,000 $16,382 44.35% 16.93% 12/31/91 $50,000 $ 97,205 44.35% 14.22% 44.35%
12/31/92 $14,000 $19,934 8.45% 14.71% 12/31/92 $50,000 $105,414 8.45% 13.24% 8.45%
12/31/93 $16,000 $25,974 18.42% 15.51% 12/31/93 $50,000 $124,826 18.42% 13.96% 18.42%
12/31/94 $18,000 $27,744 -0.82% 12.15% 12/31/94 $50,000 $123,803 -0.82% 12.00% -0.82%
12/31/95 $20,000 $34,944 34.29% 15.66% 12/31/95 $50,000 $166,255 34.29% 14.28% 34.29%
12/31/96 $22,000 $47,725 13.78% 15.38% 12/31/96 $50,000 $189,172 13.78% 14.23% 13.78%
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
FIDELITY EQUITY INCOME PORTFOLIO B-UNITS FIDELITY EQUITY INCOME PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1986 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1986
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ------------------ ----------------------- -----------------
One Average One Average B
Year Annual Year Annual UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- ------- -------- --------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A 12/31/86 $50,000 N/A N/A N/A 0.00%
12/31/87 $ 4,000 $ 1,950 -2.51% -2.51% 12/31/87 $50,000 $ 48,743 -2.51% -2.51% -2.51%
12/31/88 $ 6,000 $ 4,779 20.99% 12.46% 12/31/88 $50,000 $ 58,975 20.99% 8.60% 20.99%
12/31/89 $ 8,000 $ 7,843 15.70% 14.00% 12/31/89 $50,000 $ 68,233 15.70% 10.92% 15.70%
12/31/90 $10,000 $ 8,221 -16.48% 1.09% 12/31/90 $50,000 $ 56,991 -16.48% 3.33% -16.48%
12/31/91 $12,000 $13,247 29.60% 9.52% 12/31/91 $50,000 $ 73,860 29.60% 8.12% 29.60%
12/31/92 $14,000 $17,572 15.25% 11.01% 12/31/92 $50,000 $ 85,126 15.25% 9.27% 15.25%
12/31/93 $16,000 $22,828 16.63% 12.25% 12/31/93 $50,000 $ 99,286 16.63% 10.30% 16.63%
12/31/94 $18,000 $26,211 5.57% 10.90% 12/31/94 $50,000 $104,817 5.57% 9.69% 5.57%
12/31/95 $20,000 $37,583 33.22% 14.48% 12/31/95 $50,000 $139,637 33.22% 12.09% 33.22%
12/31/96 $22,000 $44,602 12.68% 14.20% 12/31/96 $50,000 $157,345 12.68% 12.15% 12.68%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
FIDELITY GROWTH PORTFOLIO B-UNITS FIDELITY GROWTH PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1986 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1986
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ------------------- ----------------------- ----------------
One Average One Average B
Year Annual Year Annual UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- -------- -------- ---------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A 12/31/86 $50,000 N/A N/A N/A 0.00%
12/31/87 $ 4,000 $ 2,044 2.21% 2.21% 12/31/87 $50,000 $ 51,104 2.21% 2.21% 2.21%
12/31/88 $ 6,000 $ 4,609 13.96% 9.83% 12/31/88 $50,000 $ 58,240 13.96% 7.93% 13.96%
12/31/89 $ 8,000 $ 8,570 29.67% 18.92% 12/31/89 $50,000 $ 75,519 29.67% 14.73% 29.67%
12/31/90 $10,000 $ 9,199 -12.97% 5.67% 12/31/90 $50,000 $ 65,727 -12.97% 7.08% -12.97%
12/31/91 $12,000 $16,068 43.47% 16.25% 12/31/91 $50,000 $ 94,300 43.47% 13.53% 43.47%
12/31/92 $14,000 $19,475 7.79% 14.02% 12/31/92 $50,000 $101,646 7.79% 12.55% 7.79%
12/31/93 $16,000 $25,276 17.70% 14.82% 12/31/93 $50,000 $119,636 17.70% 13.27% 17.70%
12/31/94 $18,000 $26,889 -1.42% 11.46% 12/31/94 $50,000 $117,937 -1.42% 11.32% -1.42%
12/31/95 $20,000 $38,563 33.49% 14.98% 12/31/95 $50,000 $157,433 33.49% 13.59% 33.49%
12/31/96 $22,000 $45,876 13.10% 14.69% 12/31/96 $50,000 $178,051 13.10% 13.54% 13.10%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
FIDELITY ASSET MANAGER PORTFOLIO A-UNITS FIDELITY ASSET MANAGER PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1989 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1989
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A
Year Annual Year Annual UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------ -------- ---------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A 12/31/89 $50,000 N/A N/A N/A 0.00%
12/31/90 $ 4,000 $ 2,117 5.87% 5.87% 12/31/90 $50,000 $ 52,933 5.87% 5.87% 5.87%
12/31/91 $ 6,000 $ 5,006 21.58% 15.92% 12/31/91 $50,000 $ 64,356 21.58% 13.45% 21.58%
12/31/92 $ 8,000 $ 7,764 10.82% 13.45% 12/31/92 $50,000 $ 71,317 10.82% 12.57% 10.82%
12/31/93 $10,000 $11,742 20.26% 15.95% 12/31/93 $50,000 $ 85,766 20.26% 14.44% 20.26%
12/31/94 $12,000 $12,802 -6.84% 8.35% 12/31/94 $50,000 $ 79,898 -6.84% 9.83% -6.84%
12/31/95 $14,000 $17,174 16.03% 10.34% 12/31/95 $50,000 $ 92,703 16.03% 10.84% 16.03%
12/31/96 $16,000 $21,798 13.68% 11.09% 12/31/96 $50,000 $105,389 13.68% 11.24% 13.68%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
FIDELITY MONEY MARKET PORTFOLIO A-UNITS FIDELITY MONEY MARKET PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1983 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1983
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ---------------- ------------------------ ----------------
One Average One Average A
Year Annual Year Annual UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/83 $ 2,000 N/A N/A N/A 12/31/83 $50,000 N/A N/A N/A 0.00%
12/31/84 $ 4,000 $ 2,191 9.55% 9.55% 12/31/84 $50,000 $ 54,773 9.55% 9.55% 9.55%
12/31/85 $ 6,000 $ 4,495 7.25% 8.03% 12/31/85 $50,000 $ 58,742 7.25% 8.39% 7.25%
12/31/86 $ 8,000 $ 6,874 5.85% 6.96% 12/31/86 $50,000 $ 62,176 5.85% 7.54% 5.85%
12/31/87 $10,000 $ 9,370 5.59% 6.42% 12/31/87 $50,000 $ 65,651 5.59% 7.05% 5.59%
12/31/88 $12,000 $12,113 6.53% 6.46% 12/31/88 $50,000 $ 69,938 6.53% 6.94% 6.53%
12/31/89 $14,000 $15,277 8.25% 6.94% 12/31/89 $50,000 $ 75,706 8.25% 7.16% 8.25%
12/31/90 $16,000 $18,516 7.18% 7.00% 12/31/90 $50,000 $ 81,138 7.18% 7.16% 7.18%
12/31/91 $18,000 $21,592 5.24% 6.63% 12/31/91 $50,000 $ 85,391 5.24% 6.92% 5.24%
12/31/92 $20,000 $24,316 3.07% 5.96% 12/31/92 $50,000 $ 88,012 3.07% 6.48% 3.07%
12/31/93 $22,000 $26,948 2.40% 5.36% 12/31/93 $50,000 $ 90,128 2.40% 6.07% 2.40%
12/31/94 $24,000 $29,937 3.42% 5.06% 12/31/94 $50,000 $ 93,206 3.42% 5.83% 3.42%
12/31/95 $26,000 $33,548 5.04% 5.05% 12/31/95 $50,000 $ 97,907 5.04% 5.76% 5.04%
12/31/96 $28,000 $37,173 4.57% 4.99% 12/31/96 $50,000 $102,382 4.57% 5.67% 4.57%
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
FIDELITY ASSET MANAGER PORTFOLIO B-UNITS FIDELITY ASSET MANAGER PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1989 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1989
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average
Year Annual Year Annual B UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
---- -------- ----- ------ ------ ---- -------- ----- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A 12/31/89 $50,000 N/A N/A N/A 0.00%
12/31/90 $ 4,000 $ 2,105 5.23% 5.23% 12/31/90 $50,000 $ 52,613 5.23% 5.23% 5.23%
12/31/91 $ 6,000 $ 4,960 20.84% 15.23% 12/31/91 $50,000 $ 63,580 20.84% 12.76% 20.84%
12/31/92 $ 8,000 $ 7,666 10.15% 12.76% 12/31/92 $50,000 $ 70,031 10.15% 11.89% 10.15%
12/31/93 $10,000 $11,554 19.53% 15.26% 12/31/93 $50,000 $ 83,709 19.53% 13.75% 19.53%
12/31/94 $12,000 $12,551 -7.40% 7.67% 12/31/94 $50,000 $ 77,511 -7.40% 9.16% -7.40%
12/31/95 $14,000 $16,782 15.33% 9.67% 12/31/95 $50,000 $ 89,396 15.33% 10.17% 15.33%
12/31/96 $16,000 $21,223 13.00% 10.42% 12/31/96 $50,000 $101,016 13.00% 10.57% 13.00%
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FIDELITY MONEY MARKET PORTFOLIO B-UNITS FIDELITY MONEY MARKET PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1983 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1983
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ---------------- ----------------------- ----------------
One Average One Average B
Year Annual Year Annual UNITS
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/83 $ 2,000 N/A N/A N/A 12/31/83 $50,000 N/A N/A N/A N/A
12/31/84 $ 4,000 $ 2,178 8.88% 8.88% 12/31/84 $50,000 $54,442 8.88% 8.88% 8.88%
12/31/85 $ 6,000 $ 4,453 6.60% 7.37% 12/31/85 $50,000 $58,033 6.60% 7.73% 6.60%
12/31/86 $ 8,000 $ 6,789 5.21% 6.31% 12/31/86 $50,000 $61,055 5.21% 6.88% 5.21%
12/31/87 $10,000 $ 9,224 4.95% 5.78% 12/31/87 $50,000 $64,077 4.95% 6.40% 4.95%
12/31/88 $12,000 $11,885 5.89% 5.81% 12/31/88 $50,000 $67,849 5.89% 6.30% 5.89%
12/31/89 $14,000 $14,939 7.59% 6.29% 12/31/89 $50,000 $73,000 7.59% 6.51% 7.59%
12/31/90 $16,000 $18,045 6.53% 6.35% 12/31/90 $50,000 $77,765 6.53% 6.51% 6.53%
12/31/91 $18,000 $20,968 4.60% 5.98% 12/31/91 $50,000 $81,346 4.60% 6.27% 4.60%
12/31/92 $20,000 $23,530 2.45% 5.32% 12/31/92 $50,000 $83,335 2.45% 5.84% 2.45%
12/31/93 $22,000 $25,985 1.79% 4.71% 12/31/93 $50,000 $84,822 1.78% 5.43% 1.78%
12/31/94 $24,000 $28,766 2.79% 4.41% 12/31/94 $50,000 $87,189 2.79% 5.19% 2.79%
12/31/95 $26,000 $32,125 4.42% 4.41% 12/31/95 $50,000 $91,039 4.42% 5.12% 4.42%
12/31/96 $28,000 $35,469 3.94% 4.35% 12/31/96 $50,000 $94,625 3.94% 5.03% 3.94%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
DREYFUS GROWTH AND INCOME PORTFOLIO A-UNITS DREYFUS GROWTH AND INCOME PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average
Year Annual Year Annual A and B
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $3,213 60.67% 60.67% 12/31/95 $80,334 60.67% 60.67% 60.67% 60.67%
12/31/96 $6,000 $6,245 19.78% 33.64% 12/31/96 $50,000 $96,226 19.78% 38.73% 19.78%
</TABLE>
<TABLE>
<CAPTION>
DREYFUS GROWTH AND INCOME PORTFOLIO B-UNITS DREYFUS GROWTH AND INCOME PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average
Year Annual Year Annual A and B
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $3,193 59.65% 59.65% 12/31/95 $50,000 $79,825 59.65% 59.65% 59.65%
12/31/96 $6,000 $6,183 19.06% 32.80% 12/31/96 $50,000 $95,039 19.06% 37.87% 19.76%
</TABLE>
<TABLE>
<CAPTION>
DREYFUS QUALITY BOND PORTFOLIO A-UNITS DREYFUS QUALITY BOND PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1989 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1989
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A
Year Annual Year Annual UNIT
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A 12/31/89 $50,000 N/A N/A N/A 0.00%
12/31/90 $ 4,000 $ 2,032 1.58% 1.58% 12/31/90 $50,000 $50,790 1.58% 1.58% 1.58%
12/31/91 $ 6,000 $ 4,564 13.21% 9.12% 12/31/91 $50,000 $57,498 13.21% 7.24% 13.21%
12/31/92 $ 8,000 $ 7,299 11.19% 10.12% 12/31/92 $50,000 $63,934 11.19% 8.54% 11.19%
12/31/93 $10,000 $10,639 14.41% 11.73% 12/31/93 $50,000 $73,145 14.41% 9.98% 14.41%
12/31/94 $12,000 $11,962 -5.35% 6.03% 12/31/94 $50,000 $69,230 -5.35% 6.72% -5.35%
12/31/95 $14,000 $16,680 19.46% 9.49% 12/31/95 $50,000 $82,705 19.46% 8.75% 19.46%
12/31/96 $16,000 $19,108 2.30% 7.78% 12/31/96 $50,000 $84,603 2.30% 7.80% 2.30%
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
DREYFUS QUALITY BOND PORTFOLIO B-UNITS DREYFUS QUALITY BOND PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1989 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1989
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average B UNIT
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A 12/31/89 $50,000 N/A N/A N/A 0.00%
12/31/90 $ 4,000 $ 2,019 0.97% 0.97% 12/31/90 $50,000 $50,483 0.97% 0.97% 0.97%
12/31/91 $ 6,000 $ 4,523 12.52% 8.47% 12/31/91 $50,000 $56,805 12.52% 6.59% 12.52%
12/31/92 $ 8,000 $ 7,209 10.52% 9.46% 12/31/92 $50,000 $62,781 10.52% 7.88% 10.52%
12/31/93 $10,000 $10,472 13.72% 11.07% 12/31/93 $50,000 $71,392 13.72% 9.31% 13.72%
12/31/94 $12,000 $11,733 -5.93% 5.38% 12/31/94 $50,000 $67,161 -5.93% 6.08% -5.93%
12/31/95 $14,000 $16,308 18.75% 8.83% 12/31/95 $50,000 $79,755 18.75% 8.09% 18.75%
12/31/96 $16,000 $18,615 1.68% 7.13% 12/31/96 $50,000 $81,000 1.68% 7.15% 1.68%
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE EQUITY INCOME PORTFOLIO A-UNITS T. ROWE PRICE EQUITY INCOME PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,678 33.69% 33.69% 12/31/95 $50,000 $66,846 33.69% 33.69% 33.69%
12/31/96 $6,000 $5,543 18.60% 23.83% 12/31/96 $50,000 $79,280 18.60% 25.92% 18.60%
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE EQUITY INCOME PORTFOLIO B-UNITS T. ROWE PRICE EQUITY INCOME PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,658 32.89% 32.89% 12/31/95 $50,000 $66,446 32.89% 32.89% 32.89%
12/31/96 $6,000 $5,491 17.88% 23.07% 12/31/96 $50,000 $78,330 17.88% 25.16% 17.88%
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE INTERNATIONAL PORTOLIO A-UNITS T. ROWE PRICE INTERNATIONAL PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,206 10.29% 10.29% 12/31/95 $50,000 $55,147 10.29% 10.29% 10.29%
12/31/96 $6,000 $4,785 13.78% 12.57% 12/31/96 $50,000 $62,747 13.78% 12.02% 13.78%
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE INTERNATIONAL PORTOLIO B-UNITS T. ROWE PRICE INTERNATIONAL PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,193 9.64% 9.64% 12/31/95 $50,000 $54,818 9.64% 9.64% 9.64%
12/31/96 $6,000 $4,742 13.09% 11.89% 12/31/96 $50,000 $61,995 13.09% 11.35% 13.09%
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE NEW AMERICAN GROWTH FUND PORTFOLIO A-UNITS T. ROWE PRICE NEW AMERICAN GROWTH FUND PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,998 49.89% 49.89% 12/31/95 $50,000 $74,943 49.89% 49.89% 49.89%
12/31/96 $6,000 $5,896 18.41% 28.84% 12/31/96 $50,000 $88,208 18.41% 32.82% 18.41%
</TABLE>
<TABLE>
<CAPTION>
T. ROWE PRICE NEW AMERICAN GROWTH FUND PORTFOLIO B-UNITS T. ROWE PRICE NEW AMERICAN GROWTH FUND PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,980 48.99% 48.99% 12/31/95 $50,000 $74,495 48.99% 48.99% 48.99%
12/31/96 $6,000 $5,954 19.13% 29.63% 12/31/96 $50,000 $89,227 19.13% 33.62% 19.13%
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
OPCAP ADVISORS MANAGED PORTFOLIO A-UNITS OPCAP ADVISORS MANAGED PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1988 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1988
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A UNIT
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A 12/31/88 $50,000 N/A N/A N/A 0.00%
12/31/89 $ 4,000 $ 2,519 25.95% 25.95% 12/31/89 $50,000 $62,975 25.95% 25.95% 25.95%
12/31/90 $ 6,000 $ 3,259 -27.88% -12.90% 12/31/90 $50,000 $45,418 -27.88% -4.69% -27.88%
12/31/91 $ 8,000 $ 7,903 50.27% 14.42% 12/31/91 $50,000 $68,249 50.27% 10.93% 50.27%
12/31/92 $10,000 $ 7,985 -19.37% -0.08% 12/31/92 $50,000 $55,029 -19.37% 2.42% -19.37%
12/31/93 $12,000 $ 9,216 -7.70% -2.71% 12/31/93 $50,000 $50,792 -7.70% 0.31% -7.70%
12/31/94 $14,000 $10,342 -7.79% -4.23% 12/31/94 $50,000 $46,835 -7.79% -1.08% -7.79%
12/31/95 $16,000 $17,822 44.40% 6.04% 12/31/95 $50,000 $67,628 44.40% 4.41% 44.40%
12/31/96 $18,000 $24,140 21.79% 9.09% 12/31/96 $50,000 $82,363 21.79% 6.44% 21.79%
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
OPCAP ADVISORS MANAGED PORTFOLIO B-UNITS OPCAP ADVISORS MANAGED PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1988 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1988
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average B UNIT
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A 12/31/88 $50,000 N/A N/A N/A 0.00%
12/31/89 $ 4,000 $ 2,504 25.19% 25.19% 12/31/89 $50,000 $62,595 25.19% 25.19% 25.19%
12/31/90 $ 6,000 $ 3,229 -28.32% -13.46% 12/31/90 $50,000 $44,868 -28.32% -5.27% -28.32%
12/31/91 $ 8,000 $ 7,809 49.36% 13.77% 12/31/91 $50,000 $67,015 49.36% 10.26% 49.36%
12/31/92 $10,000 $ 7,861 -19.86% -0.70% 12/31/92 $50,000 $53,706 -19.86% 1.80% -19.86%
12/31/93 $12,000 $ 9,046 -8.26% -3.32% 12/31/93 $50,000 $49,270 -8.26% -0.29% -8.26%
12/31/94 $14,000 $10,124 -8.35% -4.84% 12/31/94 $50,000 $45,156 -8.35% -1.68% -8.35%
12/31/95 $16,000 $17,402 43.53% -0.25% 12/31/95 $50,000 $64,814 43.53% 3.78% 43.53%
12/31/96 $18,000 $23,487 21.05% 8.49% 12/31/96 $50,000 $78,459 21.05% 5.79% 21.05%
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
OPCAP ADVISORS SMALL CAPITAL PORTFOLIO A-UNITS OPCAP ADVISORS SMALL CAPITAL PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1988 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1988
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A UNIT
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A 12/31/88 $50,000 N/A N/A N/A 0.00%
12/31/89 $ 4,000 $ 2,304 15.22% 15.22% 12/31/89 $50,000 $57,608 15.22% 15.22% 15.22%
12/31/90 $ 6,000 $ 3,256 -24.36% -12.97% 12/31/90 $50,000 $43,572 -24.36% -6.65% -24.36%
12/31/91 $ 8,000 $ 8,558 62.83% 18.84% 12/31/91 $50,000 $70,950 62.83% 12.37% 62.83%
12/31/92 $10,000 $ 8,591 -18.63% 2.87% 12/31/92 $50,000 $57,729 -18.63% 3.66% -18.63%
12/31/93 $12,000 $10,334 -2.42% 1.10% 12/31/93 $50,000 $56,333 -2.42% 2.41% -2.42%
12/31/94 $14,000 $10,135 -17.83% -4.81% 12/31/94 $50,000 $46,288 -17.83% -1.28% -17.83%
12/31/95 $16,000 $13,872 14.31% -0.23% 12/31/95 $50,000 $52,919 14.31% 0.81% 14.31%
12/31/96 $18,000 $18,693 17.77% 3.45% 12/31/96 $50,000 $62,323 17.77% 2.79% 17.77%
</TABLE>
<TABLE>
<CAPTION>
OPCAP ADVISORS US GOVERNMENT INCOME PORTFOLIO A-UNITS OPCAP ADVISORS US GOVERNMENT INCOME PORTFOLIO A-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,120 5.99% 5.99% 12/31/95 $50,000 $52,996 5.99% 5.99% 5.99%
12/31/96 $6,000 $4,185 1.59% 3.06% 12/31/96 $50,000 $53,839 1.59% 3.77% 1.59%
</TABLE>
<TABLE>
<CAPTION>
OPCAP ADVISORS US GOVERNMENT INCOME PORTFOLIO B-UNITS OPCAP ADVISORS US GOVERNMENT INCOME PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average A and B
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,201 10.07% 10.07% 12/31/95 $50,000 $55,035 10.07% 10.07% 10.07%
12/31/96 $6,000 $4,294 2.21% 4.83% 12/31/96 $50,000 $56,250 2.21% 6.07% 2.21%
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
OPCAP ADVISORS SMALL CAPITAL PORTFOLIO B-UNITS OPCAP ADVISORS SMALL CAPITAL PORTFOLIO B-UNITS
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1988 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1988
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- ----------------
One Average One Average B
Year Annual Year Annual UNIT
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- ------- -------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A 12/31/88 $50,000 N/A N/A N/A 0.00%
12/31/89 $ 4,000 $ 2,290 14.52% 14.52% 12/31/89 $50,000 $57,259 14.52% 14.52% 14.52%
12/31/90 $ 6,000 $ 3,225 -24.82% -13.52% 12/31/90 $50,000 $43,047 -24.82% -7.21% -24.82%
12/31/91 $ 8,000 $ 8,457 61.85% 18.17% 12/31/91 $50,000 $69,670 61.85% 11.69% 61.85%
12/31/92 $10,000 $ 8,457 -19.13% 2.24% 12/31/92 $50,000 $56,345 -19.13% 3.03% -19.13%
12/31/93 $12,000 $10,143 -3.01% 0.47% 12/31/93 $50,000 $54,650 -3.01% 1.79% -3.01%
12/31/94 $14,000 $ 9,917 -18.33% -5.42% 12/31/94 $50,000 $44,634 -18.33% -1.87% -18.33%
12/31/95 $16,000 $13,541 13.63% -0.42% 12/31/95 $50,000 $50,715 13.63% 0.20% 13.63%
12/31/96 $18,000 $18,192 17.06% 2.85% 12/31/96 $50,000 $59,365 17.06% 2.17% 17.06%
</TABLE>
31
<PAGE>
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
The Company may from time to time use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide registered
representatives and existing and/or potential owners of Contracts with
individualized hypothetical performance illustrations for some or all of the
Portfolios. Such illustrations may include, without limitation, graphs, bar
charts and other types of formats presenting the following information: (i) the
historical results of a hypothetical investment in a single Portfolio; (ii) the
historical fluctuation of the value of a single Portfolio (actual and
hypothetical); (iii) the historical results of a hypothetical investment in more
than one Portfolio; (iv) the historical performance of two or more market
indices in relation to one another and/or one or more Portfolios; (v) the
historical performance of two or more market indices in comparison to a single
Portfolio or a group of Portfolios; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Portfolios to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Portfolio data sheets showing various
information about one or more Portfolios (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets).
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of Providian Life and Health Insurance Company as
determined by one or more of the ratings services listed below, or other
recognized rating services. Reports and promotional literature may also contain
other information including (i) the ranking of any Subaccount derived from
rankings of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other person who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of tax-
deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Each Subaccount's performance depends on, among other things, the performance of
the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
. the relative amount of the Portfolio's cash flow.
From time to time, we may advertise the performance of the Subaccounts and the
underlying Portfolios as compared to similar funds or portfolios using certain
indexes, reporting services and financial publications, and we may advertise
rankings or ratings issued by certain services and/or other institutions. These
may include, but are not limited to, the following:
32
<PAGE>
. DOW JONES INDUSTRIAL AVERAGE ("DJIA"), an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.
. STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, which can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated into the Standard & Poor's figures.
. LIPPER ANALYTICAL SERVICES, INC., a reporting service that ranks funds
in various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, an index comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed-rate, non-convertible domestic bonds of companies in
industry, public utilities and finance. The average maturity of these
bonds approximates nine years. Tracked by Shearson Lehman, Inc., the index
calculates total returns for one month, three month, twelve month, and ten
year periods and year-to-date.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (LONG-TERM) INDEX, an index composed
of the same types of issues as defined above. However, the average
maturity of the bonds included in this index approximates 22 years.
. SHEARSON LEHMAN GOVERNMENT INDEX, an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
. MORNINGSTAR, INC., an independent rating service that publishes the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
. MONEY, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.
33
<PAGE>
. STANDARD & POOR'S UTILITY INDEX, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price
of the stocks. The index also provides figures for changes in price from
the beginning of the year to date, and for a twelve month period.
. DOW JONES UTILITY INDEX, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The
index also provides the highs and lows for each of the past five years.
. THE CONSUMER PRICE INDEX, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the Funds'
Prospectuses to obtain a more complete view of each Portfolio's performance
before investing. Of course, when comparing each Portfolio's performance to any
index, conditions such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such companies.
Unmanaged indexes may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
When comparing funds using reporting services, or total return and yield, or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Company. The Assets are
kept physically segregated and held separate and apart from the Company's
General Account assets. The General Account contains all of the assets of the
Company. Records are maintained of all purchases and redemptions of eligible
Portfolio shares held by each of the Subaccounts and the General Account.
THE COMPANY
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 3% interest in Capital Liberty, L.P. is
owned by Providian Corporation, which is the general partner, and 78% and 19%
interests, respectively, are held by two limited partners, Commonwealth Life
Insurance Company and Peoples Security Life Insurance Company.
On December 28, 1996, Providian Corporation executed a Plan and Agreement of
Merger and Reorganization (the "Merger Agreement") with AEGON N.V. ("AEGON"), an
international insurance company headquartered in The Hague, The Netherlands.
Under the Merger Agreement, Providian Corporation's insurance operations,
including the operations of the Company, will merge with a wholly owned
subsidiary of AEGON. Providian Corporation will be the surviving corporation of
the merger and will become a wholly owned subsidiary of AEGON. The merger of
Providian Corporation's insurance businesses with AEGON is conditioned upon
several events, including shareholder and various regulatory approvals.
Providian Corporation anticipates that the closing of the transaction will occur
in mid-1997. Because consummation of the merger is subject to the above
conditions, no representations can be made as to whether, or when, the merger
will be completed or as to the possible impact of the merger on the financial
position and results of operations of the Company should the merger occur.
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.
34
<PAGE>
In addition, the Company is subject to the insurance laws and regulations of
all the states where it is licensed to operate. The availability of certain
contract rights and provisions depends on state approval and/or filing and
review processes. Where required by state law or regulation, the Contracts will
be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by the Company or by its Administrator. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under
that Act or by any other applicable law or regulation.
DISTRIBUTION OF THE CONTRACTS
Providian Securities Corporation ("PSC"), the principal underwriter of the
Contracts, is ultimately a wholly owned subsidiary of Providian Corporation. PSC
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. Commissions not to exceed (i) 4.75% of Purchase Payments for A Units plus
an annual trail or maintenance fee of .20% of the Contract's Accumulation Value;
and (ii) 6.75% of Purchase Payments for B Units may be paid to entities which
sell the Contracts. In addition, expense reimbursement allowances may be paid.
Additional payments may be made for other services not directly related to the
sale of the Contracts.
The Contracts are offered to the public through brokers 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 audited financial statements of the Separate Account for the years ended
December 31, 1996 and 1995, including the Report of Independent Auditors
thereon, is included in this Statement of Additional Information.
The audited statutory-basis financial statements of the Company for the years
ended December 31, 1996 and 1995, including the Reports of Independent Auditors
thereon, which are also included in this Statement of Additional Information,
should be distinguished from the financial statements of the Separate Account
and should be
35
<PAGE>
considered only as bearing on the ability of the Company to meet its obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account.
36
<PAGE>
Statutory-Basis Financial Statements
Providian Life and Health Insurance Company
Years ended December 31, 1996, and 1995
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Statutory-Basis Financial Statements
Years ended December 31, 1996 and 1995
Contents
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................................1
Audited Financial Statements
Balance Sheets (Statutory-Basis)..........................................2
Statements of Operations (Statutory-Basis)................................3
Statements of Changes in Capital and Surplus (Statutory-Basis)............4
Statements of Cash Flows (Statutory-Basis)................................5
Notes to Financial Statements.............................................6
</TABLE>
<PAGE>
Report of Independent Auditors
Board of Directors
Providian Life and Health Insurance Company
We have audited the accompanying statutory-basis balance sheets of Providian
Life and Health Insurance Company as of December 31, 1996 and 1995, and the
related statutory-basis statements of operations, changes in capital and
surplus, and cash flows for the years then ended. These financial 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Missouri Department of Insurance, which practices differ from
generally accepted accounting principles. The variances between such practices
and generally accepted accounting principles are also described in Note 1. The
effects on the financial statements of these variances are not reasonably
determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Providian Life and Health Insurance Company at December 31, 1996 and 1995,
or the results of its operations or its cash flows for the years then ended.
Also, in our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Providian Life and Health
Insurance Company at December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting practices prescribed or permitted by the Missouri Department of
Insurance.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 25, 1997
1
<PAGE>
Providian Life and Health Insurance Company
Balance Sheets (Statutory-Basis)
<TABLE>
<CAPTION>
December 31
1996 1995
----------------------------
Admitted assets (In Thousands)
<S> <C> <C>
Cash and invested assets:
Bonds $ 4,249,252 $ 4,410,245
Preferred stocks 30,658 27,719
Common stocks 438,067 408,298
Mortgage loans 2,651,611 2,756,891
Real estate 6,653 25,065
Policy loans 158,186 158,774
Cash and short-term investments 139,705 205,266
Other invested assets 168,430 125,052
---------------------------
Total cash and invested assets 7,842,562 8,117,310
Deferred and uncollected premiums 46,032 45,849
Accrued investment income 89,539 99,001
Other receivables 38,556 35,432
Amounts due from affiliates 7,687 15,510
Federal income taxes recoverable from parent 5,840 3,725
Other admitted assets 4,539 4,581
Separate account assets 2,427,504 1,741,564
----------------------------
Total admitted assets $10,462,259 $10,062,972
============================
Liabilities and capital and surplus
Liabilities:
Aggregate policy reserves $ 4,736,127 $ 5,608,366
Policy and contract claims 43,006 37,947
Policyholder contract 1,961,549 1,519,204
Other policy or contract liabilities 366,441 318,911
Amounts due to affiliates 12,719 18,882
Asset valuation reserve 97,169 89,486
Accrued expenses and other liabilities 212,433 152,118
Separate account liabilities 2,427,504 1,741,564
----------------------------
Total liabilities 9,856,948 9,486,478
Capital and surplus:
Common stock, $11 par value; 1,145,000 shares
authorized, issued and outstanding 12,595 12,595
Preferred stock, $11 par value; 2,290,000
shares authorized, issued and outstanding 25,190 25,190
Paid-in surplus 2,583 2,583
Unassigned surplus 564,943 536,126
------------------------------
Total capital and surplus 605,311 576,494
------------------------------
Total liabilities and capital and surplus $10,462,259 $10,062,972
==============================
</TABLE>
See accompanying notes.
2
<PAGE>
Providian Life and Health Insurance Company
Statements of Operations (Statutory-Basis)
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
-------------------------
<S> <C> <C>
(In Thousands)
Revenues:
Premiums earned:
Life and annuity $ 343,086 $ 264,020
Accident and health 154,993 160,996
Annuity fund deposits 1,073,366 803,537
Net investment income 569,860 570,009
Commissions and expense allowances
on reinsurance ceded 1,123 7,164
Amortization of interest maintenance reserve 3,109 4,798
Other income 10,196 455
-------------------------
2,155,733 1,810,979
Benefits and expenses:
Accident and health, life and other benefits 1,417,390 1,323,996
Decrease in aggregate policy reserves (9,138) (141,219)
Commissions and expense allowances
on reinsurance assumed 39,533 66,988
General insurance and other expenses 122,906 140,495
Reinsurance recapture fee 2,320 66,672
Net transfers to separate accounts 425,800 316,222
-------------------------
1,998,811 1,773,154
-------------------------
Net gain from operations before federal
income taxes 156,922 37,825
Federal income tax expense 50,639 18,222
-------------------------
Net gain from operations 106,283 19,603
Net realized capital gains (losses), net of
income taxes (1996-$1,402; 1995-($14,998))
and excluding gains (losses) transferred
to the interest maintenance reserve
(1996-$2,921; 1995-($21,644)) 3,394 (609)
-------------------------
Net income $ 109,677 $ 18,994
=========================
</TABLE>
See accompanying notes.
3
<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
--------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Balances, January 1, 1995 $ 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
Net income - - - 109,677
Change in net unrealized
gains on investments - - - 40,540
Dividends to shareholders - - - (125,000)
Prior year federal income
tax adjustment - - - 6,546
Decrease in nonadmitted - - -
assets 4,737
Increase in asset valuation
reserve - - - (7,683)
--------------------------------------------
Balances, December 31, 1996 $12,595 $25,190 $ 2,583 $ 564,943
============================================
</TABLE>
See accompanying notes.
4
<PAGE>
Providian Life and Health Insurance Company
Statements of Cash Flows (Statutory-Basis)
<TABLE>
<CAPTION>
Year ended December 31
1996 1995
-------------------------
<S> <C> <C>
(In Thousands)
Cash and short-term investments provided
Operations:
Premiums and annuity fund deposits $1,573,203 $1,224,560
Net investment income received 574,079 564,587
Allowances and reserve adjustments received on
reinsurance ceded 1,125 7,195
Other income received 10,182 455
-------------------------
2,158,589 1,796,797
Benefits paid 1,412,797 1,320,679
General insurance and other expenses 169,580 197,177
Federal income taxes paid (recovered) 56,121 (10,510)
Net increase in policy loans and premium notes 3,520 7,283
Paid reinsurance reserves and other items 293 1,305
Net transfers to separate accounts 412,252 327,365
-------------------------
2,054,563 1,843,299
-------------------------
Total cash provided (applied) by operations 104,026 (46,502)
Investments sold, matured or repaid 3,688,955 3,662,934
Other cash provided:
Increase in amounts due to affiliates 7,826 -
Net increase in broker receivables/payables 31,112 114,177
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 40,047 7,764
-------------------------
Total other cash provided 78,985 539,018
-------------------------
Total cash and short-term investments provided 3,871,966 4,155,450
Cash and short-term investments applied:
Investments acquired 3,717,511 4,029,433
Other cash applied:
Dividends paid to shareholders 125,000 -
Decrease in amounts due to affiliates 6,162 15,506
Net cash and short-term investments transferred
on reinsurance assumed 78,980 -
Redemption of common stock - 4,000
Other items 9,874 14,776
-------------------------
Total other cash applied 220,016 34,282
-------------------------
Total cash and short-term investments applied 3,937,527 4,063,715
-------------------------
Increase (decrease) in cash and short-term
investments (65,561) 91,735
Cash and short-term investments:
Beginning of year 205,266 113,531
-------------------------
End of year $ 139,705 $ 205,266
=========================
</TABLE>
See accompanying notes.
5
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements
December 31, 1996
1. Organization, Nature of Operations and Accounting Policies
Organization
Providian Life and Health Insurance Company (PLH) is a life and health insurance
company domiciled in Missouri. PLH is owned by Commonwealth Life Insurance
Company (CLICO) 61%, Capital Liberty, L.P. (CLLP) 20%, Peoples Security Life
Insurance Company (PSI) 15%, and Providian Corporation (Providian) 4%. Providian
is the ultimate parent of CLICO, CLLP, and PSI. 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),
and a non-insurance subsidiary.
On December 28, 1996, Providian executed a Plan and Agreement of Merger and
Reorganization (the Merger Agreement) with AEGON N.V. (AEGON), an international
insurance company headquartered in The Hague, The Netherlands. Under the Merger
Agreement, Providian's insurance operations, including the operations of PLH,
will merge with a wholly owned subsidiary of AEGON. Providian will be the
surviving corporation in the merger and will become a wholly owned subsidiary of
AEGON. The merger of Providian's insurance businesses with AEGON is conditioned
upon several events, including shareholder and various regulatory approvals.
Providian anticipates that the closing of the transaction will occur in mid-
1997. Because consummation of the merger is subject to the above conditions, no
representations can be made as to whether, or when, the merger will be completed
or as to the possible impact of the merger on the financial position and results
of operations of PLH should the merger occur.
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, stock brokerage
firms and a mutual fund.
6
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. Organization, Nature of Operations and Accounting Policies (continued)
Management's Estimates
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
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, quoted 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
7
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. Organization, Nature of Operations and Accounting Policies (continued)
cost and admitted asset investment amounts are credited or 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). 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). Realized gains and losses are
reported in income net of tax and transfers to the IMR. At December 31,
1996 and 1995, the IMR balance was in an asset position of $10,762,458 and
$10,574,877, respectively, and was non-admitted for statutory accounting
purposes. 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.
8
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. Organization, Nature of Operations and Accounting Policies (continued)
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.
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, surrenders and the change in policy reserves. Under GAAP, premiums
received in excess of policy charges are not recognized as premium revenue
and benefits represent the excess of benefits paid over the policy account
value and interest credited to the account values.
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.
9
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. Organization, Nature of Operations and Accounting Policies (continued)
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, but are presumed to be
material.
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, policy
loans, other invested assets, 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
constant effective yield method.
Loan-backed bonds and structured securities are valued at amortized
cost using the interest method. Anticipated prepayments are considered
when determining the amortization of related discounts or premiums.
Prepayment assumptions are obtained from dealer survey values or
internal estimates and are consistent with the current interest rate
and economic environment. The retrospective adjustment method is used
to value such securities.
Preferred stocks are 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.
10
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. Organization, Nature of Operations and Accounting Policies (continued)
Mortgage loans in good standing 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.
Policy loans are carried at the aggregate unpaid balance.
Short-term investments include investments with maturities of less
than one year at the date of acquisition. Short-term investments are
carried at amortized cost.
Other invested assets are principally comprised of limited partnership
investments and are valued using the equity method of accounting.
Derivative financial instruments, consisting primarily of interest
rate swap agreements, including basis swaps, and futures, are valued
consistently with the hedged item. Hedges of fixed income assets
and/or liabilities are valued at amortized cost. Hedges of items
carried at fair value are valued at fair value. Derivatives which
cease to be effective hedges are valued at fair value.
Bond and other loan interest is credited to income as it accrues. Dividends
on preferred and common 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. There was no interest on securities excluded from
investment income at December 31, 1996 and 1995. For mortgage loans, PLH's
policy is to exclude from investment income interest in excess of three
months past due. At December 31, 1996 and 1995, the total amount excluded
from accrued investment income for delinquent mortgage loans was
approximately $504,000 and $314,000, respectively. The amounts to be paid
or received as a result of derivative instruments are recognized in the
statements of operations as an adjustment to investment income. Realized
gains and losses on derivative instruments are recognized currently in
earnings. If the item being hedged is subject to the IMR, the gain or loss
on the hedging derivative instrument is subject to the IMR upon
termination.
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
statutory-basis 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 statutory-basis
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 to return any portion of the final premium beyond
the date of death. Surrender values on direct business 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 as the contracts are not
surrenderable. 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 1996
and 1995.
Liabilities for Policy and Contract Claims
Liabilities for policy and contract claims, principally related to accident
and health policies, include amounts determined in accordance with standard
actuarial practice and statutory regulation. These estimates are subject to
the effects of trends in claim severity and frequency. Although
considerable variability is inherent in such estimates, management believes
that the liabilities for policy and contract claims are adequate. The
methods of making such estimates and establishing the resulting liabilities
are continually reviewed and updated, and any adjustments resulting
therefrom are reflected in current earnings.
Policyholder Contract Deposits
Policyholder contract deposits consist 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 5.2 percent to 6.6 percent and from 5.5 percent to 7.8
percent during 1996 and 1995, respectively.
13
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
1. Organization, Nature of Operations and Accounting Policies (continued)
Premiums, Benefits and Expenses
For individual and most group life policies, premiums are reported as
earned on the policy/certificate anniversary. For individual and group
annuities, premiums and annuity fund deposits are recorded as earned when
collected. For individual and group accident and health policies, premiums
are recorded as earned on a pro rata basis over the coverage period for
which the premiums were collected or due. Benefit claims (including an
estimated provision for claims incurred but not reported), policy reserve
changes and expenses are charged to income as incurred.
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, 1996
and 1995, 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,
1996 may vary from the estimated liability included in the accompanying
financial statements. The estimated liability for guaranty fund assessments
recorded at December 31, 1996 and 1995 was $11,525,000 and $11,571,000,
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
1998, 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. The effect of any
such changes on PLH's statutory surplus cannot be determined at this time
and could be material.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation.
15
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
2. Investments
The tables below contain amortized cost (carrying value or statement value) and
fair value information on bonds.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1996
U.S. government obligations $ 170,990 $ 576 $ 3,340 $ 168,226
States and political subdivisions 33,765 526 994 33,297
Foreign government obligations* 39,483 301 432 39,352
Corporate and other 2,730,863 43,960 23,430 2,751,393
Foreign corporate* 218,306 5,868 679 223,495
Asset-backed 519,149 - - 519,149
Mortgage-backed 536,696 - - 536,696
-----------------------------------------------
$4,249,252 $ 51,231 $28,875 $4,271,608
===============================================
December 31, 1995
U.S. government obligations $ 249,757 $ 9,764 $ 4 $ 259,517
States and political subdivisions 37,957 1,399 280 39,076
Foreign government obligations* 71,820 4,026 34 75,812
Corporate and other 2,686,294 93,236 11,054 2,768,476
Foreign corporate* 259,804 14,063 2,223 271,644
Asset-backed 553,591 - - 553,591
Mortgage-backed 551,022 - - 551,022
-----------------------------------------------
$4,410,245 $122,488 $13,595 $4,519,138
===============================================
</TABLE>
* Substantially all are U.S. dollar denominated.
16
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
2. Investments (continued)
The amortized cost and fair value of bonds at December 31, 1996, by contractual
maturity, are shown below. Actual maturities may differ from contractual
maturities because certain borrowers may have the right to call or prepay
obligations, sometimes without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------------------
(In Thousands)
<S> <C> <C>
Due in one year or less $ 30,634 $ 30,634
Due after one year through five years 598,038 598,439
Due after five years through ten years 953,944 955,870
Due after ten years 1,610,791 1,630,820
------------------------
3,193,407 3,215,763
Asset-backed securities 519,149 519,149
Mortgage-backed securities 536,696 536,696
------------------------
$4,249,252 $4,271,608
========================
</TABLE>
Proceeds during 1996 and 1995 from sales, maturities and calls of bonds were
$2,992,250,000 and $2,842,536,000, respectively. Gross gains of $36,104,000 and
$60,899,000 and gross losses of $28,403,000 and $35,199,000 in 1996 and 1995,
respectively, were realized on those sales.
The cost of preferred stocks of unaffiliated companies was $30,886,000 and
$27,719,000 at December 31, 1996 and 1995, respectively, and the related fair
value was $30,681,000 and $27,199,000 at December 31, 1996 and 1995,
respectively. The difference between cost and statement value of preferred
stocks of $228,000 at December 31, 1996 was charged directly to unassigned
surplus as of that date and did not affect net income. There was no difference
between cost and statement value of preferred stocks at December 31, 1995.
17
<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, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
-----------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
December 31, 1996
Common stocks $ 28,991 $ 655 $1,083 $ 28,563
Subsidiaries 202,606 206,898 - 409,504
-----------------------------------------
$231,597 $207,553 $1,083 $438,067
=========================================
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
=========================================
</TABLE>
The fair value of investments in subsidiaries presented above represents PLH's
equity interest in the net assets of the subsidiary.
Included in investments are securities having statement values of $3,981,000 at
December 31, 1996 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
$2,526,000 and $771,000 at December 31, 1996 and 1995, respectively. The maximum
and minimum lending rates for commercial mortgage loans made during 1996 were
9.4 percent and 8.4 percent, respectively; the maximum and minimum lending rates
for residential mortgage loans made during 1996 were 9.9 percent and 4.5
percent, respectively; and the maximum and minimum lending rates for farm
mortgage loans made during 1996 were 8.9 percent and 8.6 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
18
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
2. Investments (continued)
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, 1996, PLH held $1,855,000 of mortgages with interest more than one year
overdue amounting to $296,000. As of December 31, 1996, 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 1996, $1,045,000 of taxes and
maintenance expenses were paid by PLH on property acquired through foreclosure.
During 1996, 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. Other derivatives, such as
forwards, are used to a much lesser extent in the asset/liability management
process. All of these instruments involve (to varying degrees) elements of
market and credit risks in excess of the amounts recognized in the accompanying
financial statements at a given point in time. The contract or notional values
of all of these instruments reflect the extent of involvement in the various
types of financial instruments.
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 (including interest rate risk) is the risk of loss
from a counterparty failing to perform according to the terms of the contract.
This exposure includes settlement risk (risk that the counterparty defaults
after 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)
19
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
3. Financial Instruments (continued)
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 and forwards, 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 $22,188,000 and $53,450,000 at December 31, 1996
and 1995, 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 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.
20
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
3. Financial Instruments (continued)
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 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 used
to adjust the net duration level of the overall portfolio is deferred and
amortized as a component of the IMR. The daily change in fair value for futures
used as accounting hedges both for products that provide a return based on the
market performance of a designated index and for investments in common stocks
are recognized in the accompanying statement of operations through net realized
investment gains and losses. Margin requirements on futures contracts, equal to
the change in fair value, are usually settled on a daily basis.
21
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
3. Financial Instruments (continued)
The following information is based on the assumption that rates will remain
constant at December 31, 1996 levels. To the extent that actual rates change,
the variable interest rate information will change accordingly. The following
table illustrates the maturities and weighted average rates by type of
derivative product held at December 31, 1996.
<TABLE>
<CAPTION>
MATURITY SCHEDULE BY YEAR FOR DERIVATIVE PRODUCTS
------------------------------------------------------------------
2001-
1997 1998 1999 2000 2002 Total
------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
RECEIVE FIXED SWAPS
Notional value $ 34,567 $55,500 $216,000 $338,400 $278,300 $ 922,767
Weighted average:
Receive rate 6.33% 4.99% 7.42% 7.34% 7.40% 7.20%
Pay rate 5.63% 5.66% 5.63% 5.72% 5.73% 5.70%
PAY FIXED SWAPS
Notional value - - - - $ 10,000 $ 10,000
Weighted average:
Receive rate - - - - 5.59% 5.59%
Pay rate - - - - 7.29% 7.29%
BASIS SWAPS
Notional value 17,800 - 42,840 50,000 50,000 160,640
Weighted average:
Receive rate 5.35% - 5.60% 5.53% 5.53% 5.53%
Pay rate 5.59% - 5.79% 5.55% 5.56% 5.62%
OTHER DERIVATIVE
PRODUCTS(a)
Notional or contract
value 70,783 - - - 250,000 320,783
------------------------------------------------------------------
Total notional or contract
value $123,150 $55,500 $258,840 $388,400 $588,300 $1,414,190
==================================================================
TOTAL WEIGHTED AVERAGE
RATES ON SWAPS:
Receive rate 6.00% 4.99% 7.12% 7.11% 7.07% 6.94%
Pay rate 5.62% 5.66% 5.66% 5.70% 5.75% 5.70%
</TABLE>
(a) Other derivative products include futures and forwards.
22
<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 1996 and 1995:
<TABLE>
<CAPTION>
RECEIVE PAY FIXED/
FIXED/PAY RECEIVE
FLOATING FLOATING BASIS FUTURES FORWARDS
----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 $ 699,556 $ - $ 65,060 $ 669,628 $ -
Additions 622,500 - 94,271 1,200,907 250,000
Maturities 1,094 - 50,000 - -
Terminations - - 44,133 1,820,429 -
----------------------------------------------------------------------
Balances, December 31, 1995 1,320,962 - 65,198 50,106 250,000
Additions 107,473 10,000 100,000 314,271 -
Maturities 109,268 - 4,558 - -
Terminations 396,400 - - 293,594 -
----------------------------------------------------------------------
Balances, December 31, 1996 $ 922,967 $10,000 $160,640 $ 70,783 $250,000
======================================================================
</TABLE>
During 1996, PLH terminated or closed certain interest swap agreements which
were accounted for as hedges. The net deferred gains on these agreements during
1996 were $1,279,000 and are being amortized to investment income over the
expected remaining life of the related investment, generally one to seven 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, 1996 and 1995, commitments to extend credit were $136,317,000 and
$140,800,000, respectively.
Additionally, at December 31, 1996, PLH has agreed to fund additional
investments through the year 2000 in an amount not to exceed $85,468,000.
23
<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, credit 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 file a life-nonlife 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, or benefit from a net
operating loss, for the year bears to the consolidated tax liability. The final
settlement under this agreement is made after the annual filing of the
consolidated U.S. Corporate Income Tax Return.
Reported income tax expense differs from income tax expense that would result
from applying rates to pretax income primarily due to differences in the
statutory and tax treatment of certain investments, deferred policy acquisition
cost, bad debts, and differences in policy and contract liabilities.
Included in the statements of changes in capital and surplus are certain
adjustments increasing surplus by $6,544,000 at December 31, 1996 and decreasing
surplus by $5,092,000 at December 31, 1995, respectively, relating to tax
accrual adjustments applicable to prior tax years.
At December 31, 1996, accumulated earnings of PLH for federal income tax
purposes included $17,425,000 of "Policyholders' Surplus," a special memorandum
tax account. This memorandum account balance has not been currently taxed, but
income taxes computed at current rates will become payable if this surplus is
distributed. Provisions of the Deficit Reduction Act of 1984 (the Act) do not
permit further additions to the Policyholders' Surplus account. "Shareholders'
Surplus" is also a special memorandum tax account, and generally represents an
accumulation of taxable income (net of tax
24
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
4. Federal Income Taxes (continued)
thereon) plus the dividends received deduction, tax-exempt interest and certain
other special deductions as provided by the Act. At December 31, 1996, the
balance in the Shareholders' Surplus account amounted to approximately
$601,601,000. There is no present intention to make distributions in excess of
Shareholders' Surplus.
5. Related Party Transactions
Reinsurance Assumed from Affiliates
PLH entered into two indemnity reinsurance agreements with CLICO in 1987 whereby
PLH assumes 100 percent 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 percent 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 1992.
PLH entered into a reinsurance agreement with CLICO in 1990 on a
coinsurance basis whereby PLH assumes 100 percent of the risk on certain
guaranteed investment contracts issued by CLICO. The agreement was amended in
1996 to provide CLICO with profit sharing on the assumed business of up to 20
basis points per year of the account value. The amount of profit sharing paid to
CLICO in 1996 and 1995 was $1,733,000 and $1,589,000, respectively. 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 1996 or 1995.
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.
25
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. Related Party Transactions (continued)
PLH entered into a reinsurance agreement with PSI in 1996 on a coinsurance basis
whereby PLH assumed 100 percent of the risk on certain guaranteed investment
contracts issued by PSI. The agreement provides PSI with profit sharing on the
assumed business of up to 20 basis points of account value. The amount of profit
sharing paid to PSI in 1996 was $164,000.
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 account portion of their variable annuity product business. In
addition, this agreement included prospective coinsurance of future sales of
NASL's fixed account portion of their variable annuity product. This agreement
also contained a provision which provides PSI with profit sharing on the assumed
business of up to 10 basis points of account value. The profit sharing amount
paid by PLH to PSI in 1996 was $574,000. No amounts were paid in 1995. Under the
initial agreement, PLH received cash and invested assets in exchange for its
coinsurance of $724,700,000 of fixed annuity deposits. As of November 1, 1996,
the coinsurance agreement was amended whereby PSI recaptured the fixed annuity
deposits from PLH. The recapture resulted in PLH transferring to PSI liabilities
previously reinsured related to the business of $575,450,000 and assets of
$577,000,000. The $1,550,000 difference represents the net expense incurred by
PLH.
26
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. Related Party Transactions (continued)
The following table summarizes the amounts reflected in the statements of
operations from reinsurance assumed by PLH from CLICO and PSI:
<TABLE>
<CAPTION>
Expense (Revenue) for the
year ended December 31, 1996
------------------------------------------------------------------------
Assumed from
-----------------------------------------------------------
CLICO CLICO PSI PSI PSI Total
Item Assumed (Annuities) (GIC's) (Annuities) (GIC's) (NASL) Assumed
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Premium income $(105,397) $(105,319) $ (307) $(244,197) $(126,736) $(581,946)
Life, annuity and other benefits 62,884 152,409 9,871 5,120 306,302 536,586
Commissions and expenses 4,304 - 3 - (2,338) 1,969
Change in reserves or policyholder
contract deposits 112,743 38,934 (789) 243,558 (149,236) 245,210
<CAPTION>
Expense (Revenue) for the
year ended December 31, 1995
------------------------------------------------------------------------
Assumed from
-----------------------------------------------------------
CLICO CLICO PSI PSI PSI Total
Item Assumed (Annuities) (GIC's) (Annuities) (GIC's) (NASL) Assumed
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Premium income $(66,091) $(289,272) $(1,231) $ - $(72,339) $(428,933)
Life, annuity and other benefits 61,307 276,351 8,007 - 98,519 444,184
Commissions and expenses 5,291 350 10 - 1,441 7,092
Change in reserves or policyholder
contract deposits 71,056 104,113 116 - 1,715 177,000
</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. 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
1996 1995
-------------------------------
<S> <C> <C>
(In Thousands)
Premium income assumed $(49,974) $(49,325)
Life, accident and health and other
benefit assumed 32,048 31,421
Commissions and expense allowances on
reinsurance assumed 11,547 12,349
Change in policy reserves assumed 3,983 1,588
Other income assumed (165) (1,030)
</TABLE>
Reinsurance Ceded to Affiliate
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
1996 1995
-----------------------------
<S> <C> <C>
(In Thousands)
Premium income ceded $ - $ 15,049
Life, accident and health and other
benefit assumed - (10,582)
Commissions and expense allowances on
reinsurance ceded - (6,029)
Reinsurance recapture fee - 66,672
</TABLE>
28
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. Related Party Transactions (continued)
Other Agreements and Transactions with Related Parties
PLH has entered into agreements 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 $70,000,000 in
1996 and $68,000,000 in 1995. Such amounts are classified as reductions of
general insurance and other expenses in the accompanying statements of
operations.
PLH entered into a revolving credit note with Providian on April 8, 1996,
whereby PLH can borrow from Providian up to $35,000,000. Interest is computed
monthly at a rate designated in the note. No borrowings were made during the
year under this arrangement.
On November 1, 1996, PLH entered into a revolving credit note with FPLH whereby
FPLH can borrow from PLH up to $5,000,000. The note is a demand note expiring
November 1, 1997 with interest payable at the prime rate. No borrowings were
made during the year under this arrangement.
PLH participates in various benefit plans sponsored by Providian 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, 2008.
During 1996, PLH paid ordinary cash dividends of $53,871,000 ($46,716,000 to
CLLP and $7,155,000 to its common stock shareholders). Also during 1996, PLH
paid an extraordinary cash dividend of $71,129,000 to its common stock
shareholders. No dividends were paid in 1995.
29
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
5. Related Party Transactions (continued)
On December 23, 1996, PLH made a capital contribution of its home office data
center with a book value of $4,657,000 to VLIC.
On December 13, 1995, PLH redeemed 1,000 shares of its common stock held by VLIC
for $4,000,000.
Providian provides general management, advisory, legal and other general
services to PLH. Providian Capital Management, Inc., an affiliate, provides
investment management services to PLH along with marketing and administrative
services for PLH's accumulation business.
6. Reinsurance
Certain premiums and benefits are assumed from and ceded to 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>
1996 1995
------------------------
(In Thousands)
<S> <C> <C>
Assumed:
Policy and contract liabilities* $3,040,667 $3,153,667
Claim reserves* 13,796 11,512
Advance premiums* 928 921
Unearned premium reserves* 7,273 8,114
Ceded:
Benefits paid or provided 1,512 12,679
Commissions and expense allowances on
reinsurance ceded (1,123) (7,164)
Other income-reserves on ceded business 39 1,305
Policy and contract liabilities* 1,412 2,682
Claim reserves* 392 469
Advance premiums* 10 11
Unearned premium reserves* 35 19
*At year end.
</TABLE>
30
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
6. Reinsurance (continued)
Amounts payable or recoverable for reinsurance on paid or unpaid life and health
claims are not subject to periodic or maximum limits. At December 31, 1996, 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 long-duration contracts, the effect of reinsurance on life and annuity
premiums earned in 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
Premiums Earned Premiums Earned
----------------------------------
<S> <C> <C>
(In Thousands)
Direct $162,087 $138,553
Assumed 180,812 140,739
Ceded 187 (15,270)
----------------------------------
Net $343,086 $264,020
==================================
</TABLE>
PLH remains obligated for amounts ceded in the event that the reinsurers do not
meet their obligations.
For all short-duration contracts, the effect of all reinsurance agreements on
accident and health premiums written and earned in 1996 and 1995 was as follows:
<TABLE>
<CAPTION>
1996 1995
Premiums Premiums
Written Earned Written Earned
-----------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Direct $ 92,721 $ 92,721 $101,495 $101,495
Assumed 63,960 63,960 62,661 62,661
Ceded (1,688) (1,688) (3,160) (3,160)
-----------------------------------------------
Net $154,993 $154,993 $160,996 $160,996
===============================================
</TABLE>
31
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
7. Life and Annuity Reserves and Deposit Fund Liabilities
The withdrawal provisions of PLH's annuity reserves and deposit fund liabilities
at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Amount Percent
--------------------
(In Thousands)
<S> <C> <C>
Subject to discretionary withdrawal (with adjustment):
With market value adjustment $1,531,616 18.7%
At book value less surrender charge 553,381 6.7%
At market value 2,410,266 29.3%
--------------------
4,495,263 54.7%
Subject to discretionary withdrawal (without adjustment)
at book value with minimal or no charge or adjustment 1,818,986 22.1%
Not subject to discretionary withdrawal 1,906,536 23.2%
--------------------
Total annuity reserves and deposit fund liabilities
before reinsurance 8,220,785 100.0%
======
Less reinsurance -
----------
Net annuity reserves and deposit fund liabilities* $8,220,785
==========
</TABLE>
* Includes $2,411,476,000 of annuities reported in PLH's separate account
liabilities.
The above amount subject to discretionary withdrawal with market value
adjustment includes approximately $880,000,000 at December 31, 1996 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, 1996, PLH had $131,437,500 of insurance in force for which
the gross premiums were less than the net premiums according to the standard of
valuation set by the State of Missouri.
32
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
8. Separate Accounts
Separate accounts held by PLH 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, 1996 is as follows:
<TABLE>
<CAPTION>
Nonindexed
Guaranteed Non-
More than 4% guaranteed Total
-----------------------------------------
<S> <C> <C> <C>
(In Thousands)
Premiums, deposits and other
considerations $ 6,468 $ 580,536 $ 587,004
=========================================
Separate account liabilities* $199,480 $2,231,028 $2,430,508
=========================================
Reserves for separate accounts by
withdrawal characteristics:
Subject to discretionary withdrawal
(with adjustment):
With market value adjustment $199,480 $ -- $ 199,480
At market value -- 2,231,028 2,231,028
-----------------------------------------
Total separate account liabilities $199,480 $2,231,028 $2,430,508
=========================================
</TABLE>
*Separate account liabilities are exclusive of $3,004,000 which represents
amounts due from the general account net of other amounts payable as of December
31, 1996.
33
<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, 1996 is presented below (in thousands):
<TABLE>
<S> <C>
Transfers as reported in the Summary of Operations
of PLH's Separate Accounts Annual Statement:
Transfers to separate accounts $ 587,137
Transfers from separate accounts (163,117)
---------
Net transfers to separate accounts 424,020
---------
Reconciliation adjustments:
Fees paid to external fund manager 2,171
Transfers to modified separate account (391)
---------
1,780
---------
Transfers as reported in the Summary of Operations
of PLH's Life, Accident & Health Annual Statement $ 425,800
=========
</TABLE>
9. Deferred and Uncollected Premiums
Deferred and uncollected life insurance premiums and annuity considerations as
of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Net of
Type Gross Loading Loading
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Ordinary new $ 2,932 $ 2,100 $ 832
Ordinary renewal 18,361 5,206 13,155
-----------------------------
Total ordinary 21,293 7,306 13,987
-----------------------------
Group new business 2,772 1,634 1,138
Group renewal 41,535 10,628 30,907
-----------------------------
Total group 44,307 12,262 32,045
-----------------------------
Total $65,600 $19,568 $46,032
=============================
</TABLE>
34
<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 1997, without prior regulatory approval, is
$109,677,000.
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 or
results of operations.
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, residential and farm 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.
35
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
12. Fair Values of Financial Instruments (continued)
Policy Loans
The carrying values of policy loans reported in the accompanying balance
sheets approximate their fair values.
Cash, Short-Term Investments and Other Invested Assets
The carrying values of cash, short-term investments and other invested
assets reported in the accompanying balance sheets approximate their fair
values.
Investment Contracts
The fair values of floating rate guaranteed investment contracts
approximate their carrying values. The fair values of fixed rate guaranteed
investment contracts and investment-type fixed annuity contracts are
estimated using discounted cash flow calculations, based on current
interest rates for similar contracts. The fair values of variable annuity
contracts are equal to 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,
residential and farm mortgage loans are summarized as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------------------------------
(In Thousands)
<S> <C> <C>
December 31, 1996
Commercial mortgages $ 1,565,534 $ 1,584,662
Residential mortgages 1,035,648 1,043,983
Farm mortgages 50,429 49,055
-------------------------------
$ 2,651,611 $ 2,677,700
===============================
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
===============================
</TABLE>
36
<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 interest rate swap and forward-rate
agreements are summarized as follows:
Carrying Fair
Value Value
------------------------
(In Thousands)
December 31, 1996
Interest rate swaps
Forwards $ - $ 21,178
210 210
------------------------
$ 210 $ 21,388
========================
December 31, 1995
Interest rate swaps
Forwards $ - $ 51,021
519 519
------------------------
$ 519 $ 51,540
========================
The carrying values and fair values of PLH's liabilities for investment-type
contracts are summarized as follows:
Carrying Fair
Value Value
------------------------
(In Thousands)
December 31, 1996
Fixed annuity contracts $ 3,050,018 $ 3,097,631
Guaranteed investment contracts 1,961,549 2,034,047
Variable annuity contracts* 2,430,508 2,430,508
------------------------
$ 7,442,075 $ 7,562,186
========================
December 31, 1995
Fixed annuity contracts $ 3,409,887 $ 3,543,841
Guaranteed investment contracts 1,519,204 1,546,248
Variable annuity contracts* 1,729,032 1,729,032
------------------------
$ 6,658,123 $ 6,819,121
========================
*Included in PLH's separate account liabilities.
37
<PAGE>
Providian Life and Health Insurance Company
Notes to Financial Statements (continued)
12. Fair Values of Financial Instruments (continued)
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.
38
<PAGE>
Financial Statements
Providian Life and Health Insurance Company
Separate Account V - Marquee
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Financial Statements
Years ended December 31, 1996 and 1995
Contents
Report of Independent Auditors........................................1
Audited Financial Statements
Statements of Assets and Liabilities..................................2
Statements of Operations..............................................4
Statements of Changes in Net Assets...................................6
Notes to Financial Statements.........................................8
<PAGE>
Report of Independent Auditors
Contract Owners
Providian Life and Health Insurance Company Separate Account V - Marquee
We have audited the accompanying statements of assets and liabilities of
Providian Life and Health Insurance Company Separate Account V - Marquee
(comprising the Fidelity Money Market, Fidelity Equity-Income, Fidelity Growth,
Fidelity Asset Manager, Dreyfus Growth and Income, Dreyfus Quality Bond, T.
Rowe Price Equity Income, T. Rowe Price New America Growth, T. Rowe Price
International Stock, OpCap Advisors Managed, OpCap Advisors Small Cap and OpCap
Advisors U.S. Government Income Subaccounts) as of December 31, 1996 and 1995,
and the related statements of operations and changes in net assets for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996
and 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of each of the respective
subaccounts constituting the Providian Life and Health Insurance Company
Separate Account V - Marquee at December 31, 1996 and 1995, and the results of
their operations and changes in their net assets for the years then ended in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 25, 1997
1
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Statements of Assets and Liabilities
<TABLE>
December 31
1996 1995
--------------------------
<S> <C> <C>
Assets
Investments:
Fidelity Money Market Portfolio
(cost: $17,889,754 and $14,815,892 in 1996
and 1995, respectively) $ 17,889,754 $ 14,815,892
Fidelity Equity-Income Portfolio
(cost: $15,979,742 and $6,124,508 in 1996
and 1995, respectively) 17,940,493 6,750,129
Fidelity Growth Portfolio
(cost: $18,221,334 and $6,848,013 in 1996
and 1995, respectively) 19,723,633 7,243,352
Fidelity Asset Manager Portfolio
(cost: $5,969,949 and $3,142,963 in 1996
and 1995, respectively) 6,663,600 3,407,093
Dreyfus Growth and Income Portfolio
(cost: $17,021,874 and $4,384,201 in
1996 and 1995, respectively) 17,099,203 4,747,966
Dreyfus Quality Bond Portfolio
(cost: $5,446,316 and $1,923,611 in 1996
and 1995, respectively) 5,493,032 1,994,517
T. Rowe Price Equity Income Portfolio
(cost: $6,670,264 and $2,092,667 in
1996 and 1995, respectively) 7,597,283 2,341,024
T. Rowe Price New America Growth Portfolio
(cost: $12,020,116 and $3,113,677
in 1996 and 1995, respectively) 13,596,375 3,584,701
T. Rowe Price International Stock Portfolio
(cost: $14,083,411 and $4,663,184 in 1996
and 1995, respectively) 15,485,997 4,916,098
OpCap Advisors Managed Portfolio
(cost: $13,593,631 and $5,553,120 in 1996
and 1995, respectively) 16,243,400 6,159,414
OpCap Advisors Small Cap Portfolio
(cost: $7,964,374 and $3,765,654 in 1996
and 1995, respectively) 9,165,713 4,089,628
OpCap Advisors U.S. Government Income
Portfolio (cost: $1,628,586 and
$580,642 in 1996 and 1995, respectively) 1,630,786 596,654
-----------------------------
Total investments 148,529,269 60,646,468
Amounts due from Fund Manager -- 364
Amounts due from Providian Life and
Health Insurance Company 330,967 1,178,388
-----------------------------
Total assets 148,860,236 61,825,220
Liabilities -- --
-----------------------------
Net assets $148,860,236 $ 61,825,220
=============================
</TABLE>
2
<PAGE>
<TABLE>
December 31
1996 1995
----------------------------
<S> <C> <C>
Net assets attributable to variable annuity
contract owners
Fidelity Money Market Subaccount $ 18,220,721 $ 15,994,397
Fidelity Equity-Income Subaccount 17,940,493 6,750,129
Fidelity Growth Subaccount 19,723,633 7,243,352
Fidelity Asset Manager Subaccount 6,663,600 3,407,093
Dreyfus Growth and Income Subaccount 17,099,203 4,747,966
Dreyfus Quality Bond Subaccount 5,493,032 1,994,518
T. Rowe Price Equity Income Subaccount 7,597,283 2,341,015
T. Rowe Price New America Growth Subaccount 13,596,375 3,584,702
T. Rowe Price International Stock Subaccount 15,485,997 4,916,099
OpCap Advisors Managed Subaccount 16,243,400 6,159,415
OpCap Advisors Small Cap Subaccount 9,165,713 4,089,627
OpCap Advisors U.S. Government Income
Subaccount 1,630,786 596,907
----------------------------
Net assets attributable to variable
annuity contract owners $ 148,860,236 $ 61,825,220
============================
</TABLE>
See accompanying notes.
3
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Fidelity Fidelity Fidelity Dreyfus Dreyfus
Money Equity- Fidelity Asset Growth and Quality
Market Income Growth Manager Income Bond
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 869,792 $ 364,076 $ 624,928 $241,246 $1,899,674 $ 235,203
Expenses:
Mortality and expense risk and
administrative charges 213,748 183,429 205,711 71,296 179,240 56,762
-----------------------------------------------------------------------------------------
Net investment income 656,044 180,647 419,217 169,950 1,720,434 178,441
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 20,949,214 1,187,151 1,770,220 542,867 2,293,759 1,012,054
Cost of investments sold 20,949,214 1,115,530 1,692,008 511,206 2,136,898 1,026,848
-----------------------------------------------------------------------------------------
- 71,621 78,212 31,661 156,861 (14,794)
Net unrealized appreciation
(depreciation) of investments:
At end of year - 1,960,751 1,502,299 693,651 77,329 46,716
At beginning of year - 625,621 395,339 264,130 363,765 70,906
-----------------------------------------------------------------------------------------
- 1,335,130 1,106,960 429,521 (286,436) (24,190)
-----------------------------------------------------------------------------------------
Net gain (loss) on investments - 1,406,751 1,185,172 461,182 (129,575) (38,984)
-----------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 656,044 $1,587,398 $1,604,389 $631,132 $1,590,859 $ 139,457
=========================================================================================
T. Rowe T. Rowe
T. Rowe Price Price OpCap
Price New Inter- OpCap OpCap Advisors U.S.
Equity America national Advisors Advisors Government
Income Growth Stock Managed Small Cap Income Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $194,708 $ 218,962 $ 245,670 $ 167,608 $ 211,359 $59,885 $ 5,333,111
Expenses:
Mortality and expense risk
and administrative charges 68,843 127,108 153,200 159,573 92,966 16,179 1,528,055
---------------------------------------------------------------------------------------
Net investment income 125,865 91,854 92,470 8,035 118,393 43,706 3,805,056
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 562,348 1,633,223 826,257 1,366,652 1,071,680 89,520 33,304,945
Cost of investments sold 512,286 1,462,955 774,622 1,213,052 982,017 89,558 32,466,194
---------------------------------------------------------------------------------------
50,062 170,268 51,635 153,600 89,663 (38) 838,751
Net unrealized appreciation
(depreciation) of investments:
At end of year 927,019 1,576,259 1,402,586 2,649,769 1,201,339 2,200 12,039,918
At beginning of year 248,357 471,024 252,914 606,294 323,974 16,012 3,638,336
---------------------------------------------------------------------------------------
678,662 1,105,235 1,149,672 2,043,475 877,365 (13,812) 8,401,582
---------------------------------------------------------------------------------------
Net gain (loss) on investments 728,724 1,275,503 1,201,307 2,197,075 967,028 (13,850) 9,240,333
---------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $854,589 $1,367,357 $1,293,777 $2,205,110 $1,085,421 $29,856 $13,045,389
=======================================================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Statement of Operations
Year Ended December 31, 1995
<TABLE>
<CAPTION>
DREYFUS T. ROWE
FIDELITY FIDELITY FIDELITY GROWTH DREYFUS PRICE
MONEY EQUITY- FIDELITY ASSET AND QUALITY EQUITY
MARKET INCOME GROWTH MANAGER INCOME BOND INCOME
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 404,358 $ 78,798 $ 1,669 $ 9,571 $205,036 $ 75,801 $ 45,553
Expenses:
Mortality and expense risk
and administrative charges 95,611 34,560 37,138 23,004 21,626 12,429 13,076
----------------------------------------------------------------------------------
Net investment income (expense) 308,747 44,238 (35,469) (13,433) 183,410 63,372 32,477
Realized and unrealized gain
(loss) on investments:
Net realized gain from
investment transactions:
Proceeds from sales 4,521,173 153,426 105,950 96,046 114,754 61,684 92,430
Cost of investments sold 4,521,173 143,586 94,750 94,250 69,966 59,442 86,989
----------------------------------------------------------------------------------
- 9,840 11,200 1,796 44,788 2,242 5,441
Net unrealized appreciation
(depreciation) of investments:
At end of year - 625,621 395,339 264,130 363,765 70,906 248,357
At beginning of year - (2,688) 5,157 (10,272) (4,286) (930) (522)
----------------------------------------------------------------------------------
- 628,309 390,182 274,402 368,051 71,836 248,879
----------------------------------------------------------------------------------
Net gain on investments - 638,149 401,382 276,198 412,839 74,078 254,320
----------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 308,747 $682,387 $365,913 $262,765 $596,249 $137,450 $286,797
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
T. ROWE
T. ROWE PRICE OPCAP
PRICE INTER- OPCAP OPCAP ADVISORS
NEW AMERICA NATIONAL ADVISORS ADVISORS U.S. GOVERNMENT
GROWTH STOCK MANAGED SMALL CAP INCOME TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 58 $ 1,347 $ 2,528 $ 1,406 $ 19,576 $ 845,701
Expenses:
Mortality and expense risk
and administrative charges 17,886 27,096 32,943 24,974 4,269 344,612
---------------------------------------------------------------------------------
Net investment income (expense) (17,828) (25,749) (30,415) (23,568) 15,307 501,089
Realized and unrealized gain
(loss) on investments:
Net realized gain from
investment transactions:
Proceeds from sales 69,646 102,266 154,722 119,434 18,903 5,610,434
Cost of investments sold 62,303 99,101 141,982 112,852 17,230 5,503,624
---------------------------------------------------------------------------------
7,343 3,165 12,740 6,582 1,673 106,810
Net unrealized appreciation
(depreciation) of investments:
At end of year 471,024 252,914 606,294 323,974 16,012 3,638,336
At beginning of year 27 (6,132) (4,798) 2,981 - (21,463)
---------------------------------------------------------------------------------
470,997 259,046 611,092 320,993 16,012 3,659,799
---------------------------------------------------------------------------------
Net gain on investments 478,340 262,211 623,832 327,575 17,685 3,766,609
---------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $460,512 $236,462 $593,417 $304,007 $ 32,992 $4,267,698
=================================================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Statement of Changes in Net Assets
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Fidelity Fidelity Fidelity Dreyfus Dreyfus
Money Equity- Fidelity Asset Growth and Quality
Market Income Growth Manager Income Bond
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $ 15,994,397 $ 6,750,129 $ 7,243,352 $3,407,093 $ 4,747,966 $1,994,518
Increase in net assets resulting
from operations:
Net investment income 656,044 180,647 419,217 169,950 1,720,434 178,441
Net realized gain (loss)
on investments - 71,621 78,212 31,661 156,861 (14,794)
Net unrealized appreciation
(depreciation) of investments - 1,335,130 1,106,960 429,521 (286,436) (24,190)
------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 656,044 1,587,398 1,604,389 631,132 1,590,859 139,457
Changes from variable annuity
contract transactions:
Transfers of net premiums 16,450,718 8,249,635 9,143,227 2,057,416 9,439,906 3,046,687
Transfers for terminations (1,324,266) (371,114) (319,007) (233,930) (491,225) (191,354)
Net transfers within
Separate Account V -
Marquee and transfers to
and from the General
Account (13,556,172) 1,724,445 2,051,672 801,889 1,811,697 503,724
------------------------------------------------------------------------------------
Net increase in net assets
derived from variable
annuity contract transactions 1,570,280 9,602,966 10,875,892 2,625,375 10,760,378 3,359,057
------------------------------------------------------------------------------------
Net increase in net assets 2,226,324 11,190,364 12,480,281 3,256,507 12,351,237 3,498,514
------------------------------------------------------------------------------------
Balances at December 31, 1996 $ 18,220,721 $17,940,493 $19,723,633 $6,663,600 $17,099,203 $5,493,032
====================================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
T. Rowe T. Rowe
T. Rowe Price Price OpCap
Price New Inter- OpCap OpCap Advisors U.S.
Equity America national Advisors Advisors Government
Income Growth Stock Managed Small Cap Income Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $2,341,015 $ 3,584,702 $ 4,916,099 $ 6,159,415 $4,089,627 $ 596,907 $ 61,825,220
Increase in net assets resulting
from operations:
Net investment income 125,865 91,854 92,470 8,035 118,393 43,706 3,805,056
Net realized gain (loss)
on investments 50,062 170,268 51,635 153,600 89,663 (38) 838,751
Net unrealized appreciation
(depreciation) of investments 678,662 1,105,235 1,149,672 2,043,475 877,365 (13,812) 8,401,582
------------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations 854,589 1,367,357 1,293,777 2,205,110 1,085,421 29,856 13,045,389
Changes from variable annuity
contract transactions:
Transfers of net premiums 3,380,913 7,005,874 7,988,917 7,090,665 3,494,863 812,249 78,161,070
Transfers for terminations (179,193) (150,463) (245,610) (492,428) (126,179) (51,656) (4,176,425)
Net transfers within
Separate Account V -
Marquee and transfers to
and from the General
Account 1,199,959 1,788,905 1,532,814 1,280,638 621,981 243,430 4,982
------------------------------------------------------------------------------------------
Net increase in net assets
derived from variable
annuity contract transactions 4,401,679 8,644,316 9,276,121 7,878,875 3,990,665 1,004,023 73,989,627
------------------------------------------------------------------------------------------
Net increase in net assets 5,256,268 10,011,673 10,569,898 10,083,985 5,076,086 1,033,879 87,035,016
------------------------------------------------------------------------------------------
Balances at December 31, 1996 $7,597,283 $13,596,375 $15,485,997 $16,243,400 $9,165,713 $1,630,786 $148,860,236
==========================================================================================
6
</TABLE>
See accompanying notes.
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Statement of Changes in Net Assets
Year Ended December 31, 1995
<TABLE>
<CAPTION>
Fidelity Fidelity Fidelity Dreyfus
Money Equity- Fidelity Asset Growth and
Market Income Growth Manager Income
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $ 1,036,236 $ 144,268 $ 239,838 $ 446,431 $ 100,262
Increase in net assets resulting from operations:
Net investment income (expense) 308,747 44,238 (35,469) (13,433) 183,410
Net realized gain on investments - 9,840 11,200 1,796 44,788
Net unrealized appreciation of investments - 628,309 390,182 274,402 368,051
------------------------------------------------------------------------
Net increase in net assets resulting from
operations 308,747 682,387 365,913 262,765 596,249
Changes from variable annuity contract
transactions:
Transfers of net premiums 18,888,487 5,486,495 5,880,391 2,565,916 3,554,661
Transfers for terminations (165,072) (51,335) (37,746) (36,496) (25,138)
Transfers for annuity benefits (155,185) - - - -
Net transfers within Separate Account V -
Marquee and transfers to and from the
General Account (3,918,816) 488,314 794,956 168,477 521,932
------------------------------------------------------------------------
Net increase in net assets derived from variable
annuity contract transactions 14,649,414 5,923,474 6,637,601 2,697,897 4,051,455
------------------------------------------------------------------------
Net increase in net assets 14,958,161 6,605,861 7,003,514 2,960,662 4,647,704
------------------------------------------------------------------------
Balances at December 31, 1995 $15,994,397 $6,750,129 $7,243,352 $3,407,093 $4,747,966
========================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
T. Rowe T. Rowe
T. Rowe Price Price
Dreyfus Price New Inter- OpCap
Quality Equity American national Advisors
Bond Income Growth Stock Managed
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $ 80,167 $ 37,946 $ 17,053 $ 245,363 $ 194,242
Increase in net assets resulting from operations:
Net investment income (expense) 63,372 32,477 (17,828) (25,749) (30,415)
Net realized gain on investments 2,242 5,441 7,343 3,165 12,740
Net unrealized appreciation of investments 71,836 248,879 470,997 259,046 611,092
-----------------------------------------------------------------------
Net increase in net assets resulting from
operations 137,450 286,797 460,512 236,462 593,417
Changes from variable annuity contract
transactions:
Transfers of net premiums 1,633,697 1,892,262 2,761,711 3,967,021 4,882,464
Transfers for terminations (49,255) (43,652) (9,628) (28,568) (47,228)
Transfers for annuity benefits - - - - -
Net transfers within Separate Account V -
Marquee and transfers to and from the
General Account 192,459 167,662 355,054 495,821 536,520
-----------------------------------------------------------------------
Net increase in net assets derived from variable
annuity contract transactions 1,776,901 2,016,272 3,107,137 4,434,274 5,371,756
-----------------------------------------------------------------------
Net increase in net assets 1,914,351 2,303,069 3,567,649 4,670,736 5,965,173
-----------------------------------------------------------------------
Balances at December 31, 1995 $1,994,518 $2,341,015 $3,584,702 $4,916,099 $6,159,415
=======================================================================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION>
OpCap
OpCap Advisors U.S.
Advisors Government
Small Cap Income Total
----------------------------------------
<S> <C> <C> <C>
Balances at January 1, 1995 $ 137,178 $ - $ 2,678,984
Increase in net assets resulting from operations:
Net investment income (expense) (23,568) 15,307 501,089
Net realized gain on investments 6,582 1,673 106,810
Net unrealized appreciation of investments 320,993 16,012 3,659,799
----------------------------------------
Net increase in net assets resulting from
operations 304,007 32,992 4,267,698
Changes from variable annuity contract
transactions:
Transfers of net premiums 3,344,233 546,060 55,403,398
Transfers for terminations (13,087) (10,897) (518,102)
Transfers for annuity benefits - - (155,185)
Net transfers within Separate Account V -
Marquee and transfers to and from the
General Account 317,296 28,752 148,427
----------------------------------------
Net increase in net assets derived from variable
annuity contract transactions 3,648,442 563,915 54,878,538
----------------------------------------
Net increase in net assets 3,952,449 596,907 59,146,236
----------------------------------------
Balances at December 31, 1995 $4,089,627 $596,907 $61,825,220
========================================
</TABLE>
See accompanying notes.
7
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements
December 31, 1996
1. Accounting Policies
Organization of the Account
Providian Life and Health Insurance Company Separate Account V - Marquee
(the "Separate Account") is a separate account of Providian Life and Health
Insurance Company ("PLH"), an indirect, wholly owned subsidiary of Providian
Corporation ("Providian"), and is registered as a unit investment trust under
the Investment Company Act of 1940, as amended. The Separate Account was
established for the purpose of funding variable annuity contracts issued by PLH.
On December 28, 1996, Providian executed a Plan and Agreement of Merger and
Reorganization (the "Merger Agreement"), with AEGON N.V. ("AEGON"), an
international insurance company headquartered in The Hague, The Netherlands.
Under the Merger Agreement, Providian's insurance operations, including the
operations of PLH, will merge with a wholly owned subsidiary of AEGON.
Providian will be the surviving corporation in the merger and will become a
wholly owned subsidiary of AEGON. The merger of Providian's insurance
businesses with AEGON is conditioned upon several events, including shareholder
and various regulatory approvals. Providian anticipates that the closing of
the transaction will occur in mid-1997. Because consummation of the merger is
subject to the above conditions, no representations can be made as to whether,
or when, the merger will be completed or as to the possible impact of the
merger on the financial position and results of operations of PLH should the
merger occur.
The Separate Account has 12 subaccounts which invest exclusively in shares
of the corresponding portfolios of Variable Insurance Products Fund I and
Variable Insurance Products Fund II (both advised by Fidelity Management and
Research Company), Dreyfus Variable Investment Fund (advised by Dreyfus
Corporation), T. Rowe Price Equity Series, Inc. (advised by T. Rowe Price
Associates, Inc.), T. Rowe Price International Series, Inc. (advised by Rowe
Price-Fleming International, Inc.), and OCC Accumulation Trust, formerly Quest
for Value Accumulation Trust (advised by OpCap Advisors, formerly Quest for
Value Advisors) (each, a "Fund" and collectively, the "Funds"). Each Fund is
an open-end management investment company.
8
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements
December 31, 1996
1. Accounting Policies (continued)
The portfolios available in each Fund are as follows:
Variable Insurance Products Fund I and Variable Insurance Products Fund II
Fidelity Money Market Portfolio
Fidelity Equity-Income Portfolio
Fidelity Growth Portfolio
Fidelity Asset Manager Portfolio
Dreyfus Variable Investment Fund
Dreyfus Growth and Income Portfolio
Dreyfus Quality Bond Portfolio
T. Rowe Price Equity Series, Inc.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price International Series, Inc.
T. Rowe Price International Stock Portfolio
OCC Accumulation Trust
OpCap Advisors Managed Portfolio (formerly Quest for Value Managed Portfolio)
OpCap Advisors Small Cap Portfolio (formerly Quest for Value Small Cap
Portfolio)
OpCap Advisors U.S. Government Income Portfolio (formerly Quest for Value
U.S. Government Income Portfolio)
Each portfolio has different investment objectives and policies as outlined
in the prospectus of the Separate Account. There is no assurance that a
portfolio will achieve its stated investment objective.
The Separate Account offers a choice of two contracts with differing charge
structures: "A" unit contracts and "B" unit contracts. "A" unit contracts have
a front-end sales load of up to 5.75% of aggregate premium contributions and no
surrender charges. For "B" unit contracts, no sales load is deducted from
premium contributions and up to 10% of the accumulated value can be withdrawn
once per year without a surrender charge. Additional withdrawals are subject to
surrender charges of up to 6% during the first six contract years and the total
surrender charges assessed will not exceed 8.5% of the
9
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements
December 31, 1996
1. Accounting Policies (continued)
premium contributions under the contract. No surrender charges are assessed
on the death of the annuitant or after the sixth contract year.
In certain states of issue, the contract owner's initial premium is
automatically allocated to the Fidelity Money Market Subaccount until the end
of the free look period (typically 10 days or, in certain instances, 30 days or
more). Subsequent to the free look period, the contract owner may allocate all
or a portion of the initial premium and additional premiums, if any, to one or
more subaccounts of the Separate Account or to PLH's General Account, which
consists of all assets owned by PLH other than those in the Separate Account or
other separate accounts. In all other states of issue, a contract owner may
allocate the initial premium to one or more subaccounts of the Separate Account
or to PLH's General Account.
Investments
The Separate Account purchases shares of the Funds at net asset value in
connection with premium payments allocated to the subaccounts in accordance
with contract owners' directions and redeems shares of the Funds to process
transfers and to meet policy contract obligations. Gains and losses resulting
from the redemption of shares are computed on the basis of average cost.
Investment transactions are recorded on the trade dates.
All dividends and capital gains earned on the portfolios are reinvested in
the portfolios and are reflected in the unit values of the subaccounts of the
Separate Account.
Investments in the Fund portfolios are valued at market which is calculated
daily on each day the New York Stock Exchange is open for trading. Income and
both realized and unrealized gains or losses from assets of each subaccount
will be credited to or charged against that subaccount without regard to
income, gains or losses from any other subaccount of the Separate Account or
arising out of any other business PLH may conduct.
The contract's accumulated value varies with the investment performance of
the corresponding portfolios. Investment results are not guaranteed by the
Separate Account or PLH, except to the extent of amounts allocated to PLH's
General Account. PLH has sole discretion to invest the assets of the General
Account, subject to applicable law.
10
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
Allocation of any amounts to the General Account does not entitle the
contract owner to share directly in the investment experience of these assets.
There are three fixed options under the General Account.
Although the assets in the Separate Account are the property of PLH, the
assets in the Separate Account attributable to the contracts cannot be used to
discharge the liabilities arising out of any other business which PLH may
conduct. The assets of the Separate Account are available to cover the general
liabilities of PLH only to the extent that the Separate Account's assets exceed
its liabilities under the contracts.
2. Investments
The following is a summary of shares and amounts outstanding for each of the
respective portfolios as of December 31, 1996 and 1995:
<TABLE>
December 31, 1996
- --------------------------------------------------------------------------------
Portfolio Shares Net Asset Value Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Money Market 17,889,753.551 $ 1.00 $ 17,889,754
Fidelity Equity-Income 853,090.506 21.03 17,940,493
Fidelity Growth 633,385.776 31.14 19,723,633
Fidelity Asset Manager 393,597.140 16.93 6,663,600
Dreyfus Growth and Income 874,639.565 19.55 17,099,203
Dreyfus Quality Bond 477,654.924 11.50 5,493,032
T. Rowe Price Equity Income 497,855.999 15.26 7,597,283
T. Rowe Price New America
Growth 769,460.943 17.67 13,596,375
T. Rowe Price International
Stock 1,225,157.997 12.64 15,485,997
OpCap Advisors Managed 448,588.799 36.21 16,243,400
OpCap Advisors Small Cap 405,383.167 22.61 9,165,713
OpCap Advisors U.S. Government
Income 157,108.431 10.38 1,630,786
------------
$148,529,269
============
</TABLE>
11
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
2. Investments (continued)
<TABLE>
December 31, 1995
- --------------------------------------------------------------------------------
Portfolio Shares Net Asset Value Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity Money Market 14,815,891.820 $ 1.00 $ 14,815,892
Fidelity Equity-Income 350,292.135 19.27 6,750,129
Fidelity Growth 248,059.999 29.20 7,243,352
Fidelity Asset Manager 215,775.362 15.79 3,407,093
Dreyfus Growth and Income 259,027.086 18.33 4,747,966
Dreyfus Quality Bond 168,883.763 11.81 1,994,517
T. Rowe Price Equity Income 177,216.067 13.21 2,341,024
T. Rowe Price New America
Growth 235,371.063 15.23 3,584,701
T. Rowe Price International
Stock 436,598.440 11.26 4,916,098
OpCap Advisors Managed 204,360.132 30.14 6,159,414
OpCap Advisors Small Cap 205,405.712 19.91 4,089,628
OpCap Advisors U.S. Government
Income 56,182.119 10.62 596,654
------------
$ 60,646,468
============
</TABLE>
The aggregate cost of shares purchased during the years ended December 31,
1996 and 1995, for each of the respective portfolios is as follows:
<TABLE>
1996 1995
----------------------------------
<S> <C> <C>
Fidelity Money Market $ 24,023,076 $ 18,305,559
Fidelity Equity-Income 10,970,764 6,121,106
Fidelity Growth 13,065,329 6,708,165
Fidelity Asset Manager 3,338,192 2,780,495
Dreyfus Growth and Income 14,774,570 4,349,622
Dreyfus Quality Bond 4,549,552 1,902,004
T. Rowe Price Equity Income 5,089,882 2,141,257
T. Rowe Price New America Growth 10,369,394 3,158,954
T. Rowe Price International Stock 10,194,849 4,510,772
OpCap Advisors Managed 9,253,562 5,496,064
OpCap Advisors Small Cap 5,180,737 3,744,275
OpCap Advisors U.S. Government Income 1,137,502 597,873
----------------------------------
$111,947,409 $ 59,816,146
==================================
</TABLE>
12
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
3. Federal Income Taxes
Operations of the Separate Account are included in the federal income tax
return of PLH, which is taxed as a life insurance company under the Internal
Revenue Code. The Separate Account will not be taxed as a regulated investment
company under Subchapter M of the Internal Revenue Code. Under current federal
income tax law, no federal income taxes are payable with respect to the
Separate Account.
4. Advisory and Service Fees
The Funds and their advisors furnish corporate management, administrative,
marketing and distribution services. Additionally, the Funds' advisors furnish
investment advisory services to the Fund portfolios under the terms of advisory
contracts. The net asset value of the portfolios is net of the advisory and
service fees.
5. Expenses
An annual charge is deducted from the unit values of the subaccounts of the
Separate Account for PLH's assumption of certain mortality and expense risks
incurred in connection with the contract. The charge is assessed daily based
on the net asset value of the Separate Account attributable to the "A" unit
contracts and the "B" unit contracts. For the years ended December 31, 1996 and
1995, the effective annual rate for this charge was .65% for the "A" unit
contracts and 1.25% for the "B" unit contracts.
An administrative charge equal to .15% annually is deducted from the unit
values of the subaccounts of the Separate Account. This charge is assessed
daily by PLH, along with an annual policy fee of $30 per contract. The annual
policy fee is deducted proportionately from the subaccount's accumulated value.
These deductions represent reimbursement for the costs expected to be incurred
over the life of the contract for issuing and maintaining each contract and the
Separate Account.
13
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. Contract Owner Transactions
Transactions with contract owners during 1996 and 1995 and end of period
values for each of the respective subaccounts were as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------------------
A Unit B Unit A Unit B Unit
Contracts Contracts Contracts Contracts
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Fidelity Money Market
Outstanding units at beginning
of period 224,406.097 1,284,075.523 20,724.868 81,408.482
Issuance of units 93,889.620 2,077,753.471 204,414.809 1,624,300.077
Redemption of units (212,880.957) (1,813,611.421) (733.580) (421,633.036)
--------------------------------- ------------------------------
Outstanding units at end of period 105,414.760 1,548,217.573 224,406.097 1,284,075.523
================================= ==============================
End of period:
Unit value $ 11.151373 $ 11.009565 $ 10.663945 $ 10.592323
================================= ==============================
Subaccount value $ 1,175,519 $ 17,045,202 $ 2,393,054 $ 13,601,343
================================= ==============================
Fidelity Equity-Income
Outstanding units at beginning
of period 35,784.717 487,004.315 200.000 14,704.932
Issuance of units 13,367.025 772,492.507 36,344.927 481,523.451
Redemption of units (61.481) (74,990.803) (760.210) (9,224.068)
--------------------------------- ------------------------------
Outstanding units at end of period 49,090.261 1,184,506.019 35,784.717 487,004.315
================================= ==============================
End of period:
Unit value $ 14.946734 $ 14.526523 $ 13.184522 $ 12.891724
================================= ==============================
Subaccount value $ 733,739 $ 17,206,754 $ 471,804 $ 6,278,325
================================= ==============================
</TABLE>
14
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. Contract Owner Transactions (continued)
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------------------
A Unit B Unit A Unit B Unit
Contracts Contracts Contracts Contracts
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Fidelity Growth
Outstanding units at beginning
of period 11,298.228 522,171.836 2,451.561 21,032.707
Issuance of units 33,297.284 823,963.189 8,850.807 506,240.250
Redemption of units (14,343.274) (92,334.823) (4.140) (5,101.121)
--------------------------------- --------------------------------
Outstanding units at end of period 30,252.238 1,253,800.202 11,298.228 522,171.836
================================= ================================
End of period:
Unit value $ 16.304637 $ 15.337676 $ 14.329427 $ 13.561541
================================= ================================
Subaccount value $ 493,252 $ 19,230,381 $ 161,897 $ 7,081,455
================================= ================================
Fidelity Asset Manager
Outstanding units at beginning
of period 8,530.759 298,893.509 1,006.404 45,464.030
Issuance of units 5,089.112 260,169.377 7,526.016 260,704.225
Redemption of units (9.581) (40,633.048) (1.661) (7,274.746)
--------------------------------- --------------------------------
Outstanding units at end of period 13,610.290 518,429.838 8,530.759 298,893.509
================================= ================================
End of period:
Unit value $ 12.848532 $ 12.516116 $ 11.301946 $ 11.076449
================================= ================================
Subaccount value $ 174,872 $ 6,488,728 $ 96,414 $ 3,310,679
================================= ================================
Dreyfus Growth and Income
Outstanding units at beginning
of period 13,982.817 302,521.463 1,094.647 9,467.679
Issuance of units 39,106.602 722,889.543 12,900.517 299,814.239
Redemption of units (5,895.950) (115,702.318) (12.347) (6,760.455)
--------------------------------- --------------------------------
Outstanding units at end of period 47,193.469 909,708.688 13,982.817 302,521.463
================================= ================================
End of period:
Unit value $ 18.607568 $ 17.831035 $ 15.534453 $ 14.976627
================================= ================================
Subaccount value $ 878,156 $ 16,221,047 $ 217,215 $ 4,530,751
================================= ================================
15
</TABLE>
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements
6. Contract Owner Transactions (continued)
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------------------
A Unit B Unit A Unit B Unit
Contracts Contracts Contracts Contracts
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Dreyfus Quality Bond
Outstanding units at beginning
of period 1,524.761 167,901.463 100.000 7,986.548
Issuance of units 8,077.105 363,872.459 2,172.769 163,552.014
Redemption of units (902.085) (81,762.273) (748.008) (3,637.099)
--------------------------------- --------------------------------
Outstanding units at end of period 8,699.781 450,011.649 1,524.761 167,901.463
================================= ================================
End of period:
Unit value $ 12.429340 $ 11.966133 $ 12.150454 $ 11.768752
================================= ================================
Subaccount value $ 108,133 $ 5,384,899 $ 18,527 $ 1,975,991
================================= ================================
T. Rowe Price Equity Income
Outstanding units at beginning
of period 16,794.267 162,560.941 586.554 3,274.398
Issuance of units 7,804.817 342,579.757 17,576.728 164,608.670
Redemption of units (612.468) (34,926.762) (1,369.015) (5,322.127)
--------------------------------- --------------------------------
Outstanding units at end of period 23,986.616 470,213.936 16,794.267 162,560.941
================================= ================================
End of period:
Unit value $ 15.855902 $ 15.348235 $ 13.369106 $ 13.019680
================================= ================================
Subaccount value $ 380,329 $ 7,216,954 $ 224,524 $ 2,116,491
================================= ================================
T. Rowe Price New America
Growth
Outstanding units at beginning
of period 4,669.625 235,983.310 206.097 1,502.759
Issuance of units 32,589.226 587,836.966 4,463.972 238,353.955
Redemption of units (14,400.822) (75,851.029) (.444) (3,873.404)
--------------------------------- --------------------------------
Outstanding units at end of period 22,858.029 747,969.247 4,669.625 235,983.310
================================= ================================
End of period:
Unit value $ 17.543313 $ 17.641593 $ 14.726569 $ 14.899078
================================= ================================
Subaccount value $ 401,006 $ 13,195,369 $ 68,768 $ 3,515,934
================================= ================================
</TABLE>
16
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. Contract Owner Transactions (continued)
<TABLE>
<CAPTION>
1996 1995
--------------------------------- --------------------------------
A Unit B Unit A Unit B Unit
Contracts Contracts Contracts Contracts
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
T. Rowe Price International
Stock
Outstanding units at beginning
of period 9,886.447 460,989.932 2,714.613 23,019.405
Issuance of units 30,904.820 870,343.195 7,175.337 445,452.255
Redemption of units (135.704) (60,970.910) (3.503) (7,481.728)
--------------------------------- --------------------------------
Outstanding units at end of period 40,655.563 1,270,362.217 9,886.447 460,989.932
================================= ================================
End of period:
Unit value $ 12.138249 $ 11.801760 $ 10.668133 $ 10.435431
================================= ================================
Subaccount value $ 493,487 $ 14,992,510 $ 105,470 $ 4,810,629
================================= ================================
OpCap Advisors Managed
Outstanding units at beginning
of period 15,926.390 426,183.858 794.327 19,220.893
Issuance of units 22,125.242 577,610.041 15,143.201 416,039.077
Redemption of units (1,934.719) (77,021.961) (11.138) (9,076.112)
--------------------------------- --------------------------------
Outstanding units at end of period 36,116.913 926,771.938 15,926.390 426,183.858
================================= ================================
End of period:
Unit value $ 17.319782 $ 16.851895 $ 14.221162 $ 13.921040
================================= ================================
Subaccount value $ 625,537 $ 15,617,863 $ 226,492 $ 5,932,923
================================= ================================
OpCap Advisors Small Cap
Outstanding units at beginning
of period 4,223.205 349,766.661 1,749.077 11,733.736
Issuance of units 24,785.400 377,408.993 2,769.547 346,254.931
Redemption of units (19.958) (78,847.488) (295.419) (8,222.006)
--------------------------------- --------------------------------
Outstanding units at end of period 28,988.647 648,328.166 4,223.205 349,766.661
================================= ================================
End of period:
Unit value $ 13.774689 $ 13.521552 $ 11.696394 $ 11.551219
================================= ================================
Subaccount value $ 399,310 $ 8,766,403 $ 49,396 $ 4,040,231
================================= ================================
</TABLE>
17
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
6. Contract Owner Transactions (continued)
1996 1995
---------------------------------- -----------------------------------
A Unit B Unit A Unit B Unit
Contracts Contracts Contracts Contracts
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
OpCap Advisors U.S.
Government Income
Outstanding units at beginning
of period 1,849.370 52,450.121 - -
Issuance of units 3,258.882 95,182.332 2,551.276 53,120.187
Redemption of units (728.815) (6,034.390) (701.906) (670.066)
---------------------------------- -----------------------------
Outstanding units at end of period 4,379.437 141,598.063 1,849.370 52,450.121
================================= =============================
End of period:
Unit value $ 10.828803 $ 11.182088 $ 10.594749 $ 11.006903
================================= =============================
Subaccount value $ 47,424 $ 1,583,362 $ 19,594 $ 577,313
================================= =============================
</TABLE>
7. Net Assets
Net assets at December 31, 1996 for each of the respective subaccounts are
summarized in the following tables:
<TABLE>
<CAPTION>
Fidelity Fidelity Fidelity
Money Equity- Fidelity Asset
Market Income Growth Manager
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 17,245,918 $ 15,672,917 $ 17,748,794 $ 5,780,662
Accumulated net investment income 974,803 225,331 383,050 155,771
Accumulated net realized gain on
investments - 81,494 89,490 33,516
Net unrealized appreciation on
investments - 1,960,751 1,502,299 693,651
------------------------------------------------------------------
$ 18,220,721 $ 17,940,493 $ 19,723,633 $ 6,663,600
===================================================================
</TABLE>
18
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
<TABLE>
<CAPTION>
7. Net Assets (continued)
Dreyfus Dreyfus T. Rowe Price T. Rowe Price
Growth and Quality Equity New America
Income Bond Income Growth
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $14,914,718 $5,215,611 $6,455,995 $11,768,481
Accumulated net investment income 1,905,492 243,341 158,743 74,024
Accumulated net realized gain (loss)
on investments 201,664 (12,636) 55,526 177,611
Net unrealized appreciation on
investments 77,329 46,716 927,019 1,576,259
--------------------------------------------------------------------------
$17,099,203 $5,493,032 $7,597,283 $13,596,375
==========================================================================
</TABLE>
<TABLE>
<CAPTION>
T. Rowe Price OpCap OpCap OpCap Advisors
International Advisors Advisors U.S. Government
Stock Managed Small Cap Income Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract owner transactions $13,962,027 $13,450,073 $7,773,493 $1,567,938 $131,556,627
Accumulated net investment income
(expense) 65,979 (22,695) 94,636 59,013 4,317,488
Accumulated net realized gain
on investments 55,405 166,253 96,245 1,635 946,203
Net unrealized appreciation
on investments 1,402,586 2,649,769 1,201,339 2,200 12,039,918
------------------------------------------------------------------------------
$15,485,997 $16,243,400 $9,165,713 $1,630,786 $148,860,236
==============================================================================
</TABLE>
19
<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/
(c) 403(b) Rider./5/
(d) Individual Retirement Annuity Rider./5/
(5) Form of Application./7/
(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./9/
(7) Not Applicable.
(8) (a) Form of Participation Agreement for the Funds./6/
- ---------
/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, 1933.
/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 Post-Effective Amendment No. 2 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-79502, filed on April 30, 1995.
/9/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of Providian Life and Health Insurance Company
Separate Account V, File No. 33-79502, filed April 30, 1996.
/10/ Filed herewith.
<PAGE>
(b) Participation Agreement Among T. Rowe Price International
Series, Inc., T. Rowe Price Equity Series, Inc., T. Rowe
Price Investment Services, Inc., and National Home Life
Assurance Company dated as of July 8, 1994./8/
(c) Fund Participation Agreement between Dreyfus Variable
Investment Fund and National Home Life Assurance Company
dated as of October 17, 1994./8/
(d) Participation Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and National
Home Life Assurance Company dated as of November 1,
1993./8/
(e) Participation Agreement Among Variable Insurance Products
Fund, Fidelity Distributors and National Home Life
Assurance Company./8/
(f) Amendment dated June 2, 1994 to the Participation
Agreement Among Variable Insurance Product Fund II,
Fidelity Distributors Corporation and Providian Life and
Health Insurance Company (formerly National Home Life
Assurance Company) dated November 1, 1993. /10/
(g) Amendment dated March 20, 1996 to the Participation
Agreement Among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Providian Life and
Health Insurance Company (formerly National Home Life
Assurance Company) dated November 1, 1993. /10/
(9) (a) Opinion and Consent of Counsel./10/
(b) Consent of Counsel./10/
(10) Consent of Independent Auditors./10/
(11) No Financial Statements are omitted from Item 23.
(12) Not Applicable.
(13) Performance Computation./10/
(14) Not Applicable.
<PAGE>
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Chief Executive Officer Shailesh J. Mehta
President & Chief Operating Officer David J. Miller
Senior Vice President Edward A. Biemer
Senior Vice President, Treasurer,
& Senior Financial Officer Dennis E. Brady
Senior Vice President Kevin P. McGlynn
Senior Vice President Martin Renninger
Senior Vice President Paul Yakulis
Vice President Brian Alford
Vice President Nathan C. Anguiano
Vice President Thomas P. Bowie
Vice President Michele M. Coan
Vice President Charles N. Coatsworth
Vice President & Associate General Counsel Julie S. Congdon
Vice President Karen H. Fleming
Vice President Gregory J. Garvin
Vice President Carolyn M. Johnson
Vice President/Underwriting William J. Kline
Vice President Jeffrey P. Lammers
Vice President Michael F. Lane
Vice President G. Douglas Mangum, Jr.
Vice President & Secretary Susan E. Martin
Vice President John A. Mazzuca
Vice President Robin M. Morgan
Vice President Thomas B. Nesspor
Vice President G. Eric O'Brien
Vice President Daniel H. Odum
Vice President Harold W. Peterson, Jr.
Vice President and Actuary John C. Prestwood, Jr.
Vice President Frank J. Rosa
Vice President & Associate General Counsel Ellen S. Rosen
Vice President Douglas A. Sarcia
Vice President Nancy B. Schuckert
Vice President Joseph D. Strenk
Vice President William W. Strickland
Vice President Oris R. Stuart, III
Vice President Janice L. Weaver
Assistant Vice President Geralyn Barbato
Assistant Vice President Janice Boehmler
Assistant Vice President & Qualified Actuary Michael A. Cioffi
Assistant Vice President Mary Ellen Fahringer
Assistant Vice President Marie Helgeland
Assistant Vice President Patricia A. Lukacs
Assistant Vice President Harvey Waite
Assistant Treasurer Elaine J. Robinson
Assistant Controller Paul J. Lukacs
Assistant Controller Joseph C. Noone
<PAGE>
Second Vice President George E. Claiborne, Jr.
Second Vice President Cindy L. Chanley
Second Vice President Michael K. Mingus
Second Vice President/Investments Terri L. Allen
Second Vice President/Investments C. Ray Brewer
Second Vice President/Investments Kirk W. Buese
Second Vice President/Investments Joel L. Coleman
Second Vice President/Investments William S. Cook
Second Vice President/Investments Deborah A. Dias
Second Vice President/Investments Lee W. Eastland
Second Vice President/Investments Eric B. Goodman
Second Vice President/Investments James Grant
Second Vice President/Investments John R. Hillen
Second Vice President/Investments Frederick B. Howard
Second Vice President/Investments Diane J. Hulls
Second Vice President/Investments Claudia Jackson
Second Vice President/Investments William H. Jenkins
Second Vice President/Investments Frederick C. Kessell
Second Vice President/Investments Tim Kuussalo
Second Vice President/Investments Mark E. Lamb
Second Vice President/Investments Lisa M. Longino
Second Vice President/Investments James D. MacKinnon
Second Vice President/Investments Jack McCabe
Second Vice President/Investments Jeffrey T. McGlaun
Second Vice President/Investments Paul D. Mier
Second Vice President/Investments Wayne R. Nelis
Second Vice President/Investments James G. Nickerson
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 J. Alan Schork
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 Elizabeth A. Smedley
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 Marcia Weiland
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 Gregory M. Curry
Second Vice President/Special Markets Julie Ford
Second Vice President/Special Markets Rose Marie Mathison
Second Vice President/Special Markets Lisa L. Patterson
Second Vice President/Special Markets Rhonda L. Pritchett
Second Vice President/Special Markets Kris A. Robbins
Second Vice President/Special Markets Thomas E. Walsh
<PAGE>
Second Vice President/Special Markets Harvey Willis
Second Vice President & Assistant
Secretary Edward P. Reiter
Assistant Secretary L. Jude Clark
Assistant Secretary Colleen S. Lyons
Assistant Secretary Mary Ann Malinyak
Assistant Secretary John F. Reesor
Assistant Secretary Kimberly A. Scouller
Assistant Secretary R. Michael Slaven
Assistant Secretary Carolyn Wetterer
Advertising Compliance Officer Nancy E. Partington
Product Compliance Officer James T. Bradley
DIRECTORS:
Dennis E. Brady
Julie S. Congdon
Susan E. Martin
Kevin P. McGlynn
David J. Miller
Thomas B. Nesspor
John C. Prestwood, Jr.
Martin Renninger
Ellen S. Rosen
Paul Yakulis
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 Percent of Voting
Name Incorporation Securities Owned
<S> <C> <C>
Providian Corporation Delaware 100% Publicly Owned
Providian Agency Group, Inc. Kentucky 100% Providian Corporation
Benefit Plans, Inc. Delaware 100% Providian Corporation
DurCo Agency, Inc. Virginia 100% Benefit Plans, Inc.
Providian Assignment Corporation Kentucky 100% Providian Corporation
Providian Financial Services, Inc. Pennsylvania 100% Providian Corporation
Providian Securities Corporation Pennsylvania 100% Providian Financial
Services, Inc.
Wannalancit Corp. Massachusetts 100% Providian Corporation
Providian Investment Delaware 100% Providian Corporation
Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Providian Capital Delaware 100% Providian Corporation
Management, Inc.
Providian Capital Mgmt. Delaware 100% Providian Capital
Real Estate Services, Inc. Mangement, Inc.
Capital Real Estate Delaware 100% Providian Corporation
Development Corp.
Capital General Development Delaware 100% Providian Corporation
Corporation.
Commonwealth Life Kentucky 100% Capital General
Insurance Company Development Corp.
Agency Holding I, Inc. Delaware 100% Commonwealth Life Ins. co.
Agency Investments I, Inc. Delaware 100% Agency Holding I, Inc.
Commonwealth Agency, Inc. Kentucky 100% Commonwealth Life Ins. Co.
Camden Asset Management L.P. California 51% Commonwealth Life Ins. Co.
Peoples Security Life Ins. Co. North Carolina 100% Capital General Dev. Corp.
Ammest Realty Corporation Texas 100% Peoples Security Life Ins. Co.
Agency Holding II, Inc. Delaware 100% Peoples Security Life Ins. Co.
Agency Investments II, Inc. Delaware 100% Agency Holding II, Inc.
Agency Holding III, Inc. Delaware 100% Peoples Security Life Ins. Co.
Agency Investments III, Inc. Delaware 100% Agency Holding III, Inc.
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Ins. Co.
Capital 200 Block Corp. Delaware 100% Providian Corporation
Capital Broadway Corp. Kentucky 100% Providian Corporation
Capital Security Life Ins. Co. North Carolina 100% Providian Corporation
Independence Automobile Florida 100% Capital Security Life Ins. Co.
Automobile Assoc., Inc.
Independence Automobile Club Georgia 100% Capital Security Life Ins. Co.
Southlife, Inc. Tennessee 100% Providian Corporation
Providian Bancorp, Inc. Delaware 100% Providian Corporation
First Deposit Service Corp. California 100% Providian Bancorp, Inc.
First Deposit Life Ins. Co. Arkansas 100% Providian Bancorp, Inc.
First Deposit National Bank United States 100% Providian Bancorp, Inc.
Winnisquam Community New Hampshire 96% First Deposit National Bank
Development Corp.
Providian Credit Corporation Delaware 100% Providian Bancorp, Inc.
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 Insurance Agency, Inc. Pennsylvania 100% Providian Corporation
National Home Life Corporation Pennsylvania 100% Providian Ins. Agency, Inc.
Compass Rose Development Corp. Pennsylvania 100% Providian Ins. Agency, Inc.
Association Consultants, Inc. Illinois 100% Providian Ins. Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Providian Ins. Agency, Inc.
Veterans Benefits Plan, Inc. Pennsylvania 100% Providian Ins. Agency, Inc.
Veterans Insurance Services, Inc. Delaware 100% Providian Ins. Agency, Inc.
Financial Planning Services, Inc. Washington, DC 100% Providian Ins. Agency, Inc.
Providian Auto and Home Missouri 100% Providian Corporation
Insurance Company
Academy Insurance Group, Inc. Delaware 100% Providian Auto and
Home Insurance Co.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Academy Life Insurance Company Missouri 100% Academy Insurance Group, Inc.
Pension Life Ins. Co. of America New Jersey 100% Academy Insurance Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Group, Inc.
Ammest Development Corp., Inc. Kansas 100% Academy Insurance Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Group, Inc.
Insurance Agency, 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.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Group, Inc.
Services, Inc.
Unicom Administrative Germany 100% Unicom Admin. Services, Inc.
Services, GmbH
Providian Property and Kentucky 100% Providian Auto and
Casualty Insurance Company Home Insurance Co.
Providian Fire Insurance Co. Kentucky 100% Providian Property and
Casualty Insurance Co.
Capital Liberty L.P. Delaware 3% Providian Corporation
78% Commonwealth Life
19% Peoples Security
Providian Life and Health Missouri 4% Providian Corporation
Insurance Company 61% Commonwealth Life Insurance Co.
15% Peoples Security Life Ins. Co.
20% Capital Liberty L.P.
Veterans Life Insurance Co. Illinois 100% Providian Life and Health
Insurance Company
Providian Services, Inc. Pennsylvania 100% Veterans Life Insurance Co.
First Providian Life and Health New York 100% Veterans Life Insurance Co.
Insurance Company
Providian LLC Turks & Caicos 100% Providian Corporation
Islands
Providian Mauritius Ltd. Mauritius 100% Providian Corporation
</TABLE>
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 8, 1997, there were 551 A Unit Contract Owners and 2,576 B Unit
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 Insurance Company.
<PAGE>
(b) Directors and Officers
<TABLE>
<CAPTION>
Positions and Officers
Name with Underwriter
---- ----------------------
<S> <C>
Jeffrey P. Lammers President and Director
Kimberly A. Scouller Vice President and Chief Compliance Officer
John P. Fendig Vice President and Assistant Compliance Officer
Robert R. Bluth Vice President
Gregory J. Garvin Vice President
Harvey E. Willis Vice President and Secretary
Michael F. Lane Vice President
Mark Nerderman Vice President
Sarah J. Strange Vice President
Elaine J. Robinson Treasurer
Gregory P. Givan Assistant Treasurer
Michael G. Ayers Controller
Colleen S. Lyons Assistant Secretary
John F. Reesor Assistant Secretary
Robert L. Walker Director
Frederick C. Kessell Director
</TABLE>
<PAGE>
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 Insurance Company 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.
(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 represents 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>
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 requirements of Securities Act Rule
485(b) for effectiveness of this amended Registration Statement and has caused
this amended Registration Statement to be signed on its behalf in the County of
Chester and Commonwealth of Pennsylvania on the 25th day of April, 1997.
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
*By: /s/ R. Michael Slaven
-----------------------
R. Michael Slaven
Attorney-in-fact
<PAGE>
As required by the Securities Act of 1933, this amended 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* Chief Executive Officer April 25, 1997
- ---------------------------
Shailesh J. Mehta
/s/ DAVID J. MILLER* Director, President and April 25, 1997
- --------------------------- Chief Operating Officer
David J. Miller
/s/ DENNIS E. BRADY* Director, Senior Vice President, Treasurer April 25, 1997
- --------------------------- and Senior Financial Officer (Chief
Dennis E. Brady Accounting Officer)
/s/ ELLEN S. ROSEN* Director, Vice President and Associate April 25, 1997
- --------------------------- General Counsel
Ellen S. Rosen
/s/ THOMAS B. NESSPOR* Director and Vice President April 25, 1997
- ---------------------------
Thomas B. Nesspor
/s/ JULIE S. CONGDON* Director, Vice President and Associate April 25, 1997
- --------------------------- General Counsel
Julie S. Congdon
/s/ SUSAN E. MARTIN* Director, Vice President and Secretary April 25, 1997
- ---------------------------
Susan E. Martin
/s/ KEVIN P. McGLYNN* Director and Senior Vice President April 25, 1997
- ---------------------------
Kevin P. McGlynn
/s/ JOHN C. PRESTWOOD, JR.* Director, Vice President and Actuary April 25, 1997
- ---------------------------
John C. Prestwood, Jr.
/s/ MARTIN RENNINGER* Director and Senior Vice President April 25, 1997
- ---------------------------
Martin Renninger
/s/ PAUL YAKULIS* Director and Senior Vice President April 25, 1997
- ---------------------------
Paul Yakulis
/s/ R. MICHAEL SLAVEN
*By: ______________________
R. Michael Slaven
Attorney-in-fact
</TABLE>
<PAGE>
SEPARATE ACCOUNT V
PROVIDIAN MARQUEE VARIABLE ANNUITY
INDEX TO EXHIBITS
EXHIBIT 8(f) Amendment dated June 2, 1994 to the Participation Agreement
Among Variable Insurance Product Fund II, Fidelity Distributors
Corporation and Providian Life and Health Insurance Company
(formerly National Home Life Assurance Company) dated November
1, 1993.
EXHIBIT 8(g) Amendment dated March 20, 1996 to the Participation Agreement
Among Variable Insurance Product Fund II, Fidelity Distributors
Corporation and Providian Life and Health Insurance Company
(formerly National Home Life Assurance Company) dated November
1, 1993.
EXHIBIT 9(a) OPINION AND CONSENT OF COUNSEL
EXHIBIT 9(b) CONSENT OF COUNSEL
EXHIBIT 10 CONSENT OF INDEPENDENT AUDITORS
EXHIBIT 13 PERFORMANCE COMPUTATION
<PAGE>
EXHIBIT 8(f)
June 2, 1994
Variable Insurance Products Fund II
Fidelity Distributors Corporation
82 Devonshire Street
Boston, Massachusetts 02109
RE: Participation Agreement Amendment
Dears Sirs:
This Letter Agreement will serve to confirm our agreement to amend Schedule A
to that certain Participation Agreement (the "Agreement") made and entered as of
November 1, 1993, among Variable Insurance Products Fund II ("Fund"), Fidelity
Distributors Corporation ("Fidelity") and National Home Life Assurance Company
("NHL") to allow for the offer and sale of the Fund's Fidelity Asset Manager
Portfolio to the Marquee Subaccounts of NHL Separate Account V (the "Account"),
which offers and sales shall be governed by terms of the Agreement.
In addition, this Letter Agreement will also confirm the parties'
acknowledgement and consent to making the following additional investment
companies available under the Marquee Subaccounts of the Account: (1) Dreyfus
Variable Investment Fund; (2) T.R. Price International Series, Inc.; and (3) The
Quest for Value Asset Builder Trust.
Sincerely,
/s/ Dale E. Cooper
Dale E. Cooper
Director, Retail Marketing
Agree to:
VARIABLE INSURANCE FIDELITY DISTRIBUTORS
PRODUCTS FUND II CORPORATION
By: /s/ J. Gary Burkhead By: /s/
---------------------------- -----------------------------
Title: Senior Vice President Title: President
------------------------ -------------------------
<PAGE>
EXHIBIT A
Schedule A
----------
Separate Accounts and Associates Contracts
------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
A. Name of Separate Account or Designated Contracts Funded
Subaccount Thereof and the Date By Personal Manager Subaccounts of
Established by the Board of Directors Separate Account V
------------------------------------- ------------------
National Home Life Assurance Company 1933 Act. File No. 33-72838
Separate Account V, Personal Manager
Subaccounts (established
February 14, 1992)
B. Name of Separate Account or Designated Contracts Funded
Subaccount Thereof and the Date By Marquee Subaccount of
Established by the Board of Directors Separate Account V
------------------------------------- ------------------
National Home Life Assurance Company 1933 Act File No. 33-79502
Separate Account V, Marquee
Subaccounts (established
February 14, 1992)
</TABLE>
<PAGE>
EXHIBIT 8(g)
March 20, 1996
Variable Insurance Products Fund II
Fidelity Distributors Corporation
82 Devonshire Street
Boston, Massachusetts 02109
RE: Participation Agreement Amendment
Dear Sirs:
This Letter Agreement will serve to confirm our agreement to amend Section 2.1
to that certain Participation Agreement made and entered as of November 1, 1993,
and as amended by Letter Agreement dated June 2, 1994, by and among Variable
Insurance Products Fund II, Fidelity Distributors Corporation, and Providian
Life and Health Insurance Company (formerly National Home Life Assurance
Company) by replacing that Section 2.1 in its entirety with the language set off
below in quotation marks.
"2.1. The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Missouri law and has registered or, prior to any issuance or sale of the
Contracts, will register each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts."
Sincerely,
/s/ Kimberly A. Scouller
Kimberly A. Scouller
Assistant General Counsel and Assistant Secretary
Providian Life and Health Insurance Company
Agreed to by:
Variable Insurance Products Fund II Fidelity Distributors Corporation
By: /s/ J. Gary Burkhead By: /s/
-------------------------- ----------------------------
Title: Senior Vice President Title: President
----------------------- -------------------------
<PAGE>
[LETTERHEAD OF PROVIDIAN CORPORATION]
EXHIBIT 9(a)
April 25, 1997
Providian Life and Health Insurance Company
Administrative Offices
20 Moores Road
Frazer, Pennsylvania 19355
RE: PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V (PROVIDIAN MARQUEE VARIABLE 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. 4 (the "Amendment") to the Registration Statement on
Form N-4, File No. 33-79502 (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 prospectuses contained in the Registration Statement
(the "Prospectuses").
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
April 25, 1997
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
Prospectuses.
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
April 25, 1997
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 Prospectuses contained in Post-Effective Amendment No. 4 to the
Registration Statement on Form N-4 (file No.33-79502) 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
<PAGE>
Exhibit No. (10)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Auditors" and to the
use of our reports dated April 25, 1997, with respect to the financial
statements of Providian Life and Health Insurance Company Separate Account
V--Marquee and the statutory-basis financial statements of Providian Life
and Health Insurance Company in Post-Effective Amendment No. 4 to the
Registration Statement (Form N-4 No. 33-79502) and related Prospectuses of
Providian Life and Health Insurance Company Separate Account V--Marquee Variable
Annuity and Providian Life and Health Insurance Company Separate Account
V-Marquee Variable Annuity A Units.
/s/ ERNST & YOUNG LLP
Louisville, Kentucky
April 25, 1997
<PAGE>
EXHIBIT 13
PERFORMANCE CALCULATION
SEPARATE ACCOUNT V
MARQUEE VARIABLE ANNUITY Fund is Fidelity Equity-Income (A Units)
AUV @ 12/31/94 9.837701
AUV @ 12/31/95 13.184522
1 year nonstandard actual total return and actual average annual total
return is:
13.184522 - 1 = .3402036 * 100% rounded to 2 decimal places = 34.02%
---------
9.837701
