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As Filed With The Securities And Exchange Commission On April 30, 1997
Registration No. 33-80958
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 7
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 18
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 Offering:
As soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[x] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[_] On ________________, pursuant to paragraph (b)(1)(v) of Rule 485.
[_] 60 Days after filing pursuant to paragraph (a)(1) of Rule 485.
[_] On ________________, pursuant to paragraph (a)(1) of Rule 485.
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant
registered an indefinite amount of securities being offered. Registrant filed
the Rule 24f-2 notice for the fiscal year ended December 31, 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
For the Providian Advisor's Edge and Dimensional Variable Annuity
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PART A
Item of Applicable Contract
Form N-4 Prospectus Caption
- -------- ------------------
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1. Cover Page................................................ Cover Page
2. Definitions............................................... GLOSSARY
3. Synopsis.................................................. HIGHLIGHTS; FEE TABLE; Performance Measures
4. Condensed Financial Information........................... Condensed Financial Information
5. General Description of Registrant, Depositor, and
Portfolio Companies....................................... Providian Life and Health Insurance Company,
Providian Life and Health Insurance Company
Separate Account V; The Portfolios; Voting Rights
6. Deductions................................................ Charges and Deductions; FEDERAL TAX CONSIDERATIONS;
FEE TABLE
7. General Description of Variable Annuity Contracts......... CONTRACT FEATURES; Distribution-at-Death Rules;
Voting Rights; Allocation of Purchase Payments;
Exchanges Among the Portfolios; Additions,
Deletions, or Substitutions of Investments
8. Annuity Period............................................ Annuity Payment Options
9. Death Benefit............................................. Death of Annuitant Prior to Annuity Date
10. Purchases and Contract Value.............................. Contract Purchase and Purchase Payments;
Accumulated Value
11. Redemptions............................................... Full and Partial Withdrawals; Annuity Payment
Options; Right to Cancel Period
12. Taxes..................................................... FEDERAL TAX CONSIDERATIONS
13. Legal Proceedings......................................... Part B: Legal Proceedings
14. Table of Contents of the Statement of Additional
Information............................................... Table of Contents of Providian Advisor's Edge and
Dimensional Variable Annuity Statement of
Additional Information
PART B
Item of Statement of Additional
Form N-4 Information Caption
- --------....................................................... -----------------------
15. Cover Page................................................ Cover Page
16. Table of Contents......................................... Table of Contents
17. General Information and History........................... THE COMPANY
18. Services.................................................. Part A: Auditors; Part B: SAFEKEEPING OF
ACCOUNT ASSETS; DISTRIBUTION OF THE CONTRACTS
19. Purchase of Securities Being Offered...................... DISTRIBUTION OF THE CONTRACTS; Exchanges
20. Underwriters.............................................. DISTRIBUTION OF THE CONTRACTS
21. Calculation of Performance Data........................... PERFORMANCE INFORMATION
22. Annuity Payments.......................................... Computations of Annuity Income Payments
23. Financial Statements...................................... FINANCIAL STATEMENTS
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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
For The PGA Retirement Annuity
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<CAPTION>
PART A
Item of
Form N-4 Prospectus Caption
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1. Cover Page................................................ Cover Page
2. Definitions............................................... GLOSSARY
3. Synopsis.................................................. HIGHLIGHTS; FEE TABLE; Performance Measures
4. Condensed Financial Information........................... Not Applicable
5. General Description of Registrant, Depositor, and
Portfolio Companies....................................... Providian Life and Health Insurance Company,
Providian Life and Health Insurance Company
Separate Account V; Providian Series Trust;
The Portfolios; Voting Rights
6. Deductions................................................ Charges and Deductions; FEDERAL TAX CONSIDERATIONS;
FEE TABLE
7. General Description of Variable Annuity Contracts......... CONTRACT FEATURES; Distribution-at-Death Rules;
Voting Rights; Allocation of Purchase Payments;
Exchanges Among the Portfolios; Additions,
Deletions, or Substitutions of Investments
8. Annuity Period............................................ Annuity Payment Options
9. Death Benefit............................................. Death of Annuitant Prior to Annuity Date
10. Purchases and Contract Value.............................. Contract Purchase and Purchase Payments;
Accumulated Value
11. Redemptions............................................... Full and Partial Withdrawals; Annuity Payment
Options; Right to Cancel Period
12. Taxes..................................................... FEDERAL TAX CONSIDERATIONS
13. Legal Proceedings......................................... Part B: Legal Proceedings
14. Table of Contents of the Statement of Additional
Information............................................... Table of Contents of PGA Retirement Annuity
Statement of Additional Information
PART B
Item of Statement of Additional
Form N-4 Information Caption
- --------....................................................... -----------------------
15. Cover Page................................................ Cover Page
16. Table of Contents......................................... Table of Contents
17. General Information and History........................... THE COMPANY
18. Services.................................................. Part A: Auditors; Part B: SAFEKEEPING OF
ACCOUNT ASSETS; DISTRIBUTION OF THE CONTRACTS
19. Purchase of Securities Being Offered...................... DISTRIBUTION OF THE CONTRACTS; Exchanges
20. Underwriters.............................................. DISTRIBUTION OF THE CONTRACTS
21. Calculation of Performance Data........................... PERFORMANCE INFORMATION
22. Annuity Payments.......................................... Computations of Annuity Income Payments
23. Financial Statements...................................... FINANCIAL STATEMENTS
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
PROSPECTUS
FOR THE
PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The Providian Advisor's Edge variable annuity contract (the "Contract"),
offered through Providian Life and Health Insurance Company (the "Company",
"us", "we" or "our"), provides a vehicle for investing on a tax-deferred basis
in 15 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 Net Purchase Payments for the Contract may be allocated among 15
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 seven open-end, diversified investment companies):
.FEDERATED AMERICAN LEADERS .STEINROE CAPITAL APPRECIATION
FUND II FUND
.FEDERATED UTILITY FUND II .STRONG INTERNATIONAL STOCK FUND
.FEDERATED PRIME MONEY FUND II
II .WANGER U.S. SMALL CAP ADVISOR
.FEDERATED HIGH INCOME BOND .WANGER INTERNATIONAL SMALL CAP
FUND II ADVISOR
.FEDERATED FUND FOR U.S. .WARBURG PINCUS INTERNATIONAL
GOVERNMENT SECURITIES II EQUITY PORTFOLIO
.MONTGOMERY GROWTH .WARBURG PINCUS SMALL COMPANY
PORTFOLIO GROWTH PORTFOLIO
.MONTGOMERY EMERGING .WEISS, PECK & GREER'S CORE LARGE-
MARKETS PORTFOLIO CAP STOCK FUND
Depending upon the state of issue and provisions of your Contract, your initial
Net Purchase Payment(s) will, when your Contract is issued, either be (i)
invested in the Federated Prime Money Fund II 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).
.WEISS, PECK & GREER'S CORE SMALL-
CAP STOCK FUND
The Contract's Accumulated Value varies with the investment performance of the
Portfolios you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed except to
the extent a portion of the Accumulated Value is allocated to the General
Account.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals of the Contract's Surrender Value may be made at any time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% penalty tax (and a portion may be subject to ordinary income taxes). If
you elect an Annuity Payment Option, Annuity Payments may be received on a
fixed and/or variable basis. You also have significant flexibility in choosing
the Annuity Date on which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for each Fund.
Please read the Prospectuses carefully and retain them for future reference. A
Statement of Additional Information for the Contract Prospectus, which has the
same date as this Prospectus, has also been filed with the Securities and
Exchange Commission, is incorporated herein by reference and is available free
by calling our Administrative Offices at 1-800-866-6007. The Table of Contents
of the Statement of Additional Information is included at the end of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The date of this Prospectus is April 30, 1997
FM-0989
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TABLE OF CONTENTS
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PAGE
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GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 6
FEE TABLE.................................................................. 8
Condensed Financial Information............................................ 11
Financial Statements....................................................... 11
Performance Measures....................................................... 11
Additional Performance Measures............................................ 12
Yield and Effective Yield.................................................. 12
The Company and the Separate Account....................................... 13
The Federated Insurance Series............................................. 13
The Montgomery Funds III................................................... 13
SteinRoe Variable Investment Trust......................................... 14
Strong Variable Insurance Funds, Inc. ..................................... 14
Wanger Advisors Trust...................................................... 14
Warburg Pincus Trust....................................................... 14
Tomorrow Funds Retirement Trust............................................ 14
The Portfolios............................................................. 14
CONTRACT FEATURES.......................................................... 17
Right to Cancel Period................................................... 17
Contract Purchase and Purchase Payments.................................. 17
Purchasing by Wire....................................................... 18
Allocation of Purchase Payments.......................................... 18
Charges and Deductions................................................... 18
Accumulated Value........................................................ 20
Exchanges Among the Portfolios........................................... 20
Full and Partial Withdrawals............................................. 21
Systematic Withdrawal Option............................................. 21
Dollar Cost Averaging Option............................................. 21
IRS-Required Distributions............................................... 22
Minimum Balance Requirement.............................................. 22
Designation of an Annuitant's Beneficiary................................ 22
Death of Annuitant Prior to Annuity Date................................. 23
Annuity Date............................................................. 23
Lump Sum Payment Option.................................................. 23
Annuity Payment Options.................................................. 23
Deferment of Payment..................................................... 25
FEDERAL TAX CONSIDERATIONS................................................. 25
GENERAL INFORMATION........................................................ 30
APPENDIX A--The General Account............................................ A-1
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GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period before
age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from each
Subaccount.
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 23), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options," page
23), the dollar amount of each Annuity Payment may change over time, depending
upon the investment experience of the Portfolio or Portfolios you choose.
Annuity Payments are based on the Contract's Accumulated Value as of 10
Business Days prior to the Annuity Date.
Annuity Unit - Unit of measure used to calculate Variable Annuity Payments (see
"Annuity Payment Options," page 23).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
Company ("we", "us", "our") - Providian Life and Health Insurance Company, a
Missouri stock company.
Contract Anniversary - Any anniversary of the Contract Date.
Contract Date - The date of issue of this Contract.
Contract Owner ("you", "your") - The person or persons designated as the
Contract Owner in the Contract. 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
3
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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) Federated Insurance Series (advised by Federated Advisers),
(ii) The Montgomery Funds III (advised by Montgomery Asset Management, L.P.),
(iii) Wanger Advisors Trust (advised by Wanger Asset Management, L.P.), (iv)
Tomorrow Funds Retirement Trust (advised by Weiss, Peck & Greer, L.L.C.), (v)
SteinRoe Variable Investment Trust (advised by Stein Roe & Farnham,
Incorporated), (vi) Strong Variable Insurance Funds, Inc. (advised by Strong
Capital Management, Inc.) and (vii) Warburg Pincus Trust (advised by Warburg
Pincus Counsellors, Inc.
General Account - The account which contains all of our assets other than those
held in our separate accounts.
General Account Guaranteed Option - Any of the following three General Account
options offered by your Contract and to which you may allocate your Net
Purchase Payments: the One-Year Guaranteed 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. (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 Premium Tax, if
any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant--in which case the Annuitant's Beneficiary is entitled to the Death
Benefit. (Note: this transfer of ownership to the Owner's Designated
Beneficiary will generally not be subject to probate, but will be subject to
estate and inheritance taxes. Consult with your tax and estate adviser to be
sure which rules will apply to you.)
Payee - The Contract Owner, Annuitant, Annuitant's Beneficiary, or any other
person, estate, or legal entity to whom benefits are to be paid.
Portfolio - A separate investment series of the Funds. The Funds currently
offer 15 Portfolios in the Providian Advisor's Edge: Federated American Leaders
Fund II ("Federated American Leaders Portfolio"), Federated Utility Fund II
("Federated Utility Portfolio"), Federated Prime Money Fund II ("Federated
Prime Money Portfolio"), Federated Fund for U.S. Government Securities II
("Federated U.S. Government Securities Portfolio") and Federated High Income
Bond Fund II ("Federated High Income Bond Portfolio") of Federated Insurance
Series; the Montgomery Variable Series: Growth Fund (the "Montgomery Growth
Portfolio") and the Montgomery Variable Series: Emerging Markets Fund (the
"Montgomery Emerging Markets Portfolio") of The Montgomery Funds III; the
Capital Appreciation Fund (the "SteinRoe Capital Appreciation Portfolio") of
the SteinRoe Variable Investment Trust; the Strong International Stock Fund II
(the "Strong International Stock Portfolio") of the Strong Variable Insurance
Funds, Inc.; the Wanger U.S. Small Cap Advisor (the "Wanger U.S. Small Cap
Advisor Portfolio"), the Wanger International Small Cap Advisor (the "Wanger
International Small Cap Advisor Portfolio") of Wanger Advisors Trust; the
Warburg Pincus International Equity Portfolio (the "Warburg Pincus
International Equity Portfolio") and the Warburg Pincus Small Company Growth
Portfolio (the "Warburg Pincus Small Company Growth Portfolio") of the Warburg
Pincus Trust and the Core Large-Cap Stock Fund (the "Weiss, Peck & Greer Core
Large-Cap Stock Portfolio") and the Core Small-Cap Stock Fund (the "Weiss, Peck
& Greer Small-Cap Stock Portfolio") of the Tomorrow Funds Retirement Trust;
(each, a "Portfolio" and collectively, the "Portfolios"). In this Prospectus,
Portfolio will also be used to refer to the Subaccount that invests in the
corresponding Portfolio.
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Premium Tax - A regulatory tax that may be assessed by certain states on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of a
court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other proof
of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment is
$5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or $50
monthly by payroll deduction for Qualified Contracts); each additional Purchase
Payment must be at least $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.
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of Providian Life and Health Insurance
Company's Separate Account V dedicated to the Contract. The Separate Account
consists of assets that are segregated by Providian Life and Health Insurance
Company and, for Contract Owners, invested in the Portfolios. The Separate
Account is independent of the general assets of the Company. The Separate
Account invests in the Portfolios.
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 15 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 3).
PROVIDIAN ADVISOR'S EDGE
The Contract provides a vehicle for investing on a tax-deferred basis in 15
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 25)...........................................Page 25
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 15 Subaccounts of the
Separate Account and/or the General Account Guaranteed Options. The Subaccounts
in turn invest exclusively in the following 15 Portfolios offered by the Funds:
the Federated American Leaders Portfolio, the Federated Utility Portfolio, the
Federated Prime Money Portfolio, the Federated U.S. Government Securities
Portfolio, the Federated High Income Bond Portfolio, the Montgomery Growth
Portfolio, the Montgomery Emerging Markets Portfolio, the Stein Roe Capital
Appreciation Portfolio, the Strong International Stock Portfolio, the Wanger
U.S. Small Cap Advisor Portfolio, the Wanger International Small Cap Advisor
Portfolio, the Warburg Pincus International Equity Portfolio, the Warburg
Pincus Small Company Growth Portfolio, the Weiss, Peck & Greer Core Large-Cap
Stock Portfolio and the Weiss, Peck & Greer Core Small-Cap Stock Portfolio. The
assets of each Portfolio are separate, and each Portfolio has distinct
investment objectives and policies as described in the corresponding Fund
Prospectus. The General Account Guaranteed Options are available for sale in
most, but not all, states................................................Page 14
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.
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 advisor 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 for
Qualified Contracts (or $50 monthly by payroll
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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 17
ALLOCATION OF PURCHASE PAYMENTS
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Federated Prime Money Portfolio
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 the
Federated Prime Money Portfolio 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 any
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 18
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (30 or more days
in some instances as specified in your Contract) plus a 5 day grace period to
allow for mail delivery, during which you may cancel your investment in the
Contract. To cancel your investment, please return your Contract to us 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 Federated's Prime Money Portfolio, we will return the
Accumulated Value of the amount of your Purchase Payment(s) so invested, or if
greater, the amount of your Purchase Payment(s) so invested, (2) for any amount
of your initial Purchase Payment(s) invested in the Portfolios immediately
following receipt by us, we will return the Accumulated Value of your Purchase
Payment(s) so invested plus any fees and/or Premium Taxes that may have been
subtracted from such amount, and (3) for any amount of your initial Purchase
Payment(s) invested in the Guaranteed Rate Options immediately following
receipt by us, we will refund the Accumulated Value of your Purchase Payment(s)
so invested..............................................................Page 17
EXCHANGES
You may make unlimited Exchanges among the Portfolios or into the General
Account Guaranteed Options, provided you maintain a minimum balance of $250 in
each Subaccount or $1,000 in each General Account Guaranteed Option 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 Guaranteed Rate Options on a pro rata
basis. The Multi-Year Guaranteed Equity Option is illiquid for the entire
guarantee period, and transfers from the General Account Guaranteed Options may
be subject to additional limitations and charges. (See also "Charges and
Deductions," page 18, and "The General Account," at Appendix A).....Page 20
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
7
<PAGE>
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death Benefit
will remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken. The Annuitant's Beneficiary may elect
to receive these proceeds as a lump sum or as Annuity Payments. If the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid, generally to the Annuitant's Beneficiary, in accordance with the
Contract.................................................................Page 23
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your Contract. We provide you with a variety of options as it relates
to those payments. At your discretion, payments may be either fixed or variable
or both. Fixed payouts are guaranteed for a designated period or for life
(either single or joint). Variable payments will vary depending on the
performance of the underlying Portfolio or Portfolios selected...........Page 23
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-866-6007 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming any
financial transactions that take place, as well as quarterly statements and an
annual statement.
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .50%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
administrative charges and policy fees which pay for administering the
Contract, and management, advisory and other fees, which reflect the costs of
the Funds................................................................Page 18
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior to
age 59 1/2 may be subject to a 10% penalty tax (and a portion thereof may be
subject to ordinary income taxes)........................................Page 21
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that may
be assessed by your state) that you would incur as an owner of a Contract (see
page 19). The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as a
purchaser of the Contract. The fee table reflects all expenses for both the
Separate Account and the Funds. For a complete discussion of Contract costs and
expenses, including charges applicable to General Account Guaranteed Options,
see "Charges and Deductions," page 18.
<TABLE>
<CAPTION>
CONTRACTOWNER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
Exchange Fees........................................................... None
ANNUAL CONTRACT FEE..................................................... $30
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
<S> <C>
Mortality and Expense Risk Charge....................................... .50%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .65%*
</TABLE>
*Separate Account Annual Expenses are not charged against the General
Account Guaranteed Options.
8
<PAGE>
PORTFOLIO ANNUAL EXPENSES
Except as may be indicated, the figures below are based on actual expenses for
fiscal year 1996 (as a percentage of each Portfolio's average net assets after
fee waiver and/or expense reimbursement, if applicable).
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT PORTFOLIO
AND ADVISORY OTHER ANNUAL
EXPENSES EXPENSES EXPENSES
------------ -------- ---------
<S> <C> <C> <C>
Federated American Leaders Portfolio*.......... 0.53% 0.32% 0.85%
Federated Utility Portfolio*................... 0.24% 0.61% 0.85%
Federated Prime Money Portfolio*............... 0.00% 0.80% 0.80%
Federated U.S. Government Securities
Portfolio*.................................... 0.00% 0.80% 0.80%
Federated High Income Bond Portfolio*.......... 0.01% 0.79% 0.80%
Montgomery Growth Portfolio**.................. 0.00% 0.01% 0.01%
Montgomery Emerging Markets Portfolio**........ 0.23% 1.22% 1.45%
SteinRoe Capital Appreciation Portfolio***..... 0.50% 0.23% 0.73%
Strong International Stock Portfolio****....... 1.00% 0.90% 1.90%
Wanger U.S. Small Cap Advisor Portfolio*****... 0.99% 0.22% 1.21%
Wanger International Small Cap Advisor
Portfolio*****................................ 1.30% 0.49% 1.79%
Warburg Pincus International Equity
Portfolio******............................... 0.96% 0.40% 1.36%
Warburg Pincus Small Company Growth
Portfolio******............................... 0.90% 0.26% 1.16%
Weiss, Peck & Greer Core Large-Cap Stock
Portfolio*******.............................. 0.00% 1.50% 1.50%
Weiss, Peck & Greer Core Small-Cap Stock
Portfolio*******.............................. 0.00% 1.50% 1.50%
</TABLE>
*The expense figures shown reflect actual expenses for fiscal year 1996
including voluntary waivers of a portion of the management fees and/or
assumption of expenses. The maximum Management and Advisory Expenses and
Total Portfolio Annual Expenses absent the voluntary waivers would have
been as follows: 0.75% and 1.07%, respectively, for the Federated American
Leaders Portfolio; 0.75% and 1.36%, respectively, for the Federated Utility
Portfolio; 0.50% and 1.37%, respectively, for the Federated Prime Money
Portfolio; and 0.60% and 1.81%, respectively, for the Federated U.S.
Government Securities Portfolio and 0.60 and 1.39%, respectively, for the
Federated High Income Bond Portfolio.
**The figures above are based on actual expenses for fiscal year 1996 (as a
percentage of each Portfolio's average net assets after fee waiver and/or
expense reimbursement). The expense figures shown reflect voluntary waivers
of a portion of the management fees and/or assumption of expenses. The
maximum Management and Advisory Expenses, Other Expenses, and Total
Portfolio Annual Expenses absent the voluntary waivers would have been as
follows: 1.00%, 5.98%, and 6.98%, respectively, for the Montgomery Growth
Portfolio and 1.25%, 1.22%, and 2.47%, respectively, for the Montgomery
Emerging Markets Portfolio.
***The figures shown reflect actual expenses for fiscal year 1996. The
advisor has voluntarily agreed until April 30, 1998 to reimburse all
expenses, including management and administrative fees, incurred by
SteinRoe Capital Appreciation Portfolio in excess of 0.80% of average net
assets.
****The figures shown reflect actual expenses for fiscal year 1996.
*****As required by the Securities and Exchange Commission rules, "Other
Expenses" reflects gross custodian fees. Net of custodian fees paid
indirectly, Other Expenses would have been 0.20% for U.S. Small Cap Advisor
Portfolio and 0.45% for International Small Cap Advisor Portfolio; Total
Portfolio Annual Expenses would have been 1.19% and 1.75%, respectively.
******Management and Advisory Expenses, Other Expenses and Total Portfolio
Annual Expenses are based on actual expenses for the fiscal year ended
December 31, 1996, net of any fee waivers or expense reimbursements.
Without such waivers or reimbursements, Management and Advisory Expenses
would have equaled 1.00% and 0.90%, Other Expenses would have equaled 0.40%
and 0.27% and Total Portfolio Annual Expenses would have equaled 1.40% and
1.17% for the Warburg Pincus International Equity and Small Company Growth
Portfolios, respectively. The investment adviser and co-administrator have
undertaken to limit Total Portfolio Annual Expenses to the limits shown in
the table above through December 31, 1997.
9
<PAGE>
*******The figures shown are based on actual expenses in fiscal year 1996
(after fee waiver and expense reduction). Management and Advisory Expenses,
Other Expenses, and Total Portfolio Annual Expenses absent the voluntary fee
reduction and expense limitation waivers are estimated to be as follows:
0.75%, 18.14% and 18.89%, respectively, for the Weiss, Peck and Greer Core
Large-Cap Stock Portfolio and 0.75%, 12.21% and 12.96%, respectively, for the
Weiss, Peck and Greer Core Small-Cap Stock Portfolio. For each of these
Portfolios, 0.25% of the figure representing Other Expenses is attributable
to a service fee payable by the Portfolios under non-Rule 12b-1 service
plans. For more information, please refer to the section entitled "Service
Plans" in the attached prospectus for the Portfolios.
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>
3
1 YEAR YEARS 5 YEARS 10 YEARS
------ ------ ------- --------
<S> <C> <C> <C> <C>
Federated American Leaders Portfolio...... $15.60 $48.40 $ 83.47 $182.15
Federated Utility Portfolio............... $15.60 $48.40 $ 83.47 $182.15
Federated Prime Money Portfolio........... $15.09 $46.85 $ 80.84 $176.63
Federated U.S. Government Securities
Portfolio................................ $15.09 $46.85 $ 80.84 $176.63
Federated High Income Bond Portfolio...... $15.09 $46.85 $ 80.84 $176.63
Montgomery Growth Portfolio............... $17.11 $53.02 $ 91.31 $198.52
Montgomery Emerging Markets Portfolio..... $21.64 $66.77 $114.48 $246.10
SteinRoe Capital Appreciation Portfolio... $14.39 $44.69 $ 77.15 $168.86
Strong International Stock Portfolio...... $26.15 $80.32 $137.12 $291.44
Wanger U.S. Small Cap Advisor Portfolio... $19.23 $59.46 $102.19 $221.01
Wanger International Small Cap Advisor
Portfolio................................ $25.05 $77.03 $131.64 $280.56
Warburg Pincus International Equity
Portfolio................................ $20.74 $64.03 $109.89 $236.77
Warburg Pincus Small Company Growth
Portfolio................................ $18.72 $57.93 $ 99.61 $215.70
Weiss, Peck & Greer Core Large-Cap Stock
Portfolio................................ $22.14 $68.28 $117.02 $251.21
Weiss, Peck & Greer Core Small-Cap Stock
Portfolio................................ $22.14 $68.28 $117.02 $251.25
</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 or annuitization of the Contract, on a pro rata basis, from each
Subaccount. In some states, the Company will deduct Premium Taxes as incurred
by the Company.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
10
<PAGE>
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1994 THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
FEDERATED
FEDERATED FEDERATED FEDERATED HIGH MONTGOMERY
AMERICAN FEDERATED PRIME US GOV'T INCOME MONTGOMERY EMERGING
LEADERS UTILITY MONEY SECURITIES BOND GROWTH MARKETS
--------- --------- --------- ---------- --------- ---------- ----------
<S> <C> <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 10.000
12/31/94.............. N/A N/A 10.026 N/A N/A N/A N/A
12/31/95.............. 12.676 11.354 10.473 10.567 10.257 N/A N/A
12/31/96.............. 15.311 12.584 10.900 10.940 11.648 12.649 10.616
Number of units
outstanding as of:
12/31/94.............. N/A N/A 70,223 N/A N/A N/A N/A
12/31/95.............. 10,179 2,024 363,418 7,159 6,320 N/A N/A
12/31/96.............. 67,853 24,080 512,275 117,323 146,709 28,618 135,913
</TABLE>
** Date of commencement of operations for Federated American Leaders was
3/10/95; for Federated Utility was 7/20/95; for Federated Prime Money was
12/7/94; for Federated U.S. Government Securities was 6/28/95; for Federated
High Income Bond was 9/18/95; and for Montgomery Growth was 2/12/96.
<TABLE>
<CAPTION>
WARBURG
WANGER WANGER WARBURG PINCUS WPG WPG
STEIN ROE STRONG U.S. INT'L PINCUS SMALL CORE CORE
CAP. INT'L. SMALL SMALL INT'L CO. LARGE SMALL
APPREC. STOCK CAP CAP EQUITY GROWTH CAP CAP
--------- ------ ------- ------ ------- ------- ------ ------
<S> <C> <C> <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 10.000 10.000
12/31/94.............. N/A N/A N/A N/A N/A N/A N/A N/A
12/31/95.............. N/A N/A 9.665 10.913 N/A N/A N/A N/A
12/31/96.............. N/A N/A 14.076 14.312 N/A N/A 11.381 11.776
Number of units
outstanding as of:
12/31/94.............. N/A N/A N/A N/A N/A N/A N/A N/A
12/31/95.............. N/A N/A 21,864 4,237 N/A N/A N/A N/A
12/31/96.............. N/A N/A 110,551 80,108 N/A N/A 87,203 57,029
</TABLE>
*** Date of commencement of operations for Montgomery Emerging Markets was
2/5/96; for Wanger U.S. Small Cap was 9/20/95; for Wanger International
Small Cap was 9/18/95; for WPG Core Large Cap was 2/29/96; and for WPG Core
Small Cap was 2/16/96. The remaining Portfolios had not yet commenced
operations as of 12/31/96.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company and the
financial statements of the Separate Account (as well as the Independent
Auditors' Reports thereon) are contained in the Statement of Additional
Information.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of Federated's Prime Money Portfolio, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission ("SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the
11
<PAGE>
deduction of the Annual Contract Fee and all other Portfolio, Separate Account
and Contract level charges except Premium Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show actual Total Return (i.e., the percentage change in the
value of an Accumulation Unit) for one or more Subaccounts with respect to one
or more periods, including Total Return Year-to-Date ("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, however, do not
reflect the Annual Contract Fee or Premium Taxes (if any) which, if included,
would reduce the percentages reported.
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. They do not include the
Annual Contract Fee or Premium Taxes (if any) which, if included, would reduce
the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of the Federated Prime Money Portfolio. "Yield" refers to
the income generated by an investment in the Federated Prime Money Portfolio
over a seven-day period, which is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the investment.
The "effective yield" is calculated similarly but, when annualized, the income
earned by an investment in the Federated Prime Money Portfolio is assumed to be
reinvested. Therefore the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. These
figures do not reflect the Annual Contract Fee or Premium Taxes (if any) which,
if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than the Federated
Prime Money Market for which the Company advertises yield, the Company shall
furnish a yield quotation referring to the Portfolio computed in the following
manner: the net investment income per Accumulation Unit earned during a recent
one month period is divided by the Accumulation Unit Value on the last day of
the period.
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.
12
<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 all states except for New York, as well as the District of
Columbia and Puerto Rico. The Company is wholly-owned, directly and indirectly,
by Providian Corporation ("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. ("AEGON"), 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 15 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.
THE FEDERATED INSURANCE SERIES (ADVISED BY FEDERATED ADVISERS)
The Federated Insurance Series is an open-end management investment company
organized as a Massachusetts business trust and registered under the 1940 Act.
The Fund consists of eight investment portfolios, five of which are available
as part of the Providian Advisor's Edge: Federated American Leaders Portfolio,
the Federated Utility Portfolio, the Federated Prime Money Portfolio, the
Federated U.S. Government Securities Portfolio and the Federated High Income
Bond Portfolio. Federated Advisers serves as this Fund's investment adviser.
THE MONTGOMERY FUNDS III (ADVISED BY MONTGOMERY ASSET MANAGEMENT, L.P.)
The Montgomery Funds III (the "Montgomery Fund"), an open-end management
investment company, was organized as a Delaware business trust in 1994 and is
registered under the 1940 Act. The Montgomery Fund consists of three
13
<PAGE>
professionally managed investment portfolios, two of which are available as
part of the Providian Advisor's Edge: the Montgomery Growth Portfolio and the
Montgomery Emerging Markets Portfolio. Montgomery Asset Management, L.P.
("MAM") was organized as a California limited partnership in 1990 and is the
Montgomery Fund's investment advisor.
STEINROE VARIABLE INVESTMENT TRUST (ADVISED BY STEIN ROE & FARNHAM
INCORPORATED)
The SteinRoe Variable Investment Trust is an open-end, diversified management
investment company organized as a Massachusetts business trust and registered
under the 1940 Act. The Fund currently consists of five investment portfolios,
including the SteinRoe Capital Appreciation Portfolio, which is the only
portfolio available as part of the Providian Advisor's Edge. Stein Roe &
Farnham Incorporated serves as the Fund's investment adviser.
STRONG VARIABLE INSURANCE FUNDS, INC. (ADVISED BY STRONG CAPITAL MANAGEMENT,
INC.)
Strong Variable Insurance Funds, Inc. is an open-end management investment
company organized under Wisconsin law and is registered under the 1940 Act. One
series issued by the Fund is available as part of the Providian Advisor's Edge:
the Strong International Stock Portfolio. Strong Capital Management, Inc.
serves as the Fund's investment adviser.
WANGER ADVISORS TRUST (ADVISED BY WANGER ASSET MANAGEMENT, L.P.)
Wanger Advisors Trust, an open-end management investment company, was organized
as a Massachusetts business trust in 1994 and is registered under the 1940 Act.
The Fund consists of two series available as part of the Providian Advisor's
Edge: the Wanger U.S. Small Cap Advisor Portfolio and the Wanger International
Small Cap Advisor Portfolio. Wanger Asset Management, L.P., a limited
partnership managed by its general partner, Wanger Asset Management, Ltd.,
serves as this Fund's investment adviser.
WARBURG PINCUS TRUST (ADVISED BY WARBURG PINCUS COUNSELLORS, INC.)
Warburg Pincus Trust, an open-end management investment company, was organized
as a Massachusetts business trust in 1995 and is registered under the 1940 Act.
The Fund currently offers four investment portfolios, two of which are
available as part of the Providian Advisor's Edge: the Warburg Pincus
International Equity Portfolio and the Warburg Pincus Small Company Growth
Portfolio. Warburg Pincus Counsellors, Inc. serves as the Fund's investment
adviser.
TOMORROW FUNDS RETIREMENT TRUST (ADVISED BY WEISS, PECK & GREER, L.L.C.)
Tomorrow Funds Retirement Trust, an open-end management investment company, was
organized as a Delaware business trust in 1995 and is registered under the 1940
Act. The Fund consists of six series, including the Weiss, Peck & Greer Core
Large-Cap Stock Portfolio and the Weiss, Peck & Greer Core Small-Cap Stock
Portfolio, which are the only series available as part of the Providian
Advisor's Edge. Weiss, Peck & Greer, L.L.C. serves as this Fund's investment
adviser.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
For more information concerning the risks associated with each Portfolio's
investments, please refer to the applicable underlying Fund prospectus.
FEDERATED AMERICAN LEADERS FUND II ("FEDERATED AMERICAN LEADERS PORTFOLIO")
The primary investment objective of the Federated American Leaders Portfolio is
to achieve long-term growth of capital. The Portfolio's secondary objective is
to provide income. The Portfolio pursues its investment objectives by
investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue-chip" companies. This Portfolio was formerly known as the
Federated Equity Growth & Income Portfolio.
FEDERATED UTILITY FUND II ("FEDERATED UTILITY PORTFOLIO")
The investment objective of the Federated Utility Portfolio is to achieve high
current income and moderate capital appreciation. The Portfolio endeavors to
achieve its objective by investing primarily in a professional managed and
diversified portfolio of equity and debt securities of utility companies.
14
<PAGE>
FEDERATED PRIME MONEY FUND II ("FEDERATED PRIME MONEY PORTFOLIO")
The investment objective of the Federated Prime Money Portfolio is to provide
current income consistent with stability of principal and liquidity. The
Portfolio pursues its investment objective by investing exclusively in a
portfolio of money market instruments maturing in 397 days or less.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II ("FEDERATED U.S. GOVERNMENT
SECURITIES PORTFOLIO")
The investment objective of the Federated U.S. Government Securities Portfolio
is to provide current income. Under normal circumstances, the Portfolio pursues
its investment objective by investing at least 65% of the value of its total
assets in securities issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities. This
Portfolio was formerly known as the Federated U.S. Government Bond Portfolio.
FEDERATED HIGH INCOME BOND FUND II ("FEDERATED HIGH INCOME BOND PORTFOLIO")
The investment objective of the Federated High Income Bond Portfolio is to seek
high current income. The Portfolio endeavors to achieve its investment
objective by investing primarily in a diversified portfolio of professionally
managed fixed income securities. The fixed income securities in which the
Portfolio intends to invest are lower-rated corporate debt obligations, which
are commonly referred to as "junk-bonds." Some of these fixed income securities
may involve equity features. Capital growth will be considered, but only when
consistent with the investment objective of high current income. This Portfolio
was formerly known as the Federated Corporate Bond Portfolio.
MONTGOMERY VARIABLE SERIES: GROWTH FUND ("MONTGOMERY GROWTH PORTFOLIO")
The investment objective of the Montgomery Growth Portfolio is capital
appreciation, which, under normal conditions it seeks by investing at least 65%
of its total assets in the equity securities of domestic companies. The
Portfolio emphasizes investments in common stocks but also invests in other
types of equity securities. In addition to capital appreciation, the Portfolio
emphasizes value.
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND ("MONTGOMERY EMERGING MARKETS
PORTFOLIO")
The investment objective of the Montgomery Emerging Markets Portfolio is
capital appreciation, which, under normal conditions it seeks by investing at
least 65% of its total assets in equity securities of companies in countries
having emerging markets. For these purposes, the Portfolio defines an emerging
market country as having an economy that is or would be considered by the World
Bank or the United Nations to be emerging or developing. The Portfolio invests
primarily in common stock but may also invest in other types of equity
securities, and in certain types of debt securities issued by the governments
of emerging market countries that are or may be eligible for conversion into
investments in emerging market companies under debt conversion programs
sponsored by such governments.
CAPITAL APPRECIATION FUND ("STEINROE CAPITAL APPRECIATION PORTFOLIO")
The investment objective of the SteinRoe Capital Appreciation Portfolio is to
achieve growth of capital. This Portfolio seeks to achieve its investment
objective by investing primarily in common stocks, securities convertible into
common stocks and securities having common stock characteristics, including
rights and warrants, selected primarily for prospective capital growth. The
Portfolio invests in both domestic and foreign companies.
STRONG INTERNATIONAL STOCK FUND II ("STRONG INTERNATIONAL STOCK PORTFOLIO")
The investment objective of the Strong International Stock Portfolio is to
achieve capital growth. This Portfolio seeks to achieve its investment
objective by investing primarily in the equity securities of issuers located
outside the United States. This Portfolio will invest at least 65% of its total
assets in foreign equity securities, including common stocks, preferred stocks,
and securities that are convertible into common or preferred stocks, such as
warrants and convertible bonds, that are issued by companies whose principal
headquarters are located outside the United States. Under normal market
conditions, this Portfolio expects to invest at least 90% of its net assets in
foreign equity securities. This Portfolio will normally invest in securities of
issuers located in at least three different countries.
WANGER U.S. SMALL CAP ADVISOR ("WANGER U.S. SMALL CAP ADVISOR PORTFOLIO")
The investment objective of the Wanger U.S. Small Cap Advisor Portfolio is to
seek long-term growth of capital. The Portfolio pursues its investment
objective by investing primarily in stocks of small and medium size United
States companies. The Portfolio may also invest in debt securities, including
lower-rated debt securities, which may be regarded as having speculative
characteristics and are commonly referred to as "junk bonds."
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<PAGE>
WANGER INTERNATIONAL SMALL CAP ADVISOR ("WANGER INTERNATIONAL SMALL CAP ADVISOR
PORTFOLIO")
The investment objective of the Wanger International Small Cap Advisor
Portfolio is to seek long-term growth of capital. The Portfolio pursues its
investment objective by investing primarily in stocks of small and medium size
foreign companies. The Portfolio may also invest in debt securities, including
lower-rated debt securities, which may be regarded as having speculative
characteristics and are commonly referred to as "junk bonds."
WARBURG PINCUS INTERNATIONAL EQUITY PORTFOLIO ("WARBURG PINCUS INTERNATIONAL
EQUITY PORTFOLIO")
The investment objective of the Warburg Pincus International Equity Portfolio
is to achieve long-term capital appreciation. This Portfolio seeks to achieve
its investment objective by investing primarily in equity securities of
companies, wherever organized, that in the judgment of the Portfolio's adviser,
have their principal business activities and interests outside of the United
States. This Portfolio will ordinarily invest substantially all its assets--but
no less than 65% of its total assets--in common stocks, warrants and securities
convertible into or exchangeable for common stocks. Generally this Portfolio
will hold no less than 65% of its total assets in at least three countries
other than the United States. Investment may be made in equity securities of
companies of any size, whether traded on or off a national securities exchange.
WARBURG PINCUS SMALL COMPANY GROWTH PORTFOLIO ("WARBURG PINCUS SMALL COMPANY
GROWTH PORTFOLIO")
The investment objective of the Warburg Pincus Small Company Growth Portfolio
is to achieve capital growth. This Portfolio seeks to achieve its investment
objective by investing in a portfolio of equity securities of small-sized
domestic companies. This Portfolio will ordinarily invest at least 65% of its
total assets in common stocks or warrants of small-sized companies (i.e.,
companies having stock market capitalizations of between $25 million and $1
billion at the time of purchase) that represent attractive opportunities for
capital growth. It is anticipated that this Portfolio will invest primarily in
companies whose securities are traded on domestic stock exchanges or in the
over-the-counter market. This Portfolio's investment will be made on the basis
of equity characteristics and securities ratings generally will not be a factor
in the selection process.
WEISS, PECK & GREER'S CORE LARGE-CAP STOCK FUND ("WEISS, PECK & GREER CORE
LARGE-CAP STOCK PORTFOLIO") AND WEISS, PECK & GREER'S CORE SMALL-CAP STOCK
FUND ("WEISS, PECK & GREER CORE SMALL-CAP STOCK PORTFOLIO")
The investment objective of the Weiss, Peck & Greer Core Large-Cap Stock
Portfolio is to seek to exceed the performance of publicly traded large
capitalization stocks in the aggregate, as represented by the S&P 500 Composite
Stock Price Index. The S&P 500 Composite Price Stock Index is an unmanaged
index of 500 common stocks. The S&P 500 Composite Stock Price Index represents
approximately 70% of the total domestic U.S. equity market capitalization. The
investment objective of the Weiss, Peck & Greer Core Small-Cap Stock Portfolio
is to seek to exceed the performance of publicly traded small capitalization
stocks in the aggregate, as represented by the Russell 2000 Index. The Russell
2000 Index is an unmanaged index of 2,000 common stocks of small capitalization
companies. Each of these Portfolios pursues its investment objective by
investing in a portfolio of securities that is considered more "efficient" than
the applicable benchmark. An efficient portfolio is one that has the maximum
expected return for any level of risk. While each Portfolio will generally be
substantially fully invested in equity securities which comprise the applicable
benchmark, each Portfolio may invest up to 10% of its total assets in
securities that are issued or guaranteed by the U.S. Government or its
agencies, authorities, instrumentalities or sponsored enterprises.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of the
Portfolios and the investment advisory services, total expenses and charges can
be found in the current prospectuses for the corresponding Funds. THE FUNDS'
PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING
THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h)
16
<PAGE>
of the Code. Although we believe it is unlikely, a material conflict could
arise among the interests of the Separate Account and one or more of the other
participating separate accounts and other qualified persons or plans. In the
event of a material conflict, the affected insurance companies agree to take
any necessary steps, including removing their separate accounts from the Funds
if required by law, to resolve the matter.
CONTRACT FEATURES
The rights and benefits under the Contract are described below and in the
Contract. The Company reserves the right to make any modification to conform
the Contract to, or give the Contract Owner the benefit of, any federal or
state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for a minimum of 10 days after you receive the
Contract (30 or more days in some instances as set forth in your Contract) 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 the Federated Prime Money Portfolio, we will return the
Accumulated Value of the amount of your Purchase Payment(s) so invested, or if
greater, the amount of your Purchase Payment(s) so invested, (2) for any amount
of your initial Purchase Payment(s) invested in the Portfolios immediately
following receipt by us, we will return the Accumulated Value of your Purchase
Payment(s) so invested plus any fees and/or Premium Taxes that may have been
subtracted from such amount, and (3) for any amount of your initial Purchase
Payment(s) invested in the Guaranteed 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 advisor who will
provide the necessary information to the Company in a customer order form and
forward the initial Purchase Payment to such address as the Company may from
time to time designate. If you wish to make personal delivery by hand or
courier to the Company of the initial Purchase Payment (rather than through the
mail), he or she must do so at our Administrative Offices at 400 West Market
Street, Louisville, KY 40202. The initial Purchase Payment for a Non-Qualified
Contract must be equal to or greater than the $5,000 minimum investment
requirement. The Initial Purchase Payment for a Qualified Contract must be
equal to or greater than $2,000 (or you may establish a payment schedule of $50
a month by payroll deduction).
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within two Business Days after 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 the applicant, explain the reason for the
delay and will refund the initial Purchase Payment within five Business Days,
unless the applicant instructs us to retain the initial Purchase Payment and
credit it as soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity Date,
as long as the Annuitant is living. Additional Purchase Payments must be for at
least $500 for Non-Qualified Contracts, or $50 for Qualified Contracts.
Additional Purchase Payments received prior to the close of the New York Stock
Exchange (generally 4:00 P.M. Eastern time) are credited to the Accumulated
Value at the close of business that same day. Additional Purchase Payments
received after the close of the New York Stock Exchange are processed the next
Business Day.
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<PAGE>
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 condition that the Contracts'
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 advisor how your Net Purchase Payments will be allocated. You
may allocate each Net Purchase Payment to one or more of the Portfolios or
General Account Guaranteed Options as long as such portions are whole number
percentages provided that each allocation to a General Account Guaranteed
Option is at least $1,000 and that no Portfolio or General Account Guaranteed
Option may contain a balance less than $1,000. You may choose not to allocate
any monies to a particular Portfolio. You may change allocation instructions
for future Net Purchase Payments by sending us the appropriate Company form or
by complying with other designated Company procedures. The General Account
Guaranteed Options are available for sale in most, but not all, states.
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Federated Prime Money Portfolio
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 the Federated Prime Money Portfolio 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 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 this immediate
investment is not available with respect to any amounts allocated to THE
GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR THE GUARANTEE PERIOD.)
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts (although certain charges or
restrictions may apply to your Contract's General Account Guaranteed Options).
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the net
asset value of the Separate Account. The annual mortality and expense risk
charge is .50% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on us.
Conversely, if the charge proves more than sufficient, any excess will be added
to the Company surplus and will be used for any lawful purpose, including any
shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
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<PAGE>
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 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. 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.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The administrative charges or fees may be reduced for sales of Contracts to a
trustee, employer or similar entity representing a group where the Company
determines that such sales result in savings of administrative expenses. In
addition, directors, officers and bona fide full-time employees (and their
spouses and minor children) of the Company, its ultimate parent company,
Providian Corporation and certain of their affiliates are permitted to purchase
Contracts with substantial reduction of administrative charges or fees or with
a waiver or modification of certain minimum or maximum purchase and transaction
amounts or balance requirements. Contracts so purchased are for investment
purposes only and may not be resold except to the Company.
In no event will reduction or elimination of fees or charges or waiver or
modification of transaction or balance requirements be permitted where such
reduction, elimination, waiver or modification will be unfairly discriminatory
to any person. Additional information about reductions in charges is contained
in the Statement of Additional Information.
TAXES
We will, where such taxes are imposed on the Company by state law, deduct
Premium Taxes that currently range up to 3.5%. These taxes will be deducted
from the Accumulated Value or Purchase Payments in accordance with applicable
law.
As of the date of this Prospectus, the following state assesses a Premium Tax
on all initial and additional Purchase Payments on Non-Qualified Contracts:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
South Dakota................................ 1.25%
</TABLE>
In addition, a number of states currently impose Premium Taxes at the time an
Annuity Payment Option (other than a Lump Sum Payment Option) is selected. As
of the date of this Prospectus, the following states assess a Premium Tax
against the Accumulated Value if the Contract Owner chooses an Annuity Payment
Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
NON-
QUALIFIED QUALIFIED
--------- ---------
<S> <C> <C>
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
19
<PAGE>
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 26.) Based upon these expectations, no
charge is currently being made to the Separate Account for corporate federal
income taxes that may be attributable to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a charge
may be made in future years for any federal income taxes incurred by the
Company. This might become necessary if the tax treatment of the Company is
ultimately determined to be other than what the Company currently believes it
to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflect the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in each Fund's Prospectus and
Statement of Additional Information.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s) and
the interest credited to the General Account Guaranteed Options during the
Valuation Period; and reduced by: (i) any decrease in the Accumulated Value due
to investment results of the selected Portfolio(s), (ii) a daily charge to
cover the mortality and expense risks assumed by the Company, (iii) any charge
to cover the cost of administering the Contract, (iv) any partial withdrawals,
(v) any Market Value Adjustment or other deduction due to early Exchanges from
the Guaranteed Rate Options and, if exercised by the Company, (vi) any charges
for any Exchanges made after the first 12 in any Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds and, as permitted, the General Account Guaranteed
Options. Requests for Exchanges, received by mail or by telephone, prior to the
close of the New York Stock Exchange (generally 4:00 P.M. Eastern time) are
processed at the close of business that same day. Requests received after the
close of the New York Stock Exchange are processed the next Business Day. If
you experience difficulty in making a telephone Exchange your Exchange request
may be made by regular or express mail. It will be processed on the date
received.
To take advantage of the privilege of initiating transactions by telephone, you
must first elect the privilege by completing the appropriate section of the
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.
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<PAGE>
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 Index 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 25.)
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank. If, at the
time the Contract Owner requests a full or partial withdrawal, he has not
provided the Company with a written election not to have federal income taxes
withheld, the Company must by law withhold 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 25.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of the
Contract (taking into account any prior withdrawals) may be more or less than
the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the day
and at the frequency indicated on the Systematic Withdrawal Request Form. The
start date for the systematic withdrawals must be between the first and twenty-
eighth day of the month. You may discontinue the Systematic Withdrawal Option
at any time by notifying us in writing at least 30 days prior to your next
scheduled withdrawal date.
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 25.) You may wish to consult a tax advisor regarding any
tax consequences that might result prior to electing the Systematic Withdrawal
Option.
We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for such
service.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in the Federated Prime Money
Portfolio, you may choose to have a specified dollar amount transferred from
this Portfolio to other Portfolios in the Separate Account or to the General
Account Guaranteed Options on a monthly basis. The main objective of Dollar
Cost Averaging is to shield your
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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 the Federated
Prime Money Portfolio when elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel this
option by sending the appropriate Company form to our Administrative Offices
which must be received at least seven days before the next transfer date.
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within five years after
date of death or be paid under an Annuity Payment Option under which payments
will begin within one year of the Contract Owner's death and will be made for
the life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason of
death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $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);
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(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) If an Annuitant's Beneficiary dies at the same time as the Annuitant,
the proceeds will be paid as though the Annuitant's Beneficiary had
died first. If an Annuitant's Beneficiary dies within 15 days after the
Annuitant's death and before the Company receives due proof of the
Annuitant's death, proceeds will be paid as though the Annuitant's
Beneficiary had died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's named
beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her estate.
If a Life Annuity with Period Certain option was elected, and if the Annuitant
dies on or after the Annuity Date, any unpaid payments certain will be paid to
the Annuitant's Beneficiary or your designated Payee.
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and is
payable upon receipt of due Proof of Death of the Annuitant as well as proof
that the Annuitant died prior to the Annuity Date. Upon receipt of this proof,
the Death Benefit will be paid within seven days, or as soon thereafter as the
Company has sufficient information about the Annuitant's Beneficiary to make
the payment. The Annuitant's Beneficiary may receive the amount payable in a
lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the sum
of all Net Purchase Payments made, less any partial withdrawals taken. During
each subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period before
age 75 occurs plus any Net Purchase Payments subsequently made, less any
partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date, which can be no later than the first day of
the month after the Annuitant's 85th birthday, without the Company's prior
approval. The Annuity Date is the date that Annuity Payments are scheduled to
commence under the Contract unless the Contract has been surrendered or an
amount has been paid as proceeds to the designated Annuitant's Beneficiary
prior to that date.
You may advance or defer the Annuity Date. However, the Annuity Date may not be
advanced to a date prior to 30 days after the date of receipt of a written
request or, without the Company's prior approval, deferred to a date beyond the
first day of the month after the Annuitant's 85th birthday. The Annuity Date
may only be changed by written request during the Annuitant's lifetime and must
be made at least 30 days before the then-scheduled Annuity Date. The Annuity
Date and the Annuity Payment options available for Qualified Contracts may also
be controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated Value,
adjusted for any Market Value Adjustment or other deductions applicable to
amounts allocated to a General Account Guaranteed Option, less any amount
allocated to the Guaranteed Equity Option, less any Premium Taxes incurred but
not yet deducted.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
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Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the life
of two Annuitants and thereafter for the life of the survivor, ceasing with the
last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from 10
to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each payment.
Since payments to older Annuitants are expected to be fewer in number, the
amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one option,
the Company must be told what part of the Accumulated Value is to be paid under
each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must by
law withhold such taxes from the taxable portions of such Annuity Payment and
remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with Period
Certain Option and the annuity benefit sections of the Contract. That portion
of the Accumulated Value that has been held in a Portfolio prior to the Annuity
Date will be applied under a Variable Annuity Option based on the performance
of that Portfolio. Subject to approval by the Company, you may select any other
Annuity Payment Option then being offered by the Company. All Fixed Annuity
Payments and the initial Variable Annuity Payment are guaranteed to be not less
than as provided by the Annuity Tables and the Annuity Payment Option elected
by the Contract Owner. The minimum payment, however, is $100. If the
Accumulated Value is less than $5,000, or less than $2,000 for Texas Contract
Owners, the Company has the right to pay that amount in a lump sum. From time
to time, the Company may require proof that the Annuitant or Contract Owner is
living. Annuity Payment Options are not available to: (1) an assignee; or (2)
any other than a natural person, except with the consent of the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity Tables
found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the value
of the initial Variable Annuity Payment, are based on an assumed interest rate
of 4%. If the actual net investment experience exactly equals the assumed
interest rate, then the Variable Annuity Payments will remain the same (equal
to the first Annuity Payment). However, if actual investment experience exceeds
the assumed interest rate, the Variable Annuity Payments will increase;
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.
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The value of all payments, both fixed and variable, will be greater for shorter
guaranteed periods than for longer guaranteed periods, and greater for life
annuities than for joint and survivor annuities, because they are expected to
be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-866-6007.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within seven days from the date the election becomes
effective except that the Company may be permitted to defer such payment if:
(1) the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the New York Stock Exchange is otherwise restricted; or
(2) an emergency exists as defined by the SEC, or the SEC requires that trading
be restricted; or (3) the SEC permits a delay for the protection of Contract
Owners.
As to amounts allocated to the General Account, we may, at any time, defer
payment of the Surrender Value for up to six months after we receive a request
for it. We will allow interest of at least 4% annually on any Surrender Value
payment derived from the General Account that we defer 30 days or more.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax adviser regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of the federal income tax laws,
the Treasury regulations or the current interpretations by the Internal Revenue
Service. We reserve the right to make uniform changes in the Contract to the
extent necessary to continue to qualify the Contract as an annuity. For a
discussion of federal income taxes as they relate to the Funds, please see the
accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons," page 27, and
"Diversification Standards," page 27.)
Section 72 provides that the proceeds of a full or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to the
extent the amounts held under the Contract exceed the "investment in the
Contract," as that term is defined in the Code. The "investment in the
Contract" can generally be described as the cost of the Contract, and generally
constitutes all Purchase Payments paid for the Contract less any amounts
received under the Contract that are excluded from the individual's gross
income. The taxable portion is taxed at ordinary income tax rates. For purposes
of this rule, a pledge or assignment of a Contract is treated as a payment
received on account of a partial withdrawal of a Contract.
Upon receipt of a full or partial withdrawal or an Annuity Payment under the
Contract, you will be taxed if the value of the Contract exceeds the investment
in the Contract. Generally, 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
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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.
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).
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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 advisor with
respect to the potential tax effects of such a transaction.
MULTIPLE CONTRACTS RULE
All non-qualified annuity contracts issued by the same company (or affiliate)
to the same Contract Owner during any calendar year are to be aggregated and
treated as one contract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received under any Contract prior
to the Contract's Annuity Date, such as a partial withdrawal, will be taxable
(and possibly subject to the 10% federal penalty tax) to the extent of the
combined income in all such contracts. The Treasury Department has specific
authority to issue regulations that prevent the avoidance of Code Section 72(e)
through the serial purchase of annuity contracts or otherwise. In addition,
there may be other situations in which the Treasury Department may conclude
that it would be appropriate to aggregate two or more Contracts purchased by
the same Contract Owner. 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 advisor before purchasing more than one
Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, the Separate Account will be
required to diversify its investments. The Regulations generally require that
on the last day of each quarter of a calendar year, no more than 55% of the
value of the Separate Account is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is represented
by any three investments, and no more than 90% is represented by any four
investments. A "look-through" rule applies that suggests that each Subaccount
of the Separate Account will be tested for compliance with the percentage
limitations by looking through to the assets of the Portfolios in which each
such Subaccount invests. All securities of the same issuer are treated as a
single investment. Each government agency or instrumentality will be treated as
a separate issuer for purposes of those limitations.
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In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to remain in compliance. For these
reasons, the Company reserves the right to modify the Contracts, as necessary,
to prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by public
school systems and certain tax-exempt organizations (Code Section 501(c)(3)
organizations) for their employees under Section 403(b) of the Code except, as
discussed below and subject to any conditions in an employer's plan, a Contract
used in connection with a Section 403(b) Plan offers the same benefits and is
subject to the same charges described in this Prospectus.
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are also allowed if the Contract Owner can show "hardship," as
defined by the Internal Revenue Service, but the surrender is limited to the
lesser of Purchase Payments made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a surrender is permitted under these
provisions, a 10% federal tax penalty may be assessed on the withdrawn amount
if it does not otherwise meet the exceptions to the penalty tax provisions.
(See "Taxation of Annuities in General," page 26).
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 26).
The Company believes that the Code surrender restrictions do not apply to tax-
free transfers pursuant to Revenue Ruling 90-24. The Company further believes
that the surrender restrictions will not apply to any "grandfathered" amount
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
LOANS UNDER 403(B) CONTRACTS
Under your 403(b) Contract, you may borrow against your Contract's Surrender
Value after the first Contract Year. No additional loans will be extended until
prior loan balances are paid in full. The loan amount must be at least $1,000
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
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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.
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, if will only use the information available under Contracts issued by
the Company.
29
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GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio 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.
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
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TABLE OF CONTENTS FOR THE PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
AND FOR THE
DIMENSIONAL VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
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PAGE
<S> <C>
THE CONTRACT.............................................................. 2
Computation of Variable Annuity Income Payments......................... 2
Exchanges............................................................... 3
Exceptions to Charges and to Transaction or Balance Requirements........ 3
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 5
Federated Prime Money and Money Market Portfolio 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.............................. 8
Non-Standardized One Year Return........................................ 9
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 9
Individualized Computer Generated Illustrations......................... 10
PERFORMANCE COMPARISONS................................................... 10
SAFEKEEPING OF ACCOUNT ASSETS............................................. 12
THE COMPANY............................................................... 12
STATE REGULATION.......................................................... 12
RECORDS AND REPORTS....................................................... 13
DISTRIBUTION OF THE CONTRACTS............................................. 13
LEGAL PROCEEDINGS......................................................... 13
OTHER INFORMATION......................................................... 13
FINANCIAL STATEMENTS...................................................... 13
Audited Financial Statements............................................ 13
</TABLE>
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APPENDIX A
THE GENERAL ACCOUNT
Because of applicable exemptive and exclusionary provisions, interests in the
General Account have not been registered under the Securities Act of 1933
("1933 Act"), nor under the 1940 Act. Thus, neither our General Account, nor
any interest therein are generally subject to regulation under the provisions
of the 1933 Act or the 1940 Act. Accordingly, the Company has been advised that
the staff of the SEC has not reviewed the disclosure in this 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 March 31, 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:
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.
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
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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
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.
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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.
("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. This option may not be available at all
times.
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DISCLAIMER REGARDING STANDARD & POOR'S 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 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 the S&P 500 Index which is determined, composed and calculated by S&P
without regard to Providian Life and Health Insurance Company or the GEO. S&P
has no obligation to take the needs of Providian Life and Health Insurance
Company or the Investors in the GEO into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the timing of the issuance or sale 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
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 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 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
DIMENSIONAL VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The Dimensional 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 seven
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 Net Purchase Payments for the Contract may be allocated among seven
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 two open-end, diversified investment companies):
.DFA SMALL VALUE PORTFOLIO .DFA SHORT-TERM FIXED
.DFA LARGE VALUE PORTFOLIO PORTFOLIO
.DFA INTERNATIONAL VALUE .DFA GLOBAL BOND PORTFOLIO
PORTFOLIO .FEDERATED PRIME MONEY FUND II
.DFA INTERNATIONAL SMALL
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 Federated Prime Money Fund II 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). If
you elect an Annuity Payment Option, Annuity Payments may be received on a
fixed and/or variable basis. You also have significant flexibility in choosing
the Annuity Date on which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for each Fund.
Please read the Prospectuses carefully and retain them for future reference. A
Statement of Additional Information for the Contract Prospectus, which has the
same date as this Prospectus, has also been filed with the Securities and
Exchange Commission, is incorporated herein by reference and is available free
by calling our Administrative Offices at 1-800-866-6007. The Table of Contents
of the Statement of Additional Information is included at the end of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The date of this Prospectus is April 30, 1997
FM-1206
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TABLE OF CONTENTS
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PAGE
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GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 6
FEE TABLE.................................................................. 8
Condensed Financial Information............................................ 10
Financial Statements....................................................... 10
Performance Measures....................................................... 10
Additional Performance Measures............................................ 11
Yield and Effective Yield.................................................. 11
The Company and the Separate Account....................................... 12
DFA Investment Dimensions Group Inc........................................ 12
The Federated Insurance Series............................................. 12
The Portfolios............................................................. 13
CONTRACT FEATURES.......................................................... 14
Right to Cancel Period................................................... 14
Contract Purchase and Purchase Payments.................................. 15
Purchasing by Wire....................................................... 15
Allocation of Purchase Payments.......................................... 15
Charges and Deductions................................................... 16
Accumulated Value........................................................ 18
Exchanges Among the Portfolios........................................... 18
Full and Partial Withdrawals............................................. 18
Systematic Withdrawal Option............................................. 19
Dollar Cost Averaging Option............................................. 19
IRS-Required Distributions............................................... 20
Minimum Balance Requirement.............................................. 20
Designation of an Annuitant's Beneficiary................................ 20
Death of Annuitant Prior to Annuity Date................................. 21
Annuity Date............................................................. 21
Lump Sum Payment Option.................................................. 21
Annuity Payment Options.................................................. 21
Deferment of Payment..................................................... 23
FEDERAL TAX CONSIDERATIONS................................................. 23
GENERAL INFORMATION........................................................ 28
APPENDIX A--The General Account............................................ A-1
</TABLE>
2
<PAGE>
GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less
any partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 21), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 21), 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 21).
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.
3
<PAGE>
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) DFA Investment Dimensions Group Inc., and (ii) Federated
Insurance Series (advised by Federated Advisers).
General Account - The account which contains all of our assets other than
those held in our separate accounts.
General Account Guaranteed Option - Any of the following three General Account
options offered by your Contract and to which you may allocate your Net
Purchase Payments: the One-Year Guaranteed 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. (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 Premium Tax,
if any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant--in which case the Annuitant's Beneficiary is entitled to the Death
Benefit. (Note: this transfer of ownership to the Owner's Designated
Beneficiary will generally not be subject to probate, but will be subject to
estate and inheritance taxes. Consult with your tax and estate adviser to be
sure which rules will apply to you.)
Payee - The Contract Owner, Annuitant, Annuitant's Beneficiary, or any other
person, estate, or legal entity to whom benefits are to be paid.
Portfolio - A separate investment series of the Funds. The Funds currently
offer seven Portfolios in the Dimensional Variable Annuity: the VA Small Value
Portfolio (the "DFA Small Value Portfolio") the VA Large Value Portfolio (the
"DFA Large Value Portfolio") (formerly, the DFA Global Value Portfolio), the
VA International Value Portfolio (the "DFA International Value Portfolio"),
the VA International Small Portfolio (the "DFA International Small
Portfolio"), the VA Short-Term Fixed Portfolio (the "DFA Short-Term Fixed
Portfolio") and the VA Global Bond Portfolio (the "DFA Global Bond Portfolio")
of DFA Investment Dimensions Group Inc.; and the Federated Prime Money Fund II
("Federated Prime Money Portfolio") of Federated Insurance Series; (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.
4
<PAGE>
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.
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of Providian Life and Health Insurance
Company's Separate Account V dedicated to the Contract. The Separate Account
consists of assets that are segregated by Providian Life and Health Insurance
Company and, for Contract Owners, invested in the Portfolios. The Separate
Account is independent of the general assets of the Company. The Separate
Account invests in the portfolios.
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 seven 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.
5
<PAGE>
HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 3).
DIMENSIONAL VARIABLE ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in seven
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 23)........................Page 23
INVESTMENT CHOICES
Your investment in the Contract may be allocated among seven Subaccounts of
the Separate Account and/or the General Account Guaranteed Options. The
Subaccounts in turn invest exclusively in the following seven Portfolios
offered by the Funds: the DFA Small Value Portfolio, the DFA Large Value
Portfolio, the DFA International Value Portfolio, the DFA International Small
Portfolio, the DFA Short-Term Fixed Portfolio, the DFA Global Bond Portfolio,
and the Federated Prime Money Portfolio. The assets of each Portfolio are
separate, and each Portfolio has distinct investment objectives and policies
as described in the corresponding Fund 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.
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 advisor 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 for
Qualified Contracts (or $50 monthly by payroll deduction for Qualified
Contracts); subsequent Purchase Payments must be at least $500 for Non-
Qualified Contracts
6
<PAGE>
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 the Federated Prime Money Portfolio
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 the Federated Prime Money Portfolio 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 grace period to
allow for mail delivery, during which you may cancel your investment in the
Contract. To cancel your investment, please return your Contract to us 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 Federated's Prime Money Portfolio, we will return the
Accumulated Value of the amount of your Purchase Payment(s) so invested, or if
greater, the amount of your Purchase Payment(s) so invested, (2) for any
amount of your initial Purchase Payment(s) invested in the Portfolios
immediately following receipt by us, we will return the Accumulated Value of
your Purchase Payment(s) so invested plus any fees and/or Premium Taxes that
may have been subtracted from such amount, and (3) for any amount of your
initial Purchase Payment(s) invested in the Guaranteed Rate Options
immediately following receipt by us, we will refund the Accumulated Value of
your Purchase Payment(s) so invested....................................Page 14
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 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 Guaranteed Rate Options on a pro rata
basis. The Guaranteed Equity Option is illiquid for the entire guarantee
period, and transfers from the General Account Guaranteed Options may be
subject to additional limitations and charges. (See also "Charges and
Deductions," page 16, and "The General Account," at Appendix A)....Page 18
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-
7
<PAGE>
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 Contract. We provide you with a variety of options as it
relates to those payments. At your discretion, payments may be either fixed or
variable or both. Fixed payouts are guaranteed for a designated period or for
life (either single or joint). Variable payments will vary depending on the
performance of the underlying Portfolio or Portfolios selected..........Page 21
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-866-6007 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming
any financial transactions that take place, as well as quarterly statements
and an annual statement.
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .50%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
administrative charges and policy fees which pay for administering the
Contract, and management, advisory and other fees, which reflect the costs of
the Funds..........................................................Page 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 thereof may
be subject to ordinary income taxes)....................................Page 18
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed by your state) that you would incur as an owner of a Contract
(see page 17). The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as a
purchaser of the Contract. The fee table reflects all expenses for both the
Separate Account and the Funds. For a complete discussion of Contract costs
and expenses, including charges applicable to General Account Guaranteed
Options, see "Charges and Deductions," page 16.
<TABLE>
<CAPTION>
CONTRACTOWNER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
Exchange Fees........................................................... None
ANNUAL CONTRACT FEE..................................................... $30
<CAPTION>
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
<S> <C>
Mortality and Expense Risk Charge....................................... .50%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .65%*
</TABLE>
*Separate Account Annual Expenses are not charged against the General
Account Guaranteed Options.
8
<PAGE>
PORTFOLIO ANNUAL EXPENSES
Except as may be indicated, the figures below are based on actual expenses for
fiscal year 1996 (as a percentage of each Portfolio's average net assets after
fee waiver and/or expense reimbursement, if applicable).
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT PORTFOLIO
AND ADVISORY OTHER ANNUAL
EXPENSES EXPENSES EXPENSES
------------ -------- ---------
<S> <C> <C> <C>
DFA Small Value Portfolio....................... 0.50% 0.55% 1.05%
DFA Large Value Portfolio....................... 0.25% 0.78% 1.03%
DFA International Value Portfolio............... 0.40% 0.77% 1.17%
DFA International Small Portfolio............... 0.50% 0.77% 1.27%
DFA Short-Term Fixed Portfolio.................. 0.25% 0.45% 0.70%
DFA Global Bond Portfolio....................... 0.25% 1.48% 1.73%
Federated Prime Money Portfolio*................ 0.00% 0.80% 0.80%
</TABLE>
*The expense figures shown reflect actual expenses for fiscal year 1996
including voluntary waivers of a portion of the management fees and/or
assumption of expenses. The maximum Management and Advisory Expenses and
Total Portfolio Annual Expenses absent the voluntary waivers would have been
as follows: 0.50% and 1.36%, respectively, for the Federated Prime Money
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>
3
1 YEAR YEARS 5 YEARS 10 YEARS
------ ------ ------- --------
<S> <C> <C> <C> <C>
DFA Small Value Portfolio.................. $17.62 $54.56 $ 93.91 $203.92
DFA Large Value Portfolio.................. $17.41 $53.94 $ 92.87 $201.77
DFA International Value Portfolio.......... $18.82 $58.24 $100.13 $216.77
DFA International Small Portfolio.......... $19.83 $61.29 $105.28 $227.35
DFA Short-Term Fixed Portfolio............. $14.08 $43.76 $ 75.57 $165.51
DFA Global Bond Portfolio.................. $24.45 $75.22 $128.63 $274.57
Federated Prime Money Portfolio............ $15.09 $46.85 $ 80.84 $176.63
</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 or annuitization of the Contract, on a pro rata basis, from
each Subaccount. In some states, the Company will deduct Premium Taxes as
incurred by the Company.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1994 THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
DFA
DFA DFA DFA DFA SHORT DFA FEDERATED
SMALL LARGE INT'L INT'L TERM GLOBAL PRIME
VALUE VALUE VALUE SMALL FIXED BOND MONEY
------- ------- ------- ------- ------- ------- ---------
<S> <C> <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 10.000
12/31/94.............. N/A N/A N/A N/A N/A N/A 10.026
12/31/95.............. 9.948 12.034 10.524 10.145 10.104 11.300 10.473
12/31/96.............. 12.063 14.165 11.214 10.106 10.560 12.235 10.900
Number of units
outstanding as of:
12/31/94.............. N/A N/A N/A N/A N/A N/A 70,223
12/31/95.............. 163,078 358,553 271,242 188,597 101,709 152,950 363,418
12/31/96.............. 711,634 983,458 983,425 617,388 821,351 317,470 512,275
</TABLE>
* Date of commencement of operations for DFA Small Value was 10/6/95; for DFA
Large Value was 1/18/95; for DFA International was 10/3/95; for DFA
International Small was 10/6/95; for DFA Short-Term Fixed was 10/9/95; and
for DFA Global Bond was 1/18/95. Date of commencement of operations for
Federated Prime Money was 12/7/94. The information presented above reflects
operations of the "DFA Subaccounts" (as defined in "Performance Measures,"
below) as offered through the Providian Advisor's Edge Variable Annuity
beginning on the dates given in the first sentence of this note.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company and the
financial statements of the Separate Account for the Providian Advisor's Edge
Variable Annuity (as well as the Independent Auditors' Reports thereon) are
contained in the Statement of Additional Information. Prior to 3/31/97, the
"DFA Subaccounts" (as defined in "Performance Measures," below) were offered
through the Providian Advisor's Edge Variable Annuity. Accordingly, no
financial statements are included for the Dimensional Variable Annuity
Separate Account because, as of December 31, 1996, the Subaccounts of the
Separate Account offered by the Dimensional Variable Annuity had not commenced
operations and consequently had no assets or liabilities.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of Federated's Prime Money Portfolio, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Certain total return and performance information for operations of the DFA
Small Value Portfolio, DFA Large Value Portfolio, DFA International Value
Portfolio, DFA International Small Portfolio, the DFA Short-Term Fixed
Portfolio and DFA Global Bond Portfolio (collectively, the "DFA Subaccounts")
for periods prior to 3/31/97 reflect operations of these Subaccounts in the
Providian Advisor's Edge Variable Annuity.
Until October 1995, the DFA Large Value Portfolio (formerly DFA Global Value
Portfolio) invested its assets in both U.S. and international securities.
Depending on the period presented, total return and performance information
presented for the DFA Large Value Portfolio may reflect the performance of the
Portfolio when it invested in the stocks of both U.S. and international
companies. Total return and performance information for the DFA Large Value
Portfolio which include the period prior to October 1995 should not be
considered indicative of the Portfolio's future performance. (See also "VA
Large Value Portfolio," page 13.)
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 ("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 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, however, do not reflect the Annual Contract Fee or Premium Taxes
(if any) which, if included, would reduce the percentages reported.
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. They do not include the
Annual Contract Fee or Premium Taxes (if any) which, if included, would reduce
the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of the Federated Prime Money Portfolio. "Yield" refers to
the income generated by an investment in the Federated Prime Money Portfolio
over a seven-day period, which is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Federated Prime Money
Portfolio is assumed to be reinvested. Therefore the effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment. These figures do not reflect the Annual Contract Fee or
Premium Taxes (if any) which, if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than the Federated
Prime Money Market for which the Company advertises yield, the Company shall
furnish a yield quotation referring to the Portfolio computed in the following
manner: the net investment income per Accumulation Unit earned during a recent
one month period is divided by the Accumulation Unit Value on the last day of
the period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
11
<PAGE>
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
THE COMPANY AND THE SEPARATE ACCOUNT
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Missouri on August 6, 1920. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in all states except for New York, as well as the
District of Columbia and Puerto Rico. The Company is wholly-owned, directly
and indirectly, by Providian Corporation ("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. ("AEGON"), 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 7 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
DFA INVESTMENT DIMENSIONS GROUP INC.
DFA Investment Dimensions Group Inc. is an open-end management investment
company organized under Maryland law in 1981, and is registered under the 1940
Act. The Fund issues 28 series of shares, including the DFA Small Value
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<PAGE>
Portfolio, the DFA Large Value Portfolio (formerly, the DFA Global Value
Portfolio), the DFA International Value Portfolio, the DFA International Small
Portfolio, DFA Short-Term Fixed Portfolio and the DFA Global Bond Portfolio,
which are the only portfolios available as part of the Dimensional Variable
Annuity. Dimensional Fund Advisors Inc. serves as this Fund's investment
adviser.
THE FEDERATED INSURANCE SERIES (ADVISED BY FEDERATED ADVISERS)
The Federated Insurance Series is an open-end management investment company
organized as a Massachusetts business trust and registered under the 1940 Act.
The Fund consists of eight investment portfolios one of which is available as
part of the Dimensional Variable Annuity: the Federated Prime Money Portfolio.
Federated Advisers serves as this Fund's investment adviser.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
For more information concerning the risks associated with each Portfolio's
investments, please refer to the applicable underlying Fund prospectus.
VA SMALL VALUE PORTFOLIO ("DFA SMALL VALUE PORTFOLIO")
The investment objective of the DFA Small Value Portfolio is to achieve long-
term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in common stocks of U.S. companies that have a high
book value in relation to their market value (a "book to market ratio") and
whose market capitalizations are smaller than that of the company having the
median market capitalization of companies whose shares are listed on the NYSE.
A company's shares will be considered to have a high book to market ratio if
the ratio equals or exceeds the ratios of any of the 30% of companies with the
highest positive book to market ratios whose shares are listed on the NYSE.
VA LARGE VALUE PORTFOLIO ("DFA LARGE VALUE PORTFOLIO")
The investment objective of the DFA Large Value Portfolio is to achieve long-
term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in common stocks of U.S. companies that have a high
book to market ratio and whose market capitalizations equal or exceed that of
the company having the median market capitalization of companies whose shares
are listed on the NYSE. Pursuant to a special meeting of this Portfolio's
shareholders held on September 15, 1995, the DFA Large Value Portfolio's
investment policy was changed to permit the Portfolio to achieve its
investment objective by investing substantially all of its assets in the stock
of U.S. companies and the sale of the Portfolio's non-U.S. securities to
another series of shares of DFA Investment Dimensions Group Inc.
VA INTERNATIONAL VALUE PORTFOLIO ("DFA INTERNATIONAL VALUE PORTFOLIO")
The investment objective of the DFA International Portfolio is to achieve
long-term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in value stocks of large non-U.S. companies. A
company's shares will be considered eligible for investment if the Advisor
believes such shares are value stocks at the time of purchase. Securities are
considered value stocks primarily because a company's shares have a book to
market ratio that equals or exceeds the ratios of any of the 30% of companies
in that country with the highest positive book to market ratios.
VA INTERNATIONAL SMALL PORTFOLIO ("DFA INTERNATIONAL SMALL PORTFOLIO")
The investment objective of the DFA International Small Portfolio is to
achieve long-term capital appreciation. This Portfolio provides investors with
access to securities portfolios consisting of small Japanese, United Kingdom,
Continental and Pacific Rim companies. The Portfolio seeks to achieve its
investment objective by investing its assets in a broad and diverse group of
marketable stocks of (1) Japanese small companies which are traded in the
Japanese securities markets; (2) United Kingdom small companies which are
traded principally on the International Stock Exchange of the United Kingdom
and the Republic of Ireland; (3) small companies organized under the laws of
certain European countries; and (4) small companies located in Australia, New
Zealand and Asian countries whose shares are traded principally on the
securities markets located in those countries.
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<PAGE>
VA SHORT-TERM FIXED PORTFOLIO ("DFA SHORT-TERM FIXED PORTFOLIO")
This investment objective of the DFA Short-Term Fixed Portfolio is to achieve
a stable real value (i.e., a return in excess of the rate of inflation) of
invested capital with a minimum of risk. This Portfolio seeks to achieve its
investment objective by investing in U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign
issuers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper, repurchase
agreements and obligations of supranational organizations. Generally, this
Portfolio will acquire obligations which mature within one year from the date
of settlement, but substantial investments may be made in obligations maturing
within two years from the date of settlement when greater returns are
available.
VA GLOBAL BOND PORTFOLIO ("DFA GLOBAL BOND PORTFOLIO")
The DFA Global Bond Portfolio seeks to provide a market rate of return for a
global fixed income portfolio with low relative volatility of returns. This
Portfolio will invest primarily in obligations issued or guaranteed by the
U.S. and foreign governments, their agencies and instrumentalities,
obligations of other foreign issuers rated AA or better and supranational
organizations, such as the World Bank, the European Investment Bank, European
Economic Community, and European Coal and Steel Community and corporate debt
obligations.
FEDERATED PRIME MONEY FUND II ("FEDERATED PRIME MONEY PORTFOLIO")
The investment objective of the Federated Prime Money Portfolio is to provide
current income consistent with stability of principal and liquidity. The
Portfolio pursues its investment objective by investing exclusively in a
portfolio of money market instruments maturing in 397 days or less.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services, total expenses and
charges can be found in the current prospectuses for the corresponding Funds.
THE FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise among the interests of
the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
CONTRACT FEATURES
The rights and benefits under the Contract are described below and in the
Contract. The Company reserves the right to make any modification to conform
the Contract to, or give the Contract Owner the benefit of, any federal or
state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for a minimum of 10 days after you receive the
Contract (30 or more days in some instances as set forth in your Contract)
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
14
<PAGE>
Purchase Payment(s) invested in the Federated Prime Money Portfolio, we will
return the Accumulated Value of the amount of your Purchase Payment(s) so
invested, or if greater, the amount of your Purchase Payment(s) so invested,
(2) for any amount of your initial Purchase Payment(s) invested in the
Portfolios immediately following receipt by us, we will return the Accumulated
Value of your Purchase Payment(s) so invested plus any fees and/or Premium
Taxes that may have been subtracted from such amount, and (3) for any amount
of your initial Purchase Payment(s) invested in the Guaranteed 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 advisor who will
provide the necessary information to the Company in a customer order form and
forward the initial Purchase Payment to such address as the Company may from
time to time designate. If you wish to make personal delivery by hand or
courier to the Company of the initial Purchase Payment (rather than through
the mail), he or she must do so at our Administrative Offices at 400 West
Market Street, Louisville, KY 40202. The initial Purchase Payment for a Non-
Qualified Contract must be equal to or greater than the $5,000 minimum
investment requirement. The Initial Purchase Payment for a Qualified Contract
must be equal to or greater than $2,000 (or you may establish a payment
schedule of $50 a month by payroll deduction).
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within two Business Days after 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 the applicant, explain the reason for the
delay and will refund the initial Purchase Payment within five Business Days,
unless the applicant instructs us to retain the initial Purchase Payment and
credit it as soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity
Date, as long as the Annuitant is living. Additional Purchase Payments must be
for at least $500 for Non-Qualified Contracts, or $50 for Qualified Contracts.
Additional Purchase Payments received prior to the close of the New York Stock
Exchange (generally 4:00 P.M. Eastern time) are credited to the Accumulated
Value at the close of business that same day. Additional Purchase Payments
received after the close of the New York Stock Exchange are processed the next
Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
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 advisor how your Net Purchase Payments will be allocated.
You may allocate each Net Purchase Payment to one or more of the Portfolios or
General Account Guaranteed Options as long as such portions are whole number
percentages provided that each allocation to a General Account Guaranteed
Option is at least $1,000 and that no Portfolio or General Account Guaranteed
Option may contain a balance less than $1,000. You may choose not to allocate
any monies to a particular Portfolio. You may change allocation instructions
for future Net Purchase Payments
15
<PAGE>
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.
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Federated Prime Money Portfolio
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 the Federated Prime Money Portfolio 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 this
immediate investment is not available with respect to any amounts allocated to
THE GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR THE GUARANTEE PERIOD.)
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts (although certain charges or
restrictions may apply to your Contract's General Account Guaranteed Options).
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the
net asset value of the Separate Account. The annual mortality and expense risk
charge is .50% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to the Company surplus and will be used for any lawful purpose,
including any shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
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 Exchanges between
Portfolios and/or General Account Guaranteed Options, provided that after an
Exchange no Portfolio or General Account Guaranteed Option may contain
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a balance less than $250 or $1,000, respectively. 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.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The administrative charges or fees may be reduced for sales of Contracts to a
trustee, employer or similar entity representing a group where the Company
determines that such sales result in savings of administrative expenses. In
addition, directors, officers and bona fide full-time employees (and their
spouses and minor children) of the Company, its ultimate parent company,
Providian Corporation and certain of their affiliates are permitted to
purchase Contracts with substantial reduction of administrative charges or
fees or with a waiver or modification of certain minimum or maximum purchase
and transaction amounts or balance requirements. Contracts so purchased are
for investment purposes only and may not be resold except to the Company.
In no event will reduction or elimination of fees or charges or waiver or
modification of transaction or balance requirements be permitted where such
reduction, elimination, waiver or modification will be unfairly discriminatory
to any person. Additional information about reductions in charges is contained
in the Statement of Additional Information.
TAXES
We will, where such taxes are imposed on the Company by state law, deduct
Premium Taxes that currently range up to 3.5%. These taxes will be deducted
from the Accumulated Value or Purchase Payments in accordance with applicable
law.
As of the date of this Prospectus, the following state assesses a Premium Tax
on all initial and additional Purchase Payments on Non-Qualified Contracts:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
South Dakota................................ 1.25%
</TABLE>
In addition, a number of states currently impose Premium Taxes at the time an
Annuity Payment Option (other than a Lump Sum Payment Option) is selected. As
of the date of this Prospectus, the following states assess a Premium Tax
against the Accumulated Value if the Contract Owner chooses an Annuity Payment
Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
NON-
QUALIFIED QUALIFIED
--------- ---------
<S> <C> <C>
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 23.) Based upon these
expectations, no charge is currently being made to the Separate Account for
corporate federal income taxes that may be attributable to the Separate
Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a
charge may be made in future years for any federal income taxes incurred by
the Company. This might become necessary if the tax treatment of the Company
is ultimately determined to be other than what the Company currently believes
it to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company
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<PAGE>
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 12 in any Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds and, as permitted, the General Account Guaranteed
Options. Requests for Exchanges, received by mail or by telephone, prior to
the close of the New York Stock Exchange (generally 4:00 P.M. Eastern time)
are processed at the close of business that same day. Requests received after
the close of the New York Stock Exchange are processed the next Business Day.
If you experience difficulty in making a telephone Exchange your Exchange
request may be made by regular or express mail. It will be processed on the
date received.
To take advantage of the privilege of initiating transactions by telephone,
you must first elect the privilege by completing the appropriate section of
the 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
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<PAGE>
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 21.)
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 23.)
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 23.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of
the Contract (taking into account any prior withdrawals) may be more or less
than the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the
day and at the frequency indicated on the Systematic Withdrawal Request Form.
The start date for the systematic withdrawals must be between the first and
twenty-eighth day of the month. You may discontinue the Systematic Withdrawal
Option at any time by notifying us in writing at least 30 days prior to your
next scheduled withdrawal date.
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 23.) You may wish to consult a tax advisor regarding any
tax consequences that might result prior to electing the Systematic Withdrawal
Option.
We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for
such service.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in the Federated Prime Money
Portfolio, you may choose to have a specified dollar amount transferred from
this Portfolio to other Portfolios in the Separate Account or to the General
Account Guaranteed Options on a monthly basis. The main objective of Dollar
Cost Averaging is to shield your investment from short term price
fluctuations. Since the same dollar amount is transferred to other Portfolios
each month, more units are purchased in a Portfolio if the value per unit is
low and less units are purchased if the value per unit is high. Therefore, a
lower average cost per unit may be achieved over the long term. This plan of
investing allows investors to take advantage of market fluctuations but does
not assure a profit or protect against a loss in declining markets.
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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 the Federated
Prime Money Portfolio when elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel
this option by sending the appropriate Company form to our Administrative
Offices which must be received at least seven days before the next transfer
date.
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within five years after
date of death or be paid under an Annuity Payment Option under which payments
will begin within one year of the Contract Owner's death and will be made for
the life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason
of death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $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
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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 the Annuity Payment options available for Qualified Contracts
may also be controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated
Value, adjusted for any Market Value Adjustment or other deductions applicable
to amounts allocated to a General Account Guaranteed Option, less any amount
allocated to the 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:
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Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $5,000, or less than $2,000 for Texas
Contract Owners, the Company has the right to pay that amount in a lump sum.
From time to time, the Company may require proof that the Annuitant or
Contract Owner is living. Annuity Payment Options are not available to: (1) an
assignee; or (2) any other than a natural person, except with the consent of
the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; 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.
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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 25, and
"Diversification Standards," page 25.)
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. Generally, 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
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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.
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).
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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 74(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 advisor with
respect to the potential tax effects of such a transaction.
MULTIPLE CONTRACTS RULE
All non-qualified annuity contracts issued by the same company (or affiliate)
to the same Contract Owner during any calendar year are to be aggregated and
treated as one contract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received under any Contract
prior to the Contract's Annuity Date, such as a partial withdrawal, will be
taxable (and possibly subject to the 10% federal penalty tax) to the extent of
the combined income in all such contracts. The Treasury Department has
specific authority to issue regulations that prevent the avoidance of Code
Section 72(e) through the serial purchase of annuity contracts or otherwise.
In addition, there may be other situations in which the Treasury Department
may conclude that it would be appropriate to aggregate two or more Contracts
purchased by the same Contract Owner. 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 advisor before purchasing
more than one Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, the Separate Account will be
required to diversify its investments. The Regulations generally require that
on the last day of each quarter of a calendar year, no more than 55% of the
value of the Separate Account is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. A "look-through" rule applies that suggests that each
Subaccount of the Separate Account will be tested for compliance with the
percentage limitations by looking through to the assets of the Portfolios in
which each such Subaccount invests. All securities of the same issuer are
treated as a single investment. Each government agency or instrumentality will
be treated as a separate issuer for purposes of those limitations.
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In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to remain in compliance. For these
reasons, the Company reserves the right to modify the Contracts, as necessary,
to prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations (Code Section
501(c)(3) organizations) for their employees under Section 403(b) of the Code
except, as discussed below and subject to any conditions in an employer's
plan, a Contract used in connection with a Section 403(b) Plan offers the same
benefits and is subject to the same charges described in this Prospectus.
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are also allowed if the Contract Owner can show "hardship," as
defined by the Internal Revenue Service, but the surrender is limited to the
lesser of Purchase Payments made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a surrender is permitted under
these provisions, a 10% federal tax penalty may be assessed on the withdrawn
amount if it does not otherwise meet the exceptions to the penalty tax
provisions. (See "Taxation of Annuities in General," page 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.
LOANS UNDER 403(B) CONTRACTS
Under your 403(b) Contract, you may borrow against your Contract's Surrender
Value after the first Contract Year. No additional loans will be extended
until prior loan balances are paid in full. The loan amount must be at least
$1,000 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
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<PAGE>
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.
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, if will only use the information available under Contracts issued
by the Company.
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GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio 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.
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.
28
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TABLE OF CONTENTS FOR THE PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
AND FOR THE
DIMENSIONAL VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 2
Computation of Variable Annuity Income Payments......................... 2
Exchanges............................................................... 3
Exceptions to Charges and to Transaction or Balance Requirements........ 3
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 5
Federated Prime Money and Money Market Portfolio 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.............................. 8
Non-Standardized One Year Return........................................ 9
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 9
Individualized Computer Generated Illustrations......................... 10
PERFORMANCE COMPARISONS................................................... 10
SAFEKEEPING OF ACCOUNT ASSETS............................................. 12
THE COMPANY............................................................... 12
STATE REGULATION.......................................................... 12
RECORDS AND REPORTS....................................................... 13
DISTRIBUTION OF THE CONTRACTS............................................. 13
LEGAL PROCEEDINGS......................................................... 13
OTHER INFORMATION......................................................... 13
FINANCIAL STATEMENTS...................................................... 13
Audited Financial Statements............................................ 13
</TABLE>
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APPENDIX A
THE GENERAL ACCOUNT
Because of applicable exemptive and exclusionary provisions, interests in the
General Account have not been registered under the Securities Act of 1933
("1933 Act"), nor under the 1940 Act. Thus, neither our General Account, nor
any interest therein are generally subject to regulation under the provisions
of the 1933 Act or the 1940 Act. Accordingly, the Company has been advised
that the staff of the SEC has not reviewed the disclosure in this 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 March 31, 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:
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.
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
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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
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.
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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.
("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, of 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. This option may not be available at
all times.
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DISCLAIMER REGARDING STANDARD & POOR'S 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 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 the S&P 500 Index which is determined, composed and calculated by S&P
without regard to Providian Life and Health Insurance Company or the GEO. S&P
has no obligation to take the needs of Providian Life and Health Insurance
Company or the Investors in the GEO into consideration in determining,
composing or calculating the S&P 500 Index. S&P is not responsible for and has
not participated in the determination of the issuance or sale 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
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 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 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
PGA RETIREMENT ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The PGA Retirement Annuity contract (the "Contract"), offered through
Providian Life and Health Insurance Company (the "Company," "us," "we" or
"our"), provides a vehicle for investing on a tax-deferred basis in 5
investment company Portfolios. The Contract is an individual variable annuity
contract and is intended for retirement savings or other long-term investment
purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $3,000.
The minimum initial purchase payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (30
days or more in some instances) plus a 5 day grace period to allow for mail
delivery during which you may cancel your investment in the Contract.
Your Net Purchase Payments for the Contract may be allocated among 5
Subaccounts of Providian Life and Health Insurance Company's Separate Account
V. Assets of each Subaccount are invested in one of the following Portfolios:
. CAPITAL PRESERVATION PORTFOLIO
. INCOME ORIENTED PORTFOLIO
. GROWTH AND INCOME PORTFOLIO
. CAPITAL GROWTH PORTFOLIO
. MAXIMUM APPRECIATION PORTFOLIO
Depending upon the state of issue and provisions of your Contract, your
initial Net Purchase Payment(s), when your Contract is issued, either will be
(i) invested in a sixth Subaccount, the Money Market Fund, during your Right
to Cancel Period or (ii) invested immediately in your chosen Portfolio(s).
(The Money Market Fund and the Portfolios are collectively referred to as
"Portfolios").
The Contract's Accumulated Value varies with the investment performance of the
Portfolio(s) you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals of the Contract's Surrender Value may be made at any time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% federal tax penalty (and a portion may be subject to ordinary income
taxes). If you elect an Annuity Payment Option, Annuity Payments may be
received on a fixed and/or variable basis. You also have significant
flexibility in choosing the Annuity Date on which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for the
Portfolios. Please read the Prospectus carefully and retain it for future
reference. A Statement of Additional Information for the Contract Prospectus,
which has the same date as this Prospectus, has also been filed with the
Securities and Exchange Commission, is incorporated herein by reference and is
available free by calling our Administrative Offices at 1-800-866-6007. The
Table of Contents of the Statement of Additional Information is included at
the end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
The date of this Prospectus is April 30, 1997
FM-1189
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 6
FEE TABLE.................................................................. 8
Financial Statements....................................................... 9
Performance Measures....................................................... 9
Additional Performance Measures............................................ 10
Yield and Effective Yield.................................................. 10
The Company and the Separate Account....................................... 11
Providian Series Trust..................................................... 11
The Portfolios............................................................. 12
The Money Market Fund...................................................... 12
CONTRACT FEATURES.......................................................... 12
Right to Cancel Period................................................... 12
Contract Purchase and Purchase Payments.................................. 12
Purchasing by Wire....................................................... 13
Allocation of Purchase Payments.......................................... 13
Charges and Deductions................................................... 14
Accumulated Value........................................................ 15
Exchanges Among the Portfolios........................................... 15
Full and Partial Withdrawals............................................. 16
Systematic Withdrawal Option............................................. 16
IRS-Required Distributions............................................... 17
Minimum Balance Requirement.............................................. 17
Designation of an Annuitant's Beneficiary................................ 17
Death of Annuitant Prior to Annuity Date................................. 18
Annuity Date............................................................. 18
Lump Sum Payment Option.................................................. 18
Annuity Payment Options.................................................. 18
Deferment of Payment..................................................... 19
FEDERAL TAX CONSIDERATIONS................................................. 20
GENERAL INFORMATION........................................................ 23
</TABLE>
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GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
ending before age 75 occurs plus any Net Purchase Payments subsequently made,
less any partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 18), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 18), 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 18).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
Company ("we," "us," "our") - Providian Life and Health Insurance Company, a
Missouri stock company.
Contract Anniversary - Any anniversary of the Contract Date.
Contract Date - The date of issue of this Contract.
Contract Owner ("you," "your") - The person or persons designated as the
Contract Owner in the Contract. The term shall also include any person named
as Joint Owner. A Joint Owner shares ownership in all respects with the
Contract Owner. Prior to the Annuity Date, the Contract Owner has the right to
assign ownership, designate beneficiaries, make permitted withdrawals and
Exchanges among Subaccounts.
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Contract Year - A period of 12 months starting with the Contract Date or any
Contract Anniversary.
Death Benefit - The greater of the Contract's Accumulated Value on the date
the Company receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount.
General Account - The account which contains all of our assets other than
those held in our separate accounts.
Net Purchase Payment - Any Purchase Payment less the applicable Premium Tax,
if any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant--in which case the Annuitant's Beneficiary is entitled to the Death
Benefit. (Note: this transfer of ownership to the Owner's Designated
Beneficiary will generally not be subject to probate, but will be subject to
estate and inheritance taxes. Consult with your tax and estate adviser to be
sure which rules will apply to you.)
Payee - The Contract Owner, Annuitant, Annuitant's Beneficiary, or any other
person, estate, or legal entity to whom benefits are to be paid.
Portfolio - A separate investment series of the Trust. The Trust currently
offers 6 series in the PGA Retirement Annuity: the Capital Preservation
Portfolio, the Income Oriented Portfolio, the Growth and Income Portfolio, the
Capital Growth Portfolio, the Maximum Appreciation Portfolio, and the Money
Market Fund (each a "Portfolio" and, collectively, the "Portfolios"). In this
Prospectus, Portfolio will also be used to refer to the Subaccount that
invests in the corresponding Portfolio/Fund.
Premium Tax - A regulatory tax that may be assessed by certain states on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $3,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Qualified Contract - An annuity contract as defined under Sections 403(b) and
408(b) of the Internal Revenue Code of 1986, as amended (the "Code").
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of Providian Life and Health Insurance
Company's Separate Account V dedicated to the Contract. The Separate Account
consists of assets that are segregated by Providian Life and Health Insurance
Company and, for Contract Owners, invested in the Portfolios. The Separate
Account is independent of the general assets of the Company.
Subaccount - That portion of the Separate Account that invests in shares of
the Portfolios. Each Subaccount will only invest in a single Portfolio. The
investment performance of each Subaccount is linked directly to the investment
performance of one of the Portfolios.
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Surrender Value - The Accumulated Value less any Premium Taxes incurred but
not yet deducted.
Trust - The Providian Series Trust.
Underlying Funds - Four series of the Trust in which the Portfolios, other
than the Money Market Fund, invest. The four series are the High Quality Stock
Fund, Fixed Income Fund, International Active Fund, and Money Market Fund.
Valuation Period - The performance of your Contract is measured by using the
Accumulation Unit Value. This value is calculated at the close of each
Business Day. A Valuation Period is defined as the period of time between the
close of business on one Business Day and the close of business on the
following Business Day.
5
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HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 3).
PGA RETIREMENT ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in 5
investment company Portfolios. Monies may be subsequently withdrawn from the
Contract either as a lump sum or as annuity income as permitted under the
Contract. Accumulated Values and Annuity Payments depend on the investment
experience of the selected Portfolio(s). The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement but also for other long-term
investment purposes. The tax-deferred feature of the Contract is most
attractive to investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract and a Non-
Qualified Contract. Both Qualified and Non-Qualified Contracts offer tax-
deferral on increases in the Contract's value prior to withdrawal or
distribution; however, Purchase Payments made by Contract Owners of Qualified
Contracts may be excludible or deductible from gross income in the year such
payments are made, subject to certain statutory restrictions and limitations.
(See "Federal Tax Considerations," page 20.)
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 5 Subaccounts of the
Separate Account. The Subaccounts in turn invest exclusively in the following
5 Portfolios offered by the Trust: the Capital Preservation Portfolio, the
Income Oriented Portfolio, the Growth and Income Portfolio, the Capital Growth
Portfolio, and the Maximum Appreciation Portfolio. In certain states, your
investment will be invested in the Money Market Fund during the Right to
Cancel Period. The assets of each Portfolio are separate. Each Portfolio has
distinct investment objectives and policies as described in the prospectus for
the Portfolios. (See page 11.)
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in
the Contract. The Contract Owner may designate any person as a Joint Owner. A
Joint Owner shares ownership in all respects with the Contract Owner. Prior to
the Annuity Date, the Contract Owner has the right to assign ownership,
designate beneficiaries, and make permitted withdrawals and Exchanges among
the Subaccounts.
ANNUITANT
The Annuitant is a person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid. The Annuitant may not be older than age 75.
ANNUITANT'S BENEFICIARY
The Contract Owner may designate any person to receive benefits under the
Contract which are payable upon the death of the Annuitant prior to the
Annuity Date.
HOW TO INVEST
To invest in the Contract, you will need to provide the necessary information
to us in a customer order form. You will need to select an Annuitant. The
Annuitant may not be older than age 75 at the time the Contract is issued. The
minimum initial Purchase Payment is $3,000 for Non-Qualified Contracts, and
$2,000 for Qualified Contracts (or $50
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monthly by payroll deduction for Qualified Contracts). Subsequent Purchase
Payments must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. You may make subsequent Purchase Payments at any time
before the Contract's Annuity Date, as long as the Annuitant specified in the
Contract is living. A waiver of the Initial Purchase Payment and additional
Purchase Payment minimum requirements may be available. (See page 12.)
ALLOCATION OF PURCHASE PAYMENTS
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Money Market Fund until the
expiration of the Right to Cancel Period of 10 days (30 or more days in some
instances, as specified in your Contract) plus a 5-day grace period to allow
for mail delivery, and then invested according to your initial allocation
instructions.
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in the
Portfolio(s) you selected immediately upon our receipt thereof, IN WHICH CASE
YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE PORTFOLIOS
DURING THE RIGHT TO CANCEL PERIOD. You must fill out and send us the
appropriate form or comply with other designated Company procedures if you
would like to change how subsequent Net Purchase Payments are allocated. (See
page 13.)
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (30 or more days
in some instances as specified in your Contract) plus a 5 day grace period to
allow for mail delivery, during which you may cancel your investment in the
Contract. To cancel your investment, please return your Contract to us. When
we receive the Contract, (1) if the state of issue of your Contract is CA, GA,
ID, LA, MI, MO, NE, NH, NC, OK, OR, SC, UT, VA or WV, then for any amount of
your initial Purchase Payment(s) invested in the Money Market Fund, we will
return the Accumulated Value of the amount of your Purchase Payment(s) so
invested, or if greater, the amount of your Purchase Payment(s) so invested,
and (2) for any amount of your initial Purchase Payment(s) invested in the
Portfolio(s) immediately following receipt by us, we will return the
Accumulated Value of your Purchase Payment(s) so invested plus any fees and/or
Premium Taxes that may have been subtracted from such amount. (See page 12.)
EXCHANGES
You may make unlimited Exchanges among the Portfolios, provided you maintain a
minimum balance of $1,000 in each Subaccount to which you have allocated a
portion of your Accumulated Value. 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 below $1,000, or that remaining amount will be
transferred to your other Subaccounts on a pro rata basis. (See also "Charges
and Deductions," page 14.)
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value or the
Adjusted Death Benefit on the date we receive due proof of the Annuitant's
death. During the first six Contract Years, the Adjusted Death Benefit will be
the sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period ending before age 75 occurs plus any Net Purchase Payments subsequently
made, less any partial withdrawals subsequently taken. The Annuitant's
Beneficiary may elect to receive these proceeds as a lump sum or as Annuity
Payments. If the Annuitant dies on or after the Annuity Date, any unpaid
payments certain will be paid, generally to the Annuitant's Beneficiary, in
accordance with the Contract. (See page 17.)
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
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an Annuity Payment Option, you are asking us to systematically liquidate your
Contract. We provide you with a variety of options as it relates to those
payments. At your discretion, payments may be either fixed or variable or both.
Fixed payouts are guaranteed for a designated period or for life (either single
or joint). Variable payments will vary depending on the performance of the
Portfolio(s) selected. (See page 18.)
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-866-6007 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming any
financial transactions that take place, as well as quarterly statements and an
annual statement.
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .55%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
administrative charges and policy fees, which pay for administering the
Contract, as well as portions of the management, advisory and other fees, which
reflect the costs of operating the Portfolios. (See page 14.)
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior to
age 59 1/2 may be subject to a 10% federal tax penalty (and a portion thereof
may be subject to ordinary income taxes). (See page 16.)
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that may
be assessed by your state) that you would incur as an owner of a Contract (see
page 14). The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as a
purchaser of the Contract. The fee table reflects all expenses for both the
Separate Account and the Portfolios. For a complete discussion of Contract
costs and expenses, see "Charges and Deductions," page 14.
<TABLE>
<S> <C>
CONTRACTOWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases......................................... None
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....................................... .55%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .70%
</TABLE>
PORTFOLIO ANNUAL EXPENSES
Except for the Money Market Fund, the Portfolios will operate at a zero expense
level during the first three years of operations. However, while those
Portfolios are expected to operate without expenses, including management fees,
Contract Owners in those Portfolios bear indirectly the expenses of the
Underlying Funds in which those Portfolios invest. The following chart
illustrates the indirect expense ratio that each Portfolio, except the Money
Market Fund, is
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estimated to incur based on certain allocations among the Underlying Funds.
Except as may be indicated, the figures below are based on estimated expenses
for the first fiscal year of operation (as a percentage of each such
Portfolio's average net assets after fee waiver and/or expense reimbursement).
<TABLE>
<CAPTION>
TOTAL
PORTFOLIO
ANNUAL
EXPENSES
---------
<S> <C>
Capital Preservation Portfolio............................. 0.77%*
Income Oriented Portfolio.................................. 0.89%*
Growth and Income Portfolio................................ 0.90%*
Capital Growth Portfolio................................... 0.94%*
Maximum Appreciation Portfolio............................. 0.96%*
</TABLE>
* These numbers are based on an agreement by Providian Investment Advisors,
Inc. (the "Adviser") to limit the Other Expenses of each Underlying Fund
so that the ratio of expenses (excluding advisory fees) to net assets on
an annual basis does not exceed 0.25%. Expenses in excess of such amounts
will be assumed by the Adviser until the earlier of (a) the end of three
years after commencement of operations or (b) the termination by the
Trust's Trustees or the Portfolios' shareholders, but not the Adviser, of
the Trust's Advisory Agreement with the Adviser. In the absence of this
agreement and the agreement that the Portfolio will operate at a zero
expense level during the first three years of operations, it is estimated
that the total Portfolio annual expenses would have been as follows:
Capital Preservation Portfolio 4.77%; Income Oriented Portfolio 3.95%;
Growth and Income Portfolio 3.75%; Capital Growth Portfolio 3.42%; and
Maximum Appreciation Portfolio 3.31%.
The following example illustrates the expenses that you would incur on a
$1,000 Purchase Payment over various periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each period. As noted in the table
above, the Contract imposes no surrender or withdrawal charges of any kind.
Your expenses are identical whether you continue the Contract or withdraw the
entire value of your Contract at the end of the applicable period as a lump
sum or under one of the Contract's Annuity Payment Options.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Capital Preservation Portfolio....................... $22.22 $67.99
Income Oriented Portfolio............................ $23.47 $71.80
Growth and Income Portfolio.......................... $23.60 $72.17
Capital Growth Portfolio............................. $23.85 $72.93
Maximum Appreciation Portfolio....................... $24.10 $73.69
</TABLE>
The Annual Contract Fee in these examples is estimated and reflects a
percentage equal to the total amount of fees collected during a calendar year
divided by the total average net assets of the Portfolios during the same
calendar year. The fee is assumed to remain the same in each year of the above
periods. (With respect to partial year periods, if any, in the examples, the
Annual Contract Fee is pro-rated to reflect only the applicable portion of the
partial year period.) The Annual Contract Fee will be deducted on each
Contract Anniversary and upon surrender or annuitization of the Contract, on a
pro rata basis, from each Subaccount. In some states, the Company will deduct
Premium Taxes as incurred by the Company.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company (as well as
the Independent Auditors' Report thereon) are contained in the Statement of
Additional Information. No financial statements are included for the Separate
Account because, as of the date of this Prospectus, the Subaccounts of the
Separate Account offered by the PGA Retirement Annuity had not commenced
operations, and consequently had no assets or liabilities.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Money Market Fund, the yield of the other
Subaccounts, and the total return of all Subaccounts may appear in reports and
promotional literature to current or prospective Contract Owners.
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Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's and Subaccount's yield and total return, and a list of the indexes
and other benchmarks used in evaluating a Portfolio's and Subaccount's
performance.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission ("SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the deduction of the Annual Contract Fee and
all other Portfolio, Separate Account and Contract level charges except
Premium Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE
ANNUAL TOTAL RETURN
The Company may show actual Total Return (i.e., the percentage change in the
value of an Accumulation Unit) for one or more Subaccounts with respect to one
or more periods, including Total Return Year-to-Date with respect to certain
periods. The Company may also show actual Average Annual Total Return (i.e.,
the average annual change in Accumulation Unit Values) with respect to one or
more periods. For one year, the actual Total Return and the actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the actual Average Annual Total Return is the
effective annual compounded rate of return for the periods stated. Because the
value of an Accumulation Unit reflects the Separate Account and Portfolio
expenses (see "Fee Table"), the actual Total Return and actual Average Annual
Total Return also reflect these expenses. These percentages, however, do not
reflect the Annual Contract Fee or Premium Taxes (if any) which, if included,
would reduce the percentages reported.
YIELD AND EFFECTIVE YIELD
From time to time a Portfolio may advertise its yield and total return
investment performance. For each Subaccount for which the Company advertises
yield, the Company shall furnish a yield quotation referring to the Portfolio
computed in the following manner: the net investment income per Accumulation
Unit earned during a recent one month period is divided by the Accumulation
Unit Value on the last day of the period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria, including Morningstar, Inc. Performance figures will be calculated
in accordance with standardized methods established by each reporting service.
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THE COMPANY AND THE SEPARATE ACCOUNT
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Missouri on August 6, 1920. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in all states except for New York, as well as the
District of Columbia and Puerto Rico. The Company is wholly-owned, directly
and indirectly, by Providian Corporation, a publicly-held diversified consumer
financial services company whose shares are traded on the New York Stock
Exchange with assets of $29 billion as of December 31, 1996. 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
in 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.
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
The Separate Account was established by the Company as a separate account
under the laws of the State of Missouri on February 14, 1992, pursuant to a
resolution of the Company's Board of Directors. The Separate Account is a unit
investment trust registered with the SEC under the Investment Company Act of
1940 (the "1940 Act"). Such registration does not signify that the SEC
supervises the management or the investment practices or policies of the
Separate Account. The Separate Account meets the definition of a "separate
account" under the federal securities laws.
The assets of the Separate Account are owned by the Company and the
obligations under the Contract are obligations of the Company. These assets
are held separately from the other assets of the Company and are not
chargeable with liabilities incurred in any other business operation of the
Company (except to the extent that assets in the Separate Account exceed the
reserves and other liabilities of the Separate Account). Income, gains and
losses incurred on the assets in the Separate Account, whether or not
realized, are credited to or charged against the Separate Account without
regard to other income, gains or losses of the Company. Therefore, the
investment performance of the Separate Account is entirely independent of the
investment performance of the General Account assets or any other separate
account maintained by the Company.
The Separate Account has dedicated 6 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Trust. Additional
subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
PROVIDIAN SERIES TRUST
The Trust is a diversified investment company presently consisting of 9
separate series each having different investment objectives and policies. This
Contract offers 6 series of shares, each a professionally managed investment
Portfolio. Except for the Money Market Fund, each Portfolio seeks to achieve
its objective by investing in a number of other series offered by the Trust.
The Money Market Fund is available only for the purposes of depositing and
holding initial purchase payments during the Right to Cancel Period for the
Contracts issued in certain states. The Adviser has retained Federated
Investment Counseling to serve as sub-adviser to the Money Market Fund and
Atlanta Capital Management Company, L.L.C. ("Atlanta Capital") to serve as
sub-adviser for the other Portfolios. Subject to the supervision and direction
of the Board of Trustees of the Trust, Atlanta Capital determines how each of
its Portfolio's assets will be invested in the Underlying Funds. Atlanta
Capital receives a fee, which is paid by the Adviser and is a percentage of
the annual net asset value of the Underlying Funds in which Atlanta Capital
serves as sub-adviser and the Portfolios invest. The advisory fee is deducted
automatically from the assets of the Underlying Funds, and is therefore paid
indirectly by the Portfolios. Similarly, Federated Investment Counseling
receives a fee, which is paid by the Adviser and is a percentage of the annual
net asset value of the Money Market Fund.
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<PAGE>
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUS)
For more information concerning the risks associated with each Portfolio's
investments, please refer to the prospectus for the Portfolios.
THE CAPITAL PRESERVATION PORTFOLIO-seeks high current income with low
volatility of principal.
THE INCOME ORIENTED PORTFOLIO-seeks income and, secondarily, long term growth
of capital.
THE GROWTH AND INCOME PORTFOLIO-seeks growth of capital and income.
THE CAPITAL GROWTH PORTFOLIO-seeks long term growth of capital and,
secondarily, current income.
THE MAXIMUM APPRECIATION PORTFOLIO-seeks capital appreciation.
THE MONEY MARKET FUND-seeks current income, a stable share price, and daily
liquidity. The Money Market Fund invests in corporate, bank, and government
instruments that present minimal credit risk. AN INVESTMENT IN THE MONEY MARKET
FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, AND THERE CAN BE NO
ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE
OF $1.00 PER SHARE.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of the
Portfolios and the investment advisory services, total expenses and charges can
be found in the current prospectuses for the Portfolios. THE PORTFOLIOS'
PROSPECTUS SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE CONCERNING THE
ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may, in the future, be made available to registered separate
accounts offering variable annuity and variable life products of the Company as
well as other insurance companies or to a person or plan, including a pension
or retirement plan receiving favorable tax treatment under the Code, that
qualifies to purchase shares of the Portfolios under Section 817(h) of the
Code. Although we believe it is unlikely, a material conflict could arise among
the interests of the Separate Account and one or more of the other
participating separate accounts and other qualified persons or plans. In the
event of a material conflict, the affected insurance companies agree to take
any necessary steps, including removing their separate accounts from the
Portfolios if required by law, to resolve the matter.
CONTRACT FEATURES
The rights and benefits under the Contract are described below and in the
Contract. The Company reserves the right to make any modification to conform
the Contract to, or give the Contract Owner the benefit of, any federal or
state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for a minimum of 10 days after you receive the
Contract (30 or more days in some instances as set forth in your Contract) plus
a 5 day grace period to allow for mail delivery. The Contract permits you to
cancel the Contract during the Right to Cancel Period by returning the Contract
to our Administrative Offices, P.O. Box 32700, Louisville, Kentucky 40232. Upon
cancellation, the Contract is treated as void from the Contract Date and when
we receive the Contract, (1) if the state of issue of your Contract is CA, GA,
ID, LA, MI, MO, NE, NH, NC, OK, OR, SC, UT, VA or WV, then for any amount of
your initial Purchase Payment(s) invested in the Money Market Fund, we will
return the Accumulated Value of the amount of your Purchase Payment(s) so
invested, or if greater, the amount of your Purchase Payment(s) so invested,
and (2) for any amount of your initial Purchase Payment(s) invested in the
Portfolio(s) immediately following receipt by us, we will return the
Accumulated Value of your Purchase Payment(s) so invested plus any fees and/or
Premium Taxes that may have been subtracted from such amount.
CONTRACT PURCHASE AND PURCHASE PAYMENTS
If you wish to purchase a Contract, you should complete the customer order form
and forward it and the initial Purchase Payment to such address as the Company
may from time to time designate. If you wish to make personal delivery by hand
or courier to the Company of the customer order form and the initial Purchase
Payment (rather than through the mail), you must do so at our Administrative
Offices at 400 West Market Street, Louisville, KY 40202. The initial Purchase
Payment for a Non-Qualified Contract must be equal to or greater than the
$3,000 minimum investment
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requirement. The Initial Purchase Payment for a Qualified Contract must be
equal to or greater than $2,000 (or you may establish a payment schedule of $50
a month by payroll deduction). To obtain a customer order form, please call our
Administrative Offices at 1-800-866-6007.
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within 2 Business Days after receipt of the customer
order form and the initial Purchase Payment in good order. The Company reserves
the right to reject any customer order form or initial Purchase Payment.
Following issuance, the Contract will be mailed to you along with a Contract
acknowledgment form, which you should complete, sign and return in accordance
with its instructions. Please note that until the Company receives the
acknowledgment form signed by the Owner and any Joint Owner, the Owner and any
Joint Owner must obtain a signature guarantee on their written signed request
in order to exercise any rights under the Contract.
If the initial Purchase Payment cannot be credited within 5 Business Days
because the customer order form is incomplete, we will contact the applicant,
explain the reason for the delay and will refund the initial Purchase Payment,
unless the applicant instructs us to retain the initial Purchase Payment and
credit it as soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity Date,
as long as the Annuitant is living. Additional Purchase Payments must be for at
least $500 for Non-Qualified Contracts, or $50 for Qualified Contracts.
Additional Purchase Payments received prior to the close of the New York Stock
Exchange (generally 4:00 P.M. Eastern time) are credited to the Accumulated
Value at the close of business that same day. Additional Purchase Payments
received after the close of the New York Stock Exchange are processed the next
Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
With respect to Non-Qualified Contracts, an amendatory rider (the "Rider") to
the Contract has been filed for approval with the insurance regulatory
authority in each state in which the Company is admitted to do business. The
Rider provides that during the first two Contract years, we will waive the
applicable minimum Initial Purchase Payment and additional Purchase Payment
limitations explained in the above paragraphs to the extent that we will accept
an Initial Purchase Payment of not less than $250 and additional Purchase
Payments of not less than $125. On the first day of the third Contract Year,
the applicable minimum limitations will be imposed. If at any time after the
second Contract Anniversary the sum of all Purchase Payments made less any
withdrawals taken does not meet the minimum limitation for the Initial Purchase
Payment amount specified in the above paragraphs, we reserve the right to
terminate the Contract, in which case we will pay you the Accumulated Value. If
(a) the state of issue of your Contract is a state that has approved the Rider
and (b) the Company has determined to make the Rider available in your state of
issue, then the minimums set forth in the Rider apply to your Contract.
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 condition that the Contract's
Accumulated Value be adjusted to reflect appropriate investment results,
administration 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 decide how your Net Purchase Payments will be allocated. You may allocate
each Net Purchase Payment to one of the Portfolios by sending us the
appropriate Company form or by complying with other designated Company
procedures. If an additional Net Purchase Payment is not accompanied by
allocation instructions, it will be allocated to the same Portfolio(s) as your
prior Net Purchase Payments are invested at that time, unless otherwise
directed by you in writing in advance.
If the state of issue of your Contract is CA, GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Money Market Fund until the
expiration of the Right to Cancel Period of 10 days (30 or more days in some
instances, as set forth in your Contract) plus a 5-day grace period to allow
for mail delivery, and then invested according to your initial allocation
instructions.
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If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in your
Portfolio(s) immediately upon our receipt thereof, IN WHICH CASE YOU WILL BEAR
FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE PORTFOLIOS DURING THE
RIGHT TO CANCEL PERIOD.
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts.
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the net
asset value of the Separate Account. The annual mortality and expense risk
charge is .55% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on us.
Conversely, if the charge proves more than sufficient, any excess will be added
to the Company surplus and will be used for any lawful purpose, including any
shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
The Annual Contract Fee is deducted proportionately from the Subaccounts. For
any Contract with amounts allocated to the Subaccounts, the $30 fee is assessed
per Contract, not per Portfolio chosen. The Annual Contract Fee will be
deducted from each Subaccount on each Contract Anniversary and upon surrender,
on a pro rata basis based on the number of months that have passed since the
last anniversary date. These deductions represent reimbursement for the costs
expected to be incurred over the life of the Contract for issuing and
maintaining each Contract and the Separate Account.
EXCHANGES
Each Contract Year you may make an unlimited number of Exchanges between
Portfolios, provided that after an Exchange no Portfolio may contain a balance
less than $1,000. 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.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The administrative charges or fees may be reduced for sales of Contracts to a
trustee, employer or similar entity representing a group where the Company
determines that such sales result in savings of administrative expenses. In
addition, directors, officers and bona fide full-time employees (and their
spouses and minor children) of the Company, its ultimate parent company,
Providian Corporation and certain of their affiliates are permitted to purchase
Contracts with substantial reduction of administrative charges or fees or with
a waiver or modification of certain minimum or maximum purchase and transaction
amounts or balance requirements. Contracts so purchased are for investment
purposes only and may not be resold except to the Company.
In no event will reduction or elimination of fees or charges or waiver or
modification of transaction or balance requirements be permitted where such
reduction, elimination, waiver or modification will be unfairly discriminatory
to any person. Additional information about reductions in charges is contained
in the Statement of Additional Information.
TAXES
We will, where such taxes are imposed on the Company by state law, deduct
Premium Taxes that currently range up to 3.5%. These taxes will be deducted
from the Accumulated Value or Purchase Payments in accordance with applicable
law.
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As of the date of this Prospectus, the following state assesses a Premium Tax
on all initial and additional Purchase Payments on Non-Qualified Contracts:
<TABLE>
<CAPTION>
PERCENTAGE
----------
<S> <C>
South Dakota.............................................. 1.25%
</TABLE>
In addition, a number of states currently impose Premium Taxes at the time an
Annuity Payment Option (other than a Lump Sum Payment Option) is selected. As
of the date of this Prospectus, the following states assess a Premium Tax
against the Accumulated Value if the Contract Owner chooses an Annuity Payment
Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
PERCENTAGE PERCENTAGE
---------- -------------
<S> <C> <C>
California................................. 0.50% 2.35%
District of Columbia....................... 2.25% 2.25%
Kansas..................................... 0.00% 2.00%
Kentucky................................... 2.00% 2.00%
Maine...................................... 0.00% 2.00%
Nevada..................................... 0.00% 3.50%
West Virginia.............................. 1.00% 1.00%
Wyoming.................................... 0.00% 1.00%
</TABLE>
Under present laws, the Company will incur state or local taxes (in addition to
the Premium Taxes described above) in several states. At present, the Company
does not charge the Contract Owner for these taxes. If there is a change in
state or local tax laws, charges for such taxes may be made. The Company does
not expect to incur any federal income tax liability attributable to investment
income or capital gains retained as part of the reserves under the Contracts.
(See "Federal Tax Considerations," page 20.) Based upon these expectations, no
charge is currently being made to the Separate Account for corporate federal
income taxes that may be attributable to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a charge
may be made in future years for any federal income taxes incurred by the
Company. This might become necessary if the tax treatment of the Company is
ultimately determined to be other than what the Company currently believes it
to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflect the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in the Trust's Prospectus and
Statement of Additional Information.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s) during
the Valuation Period; and reduced by: (i) any decrease in the Accumulated Value
due to investment results of the selected Portfolio(s), (ii) a daily charge to
cover the mortality and expense risks assumed by the Company, (iii) any charge
to cover the cost of administering the Contract, (iv) any partial withdrawals,
and (v) any charges for any Exchanges made after the first 12 in any Contract
Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios. Requests for Exchanges, received by mail or by telephone, prior
to the close of the New York Stock Exchange (generally 4:00 P.M. Eastern time)
are processed at the close of business that same day. Requests received after
the close of the New York Stock Exchange are processed the next Business Day.
If you experience difficulty in making a telephone Exchange your Exchange
request may be made by regular or express mail. It will be processed on the
date received.
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<PAGE>
To take advantage of the privilege of initiating transactions by telephone, you
must first elect the privilege by completing the appropriate section of the
Contract acknowledgment form, which you will receive with your Contract. You
may also complete a separate telephone authorization form at a later date. To
take advantage of the privilege of authorizing a third party to initiate
transactions by telephone, you must first complete a third party authorization
form or the appropriate section of the Contract acknowledgment form.
The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Prior to the acceptance of any request,
the caller will be asked by a customer service representative for his or her
Contract number and social security number. In addition, telephone
communications from a third party authorized to transact in an account will
undergo reasonable procedures to confirm that instructions are genuine. The
third party caller will be asked for his or her name, company affiliation (if
appropriate), the Contract number to which he or she is referring, and the
social security number of the Contract Owner. All calls will be recorded, and
this information will be verified with the Contract Owner's records prior to
processing a transaction. Furthermore, all transactions performed by a customer
service representative will be verified with the Contract Owner through a
written confirmation statement. The Company, the Adviser, the Trust, the
Portfolios, Atlanta Capital, and Federated Advisers shall not be liable for any
loss, cost or expense for action on telephone instructions that are believed to
be genuine in accordance with these procedures.
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of the
Surrender Value by sending a written request to our Administrative Offices.
Full or partial withdrawals may only be made before the Annuity Date and all
partial withdrawal requests must be for at least $500. The amount available for
full or partial withdrawal is the Surrender Value at the end of the Valuation
Period during which the written request for withdrawal is received. The
Surrender Value is an amount equal to the Accumulated Value, less any Premium
Taxes incurred but not yet deducted. The withdrawal amount may be paid in a
lump sum to you, or if elected, all or any part may be paid out under an
Annuity Payment Option. (See "Annuity Payment Options," page 18.)
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. Your proceeds will normally be processed and mailed to
you within 2 Business Days after the receipt of the request but in no event
will it be later than 7 calendar days, subject to postponement in certain
circumstances. (See "Deferment of Payment," page 19.)
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 20.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of the
Contract (taking into account any prior withdrawals) may be more or less than
the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the day
and at the frequency indicated on the Systematic Withdrawal Request Form. The
start date for the systematic withdrawals must be between the first and twenty-
eighth day of the month. You may discontinue the Systematic Withdrawal Option
at any time by notifying us in writing at least 30 days prior to your next
scheduled withdrawal date.
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<PAGE>
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 20.) 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.
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within 5 years after date
of death or be paid under an Annuity Payment Option under which payments will
begin within 1 year of the Contract Owner's death and will be made for the life
of the Owner's Designated Beneficiary or for a period not extending beyond the
life expectancy of that beneficiary. The Owner's Designated Beneficiary is the
person to whom ownership of the Contract passes by reason of death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
Except as may be provided in the Rider, 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 ending before age 75 occurs plus any Net Purchase Payments subsequently
made, less any partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date, which can be no later than the first day of
the month after the Annuitant's 85th birthday, without the Company's prior
approval. The Annuity Date is the date that Annuity Payments are scheduled to
commence under the Contract unless the Contract has been surrendered or an
amount has been paid as proceeds to the designated Annuitant's Beneficiary
prior to that date.
You may advance or defer the Annuity Date. However, the Annuity Date may not
be advanced to a date prior to 30 days after the date of receipt of a written
request or, without the Company's prior approval, deferred to a date beyond
the first day of the month after the Annuitant's 85th birthday. The Annuity
Date may only be changed by written request during the Annuitant's lifetime
and must be made at least 30 days before the then-scheduled Annuity Date. The
Annuity Date and the Annuity Payment options available for Qualified Contracts
may also be controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated
Value, less any Premium Taxes incurred but not yet deducted.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
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Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $3,000, or less than $2,000 for Texas
Contract Owners, the Company has the right to pay that amount in a lump sum.
From time to time, the Company may require proof that the Annuitant or
Contract Owner is living. Annuity Payment Options are not available to: (1) an
assignee; or (2) any other than a natural person, except with the consent of
the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; conversely, they will decrease if the actual experience is
lower. The method of computation of Variable Annuity Payments is described in
more detail in the Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-866-6007.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within 7 days from the date the election becomes effective
except that the Company may be permitted to defer such payment if: (1)
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the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the New York Stock Exchange is otherwise restricted;
or (2) an emergency exists as defined by the SEC, or the SEC requires that
trading be restricted; or (3) the SEC permits a delay for the protection of
Contract Owners.
FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax adviser regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation
is made regarding the likelihood of continuation of the federal income tax
laws, the Treasury regulations or the current interpretations by the Internal
Revenue Service. We reserve the right to make uniform changes in the Contract
to the extent necessary to continue to qualify the Contract as an annuity. For
a discussion of federal income taxes as they relate to the Funds, please see
the accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons," and "Diversification
Standards," page 22.)
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. Generally, the taxable portion of such payments
will be taxed at ordinary income tax rates.
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
Withholding of federal income taxes on all distributions 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 nonresident 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
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affecting the timing and payment under the Contracts; (ii) attributable to the
taxpayer's becoming disabled within the meaning of Code Section 72(m)(7);
(iii) that are part of a series of substantially equal periodic payments made
at least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi)
under an immediate annuity contract as defined in Section 72(u)(4); (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.
TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger tax on the gain in
the Contract to the Contract Owner at the time of such transfer. The
investment in the Contract of the transferee will be increased by any amount
included in the Contract Owner's income. This provision, however, does not
apply to those transfers between spouses or incident to a divorce which are
governed by Code Section 1041(a).
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CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. If an employer is the nominal owner of a Contract, and the
beneficial owners are employees, then the Contract is not treated as being
held by a non-natural person. The rule also does not apply where the Contract
is acquired by the estate of a decedent, where the Contract is a qualified
funding asset for structured settlements, where the Contract is purchased on
behalf of an employee upon termination of a qualified plan, and in the case of
an immediate annuity, as defined under 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 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), one year after the start up period, the Separate Account
will be required to diversify its investments. The Regulations generally
require that on the last day of each quarter of a calendar year, no more than
55% of the value of the Separate Account is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. A "look-through" rule applies that suggests that each
Subaccount of the Separate Account will be tested for compliance with the
percentage limitations by looking through to the assets of the Portfolios in
which each such Subaccount invests. The Company believes that under this rule,
the Separate Account must be tested for compliance with the percentage
limitations by "looking through" both the shares in Portfolios that are held
by the Separate Account and the shares in the Underlying Funds that are held
by the Portfolios to the investment assets held by the Underlying Funds. All
securities of the same issuer are treated as a single investment. Each
government agency or instrumentality will be treated as a separate issuer for
purposes of those limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to remain in compliance. For these
reasons, the Company reserves the right to modify the Contracts, as necessary,
to prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
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GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio, or of another
registered, open-end management investment company, if the shares of the
Portfolios are no longer available for investment, or, if in the Company's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
New portfolios may be established at the discretion of the Company. Any new
portfolios will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be
necessary or appropriate to reflect such substitution or change. Furthermore,
if deemed to be in the best interests of persons having voting rights under
the Contracts, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be deregistered
under the 1940 Act in the event such registration is no longer required, or
may be combined with one or more other separate accounts.
VOTING RIGHTS
The Trust does not hold regular meetings of shareholders. The Trustees of the
Trust may call special meetings of shareholders as may be required by the 1940
Act or other applicable law. To the extent required by law, the Portfolio
shares held in the Separate Account will be voted by the Company at
shareholder meetings of the Trust in accordance with instructions received
from persons having voting interests in the corresponding Portfolio. Trust
shares as to which no timely instructions are received or shares held by the
Company as to which Contract Owners have no beneficial interest will be voted
in proportion to the voting instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the
Annuity Date will be determined by dividing the reserve for such Contract
allocated to the Portfolio by the net asset value per share of the
corresponding Portfolio. After the Annuity Date, the votes attributable to a
Contract decrease as the reserves allocated to the Portfolio decrease. In
determining the number of votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the corresponding
Portfolio. Voting instructions will be solicited by written communication
prior to such meeting in accordance with procedures established by the Trust.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
the Company and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt Berenson & Johnson LLP of Washington, D.C. has provided legal
advice relating to the federal securities laws applicable to the issue and
sale of the Contracts. All matters of Missouri law pertaining to the validity
of the Contract and the Company's right to issue such Contracts have been
passed upon by Kimberly A. Scouller, Esquire, on behalf of the Company.
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TABLE OF CONTENTS FOR THE PGA RETIREMENT ANNUITY
VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 1
Computation of Variable Annuity Income Payments......................... 1
Exchanges............................................................... 2
Exceptions to Charges and to Transaction or Balance Requirements........ 2
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 3
Annuity Data............................................................ 3
Annual Statement........................................................ 3
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 4
30-Day Yield for Subaccounts............................................ 4
Standardized Average Annual Total Return for Subaccounts................ 5
ADDITIONAL PERFORMANCE MEASURES........................................... 6
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return..................................................... 6
Non-Standardized Total Return Year-to-Date.............................. 6
Non-Standardized One Year Return........................................ 6
PERFORMANCE COMPARISONS................................................... 7
SAFEKEEPING OF ACCOUNT ASSETS............................................. 10
THE COMPANY............................................................... 10
STATE REGULATION.......................................................... 10
RECORDS AND REPORTS....................................................... 10
DISTRIBUTION OF THE CONTRACTS............................................. 11
LEGAL PROCEEDINGS......................................................... 11
OTHER INFORMATION......................................................... 11
FINANCIAL STATEMENTS...................................................... 11
</TABLE>
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
AND FOR THE
DIMENSIONAL VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Providian Advisor's Edge and the Dimensional Variable
Annuity 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
respective Contracts are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE APPLICABLE PROSPECTUS FOR EACH CONTRACT.
April 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 2
Computation of Variable Annuity Income Payments......................... 2
Exchanges............................................................... 3
Exceptions to Charges and to Transaction or Balance Requirements........ 3
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 5
Federated Prime Money and Money Market Portfolio 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.............................. 8
Non-Standardized One Year Return........................................ 9
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 9
Individualized Computer Generated Illustrations......................... 10
PERFORMANCE COMPARISONS................................................... 10
SAFEKEEPING OF ACCOUNT ASSETS............................................. 12
THE COMPANY............................................................... 12
STATE REGULATION.......................................................... 12
RECORDS AND REPORTS....................................................... 13
DISTRIBUTION OF THE CONTRACT.............................................. 13
LEGAL PROCEEDINGS......................................................... 13
OTHER INFORMATION......................................................... 13
FINANCIAL STATEMENTS...................................................... 13
</TABLE>
<PAGE>
THE CONTRACT
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.
On and after March 31, 1997, the following portfolios are available through the
Dimensional Variable Annuity contract (and no longer offered through the
Providian Advisor's Edge variable annuity contract):
DFA Small Value Portfolio DFA International Small Portfolio
DFA Large Value Portfolio DFA Short-Term Fixed Portfolio
DFA International Value Portfolio DFA Global Bond Portfolio
On and after the same date, the following portfolios are available through the
Providian Advisor's Edge variable annuity contract:
Federated American Leaders Portfolio Wanger International Small Cap
Federated Utility Portfolio Advisor Portfolio
Federated High Income Bond Warburg Pincus International
Portfolio Equity Portfolio
Federated U.S. Government Warburg Pincus Small
Securities Portfolio Growth Portfolio
Montgomery Growth Portfolio Weiss, Peck & Greer Core Large-
SteinRoe Capital Appreciation Cap Stock Portfolio
Portfolio Weiss, Peck & Greer Core Small-
Strong International Stock Portfolio Cap Stock Portfolio
Wanger U.S. Small Cap Advisor
Portfolio
On and after such date the following portfolio is available through both the
Providian Advisor's Edge and Dimensional Variable Annuity contracts:
Federated Prime Money Portfolio
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent
the guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the
Accumulated Value (or the portion of the Accumulated Value used to provide
variable payments) is applied under the Annuity Tables contained in your
Contract corresponding to the Annuity Payment Option elected by the Contract
Owner and based on an assumed interest rate of 4%. This will produce a dollar
amount which is the first monthly payment. The Company may, at the time annuity
income payments are computed, offer more favorable rates in lieu of the
guaranteed rates specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set
forth below) is made. After the first Annuity Payment, the dollar amount of
each subsequent Annuity Payment is equal to the number of Annuity Units
multiplied by the Annuity Unit Value for the Subaccount ten Business Days
before the due date of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date money was first deposited in that Subaccount. The Annuity Unit
Value for any subsequent Business Day is equal to (a) times (b) times (c),
where
(a) = the Annuity Unit Value for the immediately preceding Business Day;
(b) = the Net Investment Factor for the day;
(c) = the investment result adjustment factor (.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in determining
the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a) = any increase or decrease in the value of the Subaccount due to
investment results;
(b) = a daily charge assessed at an annual rate of .50% for the mortality and
expense risks assumed by the Company;
(c) = a daily charge for the cost of administering the Contract corresponding
to an annual charge of .15% of the value of the Subaccount, plus the
Annual Contract Fee.
The Annuity Tables contained in the 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;
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except that in Massachusetts and Montana, the Annuity Tables contained in the
Contract are based on a 60% female/40% male blending of the above for all
annuitants of either gender.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of any other
Subaccount(s) then available. The written request for an Exchange must be
received by us, however, at least 10 Business Days prior to the first payment
date on which the Exchange is to take effect. This Exchange shall result in the
same dollar amount as that of the Annuity Payment on the date of Exchange (the
"Exchange Date"). Each year you may make an unlimited number of free Exchanges
between Subaccounts. The Company reserves the right to impose a $15 fee for
Exchanges in excess of twelve per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, the
Company will establish a value for the current Subaccounts by multiplying the
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing the
Annuity Unit Value of the new Subaccounts into the value previously calculated
for the existing Subaccounts.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
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 sale of Contracts. This is possible because sales
costs do not increase in proportion to the dollar amount of the Contracts sold.
For example, the per-dollar transaction cost for a sale of a Contract equal to
$5,000 is generally much higher than the per-dollar cost for a sale of a
Contract equal to $1,000,000. As a result, the applicable sales charge declines
as a percentage of the dollar amount of Contracts sold as the dollar amount
increases.
The Company may also impose reduced sales loads and reduced administrative
charges and fees on sales to directors, officers and bona fide full-time
employees (and their spouses and minor children) of the Company, its ultimate
parent company, Providian Corporation, and their affiliates and certain sales
representatives for the Contract. The Company may also grant waivers or
modifications of certain minimum or maximum purchase or transaction amounts or
balance requirements in these circumstances.
Notwithstanding the above, any variations in 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
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sex. In the case of correction of the stated age and/or sex after payments have
commenced, the Company will (1) in the case of underpayment, pay the full amount
due with the next payment; (2) in the case of overpayment, deduct the amount due
from one or more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the validity
of any assignment. No assignment will be recognized until the Company receives
the appropriate Company form notifying the Company of such assignment. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum notwithstanding any settlement agreement in effect at
the time assignment was executed. The Company shall not be liable as to any
payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and/or the General
Account Guaranteed Options; and any Purchase Payments, charges, 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.
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PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and effective
yield of the Federated Prime Money 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.)
Certain total return and performance information for operations of the DFA
Small Value Portfolio, DFA Large Value Portfolio, DFA International Value
Portfolio, DFA International Small Portfolio, the DFA Short-Term Fixed Portfolio
and DFA Global Bond Portfolio for periods prior to 3/31/97 reflect operations of
these Subaccounts in the Providian Advisor's Edge Variable Annuity.
Until October 1995, the DFA Large Value Portfolio (formerly DFA Global Value
Portfolio) invested its assets in both U.S. and international securities.
Depending on the period presented, total return and performance information
presented for the DFA Large Value Portfolio may reflect the performance of the
Portfolio when it invested in the stocks of both U.S. and international
companies. Total return and performance information for the DFA Large Value
Portfolio which includes the period prior to October 1995 should not be
considered indicative of the Portfolio's future performance.
Where applicable, the following inception dates are used in the calculation of
performance figures. 10/6/95 for the DFA Small Value and International Small
Value Portfolios; 1/18/95 for the DFA Large Value and DFA Global Bond
Portfolios; 10/9/95 for the DFA International and DFA Short-Term Fixed
Portfolios; 3/10/95 for the Federated American Leaders Portfolio; 7/20/95 for
the Federated Utility Portfolio; 12/7/95 for the Federated Prime Money
Portfolio; 6/28/95 for the Federated U.S. Government Securities Portfolio;
9/18/95 for the Federated High Income Bond Portfolio; 2/12/96 for the Montgomery
Growth Portfolio; 2/5/96 for the Montgomery Emerging Markets Portfolio; 9/20/95
for the Wanger U.S. Small Cap Portfolio; 9/18/95 for the Wanger International
Small Cap Portfoilo; 2/29/96 for the WPG Core Large Cap Portfolio; and 2/16/95
for the WPG Core Small Cap Portfolio.
The following Subaccounts had not commenced operations as of 12/31/96: SteinRoe
Capital Appreciation Portfolio, Strong International Stock Portfolio, Warburg
Pincus International Equity Portfolio and Warburg Pincus Small Company Growth
Portfolio.
FEDERATED PRIME MONEY PORTFOLIO SUBACCOUNT YIELDS
Current yield for the Federated Prime Money 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 the Subaccount is earned from the increase in net asset value of
shares of the Portfolio in which the Subaccount invests and from dividends
declared and paid by the Portfolio, which are automatically reinvested in
shares of the Portfolio.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR SUBACCOUNTS
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of all applicable sales loads
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(including the contingent deferred sales load), the Annual Contract Fee and all
other Portfolio, Separate Account and Contract level charges except Premium
Taxes, if any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the life of the Subaccount), calculated pursuant to the formula:
P(1 + T)/n/ = ERV
Where:
(1) [P] equals a hypothetical initial Purchase Payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000
Purchase Payment made at the beginning of the period (or fractional
portion thereof)
The following table shows 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.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING 12/31/96
Subaccount One Year Since Inception
---------- -------- ---------------
Federated Prime Money 4.04% 4.22%
Federated American Leaders 20.75% 26.44%
Federated US Govt Securities 3.49% 6.09%
Federated Utility 10.80% 17.12%
Federated High Income Bond 13.53% 12.55%
Wanger Intl Smll Cap 31.11% 32.07%
Wanger US Smll Cap 45.60% 30.52%
Montgomery Emerg Mkt N/A 6.13%
Montgomery Growth N/A 26.46%
WP&G Core Sm-Cap Stk N/A 17.73%
WP&G Core Lg-Cap Stk N/A 13.79%
DFA Global Bond 8.24% 10.85%
DFA Large Value 17.68% 19.49%
DFA Internatl Value 6.38% 9.59%
DFA Internatl Small -0.43% 0.82%
DFA Small Value 21.23% 16.32%
DFA Short-Term Fixed 4.48% 4.50%
SteinRoe Capital Apprec N/A N/A
Strong Internatl Stk N/A N/A
Warburg Pincus Intl Equity N/A N/A
Warburg Pincus Smll Co Growth N/A N/A
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ADDITIONAL PERFORMANCE MEASURES
- -------------------------------
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE
ANNUAL TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the
percentage change in the value of an Accumulation Unit) for one or more
Subaccounts with respect to one or more periods. The Company may also show
Non-Standardized Actual Average Annual Total Return (i.e., the average annual
change in Accumulation Unit Value) with respect to one or more periods. For
one year, the Non-Standardized Actual Total Return and the Non-Standardized
Actual Average Annual Total Return are effective annual rates of return and
are equal. For periods greater than one year, the Non-Standardized Actual
Average Annual Total Return is the effective annual compounded rate of return
for the periods stated. Because the value of an Accumulation Unit reflects the
Separate Account and Portfolio expenses (See Fee Table in the Prospectus), the
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return also reflect these expenses. However, these percentages do
not reflect the Annual Contract Fee, any sales loads or Premium Taxes (if
any), which if included would reduce the percentages reported by the Company.
NON-STANDARDIZED ACTUAL TOTAL RETURN FOR PERIOD ENDING 12/31/96
Subaccount One Year Since Inception
---------- -------- ---------------
Federated Prime Money 4.08% 9.00%
Federated American Leaders 20.78% 53.11%
Federated US Govt Security 3.52% 9.40%
Federated Utility 10.84% 25.84%
Federated High Income Bond 13.57% 16.48%
Wanger Intl Smll Cap 31.15% 43.12%
Wanger US Smll Cap 45.63% 40.76%
Montgomery Emerg Mkt 6.16% 6.16%
Montgomery Growth 26.49% 26.49%
WP&G Core Sm-Cap Stk 17.76% 17.76%
WP&G Core Lg-Cap Stk 13.81% 13.81%
DFA Global Bond 8.27% 22.35%
DFA Large Value 17.72% 41.65%
DFA Internatl Value 6.41% 12.14%
DFA Internatl Small -0.39% 1.06%
DFA Small Value 21.26% 20.63%
DFA Short-Term Fixed 4.51% 5.60%
SteinRoe Capital Apprec N/A N/A
Strong Internatl Stock N/A N/A
Warburg Pincus Intl Equity N/A N/A
Warburg Pincus Smll Co Growth N/A N/A
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NON-STANDARDIZED ACTUAL AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING 12/31/96
Subaccount One Year Since Inception
---------- -------- ---------------
Federated Prime Money 4.08% 4.26%
Federated American Leaders 20.78% 26.47%
Federated US Govt Securities 3.52% 6.12%
Federated Utility 10.84% 17.15%
Federated High Income Bond 13.57% 12.58%
Wanger Intl Smll Cap 31.15% 32.10%
Wanger US Smll Cap 45.63% 30.56%
Montgomery Emerg Mkt 6.16% 6.16%
Montgomery Growth 26.49% 26.49%
WP&G Core Sm-Cap Stk 17.76% 17.76%
WP&G Core Lg-Cap Stk 13.81% 13.81%
DFA Global Bond 8.27% 10.88%
DFA Large Value 17.72% 19.51%
DFA Internatl Value 6.41% 9.63%
DFA Internatl Small -0.39% 0.85%
DFA Small Value 21.26% 16.35%
DFA Short-Term Fixed 4.51% 4.53%
Stein Roe Capital Apprec N/A N/A
Strong Internatl Stock N/A N/A
Warburg Pincus Intl Equity N/A N/A
Warburg Pincus Smll Co Growth N/A N/A
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.
Total Return
Subaccount as of 12/31/96
---------- --------------
Federated Prime Money 4.08%
Federated American Leaders 20.78%
Federated US Govt Securities 3.52%
Federated Utility 10.84%
Federated High Income Bond 13.57%
Wanger Intl Smll Cap 31.15%
Wanger US Smll Cap 45.63%
Montgomery Emerg Mkt 6.16%
Montgomery Growth 26.49%
WP&G Core Sm-Cap Stk 17.76%
WP&G Core Lg-Cap Stk 13.81%
DFA Global Bond 8.27%
DFA Large Value 17.72%
DFA Internatl Value 6.41%
DFA Internatl Small -0.39%
DFA Small Value 21.26%
DFA Short-Term Fixed 4.51%
Stein Roe Capital Apprec N/A
Strong Internatl Stock N/A
Warburg Pincus Intl Equity N/A
Warburg Pincus Smll Co Growth N/A
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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
Subaccount 1996
---------- ----------------
Federated Prime Money 4.08%
Federated American Leaders 20.78%
Federated US Govt Securities 3.52%
Federated Utility 10.84%
Federated High Income Bond 13.57%
Wanger Intl Small Cap 31.15%
Wanger US Small Cap 45.63%
Montgomery Emerg Mkt 6.16%
Montgomery Growth 26.49%
WP&G Core Sm-Cap Stk 17.76%
WP&G Core Lg-Cap Stk 13.81%
DFA Global Bond 8.27%
DFA Large Value 17.72%
DFA Internat'l Value 6.41%
DFA Internat'l Small -0.39%
DFA Small Value 21.26%
DFA Short-Term Fixed 4.51%
SteinRoe Capital Apprec N/A
Strong Internatl Stock N/A
Warburg Pincus Intl Equity N/A
Warburg Pincus Smll Co Growth N/A
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios (calculated beginning from the
end of the year of inception for each Portfolio) and may assume the Contract
was in existence prior to it's inception date. After the Contract's inception
date, the actual Accumulation Unit Values. These returns are based on specified
premium patterns which produce the resulting Accumulated Values are used for the
calculations. 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.
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The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
The Company may from time to time use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide registered
representatives and existing and/or potential owners of Contracts with
individualized hypothetical performance illustrations for some or all of the
Portfolios. Such illustrations may include, without limitation, graphs, bar
charts and other types of formats presenting the following information: (i) the
historical results of a hypothetical investment in a single Portfolio; (ii) the
historical fluctuation of the value of a single Portfolio (actual and
hypothetical); (iii) the historical results of a hypothetical investment in
more than one Portfolio; (iv) the historical performance of two or more market
indices in relation to one another and/or one or more Portfolios; (v) the
historical performance of two or more market indices in comparison to a single
Portfolio or a group of Portfolios; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Portfolios to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Portfolio data sheets showing various
information about one or more Portfolios (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets).
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of Providian Life and Health Insurance Company as
determined by one or more of the ratings services listed below, or other
recognized rating services. Reports and promotional literature may also contain
other information including (i) the ranking of any Subaccount derived from
rankings of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other person who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of tax-
deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which
may include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Each Subaccount's performance depends on, among other things, the performance
of the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
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. 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:
. 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,
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according to their risk-adjusted returns. The maximum rating is five stars,
and ratings are effective for two weeks.
. MONEY, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.
. STANDARD & POOR'S UTILITY INDEX, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the
price of the stocks. The index also provides figures for changes in price
from the beginning of the year to date, and for a twelve month period.
. DOW JONES UTILITY INDEX, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period.
The index also provides the highs and lows for each of the past five
years.
. THE CONSUMER PRICE INDEX, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the
Funds' Prospectuses to obtain a more complete view of each Portfolio's
performance before investing. Of course, when comparing each Portfolio's
performance to any index, conditions such as composition of the index and
prevailing market conditions should be considered in assessing the significance
of such companies. Unmanaged indexes may assume the reinvestment of dividends
but generally do not reflect deductions for administrative and management costs
and expenses.
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, which are both
wholly-owned by Providian Corporation.
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
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the financial condition of the Company as of December 31st of the preceding
calendar year. Periodically, the Missouri Commissioner of Insurance examines the
financial condition of the Company, including the liabilities and reserves of
the Separate Account.
In addition, the Company is subject to the insurance laws and regulations of
all the states where it is licensed to operate. The availability of certain
contract rights and provisions depends on state approval and/or filing and
review processes. Where required by state law or regulation, the Contracts will
be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained by
the Company or by its Administrator. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under
that Act or by any other applicable law or regulation.
DISTRIBUTION OF THE CONTRACTS
Providian Securities Corporation ("PSC"), the principal underwriter of the
Contracts, is ultimately a wholly owned subsidiary of Providian Corporation.
PSC is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc.
The Contracts are offered to the public through persons or entities licensed
under the federal securities laws and state insurance laws that have 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 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.
13
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
FOR THE PGA RETIREMENT ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the PGA Retirement Annuity contract (the "Contract")
offered by Providian Life and Health Insurance Company (the "Company"). You may
obtain a copy of the Prospectus dated 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
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT 1
Computation of Variable Annuity Income Payments 1
Exchanges 2
Exceptions to Charges and to Transaction or Balance Requirements 2
GENERAL MATTERS 3
Non-Participating 3
Misstatement of Age or Sex 3
Assignment 3
Annuity Data 3
Annual Statement 3
Incontestability 4
Ownership 4
PERFORMANCE INFORMATION 4
30-Day Yield for Subaccounts 4
Standardized Average Annual Total Return for Subaccounts 5
ADDITIONAL PERFORMANCE MEASURES 6
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return 6
Non-Standardized Total Return Year-to-Date 6
Non-Standardized One Year Return 6
PERFORMANCE COMPARISONS 7
SAFEKEEPING OF ACCOUNT ASSETS 10
THE COMPANY 10
STATE REGULATION 10
RECORDS AND REPORTS 10
DISTRIBUTION OF THE CONTRACTS 11
LEGAL PROCEEDINGS 11
OTHER INFORMATION 11
FINANCIAL STATEMENTS 11
</TABLE>
<PAGE>
THE CONTRACT
In order to supplement the description in the Prospectus, the following provides
additional information about the Contract which may be of interest to Contract
Owners.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent the
guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the Accumulated
Value (or the portion of the Accumulated Value used to provide variable
payments) is applied under the Annuity Tables contained in your Contract
corresponding to the Annuity Payment Option elected by the Contract Owner and
based on an assumed interest rate of 4%. This will produce a dollar amount which
is the first monthly payment. The Company may, at the time annuity income
payments are computed, offer more favorable rates in lieu of the guaranteed
rates specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set forth
below) is made. After the first Annuity Payment, the dollar amount of each
subsequent Annuity Payment is equal to the number of Annuity Units multiplied by
the Annuity Unit Value for the Subaccount ten Business Days before the due date
of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date money was first deposited in that Subaccount. The Annuity Unit Value
for any subsequent Business Day is equal to (a) times (b) times (c), where
(a) = the Annuity Unit Value for the immediately preceding Business Day;
(b) = the Net Investment Factor for the day; and
(c) = the investment result adjustment factor (.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in
determining the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a) = any increase or decrease in the value of the Subaccount due to
investment results;
(b) = a daily charge assessed at an annual rate of .55% for the mortality
and expense risks assumed by the Company; and
<PAGE>
(c) = a daily charge for the cost of administering the Contract
corresponding to an annual charge of .15% of the value of the
Subaccount, plus the Annual Contract Fee.
The Annuity Tables contained in the Contract are based on the 1983 Table "A"
Mortality Table projected for mortality improvement to the year 2000 using
Projection Scale G and an interest rate of 4% a year; except that in
Massachusetts and Montana, the Annuity Tables contained in the Contract are
based on a 60% female/40% male blending of the above for all annuitants of
either gender.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of another Subaccount
then available. The written request for an Exchange must be received by us,
however, at least 10 Business Days prior to the first payment date on which the
Exchange is to take effect. This Exchange shall result in the same dollar amount
as that of the Annuity Payment on the date of Exchange (the "Exchange Date").
Each year you may make an unlimited number of free Exchanges between
Subaccounts. A $15 fee is currently imposed for Exchanges in excess of twelve
per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, the
Company will establish a value for the current Subaccounts by multiplying the
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing the
Annuity Unit Value of the new Subaccounts into the value previously calculated
for the existing Subaccounts.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The Company may reduce administrative charges or other deductions from Purchase
Payments in certain situations where the Company expects to realize significant
economies of scale or other economic benefits with respect to the sale of
Contracts. The Company may reduce administrative charges and fees on sales to
directors, officers and bona fide full-time employees (and their spouses and
minor children) of the Company, its ultimate parent company, Providian
Corporation, and their affiliates and certain sales representatives for the
Contract. The Company also may also grant waivers or modifications of certain
minimum or maximum purchase or transaction amounts or balance requirements in
these circumstances.
Notwithstanding the above, any variations in administrative charges or other
deductions from Purchase Payments or in the minimum or maximum transaction or
balance requirements shall reflect differences in costs or services and shall
not be unfairly discriminatory against any person.
2
<PAGE>
GENERAL MATTERS
NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the Contracts
will not share in the profits or surplus earnings of the Company.
MISSTATEMENT OF AGE OR SEX
The Company may require proof of age and sex before making Annuity Payments. If
the Annuitant's stated age, sex or both in the Contract are incorrect, the
Company will change the annuity benefits payable to those benefits which the
Purchase Payments would have purchased for the correct age and sex. In the case
of correction of the stated age and/or sex after payments have commenced, the
Company will (1) in the case of underpayment, pay the full amount due with the
next payment; (2) in the case of overpayment, deduct the amount due from one or
more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the validity
of any assignment. No assignment will be recognized until the Company receives
the appropriate Company form notifying the Company of such assignment. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum notwithstanding any settlement agreement in effect at
the time assignment was executed. The Company shall not be liable as to any
payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and any Purchase
Payments, charges, Exchanges or withdrawals during the year. This report will
also give you any other information required by law or regulation. You may ask
for an annual statement like this at any time. We will also send you quarterly
statements. However, we reserve the right to discontinue quarterly statements at
any time.
3
<PAGE>
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
OWNERSHIP
The Contract Owner on the Contract Date is the Annuitant, unless otherwise
specified in the application. The Contract Owner may specify a new Contract
Owner by sending us the appropriate Company form at any time thereafter. The
term Contract Owner also includes any person named as a Joint Owner. A Joint
Owner shares ownership in all respects with the Contract Owner. During the
Annuitant's lifetime, all rights and privileges under this Contract may be
exercised solely by the Contract Owner. Upon the death of the Contract Owner,
ownership is retained by the surviving Joint Owner or passes to the Owner's
Designated Beneficiary, if one has been designated by the Contract Owner. If no
Owner's Designated Beneficiary has been selected or if no Owner's Designated
Beneficiary is living, then the Owner's Designated Beneficiary is the Contract
Owner's estate. From time to time the Company may require proof that the
Contract Owner is still living.
PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and the total
return of all Subaccounts, may appear in reports or promotional literature to
current or prospective Contract Owners.
Where applicable in calculating performance information, the Annual Contract Fee
is reflected as a percentage equal to the total amount of fees collected during
a calendar year divided by the total average net assets of the Portfolios during
the same calendar year. The fee is assumed to remain the same in each year of
the applicable period. (With respect to partial year periods, if any, in the
examples, the Annual Contract Fee is pro-rated to reflect only the applicable
portion of the partial year period.)
30-DAY YIELD FOR SUBACCOUNTS
Quotations of yield for the Subaccounts will be based on all investment income
per Unit earned during a particular 30-day period, less expenses accrued during
the period ("net investment income"), and will be computed by dividing net
investment income by the value of a Unit on the last day of the period,
according to the following formula:
a - b
YIELD = 2[(----- + 1)/6/ - 1]
cd
4
<PAGE>
Where:
[a] = the net investment income earned during the period by the Portfolio
attributable to shares owned by a Subaccount;
[b] = the expenses accrued for the period (net of reimbursement);
[c] = the average daily number of Units outstanding during the period;
and
[d] = the maximum offering price per Accumulation Unit on the last day of
the period.
Yield on the Subaccount is earned from the increase in net asset value of shares
of the Portfolio in which the Subaccount invests and from dividends declared and
paid by the Portfolio, which are automatically reinvested in shares of the
Portfolio.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR SUBACCOUNTS
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes, if
any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the life of the Subaccount), calculated pursuant to the formula:
P(1 + T)/n/ = ERV
Where:
[P] = a hypothetical initial Purchase Payment of $1,000;
[T] = an average annual total return;
[n] = the number of years; and
5
<PAGE>
[ERV] = the ending redeemable value of a hypothetical $1,000 Purchase
Payment made at the beginning of the period (or fractional
portion thereof).
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the percentage
change in the value of an Accumulation Unit) for one or more Subaccounts with
respect to one or more periods. The Company may also show Non-Standardized
Actual Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year, the
Non-Standardized Actual Total Return and the Non-Standardized Actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Actual Average Annual Total
Return is the effective annual compounded rate of return for the periods stated.
Because the value of an Accumulation Unit reflects the Separate Account and
Portfolio expenses (See Fee Table in the Prospectus), the Non-Standardized
Actual Total Return and Non-Standardized Actual Average Annual Total Return also
reflect these expenses. However, these percentages do not reflect the Annual
Contract Fee or Premium Taxes (if any), which if included would reduce the
percentages reported by the Company.
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
The Company may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more Subaccounts with
respect to one or more non-standardized base periods commencing at the beginning
of a calendar year. Total Return YTD figures reflect the percentage change in
actual Accumulation Unit Values during the relevant period. These percentages
reflect a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Fee or Premium Taxes (if any), which if included
would reduce the percentages reported by the Company.
NON-STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts with respect to one or more non-standardized base periods commencing
at the beginning of a calendar year (or date of inception, if during the
relevant year) and ending at the end of such calendar year. One Year Return
figures reflect the percentage change in actual Accumulation Unit Values during
the relevant period. These percentages reflect a deduction for the Separate
Account and Portfolio expenses, but do not include the Annual Contract Fee or
Premium Taxes (if any), which if included would reduce the percentages reported
by the Company.
6
<PAGE>
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of Providian Life and Health Insurance Company as
determined by one or more of the ratings services listed below, or other
recognized rating services. Reports and promotional literature may also contain
other information including (i) the ranking of any Subaccount derived from
rankings of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other person who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of tax-
deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Each Subaccount's performance depends on, among other things, the performance of
the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
. the relative amount of the Portfolio's cash flow.
From time to time, we may advertise the performance of the Subaccounts and the
underlying Portfolios as compared to similar funds or portfolios using certain
indexes, reporting services and financial publications, and we may advertise
rankings or ratings issued by certain services and/or other institutions. These
may include, but are not limited to, the following:
7
<PAGE>
. DOW JONES INDUSTRIAL AVERAGE ("DJIA"), an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by Dow Jones & Company, it is cited as a
principal indicator of market conditions.
. STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, which can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's index assumes reinvestments of
all dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
into the Standard & Poor's figures.
. LIPPER ANALYTICAL SERVICES, INC., a reporting service that ranks funds
in various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest rate
is used. Rates are subject to change at any time specified by the
institution.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, an index comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly issued,
fixed-rate, non-convertible domestic bonds of companies in industry, public
utilities and finance. The average maturity of these bonds approximates
nine years. Tracked by Shearson Lehman, Inc., the index calculates total
returns for one month, three month, twelve month, and ten year periods and
year-to-date.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (LONG-TERM) INDEX, an index composed
of the same types of issues as defined above.
8
<PAGE>
However, the average maturity of the bonds included in this index
approximates 22 years.
. SHEARSON LEHMAN GOVERNMENT INDEX, an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
. MORNINGSTAR, INC., an independent rating service that publishes the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
. MONEY, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money ranking
in advertising and sales literature.
. STANDARD & POOR'S UTILITY INDEX, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price
of the stocks. The index also provides figures for changes in price from
the beginning of the year to date, and for a twelve month period.
. DOW JONES UTILITY INDEX, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The
index also provides the highs and lows for each of the past five years.
. THE CONSUMER PRICE INDEX, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the Funds'
Prospectuses to obtain a more complete view of each Portfolio's performance
before investing. Of course, when comparing each Portfolio's performance to any
index, conditions such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons. Unmanaged indexes may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
When comparing funds using reporting services, or total return and yield, or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
9
<PAGE>
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Company. The Assets are
kept physically segregated and held separate and apart from the Company's
General Account assets. The General Account contains all of the assets of the
Company. Records are maintained of all purchases and redemptions of eligible
Portfolio shares held by each of the Subaccounts and the General Account.
THE COMPANY
Providian Corporation owns a 4% interest in the Company and 61%, 15% and 20%
interests, respectively, are held by Commonwealth Life Insurance Company,
Peoples Security Life Insurance Company and Capital Liberty, L.P. Commonwealth
Life Insurance Company and Peoples Security Life Insurance Company are each
wholly-owned by Providian Corporation. A 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, which are both
wholly-owned by Providian Corporation.
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 in
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.
In addition, the Company is subject to the insurance laws and regulations of all
the states where it is licensed to operate. The availability of certain contract
rights and provisions depends on state approval and/or filing and review
processes. Where required by state law or regulation, the Contracts will be
modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained by
the Company or by its Administrator. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under that
Act or by any other applicable law or regulation.
10
<PAGE>
DISTRIBUTION OF THE CONTRACTS
Providian Securities Corporation ("PSC"), the principal underwriter of the
Contracts, is ultimately a wholly owned subsidiary of Providian Corporation. PSC
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
The Contracts are offered to members and employees of the Professional Golfers
Association of America and to certain key employees of golf courses through
persons or entities licensed under the federal securities laws and state
insurance laws that have generally entered into agreements with PSC. The
offering of the Contracts is continuous and PSC does not anticipate
discontinuing the offering of the Contracts. However, PSC does reserve the right
to discontinue the offering of the Contracts.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The Subaccounts described in the Contract Prospectus have not yet commenced
operations, and consequently have no assets or liabilities. Accordingly, no
financial statements are included for the Separate Account in this Statement of
Additional Information. The audited statutory-basis financial statements of the
Company for the years ended December 31, 1995 and 1994, including the Reports of
Independent Auditors thereon, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets to be held in the Separate
Account.
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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 - Advisor's Edge
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
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......................................................5
Statements of Changes in Net Assets...........................................7
Notes to Financial Statements.................................................9
<PAGE>
Report of Independent Auditors
Contract Owners
Providian Life and Health Insurance Company Separate Account V - Advisor's
Edge
We have audited the accompanying statements of assets and liabilities of
Providian Life and Health Insurance Company Separate Account V - Advisor's Edge
(comprising DFA Small Value, DFA Large Value, DFA International Value, DFA
International Small, DFA Short-Term Fixed, DFA Global Bond, Federated American
Leaders Fund II, Federated Utility Fund II, Federated Prime Money Fund II,
Federated High Income Bond Fund II, Federated Fund for U.S. Government
Securities II, Wanger U.S. Small Cap Advisor, Wanger International Small Cap
Advisor, Montgomery Growth, Montgomery Emerging Markets, Weiss, Peck & Greer's
Core Large-Cap Stock Fund, Weiss, Peck & Greer's Core Small-Cap Stock Fund, SEI
International Growth, SEI Growth, SEI Aggressive Growth, SEI Income Equity, and
SEI Intermediate Fixed 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 - Advisor's Edge 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 - Advisor's Edge
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
December 31
1996 1995
----------------------------
<S> <C> <C>
Assets
Investments:
DFA Small Value Portfolio (cost: $7,650,704 and $1,593,621 in
1996 and 1995, respectively) $ 8,584,122 $ 1,622,254
DFA Large Value Portfolio (cost: $13,099,100 and $4,239,019 in
1996 and 1995, respectively) 13,931,100 4,314,699
DFA International Value Portfolio (cost: $10,624,909 and
$2,699,570 in 1996 and 1995, respectively) 11,028,225 2,854,416
DFA International Small Portfolio (cost: $6,636,469 and $1,859,169
in 1996 and 1995, respectively) 6,239,162 1,913,400
DFA Short-Term Fixed Portfolio (cost: $8,686,672 and $1,030,063
in 1996 and 1995, respectively) 8,673,478 1,027,677
DFA Global Bond Portfolio (cost: $4,031,352 and $1,738,589 in
1996 and 1995, respectively) 3,884,280 1,728,410
Federated American Leaders Fund II Portfolio (cost: $905,283 and
$119,782 in 1996 and 1995, respectively) 1,038,864 129,032
Federated Utility Fund II Portfolio (cost: $286,346 and $21,872 in
1996 and 1995, respectively) 303,018 22,979
Federated Prime Money Fund II Portfolio (cost: $5,329,177 and
$3,369,414 in 1996 and 1995, respectively) 5,329,177 3,369,414
Federated High Income Bond Fund II Portfolio (cost: $1,657,085
and $64,474 in 1996 and 1995, respectively) 1,708,936 64,819
Federated Fund for U.S. Government Securities II Portfolio (cost:
$1,276,884 and $75,331 in 1996 and 1995, respectively) 1,283,465 75,655
Wanger U.S. Small Cap Advisor Portfolio (cost: $1,350,900 and
$215,245 in 1996 and 1995, respectively) 1,556,081 211,326
Wanger International Small Cap Advisor Portfolio (cost: $1,092,518
and $44,175 in 1996 and 1995, respectively) 1,146,486 46,241
</TABLE>
2
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statements of Assets and Liabilities (continued)
<TABLE>
<CAPTION>
December 31
1996 1995
--------------------------
<S> <C> <C>
Assets (continued)
Montgomery Growth Portfolio (cost: $437,869) $ 361,986 $ -
Montgomery Emerging Markets Portfolio (cost: $1,413,664) 1,442,873 -
Weiss, Peck & Greer's Core Large-Cap Stock Fund Portfolio
(cost: $955,473) 992,496 -
Weiss, Peck & Greer's Core Small-Cap Stock Fund Portfolio
(cost: $627,562) 671,572 -
SEI International Growth Portfolio (cost: $24,699) - 25,184
SEI Growth Portfolio (cost: $66,254) - 65,905
SEI Aggressive Growth Portfolio (cost: $39,900) - 40,935
SEI Income Equity Portfolio (cost: $76,914) - 75,931
SEI Intermediate Fixed Income Portfolio (cost: $119,632) - 121,203
--------------------------
Total investments 68,175,321 17,709,480
Amounts due from Providian Life and Health Insurance Company 254,871 436,842
--------------------------
Total assets 68,430,192 18,146,322
Liabilities - -
--------------------------
Net assets $68,430,192 $18,146,322
==========================
</TABLE>
3
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statements of Assets and Liabilities (continued)
<TABLE>
<CAPTION>
December 31
1996 1995
----------------------------
<S> <C> <C>
Net assets attributable to variable annuity contract owners
DFA Small Value Subaccount $ 8,584,122 $1,622,254
DFA Large Value Subaccount 13,931,100 4,314,699
DFA International Value Subaccount 11,028,225 2,854,416
DFA International Small Subaccount 6,239,162 1,913,400
DFA Short-Term Fixed Subaccount 8,673,478 1,027,677
DFA Global Bond Subaccount 3,884,280 1,728,410
Federated American Leaders Fund II Subaccount 1,038,864 129,032
Federated Utility Fund II Subaccount 303,018 22,979
Federated Prime Money Fund II Subaccount 5,584,048 3,806,256
Federated High Income Bond Fund II Subaccount 1,708,936 64,819
Federated Fund for U.S. Government Securities II Subaccount 1,283,465 75,655
Wanger U.S. Small Cap Advisor Subaccount 1,556,081 211,326
Wanger International Small Cap Advisor Subaccount 1,146,486 46,241
Montgomery Growth Subaccount 361,986 -
Montgomery Emerging Markets Subaccount 1,442,873 -
Weiss, Peck & Greer's Core Large-Cap Stock Fund Subaccount 992,496 -
Weiss, Peck & Greer's Core Small-Cap Stock Fund Subaccount 671,572 -
SEI International Growth Subaccount - 25,184
SEI Growth Subaccount - 65,905
SEI Aggressive Growth Subaccount - 40,935
SEI Income Equity Subaccount - 75,931
SEI Intermediate Fixed Income Subaccount - 121,203
----------------------------
Net assets attributable to variable annuity contract owners $68,430,192 $18,146,322
============================
</TABLE>
See accompanying notes.
4
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
DFA DFA DFA
DFA Small DFA Large International International Short-Term DFA Global
Value Value Value Small Fixed Bond
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 97,770 $ 632,933 $ 143,523 $ 172,945 $259,364 $ 381,220
Expenses:
Mortality and expense risk and
administrative charges 32,129 58,945 47,120 28,815 28,815 18,639
---------------------------------------------------------------------------
Net investment income (expense) 65,641 573,988 96,403 144,130 230,549 362,581
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 593,769 2,784,190 1,101,576 367,091 668,375 464,952
Cost of investments sold 554,356 2,666,822 1,054,715 355,524 668,794 462,730
---------------------------------------------------------------------------
39,413 117,368 46,861 11,567 (419) 2,222
Net unrealized appreciation
(depreciation) of investments:
At end of year 933,418 832,000 403,316 (397,307) (13,194) (147,072)
At beginning of year 28,633 75,680 154,846 54,231 (2,386) (10,179)
---------------------------------------------------------------------------
904,785 756,320 248,470 (451,538) (10,808) (136,893)
---------------------------------------------------------------------------
Net gain (loss) on investments 944,198 873,688 295,331 (439,971) (11,227) (134,671)
---------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $1,009,839 $1,447,676 $ 391,734 $(295,841) $219,322 $ 227,910
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Federated Federated Federated Fund
American Federated Federated High for U.S. Wanger U.S.
Leaders Utility Prime Money Income Bond Government Small Cap
Fund II Fund II Fund II Fund II Securities II Advisor
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 10,418 $ 10,709 $ 183,473 $ 62,660 $ 36,643 $ 539
Expenses:
Mortality and expense risk and
administrative charges 4,331 1,728 26,184 4,547 4,051 5,361
-------------------------------------------------------------------------
Net investment income (expense) 6,087 8,981 157,289 58,113 32,592 (4,822)
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 501,411 108,349 8,181,733 250,595 121,655 782,253
Cost of investments sold 492,952 103,980 8,181,733 245,936 121,734 743,676
-------------------------------------------------------------------------
8,459 4,369 -- 4,659 (79) 38,577
Net unrealized appreciation
(depreciation) of investments:
At end of year 133,581 16,672 -- 51,851 6,581 205,181
At beginning of year 9,250 1,107 -- 345 324 (3,919)
-------------------------------------------------------------------------
124,331 15,565 -- 51,506 6,257 209,100
-------------------------------------------------------------------------
Net gain (loss) on investments 132,790 19,934 -- 56,165 6,178 247,677
-------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $138,877 $ 28,915 $ 157,289 $ 114,278 $ 38,770 $242,855
=========================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Wanger Weiss, Peck & Weiss, Peck &
International Montgomery Greer's Core Greer's Core SEI
Small Cap Montgomery Emerging Large-Cap Small-Cap International
Advisor Growth Markets Stock Fund Stock Fund Growth
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 227 $ 16,611 $ 3,737 $ 27,853 $15,562 $ --
Expenses:
Mortality and expense risk and
administrative charges 2,329 967 4,144 2,045 1,164 32
-------------------------------------------------------------------------
Net investment income (expense) (2,102) 15,644 (407) 25,808 14,398 (32)
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 198,376 100,683 167,618 383,697 11,330 41,453
Cost of investments sold 189,132 3,695 167,313 374,777 8,143 40,492
-------------------------------------------------------------------------
9,244 96,988 305 8,920 3,187 961
Net unrealized appreciation
(depreciation) of investments:
At end of year 53,968 (75,883) 29,209 37,023 44,010 --
At beginning of year 2,066 -- -- -- -- 485
-------------------------------------------------------------------------
51,902 (75,883) 29,209 37,023 44,010 (485)
-------------------------------------------------------------------------
Net gain (loss) on investments 61,146 21,105 29,514 45,943 47,197 476
-------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 59,044 $ 36,749 $ 29,107 $ 71,751 $61,595 $ 444
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
SEI
SEI SEI Aggressive SEI Income Intermediate
Growth Growth Equity Fixed Income Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 56 $ -- $ 397 $ 1,522 $ 2,058,162
Expenses:
Mortality and expense risk and
administrative charges 128 54 161 219 271,908
-----------------------------------------------------------
Net investment income (expense) (72) (54) 236 1,303 1,786,254
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 68,477 59,922 80,756 162,847 17,201,108
Cost of investments sold 67,183 58,256 77,285 166,608 16,805,836
-----------------------------------------------------------
1,294 1,666 3,471 (3,761) 395,272
Net unrealized appreciation
(depreciation) of investments:
At end of year -- -- -- -- 2,113,354
At beginning of year (349) 1,035 (983) 1,571 311,757
-----------------------------------------------------------
349 (1,035) 983 (1,571) 1,801,597
-----------------------------------------------------------
Net gain (loss) on investments 1,643 631 4,454 (5,332) 2,196,869
-----------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 1,571 $ 577 $ 4,690 (4,029) 3,983,123
===========================================================
</TABLE>
See accompanying notes.
5
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
DFA DFA DFA
DFA Small DFA Large International International Short-Term DFA Global
Value Value Value Small Fixed Bond
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 3,279 $ 214,039 $ -- $ -- $ 10,133 $ 101,006
Expenses:
Mortality and expense risk and
administrative charges 1,367 21,572 2,831 1,713 858 5,548
---------------------------------------------------------------------------
Net investment income (expense) 1,912 192,467 (2,831) (1,713) 9,275 95,458
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 6,660 4,429,636 102,897 1,933 1,668 349,744
Cost of investments sold 6,591 4,239,378 98,960 1,927 1,653 341,900
---------------------------------------------------------------------------
69 190,258 3,937 6 15 7,844
Net unrealized appreciation
(depreciation) of investments:
At end of year 28,633 75,680 154,846 54,231 (2,386) (10,179)
---------------------------------------------------------------------------
Net gain (loss) on investments 28,702 265,938 158,783 54,237 (2,371) (2,335)
---------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 30,614 $ 458,405 $ 155,952 $ 52,524 $ 6,904 $ 93,123
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Federated Federated Federated Fund
American Federated Federated High for U.S. Wanger U.S.
Leaders Utility Prime Money Income Bond Government Small Cap
Fund II Fund II Fund II Fund II Securities II Advisor
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 2,309 $ 168 $ 80,805 $ 692 $ 2,617 $ --
Expenses:
Mortality and expense risk and
administrative charges 696 24 9,822 51 331 332
-------------------------------------------------------------------------
Net investment income (expense) 1,613 144 70,983 641 2,286 (332)
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 246,302 24 2,926,947 51 220,196 6,835
Cost of investments sold 231,281 23 2,926,947 49 217,160 7,761
-------------------------------------------------------------------------
15,021 1 -- 2 3,036 (926)
Net unrealized appreciation
(depreciation) of investments:
At end of year 9,250 1,107 -- 345 324 (3,919)
-------------------------------------------------------------------------
Net gain (loss) on investments 24,271 1,108 -- 347 3,360 (4,845)
Net increase (decrease) in net
assets resulting from operations $ 25,884 $ 1,252 $ 70,983 $ 988 $ 5,646 $ (5,177)
=========================================================================
</TABLE>
<TABLE>
<CAPTION>
Wanger
International SEI SEI
Small Cap International SEI SEI Aggressive SEI Income Intermediate
Advisor Growth Growth Growth Equity Fixed Income Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ -- $ 925 $ 2,032 $ 3,372 $ 2,849 $ 2,683 $ 426,909
Expenses:
Mortality and expense risk and
administrative charges 28 73 66 223 218 187 45,940
----------------------------------------------------------------------------------------
Net investment income (expense) (28) 852 1,966 3,149 2,631 2,496 380,969
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 1,228 3,219 866 96,469 120,061 187 8,514,923
Cost of investments sold 1,227 3,120 864 87,008 112,119 187 8,278,155
----------------------------------------------------------------------------------------
1 99 2 9,461 7,942 -- 236,768
Net unrealized appreciation
(depreciation) of investments:
At end of year 2,066 485 (349) 1,035 (983) 1,571 311,757
----------------------------------------------------------------------------------------
Net gain (loss) on investments 2,067 584 (347) 10,496 6,959 1,571 548,525
----------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 2,039 $ 1,436 $ 1,619 $13,645 $ 9,590 $ 4,067 $ 929,494
========================================================================================
</TABLE>
See accompanying notes.
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statement of Changes in Net Assets
Year ended December 31, 1996
<TABLE>
<CAPTION>
DFA DFA DFA
DFA Small DFA Large International International Short-Term DFA Global
Value Value Value Small Fixed Bond
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $1,622,254 $4,314,699 $2,854,416 $1,913,400 $1,027,677 $1,728,410
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) 65,641 573,988 96,403 144,130 230,549 362,581
Net realized gain (loss) on investments 39,413 117,368 46,861 11,567 (419) 2,222
Net unrealized appreciation (depreciation)
of investments 904,785 756,320 248,470 (451,538) (10,808) (136,893)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,009,839 1,447,676 391,734 (295,841) 219,322 277,910
Changes from variable annuity
contract transactions:
Transfers of net premiums 4,979,288 8,418,611 6,836,494 4,108,542 6,467,119 1,756,915
Transfers for terminations (80,040) (233,893) (214,889) (82,736) (277,338) (45,047)
Transfers for annuity benefits (381) (569) (180) (179) (1,243) (1,606)
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 1,053,162 (15,424) 1,160,650 595,976 1,237,941 217,698
---------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 5,952,029 8,168,725 7,782,075 4,621,603 7,426,479 1,927,960
---------------------------------------------------------------------------
Net increase (decrease) in net assets 6,961,868 9,616,401 8,173,809 4,325,762 7,645,801 2,155,870
---------------------------------------------------------------------------
Balance at December 31, 1996 $8,584,122 $13,931,100 $11,028,225 $6,239,162 $8,673,478 $3,884,280
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Federated Federated Federated Fund
American Federated Federated High for U.S. Wanger U.S.
Leaders Utility Prime Money Income Bond Government Small Cap
Fund II Fund II Fund II Fund II Securities II Advisor
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $ 129,032 $ 22,979 $3,806,256 $ 64,819 $ 75,655 $ 211,326
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) 6,087 8,981 157,289 58,113 32,592 (4,822)
Net realized gain (loss) on investments 8,459 4,369 -- 4,659 (79) 38,577
Net unrealized appreciation (depreciation)
of investments 124,331 15,565 -- 51,506 6,257 209,100
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 138,877 28,915 157,289 114,278 38,770 242,855
Changes from variable annuity
contract transactions:
Transfers of net premiums 627,867 70,733 8,737,254 995,539 724,884 746,483
Transfers for terminations (131,099) -- (150,314) (29,989) (480) (11,916)
Transfers for annuity benefits -- -- -- -- -- --
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 274,187 180,391 (6,966,437) 564,289 444,636 367,333
---------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 770,955 251,124 1,620,503 1,529,839 1,169,040 1,101,900
---------------------------------------------------------------------------
Net increase (decrease) in net assets 909,832 280,039 1,777,792 1,644,117 1,207,810 1,344,755
---------------------------------------------------------------------------
Balance at December 31, 1996 $1,038,864 $303,018 $5,584,048 $1,708,936 $1,283,465 $1,556,081
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Wanger Weiss, Peck & Weiss, Peck &
International Montgomery Greer's Core Greer's Core SEI
Small Cap Montgomery Emerging Large-Cap Small-Cap International
Advisor Growth Markets Stock Fund Stock Fund Growth
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $ 46,241 $ -- $ -- $ -- $ -- $ 25,184
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) (2,102) 15,644 (407) 25,808 14,398 (32)
Net realized gain (loss) on investments 9,244 96,988 305 8,920 3,187 961
Net unrealized appreciation (depreciation)
of investments 51,902 (75,883) 29,209 37,023 44,010 (485)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 59,044 36,749 29,107 71,751 61,595 444
Changes from variable annuity
contract transactions:
Transfers of net premiums 654,948 220,587 1,023,332 780,685 581,633 14,648
Transfers for terminations (2,565) -- (6,702) (3,329) (5,284) --
Transfers for annuity benefits -- -- -- -- -- --
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 388,818 104,650 397,136 143,389 33,628 (40,276)
---------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 1,041,201 325,237 1,413,766 920,745 609,977 (25,628)
---------------------------------------------------------------------------
Net increase (decrease) in net assets 1,100,245 361,986 1,442,873 992,496 671,572 (25,184)
---------------------------------------------------------------------------
Balance at December 31, 1996 $1,146,486 $ 361,986 $1,442,873 $992,496 $ 671,572 $ --
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
SEI
SEI SEI Aggressive SEI Income Intermediate
Growth Growth Equity Fixed Income Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $ 65,905 $ 40,935 $ 75,931 $ 121,203 $18,146,322
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) (72) (54) 236 1,303 1,786,254
Net realized gain (loss) on investments 1,294 1,666 3,471 (3,761) 395,272
Net unrealized appreciation (depreciation)
of investments 349 (1,035) 983 (1,571) 1,801,597
------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,571 577 4,690 (4,029) 3,983,123
Changes from variable annuity
contract transactions:
Transfers of net premiums -- 1,375 -- 44,662 47,791,599
Transfers for terminations -- -- -- -- (1,275,621)
Transfers for annuity benefits -- -- -- -- (4,158)
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account (67,476) (42,887) (80,621) (161,836) (211,073)
------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions (67,476) (41,512) (80,621) (117,174) 46,300,747
------------------------------------------------------------
Net increase (decrease) in net assets (65,905) (40,935) (75,931) (121,203) 50,283,870
------------------------------------------------------------
Balance at December 31, 1996 $ -- $ -- $ -- $ -- $68,430,192
============================================================
</TABLE>
See accompanying notes.
7
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statement of Changes in Net Assets
Year ended December 31, 1995
<TABLE>
<CAPTION>
DFA DFA DFA
DFA Small DFA Large International International Short-Term DFA Global
Value Value Value Small Fixed Bond
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $ -- $ -- $ -- $ -- $ -- $ --
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) 1,912 192,467 (2,831) (1,713) 9,275 95,458
Net realized gain (loss) on investments 69 190,258 3,937 6 15 7,844
Net unrealized appreciation (depreciation)
of investments 28,633 75,680 154,846 54,231 (2,386) (10,179)
---------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 30,614 458,405 155,952 52,524 6,904 93,123
Changes from variable annuity
contract transactions:
Transfers of net premiums 394,202 6,915,247 570,312 304,836 398,923 1,375,518
Transfers for terminations (219) (10,522) (598) (220) (810) (9,100)
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 1,197,657 (3,048,431) 2,128,750 1,556,260 622,660 268,869
---------------------------------------------------------------------------
Net increase in net assets derived from
variable annuity contract transactions 1,591,640 3,856,294 2,698,464 1,860,876 1,020,773 1,635,287
---------------------------------------------------------------------------
Net increase in net assets 1,622,254 4,314,699 2,854,416 1,913,400 1,027,677 1,728,410
---------------------------------------------------------------------------
Balance at December 31, 1995 $1,622,254 $ 4,314,699 $ 2,854,416 $1,913,400 $1,027,677 $1,728,410
===========================================================================
</TABLE>
<TABLE>
<CAPTION>
Federated Federated Federated Fund
American Federated Federated High for U.S. Wanger U.S.
Leaders Utility Prime Money Income Bond Government Small Cap
Fund II Fund II Fund II Fund II Securities II Advisor
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $ -- $ -- $ 704,061 $ -- $ -- $ --
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) 1,613 144 70,983 641 2,286 (332)
Net realized gain (loss) on investments 15,021 1 -- 2 3,036 (926)
Net unrealized appreciation (depreciation)
of investments 9,250 1,107 -- 345 324 (3,919)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 25,884 1,252 70,983 988 5,646 (5,177)
Changes from variable annuity
contract transactions:
Transfers of net premiums 106,945 -- 5,891,211 -- 250,874 202,729
Transfers for terminations -- -- (100,140) -- (499) --
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account (3,797) 21,727 (2,759,859) 63,831 (180,366) 13,774
-----------------------------------------------------------------------------
Net increase in net assets derived from
variable annuity contract transactions 103,148 21,727 3,031,212 63,831 70,009 216,503
-----------------------------------------------------------------------------
Net increase in net assets 129,032 22,979 3,102,195 64,819 75,655 211,326
-----------------------------------------------------------------------------
Balance at December 31, 1995 $ 129,032 $ 22,979 $3,806,256 $ 64,819 $ 75,655 $ 211,326
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
Wanger
International SEI SEI SEI
Small Cap International SEI Aggressive SEI Income Intermediate
Advisor Growth Growth Growth Equity Fixed Income Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1995 $ -- $ -- $ -- $ -- $ -- $ -- $ 704,061
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) (28) 852 1,966 3,149 2,631 2,496 380,969
Net realized gain (loss) on investments 1 99 2 9,461 7,942 -- 236,768
Net unrealized appreciation (depreciation)
of investments 2,066 485 (349) 1,035 (983) 1,571 311,757
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 2,039 1,436 1,619 13,645 9,590 4,067 929,494
Changes from variable annuity
contract transactions:
Transfers of net premiums 28,577 23,887 10,886 104,736 129,384 94,642 16,802,909
Transfers for terminations -- -- -- (202) (266) -- (122,576)
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 15,625 (139) 53,400 (77,244) (62,777) 22,494 (167,566)
-------------------------------------------------------------------------------------
Net increase in net assets derived from
variable annuity contract transactions 44,202 23,748 64,286 27,290 66,341 117,136 16,512,767
-------------------------------------------------------------------------------------
Net increase in net assets 46,241 25,184 65,905 40,935 75,931 121,203 17,442,261
-------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 46,241 $ 25,184 $ 65,905 $ 40,935 $ 75,931 $ 121,203 $18,146,322
=====================================================================================
</TABLE>
See accompanying notes.
8
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements
December 31, 1996
1. Accounting Policies
Organization of the Account
Providian Life and Health Insurance Company Separate Account V - Advisor's Edge
(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.
As of December 31, 1996, the Separate Account has 17 subaccounts that invest
exclusively in shares of the corresponding portfolios of DFA Investment
Dimensions Group, Inc. (advised by Dimensional Fund Advisors, Inc.), Federated
Insurance Series, formerly Insurance Management Series (advised by Federated
Advisers), Wanger Advisors Trust (advised by Wanger Asset Management, L.P.),
Montgomery Funds III (advised by Montgomery Asset Management, L.P.), and
Tomorrow Funds Retirement Trust (advised by Weiss, Peck & Greer, L.L.C.) (each,
a "Fund" and collectively, the "Funds"). Each Fund is an open-end management
investment company.
9
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
The portfolios in each Fund as of December 31, 1996 are as follows:
DFA Investment Dimensions Group, Inc.
DFA Small Value Portfolio
DFA Large Value Portfolio
DFA International Value Portfolio
DFA International Small Portfolio
DFA Short-Term Fixed Portfolio
DFA Global Bond Portfolio
Federated Insurance Series
Federated American Leaders Fund II Portfolio (formerly Federated's Equity
Growth and Income Portfolio)
Federated Utility Fund II Portfolio (formerly Federated's Utility Portfolio)
Federated Prime Money Fund II Portfolio (formerly Federated's Prime Money
Portfolio)
Federated High Income Bond Fund II Portfolio (formerly Federated's Corporate
Bond Portfolio)
Federated Fund for U.S. Government Securities II Portfolio (formerly
Federated's U.S. Government Bond Portfolio)
Wanger Advisors Trust
Wanger U.S. Small Cap Advisor Portfolio
Wanger International Small Cap Advisor Portfolio
Montgomery Funds III
Montgomery Growth Portfolio
Montgomery Emerging Markets Portfolio
Tomorrow Funds Retirement Trust
Weiss, Peck & Greer's Core Large-Cap Stock Fund Portfolio
Weiss, Peck & Greer's Core Small-Cap Stock Fund Portfolio
The subaccounts corresponding to the portfolios of Montgomery Funds III and
Tomorrow Funds Retirement Trust were added to the Separate Account in February
1996.
10
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
On January 1, 1996, the DFA Global Bond Portfolio and the DFA Short-Term Fixed
Portfolio experienced ten-for-one stock splits. Shares and net asset values as
of December 31, 1995 have been restated to reflect the stock split.
Prior to January 1996, the Separate Account had 5 additional subaccounts that
invested exclusively in shares of the following portfolios of Insurance
Investment Products Trust (advised by SEI Financial Management Corporation): SEI
International Growth, SEI Growth, SEI Aggressive Growth, SEI Income Equity, and
SEI Intermediate Fixed Income. Effective January 1996, contract owners were no
longer permitted to allocate purchase payments to, or transfers into, these
subaccounts.
Effective March 1997, the portfolios of the DFA Investment Dimensions Group Inc.
will no longer be available to new contract owners within this Separate Account.
Existing contract owners may continue to allocate purchase payments to, or
transfers into, these subaccounts. Additionally, effective March 1997, four new
subaccounts will be added to the Separate Account.
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 objective.
In certain states of issue, the contract owner's initial premium is
automatically allocated to Federated Prime Money Fund II 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, a contract owner may allocate all
or a portion of the initial premium and additional premiums, if any, to one or
more subaccounts of the Separate Account 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.
11
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. Accounting Policies (continued)
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. 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.
12
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
2. Investments
The following is a summary of shares and amounts outstanding for each of the
respective portfolios as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31, 1996
- --------------------------------------------------------------------------------
Net Asset Fair
Portfolio Shares Value Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DFA Small Value 723,787.727 $ 11.86 $ 8,584,122
DFA Large Value 1,087,517.564 12.81 13,931,100
DFA International Value 989,966.315 11.14 11,028,225
DFA International Small Value 633,417.470 9.85 6,239,162
DFA Short-Term Fixed 868,216.060 9.99 8,673,478
DFA Global Bond 380,438.789 10.21 3,884,280
Federated American Leaders Fund II 68,077.574 15.26 1,038,864
Federated Utility Fund II 25,657.766 11.81 303,018
Federated Prime Money Fund II 5,329,177.310 1.00 5,329,177
Federated High Income Bond Fund II 166,888.234 10.24 1,708,936
Federated Fund for U.S. Government
Securities II 127,201.722 10.09 1,283,465
Wanger U.S. Small Cap Advisor 91,696.012 16.97 1,556,081
Wanger International Small Cap Advisor 64,736.629 17.71 1,146,486
Montgomery Growth 29,358.152 12.33 361,986
Montgomery Emerging Markets 135,480.987 10.65 1,442,873
Weiss, Peck & Greer's Core Large-Cap Stock
Fund 88,536.673 11.21 992,496
Weiss, Peck & Greer's Core Small-Cap Stock
Fund 89,902.513 7.47 671,572
-----------
$68,175,321
===========
</TABLE>
13
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
2. Investments (continued)
<TABLE>
<CAPTION>
December 31, 1995
- --------------------------------------------------------------------------------
Net Asset Fair
Portfolio Shares Value Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DFA Small Value 165,030.919 $ 9.83 $ 1,622,254
DFA Large Value 379,815.077 11.36 4,314,699
DFA International Value 270,817.494 10.54 2,854,416
DFA International Small Value 189,258.141 10.11 1,913,400
DFA Short-Term Fixed 102,767.700 10.00 1,027,677
DFA Global Bond 165,239.962 10.46 1,728,410
Federated American Leaders Fund II 10,080.663 12.80 129,032
Federated Utility Fund II 2,083.333 11.03 22,979
Federated Prime Money Fund II 3,369,413.970 1.00 3,369,414
Federated High Income Bond Fund II 6,620.989 9.79 64,819
Federated Fund for U.S. Government
Securities II 7,352.268 10.29 75,655
Wanger U.S. Small Cap Advisor 18,217.740 11.60 211,326
Wanger International Small Cap Advisor 3,438.005 13.45 46,241
SEI International Growth 2,310.422 10.90 25,184
SEI Growth 5,201.650 12.67 65,905
SEI Aggressive Growth 3,136.746 13.05 40,935
SEI Income Equity 6,153.257 12.34 75,931
SEI Intermediate Fixed Income 11,099.155 10.92 121,203
-----------
$17,709,480
===========
</TABLE>
14
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
2. Investments (continued)
The aggregate cost of shares purchased during the years ended December 31,
1996 and 1995 for each of the respective portfolios is as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
DFA Small Value $ 6,611,439 $ 1,600,211
DFA Large Value 11,526,903 8,478,398
DFA International Value 8,980,054 2,798,530
DFA International Small 5,132,824 1,861,096
DFA Short-Term Fixed 8,325,403 1,031,717
DFA Global Bond 2,755,494 2,080,488
Federated American Leaders Fund II 1,278,453 351,064
Federated Utility Fund II 368,454 21,895
Federated Prime Money Fund II 10,141,496 5,592,300
Federated High Income Bond Fund II 1,838,547 64,524
Federated Fund for U.S. Government Securities II 1,323,286 292,492
Wanger U.S. Small Cap Advisor 1,879,331 223,006
Wanger International Small Cap Advisor 1,237,475 45,402
Montgomery Growth 441,564 -
Montgomery Emerging Markets 1,580,977 -
Weiss, Peck & Greer's Core Large-Cap Stock Fund 1,330,250 -
Weiss, Peck & Greer's Core Small-Cap Stock Fund 635,705 -
SEI International Growth 15,794 27,818
SEI Growth 929 67,118
SEI Aggressive Growth 18,356 126,908
SEI Income Equity 371 189,032
SEI Intermediate Fixed Income 46,977 119,819
--------------------------
$65,470,082 $24,971,818
==========================
</TABLE>
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.
15
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
4. Advisory and Service Fees
The Funds and their advisors furnish corporate management, administrative,
marketing and distribution services to the funds of the Separate Account.
Additionally, the Funds' advisors furnish investment advisory services to the
Fund portfolios under the terms of advisory contracts. The net asset value of
the portfolios is net of the advisory and service fees.
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. For the years ended December 31,
1996 and 1995, the effective annual rate for this charge was .50%.
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 contract 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.
In addition, an exchange fee of $15 is assessed for transfers among the
subaccounts of the Separate Account or into PLH's General Account which are in
excess of twelve transfers per contract year.
16
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
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
------------- -------------
<S> <C> <C>
DFA Small Value
Outstanding units at beginning of period 163,078.091 -
Issuance of units 599,098.907 163,612.907
Redemption of units (50,543.185) (534.816)
------------- -------------
Outstanding units at end of period 711,633.813 163,078.091
============= =============
End of period:
Unit value $ 12.062555 $ 9.947712
============= =============
Subaccount value $ 8,584,122 $ 1,622,254
============= =============
DFA Large Value
Outstanding units at beginning of period 358,553.292 -
Issuance of units 837,229.882 742,803.467
Redemption of units (212,325.212) (384,250.175)
------------- -------------
Outstanding units at end of period 983,457.962 358,553.292
============= =============
End of period:
Unit value $ 14.165425 $ 12.033635
============= =============
Subaccount value $ 13,931,100 $ 4,314,699
============= =============
DFA International Value
Outstanding units at beginning of period 271,241.506 -
Issuance of units 809,179.722 281,028.561
Redemption of units (96,995.862) (9,787.055)
------------- -------------
Outstanding units at end of period 983,425.366 271,241.506
============= =============
End of period:
Unit value $ 11.214095 $ 10.523524
============= =============
Subaccount value $ 11,028,225 $ 2,854,416
============= =============
</TABLE>
17
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
6. Contract Owner Transactions (continued)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
DFA International Small
Outstanding units at beginning of period 188,596.818 --
Issuance of units 460,065.826 188,620.067
Redemption of units (31,274.561) (23.249)
------------- -------------
Outstanding units at end of period 617,388.083 188,596.818
============= =============
End of period:
Unit Value $ 10.105738 $ 10.145451
============= =============
Subaccount value $ 6,239,162 $ 1,913,400
============= =============
DFA Short-Term Fixed
Outstanding units at beginning of period 101,709.022 --
Issuance of units 780,211.693 101,789.365
Redemption of units (60,569.781) (80.343)
------------- -------------
Outstanding units at end of period 821,350.934 101,709.022
============= =============
End of period:
Unit value $ 10.560015 $ 10.104088
============= =============
Subaccount value $ 8,673,478 $ 1,027,677
============= =============
DFA Global Bond
Outstanding units at beginning of period 152,950.452 --
Issuance of units 204,392.722 185,417.528
Redemption of units (39,873.252) (32,467.076)
------------- -------------
Outstanding units at end of period 317,469.922 152,950.452
============= =============
End of period:
Unit value $ 12.235112 $ 11.300456
============= =============
Subaccount value $ 3,884,280 $ 1,728,410
============= =============
</TABLE>
18
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
6. Contract Owner Transactions (continued)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Federated American Leaders Fund II
Outstanding units at beginning of period 10,179.256 --
Issuance of units 90,525.636 30,715.934
Redemption of units (32,852.011) (20,536.678)
------------- -------------
Outstanding units at end of period 67,852.881 10,179.256
============= =============
End of period:
Unit value $ 15.310533 $ 12.676024
============= =============
Subaccount value $ 1,038,864 $ 129,032
============= =============
Federated Utility Fund II
Outstanding units at beginning of period 2,023.934 --
Issuance of units 31,249.995 2,023.934
Redemption of units (9,194.295) --
------------- -------------
Outstanding units at end of period 24,079.634 2,023.934
============= =============
End of period:
Unit value $ 12.584004 $ 11.353717
============= =============
Subaccount value $ 303,018 $ 22,979
============= =============
Federated Prime Money Fund II
Outstanding units at beginning of period 363,418.231 70,223.494
Issuance of units 913,653.209 575,202.091
Redemption of units (764,796.441) (282,007.354)
------------- -------------
Outstanding units at end of period 512,274.999 363,418.231
============= =============
End of period:
Unit value $ 10.900489 $ 10.473486
============= =============
Subaccount value $ 5,584,048 $ 3,806,256
============= =============
</TABLE>
19
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
6. Contract Owner Transactions (continued)
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Federated High Income Bond Fund II
Outstanding units at beginning of period 6,319.636 --
Issuance of units 162,607.969 6,319.636
Redemption of units (22,218.152) --
------------- -------------
Outstanding units at end of period 146,709.453 6,319.636
============= =============
End of period:
Unit value $ 11.648435 $ 10.256838
============= =============
Subaccount value $ 1,708,936 $ 64,819
============= =============
Federated Fund for U.S. Government Securities II
Outstanding units at beginning of period 7,159.282 --
Issuance of units 121,181.022 28,450.225
Redemption of units (11,017.639) (21,290.943)
------------- -------------
Outstanding units at end of period 117,322.665 7,159.282
============= =============
End of period:
Unit value $ 10.939620 $ 10.567378
============= =============
Subaccount value $ 1,283,465 $ 75,655
============= =============
Wanger U.S. Small Cap Advisor
Outstanding units at beginning of period 21,864.180 --
Issuance of units 148,068.115 22,537.643
Redemption of units (59,381.560) (673.463)
------------- -------------
Outstanding units at end of period 110,550.735 21,864.180
============= =============
End of period:
Unit value $ 14.075721 $ 9.665388
============= =============
Subaccount value $ 1,556,081 $ 211,326
============= =============
</TABLE>
20
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
WANGER INTERNATIONAL SMALL CAP ADVISOR
Outstanding units at beginning of period 4,237.306 -
Issuance of units 90,487.385 4,352.600
Redemption of units (14,616.530) (115.294)
------------ ----------
Outstanding units at end of period 80,108.161 4,237.306
============ ==========
End of period:
Unit value $ 14.311721 $10.912871
============ ==========
Subaccount value $ 1,146,486 $ 46,241
============ ==========
MONTGOMERY GROWTH
Outstanding units at beginning of period - -
Issuance of units 36,545.547 -
Redemption of units (7,927.253) -
------------ ----------
Outstanding units at end of period 28,618.294 -
============ ==========
End of period:
Unit value $ 12.648763 $ -
============ ==========
Subaccount value $ 361,986 $ -
============ ==========
MONTGOMERY EMERGING MARKETS
Outstanding units at beginning of period - -
Issuance of units 151,705.186 -
Redemption of units (15,792.392) -
------------ ----------
Outstanding units at end of period 135,912.794 -
============ ==========
End of period:
Unit value $ 10.616164 $ -
============ ==========
Subaccount value $ 1,442,873 $ -
============ ==========
</TABLE>
21
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1996 1995
------------ ----------
<S> <C> <C>
WEISS, PECK & GREER'S CORE LARGE-CAP STOCK FUND
Outstanding units at beginning of period - -
Issuance of units 121,093.379 -
Redemption of units (33,890.647) -
------------ ----------
Outstanding units at end of period 87,202.732 -
============ ==========
End of period:
Unit value $ 11.381480 $ -
============ ==========
Subaccount value $ 992,496 $ -
============ ==========
WEISS, PECK & GREER'S CORE SMALL-CAP STOCK FUND
Outstanding units at beginning of period - -
Issuance of units 57,510.663 -
Redemption of units (481.814) -
------------ ----------
Outstanding units at end of period 57,028.849 -
============ ==========
End of period:
Unit value $ 11.776001 $ -
============ ==========
Subaccount value $ 671,572 $ -
============ ==========
SEI INTERNATIONAL GROWTH
Outstanding units at beginning of period 2,362.879 -
Issuance of units 1,464.776 2,662.679
Redemption of units (3,827.655) (299.800)
------------ ----------
Outstanding units at end of period - 2,362.879
============ ==========
End of period:
Unit value $ - $10.658015
============ ==========
Subaccount value $ - $ 25,184
============ ==========
</TABLE>
22
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Part A. None
Part B. All financial statements required to be filed are included in
Part B.
Part C. None
(b) Exhibits.
(1) Resolution of the Board of Directors of National Home Life Assurance
Company ("National Home") authorizing establishment of the
Separate Account./1/
(2) Not Applicable.
(3) Distribution Agreement.
(a) Form of Selling Agreement./5/
(4) (a) Form of variable annuity contract (A Unit)./6/
(b) Form of variable annuity contract (B Unit)./6/
(5) (a) Form of Application./7/
(b) 403(b) Rider./5/
(c) Individual Retirement Annuity Rider./5/
(6) (a) Articles of Incorporation of National Home./1/
(b) Amendment to Articles of Incorporation of National Home./1/
(c) Amended and Restated Articles of Incorporation of National
Home./1/
(d) Amended and Restated Articles of Incorporation of Providian
Life and Health Insurance Company./11/
(7) Not Applicable.
(8) (a) Form of Participation Agreement for the Funds./6/
(b) Participation Agreement Among DFA Investment Dimensions Group,
Inc., Dimensional Fund Advisors, Inc., DFA Securities Inc. and
National Home Life Assurance Company dated as of June 29,
1994./8/
(c) Participation Agreement Among Insurance Management Series,
Federated Advisors, Federated Securities Corp. and National
Home Life Assurance Company dated as of May 17, 1994./8/
(d) Participation Agreement Among Insurance Investment Products
Trust, SEI Financial Services Company and National Home Life
Assurance Company dated as of January 1, 1995./10/
(e) Participation Agreement Among Wanger Advisors Trust and
National Home Life Assurance Company dated as of May 19, 1995.
/10/
(f) Participation Agreement Among Tomorrow Funds Retirement Trust,
Weiss, Peck & Greer, L.L.C. and Providian Life and Health
Insurance Company dated as of September 11, 1995./10/
(g) Participation Agreement among Montgomery Funds III, Montgomery
Asset Management, L.P., and Providian Life and Health Insurance
Company dated as of January 31, 1996./11/
(h) Participation Agreement Among Strong Variable Insurance Funds,
Inc.; Strong Capital Management, Inc.; Strong Funds
Distributors, Inc. and Providian Life and Health Insurance
Company dated March 31, 1997./12/
(i) Participation Agreement Among Warburg, Pincus Trust; Warburg,
Pincus Counsellors, Inc.; Counsellors Securities Inc. and
Providian Life and Health Insurance Company dated March 31,
1997./12/
(j) Amendment No. 1 dated December 16, 1996 to Participation
Agreement Among Wanger Advisors Trust and Providian Life and
Health Insurance Company dated May 19, 1995./12/
(k) Participation Agreement Among SteinRoe Variable Investment
Trust, SteinRoe & Farnham Incorporated and Providian Life and
Health Insurance Company dated March 31, 1997./12/
(l) Participation Agreement Among Providian Life and Health
Insurance Company, Providian Series Trust, and Providian
Investment Advisors, Inc. dated March 25, 1997./12/
(9) (a) Opinion and Consent of Counsel./12/
(b) Consent of Counsel./12/
- -----------
/1/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account V, File No. 33-45862.
/2/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account II, File No. 33-7033.
/3/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/4/ Incorporated by reference from Post-Effective Amendment No. 5 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/5/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-45862.
/6/ Incorporated by reference from the Registration Statement of National
Home Life Assurance Company Separate Account V, File No. 33-72838, filed on
December 10, 1993.
/7/ Incorporated by reference from the Registration Statement of National
Home Life Assurance Company Separate Account V, File No. 33-79502, filed on
May 27, 1994.
/8/ Incorporated by reference from the Post-Effective Amendment No. 1 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-80958, filed April 28, 1995.
/9/ Incorporated by reference from Post-Effective Amendment No. 2 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-80958, Filed September 19, 1995.
/10/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-80958.
/11/ Incorporated by reference from Post-Effective Amendment No. 4 to the
Registration Statement of Providian Life and Health Insurance Company
Separate Account V, File No. 33-80958.
/12/ Filed herewith.
<PAGE>
(10) Consent of Independent Auditors./12/
(11) No Financial Statements are omitted from Item 23.
(12) Not Applicable.
(13) Performance Computation./12/
(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 5% Providian Corporation
76% Commonwealth Life
19% Peoples Security
Providian Life and Health Missouri 4% Providian Corporation
Insurance Company 61% Commonwealth Life
Ins. Co.
15% Peoples Security Life
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 Bancorp, Inc.
</TABLE>
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 8, 1997, there were 931 Adivsor's Edge Contract Owners and 7
Dimensional Variable Annuity Contract Owners. To date there are no PGA
Retirement Annuity Contract Owners.
ITEM 28. INDEMNIFICATION
Item 28 is incorporated by reference from the Post-Effective Amendment No. 6 to
the Registration Statement of the National Home Life Assurance Company Separate
Account II, File No. 33-7033.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Providian Securities Corporation, which serves as the principal
underwriter for the variable annuity contracts funded by Separate
Account V, also serves as the principal underwriter for variable life
insurance policies funded by Separate Account I and for Separate
Account II of Providian Life and Health.
(b) Directors and Officers
<TABLE>
<CAPTION>
Positions and Officers
Name with Underwriter
---- ----------------------
<S> <C>
Jeffrey P. Lammers President and Director
Kimberly A. Scouller Vice President and Chief Compliance Officer
Robert R. Bluth Vice President
John P. Fendig Vice President & Assistant Compliance Officer
Michael F. Lane Vice President
Harvey E. Willis Vice President and Secretary
Sarah J. Strange Vice President
Gregory J. Garvin 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
Mark Nerderman Vice President
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the Administrative Offices of Providian Life and Health in Louisville,
Kentucky.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted;
(b) The Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information;
(c) The Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
<PAGE>
(d) The Registrant hereby undertakes to rely on the no-action letter dated
November 28, 1988 (Ref. No. IP-6-88) with respect to language concerning
withdrawal restrictions applicable to Code Section 403(b) plans. Providian Life
and Health has complied with conditions 1 through 4 of the no-action letter.
(e) The Registrant hereby undertakes that no Director has resigned due to a
disagreement with the Registrant or any matter relating to the Separate
Account's operations, policies or practices.
(f) Providian Life and Health Insurance Company represents that the fees
and charges deducted under the contracts in this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by Providian Life and Health
Insurance Company.
<PAGE>
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
*By: /s/ R. Michael Slaven
----------------------
R. Michael Slaven
Attorney-in-fact
</TABLE>
<PAGE>
SEPARATE ACCOUNT V
ADVISOR'S EDGE VARIABLE ANNUITY
DIMENSIONAL VARIABLE ANNUITY
PGA RETIREMENT ANNUITY
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT 8(h) PARTICIPATION AGREEMENT AMONG STRONG VARIABLE
INSURANCE FUNDS, INC., STRONG CAPITAL MANAGEMENT,
INC., STRONG FUNDS DISTRIBUTORS, INC. AND PROVIDIAN
LIFE AND HEALTH INSURANCE COMPANY DATED MARCH 31,
1997
EXHIBIT 8(i) PARTICIPATION AGREEMENT AMONG WARBURG, PINCUS TRUST; WARBURG,
PINCUS COUNSELLORS, INC.; COUNSELLORS SECURITIES, INC. AND
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY DATED MARCH 31,
1997
EXHIBIT 8(j) AMENDMENT NO. 1 DATED DECEMBER 16, 1996 TO PARTICIPATION
AGREEMENT AMONG WANGER ADVISORS TRUST AND PROVIDIAN LIFE AND
HEALTH INSURANCE COMPANY DATED MAY 19, 1995
EXHIBIT 8(k) PARTICIPATION AGREEMENT AMONG STEINROE VARIABLE INVESTMENT
TRUST AND PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY DATED
MARCH 31, 1997
EXHIBIT 8(l) PARTICIPATION AGREEMENT AMONG PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY, PROVIDIAN SERIES TRUST AND PROVIDIAN
INVESTMENT ADVISORS, INC. DATED MARCH 25, 1997
EXHIBIT 9(a) OPINION AND CONSENT OF COUNSEL
EXHIBIT 9(b) CONSENT OF COUNSEL
EXHIBIT 10 CONSENT OF INDEPENDENT AUDITORS
EXHIBIT 13 PERFORMANCE COMPUTATION
</TABLE>
<PAGE>
Exhibit 8(h)
PARTICIPATION AGREEMENT
THIS AGREEMENT, is made as of March 31, 1997, by and among Providian
Life and Health Insurance Company ("Company"), on its own behalf and on behalf
of Providian Life and Health Insurance Company Separate Account V, a segregated
asset account of the Company ("Account"), Strong Variable Insurance Funds, Inc.
(the "Fund"), the Fund's investment adviser and transfer agent, Strong Capital
Management, Inc. ("Adviser") and Strong Funds Distributors, Inc.
("Distributors") (each, a "Party" and collectively, the "Parties").
PRELIMINARY STATEMENTS
A. Beneficial interests in the Fund are divided into several series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios", reference in this Agreement to
the "Fund" includes reference to each Portfolio to the extent the context
requires).
B. To the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the Portfolios named in Exhibit A,
hereto (the "Designated Portfolios"), as such Exhibit may be amended from time
to time, on behalf of the Account to fund the variable annuity contracts that
use the Designated Portfolios as an underlying investment medium (the
"Contracts").
C. The Company, Adviser and Distributors desire to facilitate the purchase
and redemption of shares of the Designated Portfolios by the Company for the
Account through one account in each Designated Portfolio (each an "Omnibus
Account") to be maintained of record by the Adviser for the Company, subject to
the terms and conditions of this Agreement.
D. The Company desires to provide administrative services and functions
(the "Services") for purchasers of contracts ("Owners") who are beneficial
owners of shares of the Designated Portfolios on the terms and conditions set
forth in this Agreement.
AGREEMENTS
The parties agree as follows:
1. Performance of Services. Company agrees to perform the administrative
functions and services specified in Exhibit B attached hereto with respect to
the shares of the Designated Portfolios beneficially owned by the Owners and
included in the Account.
<PAGE>
2. The Omnibus Accounts.
----------------------
2.1 Each Omnibus Account will be opened based upon the information
contained in Exhibit C hereto. In connection with each Omnibus Account, Company
represents and warrants that it is authorized to act on behalf of each purchaser
of Contracts ("Owner") effecting transactions in the Omnibus Account and that
the information specified on Exhibit C hereto is correct.
2.2 The Fund shall designate each Omnibus Account with an account number.
Account numbers will be the means of identification when the parties are
transacting in the Omnibus Accounts. The assets in the Accounts are segregated
from the Company's own assets. The Adviser agrees to cause the Omnibus Accounts
to be kept open on the Designated Portfolio's books regardless of a lack of
activity or small position size except to the extent the Company takes specific
action to close an Omnibus Account or to the extent the Fund's prospectus
reserves the right to close accounts which are inactive or of a small position
size. In the latter two cases, the Adviser will give prior notice to the
Company before closing an Omnibus Account.
2.3 The Company agrees to provide Adviser such information as Adviser or
Distributors may reasonably request concerning Owners as may be necessary or
advisable to enable Company and Distributors to comply with applicable laws,
including state "Blue Sky" laws relating to the sales of Fund shares to the
Accounts.
3. Transactions in Fund Shares. Designated Portfolio shares shall be sold on
behalf of the Fund by Distributors and purchased by Company for the Account and,
indirectly for the appropriate subaccount thereof at the net asset value next
computed after receipt by Distributors of each order of the Account or its
designee, in accordance with the provisions of this Agreement, the then current
prospectuses of the Designated Portfolio, and the Contracts. Company may
purchase Designated Portfolio shares for its own account subject to (a) receipt
of prior written approval by Distributors; and (b) such purchases being in
accordance with the then current prospectuses of the Portfolio and the
Contracts. The Board of Directors of the Fund ("Directors") may refuse to sell
shares of Fund to any person, or suspend or terminate the offering of shares of
the Fund if such action is required by law or by regulatory authorities having
jurisdiction. Company agrees to purchase and redeem the shares of the Fund in
accordance with the provisions of this Agreement, of the Contracts and of the
then current prospectuses for the Contracts and Designated Portfolio. Except as
necessary to implement transactions initiated by Owners, or as otherwise
permitted by state and/or federal laws or regulations, Company shall not redeem
Fund shares attributable to the Contracts.
3.1 Purchase and Redemption Orders. On each day that the Fund is open for
business (a "Business Day"), the Company shall aggregate and calculate the net
purchase or redemption order it receives for the Account from the Owners for
shares of the Fund that it received prior to the close of trading on the New
York Stock Exchange (the "NYSE") (i.e. 4:00 p.m., Eastern time, unless the NYSE
closes at an earlier time in which case such earlier time shall apply) and
2
<PAGE>
communicate to Distributors, by telephone or facsimile (or by such other means
as the parties hereto may agree to in writing), the net aggregate purchase or
redemption order (if any) for the Omnibus Account for such Business Day (such
Business Day is sometimes referred to in this Agreement as the "Trade Date").
The Company will communicate such orders to Distributors prior to 9:00 a.m.,
Eastern time, on the next Business Day following the Trade Date. All trades
communicated to Distributors by the foregoing deadline shall be treated by
Distributors as if they were received by Distributors prior to the close of
trading on the Trade Date.
3.2 Settlement of Transactions.
---------------------------
(a) Purchases. Company will use its best efforts to wire, or arrange
for the wire of, the purchase price of each purchase order to the custodian
for the Fund in accordance with written instructions provided by
Distributors to the Company so that either (1) such funds are received by
the custodian for the Fund prior to 1:00 p.m., Eastern time, on the next
Business Day following the Trade Date, or (2) Distributors is provided with
a Federal Funds wire system reference number prior to such 1:00 p.m.
deadline evidencing the entry of the wire transfer of the purchase price to
the applicable custodian into the Federal Funds wire system prior to such
time. Company agrees that if it fails to provide funds to the Fund's
custodian by the close of business on the next Business Day following the
Trade Date, then, at the option of Distributors, (i) the transaction may be
canceled, or (ii) the transaction may be processed at the next-determined
net asset value for the applicable Fund after purchase order funds are
received. In such event, the Company shall indemnify and hold harmless
Distributors, Adviser and/or the Fund from any liabilities, costs and
damages either may suffer as a result of such failure.
(b) Redemptions. The Adviser will use its best efforts to cause to be
transmitted to such custodial account as Company shall direct in writing,
the proceeds of all redemption orders placed by Company by 9:00 a.m.,
Eastern time, on the Business Day immediately following the Trade Date, by
wire transfer on that Business Day. Should Company need to extend the
settlement on a trade, it will contact Adviser to discuss the extension.
For purposes of determining the length of settlement, Adviser agrees to
treat the Account no less favorably than other shareholders of the
Designated Portfolio. Each wire transfer of redemption proceeds shall
indicate, on the Federal Funds wire system, the amount thereof attributable
to each Portfolio; provided, however, that if the number of entries would
be too great to be transmitted through the Federal Funds wire system, the
Adviser shall, on the day the wire is sent, fax such entries to Company or
if possible, send via direct or indirect systems access until otherwise
directed by the Company in writing.
(c) Authorized Persons. Company shall provide Adviser and Distributors
with a written list of persons who are each duly authorized to act on
behalf of the Company under this Agreement. The Funds, Adviser and
Distributors are entitled to
3
<PAGE>
conclusively rely on verbal or written instructions that Adviser or
Distributors reasonably believes were originated by any one of these
persons. The Company shall inform Adviser and Distributors of additions to
or subtractions from the list of authorized persons pursuant to Section 13
of this Agreement.
3.3 Book Entry Only. Issuance and transfer of Fund shares will be by book
entry only. Stock certificates will not be issued to the Company or the
Account. Shares of the Fund ordered from Distributors will be recorded in the
appropriate book entry title for the Account.
3.4 Distribution Information. The Adviser or Distributors shall provide
the Company with all distribution announcement information as soon as it is
announced by the Fund. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per share,
record date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Company. Where possible, the Adviser or
Distributors shall provide the Company with direct or indirect systems access to
the Adviser's systems for obtaining such distribution information.
3.5 Reinvestment. All dividends and capital gains distributions will be
automatically reinvested on the payable date in additional shares of the
Designated Portfolio at net asset value in accordance with each Portfolio's then
current prospectus.
3.6 Pricing Information. Distributors shall use its best efforts to
furnish to the Company prior to 7:00 p.m., Eastern time, on each Business Day
the Designated Portfolio's closing net asset value for that day, and for those
Funds for which such information is calculated, the daily accrual for interest
rate factor (mil rate). Such information shall be communicated via fax, or
indirect or direct systems access acceptable to the Company.
3.7 Price Errors.
-------------
(a) Notification. If an adjustment is required in accordance with a
Fund's then current policies on reimbursement ("Fund Reimbursement Policies") to
correct any error in the computation of the net asset value of Fund shares
("Price Error"), Adviser or Distributors shall notify Company as soon as
practicable after discovering the Price Error. Notice may be made via facsimile
or via direct or indirect systems access and shall state the incorrect price,
the correct price and, to the extent communicated to the Fund's shareholders,
the reason for the price change.
(b) Underpayments. If a Price Error causes an Omnibus Account to
receive less than the amount to which it otherwise would have been entitled,
Adviser shall make all necessary adjustments (subject to the Fund Reimbursement
Policies) so that the Omnibus Account receives the amount to which it would have
been entitled
4
<PAGE>
(c) Overpayments. If a Price Error causes an Omnibus Account to
receive more than the amount to which it otherwise would have been entitled,
Company, when requested by Adviser (in accordance with the Fund Reimbursement
Policies), will use its best efforts to collect such excess amounts from the
applicable customers; provided, however, Company shall not be required under
this section 3.7(c) to collect any such amounts if and to the extent such
collection would be in violation of applicable law or regulation.
(d) Fund Reimbursement Policies. Adviser agrees to treat Company's
customers no less favorably than Adviser treats its retail shareholders in
applying the provisions of paragraphs 3.7(b) and 3.7(c).
(e) Expenses. Adviser shall reimburse Company for all reasonable and
necessary out-of-pocket expenses incurred by Company for payroll overtime,
stationery and postage in adjusting customer accounts affected by a Price Error
described in paragraphs 3.7(b) and 3.7(c). Company shall use its best efforts to
mitigate all expenses which may be reimbursable under this section 3.7(e) and
agrees that payroll overtime shall not include any time spent programming
computers or otherwise customizing Company's recordkeeping system. Upon
requesting reimbursement, Company shall present an itemized bill to Adviser
detailing the costs for which it seeks reimbursement.
3.8 Agency. Distributors hereby appoints the Company as its agent for the
limited purpose of accepting purchase and redemption instructions from the
Owners for the purchase and redemption of shares of the Fund by the Company on
behalf of Account.
3.9 Quarterly Reports. Adviser agrees to provide Company a statement of
Designated Portfolio assets as soon as practicable and in any event within 30
days after the end of each calendar quarter, and a statement certifying the
Designated Portfolio's compliance during that fiscal quarter with the
diversification requirements and qualification as a regulated investment
company. In the event of a breach of Section 6.4(a), Adviser will take all
reasonable steps (a) to notify Company of such breach and (b) to adequately
diversify the Portfolio so as to achieve compliance within the grace period
afforded by Treasury Regulation 1.817-5.
4. Proxy Solicitations and Voting. The Company shall, at its expense,
distribute or arrange for the distribution of all proxy materials furnished by
the Fund to the Account and shall: (i) solicit voting instructions from Owners;
(ii) vote the Portfolio shares in accordance with instructions received from
Owners; and (iii) vote Portfolio shares for which no instructions have been
received, as well as shares attributable to it, in the same proportion as
Portfolio shares for which instructions have been received from Owners, so long
as and to the extent that the Securities and Exchange Commission (the "SEC")
continues to interpret the Investment Company Act of 1940, as amended (the "1940
Act"), to require pass-through voting privileges for various contract owners.
The Company and its agents will not recommend action in connection with, or
oppose or interfere with, the solicitation of proxies for the Portfolio shares
held for Owners.
5
<PAGE>
5. Customer Communications.
--------------------------
5.1 Prospectuses. The Adviser or Distributors, at its expense, will
provide the Company with as many copies of the current prospectus for the
Designated Portfolios as the Company may reasonably request for distribution, at
the Company's expense, to existing or prospective Owners.
5.2 Shareholder Materials. The Adviser and Distributors shall, as
applicable, provide in bulk to the Company or its authorized representative, at
a single address and at no expense to the Company, the following shareholder
communications materials prepared for circulation to Owners in quantities
requested by the Company which are sufficient to allow mailing thereof by the
Company and, to the extent required by applicable law, to all Owners: proxy or
information statements, annual reports, semi-annual reports, and all initial and
updated prospectuses, supplements and amendments thereof. Neither the Fund, the
Adviser nor Distributors shall be responsible for the cost of distributing such
materials to Owners.
6. Representations and Warranties.
-------------------------------
6.1 The Company represents and warrants that:
(a) It is an insurance company duly organized and in good standing
under the laws of the State of Missouri and that it has legally and validly
established the Account prior to any issuance or sale thereof as a
segregated asset account and that the Company has and will maintain the
capacity to issue all Contracts that may be sold; and that it is and will
remain duly registered, licensed, qualified and in good standing to sell
the Contracts in all the jurisdictions in which such Contracts are to be
offered or sold;
(b) It is and will remain duly registered and licensed in all material
respects under all applicable federal and state securities and insurance
laws and shall perform its obligations hereunder in compliance in all
material respects with any applicable state and federal laws;
(c) The Contracts are and will be registered under the Securities Act
of 1933, as amended (the "1933 Act"), and are and will be registered and
qualified for sale in the states where so required; and the Account is and
will be registered as a unit investment trust in accordance with the 1940
Act and shall be a segregated investment account for the Contracts;
(d) The Contracts are currently treated as annuity contracts, under
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company will maintain such treatment and will notify
Adviser, Distributors and Fund
6
<PAGE>
promptly upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in the
future;
(e) It is registered as a transfer agent pursuant to Section 17A of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), or is not
required to be registered as such;
(f) The a rrangements provided for in this Agreement will be disclosed
to the Owners if, and to the extent, required by applicable law; and
(g) It is registered as a broker-dealer under the 1934 Act and any
applicable state securities laws, including as a result of entering into
and performing the Services set forth in this Agreement, or is not required
to be registered as such.
6.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement are and will be registered under the 1933 Act and the Fund
is and will be registered as a registered investment company under the
Investment Company Act of 1940, in each case, except to the extent the
Company is so notified in writing;
6.3 Distributors represents and warrants that:
(a) It is and will be a member in good standing of the NASD and is and
will be registered as a broker-dealer with the SEC;
(b) It will sell and distribute Fund shares in accordance with all
applicable state and federal laws and regulations; and
6.4 Adviser represents and warrants that:
(a) It will cause Fund to invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable annuity
contracts under the Code and the regulations issued thereunder, and that
Fund will comply with Section 817(h) of the Code as amended from time to
time and with all applicable regulations promulgated thereunder;
(b) It is and will remain duly registered and licensed in all material
respects under all applicable federal and state securities and insurance
laws and shall perform its obligations hereunder in compliance in all
material respects with any applicable state and federal laws; and
(c) As applicable and within its authority, it will cause the Fund to
conduct its operations in compliance with any Exemptive Order applicable to
the Fund.
7
<PAGE>
6.5 Each of the parties hereto represents and warrants to the others that:
(a) It has full power and authority under applicable law, and has
taken all action necessary, to enter into and perform this Agreement and
the person executing this Agreement on its behalf is duly authorized and
empowered to execute and deliver this Agreement;
(b) This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms and it
shall comply in all material respects with all laws, rules and regulations
applicable to it by virtue of entering into this Agreement;
(c) No consent or authorization of, filing with, or other act by or in
respect of any governmental authority, is required in connection with the
execution, delivery, performance, validity or enforceability of this
Agreement;
(d) The execution, performance and delivery of this Agreement will not
result in it violating any applicable law or breaching or otherwise
impairing any of its contractual obligations;
(e) Each Party hereto is entitled to rely on any written records or
instructions provided to it by another Party; and
(f) Its directors, officers, employees, and investment advisers, and
other individuals/entities dealing with the money and/or securities of Fund
are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less
than the amount required by the applicable rules of the National
Association of Securities Dealers, Inc. ("NASD") and the federal securities
laws, which bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company;
7. Sales Material and Information
------------------------------
7.1 NASD Filings. The Company shall promptly inform Distributors as to
the status of all sales literature filings pertaining to the Designated
Portfolios and shall promptly notify Distributors of all approvals or
disapprovals of sales literature filings with the NASD. For purposes of this
Section 7, the phrase "sales literature or other promotional material" shall be
construed in accordance with all applicable securities laws and regulations.
7.2 Company Representations. The Company shall not make any material
representations concerning the Adviser, the Distributors, or the Fund other than
the information or representations contained in: (a) a registration statement of
the Fund or prospectus of a Designated Portfolio, as amended or supplemented
from time to time; (b) published reports or
8
<PAGE>
statements of the Fund which are in the public domain or are approved by
Distributors and/or the Fund; or (c) sales literature or other promotional
material of the Fund.
7.3 Adviser, Distributors and Fund Representations. Neither Adviser,
Distributors nor the Fund shall make any material representations concerning the
Company other than the information or representations contained in: (a) a
registration statement or prospectus for the Contracts, as amended or
supplemented from time to time; (b) published reports or statements of the
Contracts or the Account which are in the public domain or are approved by the
Company; or (c) sales literature or other promotional material of the Company.
7.4 Trademarks. Except to the extent required by applicable law, no Party
shall use any other Party's names, logos, trademarks or service marks, whether
registered or unregistered, without the prior consent of such Party.
7.5 Information From Distributors and Adviser. Upon request, Distributors
and/or Adviser will provide to Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, applications
for exemptions, requests for no action letters, and all amendments to any of the
above, that relate to the Designated Portfolios, in final form as filed with the
SEC, NASD and other regulatory authorities.
7.6 Information From Company. Company will provide to Distributors at
least one complete copy of all registration statements, prospectuses, Statements
of Additional Information, reports, solicitations for voting instructions, major
sales literature and other significant promotional materials, applications for
exemptions, requests for no action letters and all amendments to any of the
above, that relate to the Fund and the Contracts, in final form as filed with
the SEC, NASD and other regulatory authorities.
7.7 Review of Marketing Materials. If so requested by Company, the
Adviser or Distributors will use its best efforts to review major sales
literature and other significant marketing materials prepared by Company which
relate to the Funds, the Adviser or Distributors for factual accuracy as to such
entities, provided that the Adviser or Distributors is provided at least five
(5) Business Days to review such materials. Neither the Adviser nor
Distributors will review such materials for compliance with applicable laws.
Company shall provide the Adviser with copies of all major sales literature and
other significant marketing materials which refer to the Funds, the Company or
Distributors within five (5) Business Days after their first use, regardless of
whether the Adviser or Distributors has previously reviewed such materials. If
so requested by the Adviser or Distributors, Company shall cease to use any
sales literature or marketing materials which refer to the Funds, the Adviser or
Distributors that the Adviser or Distributors determines to be inaccurate,
misleading or otherwise reasonably determined to be unacceptable.
8. Fees and Expenses.
------------------
9
<PAGE>
8.1 Fund Registration Expenses. Fund or Distributors shall bear the cost
of registration and qualification of Fund shares; preparation and filing of Fund
prospectuses and registration statements, proxy materials and reports;
preparation of all other statements and notices relating to Fund or Distributors
required by any federal or state law; payment of all applicable fees, including,
without limitation, all fees due under Rule 24f-2 of the 1940 Act, relating to
Fund; and all taxes on the issuance or transfer of Fund's shares on the Fund's
records.
8.2 Contract Registration Expenses. The Company shall bear the expenses
for the costs of preparation and filing of the Company's prospectus and
registration statement with respect to the Contracts; preparation of all other
statements and notices relating to the Account or the Contracts required by any
federal or state law; expenses for the solicitation and sale of the Contracts
including all costs of printing and distributing all copies of advertisements,
prospectuses, Statements of Additional Information, proxy materials, and reports
to Owners or potential purchasers of the Contracts as required by applicable
state and federal law; payment of all applicable fees relating to the Contracts;
all costs of drafting, filing and obtaining approvals of the Contracts in the
various states under applicable insurance laws; filing of annual reports on form
N-SAR, and all other costs associated with ongoing compliance with all such laws
and its obligations hereunder.
9. Indemnification.
9.1 Indemnification By Company.
(a) Company agrees to indemnify and hold harmless Fund, Adviser and
Distributors and each of their directors, officers, employees and agents,
and each person, if any, who controls any of them within the meaning of
Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively,
the "Indemnified Parties" for purposes of this Section 9.1) from and
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of Company), and expenses
(including reasonable legal fees and expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise (collectively, "Losses"), insofar as such Losses:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the
Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
paragraph 9.1(a) shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with written
information
10
<PAGE>
furnished to Company by or on behalf of Fund, Distributors or Adviser
for use in the registration statement or prospectus for the Contracts
or in the Contracts (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company or its agents, with
respect to the sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Fund or any amendment
thereof or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, if such a
statement or omission was made in reliance upon written information
furnished to Fund, Adviser or Distributors by or on behalf of Company;
or
(iv) arise out of, or as a result of, any failure by Company or
persons under its control to provide the Services and furnish the
materials contemplated under the terms of this Agreement; or
(v) arise out of, or result from, any material breach of any
representation and/or warranty made by Company or persons under its
control in this Agreement or arise out of or result from any other
material breach of this Agreement by Company or persons under its
control; as limited by and in accordance with the provisions of
Sections 9.1(b) and 9.1(c) hereof; or
(vi) arise out of, or as a result of, adherence by Adviser or
Distributors to instructions that it reasonably believes were
originated by persons specified in Section 3.2(c), hereof.
This indemnification provision is in addition to any liability which
the Company may otherwise have.
(b) Company shall not be liable under this indemnification provision
with respect to any Losses to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
(c) Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a
reasonable time after the summons or
11
<PAGE>
other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Company of any such claim shall
not relieve Company from any liability which it may have to the Indemnified
Party otherwise than on account of this indemnification provision. In case
any such action is brought against any Indemnified Party, and it notified
the indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such
Indemnified Party. After notice from the indemnifying party of its
intention to assume the defense of an action, the Indemnified Party shall
bear the expenses of any additional counsel obtained by it, and the
indemnifying party shall not be liable to such Indemnified Party under this
Section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation. The Indemnified Party may not settle any
action without the written consent of the indemnifying party. The
indemnifying party may not settle any action without the written consent of
the Indemnified Party unless such settlement completely and finally
releases the Indemnified Party from any and all liability. In either event,
consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against them in connection
with the issuance or sale of Designated Portfolio shares or the Contracts
or the operation of Fund.
9.2 Indemnification by Adviser and Distributors.
--------------------------------------------
(a) Adviser and Distributors agrees to indemnify and hold harmless
Company and each of its directors, officers, employees and agents and each
person, if any, who controls Company within the meaning of Section 15 of
the 1933 Act (each, and "Indemnified Party" and collectively, the
"Indemnified Parties" for purposes of this Section 9.2) against any and all
Losses to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such Losses:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of Fund (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this Section
9.2(a) shall not apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was made in reliance
upon and in conformity with written information furnished to Fund,
Adviser or Distributors by or on behalf of Company for use in the
registration statement or prospectus for Fund or in sales
12
<PAGE>
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Adviser or Distributors or
persons under its control, with respect to the sale or distribution of
Fund shares;
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading,
if such statement or omission was made in reliance upon written
information furnished to Company by or on behalf of Adviser or
Distributors; or
(iv) arise out of, or as a result of, any failure by Adviser or
Distributors or persons under its control to provide the services and
furnish the materials contemplated under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Adviser or Distributors or
persons under its control in this Agreement or arise out of or result
from any other material breach of this Agreement by Adviser or
Distributors or persons under its control; as limited by and in
accordance with the provisions of Sections 9.2(b) and 9.2(c) hereof.
This indemnification provision is in addition to any liability which
Adviser and Distributors may otherwise have.
(b) Distributors shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to
Company.
(c) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified Adviser
and Distributors in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Adviser and Distributors of any
such claim shall not relieve Adviser and Distributors from any liability
which it may have to the Indemnified Party otherwise
13
<PAGE>
than on account of this indemnification provision. In case any such action
is brought against any Indemnified Party, and it notified the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it may wish, assume the
defense thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying party of its intention to assume the defense
of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying party shall not be
liable to such Indemnified Party under this Section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation. The
Indemnified Party may not settle any action without the written consent of
the indemnifying party. The indemnifying party may not settle any action
without the written consent of the Indemnified Party unless such settlement
completely and finally releases the Indemnified Party from any and all
liability. In either event, consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Adviser and
Distributors of the commencement of any litigation or proceedings against
them in connection with the issuance or sale of the Contracts or the
operation of the Account.
10. Potential Conflicts.
--------------------
10.1 Monitoring by Directors for Conflicts of Interest. The Directors
will monitor the Fund for any potential or existing material irreconcilable
conflict of interest between the interests of the contract owners of all
separate accounts investing in the Fund, including such conflict of interest
with any other separate account of any other insurance company investing in the
Fund. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Fund are
being managed; (e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different life insurance companies utilizing the Fund; or (f) a
decision by Company to disregard the voting instructions of Owners. The
Directors shall promptly inform the Company, in writing, if they determine that
an irreconcilable material conflict exists and the implications thereof.
10.2 Monitoring by the Company for Conflicts of Interest. The Company
will promptly notify the Directors, in writing, of any potential or existing
material irreconcilable conflicts of interest, as described in Section 10.1
above, of which it is aware. The Company will assist the Directors in carrying
out their responsibilities under any applicable provisions of the federal
securities laws and/or any exemptive orders granted by the SEC ("Exemptive
Order"), by providing the Directors, in a timely manner, with all information
reasonably necessary for the
14
<PAGE>
Directors to consider any issues raised. This includes, but is not limited to,
an obligation by the Company to inform the Directors whenever Owner voting
instructions are disregarded.
10.3 Remedies. If it is determined by a majority of the Directors, or a
majority of disinterested Directors, that a material irreconcilable conflict
exists, as described in Section 10.1 above, the Company shall, at its own
expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including, but not limited to: (a),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund and reinvesting such assets in a different investment medium, including
(but not limited to) another fund managed by the Adviser, or submitting the
question whether such segregation should be implemented to a vote of all
affected Owners and, as appropriate, segregating the assets of any particular
group that votes in favor of such segregation, or offering to the affected
owners the option of making such a change; and (b), establishing a new
registered management investment company or managed separate account.
10.4 Causes of Conflicts of Interest.
--------------------------------
(a) State Insurance Regulators. If a material irreconcilable conflict
arises because a particular state insurance regulator's decision applicable
to the Company conflicts with the majority of other state regulators, then
the Company will withdraw the affected Account's investment in the Fund and
terminate this Agreement with respect to such Account within the period of
time permitted by such decision, but in no event later than six months
after the Directors inform the Company in writing that it has determined
that such decision has created an irreconcilable material conflict;
provided, however, that such withdrawal and termination shall be limited to
the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested Directors. Until the end of
the foregoing period, the Distributors and Fund shall continue to accept
and implement orders by the Company for the purchase (and redemption) of
shares of the Fund to the extent such actions do not violate applicable
law.
(b) Disregard of Owner Voting. If a material irreconcilable conflict
arises because of Company's decision to disregard Owner voting instructions
and that decision represents a minority position or would preclude a
majority vote, Company may be required, at the Fund's election, to withdraw
the Account's investment in the Fund. No charge or penalty will be imposed
against the Account as a result of such withdrawal.
10.5 Limitations on Consequences. For purposes of Sections 10.3 through
10.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict. In no event will the Fund, the Adviser or the Distributors
be required to establish a new funding medium for any of the Contracts. The
Company shall not be required by Section 10.3 to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of owners affected by the irreconcilable material conflict. In the event that
the Directors determine that any proposed
15
<PAGE>
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement as quickly as may be required to comply with applicable law, but in no
event later than six (6) months after the Directors inform the Company in
writing of the foregoing determination, provided, however, that such withdrawal
and termination shall be limited to the extent required by any such material
irreconcilable conflict.
10.6 Changes in Laws. If and to the extent that Rule 6e-2 and Rule 6e3(T)
are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the Act or the rules promulgated thereunder with respect to mixed
or shared funding (as defined in the Fund's Exemptive Order) on terms and
conditions materially different from those contained in the Fund's Exemptive
Order, then (a) the Fund and/or the Company, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
11. Maintenance of Records.
-----------------------
(a) Recordkeeping and other administrative services to Owners shall be
the responsibility of the Company and shall not be the responsibility of
the Fund, Adviser or Distributors. Neither the Fund, the Adviser nor
Distributors shall maintain separate accounts or records for Owners.
Company shall maintain and preserve all records as required by law to be
maintained and preserved in connection with providing the Services and in
making shares of the Fund available to the Account.
(b) Upon the request of the Adviser or Distributors, the Company shall
provide copies of all the historical records relating to transactions
between the Fund and the Account, written communications regarding the Fund
to or from the Account and other materials, in each case (1) as are
maintained by the Company in the ordinary course of its business, and (2)
as may reasonably be requested to enable the Adviser and Distributors, or
its representatives, including without limitation its auditors or legal
counsel, to (A) monitor and review the Services, (B) comply with any
request of a governmental body or self-regulatory organization or the
Owners, (C) verify compliance by the Company with the terms of this
Agreement, (D) make required regulatory reports, or (E) perform general
customer supervision. The Company agrees that it will permit the Adviser
and Distributors or such representatives of either to have reasonable
access to its personnel and records in order to facilitate the monitoring
of the quality of the Services.
(c) Upon the request of the Company, the Adviser and Distributors
shall provide copies of all the historical records relating to transactions
between the Fund and the Account, written communications regarding the Fund
to or from the Account and other materials, in each case (1) as are
maintained by the Adviser and Distributors, as the
16
<PAGE>
case may be, in the ordinary course of its business and in compliance with
applicable law, and (2) as may reasonably be requested to enable the
Company, or its representatives, including without limitation its auditors
or legal counsel, to (A) comply with any request of a governmental body or
self-regulatory organization or the Owners, (B) verify compliance by the
Adviser and Distributors with the terms of this Agreement, (C) make
required regulatory reports, or (D) perform general customer supervision.
(d) The parties agree to cooperate in good faith in providing records
to one another pursuant to this Section 11.
12. Term and Termination.
---------------------
12.1 Term and Termination Without Cause. The initial term of this
Agreement shall be for a period of two years from the date hereof. Unless
terminated upon not less than thirty (30) days prior written notice to the other
Party, this Agreement shall thereafter automatically renew from year to year,
subject to termination at the next applicable renewal date upon not less than 30
days prior written notice. Either Party may terminate this Agreement following
the initial term upon six (6) months advance written notice to the other.
12.2 Termination by Fund, Distributors or Adviser for Cause. Adviser,
Fund or Distributors may terminate this Agreement by written notice to the
Company, if any of them shall determine, in its sole judgment exercised
reasonably and in good faith, that (a) the Company has suffered a material
adverse change in its business, operations, financial condition or prospects
since the date of this Agreement or is the subject of material adverse
publicity; or (b) any of the Contracts are not registered, issued or sold in
accordance with applicable state and/or federal law or such law precludes the
use of Fund shares as the underlying investment media of the Contracts issued or
to be issued by the Company.
12.3 Termination by Company for Cause. Company may terminate this
Agreement by written notice to the Fund and the Distributors with respect to the
Fund in the event that (a) any of the Fund's shares are not registered, issued
or sold in accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; (b) the Fund ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify; or (c) the Fund fails to meet the diversification
requirements specified in Section 6.4(a).
12.4 Termination by any Party. This Agreement may be terminated by any
party at any time (A) by giving 30 days' written notice to the other parties in
the event of a material breach of this Agreement by the other party or parties
that is not cured during such 30-day period, and (B) (i) upon institution of
formal proceedings relating to the legality of the terms and conditions of this
Agreement against the Account, Company, Fund, Adviser or Distributors by the
NASD, the SEC or any other regulatory body provided that the terminating party
has a
17
<PAGE>
reasonable belief that the institution of formal proceedings is not without
foundation and will have a material adverse impact on the terminating party,
(ii) by the non-assigning party upon the assignment of this Agreement in
contravention of the terms hereof, or (iii) as is required by law, order or
instruction by a court of competent jurisdiction or a regulatory body or self-
regulatory organization with jurisdiction over the terminating party.
12.5 Limit on Termination. Notwithstanding the termination of this
Agreement, for so long as any Contracts remain outstanding and invested in a
Designated Portfolio each Party hereto shall continue to perform such of its
duties hereunder as are necessary to ensure the continued tax deferred status
thereof and the payment of benefits thereunder, except to the extent proscribed
by law, the SEC or other regulatory body.
13. Notices.
--------
All notices hereunder shall be given in writing (and shall be deemed to
have been duly given upon receipt) by delivery in person, by facsimile, by
registered or certified mail or by overnight delivery (postage prepaid, return
receipt requested) to the respective parties as follows:
If to Fund:
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
18
<PAGE>
If to Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Distributors:
Strong Funds Distributors, Inc.
100 Heritage Reserve
Milwaukee, Wisconsin 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Company:
Providian Corporation
400 West Market Street
Louisville, KY 40202
Attention: John Fendig
Facsimile No.: (502) 560-4397
14. Miscellaneous.
14.1. Captions. The captions in this Agreement are included for
convenience of reference only and in no way affect the construction or effect of
any provisions hereof.
14.2. Enforceability. If any portion of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
14.3. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which taken together shall constitute one and the
same instrument.
14.4. Remedies not Exclusive. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the parties hereto
are entitled to under state and federal laws.
14.5. Confidentiality. Subject to the requirements of legal process and
regulatory authority, the Fund and Distributors shall treat as confidential the
names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by
19
<PAGE>
the Company hereto and, except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
14.6. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Wisconsin applicable to
agreements fully executed and to be performed therein; exclusive of conflicts of
laws;
14.7. Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof
shall survive termination of this Agreement. In addition, Sections 7.1, 7.5, 7.6
and 10 shall survive termination of this Agreement in the event that any
Contracts are invested in a Designated Portfolio at the time the termination
becomes effective and shall survive for so long as such Contracts remain so
invested.
14.8. Amendment and Waiver. No modification of any provision of this
Agreement will be binding unless in writing and executed by the party to be
bound thereby. No waiver of any provision of this Agreement will be binding
unless in writing and executed by the party granting such waiver.
Notwithstanding anything in this Agreement to the contrary, the Company may
unilaterally amend Exhibit A hereto to add additional investment companies or
series thereof ("New Funds") as Funds by sending to the Company a written notice
of the New Funds Any valid waiver of a provision set forth in this Agreement
shall not constitute a waiver of any other provision of this Agreement. In
addition, any such waiver shall constitute a present waiver of such provision
and shall not constitute a permanent future waiver of such provision.
14.9. Assignment. This Agreement shall be binding upon and shall inure to
the benefit of the parties and their respective successors and assigns;
provided, however, that neither this Agreement nor any rights, privileges,
duties or obligations of the parties may be assigned by either party without the
written consent of the other party or as expressly contemplated by this
Agreement.
14.10. Entire Agreement. This Agreement contains the full and complete
understanding between the parties with respect to the transactions covered and
contemplated hereunder, and supersedes all prior agreements and understandings
between the parties relating to the subject matter hereof, whether oral or
written, express or implied.
14.11. Relationship of Parties; No Joint Venture. Except for the limited
purpose provided in Section 2.9, it is understood and agreed that the Company
shall be acting as an independent contractor and not as an employee or agent of
the Adviser, Distributors or the Funds, and none of the parties shall hold
itself out as an agent of any other party with the authority to bind such party.
Neither the execution nor performance of this Agreement shall be deemed to
create a partnership or joint venture by and among any of the Company, Fund,
Adviser, or Distributors.
20
<PAGE>
14.12. Expenses. All expenses incident to the performance by each party
of its respective duties under this Agreement shall be paid by that party.
14.13. Time of Essence. Time shall be of the essence in this Agreement.
14.14. Non-Exclusivity. Each of the parties acknowledges and agrees that
this Agreement and the arrangements described in this Agreement are intended to
be non-exclusive and that each of the parties is free to enter into similar
agreements and arrangements with other entities.
14.15. Operations of Fund. In no way shall the provisions of this
Agreement limit the authority of (a) the Fund, Adviser or Distributors to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of such Fund and the sale of its shares and
(b) Adviser to take such action as it may deem appropriate or advisable in
connection with all matters relating to the provision of Services or the shares
of funds other than the Fund offered to the Account; provided, however nothing
in this paragraph shall be construed to limit any remedy, except only specific
performance, that is otherwise available to any party for breach of this
Agreement.
15. Compliance with Laws. Company, Distributors, and Adviser each shall comply
with all laws, rules and regulations applicable to them in connection with the
performance of each of their obligations under this Agreement.
21
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
/s/ Gregory J. Garvin
---------------------
Name: Gregory J. Garvin
Title: Vice President
STRONG CAPITAL MANAGEMENT, INC.
/s/ Rochelle Lamm Wallach
-------------------------
Rochelle Lamm Wallach, President of Strong
Advisory Services, a division of Strong Capital
Management, Inc.
STRONG FUNDS DISTRIBUTORS, INC.
/s/ Stephen Shenkenberg
-----------------------
Name: Stephen Shenkenberg
Title: Vice President
STRONG VARIABLE INSURANCE FUNDS, INC.
/s/ Stephen Shenkenberg
-----------------------
Name: Stephen Shenkenberg
Title: Vice President
22
<PAGE>
EXHIBIT A
The following is a list of all series of the Fund which are to be made available
for investment by the Contracts pursuant to this Agreement:
Strong International Stock Fund II
23
<PAGE>
EXHIBIT B
The Services
Company shall perform the following services. Such services shall be the
responsibility of the Company and shall not be the responsibility of the Fund,
Adviser or Distributors.
1. Maintain separate records for each Account, which records shall
reflect Fund shares ("Shares") purchased and redeemed, including the date and
price for all transactions, Share balances, and the name and address of each
Owner, including zip codes and tax identification numbers.
2. Credit contributions to individual Owner accounts and invest such
contributions in shares of the Designated Portfolios to the extent so designated
by the Owner.
3. Disburse or credit to the Owners, and maintain records of, all
proceeds of redemptions of Designated Portfolio shares and all other
distributions not reinvested in shares.
4. Prepare and transmit to the Owners, periodic account statements.
5. Transmit to the Owners, as required by applicable law, prospectuses,
proxy materials, shareholder reports, and other information provided by the
Adviser, Distributors or Fund and required to be sent to shareholders under the
Federal securities laws.
6. Transmit to Distributors purchase orders and redemption requests
placed by the Account and arrange for the transmission of funds to and from the
Fund.
7. Transmit to Distributors such periodic reports as Distributors shall
reasonably conclude is necessary to enable the Fund to comply with applicable
Federal securities and state Blue Sky requirements.
8. Transmit to the each Account confirmations of purchase orders and
redemption requests placed by each Account.
9. Maintain all account balance information for the Account and daily and
monthly purchase summaries expressed in shares and dollar amounts.
10. Prepare, transmit and file any Federal, state and local government
reports and returns as required by law with respect to each account maintained
on behalf of the Account.
11. Respond to Owners' inquiries regarding, among other things, share
prices, account balances, dividend options, dividend amounts, and dividend
payment dates.
24
<PAGE>
EXHIBIT C
Account Information
1. Entity in whose name each Account will be opened:
--------------------------
Mailing address: --------------------------
--------------------------
--------------------------
2. Employer ID number (For internal usage only): --------------------------
3. Authorized contact persons: The following persons are authorized on behalf
of the Company to effect transactions in each Account:
Name: Name:
---------------------------- -------------------------------
Phone: Phone:
---------------------------- -------------------------------
4. Will the Accounts have telephone exchange? ____ Yes ____ No
(This option lets Company redeem shares by telephone and apply the proceeds
for purchase in another identically registered Strong Funds account.)
5. Will the Accounts have telephone redemption? ____ Yes ____ No
(This option lets Company sell shares by telephone. The proceeds will be
wired to the bank account specified below.)
6. All dividends and capital gains will be reinvested automatically.
7. Instructions for all outgoing wire thransfers: --------------------------
--------------------------
--------------------------
--------------------------
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Participation Agreement between the Company,
the Fund, Adviser and Distributors.
9. Company represents under penalty of perjury that:
(i) The employer ID number on this form is correct; and
(ii) Company is not subject to backup withholding because (a) Company
is exempt from backup withholding, (b) Company has not been notified by the
IRS that it is subject to
25
<PAGE>
Exhibit 8(i)
PARTICIPATION AGREEMENT
By and Among
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
And
WARBURG, PINCUS TRUST
And
WARBURG, PINCUS COUNSELLORS, INC.
And
COUNSELLORS SECURITIES INC.
THIS AGREEMENT, made and entered into this 31st day of March, 1997, by and
among Providian Life and Health Insurance Company, organized under the laws of
Missouri (the "Company"), on its own behalf and on behalf of each separate
account of the Company named in Schedule 1 to this Agreement as may be amended
from time to time (each account referred to as the "Account"), Warburg, Pincus
Trust, an open-end management investment company and business trust organized
under the laws of the Commonwealth of Massachusetts (the "Fund"); Warburg,
Pincus Counsellors, Inc. a corporation organized under the laws of the State of
Delaware (the "Adviser"); and Counsellors Securities Inc., a corporation
organized under the laws of the State of New York ("CSI").
WHEREAS, the Fund engages in business as an open-end management investment
company and was established for the purpose of serving as the investment vehicle
for separate accounts established for variable life insurance contracts and
variable annuity contracts to be offered by insurance companies that have
entered into participation agreements similar to this Agreement (the
"Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities and Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (the "1940 Act"), and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to
be sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and qualified pension and retirement plans outside of the
separate account context (the "Mixed and Shared Funding Exemptive Order"). The
parties to this Agreement agree that the conditions or undertakings specified in
the Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund, the Adviser and/or CSI by virtue of the receipt of such order
by the SEC will be incorporated herein by reference, and such parties agree to
comply with such conditions and undertakings to the extent applicable to each
such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
<PAGE>
WHEREAS, the Company has registered or will register certain variable
annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company
under the insurance laws of Missouri, to set aside and invest assets
attributable to the Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act; and
WHEREAS, CSI, the Fund's distributor, is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934 (the "1934 Act") and is a
member in good standing of the National Association of Securities Dealers, Inc.
(the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 2, as such schedule may be amended from time to time (the "Designated
Portfolios"), on behalf of the Account to fund the Contracts, and the Fund is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Adviser and CSI agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt and acceptance by the Fund or
its designee of the order for the shares of the Fund. For purposes of this
Section 1.1, the Company will be the designee of the Fund for receipt of such
orders from each Account and receipt by such designee will constitute receipt by
the Fund; provided that the Fund receives notice of such order by 10:00 a.m.
Eastern Time on the next following Business Day ("T+1"). "Business Day" will
mean any day on which the New York Stock Exchange, Inc. (the "NYSE") is open for
trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 in each case that an order to
purchase Fund shares is made in accordance with Section 1.1 above. Payment will
be in federal funds transmitted by wire. This wire transfer will be received by
CSI no later than 4:00 p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available
indefinitely for purchase at the applicable net asset value per share by
Participating Insurance Companies, including the Company, and their separate
accounts on those days on which the Fund calculates its Designated Portfolio net
asset value pursuant to rules of the SEC and the Fund shall use reasonable
efforts to calculate such net asset value on each day the NYSE is open for
trading; provided, however, that the Fund, the Adviser or CSI may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in its or their sole discretion acting in
good faith, necessary in the best interests of the shareholders of such
Portfolio.
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1.4. On each Business Day on which the Fund calculates its net asset value,
the Company will aggregate and calculate the net purchase or redemption orders
for each Account maintained by the Fund in which contract owner assets are
invested. Net orders will only reflect orders that the Company has received
prior to the close of regular trading on the NYSE currently 4:00 p.m., Eastern
Time) on that Business Day. Orders that the Company has received after the close
of regular trading on the NYSE will be treated as though received on the next
Business Day. Each communication of orders by the Company will constitute a
representation that such orders were received by it prior to the close of
regular trading on the NYSE on the Business Day on which the purchase or
redemption order is priced in accordance with Rule 22c-1 under the 1940 Act.
Other procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated Portfolio
or with oral or written instructions that CSI or the Fund will forward to the
Company from time to time.
1.5. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their separate accounts, qualified pension
and retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which will
not impair the tax treatment currently afforded the Contracts. No shares of any
Portfolio will be sold to the general public except as set forth in this Section
1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt and acceptance
by the Fund or its designee of the request for redemption. For purposes of this
Section 1.6, the Company will be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee will
constitute receipt by the Fund, provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment will be in federal funds transmitted by wire to the Company's account as
designated by the Company in writing from time to time, on the same Business Day
the Fund receives notice of the redemption order from the Company. The Fund
reserves the right to delay payment of redemption proceeds, but in no event may
such payment be delayed longer than the period permitted by the 1940 Act. The
Fund will not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds; the Company alone will be responsible for such
action. If notification of redemption is received after 10:00 a.m. Eastern Time,
payment for redeemed shares will be made on the next following Business Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance with
the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Purchase
and redemption orders for Fund shares will be recorded in an appropriate title
for each Account or the appropriate subaccount of each Account.
1.9. The Fund will furnish same day notice (by telecopier, followed by written
confirmation) to the Company of the declaration of any income, dividends or
capital gain distributions payable on each Designated Portfolio's shares. The
Company hereby elects to receive all such dividends and distributions as are
payable on the Designated Portfolio shares in the form of additional shares of
that Designated Portfolio. The Fund will notify the Company of the number of
shares so issued as payment of such dividends and
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distributions. The Company reserves the right to revoke this election upon
reasonable prior notice to the Fund and to receive all such dividends and
distributions in cash.
1.10. The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use its
best efforts to make such net asset value per share available by 6:00 p.m.,
Eastern Time, but in no event later than 7:00 p.m., Eastern Time, each Business
Day.
1.11. In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or CSI will
notify the Company as soon as practicable after discovering the need for those
adjustments that result in an aggregate reimbursement of $150 or more to any one
Account maintained by a Designated Portfolio unless notified otherwise by the
Company (or, if lesser, results in an adjustment of $10 or more to each
contractowner's account). Any such notice will state for each day for which an
error occurred the incorrect price, the correct price and, to the extent
communicated to the Fund's shareholders, the reason for the price change. The
Company may send this notice or a derivation thereof (so long as such derivation
is approved in advance by CSI or the Adviser) to contractowners whose accounts
are affected by the price change. The parties will negotiate in good faith to
develop a reasonable method for effecting such adjustments.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and sold in
compliance with all applicable federal and state laws, including 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 as a separate
account under applicable state law and has registered the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, and that it will maintain such
registration for so long as any Contracts are outstanding. The Company will
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company will register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2. The Company represents that the Contracts are currently and at the time
of issuance will be treated as annuity contracts under applicable provisions of
the Internal Revenue Code, and that it will make every effort to maintain such
treatment and that it will notify the Fund and the Adviser immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.3. The Company represents and warrants that it will not purchase shares of
the Designated Portfolios with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with such
plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the 1933 Act
and duly authorized for issuance in accordance with
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<PAGE>
applicable law and that the Fund is and will remain registered under the 1940
Act for as long as such shares of the Designated Portfolios are outstanding. The
Fund will amend the registration statement for its shares under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares or as may otherwise be required by applicable law. The
Fund will register and qualify the shares of the Designated Portfolios for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund.
2.5. The Fund represents that each Designated Portfolio is currently qualified
as a Regulated Investment Company under Subchapter M of the Internal Revenue
Code and that it will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify the
Company immediately upon having a reasonable basis for believing that a
Designated Portfolio has ceased to so qualify or that it might not so qualify in
the future.
2.6. The Fund represents and warrants that in performing the services
described in this Agreement, the Fund will comply with all applicable laws,
rules and regulations. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies with the insurance
laws and regulations of any state. The Fund and CSI agree that upon request they
will use their best efforts to furnish the information required by state
insurance laws so that the Company can obtain the authority needed to issue the
Contracts in the various states.
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1 the Fund
undertakes to have its Fund Board formulate and approve any plan under
Rule 12b-1 to finance distribution expenses in accordance with the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of The Commonwealth of Massachusetts and that it does and will
comply in all material respects with applicable provisions of the 1940 Act.
2.9. CSI represents and warrants that it will distribute the Fund shares of
the Designated Portfolios in accordance with all applicable federal and state
securities laws including, without limitation, the 1933 Act, the 1934 Act and
the 1940 Act.
2.10. CSI represents and warrants that it is and will remain (a) duly
registered under all applicable federal and state securities laws, (b) a member
in good standing of the National Association of Securities Dealers and (c)
registered as a broker-dealer with the SEC; and that it will perform its
obligations for the Fund in accordance in all material respects with any
applicable state and federal securities laws.
2.11. The Fund represents and warrants that all of its trustees, officers,
employees, and other individuals/entities having access to the funds and/or
securities of the Fund are and continue to be at all times covered by a blanket
fidelity bond or similar coverage for the benefit of the Fund in an amount not
less than the minimal coverage as required currently by Rule 17g-(1) of the 1940
Act or related provisions as may be promulgated from time to time. The aforesaid
bond includes coverage for larceny and embezzlement and is issued by a reputable
bonding company. CSI and the Fund's investment advisers
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<PAGE>
represent and warrant that they are and continue to be at all times covered by
policies similar to the aforesaid bond.
2.12 The Adviser represents and warrants that it is and will remain duly
registered under all applicable federal and state securities laws, including
registration as an investment adviser under the Investment Advisors Act of 1940,
as amended, and that it will perform its obligations hereunder in accordance in
all material respects with any applicable state and federal securities laws.
ARTICLE III. Prospectuses and Proxy Statements; Voting
------------------------------------------
3.1. The Fund or CSI will provide the Company, at the Fund's or its
affiliate's expense, with as many copies of the current Fund prospectus for the
Designated Portfolios as the Company may reasonably request for distribution, at
the Company's expense, to prospective contractowners and applicants. The Fund or
CSI will provide, at the Fund's or its affiliate's expense, as many copies of
said prospectus as necessary for distribution, at the Company's expense, to
existing contractowners. The Fund or CSI will provide the copies of said
prospectus to the Company or to its mailing agent. If requested by the Company,
the Fund or CSI will provide such documentation, including a computer diskette
of the Company's specification or a final copy of a current prospectus set in
type at the Fund's or its affiliate's expense, and such other assistance as is
reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the Fund's
prospectus, the prospectus for the Contracts and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one document (the "Multifund Prospectus"), in which case the
Fund or its affiliate will bear its reasonable share of expenses as described
above, allocated based on the proportionate number of pages of the Fund's and
other funds' respective portions of the document.
3.2. The Fund or CSI will provide the Company, at the Fund's or its
affiliate's expense, with as many copies of the statement of additional
information as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners and applicants. The Fund or CSI
will provide, at the Fund's or its affiliate's expense, as many copies of said
statement of additional information as necessary for distribution, at the
Company's expense, to any existing contractowner who requests such statement or
whenever state or federal law otherwise requires that such statement be
provided. The Fund or CSI will provide the copies of said statement of
additional information to the Company or to its mailing agent.
3.3. To the extent that the Fund or CSI desires to change (whether by revision
or supplement) any of the information contained in any form of Fund prospectus
or statement of additional information provided to the Company for inclusion in
a Multifund Prospectus, the Company agrees to make such changes within a
reasonable period of time after receipt of a request to make such change from
the Fund or CSI, subject to the following limitation. To the extent that the
Fund is legally required to make a change to a Fund prospectus or statement of
additional information provided to the Company for inclusion in a Multifund
Prospectus, the Company agrees to make any such change as soon as possible
following receipt of the form of revised prospectus and/or statement of
additional information or supplement, as applicable, but in no event later than
five days following receipt. To the extent that the Fund is required by law to
cease selling shares of a Designated Portfolio, the Company agrees to cease
offering shares of the Designated Portfolio until the Fund or CSI notifies the
Company otherwise.
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3.4. The Fund or CSI, at the Fund's or its affiliate's expense, will provide
the Company or its mailing agent with copies of its proxy material, if any,
reports to shareholders and other communications to shareholders in such
quantity as the Company will reasonably require. The Company will distribute
this proxy material, reports and other communications to existing contract
owners and tabulate the votes.
3.5. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in the Account
in accordance with instructions received from contractowners; and
(c) vote shares of the Designated Portfolios held in the Account for
which no timely instructions have been received, as well as shares it owns, in
the same proportion as shares of such Designated Portfolio for which
instructions have been received from the Company's contractowners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contractowners.
Except as set forth above, the Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. The Company will be responsible for assuring that each of its separate
accounts participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and Shared Funding
Exemptive Order.
3.6. The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will provide for annual
meetings (except insofar as the SEC may interpret Section 16 of the 1940 Act not
to require such meetings) or, as the Fund currently intends, will comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto. If applicable, the Adviser will provide for the
calculation of voting privileges and the conducting of proxy solicitations as
required by the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. Sales Material and Information
-------------------------------
4.1. CSI will provide the Company on a timely basis with investment
performance information for each Designated Portfolio in which the Company
maintains an Account, including total return for the preceding calendar month
and calendar quarter, the calendar year to date, and the prior one-year, five-
year, and ten year (or life of the Designated Portfolio) periods. The Company
may, based on the SEC mandated information supplied by CSI, prepare
communications for contractowners ("Contractowner Materials"). The Company will
provide copies of all Contractowner Materials concurrently with their first use
for CSI's internal recordkeeping purposes. It is understood that neither CSI nor
any Designated Portfolio will be responsible for errors or omissions in, or the
content of, Contractowner Materials except to the extent that the error or
omission resulted from information provided by or on behalf of CSI or the
Designated Portfolio. Any printed information that is furnished to the Company
pursuant to this Agreement other than each Designated Portfolio's prospectus or
statement of additional information (or information supplemental
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<PAGE>
thereto), periodic reports and proxy solicitation materials is CSI's sole
responsibility and not the responsibility of any Designated Portfolio or the
Fund. The Company agrees that the Portfolios, the shareholders of the Portfolios
and the officers and governing Board of the Fund will have no liability or
responsibility to the Company in these respects.
4.2. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement, prospectus or statement of additional information
for Fund shares, as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in published reports for the Fund
which are in the public domain or approved by the Fund or CSI for distribution,
or in sales literature or other material provided by the Fund, the Adviser or by
CSI.
Nothing in this Section 4.2 will be construed as preventing the Company
or its employees or agents from giving advice on investment in the Fund.
4.3. The Fund, the Adviser and CSI will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for each Account or the
Contracts which are in the public domain or approved by the Company for
distribution to contractowners, or in sales literature or other material
provided by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis. The
Fund, the Adviser or CSI will furnish, or will cause to be furnished, to the
Company or its designee, each piece of major sales literature or other
significant promotional material in which the Company or its Account is named at
least ten (10) business days prior to its use. No such material will be used if
the Company reasonably objects to such use within five (5) business days after
receipt of such material.
4.4. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additions information,
reports, proxy statements, major sales literature and other significant
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or its
shares, contemporaneously with the filing of such document with the SEC, the
NASD or other regulatory authority.
4.5. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, major sales literature and other
significant promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC, the NASD or other regulatory authority.
4.6. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media (e.g., on-line
networks such as the Internet or other electronic messages)), sales literature
(i.e., any written communication distributed or made generally
8
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available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisements sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, proxy
materials and any other material constituting sales literature or advertising
under the NASD rules, the 1933 Act or the 1940 Act.
4.7. The Fund and CSI hereby consent to the Company's use of the names
Warburg, Pincus Trust Post-Venture Capital Portfolio, or other Designated
Portfolio, and Warburg, Pincus Counsellors, Inc. in connection with the
marketing of the Contracts, subject to the terms of Sections 4.1 and 4.2 of this
Agreement. Such consent will continue only as long as any Contracts are invested
in the relevant Designated Portfolio.
ARTICLE V. Fees and Expenses
------------------
5.1. The Fund, the Adviser and CSI will pay no fee or other compensation to
the Company (other than as set forth in the administrative services letter
agreement between the Adviser and the Company) except if the Fund or any
Designated Portfolio adopts and implements a plan pursuant to Rule 12b-1 under
the 1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company or to the underwriter for the Contracts if and in such
amounts agreed to by the Fund in writing.
5.2. All expenses incident to performance by the Fund of this Agreement will
be paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of registration and qualification of the Fund's shares;
preparation and filing of the Fund's prospectus, statement of additional
information and registration statement, proxy materials and reports; setting in
type and printing the Fund's prospectus; setting in type and printing proxy
materials and reports by it to contractowners (including the costs of printing a
Fund prospectus that contains an annual report); the preparation of all
statements and notices required by any federal or state law; all taxes on the
issuance or transfer of the Fund's shares; any expenses permitted to be paid or
assumed by the Fund pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act; and all other expenses set forth in Article III of this Agreement.
ARTICLE VI. Diversification
---------------
6.1. The Adviser will ensure that the Fund will at all times invest money from
the Contracts in such a manner as to ensure that the Contracts will be treated
as variable annuity contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund will comply with Section 817(h) of the Internal Revenue Code and Treasury
Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps: (a) to notify the Company of such breach; and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
--------------------
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7.1. The Board of Trustees of the Fund (the "Fund Board") will monitor the
Fund for the existence of any irreconcilable material conflict among the
interests of the contractowners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity and variable life
insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Fund Board will promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of which it
is aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Mixed and Shared Funding
Exemptive Order, by providing the Fund Board with all information reasonably
necessary for the Fund Board to consider any issues raised. This includes, but
is not limited to, an obligation by the Company to inform the Fund Board
whenever contractowner voting instructions are to be disregarded. The Company's
responsibilities hereunder will be carried out with a view only to the interest
of contractowners.
7.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested trustees, that an irreconcilable material conflict exists, the
Company will, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested trustees), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the Accounts
from the Fund or any Designated Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contractowners and, as appropriate,
segregating the assets of any appropriate group (i.e., variable annuity
contractowners or variable life insurance contractowners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contractowners the option of making such a change; and
(b) establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
subaccount of the Account's investment in the Fund and terminate this Agreement
with respect to such subaccount; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested trustees of the Fund Board. No charge or penalty will be imposed
as a result of such withdrawal.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will withdraw the
affected subaccount of the Account's investment in the Fund and terminate this
Agreement with respect to such subaccount; provided, however, that such
withdrawal and termination will be limited to the extent required by the
foregoing irreconcilable material conflict as determined by a
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majority of the disinterested directors of the Fund Board. No charge or penalty
will be imposed as a result of such withdrawal.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund or the Adviser (or any other investment adviser to the Fund) be
required to establish a new funding medium for the Contracts. The Company will
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
contractowners materially affected by the irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the Mixed
and Shared Funding Exemptive Order, and said reports, materials and data will be
submitted more frequently if deemed appropriate by the Fund Board.
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then: (a) the Fund and/or the Participating Insurance
Companies, as appropriate, will take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement will continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Adviser, CSI, and each person, if any, who controls or is associated with the
Fund, the Adviser or CSI within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner, employee or agent
of the foregoing (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration statement,
prospectus or statement of additional information for the Contracts or contained
in the Contracts or sales literature or other promotional material for the
Contracts (or any amendment or supplement to any of the foregoing), including
any prospectuses or statements of additional information of the Fund to which
the Company has made any changes to the information provided to the Company or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated or necessary to make such
statements not misleading in
11
<PAGE>
light of the circumstances in which they were made; provided that this agreement
to indemnify will not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by the Fund, the
Adviser or CSI for use in the registration statement, prospectus or statement of
additional information for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations by or
on behalf of the Company or wrongful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Contracts or Fund
shares (other than statements or representations contained in the Fund
registration statement, Fund prospectus, Fund statement of additional
information, sales literature or other promotional material of the Fund not
supplied by the Company or persons under its control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Fund registration statement, prospectus,
statement of additional information or sales literature or other promotional
material of the Fund (or amendment or supplement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make such statements not misleading in light of the circumstances
in which they were made, if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by or on behalf of
the Company or persons under its control; or
(4) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(5) arise out of any material breach of any representation and/or
warranty made by the Company in this Agreement or arise out of or result from
any other material breach by the Company of this Agreement, including, but not
limited to, a failure to comply with the provisions of Section 3.3;
except to the extent provided in Sections 8.1(b) and 8.3 hereof. This
indemnification will be in addition to any liability that the Company otherwise
may have.
(b) No party will be entitled to indemnification under Section 8.1(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party seeking
indemnification.
(c) The Indemnified Parties promptly will notify the Company of the
commencement of any litigation, proceedings, complaints or actions by regulatory
authorities against them in connection with the issuance or sale of the Fund
shares or the Contracts or the operation of the Fund, should such litigation,
proceeding, complaint or action represent, allege or concern a material breach
of any representation, warranty or covenant of this Agreement.
8.2. Indemnification By The Adviser, the Fund and CSI
------------------------------------------------
(a) The Adviser, the Fund and CSI, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to indemnify and hold
harmless the Company and each person, if any, who
12
<PAGE>
controls or is associated with the Company within the meaning of such terms
under the federal securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the "Indemnified Parties" for
purposes of this Section 8.2) against any and all losses, claims, expenses,
damages, liabilities (including amounts paid in settlement with the written
consent of the Adviser) or litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Fund or sales
literature or other promotional material of the Fund (or any amendment or
supplement to any of the foregoing) or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated or necessary to make such statements not misleading in light of the
circumstances in which they were made (in each case substantially as transmitted
to you by the Fund or CSI), provided that this agreement to indemnify will not
apply as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Adviser, CSI or the Fund by or on behalf of the
Company for use in the registration statement, prospectus or statement of
additional information for the Fund or in sales literature of the Fund (or any
amendment or supplement thereto) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(2) arise out of or as a result of statements or representations or
wrongful conduct of the Adviser, the Fund or CSI or persons under the control of
the Adviser, the Fund or CSI respectively, with respect to the sale of the Fund
shares (other than statements or representations contained in a registration
statement, prospectus, statement of additional information, sales literature or
other promotional material covering the Contracts not supplied by CSI or persons
under its control); or
(3) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus, statement of
additional information or sales literature or other promotional material
covering the Contracts (or any amendment or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make such statement or statements not misleading in light of the
circumstances in which they were made, if such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company by the Adviser, the Fund or CSI or persons under the control of the
Adviser, the Fund or CSI; or
(4) arise as a result of any failure by the Fund, the Adviser or CSI to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements and procedures related thereto
specified in Article VI of this Agreement); or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser, the Fund or CSI in this
Agreement, or arise out of or result from any other material breach of this
Agreement by the Adviser the Fund or CSI;
13
<PAGE>
except to the extent provided in Sections 8.2(b) and 8.3 hereof. These
indemnifications will be in addition to any liability that the Fund, Adviser or
CSI otherwise may have.
(b) No party will be entitled to indemnification under Section 8.2(a) to
the extent such loss, claim, damage, liability or litigation is due to the
willful misfeasance, bad faith, or gross negligence in the performance of such
party's duties under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by the party seeking
indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the Fund and
CSI of the commencement of any litigation, proceedings, complaints or actions by
regulatory authorities against them in connection with the issuance or sale of
the Contracts or the operation of the account, should such litigation,
proceeding, complaint or action represent, allege or concern a material breach
of any representation, warranty or covenant of this Agreement.
14
<PAGE>
8.3. Indemnification Procedure
-------------------------
Any person obligated to provide indemnification under this Article
VIII ("Indemnifying Party" for the purpose of this Section 8.3) will not be
liable under the indemnification provisions of this Article VIII with respect to
any claim made against a party entitled to indemnification under this Article
VIII ("Indemnified Party" for the purpose of this Section 8.3) unless such
Indemnified Party will have notified the Indemnifying Party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim will have been served upon such
Indemnified Party (or after such party will have received notice of such service
on any designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of the indemnification provision of this Article VIII, except to
the extent that the failure to notify results in the failure of actual notice to
the Indemnifying Party and such Indemnifying Party is damaged solely as a result
of failure to give such notice. In case any such action is brought against the
Indemnified Party, the Indemnifying Party will be entitled to participate, at
its own expense, in the defense thereof. The Indemnifying Party also will be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Indemnifying Party to the Indemnified
Party of the Indemnifying Party's election to assume the defense thereof, the
Indemnified Party will bear the fees and expenses of any additional counsel
retained by it, and the Indemnifying Party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying Party and the
Indemnified Party will have mutually agreed to the retention of such counsel; or
(b) the named parties to any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifying Party will not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there is a final judgment for the
plaintiff, the Indemnifying Party agrees to indemnify the Indemnified Party from
and against any loss or liability by reason of such settlement or judgment. A
successor by law of the parties to this Agreement will be entitled to the
benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII will survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
---------------
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of New York.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the
1934 Act and the 1940 Act, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof will be interpreted and construed in accordance
therewith.
15
<PAGE>
ARTICLE X. Termination
------------
10.1. This Agreement will terminate:
(a) at the option of any party, following the first anniversary hereof,
with or without cause, with respect to some or all of the Designated Portfolios,
upon ninety (90) days' advance written notice to the other parties; or
(b) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if shares
of the Designated Portfolio are not reasonably available to meet the
requirements of the Contracts as determined in good faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio in the
event any of the Designated Portfolio's shares are not registered, issued or
sold in accordance with applicable state and/or Federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written notice
by the other parties, upon institution of formal proceedings against the Company
by the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the Contracts, the operation
of the Account, or the purchase of the Fund shares, provided that the Fund
determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's written
notice by the other parties, upon institution of formal proceedings against the
Fund, Adviser or CSI by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided that the Company determines in
its sole judgment, exercised in good faith, that any such proceeding would have
a material adverse effect on the Fund's, Adviser's or CSI's ability to perform
its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, or under any successor or similar
provision, or if the Company reasonably and in good faith believes that the
Designated Portfolio may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's written
notice by the other parties, with respect to any Designated Portfolio if the
Designated Portfolio fails to meet the diversification requirements specified in
Article VI hereof or if the Company reasonably and in good faith believes the
Designated Portfolio may fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to
the other parties, upon another party's material breach of any provision of this
Agreement which material breach is not cured within thirty (30) days of said
notice; or
16
<PAGE>
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that either the Fund, the Adviser or CSI has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company, such termination to be effective sixty (60) days'
after receipt by the other parties of written notice of the election to
terminate; or
(j) at the option of the Fund or CSI, if the Fund or CSI respectively,
determines in its sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Fund or the Adviser, such termination to be effective
sixty (60) days' after receipt by the other parties of written notice of the
election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Designated Portfolio shares of the Fund
in accordance with the terms of the Contracts for which those Designated
Portfolio shares had been selected to serve as the underlying investment media.
The Company will give sixty (60) days' prior written notice to the Fund of the
date of any proposed vote or other action taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an irreconcilable material conflict exists among the interests of:
(1) all contractowners of variable insurance products of all separate accounts;
or (2) the interests of the Participating Insurance Companies investing in the
Fund as set forth in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not
issued or sold in material accordance with applicable federal and/or state law.
Termination will be effective immediately upon such occurrence without notice.
10.2. Notice Requirement
-------------------
Except as specified in Section 10.1(m), no termination of this Agreement
will be effective unless and until the party terminating this Agreement gives
prior written notice to all other parties of its intent to terminate, which
notice will set forth the basis for the termination.
17
<PAGE>
10.3. Effect of Termination
----------------------
In the event of any termination of this Agreement other than pursuant to
subsection (d), (j), (l) or (m) of Section 10.1, the Fund and CSI will, at the
option of the Company, continue to make available additional shares of the Fund
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate investments in
the Designated Portfolios (as in effect on such date), redeem investments in the
Designated Portfolios and/or invest in the Designated Portfolios upon the making
of additional purchase payments under the Existing Contracts.
10.4. Surviving Provisions
---------------------
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive and not
be affected by any termination of this Agreement. In addition, each party's
obligations under Section 12.6 will survive and not be affected by any
termination of this Agreement. Finally, with respect to Existing Contracts, all
provisions of this Agreement also will survive and not be affected by any
termination of this Agreement.
ARTICLE XI. Notices
--------
11.1. Any notice will be deemed duly given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other parties.
If to the Company: If to the Fund, the Adviser and/or CSI:
Providian Corporation 466 Lexington Avenue
400 West Market Street 10th Floor
Louisville, KY 40202 New York, NY 10017
Attn: Law Department Attn: Eugene P. Grace
Senior Vice President
ARTICLE XII. Miscellaneous
--------------
12.1. The Fund, the Adviser and CSI acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the "Company
Protected Parties" for purposes of this Section 12.1), information maintained
regarding those customers, and all computer programs and procedures or other
information developed or used by the Company Protected Parties or any of their
employees or agents in connection with the Company's performance of its duties
under this Agreement are the valuable property of the Company Protected Parties.
The Fund, the Adviser and CSI agree that if they come into possession of any
list or compilation of the identities of or other information about the Company
Protected Parties' customers, or any other information or property of the
Company Protected Parties, other than such information as is publicly available
or as may be independently developed or compiled by the Fund, the Adviser or CSI
from information supplied to them by the Company Protected Parties' customers
who also maintain accounts directly with the Fund, the Adviser or CSI, the Fund,
the Adviser and CSI will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such
18
<PAGE>
information or other property except: (a) with the Company's prior written
consent; or (b) as required by law or judicial process. The Company acknowledges
that the identities of the customers of the Fund (other than owners of
Contracts), the Adviser, CSI or any of their affiliates (collectively the
"Adviser Protected Parties" for purposes of this Section 12.1), information
maintained regarding those customers, and all computer programs and procedures
or other information developed or used by the Adviser Protected Parties or any
of their employees or agents in connection with the Fund's, the Adviser's or
CSI's performance of their respective duties under this Agreement are the
valuable property of the Adviser Protected Parties. The Company agrees that if
it comes into possession of any list or compilation of the identities of or
other information about the Adviser Protected Parties' customers, or any other
information or property of the Adviser Protected Parties, other than such
information as is publicly available or as may be independently developed or
compiled by the Company from information supplied to them by the Adviser
Protected Parties' customers who also maintain accounts directly with the
Company, the Company will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or other
property except: (a) with the Fund's, the Adviser's or CSI's prior written
consent; or (b) as required by law or judicial process. Each party acknowledges
that any breach of the agreements in this Section 12.1 would result in immediate
and irreparable harm to the other parties for which there would be no adequate
remedy at law and agree that in the event of such a breach, the other parties
will be entitled to equitable relief by way of temporary and permanent
injunctions, as well as such other relief as any court of competent jurisdiction
deems appropriate.
12.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
12.4. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.5. This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
12.6. Each party to this Agreement will maintain all records required by law,
including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and in
accordance with the 1940 Act and the rules thereunder. Each party to this
Agreement will cooperate with each other party and all appropriate governmental
authorities (including without limitation the SEC, the NASD and state insurance
regulators) and will permit each other and such authorities reasonable access to
its books and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby. Upon request by the
Fund or CSI, the Company agrees to promptly make copies or, if required,
originals of all records pertaining to the performance of services under this
Agreement available to the Fund or CSI, as the case may be. The Fund agrees that
the Company will have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of any state insurance department. Each party also agrees to
promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision will
survive termination of this Agreement.
19
<PAGE>
12.7. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or board action, as applicable, by such
party and when so executed and delivered this Agreement will be the valid and
binding obligation of such party enforceable in accordance with its terms.
12.8. The parties to this Agreement acknowledge and agree that all liabilities
of the Fund arising, directly or indirectly, under this agreement, will be
satisfied solely out of the assets of the Fund and that no trustee, officer,
agent or holder of shares of beneficial interest of the Fund will be personally
liable for any such liabilities. No Portfolio or series of the Fund will be
liable for the obligations or liabilities of any other Portfolio or series.
12.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Designated Portfolios of the Fund or other applicable terms of
this Agreement.
12.10. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY
SEAL By: /s/ Gregory J. Garvin
----------------------------------------------
Name: Gregory J. Garvin
--------------------------------------------
Title: Vice President
-------------------------------------------
ATTEST: By: /s/ John P. Fendig
------------------
WARBURG, PINCUS TRUST
SEAL By: /s/ Eugene P. Grace
----------------------------------------------
Name: Eugene P. Grace
--------------------------------------------
Title: Vice President & Secretary
-------------------------------------------
WARBURG, PINCUS COUNSELLORS, INC.
SEAL By: /s/ Eugene P. Grace
----------------------------------------------
Name: Eugene P. Grace
--------------------------------------------
Title: Senior Vice President
-------------------------------------------
20
<PAGE>
COUNSELLORS SECURITIES INC.
SEAL By: /s/ Eugene P. Grace
----------------------------------------------
Name: Eugene P. Grace
--------------------------------------------
Title: Vice President
-------------------------------------------
ATTEST: By: /s/ Maryann Mazdia
-------------------
21
<PAGE>
Schedule 1
PARTICIPATION AGREEMENT
By and Among
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
And
WARBURG, PINCUS TRUST
And
WARBURG, PINCUS COUNSELLORS, INC.
And
COUNSELLORS SECURITIES INC.
The following separate accounts of Providian Life and Health Insurance Company
are permitted in accordance with the provisions of this Agreement to invest in
Designated Portfolios of the Fund shown in Schedule 2:
Separate Account V, established February 14, 1992
_______________, 1997
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
And
WARBURG, PINCUS TRUST
And
WARBURG, PINCUS COUNSELLORS, INC.
And
COUNSELLORS SECURITIES INC.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Warburg, Pincus Trust:
Warburg Pincus International Equity Portfolio
Warburg Pincus Small Company Growth Portfolio
_______________, 1997
2
<PAGE>
EXHIBIT 8(j)
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT, made and entered into as
of this 16th day of December, 1996, supplementing and amending the Participation
Agreement made and entered into the 19th day of May, 1995 (the "Original
Participation Agreement", and together with this Amendment No. 1, the
"Agreement") by and between WANGER ADVISORS TRUST, an unincorporated business
trust formed under the laws of Massachusetts (the "Trust"), and PROVIDIAN LIFE
AND HEALTH INSURANCE COMPANY, (formerly named National Home Life Assurance
Company) a Missouri Life insurance Company (the "Company"), on its own behalf
and on behalf of each separate account of the Company identified in the
Agreement.
WHEREAS, the Trust currently serves as an investment vehicle for certain
accounts of the Company pursuant to the Original Participation Agreement; and
WHEREAS, the Trust has applied for an order from the Securities and
Exchange Commission (the "SEC") (File No. 812-10198), granting Participating
Insurance Companies (as defined in the Original Participation Agreement) and
variable annuity and variable life separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act (as defined
in the Original Participation Agreement) and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust
and each Series thereof to be sold to and held by variable annuity and variable
life insurance separate accounts of life insurance companies that may or may not
be affiliated with one another and qualified pension and retirement plans
outside of the separate account context (the "Exemptive Order"); and
WHEREAS, the Company and the Trust have agreed to hereby supplement and
amend the Original Participation Agreement in order to reflect the conditions
and undertakings that are expected to be imposed on the Company and the Trust by
virtue of such Exemptive Order;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
SECTION 1. Definitions
-----------
For all purposes of this Amendment No. 1, except as otherwise generally
provided or unless the context otherwise requires:
(1) All references in this Amendment No. 1 and the Original Participation
Agreement to designated "Articles" and other subdivisions are to the designated
Articles and other subdivisions of the Original Participation Agreement. The
words "herein", "hereto," "hereby" and "hereunder" and other words of similar
import refer to this Amendment No. 1 as a whole and not to any particular
"Section" or other subdivision.
<PAGE>
(2) All terms used herein and not otherwise defined shall have the same
meanings as those given to such terms in the Original Participation Agreement,
and include the plural as well as the singular, and the Original Participation
Agreement is hereby amended to include any terms defined herein.
(3) Any references to the "Agreement" in the Original Participation
Agreement are hereby amended to include, collectively, the Original
Participation Agreement and this Amendment No. 1.
SECTION 2. Amendment to Article VII
------------------------
Article VII of the Original Participation Agreement is hereby amended to
read in its entirety as follows:
"ARTICLE VII. Potential Conflicts and Compliance with
---------------------------------------
Exemptive Order
---------------
7.1. The Trust Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Contract
Owners of all Participating Accounts and of Qualified Participants
investing in the Trust and each Series thereof. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar actions by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Series are
managed; (e) a difference in voting instructions give by variable annuity
contract and variable life insurance contract owners; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
contract owners; or (g) if applicable, a decision by a Qualified Entity to
disregard the voting instructions of Qualified Participants. The Trust
Board shall promptly inform the Company in writing if it determines that a
material irreconcilable conflict exists and the implications thereof.
7.2 The Company shall report any potential or existing conflicts to
the Trust Board. The Company will be responsible for assisting the Trust
Board in carrying out its responsibilities by providing the Trust Board
with all information reasonably necessary for the Trust Board to consider
any issues raised. This responsibility includes, but is not limited to, any
obligation by the Company to inform the Trust Board whenever it has
determined to disregard Contract Owner voting instructions. Such
responsibilities shall be carried out by the Participants with a view only
to the interests of Contracts Owners.
7.3 If it is determined by a majority of the Trust Board, or a
majority of the members of the Trust Board who are not interested persons
of the Trust, the Investment Adviser or any sub-adviser to any of the
Series (the "Independent
2
<PAGE>
Trustees"), that a material irreconcilable conflict exists, the Company
shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the Independent Trustees), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict
including: (a) withdrawing the assets allocable to some or all of the
separate accounts from the Trust or any Series and reinvesting such assets
in a different investment medium, which may include another Series of the
Trust, or submitting the questions of whether such segregation should be
implemented to a vote of all affected Contract Owners and, as appropriate,
segregating the assets of any appropriate group (i.e., annuity contract
owners, life insurance contract owners, or variable contract owners of one
or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected Contract Owners of the option of
making such a change; and (b) establishing a new registered management
investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract Owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw the
Account's investment in the Trust and terminate this Agreement and no
charge or penalty will be imposed as a result of such withdrawal. Any such
withdrawal and termination must take place within six (6) months after the
Trust gives written notice that this provision is being implemented, and
until the end of that six month period the Investment Adviser and the Trust
shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts
with the majority of other state regulators, then the Company will withdraw
the Account's investment in the Trust and terminate this Agreement within
six months after the Trust Board informs the Company in writing that it has
determined that such decision has created a material irreconcilable
conflict. Until the end of the foregoing six month period, the Investment
Adviser and the Trust shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Trust.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no
event will the Trust or the Investment Adviser be required to establish a
new funding medium for the Contracts. The Company shall not be required by
Section 7.3 to establish a new funding medium for the Contracts if an offer
to do so has been declined by vote of a majority of Contract Owners
materially adversely affected by the material irreconcilable conflict. In
the event that the Trust Board determines that any proposed action does not
adequately remedy any material irreconcilable
3
<PAGE>
conflict, then the Company will withdraw the Account's Investment in the
Trust and terminate this Agreement within six (6) months after the Trust
Board informs the Company in writing of the foregoing determination.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provided exemptive relief from any provision of
the 1940 Act or the rules promulgated thereunder with respect to mixed or
shared funding (as defined in the Exemptive Order) on terms and conditions
materially different from those contained in the Exemptive Order, then (a)
the Trust and/or the Company, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Article
V and Sections 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue
to effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
7.8 The Company shall at least annually submit to the Trust Board
such reports, materials or data as the Trust Board may reasonable request
so that the Trust Board may fully carry out its obligations under the
Exemptive Order; provided, however, that the Board may require the
submission of such reports on data on a more frequent basis if it so deems
appropriate.
7.9 The Company, or any affiliate, will maintain at its home office,
available to the SEC, (a) a list of its officers, directors and employees
who participate directly in the management of administration of any Account
and/or (b) a list of its agents who, as registered representatives, offer
and sell Contracts."
SECTION 3. Schedules
---------
Schedules 1, 2 and 3 to the Original Participation Agreement are hereby
amended to read as Schedules 1, 2 and 3 to this Amendment No. 1, respectively.
SECTION 4. Miscellaneous
-------------
4.1 The captions in this Amendment No. 1 are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
4.2 This Amendment No. 1 may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
4.3 If any provision of this Amendment No. 1 shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereby has caused this Amendment
No. 1 to be executed in its name and behalf by its duly authorized officers on
the date specified below.
PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY
(Company)
Date:_______________________ By: /s/ Gregory J. Garvin
-------------------------------
Name: Gregory J. Garvin
Title: Vice President
WANGER ADVISORS TRUST
(Trust)
Date:_______________________ By: /s/ Charles P. McQuaid
-------------------------------
Name: Charles P. McQuaid
-----------------------------
Title: Senior Vice President
----------------------------
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<PAGE>
EXHIBIT 8(k)
PARTICIPATION AGREEMENT
-----------------------
Among
STEINROE VARIABLE INVESTMENT TRUST
STEIN ROE & FARNHAM INCORPORATED
and
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 31st day of March, 1997 by
and among PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY, (hereinafter "Insurance
Company"), a Missouri company, on its own behalf and on behalf of its Separate
Account V (the "Account"); STEINROE VARIABLE INVESTMENT TRUST, a business trust
organized under the laws of Massachusetts (hereinafter the "Fund"); and STEIN
ROE & FARNHAM INCORPORATED (hereinafter the "Adviser"), a Delaware corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and/or variable annuity
Contracts (collectively, the "Variable Insurance Products") to be offered by
insurance companies which have entered into participation agreements similar to
this Agreement (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC"), dated July 1, 1988 (File No. 812-7044),
granting Participating Insurance Companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of sections
9(a), 13(a), 15(a), and 15(b) of the
<PAGE>
Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and
Rules 6e-2(b)(15) and 6e-3(T) (b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (hereinafter the "Shared Funding
Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolio(s) are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, Insurance Company has registered or will register certain variable
annuity Contracts supported wholly or partially by the Account (the "Contracts")
under the 1933 Act and said Contracts are listed in Schedule A hereto, as it may
be amended from time to time by mutual written agreement; and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of Insurance
Company on February 14, 1992, to set aside and invest assets attributable to the
Contracts; and
WHEREAS Insurance Company has registered or will register the Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Insurance Company intends to purchase shares in the Portfolio(s)
listed in Schedule B hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolio(s)"), on behalf of the Account to
fund the aforesaid Contracts, and the Fund is authorized to sell such shares to
unit investment trusts such as the Account at net asset value; and
WHEREAS, Insurance Company will perform certain services for the Fund and
Adviser in connection with the Contracts; and
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<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Account also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Trust (the
"Unaffiliated Funds") on behalf of the Account to fund the Contracts; and
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, the Fund and the Adviser agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Fund agrees to sell to Insurance Company those shares of the
Designated Portfolio(s) which the Account orders, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the order for the shares of the Portfolios. For purposes of this
Section 1.1, Insurance Company shall be the designee of the Fund for receipt of
such orders and receipt by such designee shall constitute receipt by the Fund,
provided that the Fund receives notice of the applicable order by 10:00 a.m.
Eastern time on the next following Business Day. "Business Day" shall mean any
day on which the New York Stock Exchange is open for trading and on which the
Fund calculates its net asset value pursuant to the rules of the SEC.
1.2. The Fund agrees to make shares of the Designated Portfolio(s)
available for purchase at the applicable net asset value per share by Insurance
Company and the Account on those days on which the Fund calculates its
Designated Portfolio(s)' net asset value pursuant to rules of the SEC, and the
Fund shall calculate such net asset value on each day which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the Fund (hereinafter the "Board") may refuse to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.
3
<PAGE>
1.3. The Fund will not sell shares of the Designated Portfolio(s) to any
other insurance company or separate account unless an agreement containing
provisions substantially the same as Sections 2.1, 3.6, 3.7, 3.8, and Article
VII of this Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash on Insurance Company's request,
any full or fractional shares of the Fund held by Insurance Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption. Requests for
redemption identified by Insurance Company, or its agent, as being in connection
with surrenders, annuitizations, or death benefits under the Contracts, upon
prior written notice, will be executed within seven (7) calendar days after
receipt by the Fund or its designee of the requests for redemption. If permitted
by an order of the SEC under Section 22(e) of the 1940 Act, the Fund shall be
permitted to delay sending redemption proceeds to Insurance Company beyond the
foregoing deadlines, provided, however, that the Account receives similar relief
to defer paying proceeds to Contract Owners, and further, that the Account is
treated no less favorably than the other shareholders of the Designated
Portfolios. This Section 1.4 may be amended, in writing, by the parties
consistent with the requirements of the 1940 Act and interpretations thereof.
For purposes of this Section 1.4, Insurance Company shall be the designee of the
Fund for receipt of requests for redemption and receipt by such designee shall
constitute receipt by the Fund, provided that the Fund receives notice of the
applicable request for redemption by 10:00 a.m. Eastern time on the next
following Business Day.
1.5. The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in Unaffiliated Funds.
1.6. Insurance Company shall pay for Fund shares by 11:00 a.m. Eastern
time on the next Business Day after an order to purchase Fund shares is made in
accordance with the provisions of Section 1.1 hereof. Payment shall be in
federal funds transmitted by wire and/or by a credit for any shares redeemed the
same day as the purchase.
4
<PAGE>
1.7. The Fund shall pay and transmit the proceeds of redemptions of Fund
shares by 11:00 a.m. Eastern time on the next Business Day after a redemption
order is received in accordance with Section 1.4 hereof. Payment shall be in
federal funds transmitted by wire and/or a credit for any shares purchased the
same day as the redemption.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to Insurance Company or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate sub-account of the Account.
1.9. The Fund or its designee shall furnish same day notice (by wire or
telephone, followed by written confirmation) to Insurance Company of any income,
dividends or capital gain distributions payable on the Designated Portfolio(s)'
shares. Insurance Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. Insurance Company reserves the right to revoke this
election and to receive all such income dividends and capital gain distributions
in cash. The Fund or its designee shall notify Insurance Company by the end of
the next following Business Day of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Designated Portfolio available to Insurance Company on a daily basis as soon as
reasonably practical after the net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6:00
p.m. Eastern time. The Fund or its designee shall notify Insurance Company by
5:45 p.m. Eastern time in the event that the Fund cannot meet such 6:00 p.m.
deadline. In such event the Fund shall use its best efforts to make such value
available as soon thereafter as is practicable. If the Fund provides incorrect
share net asset value information, Insurance Company shall be entitled to an
adjustment to the number of shares purchased or redeemed to reflect the correct
net asset value per share (and, if and to the extent necessary, Insurance
Company shall make adjustments to the number of units credited and/or unit
values for the Contracts for the periods affected). In the event adjustments are
required to correct any error in computation of a Portfolio's net asset value
per share, or dividend or capital gain distribution,
5
<PAGE>
the Adviser or the fund shall notify Insurance company as soon as possible after
discovering the need for such adjustments. Notification can be made verbally,
but must be confirmed in writing. If an adjustment is necessary to correct an
error which has caused Contract Owners to receive less than the amount to which
they are entitled, the number of shares of the applicable Contract Owners
accounts. If Contract Owners have received amounts in excess of the amounts to
which they otherwise would have been entitled prior to an adjustment for an
error, Insurance Company, when requested by the Adviser of the Fund, will make a
good faith attempt to collect such excess amounts from the Contract Owners. Any
overpayments that have not yet been paid to Contract Owners will be remitted by
Insurance Company upon notification by the Adviser of such overpayment. In no
event shall Insurance Company be liable to Fund or Advisor for any such
adjustments or overpayment amounts or be required to collect excess amounts from
Contract Owners where prohibited by law or regulation.
ARTICLE II. Representations and Warranties
------------------------------
2.1. Insurance 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. Insurance 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 the Account prior to any issuance or sale thereof as a segregated
asset account under applicable law (Sections 376 and 400 of the Missouri
Insurance Law) and has registered the Account as a unit investment trust in
accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Designated Portfolio shares
sold pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with all applicable federal
securities laws including without limitation the 1933 Act, the 1934 Act, and the
1940 Act and that the Fund is and shall remain registered under the 1940
6
<PAGE>
Act. The Fund shall amend the Registration statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
2.3. The Fund reserves the right to adopt a plan pursuant to Rule 12b-l
under the 1940 Act and to impose an asset-based or other charge to finance
distribution expenses as permitted by applicable law and regulation. In any
event, the Fund and Adviser agree to comply with applicable provisions and SEC
staff interpretations of the 1940 Act to assure that the investment advisory or
management fees paid to the Adviser by the Fund are legitimate and not
excessive. To the extent that the Fund decides to finance distribution expenses
pursuant to Rule 12b-1, the Fund undertakes to have a Board, a majority of whom
are not interested persons of the Fund, formulate and approve any plan pursuant
to Rule 12b-l under the 1940 Act to finance distribution expenses.
2.4. The Fund represents and warrants that the investment policies, fees
and expenses of the Designated Portfolio(s) are and shall at all times remain in
compliance with the insurance and other applicable laws of the State of Missouri
any other applicable state to the extent required to perform this Agreement. The
Fund further represents and warrants that Designated Portfolio shares will be
sold in compliance with the insurance laws of the State of Missouri all
applicable state insurance and securities laws. Insurance Company will advise
the Fund of any applicable changes in Missouri law that affect the Designated
Portfolios, and the Fund will be deemed to be in compliance with this Section
2.4 so long as the Fund complies with such advice of Insurance Company. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund with
the concurrence of Insurance Company.
2.5. The Fund represents and warrants that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and the
Exemptive Order and that the Fund is and shall at all times maintain
qualification as a Regulated Investment Company under Subchapter M of the Code
(as defined below).
7
<PAGE>
2.6. The Adviser represents and warrants that it is and shall remain duly
registered under all applicable federal and state securities laws and that it
shall perform its obligations for the Fund in compliance in all material
respects with the laws of the State of Delaware and any applicable state and
federal securities laws, including registration as an investment advisor under
the Investment Advisors Act of 1940.
2.7. The Fund and the Adviser represent and warrant that all of their
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Fund are, and shall continue to
be at all times, covered by a blanket fidelity bond or similar coverage for the
benefit of the Fund in an amount not less than the minimal coverage required by
Section 17g-(1) of the 1940 Act or related provisions as may be promulgated from
time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.8. The Fund will provide Insurance Company with as much advance notice as
is reasonably practicable of any material change affecting the Designated
Portfolio(s) (including, but not limited to, any material change in its
registration statement or prospectus affecting the Designated Portfolio(s) and
any proxy solicitation affecting the Designated Portfolio(s)) and consult with
Insurance Company in order to implement any such change in an orderly manner,
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectus
for the Contracts. The Fund or Adviser agree to share equitably in expenses
incurred by Insurance Company as a result of actions taken by the Fund,
consistent with the allocation of expenses contained in Schedule C.
2.9. The Insurance Company represents, assuming that the Fund complies
with Article VI of this Agreement, that the Contracts are currently treated as
annuity Contracts under applicable provisions of the Internal Revenue Code of
1986 ("the Code"), as amended, and that it will make every effort to maintain
such treatment and that it will notify the Fund immediately upon having a
reasonable basis for believing that the Contracts have ceased to be so treated
or that they might not be so treated in the future.
8
<PAGE>
2.10. Insurance Company represents and warrants that it will not purchase
Fund shares with assets derived from tax-qualified retirement plans except
indirectly, through Contracts purchased in connection with such plans.
2.11. Insurance Company represents and warrants that it will not transfer
or otherwise convey shares of any Designated Portfolio, without the prior
written consent of the Fund, which consent shall not be unreasonably withheld.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. At least annually, the Fund or the Adviser shall provide Insurance
Company with as many copies of the Fund's current prospectus for the Designated
Portfolio(s) as Insurance Company may reasonably request for marketing purposes
(including distribution to Contract Owners with respect to new sales of a
Contract). If requested by Insurance Company in lieu thereof, the Adviser or
Fund shall provide such documentation (including a final copy of the new
prospectus for the Designated Portfolio(s)) and other assistance as is
reasonably necessary in order for Insurance Company once each year (or more
frequently if the prospectus for the Designated Portfolio are amended) to have
the prospectus for the Contracts and the Fund's prospectus for the Designated
Portfolio(s) printed together in one document. The Fund and Adviser agree that
the prospectus, and semi-annual and annual reports for the Designated
Portfolio(s) provided pursuant to this Section 3.1 will describe only the
Designated Portfolio(s) and will not name or describe any other portfolios or
series that may be in the Fund unless required by law.
3.2. If applicable state or federal laws or regulations require that the
Statement of Additional Information ("SAI") for the Fund be distributed to all
Contract purchasers, then the Adviser or the Fund shall provide Insurance
Company with the Fund's SAI or documentation thereof in such quantities and/or
with expenses to be borne in accordance with Schedule C hereof.
3.3. The Fund or the Adviser shall provide Insurance Company with as many
copies of the Fund's SAI as each of them may reasonably request. The Fund or the
Adviser shall also
9
<PAGE>
provide such SAI to any owner of a Contract or prospective owner who requests
such SAI (although it is anticipated that such requests will be made to
Insurance Company).
3.4. The Fund shall provide Insurance Company with copies of its
prospectus, SAI, proxy material, reports to stockholders and other
communications to stockholders for the Designated Portfolio(s) in such quantity
as Insurance Company shall reasonably require for distributing to Contract
Owners.
3.5. It is understood and agreed that, except with respect to information
regarding Insurance Company provided in writing by that party, Insurance Company
is not responsible for the content of the prospectus or SAI for the Designated
Portfolio(s). It is also understood and agreed that, except with respect to
information regarding the Fund, Adviser or the Designated Portfolio(s) provided
in writing by the Fund or Adviser, neither the Fund nor Adviser are responsible
for the content of the prospectus or SAI for the Contracts.
3.6. If and to the extent required by law Insurance Company shall:
(i) solicit voting instructions from Contract Owners;
(ii) vote the Designated Portfolio shares in accordance with instructions
received from Contract Owners; and
(iii) vote Designated Portfolio shares for which no instructions have been
received in the same proportion as Designated Portfolio shares for
which instructions have been received from Contract Owners, so long
as and to the extent that the SEC continues to interpret the 1940 Act
to require pass-through voting privileges for variable Contract
Owners. Insurance Company reserves the right to vote Fund shares held
in any segregated asset account in its own right, to the extent
permitted by law.
3.7. Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts holding shares of a Designated Portfolio
calculates voting privileges in the manner required by the Shared Funding
Exemptive Order. Insurance Company represents that its procedures currently are
in compliance in all material respects with such requirements.
10
<PAGE>
The Fund agrees to promptly notify Insurance Company of any changes of
interpretations or amendments of the Shared Funding Exemptive Order.
3.8. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, comply with
Section 16(c) of the 1940 Act (although the Fund is not one of the trusts
described in Section 16(c) of that Act) as well as with Sections 16(a) and, if
and when applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors or trustees and with whatever rules the
Commission may promulgate with respect thereto. The Fund reserves the right,
upon 45 days prior written notice to Insurance Company, to take all actions,
including but not limited to, the dissolution, merger, and sale of all assets of
the Fund or any Designated Portfolio upon the sole authorization of the Board,
to the extent permitted by the laws of The Commonwealth of Massachusetts and the
1940 Act.
ARTICLE IV. Sales Material and Information.
------------------------------
4.1. Insurance Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, a copy of each piece of major sales literature or
other significant promotional material that Insurance Company develops or
proposes to use and in which the Fund (or a Portfolio thereof), its investment
adviser or one of its sub-advisers or the underwriter for the Fund shares is
named in connection with the Contracts, at least 10 (ten) Business Days prior to
its use. No such material shall be used if the Fund or its designee objects to
such use within 5 (five) Business Days after receipt of such material. The Fund
reserves the right to review any pieces of sales literature or other promotional
material that are not deemed major or significant.
4.2. Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
statement supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales
11
<PAGE>
literature or other promotional material approved by the Fund or its designee or
by the Adviser, except with the permission of the Fund or the Adviser.
4.3. The Fund or Adviser shall furnish, or shall cause to be furnished, to
Insurance Company, a copy of each piece of major sales literature or other
significant promotional material in which Insurance Company and/or its separate
account(s) is named at least 10 (ten) Business Days prior to its use. No such
material shall be used if Insurance Company objects to such use within 5 (five)
Business Days after receipt of such material.
4.4. The Fund and the Adviser shall not give any information or make any
representations on behalf of Insurance Company or concerning Insurance Company,
the Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Account, or in sales literature or other
promotional material approved by Insurance Company or its designee, except with
the permission of Insurance Company.
4.5. The Fund will provide to Insurance Company at least one complete copy
of all registration statements, prospectuses, SAIs, reports, proxy statements,
major sales literature and other significant promotional materials, applications
for exemptions, requests for no-action letters, and all amendments to any of the
above, that date to the Designated Portfolio(s), contemporaneously with the
filing of such document(s) with the SEC or NASD or other regulatory authorities.
4.6. Insurance Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, major sales literature and other significant promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the SEC, NASD, or
other regulatory authority.
12
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4.7. For purposes of this Article IV, the phrase "sales literature and
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, SAIs, shareholder reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested in connection with
compliance and regulatory requirements related to this Agreement or any party's
obligations under this Agreement.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Fund and the Adviser shall pay no fee or other compensation to
Insurance Company under this Agreement, and Insurance Company shall pay no fee
or other compensation to the Fund or Adviser under this Agreement, although the
parties hereto will bear certain expenses in accordance with Schedule C,
Articles III, V, and other provisions of this Agreement.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, as further provided in Schedule C. The Fund shall see
to it that all shares of the Designated Portfolio(s) are registered and
authorized for issuance in accordance with applicable federal law and, if and to
the extent deemed advisable by the Fund, in accordance with applicable state
laws prior to their sale.
13
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5.3. The parties shall bear the expenses of routine annual distribution
(mailing costs) of the Fund's prospectus and distribution (mailing costs) of the
Fund's proxy materials and reports to owners of Contracts offered by Insurance
Company, as provided in Schedule C.
5.4. The Fund and Adviser acknowledge that a principal feature of the
Contracts is the Contract owner's ability to choose from a number of
unaffiliated mutual funds (and portfolios or series thereof), including the
Designated Portfolio(s) and the Unaffiliated Funds, and to transfer the
Contract's cash value between funds and portfolios. The Fund and Adviser agree
to cooperate with Insurance Company facilitating the operation of the Account
and the Contracts as intended, including but not limited to, cooperation in
facilitating transfers between Unaffiliated Funds.
5.5. Insurance Company agrees to provide certain administrative services
in connection with the arrangements contemplated by this Agreement. The parties
acknowledge and agree that the services referred to in this Section 5.5 are
recordkeeping, shareholder communication, and other transaction facilitation and
processing, and related administrative services only and are not the services of
an underwriter or a principal underwriter of the Fund and that Insurance Company
not an underwriter for the shares of the Designated Portfolio(s), within the
meaning of the 1933 Act or the 1940 Act.
ARTICLE VI. Diversification and Qualification
---------------------------------
6.1. The Fund and Adviser represent and warrant that the Fund will at all
times sell its shares and invest its assets in such a manner as to ensure that
the Contracts will be treated as annuity Contracts under the Code, and the
regulations issued thereunder. Without limiting the scope of the foregoing, the
Fund and Adviser represent and warrant that the Fund and each Designated
Portfolio thereof will at all times comply with Section 817(h) of the Code and
Treasury Regulation (S)1.817-5, as amended from time to time, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance Contracts and any amendments or
other modifications or successor provisions to such Section or Regulations. The
Fund and the Adviser agree that shares of the Designated Portfolio(s) will be
sold only to Participating Insurance Companies and their separate accounts.
14
<PAGE>
6.2. No shares of any series or portfolio of the Fund will be sold to the
general public.
6.3. The Fund and Adviser represent and warrant that the Fund and each
Designated Portfolio is currently qualified as a Regulated Investment Company
under Subchapter M of the Code, and that it will maintain such qualification
(under Subchapter M or any successor or similar provisions) as long as this
Agreement is in effect.
6.4. The Fund or Adviser will notify Insurance Company immediately upon
having a reasonable basis for believing that the Fund or any Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification or Subchapter
M qualification requirements or might not so comply in the future.
6.5. The Fund and Adviser acknowledge that full compliance with the
requirements referred to in Sections 6.1, 6.2, and 6.3 hereof is absolutely
essential because any failure to meet those requirements would result in the
Contracts not being treated as annuity Contracts for federal income tax
purposes, which would have adverse tax consequences for Contract Owners and
could also adversely affect Insurance Company corporate tax liability. The Fund
and Adviser also acknowledge that it is solely within their power and control to
meet those requirements. Accordingly, without in any way limiting the effect of
Section 8.3 hereof and without in any way limiting or restricting any other
remedies available to Insurance Company, the Adviser will pay all costs
associated with or arising out of any failure, or any anticipated or reasonably
foreseeable failure, of the Fund or any Designated Portfolio to comply with
Sections 6.1, 6.2, or 6.3 hereof, including all costs associated with reasonable
and appropriate corrections or responses to any such failure; such costs may
include, but are not limited to, the costs involved in creating, organizing, and
registering a new investment company as a funding medium for the Contracts
and/or the costs of obtaining whatever regulatory authorizations are required to
substitute shares of another investment company for those of the failed
Portfolio (including but not limited to an order pursuant to Section 26(b) of
the 1940 Act); such costs are to include, but are not limited to, fees and
expenses of legal counsel and other advisors to Insurance Company and any
federal income taxes or tax penalties (or "toll charges" or exactments or
amounts paid in
15
<PAGE>
settlement) incurred by Insurance Company with respect to itself or owners of
its Contracts in connection with any such failure or anticipated or reasonably
foreseeable failure.
6.6. The Fund shall be in compliance with the aforesaid Section 817(h)
diversification and Subchapter M qualification requirements, and will notify
Insurance Company if the Fund shall ever be out of compliance.
ARTICLE VII. Potential Conflicts and Compliance With
Shared Funding Exemptive Order
------------------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the Contract Owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Designated Portfolio(s) are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
Contract Owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of Contract Owners. The Board shall promptly
inform Insurance Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2. Insurance Company will report any potential or existing conflicts of
which it is aware to the Board. Insurance Company will assist the Board in
carrying out its responsibilities under the Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by Insurance Company to inform the Board whenever Contract Owner voting
instructions are to be disregarded. Such responsibilities (other than the duty
to report, which is unqualified) shall be carried out by Insurance Company with
a view only to the interests of its Contract Owners.
16
<PAGE>
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Fund, the Adviser or any sub-
adviser to any of the Portfolios (the "Independent Directors"), that a material
irreconcilable conflict exists, Insurance Company and other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1) withdrawing the assets allocable to some or
all of the separate accounts from the Fund or any Designated Portfolio and
reinvesting such assets in a different investment medium, including (but not
limited to) another Designated Portfolio of the Fund, or submitting the question
whether such segregation should be implemented to a vote of all affected
Contract Owners and, as appropriate, segregating the assets of any appropriate
group (i.e., annuity Contract Owners, life insurance Contract Owners, or
variable Contract Owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Contract Owners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
Insurance Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
Insurance Company may be required, at the Fund's election, to withdraw the
Account's investment in the Fund and terminate this Agreement; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the Independent Directors. Any such withdrawal and termination must
take place within six (6) months after the Fund gives written notice that this
provision is being implemented, and until the end of the effective date of such
termination the Fund shall continue to accept and implement orders by Insurance
Company the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Insurance Company conflicts
with the majority of other state regulators, then Insurance Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six months after the Board informs Insurance Company in
17
<PAGE>
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the effective date of such termination the Fund shall continue
to accept and implement orders by Insurance Company for the purchase (and
redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Fund be required to establish a new funding medium for the Contracts.
Insurance Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract Owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then Insurance Company will withdraw the Account's investment in the
Fund and terminate this Agreement within six (6) months after the Board informs
Insurance Company in writing of the foregoing determination; provided, however,
that such withdrawal and termination shall be limited to the extent required by
any such material irreconcilable conflict as determined by a majority of the
Independent Trustees.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable:
and (b) Sections 3.6, 3.7, 3.8, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
18
<PAGE>
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By Insurance Company
8.l (a). Insurance Company agrees to indemnify and hold harmless the Fund
and its officers and each member of its Board and the Adviser (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of Insurance Company) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, expenses, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
registration statement or prospectus or SAI for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this Agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
Insurance Company on behalf of the Adviser or Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in any
registration statement, prospectus, or SAI for any Unaffiliated
Fund, or arise out of or are based upon the omission or alleged
omission to state therein a material fact or necessary to make
the statements therein not misleading, or otherwise pertain to or
arise in connection with the availability of any Unaffiliated
Funds as an underlying funding vehicle in respect of the
Contracts; or
(iii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the
Fund not supplied by Insurance Company or persons under its
control) or wrongful conduct of Insurance
19
<PAGE>
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iv) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished in writing to the Fund by or on behalf
of Insurance Company; or
(v) arise as a result of any failure by Insurance Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(vi) arise out of or result from any material breach of any
representation and/or warranty made by Insurance Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by Insurance Company.
as limited by and in accordance with any provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1 (b). Insurance Company shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1 (c). Insurance Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Insurance Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Insurance Company
of any such claim shall not relieve Insurance Company from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision, except to the
extent that Insurance Company has been prejudiced by such failure to give
notice. In case
20
<PAGE>
any such action is brought against the Indemnified Parties, Insurance Company
shall be entitled to participate, at its own expense, in the defense of such
action. Insurance Company also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
Insurance Company to such party of Insurance Company's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and Insurance Company will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1 (d). The Indemnified Parties will promptly notify Insurance Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund should such litigation or proceedings represent, allege or concern a
material breach of any representation, warranty or covenant of this Agreement.
8.2. Indemnification by the Adviser
------------------------------
8.2 (a). The Adviser agrees to indemnify and hold harmless Insurance
Company and each of its directors and officers and each person, if any, who
controls Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or SAI or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this Agreement to indemnify
shall not apply as to any
21
<PAGE>
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished in writing to the Adviser or Fund by
or on behalf of Insurance Company for use in the registration
statement or prospectus for the Fund or in sales literature (or
any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or are based upon statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Adviser or persons under its
control) or wrongful conduct of the Fund or Adviser or persons
under their control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus or sales literature covering the Contracts,
or any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or omission
was made in reliance upon information furnished in writing to
Insurance Company by or on behalf of the Adviser or Fund; or
(iv) arise as a result of any failure by the Fund or Adviser to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Fund or Adviser in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof. This indemnification is in addition to and apart from the
responsibilities and obligations of the Adviser specified in Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance or such Indemnified Party's duties or by reason of such
22
<PAGE>
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to Insurance Company or the Account, whichever is applicable.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that the Adviser
has been prejudiced by such failure to give notice. In case any such action is
brought against the Indemnified Parties, the Adviser will be entitled to
participate, at its own expense, in the defense thereof. The Adviser also shall
be entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Adviser to such party of the
Adviser's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.2(d). Insurance Company agrees promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account should such litigation or proceedings represent, allege
or concern a material breach of any representation, warranty or covenant of this
Agreement.
8.3. Indemnification By the Fund
---------------------------
8.3(a). The Fund agrees to indemnify and hold harmless Insurance Company
and each of its directors and officers and each person, if any, who controls
Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, expenses, damages, liabilities (including
23
<PAGE>
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at common
law or otherwise, insofar as such losses, claims, expenses, damages, liabilities
or expenses (or actions in respect thereof) or settlements, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or
otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Fund; or
(iii) arise out of or result from the incorrect or untimely calculation or
reporting of the daily net asset value per share or dividend or
capital gain distribution rate;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or to Insurance
Company, the Fund, the Adviser or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than
24
<PAGE>
on account of this indemnification provision, except to the extent that the Fund
has been prejudiced by such failure to give notice. In case any such action is
brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Fund will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). Insurance Company agrees promptly to notify the Fund of the
commencement of any litigation or proceeding against itself or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund should such litigation or proceedings
represent, allege or concern a material breach of any representation, warranty
or covenant of this Agreement.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
25
<PAGE>
ARTICLE X. Termination
-----------
10.1. This Agreement shall terminate:
(a) at the option of any party, with or without cause, with
respect to some or all Designated Portfolios, upon one (1)
year advance written notice delivered to the other parties;
provided, however, that such notice shall not be given earlier
than one year following the date of this Agreement; or
(b) at the option of Insurance Company by written notice to the
other parties with respect to any Designated Portfolio based
upon Insurance Company reasonable and good faith determination
that shares of such Designated Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) at the option of Insurance Company by written notice to the
other parties with respect to any Designated Portfolio in the
event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts
issued or to be issued by Insurance Company; or
(d) at the option of the Fund in the event that formal
administrative proceedings are instituted against Insurance
Company by the NASD, the SEC, the Insurance Commissioner or
like official of any state or any other regulatory body
regarding Insurance Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any
Account, or the purchase of the Fund shares or the shares or
sponsor of any Unaffiliated Fund, provided, however, that the
Fund determines in its sole judgment exercised reasonably and
in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of Insurance
Company to perform its obligations under this Agreement or
would have a material adverse impact upon the Fund; or
(e) at the option of Insurance Company in the event that formal
administrative proceedings are instituted against the Fund or
Adviser by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided, however, that
Insurance Company determines in its sole judgment exercised
reasonably and in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of
the Fund or Adviser to perform its obligations under this Agreement;
or
(f) at the option of Insurance Company by written notice to the Fund and
the Adviser with respect to any Portfolio if Insurance Company
reasonably and
26
<PAGE>
in good faith believes that the Portfolio will fail to meet the Section
817(h) diversification requirements or Subchapter M qualifications
specified in Article VI hereof; or
(g) at the option of either the Fund or the Adviser, if (i) the Fund or
Adviser, respectively, shall determine, in their sole judgment
reasonably exercised in good faith, that Insurance Company has suffered
a material adverse change in their business or financial condition or
is the subject of material adverse publicity and that material adverse
change or publicity will have a material adverse impact on Insurance
Company's ability to perform its obligations under this Agreement, (ii)
the Fund or Adviser notifies Insurance Company of that determination
and its intent to terminate this Agreement, and (iii) after considering
the actions taken by Insurance Company and any other changes in
circumstances since the giving of such a notice, the determination of
the Fund or Adviser shall continue to apply on the sixtieth (60th) day
following the giving of that notice, which sixtieth day shall be the
effective date of termination; or
(h) at the option of Insurance Company, if (i) Insurance Company shall
determine, in its sole judgment reasonably exercised in good faith,
that either the Fund or the Adviser have suffered a material adverse
change in their business or financial condition or is the subject of
material adverse publicity and that material adverse change or
publicity will have a material adverse impact on the Fund's or
Adviser's ability to perform its obligations under this Agreement, (ii)
Insurance Company notifies the Fund or Adviser, as appropriate, of that
determination and its intent to terminate this Agreement, and (iii)
after considering the actions taken by the Fund or Adviser and any
other changes in circumstances since the giving of such a notice, the
determination of Insurance Company shall continue to apply on the
sixtieth (60th) day following the giving of that notice, which sixtieth
(60th) day shall be the effective date of termination; or
10.2. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties of its intent to terminate, which notice
shall set forth the basis for the termination.
10. 3. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Adviser shall, at the option of Insurance Company
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts
27
<PAGE>
shall be permitted to reallocate investments in the Designated Portfolio(s) (as
in effect on such date), redeem investments in such Designated Portfolio(s)
and/or invest in such Designated Portfolio(s) upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.3 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.4. Surviving Provisions. Notwithstanding any termination of this
Agreement, each party's obligations under Article VIII to indemnify other
parties shall survive and not be affected by any termination of this Agreement.
In addition, with respect to Existing Contracts, all provisions of this
Agreement shall also survive and not be affected by any termination of this
Agreement.
ARTICLE XI. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
SteinRoe Variable Investment Trust
c/o Liberty Investment Services, Inc.
600 Atlantic Avenue
Boston, MA 02210
Attention: Secretary
If to Insurance Company:
Providian Corporation
400 West Market Street
Louisville, KY 40202
ATTN: John Fendig
28
<PAGE>
If to the Adviser:
Stein Roe & Farnham Incorporated
One South Wacker Drive
Chicago, IL 60606
Attention: Secretary
ARTICLE XII. Miscellaneous
-------------
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain. Without limiting the foregoing, no party hereto shall disclose
any information designated as proprietary by another party.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Securities and Exchange Commission, the NASD and state insurance regulators) and
shall permit such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. Notwithstanding the generality of the
foregoing, each party hereto further agrees to furnish the Missouri Insurance
Commission with any information
29
<PAGE>
or reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of Insurance Company are being conducted in a manner consistent with
the Missouri Variable Annuity Regulations and any other applicable law or
regulations.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
12.8. All persons dealing with the Fund and any Designated Portfolio shall
look solely to the assets of such Designated Portfolio for the enforcement of
any claims against the Fund hereunder. Each other party acknowledges and agrees
that none of the Trustees, officers or shareholders of the Fund shall have any
personal liability for any obligations entered into by or on behalf of the Fund.
30
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
By its authorized officer,
By: /s/ Gregory J. Garvin
---------------------
Title: Vice President
Date: 4/2/97
Adviser:
STEIN ROE & FARNHAM INCORPORATED
By its authorized officer,
By: /s/ Timothy K. Armone
---------------------
Title: President
Date: 4/7/97
Fund:
STEINROE VARIABLE INVESTMENT TRUST,
ON BEHALF OF THE DESIGNATED PORTFOLIO(S)
By its authorized officer,
By: /s/ Timothy K. Armone
---------------------
Title: Vice President
Date: 4/7/97
31
<PAGE>
SCHEDULE A
----------
Contracts Form
--------- Numbers
-------
Providian Advisor's Edge Variable Annuity
<PAGE>
SCHEDULE B
----------
SteinRoe Capital Appreciation Fund
<PAGE>
SCHEDULE C
----------
Expenses
--------
1. The Fund and Insurance Company will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs that
reflects the Fund's share of the total costs determined according to the
number of pages of the parties' and other funds' respective portions of the
documents.
2. The Adviser and Insurance Company will pay the costs of printing and/or
distributing copies of the documents based upon an allocation of costs that
reflects the Adviser's share of the total costs determined according to the
number of pages of the parties' and other funds' respective portions of the
documents.
<TABLE>
<CAPTION>
============================================================================================
RESPONSIBLE
ITEM FUNCTION PARTY
============================================================================================
PROSPECTUS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Annual Update Printing 1
Distribution 1
- -------------------------------------------------------------------------------------------
New Sales: Marketing (supply and distribution of prospectuses to 2
persons who have not yet invested in a Designated
Portfolio)
Delivery of prospectuses to satisfy legal prospectus 1
delivery requirements (e.g., copies sent with
confirmations of sales)
- --------------------------------------------------------------------------------------------
Existing Owners: Supply quantities described in Section 3.4 1
Distribution 1
- --------------------------------------------------------------------------------------------
Interim Updates
- --------------------------------------------------------------------------------------------
New Sales: Marketing (supply and distribution of prospectuses 2
to persons who have not yet invested in a
Designated Portfolio)
Delivery of prospectuses to satisfy legal prospectus 1
delivery requirements (e.g., copies sent with
confirmations of sales)
If required by Participating Insurance Company (PIC) PIC
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Existing Owners: If required by Fund or Adviser: Fund
If required by PIC: PIC
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
STATEMENT OF Same as Prospectus Same
ADDITIONAL
INFORMATION
- --------------------------------------------------------------------------------------------
PROXY MATERIALS Printing Fund
OF THE FUND
Distribution
(a) If required by law: Fund
(b) If required by participating insurance company PIC
- --------------------------------------------------------------------------------------------
ANNUAL REPORTS Printing Fund
& OTHER
COMMUNICATIONS Distribution 1
WITH SHAREHOLDERS
OF THE FUND
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
OPERATIONS OF FUND All operations and related expenses, including the Fund
cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials
and reports, the preparation of all statements and
notices required by any federal or state law and all
taxes on the issuance of the Fund's shares, and all
costs of management of the business affairs of the Fund.
- --------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 8(l)
PARTICIPATION AGREEMENT
Among
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY,
PROVIDIAN SERIES TRUST,
and
PROVIDIAN INVESTMENT ADVISORS, INC.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
- ------- ----------- ----
<S> <C> <C>
1 Sales of Fund Shares................................ 1
2 Proxy Solicitations and Voting...................... 4
3 Representations and Warranties...................... 5
4 Sales Material and Information...................... 9
5 Fees and Expenses................................... 11
6 Indemnification..................................... 14
7 Potential Conflicts................................. 23
8 Term and Termination................................ 26
9 Notices............................................. 29
10 Miscellaneous....................................... 30
</TABLE>
<PAGE>
THIS AGREEMENT, made and entered into this 25th day of March, 1997, by
and among Providian Life and Health Insurance Company ("Company"), on its own
behalf and on behalf of Providian Life and Health Insurance Company Separate
Account V, a segregated asset account of Company ("Account"), Providian Series
Trust ("Fund"), and Fund's investment adviser, Providian Investment Advisors,
Inc. ("Adviser") (collectively, "Parties").
Company, Fund, and Adviser, intending to be legally bound, hereby
agree as follows:
1. Sales of Fund Shares
1.1 Fund shares shall be sold by the respective portfolios of Fund
and purchased by Company for the appropriate subaccount at the net asset value
next computed after receipt by Fund or its designee of each order of the Account
or its designee, in accordance with the provisions of this Agreement, and of the
then current prospectuses of Fund, and the variable annuity contract, described
more specifically in Schedule A to this Agreement, that uses Fund as an
underlying investment medium (the "Contracts"). Company may purchase Fund
shares for its own Account subject to (a) receipt of prior written approval by
Fund; and (b) such purchases being in accordance with the then current
prospectuses of Fund and the Contracts. For purposes of this Section 1.1,
Company shall be the designee of Fund for receipt of orders from the Account and
receipt by such designee shall constitute receipt by Fund; provided that
<PAGE>
Company receives the order by 4:00 p.m. EST and Fund receives notice from
Company by telephone or facsimile (or by such other means as Fund and Company
may agree to in writing) of such order no later than 10 a.m. EST on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission (the
"SEC"). Company will use its best efforts to wire funds to Fund for purchased
shares before 3 p.m. EST on the same Business Day that Company communicates such
order to Fund in accordance with instructions provided by Fund to Company.
1.2 Fund will redeem the shares when requested on behalf of Company
or the corresponding subaccount of the Account at the net asset value next
computed after receipt by Fund or its designee of each request for redemption in
accordance with the provisions of this Agreement and the provisions of the then
current prospectuses of Fund and the Contracts. For purposes of this Section
1.2, Company shall be the designee of Fund for receipt of requests for
redemption from the Account and receipt by such designee shall constitute
receipt by Fund; provided that Company receives the request for redemption by 4
p.m. EST and Fund receives notice from Company by telephone or facsimile (or by
such other means as Fund and Company may agree to in writing) of such request
for redemption no later than 10 a.m. EST on the next following Business Day.
Fund will use
2
<PAGE>
its best efforts to transmit by wire transfer to Company the proceeds of all
Company-placed redemption orders before 3 p.m. EST on the same Business Day that
Company communicates the requests to Fund in accordance with written
instructions provided by Company to Fund. In no event shall payment be delayed
for a greater period than permitted by the Investment Company Act of 1940 or the
rules, orders or regulations thereunder (the "1940 Act"). The Board of Trustees
of Fund ("Board") may refuse to sell shares of Fund or any particular portfolio
of Fund ("Portfolio") to any person, or suspend or terminate the offering of
shares of any particular Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Board, acting in good faith and in light of the Board's duties under applicable
law, necessary in the best interests of the shareholders of any Portfolio.
1.3 Company agrees to purchase and redeem the shares of each
Portfolio in accordance with the provisions of this Agreement, of the Contracts
and of the then current prospectuses for the Contracts and Fund. Except as
necessary to implement transactions initiated by purchasers of Contracts
("Owners"), or as otherwise permitted by state and/or federal laws or
regulations, Company shall not redeem Fund shares attributable to the Contracts.
1.4 Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to
3
<PAGE>
Company or the Account. Shares ordered from Fund will be recorded in appropriate
book entry titles for the Account.
1.5 Fund shall furnish prompt notice followed by written confirmation
to Company or its delegates of any income, dividends or capital gain
distributions payable on Fund's shares. Company hereby elects to receive all
such dividends and distributions as are payable on shares of a Portfolio
attributable to the Contracts in additional shares of that Portfolio. Fund shall
notify Company or its delegates of the number of shares so issued as payment of
such dividends and distributions.
1.6 Fund shall use its best efforts to make the net asset value per
share for each Portfolio available to Company or its delegates by 6:00 p.m. EST
on each Business Day of Fund. Fund agrees to the net asset value reporting
procedures specified in Schedule B to this Agreement.
2. Proxy Solicitations and Voting
2.1 Fund agrees that the terms on which Fund is offered to the
Account under this Agreement will not be materially altered without the prior
written consent of Company, which consent will not be unreasonably withheld,
during any period in which Fund shares are held by the Account.
2.2 If and to the extent required by law Company shall:
(i) solicit voting instructions from Owners;
4
<PAGE>
(ii) vote Fund shares in accordance with instructions
reviewed from Owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of
such Portfolio for which instructions have been
received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for various contract owners. Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law.
2.3 Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular Fund will either provide for annual
meetings or comply with Section 16(c) of the 1940 Act as well as with Sections
16(a) and, if and when applicable, 16(b). Further, Fund will act in accordance
with the SEC's interpretation of the requirements of Section 16(a) with respect
to periodic elections of trustees and with whatever rules the SEC may promulgate
with respect thereto.
3. Representations and Warranties
3.1 Company represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it has legally
and validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the laws of Missouri and that it has and will
maintain the capacity to
5
<PAGE>
issue all Contracts that may be sold; and that it is properly licensed,
qualified and in good standing to sell the Contracts in all the jurisdictions in
which such Contracts are to be offered or sold.
3.2 Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act").
3.3 Company represents and warrants that it has or will have
registered the Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment account for the
Contracts.
3.4 Company represents that the Contracts are currently treated as
annuity contracts, under applicable provisions of the Internal Revenue Code of
1986, as amended ("Code"), and that it will maintain such treatment and that it
will notify Fund promptly upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
3.5 Fund represents and warrants that it is lawfully established and
validly existing under the laws of the state of Massachusetts.
3.6 Fund represents and warrants that Fund shares sold pursuant to
this Agreement are registered under the 1933 Act and duly authorized for
issuance; that Fund shall amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares; that Fund will
6
<PAGE>
sell such shares in compliance with all applicable federal and state laws; and
that Fund is and will remain registered under and complies and will comply in
all material respects with the 1940 Act. Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by Fund.
3.7 Fund represents and warrants that it will invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable annuity contracts under the Code and the regulations issued thereunder,
and that Fund will comply with Section 817(h) of the Code as amended from time
to time and with all applicable regulations promulgated thereunder. Fund agrees
to notify Company immediately upon having a reasonable basis for believing that
any Portfolio has ceased to comply with Section 817(h) of the Code and to take
all reasonable steps to diversify such Portfolio so as to achieve compliance
within the grace period afforded by Treasury Regulation (S) 1.817-5.
3.8 Fund represents and warrants that each Portfolio is currently
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will promptly notify Company upon having a
reasonable basis for believing that any Portfolio has ceased to so qualify or
that it might not so qualify in the future.
7
<PAGE>
3.9 Fund represents and warrants that Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with Missouri
law regarding separate accounts of domestic insurers and with any other
applicable state insurance laws of which it is aware, provided Fund shall have
no obligation to conduct an independent investigation, or of which Company has
made it aware. Fund further represents that its operations are and shall at all
times remain in material compliance with the laws of the state of Massachusetts
to the extent required to perform this Agreement.
3.10 All Parties hereto represent and warrant to each other that all
of their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of Fund in an amount not less than the amount required
by the applicable rules of the NASD and the federal securities laws. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. All Parties hereto agree to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and each agrees to notify promptly the other
Parties hereto in the event that such coverage no longer applies.
8
<PAGE>
3.11 Company agrees not to solicit or cause to be solicited directly,
or indirectly at any time in the future, any proxies from the Owners in
opposition to proxies solicited by management of Fund, unless a court of
competent jurisdiction shall have determined that the conduct of a majority of
the Board constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties. This Section 3.11 will survive the term of
this Agreement.
4. Sales Material and Information
4.1 Company shall promptly inform Adviser as to the status of all
sales literature filings and shall promptly notify Adviser of all approvals or
disapprovals of sales literature filings in the states. Fund shall promptly
provide Company with copies of correspondence and reports of inquiries, meetings
and discussions concerning regulation of the Contracts and Owner complaints
respecting the Contracts.
4.2 Company shall not make any material representations concerning
Adviser or Fund other than the information or representations contained in: (a)
a registration statement or prospectus for Fund, as amended or supplemented from
time to time; (b) published reports or statements of Fund which are in the
public domain or are approved by Fund; or (c) sales literature or other
promotional material of Fund.
4.3 Adviser or Fund shall not make any material representations
concerning Company other than the
9
<PAGE>
information or representations contained in: (a) a registration statement or
prospectus for the Contracts, as amended or supplemented from time to time; (b)
published reports or statements of the Contracts or the Account which are in the
public domain or are approved by Company; or (c) sales literature or other
promotional material of Company.
4.4 No Party shall use any other Party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior consent of
such Party.
4.5 Fund will provide to Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, solicitations for voting instructions, sales
literature or other promotional material, applications for exemptions, requests
for no-action letters, and all amendments to any of the above, that relate to
Fund or its shares, in final form as filed with the SEC, NASD and other
regulatory authorities. Fund agrees to notify Company of material changes in the
management of Fund within a reasonable time prior to any such change becoming
effective.
4.6 Company will provide to Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature or other
promotional material, applications for exemptions, requests for no-action
letters and all amendments to any of the above, that relate to Fund and the
Contracts, in final form
10
<PAGE>
as filed with the SEC, NASD and other regulatory authorities. Company agrees to
notify Fund of material changes in the management of the Contracts within a
reasonable time prior to any such changes becoming effective.
4.7 For purposes of this Section 4, the phrase "sales literature or
other promotional material" shall be construed in accordance with all applicable
securities laws and regulations.
4.8 To the extent required by applicable law, including the
administrative requirements of regulatory authorities, or as mutually agreed
between Company and Fund, Company reserves the right to modify any of the
Contracts in any respect whatsoever. Company reserves the right in its sole
discretion to suspend the sale of any of the Contracts, in whole or in part, or
to accept or reject any application for the sale of a Contract. Company agrees
to notify the other Parties promptly upon the occurrence of any event Company
believes might necessitate a material modification or suspension.
4.9 The Parties agree to review the Contracts and Fund during the
last calendar quarter of each year for possible changes and will make their
personnel reasonably available for this purpose.
5. Fees and Expenses
5.1 Fund shall bear the cost of registration and qualification of
Fund's shares; preparation and filing of
11
<PAGE>
Fund's prospectus and registration statement, proxy materials and reports
including postage; preparation of all other statements and notices relating to
Fund required by any federal or state law; payment of all applicable fees,
including, without limitation, all fees due under Rule 24f-2 relating to Fund;
all taxes on the issuance or transfer of Fund's shares. At least annually, Fund
or its designee shall provide Company, free of charge, with as many copies of
the current prospectus for Fund's shares as Company may reasonably request for
distribution to existing Owners whose Contracts are funded by such shares. Fund
or its designee shall provide Company, at Company's expense, with as many copies
of the current prospectus for Fund's shares as Company may request for
distribution to prospective purchasers of Contracts. If requested by Company in
lieu thereof, Fund shall provide such documentation (including a final copy of
the new prospectus as set in type at Fund's or Adviser's expense) and other
assistance as is reasonably necessary in order for Company once each year (or
more frequently if the prospectus for Company is amended) to have the prospectus
for the Contracts and Fund's prospectus printed together in one document. Fund
will bear the cost of printing Fund's shares' prospectus portion of such
document to Owners of existing Contracts and will not bear the expense of
printing the portion of such document relating to the Account or any portion of
such document
12
<PAGE>
where used for distribution to prospective purchasers of the Contracts.
5.2 Company shall see to it that the Contracts are registered under
the 1933 Act, and that the Account is registered as a unit investment trust in
accordance with the 1940 Act. Company shall bear the expenses for the costs of
preparation, printing, and filing of Company's prospectus and registration
statement with respect to the Contracts; preparation of all other statements and
notices relating to the Account or the Contracts required by any federal or
state law; expenses for the solicitation and sale of the Contracts, including
all costs of printing and distributing all copies of advertisements,
prospectuses, statements of additional information, proxy materials, and reports
to Owners or potential purchasers of the Contracts as required by applicable
state and federal law; payment of all applicable fees, including, without
limitation, all fees due under Rule 24f-2 relating to the Contracts; all costs
of drafting, filing, and obtaining approvals of the Contracts in the various
states under applicable insurance laws; filing of annual reports on Form N-SAR,
and all other costs associated with ongoing compliance with all such laws and
its obligations hereunder.
5.3 SEC No-Action Letter IP-3-95 relieves Fund of the obligation to
pay a registration fee to the SEC under Rule 24f-2 attributable to Fund shares
sold to Company's separate accounts as long as Company continues to pay such fee
13
<PAGE>
relating to the Contracts. Fund agrees to reimburse Company in the amount of one
half of the registration fee that Company pays pursuant to Rule 24f-2
attributable to Fund's shares. Fund agrees to remit such reimbursement within
thirty (30) calendar days after Company sends Fund reasonable proof of amounts
due under this Section 5.3.
6. Indemnification
6.1 Indemnification By Company
6.1(a) Company agrees to indemnify and hold harmless Fund and
Adviser and each of their directors and officers, and each person, if any, who
controls any of them within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 6.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, and which:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the
Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission
14
<PAGE>
or the alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein
not misleading, provided that this paragraph 6.1(a) shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to Company by or on
behalf of Fund or Adviser for use in the registration statement
or prospectus for the Contracts or in the Contracts (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company or persons under
its control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering Fund or any
amendment thereof or supplement thereto, or the omission or
15
<PAGE>
alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance
upon information furnished to Fund by or on behalf of Company; or
(iv) arise out of, or as a result of, any failure by
Company or persons under its control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of
any representation and/or warranty made by Company or persons
under its control in this Agreement or arise out of or result
from any other material breach of this Agreement by Company or
persons under its control;
as limited by and in accordance with the provisions of sections 6.1(b) and
6.1(c) hereof.
6.1(b) Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified
16
<PAGE>
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or to Fund.
6.1(c) Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Company of any such
claim shall not relieve Company from any liability which it may have to the
Indemnified Party otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, Company
shall be entitled to participate, at its own expense, in the defense of such
action. Company also shall be entitled to assume and to control the defense
thereof. After notice from Company to such Party of Company's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and Company will not be liable to such
Party under this Agreement for any legal or other expenses subsequently incurred
by such Party independently in connection with the defense thereof other than
reasonable costs of investigation.
17
<PAGE>
6.1(d) The Indemnified Parties will promptly notify Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of Fund shares or the Contracts or the operation of
Fund.
6.2 Indemnification by Fund
6.2(a) Fund agrees to indemnify and hold harmless Company and
each of its directors and officers and each person, if any, who controls Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, and which:
(i) arise out of, or as a result of, any failure by Fund to
provide the services and furnish the materials contemplated under
the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification requirements specified in Section 3.7 of this
Agreement); or
18
<PAGE>
(ii) arise out of or result from any material breach of any
representation and/or warranty made by Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by Fund or persons under its control;
as limited by and in accordance with the provisions of Sections 6.2(b) and
6.2(c) hereof.
6.2(b) Fund shall not be liable under this indemnification
provision with respect to any losses, claims, expenses, damages, liabilities, or
litigation to which an Indemnified Party would otherwise be subject by reason of
such Indemnified Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of its obligations and duties under this
Agreement or to Company or the Account.
6.2(c) Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Fund of any such claim shall not
relieve Fund from any liability which
19
<PAGE>
it may have to the Indemnified Party otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, Fund will be entitled to participate, at its own expense,
in the defense thereof. Fund also shall be entitled to assume and to control the
defense thereof. After notice from Fund to such Party of Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and Fund will not be liable
to such Party under this Agreement for any legal or other expenses subsequently
incurred by such Party independently in connection with the defense thereof
other than reasonable costs of investigation.
6.2(d) The Indemnified Parties will promptly notify Fund of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
6.3 Indemnification by Adviser
6.3(a) Adviser agrees to indemnify and hold harmless Company and
each of its directors and officers and each person, if any, who controls Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Fund or Adviser) or litigation (including legal
20
<PAGE>
and other expenses) to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, and which:
(i) arise out of, or as a result of, any failure by
Adviser, Fund or persons under their control to provide the
services and furnish the materials contemplated under the terms
of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by Adviser, Fund or persons
under their control in this Agreement or arise out of or result
from any other material breach of this Agreement by Adviser, Fund
or persons under their control;
as limited by and in accordance with the provisions of Sections 6.3(b) and
6.3(c) hereof.
6.3(b) Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
Company or the Account.
21
<PAGE>
6.3(c) Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Fund or Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Fund or Adviser of
any such claim shall not relieve Adviser from any liability which it may have to
the Indemnified Party otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
Adviser will be entitled to participate, at its own expense, in the defense
thereof. Adviser also shall be entitled to assume and to control the defense
thereof. After notice from Adviser to such Party of Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and Adviser will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
6.3(d) The Indemnified Parties will promptly notify Fund or
Adviser of the commencement of any litigation
22
<PAGE>
or proceedings against them in connection with the issuance or sale of the
Contracts or the operation of the Account.
7. Potential Conflicts
7.1 The Board will monitor Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretive letter, or any similar action by insurance,
tax or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2 Company will report any potential or existing conflicts of which
it is aware to the Board. Company will assist the Board in carrying out its
responsibilities under any applicable provisions of the federal securities laws
and/or any exemptive orders granted by the SEC ("Exemptive
23
<PAGE>
Order"), by providing the Board with all information reasonably necessary for
the Board to consider any issues raised. This includes, but is not limited to,
an obligation by Company to inform the Board whenever Owner voting instructions
are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists,
Company shall, to the extent reasonably practicable, take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1) withdrawing the assets allocable to some or all of the separate
accounts from Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Owners and, as appropriate, segregating the assets of any
appropriate group that votes in favor of such segregation, or offering to the
affected Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Company conflicts with the
majority of other state regulators, then Company will withdraw the affected
Account's investment in Fund and terminate this Agreement with respect to such
Account within six (6) months after the
24
<PAGE>
Board informs Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six (6) month
period, Adviser and Fund shall continue to accept and implement orders by
Company for the purchase (and redemption) of shares of Fund.
7.5 For purposes of Sections 7.3 through 7.5 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict.
Company shall not be required by Section 7.3 to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a majority
of Owners materially adversely affected by the irreconcilable material conflict.
In the event that the Board determines that any proposed action does not
adequately remedy any irreconcilable material conflict, then Company will
withdraw the Account's investment in Fund and terminate this Agreement within
six (6) months after the Board informs Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict.
7.6 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide
25
<PAGE>
exemptive relief from any provision of the 1940 Act or the rules promulgated
thereunder with respect to mixed or shared funding (as defined in any Exemptive
Order) on terms and conditions materially different from those contained in any
Exemptive Order, then (a) Fund and/or Company, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
7.1, 7.2, 7.3 and 7.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
8. Term and Termination
8.1 The initial term of this Agreement shall be from March 25, 1997
through March 25, 1999. Unless terminated upon thirty (30) days' prior written
notice to the other Parties, this Agreement shall thereafter automatically renew
from year to year, provided that any Party may terminate this Agreement without
cause following the initial term upon six (6) months' advance written notice to
the others.
8.2 Notwithstanding any other provision of this Agreement, Adviser or
Fund may terminate this Agreement for cause on not less than thirty (30) days'
prior written notice to Company, unless Company has cured such cause within
thirty (30) days of receiving such notice, for any material breach by Company of
any representation, warranty, covenant or obligation hereunder.
26
<PAGE>
8.3 Notwithstanding any other provision of this Agreement, Company
may terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to Adviser and Fund unless Adviser or Fund has cured such cause
within thirty (30) days of receiving such notice, for any material breach by
Adviser or Fund of any representation, warranty, covenant or obligation
hereunder.
8.4 Notwithstanding any other provision of this Agreement, Company
may terminate this Agreement by written notice to Fund and Adviser with respect
to any Portfolio based upon Company's determination that shares of such
Portfolio are not reasonably available to meet the requirements of the
Contracts.
8.5 Notwithstanding any other provision of this Agreement, Company
may terminate this Agreement by written notice to Fund and Adviser with respect
to any Portfolio in the event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or federal law or such
law precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by Company.
8.6 Notwithstanding any other provision of this Agreement, Company
may terminate this Agreement by written notice to Fund and Adviser with respect
to any Portfolio in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code
27
<PAGE>
or under any successor or similar provision, or if Company reasonably believes
that Fund may fail to so qualify.
8.7 Notwithstanding any other provision of this Agreement, Company
may terminate this Agreement by written notice to Fund and Adviser with respect
to any Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Paragraph 3.7.
8.8 Notwithstanding any other provision of this Agreement, Fund or
Adviser may terminate this Agreement by written notice to Company, if either one
or both shall determine, in their sole judgment exercised in good faith, that
Company has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity, or if formal proceedings against Company
have been instituted by the NASD, SEC or any state securities or insurance
department or any other regulatory body regarding Company's duties under this
Agreement or related to the sale of the Contracts, the operation of the Account
or the purchase of Fund shares; provided, however, that Fund determines in its
sole judgment exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of Company to perform its
obligations under this Agreement.
8.9 Notwithstanding any other provision of this Agreement, Company
may terminate this Agreement by written notice to Fund and Adviser, if Company
shall determine, in
28
<PAGE>
its sole judgment exercised in good faith, that either Fund or Adviser has
suffered a material adverse change in its business, operations, financial
condition or prospects since the date of this Agreement or is the subject of
material adverse publicity, or if formal proceedings against Fund or Adviser
have been instituted by the NASD, SEC or any state securities or insurance
department or any other regulatory body; provided, however, that Company
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of Fund or Adviser to perform its obligations under this Agreement.
8.10 Notwithstanding the termination of this Agreement, each Party
shall continue for so long as any Contracts remain outstanding to perform such
of its duties hereunder as are necessary to ensure the continued tax-deferred
status thereof and the payment of benefits thereunder, except to the extent
proscribed by law, the SEC or other regulatory body.
9. Notices
Any notice shall be deemed sufficiently given when sent by registered
or certified mail to the other Party at the address of such Party set forth
below or at such other address as such Party may from time to time specify in
writing to the other Party.
29
<PAGE>
If to Fund:
President
Providian Series Trust
400 West Market St.
Louisville, Kentucky 40202
If to Adviser:
President
Providian Investment Advisors, Inc.
400 West Market St.
Louisville, Kentucky 40202
If to Company:
Jeffrey P. Lammers
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
With a copy to:
Marketing Director
Providian Life and Health Insurance Company
20 Moores Road
Frazer, Pennsylvania 19355
10. Miscellaneous
10.1 The captions in this Agreement are included for convenience of
reference only and in no way affect the construction or effect of any provisions
hereof.
10.2 If any portion of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
30
<PAGE>
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 Each Party shall cooperate with each other Party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance and securities regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement.
10.5 Each Party hereto grants to the other the right to audit its
records relating to the terms and conditions of this Agreement upon reasonable
notice during reasonable business hours in order to confirm compliance with this
Agreement.
10.6 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the Parties hereto are entitled to under
state and federal laws.
10.7 Subject to the requirements of legal process and regulatory
authority, Fund and Adviser shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by Company hereto and, except as permitted by this
Agreement, shall not disclose, disseminate or utilize such names and addresses
and other confidential
31
<PAGE>
information without the express written consent of Company until such time as it
may come into the public domain.
10.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any Party without the prior written consent of all Parties
hereto.
10.9 In any dispute arising hereunder, each Party waives its right to
demand a trial by jury and hereby consents to a bench trial of all such
disputes.
10.10 The terms of this Agreement shall be construed and the
provisions hereof interpreted under and in accordance with the laws of Kentucky;
provided, however, that all performances rendered hereunder shall be subject to
compliance with all applicable state and federal laws and regulations.
10.11 Sections 1, 2, 3, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 6, 7.4, 8,
and 9 hereof shall survive termination of this Agreement.
10.12 Company is hereby expressly put on notice of the limitation of
liability as set forth in the Agreement and Declaration of Trust of Fund and
agrees that the obligations assumed by Fund and Adviser pursuant to this
Agreement shall be limited in any case to Fund and Adviser and their respective
assets and that Company shall not seek satisfaction of any such obligation from
the shareholders of Fund or Adviser, the trustees, officers, employees or agents
of Fund or Adviser, or any of them.
32
<PAGE>
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be duly executed as of the date first set forth above.
Company:
PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY
By: /s/ Gregory J. Garvin
----------------------
Gregory J. Garvin
Vice President
Fund:
PROVIDIAN SERIES TRUST
By: /s/ Kris A. Robbins
--------------------
Kris A. Robbins
President
Adviser:
PROVIDIAN INVESTMENT ADVISORS, INC.
By: /s/ Frederick C. Kessell
-------------------------
Frederick C. Kessell
President and Chief Financial
Officer
33
<PAGE>
f:\law\team\partagmt\final\pvseries.doc
34
<PAGE>
Schedule A
Contracts that use Fund as an underlying investment medium
----------------------------------------------------------
PGA Retirement Annuity
35
<PAGE>
Schedule B
Net Asset Value (NAV) Reporting
Procedures for Fund Partners
A) Standardization of NAV Reporting Format
1. Because of variation in both handwriting technique and the quality of
fax transmissions, Fund shall type all information in NAV-reporting faxes.
2. Faxes that include dividend mil rates shall state the number of days
for which the rates are valid, and the rates shall be stated at their
intended value for the days for which they are applicable. For example, if
the mil rate is 0.005 for 3 days, it would be stated as "0.015 (three-day
rate)."
3. Every fax shall reflect the date it was sent and the effective date of
the NAV figures, if those dates are different.
4. All faxes shall list a primary and secondary contact person (with phone
numbers), so that Company has a resource in the event of an emergency.
5. All faxes shall include the name or initials of the individual(s) who
prepared the NAV fax, if different from the primary or secondary contact
persons.
6. All faxes shall have columns for: (1) fund name, (2) fund number, (3)
NAV, (4) change in NAV, (5) dividend mil rate, and (6) capital gains.
Either a description, a value, or a zero shall populate each corresponding
row.
36
<PAGE>
B) Standardization of Confirmation Routine
Fund shall telephone Company ten (10) minutes after faxing NAVs to confirm:
a) that Company has received the nightly NAV fax; and
b) that Company has accurately received all NAVs, NAV changes,
capital gains, and dividends.
C) Sample Form for NAV Reporting
Compliance with the foregoing may be accomplished by using the form
entitled "Daily Variable Fund Net Asset Values Per Share" (or its
equivalent) appearing on the page immediately following.
37
<PAGE>
[Name of Fund Partner]
Daily Variable Annuity Fund Net Asset Values Per Share
Effective Date: ____________
Date Sent: ____________
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
NAV Daily Dividend Dividends
For:
- -------------------------------------------------------------------------------------------------------------
Fund Number Fund Name Today Change ____ Day(s) STCG LTCG Other
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Compiled by: ____________
Phone: ____________
Fax: ____________
After-hours contacts:
_________________
Phone: ____________
_________________
Phone: ____________
38
<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 ADVISOR'S EDGE VARIABLE ANNUITY, DIMENSIONAL
VARIABLE ANNUITY AND PGA RETIREMENT ANNUITY) - OPINION AND CONSENT
To Whom It May Concern:
This opinion and consent is furnished in connection with the filing of Post-
Effective Amendment No. 7 (the "Amendment") to the Registration Statement on
Form N-4, File No. 33-80958 (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Act"), of Providian Life and Health Insurance
Company Separate Account V ("Separate Account V"). Separate Account V receives
and invests premiums allocated to it under a flexible premium multi-funded
annuity contract (the "Annuity Contract"). The Annuity Contract is offered in
the manner described in the 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. Souller
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. 7 to the
Registration Statement on Form N-4 (file No.33-80958) filed by Providian Life
and Health Insurance Company and Providian Life and Health Insurance Company
Separate Account V with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/ Jorden Burt Berenson & Johnson LLP
Jorden Burt Berenson & Johnson LLP
<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--Advisor's Edge and the statutory-basis financial statements of Providian Life
and Health Insurance Company in Post-Effective Amendment No. 7 to the
Registration Statement (Form N-4 No. 33-80958) and related Prospectuses of
Providian Life and Health Insurance Company Separate Account V--Advisor's Edge,
Providian Life and Health Insurance Company Separate Account V--Dimensional
Variable Annuity, and Providian Life and Health Insurance Company Separate
Account V--PGA Retirement Annuity.
/s/ ERNST & YOUNG LLP
Louisville, Kentucky
April 25, 1997
<PAGE>
EXHIBIT 13
PERFORMANCE CALCULATION
SEPARATE ACCOUNT V
ADVISOR'S EDGE VARIABLE ANNUITY
Fund is: Federated American Leaders Portfolio
AUV @ 12/31/95 12.676024
AUV @ 12/31/96 15.310533
1 year nonstandard actual total return and actual average annual total return
is:
15.310533 - 1 = 0.2078340* 100% rounded to 2 decimal places = 20.78%
- ---------
12.676024
