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As Filed With The Securities And Exchange Commission On April 30, 1998
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. 8
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 19
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
Gregory E. Miller-Breetz, Esquire
Providian Life and Health Insurance Company
400 West Market Street
P.O. Box 32830
Louisville, Kentucky 40232
(Name and Address of Agent for Service)
Copies to:
Michael Berenson, Esquire
Ann B. Furman
Jorden Burt Boros Cicchetti 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.
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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 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; PB 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
</TABLE>
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
PROSPECTUS
FOR THE
ADVISOR'S EDGE VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The Advisor's Edge variable annuity contract (the "Contract"), offered through
Providian Life and Health Insurance Company (the "Company", "us", "we" or
"our"), provides a vehicle for investing on a tax-deferred basis in 17
investment company Portfolios and our General Account. The Contract is an
individual variable annuity contract and is intended for retirement savings or
other long-term investment purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $5,000.
The minimum initial purchase payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (30
days or more in some instances) plus a 5 day grace period to allow for mail
delivery during which you may cancel your investment in the Contract.
You may allocate your Net Purchase Payments for the Contract among 17
Subaccounts of Providian Life and Health Insurance Company's Separate Account
V and four 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):
.DREYFUS SMALL CAP VALUE .MONTGOMERY EMERGING MARKETS PORTFOLIO
PORTFOLIO .STEIN ROE SPECIAL VENTURE FUND,
VARIABLE SERIES
.ENDEAVOR ENHANCED INDEX .STRONG INTERNATIONAL STOCK FUND II
PORTFOLIO
.FEDERATED AMERICAN LEADERS .STRONG SCHAFER VALUE FUND II
FUND II .T. ROWE PRICE INTERNATIONAL STOCK
.FEDERATED UTILITY FUND II PORTFOLIO
.FEDERATED PRIME MONEY FUND .WANGER U.S. SMALL CAP ADVISOR
II .WANGER INTERNATIONAL SMALL CAP ADVISOR
.FEDERATED HIGH INCOME BOND .WARBURG PINCUS INTERNATIONAL EQUITY
FUND II PORTFOLIO
.FEDERATED FUND FOR U.S. .WARBURG PINCUS SMALL COMPANY GROWTH
GOVERNMENT SECURITIES II PORTFOLIO
.MONTGOMERY GROWTH 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 you have allocated a portion of the Accumulated Value 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. You may make
full or partial withdrawals of the Contract's Surrender Value 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 1-800-797- 9177. The Table of
Contents of the Statement of Additional Information is included at the end of
this Prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Contract is not available in all States.
THIS PROSPECTS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT
WOULD BE UNLAWFUL TO MAKE AN OFFERING LIKE THIS. WE HAVE NOT AUTHORIZED ANYONE
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY OTHER
INFORMATION OR REPRESENTATIONS.
The date of this Prospectus is May 1, 1998.
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
Endeavor Series Trust...................................................... 13
The Federated Insurance Series............................................. 14
The Montgomery Funds III................................................... 14
SteinRoe Variable Investment Trust......................................... 14
Strong Variable Insurance Funds, Inc. ..................................... 14
Wanger Advisors Trust...................................................... 14
Warburg Pincus Trust....................................................... 14
The Portfolios............................................................. 14
CONTRACT FEATURES.......................................................... 17
Contract Purchase and Purchase Payments.................................. 17
Purchasing by Wire....................................................... 18
Right to Cancel Period................................................... 18
Allocation of Purchase Payments.......................................... 18
Exchanges Among the Portfolios........................................... 19
Dollar Cost Averaging Options............................................ 19
Accumulated Value........................................................ 20
Charges and Deductions................................................... 20
Minimum Balance Requirement.............................................. 22
DISTRIBUTIONS UNDER THE CONTRACT........................................... 22
Full and Partial Withdrawals............................................. 22
Lump Sum Payment Option.................................................. 22
Systematic Withdrawal Option............................................. 23
Annuity Date............................................................. 23
Annuity Payment Options.................................................. 23
Death Benefit............................................................ 24
Deferment of Payment..................................................... 26
FEDERAL TAX CONSIDERATIONS................................................. 26
GENERAL INFORMATION........................................................ 31
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.
Code -- The Internal Revenue Code of 1986, as amended.
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.
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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) Endeavor Series Trust (advised by Endeavor Investment
Advisers), (ii) Federated Insurance Series (advised by Federated Advisers),
(iii) The Montgomery Funds III (advised by Montgomery Asset Management, L.P.),
(iv) SteinRoe Variable Investment Trust (advised by Stein Roe & Farnham,
Incorporated), (v) Strong Variable Insurance Funds, Inc. (advised by Strong
Capital Management, Inc.), (vi) Wanger Advisors Trust (advised by Wanger Asset
Management, L.P.) and (vii) Warburg Pincus Trust (advised by Warburg Pincus
Asset Management, 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 four General Account
options offered by your Contract and to which you may allocate your Net
Purchase Payments: the Dollar Cost Averaging Fixed Account Option, 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 17 Portfolios in the Advisor's Edge: Dreyfus Small Cap Value Portfolio
("Dreyfus Small Cap Value Portfolio"), Endeavor Enhanced Index Portfolio
("Endeavor Enhanced Index Portfolio") and T. Rowe Price International Stock
Portfolio ("T. Rowe Price International Stock Portfolio") of Endeavor Series
Trust; 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 Stein Roe Special Venture Fund,
Variable Series (the "Stein Roe Special Venture Portfolio") of the SteinRoe
Variable Investment Trust; the Strong International Stock Fund II (the "Strong
International Stock Portfolio") and Strong Schafer Value Fund II ("Strong
Schafer Value 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; and the Warburg Pincus
International Equity Portfolio (the "Warburg Pincus International Equity
Portfolio") and the Warburg Pincus Small Company Growth Portfolio (the
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"Warburg Pincus Small Company Growth Portfolio") of the Warburg Pincus Trust;
(each, a "Portfolio" and collectively, the "Portfolios"). In this Prospectus,
Portfolio will also be used to refer to the Subaccount that invests in the
corresponding Portfolio.
Premium Tax - A regulatory tax that may be assessed by certain states on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Qualified Contract - An annuity contract as defined under Sections 403(b),
408(b), and 408A of 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. 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 17 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).
THE ADVISOR'S EDGE
The Contract provides a vehicle for investing on a tax-deferred basis in 17
investment company Portfolios offered by the Funds and four General Account
Guaranteed Options offered by the Company. You may subsequently withdraw
monies 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 26).............................Page 26
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 17 Subaccounts of the
Separate Account and/or the General Account Guaranteed Options. The
Subaccounts in turn invest exclusively in the following 17 Portfolios offered
by the Funds: the Dreyfus Small Cap Value Portfolio, the Endeavor Enhanced
Index Portfolio, 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 Special Venture Portfolio, the Strong International Stock Portfolio,
the Strong Schafer Value Portfolio, the T. Rowe Price International Stock
Portfolio, the Wanger U.S. Small Cap Advisor Portfolio, the Wanger
International Small Cap Advisor Portfolio, the Warburg Pincus International
Equity Portfolio and the Warburg Pincus Small Company Growth 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 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 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 18
EXCHANGES
You may make unlimited Exchanges among Portfolios or into the General Account
Guaranteed Options, provided that you maintain a minimum balance of $250 in
each Subaccount or $1,000 in each General Account Guaranteed Option (except
the Dollar Cost Averaging Fixed Account), respectively, to which you have
allocated a portion of your Accumulated Value. However, prior to the Annuity
Date, no Exchanges (except through Dollar Cost Averaging) will be allowed from
the Dollar Cost Averaging Fixed Account. 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 (except the
Dollar Cost Averaging Fixed Account Option) below $250 or $1,000,
respectively, or that remaining amount will be transferred to your other
Subaccounts or General Account Guaranteed Options on a pro rata basis. The
Guaranteed Equity Option is illiquid for the entire guarantee period, and
transfers from the Guaranteed Rate Options (where permitted) may be subject to
additional limitations and charges. (See also "Charges and Deductions," page
20, and "The General Account," at Appendix A.).....................Page 19
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value (plus any
positive Market Value Adjustment applicable under the Multi-Year Guaranteed
Rate Option) or the Adjusted Death Benefit on the date we receive due proof of
the Annuitant's death. During the first six Contract Years, the Adjusted Death
Benefit will be the sum of all Net Purchase Payments made, less any partial
withdrawals taken. During each subsequent six-year period, the Adjusted Death
Benefit will be the Death Benefit on the last day of the previous six-
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 24
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 payment options. 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 1-800-797-9177 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 20
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 22
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 20). 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 20.
<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 1997 (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>
Dreyfus Small Cap Value Portfolio/1/........... 0.80% 0.11% 0.91%
Endeavor Enhanced Index Portfolio/2/........... 0.75% 0.55% 1.30%
Federated American Leaders Portfolio/3/........ 0.66% 0.19% 0.85%
Federated Utility Portfolio/3/................. 0.48% 0.37% 0.85%
Federated Prime Money Portfolio/3/............. 0.30% 0.50% 0.80%
Federated U.S. Government Securities
Portfolio/3/.................................. 0.15% 0.65% 0.80%
Federated High Income Bond Portfolio/3/........ 0.51% 0.29% 0.80%
Montgomery Growth Portfolio/4/................. 0.00% 0.34% 0.34%
Montgomery Emerging Markets Portfolio/4/....... 1.25% 0.50% 1.75%
Stein Roe Special Venture Portfolio/5/......... 0.50% 0.23% 0.73%
Strong International Stock Portfolio/6/........ 1.00% 0.51% 1.51%
Strong Schafer Value Portfolio/7/.............. 1.00% 0.20% 1.20%
T. Rowe Price International Stock Portfolio/8/. 0.90% 0.17% 1.07%
Wanger U.S. Small Cap Advisor Portfolio/9/..... 0.97% 0.09% 1.06%
Wanger International Small Cap Advisor
Portfolio/9/.................................. 1.28% 0.32% 1.60%
Warburg Pincus International Equity
Portfolio/1//0/............................... 1.00% 0.36% 1.36%
Warburg Pincus Small Company Growth
Portfolio/1//0/............................... 0.90% 0.24% 1.14%
</TABLE>
/1/Endeavor Investment Advisers has agreed, until terminated by Endeavor
Investment Advisers, to assume expenses of the Dreyfus Small Cap Value
Portfolio that exceed 1.30%.
/2/Endeavor Investment Advisers has agreed, until terminated by Endeavor
Investment Advisers, to assume expenses of the Endeavor Enhanced Index
Portfolio that exceed 1.30%. Total Portfolio Annual Expenses before waiver
or reimbursement of fees by Endeavor Investment Advisers and custody fee
credits for the period ended December 31, 1997 amounted to 1.56%.
/3/The expense figures shown reflect actual expenses for fiscal year 1997
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 0.94%, respectively, for the Federated American
Leaders Portfolio; 0.75% and 1.12%, respectively, for the Federated Utility
Portfolio; 0.50% and 1.00%, respectively, for the Federated Prime Money
Portfolio; and 0.60% and 1.26%, respectively, for the Federated U.S.
Government Securities Portfolio; and 0.60% and 0.89%, respectively, for the
Federated High Income Bond Portfolio.
/4/The figures above are based on actual expenses for fiscal year 1997 (as
a percentage of each Portfolio's average net assets after deferment of fees
and/or expense reimbursement). The expense figures shown reflect voluntary
deferment of a portion of the management fees and/or assumption of
expenses. Absent the voluntary deferment, the maximum Management and
Advisory Expenses, Other Expenses, and Total Portfolio Annual Expenses
would have been as follows: 1.00%, 0.97%, and 1.97%, respectively, for the
Montgomery Growth Portfolio and 1.25%, 0.56%, and 1.81%, respectively, for
the Montgomery Emerging Markets Portfolio. For the Montgomery Growth
Portfolio, the applicable expense limitation for the current year is 1.25%,
and Total Portfolio Annual Expenses are expected to be 1.25%.
/5/The figures shown reflect actual expenses for fiscal year 1997. The
advisor has voluntarily agreed until April 30, 1998 to reimburse all
expenses, including management and administrative fees, incurred by Stein
Roe Special Venture Portfolio in excess of 0.80% of average net assets.
/6/The figures shown reflect actual expenses for fiscal year 1997.
/7/The expense figures shown reflect actual expenses for fiscal year 1997
(as a percentage of the 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.
In the absence of these voluntary waivers, the Management and Advisory
Expenses, Other Expenses, and Total Portfolio Annual Expenses are estimated
to be as follows: 1.00%, 0.54%, and 1.54%, respectively.
9
<PAGE>
/8/Endeavor Investment Advisers has agreed, until terminated by Endeavor
Investment Advisers, to assume expenses of the T. Rowe Price International
Stock Portfolio that exceed 1.53%. Total Portfolio Annual Expenses before
credits allowed by the custodian for the year ended December 31, 1997
amounted to 1.12%.
/9/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 0.07% for U.S. Small Cap Advisor
Portfolio and 0.31% for International Small Cap Advisor Portfolio; Total
Portfolio Annual Expenses would have been 1.04% and 1.59%, respectively.
/1//0/Management and Advisory Expenses, Other Expenses and Total Portfolio
Annual Expenses are based on actual expenses for the fiscal year ended
December 31, 1997, 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 0.25% and Total Portfolio Annual Expenses would have equaled 1.40% and
1.15% 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, 1998.
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>
Dreyfus Small Cap Value Portfolio......... $16.16 $50.12 $ 86.39 $188.31
Endeavor Enhanced Index Portfolio......... $20.09 $62.07 $106.60 $230.09
Federated American Leaders Portfolio...... $15.55 $48.27 $ 83.25 $181.73
Federated Utility Portfolio............... $15.55 $48.27 $ 83.25 $181.73
Federated Prime Money Portfolio........... $15.05 $46.72 $ 80.62 $176.21
Federated U.S. Government Securities
Portfolio................................ $15.05 $46.72 $ 80.62 $176.21
Federated High Income Bond Portfolio...... $15.05 $46.72 $ 80.62 $176.21
Montgomery Growth Portfolio............... $10.39 $32.39 $ 56.13 $124.06
Montgomery Emerging Markets Portfolio..... $24.60 $75.69 $129.42 $276.18
Stein Roe Special Venture Portfolio....... $14.34 $44.55 $ 76.93 $168.44
Strong International Stock Portfolio...... $22.20 $68.45 $117.31 $251.87
Strong Schafer Value Portfolio............ $19.08 $59.02 $101.46 $219.54
T. Rowe Price International Stock
Portfolio................................ $17.77 $55.04 $ 94.73 $205.66
Wanger U.S. Small Cap Advisor Portfolio... $17.67 $54.73 $ 94.21 $204.59
Wanger International Small Cap Advisor
Portfolio................................ $23.10 $71.17 $121.87 $261.06
Warburg Pincus International Equity
Portfolio................................ $20.69 $63.90 $109.67 $236.36
Warburg Pincus Small Company Growth
Portfolio................................ $18.48 $57.19 $ 98.36 $213.16
</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, 1997)
<TABLE>
<CAPTION>
FEDERATED
DREYFUS ENDEAVOR FEDERATED FEDERATED FEDERATED HIGH MONTGOMERY
SMALL ENHANCED AMERICAN FEDERATED PRIME US GOV'T INCOME MONTGOMERY EMERGING
CAP INDEX LEADERS UTILITY MONEY SECURITIES BOND GROWTH MARKETS
------- -------- --------- --------- --------- ---------- --------- ---------- ----------
<S> <C> <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 10.000
12/31/94.............. N/A N/A N/A N/A 10.026 N/A N/A N/A N/A
12/31/95.............. N/A N/A 12.676 11.354 10.473 10.567 10.257 N/A N/A
12/31/96.............. N/A N/A 15.311 12.584 10.900 10.940 11.648 12.649 10.616
12/31/97.............. 9.284 10.002 20.130 15.833 11.365 11.801 13.174 16.157 10.486
Number of units
outstanding as of:
12/31/94.............. N/A N/A N/A N/A 70,223 N/A N/A N/A N/A
12/31/95.............. N/A N/A 10,179 2,024 363,418 7,159 6,320 N/A N/A
12/31/96.............. N/A N/A 67,853 24,080 512,275 117,323 146,709 28,618 135,913
12/31/97.............. 585.410 34,587 181,634 20,024 312,343 249,634 424,673 76,471 252,354
</TABLE>
** Date of commencement of operations for Dreyfus Small Cap was 10/13/97; for
Endeavor Enhanced Index was 10/13/97; 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
STEIN ROE STRONG STRONG U.S. INT'L PINCUS SMALL
SPEC. INT'L SCHAFER T. ROWE PRICE SMALL SMALL INT'L CO.
VENTURE STOCK VALUE INT'L CAP CAP EQUITY GROWTH
--------- ------ ------- ------------- ------- ------- ------- -------
<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 N/A N/A 9.665 10.913 N/A N/A
12/31/96.............. N/A N/A N/A N/A 14.076 14.312 N/A N/A
12/31/97.............. 11.571 8.384 10.067 9.191 18.098 14.011 9.601 13.183
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 N/A N/A 21,864 4,237 N/A N/A
12/31/96.............. N/A N/A N/A N/A 110,551 80,108 N/A N/A
12/31/97.............. 7,407 7,004 20,688 24,827 275,517 149,792 106,212 48,791
</TABLE>
*** Date of commencement of operations for Stein Roe Special Venture was
3/31/97; for Strong International Stock was 3/31/97; for Strong Schafer
Value was 10/13/97; for T. Rowe Price International was 10/13/97; 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 Warburg
Pincus International Equity was 3/31/97; and for Warburg Pincus Small
Company Growth was 3/31/97.
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.
11
<PAGE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission ("SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the deduction of the Annual Contract Fee and
all other Portfolio, Separate Account and Contract level charges except
Premium Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE
ANNUAL TOTAL RETURN
The Company may show actual Total Return (i.e., the percentage change in the
value of an Accumulation Unit) for one or more Subaccounts with respect to one
or more periods, 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. As of December 31, 1997, the Company had
assets of approximately $11 billion. The Company is a wholly owned indirect
subsidiary of AEGON USA, Inc., which conducts substantially all of its
operations through subsidiary companies engaged in the insurance business or
in providing non-insurance financial services. All of the stock of AEGON USA,
Inc. is indirectly owned by AEGON n.v. of the Netherlands. AEGON n.v., a
holding company, conducts its business through subsidiary companies engaged
primarily in the insurance business.
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 Missouri on February 14, 1992, pursuant to a resolution of
the Company's Board of Directors. The Separate Account is a unit investment
trust registered with the SEC under the Investment Company Act of 1940 (the
"1940 Act"). Such registration does not signify that the SEC supervises the
management or the investment practices or policies of the Separate Account.
The Separate Account meets the definition of a "separate account" under the
federal securities laws.
The assets of the Separate Account are owned by the Company and the
obligations under the Contract are obligations of the Company. These assets
are held separately from the other assets of the Company and are not
chargeable with liabilities incurred in any other business operation of the
Company (except to the extent that assets in the Separate Account exceed the
reserves and other liabilities of the Separate Account). Income, gains and
losses incurred on the assets in the Separate Account, whether or not
realized, are credited to or charged against the Separate Account without
regard to other income, gains or losses of the Company. Therefore, the
investment performance of the Separate Account is entirely independent of the
investment performance of the General Account assets or any other separate
account maintained by the Company.
The Separate Account has dedicated 17 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
ENDEAVOR SERIES TRUST (ADVISED BY ENDEAVOR INVESTMENT ADVISERS)
Endeavor Series Trust is a diversified, open-end management investment company
that offers a selection of managed investment portfolios. Each portfolio
constitutes a separate mutual fund with its own investment objectives and
policies. The Fund is organized as a Massachusetts business trust and is
registered under the 1940 Act. The Fund currently issues shares of eleven
portfolios, of which the T. Rowe Price International Stock Portfolio, the
Dreyfus Small Cap Value Portfolio, and the Endeavor Enhanced Index Portfolio
are available as part of the Advisor's Edge. Endeavor Investment Advisers
serves as the Fund's investment adviser. Rowe Price-Fleming International,
Inc. serves as the subadviser to the T. Rowe Price International Stock
Portfolio. The Dreyfus Corporation serves as the subadviser to the Dreyfus
Small Cap Value Portfolio. J.P. Morgan Investment Management Inc. serves as
the subadviser to the Endeavor Enhanced Index Portfolio.
13
<PAGE>
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 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, LLC)
The Montgomery Funds III, an open-end management investment company, was
organized as a Delaware business trust in 1994 and is registered under the
1940 Act. The Fund consists of three professionally managed investment
portfolios, two of which are available as part of the Advisor's Edge: the
Montgomery Growth Portfolio and the Montgomery Emerging Markets Portfolio.
Montgomery Asset Management, LLC ("MAM") was organized as a Delaware limited
liability company in 1997 and is the Fund's investment advisor. On July 31,
1997, Montgomery Asset Management, L.P., formed in 1990, completed the sale of
substantially all of its assets to MAM.
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 Stein Roe Special Venture Portfolio, which is the only portfolio
available as part of the 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.
The two series issued by the Fund are available as part of the Advisor's Edge:
the Strong International Stock Portfolio and the Strong Schafer Value
Portfolio. Strong Capital Management, Inc. serves as the Fund's investment
adviser. Schafer Capital Management serves as the subadviser to the Strong
Schafer Value Portfolio.
WANGER ADVISORS TRUST (ADVISED BY WANGER ASSET MANAGEMENT, L.P.)
Wanger Advisors Trust, an open-end management investment company, was
organized as a Massachusetts business trust in 1994 and is registered under
the 1940 Act. The Fund consists of two series available as part of the
Advisor's Edge: the Wanger U.S. Small Cap Advisor Portfolio and the Wanger
International Small Cap Advisor Portfolio. Wanger Asset Management, L.P., a
limited partnership managed by its general partner, Wanger Asset Management,
Ltd., serves as this Fund's investment adviser.
WARBURG PINCUS TRUST (ADVISED BY WARBURG PINCUS ASSET MANAGEMENT, 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 Advisor's Edge: the Warburg Pincus International
Equity Portfolio and the Warburg Pincus Small Company Growth Portfolio.
Warburg Pincus Asset Management, Inc. serves as the 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.
DREYFUS SMALL CAP VALUE PORTFOLIO ("DREYFUS SMALL CAP VALUE PORTFOLIO")
The investment objective of the Dreyfus Small Cap Value Portfolio (formerly
known as the Value Small Cap Portfolio) is capital appreciation through
investment in a diversified portfolio of equity securities of companies with a
median
14
<PAGE>
market capitalization of approximately $750 million, provided that under
normal market conditions at least 75% of the Portfolio's investments will be
in equity securities of companies with capitalizations at the time of purchase
between $150 million and $1.5 billion.
ENDEAVOR ENHANCED INDEX PORTFOLIO ("ENDEAVOR ENHANCED INDEX PORTFOLIO")
The investment objective of the Endeavor Enhanced Index Portfolio is to earn a
return modestly in excess of the total return performance of the S&P 500
Composite Stock Price Index (including the reinvestment of dividends) ("S&P
500 Index") while maintaining a volatility of return similar to the S&P 500
Index.
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.
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
15
<PAGE>
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.
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES ("STEIN ROE SPECIAL VENTURE
PORTFOLIO")
The investment objective of the Stein Roe Special Venture 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.
STRONG SCHAFER VALUE FUND II ("STRONG SCHAFER VALUE PORTFOLIO")
The primary objective of the Strong Schafer Value Portfolio is long-term
capital appreciation. The Portfolio seeks to achieve its objective by
investing in stocks that offer attractive growth potential but which, for a
variety of reasons, are either undervalued or have gone unnoticed by the
market. The Fund is managed with a long-term perspective, and stocks are
typically held for two or more years, giving the Fund the ability to take full
advantage of a company's growth potential.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ("T. ROWE PRICE INTERNATIONAL
STOCK PORTFOLIO")
The investment objective of the T. Rowe Price International Stock Portfolio is
long-term growth of capital through investments primarily in common stocks and
other equity-related securities of established non-U.S. companies.
WANGER U.S. SMALL CAP ADVISOR ("WANGER U.S. SMALL CAP ADVISOR PORTFOLIO")
The investment objective of the Wanger U.S. Small Cap Advisor Portfolio is to
seek long-term growth of capital. The Portfolio pursues its investment
objective by investing primarily in stocks of small and medium size United
States companies. The Portfolio may also invest in debt securities, including
lower-rated debt securities, which may be regarded as having speculative
characteristics and are commonly referred to as "junk bonds."
WANGER INTERNATIONAL SMALL CAP ADVISOR ("WANGER INTERNATIONAL SMALL CAP
ADVISOR PORTFOLIO")
The investment objective of the Wanger International Small Cap Advisor
Portfolio is to seek long-term growth of capital. The Portfolio pursues its
investment objective by investing primarily in stocks of small and medium size
foreign companies. The Portfolio may also invest in debt securities, including
lower-rated debt securities, which may be regarded as having speculative
characteristics and are commonly referred to as "junk bonds."
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
16
<PAGE>
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 companies that present
attractive opportunities for capital growth. The Portfolio considers a "small"
company to be one that has a market capitalization, measured at the time the
Portfolio purchases a security of that company, within the range of
capitalizations of companies represented in the Russell 2000 Index. (As of
January 31, 1998, the Russell 2000 Index included companies with market
capitalizations between $23.7 million and $2.7 billion.) 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.
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; however, the
description of the Contract contained in this Prospectus is qualified in its
entirety by the Contract itself, including any endorsements to it, a copy of
which is available from the Company. 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.
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 at least the $5,000 minimum investment
requirement. The Initial Purchase Payment for a Qualified Contract must be
equal to at least $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. The Company will then mail the
17
<PAGE>
Contract 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 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.
You may make Additional Purchase Payments at any time before 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 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-
797-9177.
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 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.
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 of less than $250 and $1,000, respectively
(except the Dollar Cost Averaging Fixed Account Option). 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 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
18
<PAGE>
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.)
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,
a customer service representative will ask the caller 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.
DOLLAR COST AVERAGING OPTIONS
DOLLAR COST AVERAGING MONEY MARKET 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.
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.
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<PAGE>
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.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
For information about the Dollar Cost Averaging Fixed Account Option, see
Appendix A.
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.
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.
EXCHANGE FEE
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
20
<PAGE>
a balance less than $250 or $1,000, respectively (except the Dollar Cost
Averaging Fixed Account Option). 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.
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%
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 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.
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, 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.
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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.
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, except the
Dollar Cost Averaging Fixed Account Option), 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.
DISTRIBUTIONS UNDER THE CONTRACT
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 26.)
Partial withdrawals from the Dollar Cost Averaging Fixed Account Option are
made on a first-in, first-out basis, so that amounts put into the Dollar Cost
Averaging Fixed Account Option first will be withdrawn first. For federal
income tax purposes, however, partial withdrawals are generally taken out of
earnings first and then purchase payments. (See "Federal Tax Considerations,"
page 26.)
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until 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 26.)
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.
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.
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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 $100.
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 26.) 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.
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.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
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Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $5,000, or less than $2,000 for Texas
Contract Owners, the Company has the right to pay that amount in a lump sum.
From time to time, the Company may require proof that the Annuitant or
Contract Owner is living. Annuity Payment Options are not available to: (1) an
assignee; or (2) any other than a natural person, except with the consent of
the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; conversely, they will decrease if the actual experience is
lower. The method of computation of Variable Annuity Payments is described in
more detail in the Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-797-9177.
If you choose an Annuity Payment Option and the postal or other delivery
service is unable to deliver checks to the Payee's address of record, no
interest will accrue on amounts represented by uncashed Annuity Payment
checks. It is the Payee's responsibility to keep the Company informed of the
Payee's current address of record.
DEATH BENEFIT
Generally, federal tax law requires that if any Contract Owner is a natural
person and dies before the Annuity Date, then the entire value of the Contract
must be distributed within five years of the date of death of the Contract
Owner. If the Contract Owner is not a natural person, the death of the Primary
Annuitant triggers the same distribution requirement. Special rules may apply
to a surviving spouse.
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DEATH OF ANNUITANT BEFORE 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.
DEATH OF ANNUITANT ON OR AFTER ANNUITY DATE
The Death Benefit, if any, payable if the Annuitant dies on or after the
Annuity Date depends on the Annuity Payment Option selected. Upon the
Annuitant's death, the remaining portion of the value of the Contract will be
distributed to the Annuitant's Beneficiary at least as rapidly as under the
method of distribution being used on the date of the Annuitant's death.
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 with 15 days after the
Annuitant's death and before the Company receives due proof of the
Annuitant's death, proceeds will be paid as though the Annuitant's
Beneficiary had died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's
named beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her
estate. If a Life Annuity with Period Certain option was elected, and if the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid to the Annuitant's Beneficiary or your designated Payee.
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DEATH OF CONTRACT OWNER
DEATH OF CONTRACT OWNER BEFORE ANNUITY DATE. With two exceptions, federal tax
law requires that when either the Contract Owner or the Joint Owner (if any)
dies before the Annuity Date, the entire value of the Contract must be
distributed within five years of the date of death. First exception: If the
entire interest is to be distributed to the Owner's Designated Beneficiary, he
or she may elect to have it paid as an annuity over his or her life or over a
period certain not to exceed his or her life expectancy as long as the
payments begin within one year of the date of death. Second exception: If the
Owner's Designated Beneficiary is the spouse of the Contract Owner (or Joint
Owner), the spouse may elect to continue the Contract in his or her name as
Contract Owner indefinitely and to continue deferring tax on the accrued and
future income under the Contract. ("Owner's Designated Beneficiary" means the
natural person named by the Owner as a beneficiary and who becomes Owner of
the Contract upon the Contract Owner's death.) If the Contract Owner and the
Annuitant are the same person, then upon that person's death the Annuitant's
Beneficiary is entitled to the Death Benefit. In this regard, see "Death of
Annuitant Before Annuity Date," page 25.
DEATH OF CONTRACT OWNER ON OR AFTER ANNUITY DATE. Federal tax law requires
that when either the Contract Owner or the Joint Owner (if any) dies on or
after the Annuity Date, the remaining portions of the value of the Contract
must be distributed at least as rapidly as under the method of distribution
being used on the date of death.
NON-NATURAL PERSON AS CONTRACT OWNER. Where the Contract Owner is not a
natural person, the death of the "primary Annuitant" is treated as the death
of the Contract Owner for purposes of federal tax law. (The Code defines a
primary Annuitant as the individual who is of primary importance in affecting
the timing or the amount of payout under a Contract.) In addition, where the
Contract Owner is not a natural person, a change in the identity of the
primary Annuitant is also treated as the death of the Contract Owner for
purposes of federal tax law.
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
GENERAL RULE OF TAX DEFERRAL
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 "Annuity Contracts Owned by Non-Natural Persons," page 28 and
"Diversification Standards," page 29.)
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TAXATION OF FULL OR PARTIAL WITHDRAWALS
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 investment in the Contract.
TAXATION OF ANNUITY PAYMENTS
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after tax
contributions, the Contract Owner is entitled to exclude the portion of each
withdrawal or annuity payment constituting a return of after tax
contributions. Once all of your after tax contributions have been returned to
you on a non-taxable basis, subsequent withdrawals or annuity payments are
fully taxable as ordinary income. Since the Company has no knowledge of the
amount of after tax contributions you have made, you will need to make the
computation in the preparation of your federal income tax return.
TAX WITHHOLDING
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.
PENALTY TAXES
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.
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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 tax penalty may also not apply to distributions from Qualified Contracts
issued under Section 408(b) or 408A of the Code used to pay qualified higher
education expenses or the acquisition costs (up to $10,000) involved in the
purchase of a principal residence by a first-time homebuyer.
ANNUITY 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 Qualified Contract,
and the beneficial owners are employees, then the Qualified 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 by an employer 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.
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.
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 income tax (and
possibly the 10% federal penalty 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 former spouses incident to a divorce which are governed by
Code Section 1041(a).
ASSIGNMENTS OF ANNUITY CONTRACTS
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.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Separate Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of the Separate
Account are reinvested and taken into account in determining the Accumulated
Value. Under existing federal income tax law, the Separate Account's
investment income, including realized net capital gains, is not taxed to the
Company. The Company reserves the right to make a deduction for taxes should
they be imposed with respect to such items in the future.
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DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, each Subaccount of 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 each Subaccount is represented by any one
investment, no more than 70% is represented by any two investments, no more
than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. A "look-through" rule applies that
suggests that each Subaccount of the Separate Account will be tested for
compliance with the percentage limitations by looking through to the assets of
the Portfolios in which each such Subaccount invests. All securities of the
same issuer are treated as a single investment. Each government agency or
instrumentality will be treated as a separate issuer for purposes of those
limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to remain in compliance. For these
reasons, the Company reserves the right to modify the Contracts, as necessary,
to prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations (Code Section
501(c)(3) organizations) for their employees under Section 403(b) of the Code
except, as discussed below and subject to any conditions in an employer's
plan, a Contract used in connection with a Section 403(b) Plan offers the same
benefits and is subject to the same charges described in this Prospectus.
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on 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
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and your Contract must have a minimum vested Accumulated Value of $2,000. The
loan amount may not exceed the lesser of (a) or (b), where (a) is 50% of the
Contract's vested Accumulated Value on the date on which the loan is made, and
(b) is $50,000 reduced by the excess, if any, of the highest outstanding
balance of loans during the one-year period ending on the day before the
current loan is made over the outstanding balance of loans on the date the
current loan is made. If you are married, your spouse must consent in writing
to a loan request. This consent must be given within the 90-day period before
the loan is to be made.
On the first Business Day of each calendar month, the Company will determine a
loan interest rate. The loan interest rate for the calendar month in which the
loan is effective will apply for one year from the loan effective date.
Annually on the anniversary of the loan effective date, the rate will be
adjusted to equal the loan interest rate determined for the month in which the
loan anniversary occurs.
Principal and interest on loans must be repaid in substantially level
payments, not less frequently than quarterly, over a five year term except for
certain loans for the purchase of a principal residence. If the loan interest
rate is adjusted,
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.
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The Company may require that any outstanding loan be paid if the individual
account value falls below an amount equal to 25% of total loans outstanding.
The Code requires the aggregation of all loans made to an individual employee
under a single employer-sponsored 403(b) Plan. However, since the Company has
no information concerning the outstanding loans that you may have with other
companies, if will only use the information available under Contracts issued
by the Company.
GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio of the Funds, or of
another registered, open-end management investment company, if the shares of
the Portfolios are no longer available for investment, or, if in the Company's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
New Portfolios may be established at the discretion of the Company. Any new
Portfolios will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be
necessary or appropriate to reflect such substitution or change. Furthermore,
if deemed to be in the best interests of persons having voting rights under
the Contracts, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be deregistered
under the 1940 Act in the event such registration is no longer required, or
may be combined with one or more other separate accounts.
VOTING RIGHTS
The Funds do not hold regular meetings of shareholders. The Directors/Trustees
of each Fund may call special meetings of shareholders as may be required by
the 1940 Act or other applicable law. To the extent required by law, the
Portfolio shares held in the Separate Account will be voted by the Company at
shareholder meetings of each Fund in accordance with instructions received
from persons having voting interests in the corresponding Portfolio. Fund
shares as to which no timely instructions are received or shares held by the
Company as to which Contract Owners have no beneficial interest will be voted
in proportion to the voting instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the
Annuity Date will be determined by dividing the reserve for such Contract
allocated to the Portfolio by the net asset value per share of the
corresponding Portfolio. After the Annuity Date, the votes attributable to a
Contract decrease as the reserves allocated to the Portfolio decrease. In
determining the number of votes, fractional shares will be recognized.
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.
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YEAR 2000 MATTERS
In March 1997, the Company adopted and currently has in place a Year 2000
Assessment and Planning Project (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compatible. The Plan provides for
a management process that ensures that when a particular system, or software
application, is determined to be "non-compliant" the proper steps are in place
to either remedy the "non-compliance" or cease using the particular system or
software. The Plan also provides that the Chief Information Officer report to
the Board of Directors as to the status of the efforts under the Plan on a
regular and routine basis. The Company has engaged the services of a third-
party provider that is specialized in Year 2000 issues to work on the project.
The Plan has four specific objectives: (1) to develop an inventory of all
applications; (2) to evaluate all applications in the inventory to determine
the most prudent manner to move them to Year 2000 compliance, if required; (3)
to estimate budgets, resources and schedules for the migration of the
"affected" applications to Year 2000 compliance; and (4) to define testing and
deployment requirements to successfully manage validation and re-deployment of
any changed code. It is anticipated that all compliance issues will be
resolved by December 1998.
As of the date of this Prospectus, the Company has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that the
systems or equipment addresses Year 2000 data prior to the Year 2000). Even
with appropriate and diligent pursuit of a well conceived response plan,
including testing procedures, there is no certainty that any company will
achieve complete success. Further, notwithstanding its efforts or results, the
Company's ability to function unaffected to and through the Year 2000 may be
adversely affected by actions (or failures to act) of third parties beyond its
knowledge or control.
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 Boros Cicchetti 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 Gregory E. Miller-Breetz, Esquire, on behalf of the
Company.
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TABLE OF CONTENTS FOR THE 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 four fixed options under the General Account: the Dollar Cost
Averaging Fixed Account Option, the One-Year Guaranteed Rate Option, the
Multi-Year Guaranteed Rate Option, and the Guaranteed Equity Option, each
described below:
The Dollar Cost Averaging Fixed Account Option
The Dollar Cost Averaging Fixed Account Option may not be available in all
states. Please see your sales representative for details of the availability
of this option before purchasing.
The Dollar Cost Averaging Fixed Account Option has a one-year interest rate
guarantee. The current interest rate the Company credits may vary on different
portions of the Dollar Cost Averaging Fixed Account Option. The credited
interest rate will never be less than the minimum effective annual interest
rate of 3%.
If prior to the Annuity Date your have at least $5,000 in the Dollar Cost
Averaging Fixed Account, you may choose to have a specified dollar amount
transferred from this Account to any Portfolios in the Separate Account on a
monthly basis. The automatic transfer will occur monthly on a first-in, first-
out basis, so that amounts put into the Account first will be transferred out
of the Account first.
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
Portfolios each month, more units are purchased in a Portfolio if the value
per unit is low and fewer 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 is $250. The maximum amount that may be transferred is equal to
the Accumulated Value in the Dollar Cost Averaging Fixed Account Option when
elected, divided by 12.
If the Company receives a Dollar Cost Averaging Fixed Account Option request
prior to the 28th day of any month, the first transfer from the Dollar Cost
Averaging Fixed Account Option will occur on the 28th day of that month. If
the Company receives a Dollar Cost Averaging Fixed Account Option request on
or after the 28th day of any month, the first transfer will occur on the 28th
day of the following month. The dollar amount will be allocated to the
Portfolios in the proportions you specify (in whole percentages only) on the
appropriate Company form. If, on any transfer date, the
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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. You may change the
choice of Portfolios to which transfers are allocated at any time. The Company
must receive notice of any change on the appropriate Company form or by
telephone at least seven days before the next transfer date. Transfers must be
scheduled for at least six, but not more than twenty-four, months each time
the Dollar Cost Averaging Fixed Account Option is elected.
Prior to the Annuity Date, no Exchanges (except through Dollar Cost Averaging)
will be allowed from the Dollar Cost Averaging Fixed Account. On the Annuity
Date, any funds remaining in the Dollar Cost Averaging Fixed Account will be
applied to the Annuity Payment Option selected.
You may discontinue automatic transfers from the Dollar Cost Averaging Fixed
Account Option after satisfying the minimum number of required transfers by
contacting the Company by phone or by written notice at least seven days
before the next transfer date. If for any reason you terminate automatic
transfers from the Dollar Cost Averaging Fixed Account, any remaining value
attributable to the Dollar Cost Averaging Fixed Account will remain in the
Dollar Cost Averaging Fixed Account and will continue to earn interest until
such time as you either restart automatic transfers or make a full withdrawal
of the funds. If you wish to restart automatic transfers but have less than
$5,000 in the Dollar Cost Averaging Fixed Account, an exception will be made
and automatic transfers will continue until the value in the Dollar Cost
Averaging Fixed Account is depleted. After such a resumption of automatic
transfers, you will not be able to discontinue the automatic transfers until
the value in the Dollar Cost Averaging Fixed Account is depleted.
The Company may defer payment of a partial or full withdrawal from the Dollar
Cost Averaging Fixed Account Option for up to six months from its receipt of
written notice.
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
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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, 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.
A-4
<PAGE>
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.
A-5
<PAGE>
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.
You may allocate your Net Purchase Payments for the Contract among seven
Subaccounts of Providian Life and Health Insurance Company's Separate Account
V and four 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
.DFA INTERNATIONAL SMALL II
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 you have allocated a portion of the Accumulated Value 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. You may make
full or partial withdrawals of the Contract's Surrender Value 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 1-800-797- 9177. The Table of
Contents of the Statement of Additional Information is included at the end of
this Prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
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 WHERE IT
WOULD BE UNLAWFUL TO MAKE AN OFFERING LIKE THIS. WE HAVE NOT AUTHORIZED ANYONE
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY OTHER
INFORMATION OR REPRESENTATIONS.
The date of this Prospectus is May 1, 1998.
FM-1206
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 6
FEE TABLE.................................................................. 8
Condensed Financial Information............................................ 10
Financial Statements....................................................... 10
Performance Measures....................................................... 10
Additional Performance Measures............................................ 11
Yield and Effective Yield.................................................. 11
The Company and the Separate Account....................................... 12
DFA Investment Dimensions Group Inc........................................ 12
The Federated Insurance Series............................................. 12
The Portfolios............................................................. 13
CONTRACT FEATURES.......................................................... 14
Contract Purchase and Purchase Payments.................................. 14
Purchasing by Wire....................................................... 15
Right to Cancel Period................................................... 15
Allocation of Purchase Payments.......................................... 15
Exchanges Among the Portfolios........................................... 16
Dollar Cost Averaging Options............................................ 16
Accumulated Value........................................................ 17
Charges and Deductions................................................... 17
Minimum Balance Requirement.............................................. 19
DISTRIBUTIONS UNDER THE CONTRACT........................................... 19
Full and Partial Withdrawals............................................. 19
Lump Sum Payment Option.................................................. 19
Systematic Withdrawal Option............................................. 19
Annuity Date............................................................. 20
Annuity Payment Options.................................................. 20
Death Benefit............................................................ 21
Deferment of Payment..................................................... 23
FEDERAL TAX CONSIDERATIONS................................................. 23
GENERAL INFORMATION........................................................ 28
APPENDIX A--The General Account............................................ A-1
</TABLE>
2
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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 20), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 20), 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 20).
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.
Code - The Internal Revenue Code of 1986, as amended.
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.
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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 four General Account
options offered by your Contract and to which you may allocate your Net
Purchase Payments: the Dollar Cost Averaging Fixed Account Option, 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.
Qualified Contract - An annuity contract as defined under Sections 403(b),
408(b), and 408A of 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. 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 four General Account
Guaranteed Options offered by the Company. You may subsequently withdraw
monies 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 14
ALLOCATION OF PURCHASE PAYMENTS
If the state of issue of your Contract is 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 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 15
EXCHANGES
You may make unlimited Exchanges among Portfolios or into the General Account
Guaranteed Options, provided that you maintain a minimum balance of $250 in
each Subaccount or $1,000 in each General Account Guaranteed Option (except
the Dollar Cost Averaging Fixed Account), respectively, to which you have
allocated a portion of your Accumulated Value. However, prior to the Annuity
Date, no Exchanges (except through Dollar Cost Averaging) will be allowed from
the Dollar Cost Averaging Fixed Account. 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 (except the
Dollar Cost Averaging Fixed Account Option) below $250 or $1,000,
respectively, or that remaining amount will be transferred to your other
Subaccounts or General Account Guaranteed Options on a pro rata basis. The
Guaranteed Equity Option is illiquid for the entire guarantee period, and
transfers from the Guaranteed Rate Options (where permitted) may be subject to
additional limitations and charges. (See also "Charges and Deductions," page
17, and "The General Account," at Appendix A)......................Page 16
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-
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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 payment options. 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 20
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-797-9177 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming
any financial transactions that take place, as well as quarterly statements
and an annual statement.
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .50%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
administrative charges and policy fees which pay for administering the
Contract, and management, advisory and other fees, which reflect the costs of
the Funds..........................................................Page 17
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior
to age 59 1/2 may be subject to a 10% penalty tax (and a portion thereof may
be subject to ordinary income taxes)...............................Page 19
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed by your state) that you would incur as an owner of a Contract
(see page 17). The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as a
purchaser of the Contract. The fee table reflects all expenses for both the
Separate Account and the Funds. For a complete discussion of Contract costs
and expenses, including charges applicable to General Account Guaranteed
Options, see "Charges and Deductions," page 17.
<TABLE>
<CAPTION>
CONTRACTOWNER TRANSACTION EXPENSES
<S> <C>
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
Exchange Fees........................................................... 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 1997 (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% 0.21% 0.71%
DFA Large Value Portfolio....................... 0.25% 0.23% 0.48%
DFA International Value Portfolio............... 0.40% 0.36% 0.76%
DFA International Small Portfolio............... 0.50% 0.49% 0.99%
DFA Short-Term Fixed Portfolio.................. 0.25% 0.18% 0.43%
DFA Global Bond Portfolio....................... 0.25% 0.40% 0.65%
Federated Prime Money Portfolio*................ 0.30% 0.50% 0.80%
</TABLE>
*The fee for Management and Advisory Expenses has been reduced to reflect
the adviser's voluntary waiver of a portion of the management fee. The
adviser can terminate this waiver at any time in its sole discretion. The
maximum fee for Management and Advisory Expenses is 0.50%. Without this
voluntary waiver, Total Portfolio Annual Expenses would have been 1.00%.
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.................. $14.14 $43.93 $75.87 $166.21
DFA Large Value Portfolio.................. $11.81 $36.77 $63.65 $140.20
DFA International Value Portfolio.......... $14.64 $45.48 $78.51 $171.78
DFA International Small Portfolio.......... $16.97 $52.58 $90.57 $197.03
DFA Short-Term Fixed Portfolio............. $11.30 $35.21 $60.97 $134.46
DFA Global Bond Portfolio.................. $13.53 $42.07 $72.70 $159.48
Federated Prime Money Portfolio............ $15.05 $46.72 $80.62 $176.21
</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, 1997)
<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
12/31/97.............. 15.633 18.187 10.893 7.708 11.089 13.103 11.365
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
12/31/97.............. 244,509 375,643 429,213 382,800 555,832 200,101 150,211
</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 Advisor's Edge Variable Annuity beginning on
the dates given in the first sentence of this note through 3/30/97. After
3/30/97, the information presented above reflects operations of the "DFA
Subaccounts" as offered through Dimensional Variable Annuity.
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.
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
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 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
10
<PAGE>
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.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
11
<PAGE>
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
THE COMPANY AND THE SEPARATE ACCOUNT
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Missouri on August 6, 1920. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in 49 states, the District of Columbia, and Puerto
Rico. As of December 31, 1997, the Company had assets of approximately $11
billion. The Company is a wholly owned indirect subsidiary of AEGON USA, Inc.,
which conducts substantially all of its operations through subsidiary
companies engaged in the insurance business or in providing non-insurance
financial services. All of the stock of AEGON USA, Inc. is indirectly owned by
AEGON n.v. of the Netherlands. AEGON n.v., a holding company, conducts its
business through subsidiary companies engaged primarily in the insurance
business.
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 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
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.
12
<PAGE>
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 are value
stocks, primarily because they 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 New York Stock Exchange. 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 New York Stock
Exchange.
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 are value
stocks, primarily because they 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 New York
Stock Exchange. 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. Securities
are considered value stocks primarily because a company's shares at the time
of purchase 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.
VA SHORT-TERM FIXED PORTFOLIO ("DFA SHORT-TERM FIXED PORTFOLIO")
The 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.
13
<PAGE>
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; however, the
description of the Contract contained in this Prospectus is qualified in its
entirety by the Contract itself, including any endorsements to it, a copy of
which is available from the Company. 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.
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), 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 at least the $5,000 minimum investment requirement.
The Initial Purchase Payment for a Qualified Contract must be equal to at
least $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. The Company will then mail the Contract 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.
14
<PAGE>
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 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.
You may make additional Purchase Payments at any time before 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-
797-9177.
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 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.
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 of less than $250 and $1,000, respectively
(except the Dollar Cost Averaging Fixed Account Option). 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 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
15
<PAGE>
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.)
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,
a customer service representative will ask the caller 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.
DOLLAR COST AVERAGING OPTIONS
DOLLAR COST AVERAGING MONEY MARKET 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.
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
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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.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
For information about the Dollar Cost Averaging Fixed Account Option, see
Appendix A.
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.
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.
EXCHANGE FEE
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 (except the Dollar Cost
Averaging Fixed Account Option). 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.
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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%
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 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 reflects 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.
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, 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.
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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.
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, except the
Dollar Cost Averaging Fixed Account Option), 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.
DISTRIBUTIONS UNDER THE CONTRACT
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of
the Surrender Value by sending a written request to our Administrative
Offices. Full or partial withdrawals may only be made before the Annuity Date
and all partial withdrawal requests must be for at least $500. The amount
available for full or partial withdrawal is the Surrender Value at the end of
the Valuation Period during which the written request for withdrawal is
received. The Surrender Value is an amount equal to the Accumulated Value,
adjusted to reflect any applicable Market Value Adjustment for amounts
allocated to the Multi-Year Guaranteed Rate Option, less any early withdrawal
charges for amounts allocated to the One-Year Guaranteed Rate Option, less any
amount allocated to the Guaranteed Equity Option less any Premium Taxes
incurred but not yet deducted. The withdrawal amount may be paid in a lump sum
to you, or if elected, all or any part may be paid out under an Annuity
Payment Option. (See "Annuity Payment Options," page 20.)
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.)
Partial withdrawals from the Dollar Cost Averaging Fixed Account Option are
made on a first-in, first-out basis, so that amounts put into the Dollar Cost
Averaging Fixed Account Option first will be withdrawn first. For federal
income tax purposes, however, partial withdrawals are generally taken out of
earnings first and then purchase payments. (See "Federal Tax Considerations,"
page 23.)
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until 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.
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.
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,
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<PAGE>
withdrawals may be made on a monthly, quarterly, semi-annual or annual basis.
The minimum amount for each withdrawal is $100.
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.
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.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
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Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $5,000, or less than $2,000 for Texas
Contract Owners, the Company has the right to pay that amount in a lump sum.
From time to time, the Company may require proof that the Annuitant or
Contract Owner is living. Annuity Payment Options are not available to: (1) an
assignee; or (2) any other than a natural person, except with the consent of
the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; conversely, they will decrease if the actual experience is
lower. The method of computation of Variable Annuity Payments is described in
more detail in the Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-797-9177.
If you choose an Annuity Payment Option and the postal or other delivery
service is unable to deliver checks to the Payee's address of record, no
interest will accrue on amounts represented by uncashed Annuity Payment
checks. It is the Payee's responsibility to keep the Company informed of the
Payee's current address of record.
DEATH BENEFIT
Generally, federal tax law requires that if any Contract Owner is a natural
person and dies before the Annuity Date, then the entire value of the Contract
must be distributed within five years of the date of death of the Contract
Owner. If the Contract Owner is not a natural person, the death of the Primary
Annuitant triggers the same distribution requirement. Special rules may apply
to a surviving spouse.
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DEATH OF ANNUITANT BEFORE 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.
DEATH OF ANNUITANT ON OR AFTER ANNUITY DATE
The Death Benefit, if any, payable if the Annuitant dies on or after the
Annuity Date depends on the Annuity Payment Option selected. Upon the
Annuitant's death, the remaining portion of the value of the Contract will be
distributed to the Annuitant's Beneficiary at least as rapidly as under the
method of distribution being used on the date of the Annuitant's death.
DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the customer order form. Thereafter, while the Annuitant is living,
the Contract Owner may change the Annuitant's Beneficiary by sending us the
appropriate Company form. Such change will take effect on the date such form
is signed by the Contract Owner but will not affect any payment made or other
action taken before the Company acknowledges such form. You may also make the
designation of Annuitant's Beneficiary irrevocable by sending us the
appropriate Company form and obtaining approval from the Company. Changes in
the Annuitant's Beneficiary may then be made only with the consent of the
designated irrevocable Annuitant's Beneficiary.
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died,
that share of the Death Benefit will be paid equally to the
survivor(s);
(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) If an Annuitant's Beneficiary dies at the same time as the Annuitant,
the proceeds will be paid as though the Annuitant's Beneficiary had
died first. If an Annuitant's Beneficiary dies within 15 days after
the Annuitant's death and before the Company receives due proof of the
Annuitant's death, proceeds will be paid as though the Annuitant's
Beneficiary had died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's
named beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her
estate. If a Life Annuity with Period Certain option was elected, and if the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid to the Annuitant's Beneficiary or your designated Payee.
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DEATH OF CONTRACT OWNER
DEATH OF CONTRACT OWNER BEFORE ANNUITY DATE. With two exceptions, federal tax
law requires that when either the Contract Owner or the Joint Owner (if any)
dies before the Annuity Date, the entire value of the Contract must be
distributed within five years of the date of death. First exception: If the
entire interest is to be distributed to the Owner's Designated Beneficiary, he
or she may elect to have it paid as an annuity over his or her life or over a
period certain not to exceed his or her life expectancy as long as the
payments begin within one year of the date of death. Second exception: If the
Owner's Designated Beneficiary is the spouse of the Contract Owner (or Joint
Owner), the spouse may elect to continue the Contract in his or her name as
Contract Owner indefinitely and to continue deferring tax on the accrued and
future income under the Contract. ("Owner's Designated Beneficiary" means the
natural person named by the Owner as a beneficiary and who becomes Owner of
the Contract upon the Contract Owner's death.) If the Contract Owner and the
Annuitant are the same person, then upon that person's death the Annuitant's
Beneficiary is entitled to the Death Benefit. In this regard, see "Death of
Annuitant Before Annuity Date," page 22.
DEATH OF CONTRACT OWNER ON OR AFTER ANNUITY DATE. Federal tax law requires
that when either the Contract Owner or the Joint Owner (if any) dies on or
after the Annuity Date, the remaining portions of the value of the Contract
must be distributed at least as rapidly as under the method of distribution
being used on the date of death.
NON-NATURAL PERSON AS CONTRACT OWNER. Where the Contract Owner is not a
natural person, the death of the "primary Annuitant" is treated as the death
of the Contract Owner for purposes of federal tax law. (The Code defines a
primary Annuitant as the individual who is of primary importance in affecting
the timing or the amount of payout under a
Contract.) In addition, where the Contract Owner is not a natural person, a
change in the identity of the primary Annuitant is also treated as the death
of the Contract Owner for purposes of federal tax law.
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
GENERAL RULE OF TAX DEFERRAL
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,
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the increase in value may be subject to current federal income tax. (See
"Annuity Contracts Owned by Non-Natural Persons," page 25, and
"Diversification Standards," page 26.)
TAXATION OF FULL OR PARTIAL WITHDRAWALS
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 investment in the Contract.
TAXATION OF ANNUITY PAYMENTS
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after tax
contributions, the Contract Owner is entitled to exclude the portion of each
withdrawal or annuity payment constituting a return of after tax
contributions. Once all of your after tax contributions have been returned to
you on a non-taxable basis, subsequent withdrawals or annuity payments are
fully taxable as ordinary income. Since the Company has no knowledge of the
amount of after tax contributions you have made, you will need to make this
computation in the preparation of your federal income tax return.
TAX WITHHOLDING
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.
PENALTY TAXES
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
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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 tax penalty may also not apply to distributions from Qualified Contracts
issued under Section 408(b) or 408A of the Code used to pay qualified higher
education expenses or the acquisition costs (up to $10,000) involved in the
purchase of a principal residence by a first-time homebuyer.
ANNUITY 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 Qualified Contract,
and the beneficial owners are employees, then the Qualified 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 by an employer 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.
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.
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 income tax (and
possibly the 10% federal penalty 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 former spouses incident to a divorce which are governed by
Code Section 1041(a).
ASSIGNMENTS OF ANNUITY CONTRACTS
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.
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.
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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.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, each Subaccount of 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 each Subaccount is represented by any one
investment, no more than 70% is represented by any two investments, no more
than 80% is represented by any three investments, and no more than 90% is
represented by any four investments. A "look-through" rule applies that
suggests that each Subaccount of the Separate Account will be tested for
compliance with the percentage limitations by looking through to the assets of
the Portfolios in which each such Subaccount invests. All securities of the
same issuer are treated as a single investment. Each government agency or
instrumentality will be treated as a separate issuer for purposes of those
limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to remain in compliance. For these
reasons, the Company reserves the right to modify the Contracts, as necessary,
to prevent the Contract Owner from being considered the owner of assets of the
Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations (Code Section
501(c)(3) organizations) for their employees under Section 403(b) of the Code
except, as discussed below and subject to any conditions in an employer's
plan, a Contract used in connection with a Section 403(b) Plan offers the same
benefits and is subject to the same charges described in this Prospectus.
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on 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.)
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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 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.
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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.
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
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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.
YEAR 2000 MATTERS
In March 1997, the Company adopted and currently has in place a Year 2000
Assessment and Planning Project (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compatible. The Plan provides for
a management process that ensures that when a particular system, or software
application, is determined to be "non-compliant" the proper steps are in place
to either remedy the "non-compliance" or cease using the particular system or
software. The Plan also provides that the Chief Information Officer report to
the Board of Directors as to the status of the efforts under the Plan on a
regular and routine basis. The Company has engaged the services of a third-
party provider that is specialized in Year 2000 issues to work on the project.
The Plan has four specific objectives: (1) to develop an inventory of all
applications; (2) to evaluate all applications in the inventory to determine
the most prudent manner to move them to Year 2000 compliance, if required; (3)
to estimate budgets, resources and schedules for the migration of the
"affected" applications to Year 2000 compliance; and (4) to define testing and
deployment requirements to successfully manage validation and re-deployment of
any changed code. It is anticipated that all compliance issues will be
resolved by December 1998.
As of the date of this Prospectus, the Company has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that the
systems or equipment addresses Year 2000 data prior to the Year 2000). Even
with appropriate and diligent pursuit of a well conceived response plan,
including testing procedures, there is no certainty that any company will
achieve complete success. Further, notwithstanding its efforts or results, the
Company's ability to function unaffected to and through the Year 2000 may be
adversely affected by actions (or failures to act) of third parties beyond its
knowledge or control.
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 Boros Cicchetti 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 Gregory E. Miller-Breetz, Esquire, on behalf of the
Company.
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TABLE OF CONTENTS FOR THE 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 four fixed options under the General Account: the Dollar Cost
Averaging Fixed Account Option, the One-Year Guaranteed Rate Option, the
Multi-Year Guaranteed Rate Option, and the Guaranteed Equity Option, each
described below:
The Dollar Cost Averaging Fixed Account Option
The Dollar Cost Averaging Fixed Account Option may not be available in all
states. Please see your sales representative for details of the availability
of this option before purchasing.
The Dollar Cost Averaging Fixed Account Option has a one-year interest rate
guarantee. The current interest rate the Company credits may vary on different
portions of the Dollar Cost Averaging Fixed Account Option. The credited
interest rate will never be less than the minimum effective annual interest
rate of 3%.
If prior to the Annuity Date your have at least $5,000 in the Dollar Cost
Averaging Fixed Account, you may choose to have a specified dollar amount
transferred from this Account to any Portfolios in the Separate Account on a
monthly basis. The automatic transfer will occur monthly on a first-in, first-
out basis, so that amounts put into the Account first will be transferred out
of the Account first.
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
Portfolios each month, more units are purchased in a Portfolio if the value
per unit is low and fewer 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 is $250. The maximum amount that may be transferred is equal to
the Accumulated Value in the Dollar Cost Averaging Fixed Account Option when
elected, divided by 12.
If the Company receives a Dollar Cost Averaging Fixed Account Option request
prior to the 28th day of any month, the first transfer from the Dollar Cost
Averaging Fixed Account Option will occur on the 28th day of that month. If
the Company receives a Dollar Cost Averaging Fixed Account Option request on
or after the 28th day of any month, the first transfer will occur on the 28th
day of the following month. The dollar amount will be allocated to the
Portfolios in
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the proportions you specify (in whole percentages only) on the appropriate
Company form. 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. You may change the choice of Portfolios to
which transfers are allocated at any time. The Company must receive notice of
any change on the appropriate Company form or by telephone at least seven days
before the next transfer date. Transfers must be scheduled for at least six,
but not more than twenty-four, months each time the Dollar Cost Averaging
Fixed Account Option is elected.
Prior to the Annuity Date, no Exchanges (except through Dollar Cost Averaging)
will be allowed from the Dollar Cost Averaging Fixed Account. On the Annuity
Date, any funds remaining in the Dollar Cost Averaging Fixed Account will be
applied to the Annuity Payment Option selected.
You may discontinue automatic transfers from the Dollar Cost Averaging Fixed
Account Option after satisfying the minimum number of required transfers by
contacting the Company by phone or by written notice at least seven days
before the next transfer date. If for any reason you terminate automatic
transfers from the Dollar Cost Averaging Fixed Account, any remaining value
attributable to the Dollar Cost Averaging Fixed Account will remain in the
Dollar Cost Averaging Fixed Account and will continue to earn interest until
such time as you either restart automatic transfers or make a full withdrawal
of the funds. If you wish to restart automatic transfers but have less than
$5,000 in the Dollar Cost Averaging Fixed Account, an exception will be made
and automatic transfers will continue until the value in the Dollar Cost
Averaging Fixed Account is depleted. After such a resumption of automatic
transfers, you will not be able to discontinue the automatic transfers until
the value in the Dollar Cost Averaging Fixed Account is depleted.
The Company may defer payment of a partial or full withdrawal from the Dollar
Cost Averaging Fixed Account Option for up to six months from its receipt of
written notice.
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
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to change such offerings, in its discretion. Any allocations you make to a
guarantee period must be at least $1,000 and you must maintain a minimum
balance of $1,000 in each guarantee period. The Accumulated Value you allocate
under this option earns interest at a rate declared by the Company applicable
to the guarantee period you select at the time your allocation is made with a
guarantee that the Accumulated Value in this General Account Guaranteed Option
will not be less than the amount initially allocated, plus 3%, compounded
annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the selected guarantee
period. However, for any amounts so transferred we will apply a Market Value
Adjustment (as described below) against such amounts. For full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the selected guarantee period, we will apply a Market
Value Adjustment (as described below) against such amounts withdrawn.
The Market Value Adjustment ("MVA") Factor for the Multi-Year Guaranteed Rate
Option will be as follows:
N X (B - E)
12
where N=the number of months left in the guarantee period at the time of the
transfer or surrender (including any partial months which will count as
full months for purposes of this calculation).
B=the interest rate in effect for the applicable guarantee period which was
declared on the date of the applicable allocation.
E=the constant maturity Treasury rate for the duration equal to that of the
applicable guarantee period (or, if not published, the published constant
maturity rate of the next longest maturity).
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option. Generally, if the
declared interest rate at the beginning of the guarantee period is lower than
the applicable constant maturity Treasury rate prevailing at the time of the
transfer or surrender, then the application of the MVA will result in a lower
payment upon transfer or surrender. Similarly, if the declared rate at the
beginning of the guarantee period is higher than the prevailing applicable
constant maturity Treasury rate at the time of transfer or surrender, then the
application of the MVA will result in a higher payment upon transfer or
surrender.
The following is an example of how your Accumulated Value under the Multi-Year
Guaranteed Rate Option with a five-year guarantee period is affected by a
positive Market Value Adjustment:
Assume an initial allocation of $100,000 when the declared interest rate of a
five-year guarantee period is 8%. At the end of 12 months, your Accumulated
Value is $108,000. Assume also you surrender at the end of one year with 48
months of the guarantee period remaining and the five-year constant maturity
Treasury rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X (.08 - .07) = 4 X .01 = .04
12
Adjustment = $108,000 x .04 = $4,320
= $108,000 + $4,320 = $112,320 = Net amount of transfer or
surrender
The following is an example of how your Accumulated Value under the Multi-Year
Guaranteed Rate Option with a five year guarantee period is affected by a
negative Market Value Adjustment:
Assume an initial allocation of $100,000 when the declared interest rate for a
five-year guarantee period is 8%. At the end of 12 months, your Accumulated
Value is $108,000. Assume also you surrender at the end of one year with 48
months remaining in the guarantee period and the five-year constant maturity
Treasury rate is 9%.
Accumulated Value = $108,000
MVA Factor = 48 X (.08 - .09) = 4 X -.01 = -.04
12
Adjustment = $108,000 x -.04 = -$4,320
= $108,000 - $4,320 = $103,680 = Net amount of transfer or
surrender
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Notwithstanding application of a negative Market Value Adjustment, any Net
Purchase Payments allocated to this General Account Guaranteed Option will
earn interest of at least 3%, compounded annually.
If you have more than one allocation in this option, you may choose which
allocation or allocations any exchanges or surrenders are to be made from. If
you do not specify which allocation or allocations to take the exchanges or
surrenders from, we will first take from the allocation with the shortest time
remaining until the end of its guarantee period and then from the allocation
or allocations with the next shortest time remaining until the amount of the
exchange or withdrawal is reached.
At the end of the selected guarantee period and within a ten-day period
starting on the first day of any automatic renewal (as described below), you
may, without loss of interest, elect to transfer any or all of your
Accumulated Value under this option to any of the Subaccounts or transfer to
another General Account Guaranteed Option or renew your participation in this
option for any guarantee period then available whose ending date is not later
than the Annuity Date at a rate the Company declares at the time of renewal.
Such election may also be provided in writing to the Company before the end of
the guarantee period (and each subsequent guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for another guarantee period of the same duration as the one just ended at a
rate we declare at the time of the renewal. In cases where such a renewal
would result in a guarantee period whose ending date is later than the Annuity
Date, we will transfer the value of that allocation to the Federated Money
Market Portfolio.
Guaranteed Equity Option
You may allocate your Accumulated Value to this option as of the first
business day of each month. Any allocations you make must be at least $1,000.
On the date you make an allocation to this option the Company will declare:
(a) the duration of the guarantee period applicable to the allocation; (b) the
duration of the Averaging Period and (c) the Participation Rate. (The
Averaging Period and the Participation Rate are described below.) Each
allocation will have its own guarantee period, Averaging Period and
Participation Rate.
During the guarantee period applicable to Accumulated Value allocated to this
option, the Company will credit interest at a guaranteed annual effective rate
of 3%, compounded annually. At the end of the guarantee period we will credit
additional interest in an amount equal to the amount by which (x) exceeds (y),
where (x) equals a declared portion of the percentage change in the S&P 500
Composite Stock Price Index ("S&P 500 Index") from its value on the date
Accumulated Value is allocated to a value determined at the end of the
guarantee period multiplied by the amount allocated (all calculated as
described below); and (y) equals the total amount of interest credited during
the guarantee period.
The amount (x) in the preceding paragraph is equal to the amount allocated to
the applicable guarantee period multiplied by the following factor:
PR X [(EV/SV)-1]
where PR = the Participation Rate;
EV= the average closing values of the S&P 500 Index on the last business
day of each month during the Averaging Period; and
SV = the closing value of the S&P 500 Index on the date Accumulated Value
is allocated to this option.
The "Participation Rate" is the rate at which you participate in the
percentage change of the S&P 500 Index for an allocation as used in the
calculation above. It will be declared by the Company with respect to each
allocation to this option. In no event will the Participation Rate be less
than 0%.
The "Averaging Period" is the number of months prior to the end of an
allocation's guarantee period that we will use to determine the ending value
of the S&P 500 Index for that allocation's guarantee period for purposes of
this option as used in the calculation above. It will be declared by the
Company with respect to each allocation to this option. In no event will the
Averaging Period be less than one.
("S&P" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed
for use by the Company.)
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<PAGE>
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.
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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<PAGE>
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.
You may allocate your Net Purchase Payments for the Contract 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. You may make
full or partial withdrawals of the Contract's Surrender Value 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 1-800-866-0005. The
Table of Contents of the Statement of Additional Information is included at
the end of this Prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
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 WHERE IT
WOULD BE UNLAWFUL TO MAKE AN OFFERING LIKE THIS. WE HAVE NOT AUTHORIZED ANYONE
TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS ABOUT THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT RELY ON ANY OTHER
INFORMATION OR REPRESENTATIONS.
The date of this Prospectus is May 1, 1998.
FM-1189
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 6
FEE TABLE.................................................................. 8
Condensed Financial Information............................................ 9
Financial Statements....................................................... 10
Performance Measures....................................................... 10
Additional Performance Measures............................................ 10
Yield and Effective Yield.................................................. 10
The Company and the Separate Account....................................... 11
PB Series Trust............................................................ 11
The Portfolios............................................................. 11
The Money Market Fund...................................................... 12
CONTRACT FEATURES.......................................................... 12
Contract Purchase and Purchase Payments.................................. 12
Purchasing by Wire....................................................... 13
Right to Cancel Period................................................... 13
Allocation of Purchase Payments.......................................... 14
Exchanges Among the Portfolios........................................... 14
Accumulated Value........................................................ 14
Charges and Deductions................................................... 15
Minimum Balance Requirement.............................................. 16
DISTRIBUTIONS UNDER THE CONTRACT........................................... 16
Full and Partial Withdrawals............................................. 16
Lump Sum Payment Option.................................................. 17
Systematic Withdrawal Option............................................. 17
Annuity Date............................................................. 17
Annuity Payment Options.................................................. 18
Death Benefit............................................................ 19
Deferment of Payment..................................................... 20
FEDERAL TAX CONSIDERATIONS................................................. 21
GENERAL INFORMATION........................................................ 23
</TABLE>
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<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
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.
Code - Internal Revenue Code of 1986, as amended.
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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<PAGE>
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 408(b) and
408A of 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.
4
<PAGE>
Surrender Value - The Accumulated Value less any Premium Taxes incurred but
not yet deducted.
Trust - The PB Series Trust, formerly 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
<PAGE>
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 21.)
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 12.)
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
6
<PAGE>
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 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 14.)
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 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 13.)
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 15.)
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 19.)
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 payment options. 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 15.)
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 15). 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 15.
<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,
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<PAGE>
incurred based on certain allocations among the Underlying Funds. Except as
may be indicated, the figures below are based on expenses for the 1997 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.................................. 0.78%*
Income Oriented Portfolio....................................... 0.88%*
Growth and Income Portfolio..................................... 0.90%*
Capital Growth Portfolio........................................ 0.94%*
Maximum Appreciation Portfolio.................................. 0.95%*
</TABLE>
* These numbers are based on an agreement by PB Investment Advisors, Inc.,
formerly 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. For fiscal year 1997, the actual
expenses of the Portfolios, absent the Adviser's agreement to assume the
Portfolio's expenses and certain of the Underlying Funds' expenses, were
adversely affected by the small size of the Portfolios and would have
been: Capital Preservation Portfolio 161.07%; Income Oriented Portfolio
1,978.36%; Growth and Income Portfolio 30.27%; Capital Growth Portfolio
20.00%; and Maximum Appreciation Portfolio 24.50%. For more information
concerning the actual expenses of the Portfolios, please see the Trust's
Annual Report, which is available by calling 1-800-866-0005.
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............................. $24.99 $76.11
Income Oriented Portfolio.................................. $25.99 $79.15
Growth and Income Portfolio................................ $26.19 $79.76
Capital Growth Portfolio................................... $26.59 $80.97
Maximum Appreciation Portfolio............................. $26.69 $81.28
</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. During the first year of operations, we have assumed an average
Contract size of $3,000. 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.
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1997 THROUGH DECEMBER 31, 1997)
<TABLE>
<CAPTION>
CAPITAL INCOME GROWTH AND CAPITAL MAXIMUM
PRESERVATION ORIENTED INCOME GROWTH APPRECIATION
------------ -------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date*........... 10.000 10.000 10.000 10.000 10.000
12/31/97.............. 10.444 10.835 10.975 11.216 11.430
Number of units
outstanding as of:
12/31/97.............. 2,562.405 760.995 16,475.150 73,548.161 21,411.147
</TABLE>
*The date of commencement of operations for the Portfolios was 5/8/97.
9
<PAGE>
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company and of the
Separate Account (as well as the Independent Auditors' Report thereon) are
contained in the Statement of Additional Information.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the 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.
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
10
<PAGE>
Morningstar, Inc. 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. As of December 31, 1997, the Company had
statutory assets of approximately $11 billion. The Company is a wholly owned
indirect subsidiary of AEGON USA, Inc., which conducts substantially all of
its operations through subsidiary companies engaged in the insurance business
or in providing non-insurance financial services. All of the stock of AEGON
USA, Inc. is indirectly owned by AEGON n.v. of the Netherlands. AEGON n.v., a
holding company, conducts its business through subsidiary companies engaged
primarily in the insurance business.
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 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.
PB 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 Portfolios' 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.
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.
11
<PAGE>
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; however, the
description of the Contract contained in this Prospectus is qualified in its
entirety by the Contract itself, including any endorsements to it, a copy of
which is available from the Company. 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.
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 at
least the $3,000 minimum investment requirement. The Initial Purchase Payment
for a Qualified Contract must be equal to at least $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 1-800-866-0005.
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 Company will then mail the Contract to you
along with a Contract acknowledgment form, which you should complete, sign and
12
<PAGE>
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 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.
You may make additional Purchase Payments at any time before 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. If the insurance regulatory authority in any state
does not approve the Rider, the Company, in its sole discretion, may waive the
applicable minimum Initial Purchase Payment and additional Purchase Payment
limitations explained in the above paragraphs and accept an Initial Purchase
Payment of not less than $250 and additional Purchase Payments of not less
than $125 for Contract Owners in that state, provided that the Company
reserves the right to eliminate the waiver and impose the applicable minimums.
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-
866-0005.
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 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.
13
<PAGE>
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 GA, ID, LA, MI, MO, NE, NH, NC, OK,
OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in the Money Market Fund until the
expiration of the Right to Cancel Period of 10 days (30 or more days in some
instances, as set forth in your Contract) plus a 5-day grace period to allow
for mail delivery, and then invested according to your initial allocation
instructions.
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in your
Portfolio(s) immediately upon our receipt thereof, IN WHICH CASE YOU WILL BEAR
FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE PORTFOLIOS DURING THE
RIGHT TO CANCEL PERIOD.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios. Requests for Exchanges, received by mail or by telephone,
prior to the close of the New York Stock Exchange (generally 4:00 P.M. Eastern
time) are processed at the close of business that same day. Requests received
after the close of the New York Stock Exchange are processed the next Business
Day. If you experience difficulty in making a telephone Exchange, your
Exchange request may be made by regular or express mail. It will be processed
on the date received.
To take advantage of the privilege of initiating transactions by telephone,
you must first elect the privilege by completing the appropriate section of
the Contract acknowledgment form, which you will receive with your Contract.
You may also complete a separate telephone authorization form at a later date.
To take advantage of the privilege of authorizing a third party to initiate
transactions by telephone, you must first complete a third party authorization
form or the appropriate section of the Contract acknowledgment form.
The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Prior to the acceptance of any request,
a customer service representative will ask the caller 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.
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 change 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.
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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.
EXCHANGE FEE
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.
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
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<PAGE>
against the Accumulated Value if the Contract Owner chooses an Annuity Payment
Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
NON-
QUALIFIED QUALIFIED
PERCENTAGE PERCENTAGE
---------- ----------
<S> <C> <C>
California................................................ 0.50% 2.35%
District of Columbia...................................... 2.25% 2.25%
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.
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 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.
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.
DISTRIBUTIONS UNDER THE CONTRACT
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
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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 20.)
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until 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 21.)
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.
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.
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 $100.
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 21.) 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.
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.
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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.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $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.
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<PAGE>
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.
DEATH BENEFIT
Generally, federal tax law requires that if any Contract Owner is a natural
person and dies before the Annuity Date, then the entire value of the Contract
must be distributed within five years of the date of death of the Contract
Owner. If the Contract Owner is not a natural person, the death of the Primary
Annuitant triggers the same distribution requirement. Special rules may apply
to a surviving spouse.
DEATH OF ANNUITANT BEFORE 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.
DEATH OF ANNUITANT ON OR AFTER ANNUITY DATE
The Death Benefit, if any, payable if the Annuitant dies on or after the
Annuity Date depends on the Annuity Payment Option selected. Upon the
Annuitant's death, the remaining portion of the value of the Contract will be
distributed to the Annuitant's Beneficiary at least as rapidly as under the
method of distribution being used on the date of the Annuitant's death.
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
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the appropriate Company form. Such change will take effect on the date such
form is signed by the Contract Owner but will not affect any payment made or
other action taken before the Company acknowledges such form. You may also
make the designation of Annuitant's Beneficiary irrevocable by sending us the
appropriate Company form and obtaining approval from the Company. Changes in
the Annuitant's Beneficiary may then be made only with the consent of the
designated irrevocable Annuitant's Beneficiary.
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died, that
share of the Death Benefit will be paid equally to the survivor(s);
(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) If an Annuitant's Beneficiary dies at the same time as the Annuitant,
the proceeds will be paid as though the Annuitant's Beneficiary had
died first. If an Annuitant's Beneficiary dies within 15 days after the
Annuitant's death and before the Company receives due proof of the
Annuitant's death, proceeds will be paid as though the Annuitant's
Beneficiary had died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's
named beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her
estate. If a Life Annuity with Period Certain option was elected, and if the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid to the Annuitant's Beneficiary or your designated Payee.
DEATH OF CONTRACT OWNER
DEATH OF CONTRACT OWNER BEFORE ANNUITY DATE. With two exceptions, federal tax
law requires that when either the Contract Owner or the Joint Owner (if any)
dies before the Annuity Date, the entire value of the Contract must be
distributed within five years of the date of death. First exception: If the
entire interest is to be distributed to the Owner's Designated Beneficiary, he
or she may elect to have it paid as an annuity over his or her life or a
period certain not to exceed his or her life expectancy as long as the
payments begin within one year of the date of death. Second exception: If the
Owner's Designated Beneficiary is the spouse of the Contract Owner (or Joint
Owner), the spouse may elect to continue the Contract in his or her name as
Contract Owner indefinitely and to continue deferring tax on the accrued and
future income under the Contract. ("Owner's Designated Beneficiary" means the
natural person named by the Owner as a beneficiary and who becomes Owner of
the Contract upon the Contract Owner's death.) If the Contract Owner and the
Annuitant are the same person, then upon that person's death the Annuitant's
Beneficiary is entitled to the Death Benefit. In this regard, see "Death of
Annuitant Before Annuity Date," page 19.
DEATH OF CONTRACT OWNER ON OR AFTER ANNUITY DATE. Federal tax law requires
that when either the Contract Owner or the Joint Owner (if any) dies on or
after the Annuity Date, the remaining portions of the value of the Contract
must be distributed at least as rapidly as under the method of distribution
being used on the date of death.
NON-NATURAL PERSON AS CONTRACT OWNER. Where the Contract Owner is not a
natural person, the death of the "primary Annuitant" is treated as the death
of the Contract Owner for purposes of federal tax law. (The Code defines a
primary Annuitant as the individual who is of primary importance in affecting
the timing or the amount of payout under a Contract.) In addition, where the
Contract Owner is not a natural person, a change in the identity of the
primary Annuitant is also treated as the death of the Contract Owner for
purposes of federal tax law.
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) 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.
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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
GENERAL RULE OF TAX DEFERRAL
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 "Annuity Contracts Owned by Non-Natural Persons," page 22 and
"Diversification Standards," page 23.)
TAXATION OF FULL OR PARTIAL WITHDRAWALS
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 investment in the Contract.
TAXATION OF ANNUITY PAYMENTS
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after tax
contributions, the Contract Owner is entitled to exclude the portion of each
withdrawal or annuity payment constituting a return of tax contributions. Once
all of your tax contributions have been returned to you on a non-taxable
basis, subsequent withdrawals or annuity payments are fully taxable as
ordinary income. Since the Company has no knowledge of the amount of after tax
contributions you have made, you will need to make this computation in the
preparation of your federal income tax return.
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TAX WITHHOLDING
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.
PENALTY TAXES
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 tax penalty may also not apply to distributions from Qualified Contracts
issued under Section 408(b) or 408A of the Code used to pay qualified higher
education expenses or the acquisition costs (up to $10,000) involved in the
purchase of a principal residence by a first-time homebuyer.
ANNUITY 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 Qualified Contract,
and the beneficial owners are employees, then the Qualified 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 by an employer on behalf of an employee upon termination of a
qualified plan, and in the case of an immediate annuity, as defined under the
Code.
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.
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TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger income tax (and
possibly the 10% federal penalty 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 former spouses incident to a divorce which are governed by
Code Section 1041(a).
ASSIGNMENTS OF ANNUITY CONTRACTS
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.
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.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), one year after the start up period, each Subaccount of
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 each Subaccount 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.
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
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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.
YEAR 2000 MATTERS
In March 1997, the Company adopted and currently has in place a Year 2000
Assessment and Planning Project (the "Plan") to review and analyze existing
hardware and software systems, as well as voice and data communications
systems, to determine if they are Year 2000 compatible. The Plan provides for
a management process that ensures that when a particular system, or software
application, is determined to be "non-compliant" the proper steps are in place
to either remedy the "non-compliance" or cease using the particular system or
software. The Plan also provides that the Chief Information Officer report to
the Board of Directors as to the status of the efforts under the Plan on a
regular and routine basis. The Company has engaged the services of a third-
party provider that is specialized in Year 2000 issues to work on the project.
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The Plan has four specific objectives: (1) to develop an inventory of all
applications; (2) to evaluate all applications in the inventory to determine
the most prudent manner to move them to Year 2000 compliance, if required; (3)
to estimate budgets, resources and schedules for the migration of the
"affected" applications to Year 2000 compliance; and (4) to define testing and
deployment requirements to successfully manage validation and re-deployment of
any changed code. It is anticipated that all compliance issues will be
resolved by December 1998.
As of the date of this Prospectus, the Company has identified and made
available what it believes are the appropriate resources of hardware, people,
and dollars, including the engagement of outside third parties, to ensure that
the Plan will be completed.
The Year 2000 computer problem, and its resolution, is complex and
multifaceted, and the success of a response plan cannot be conclusively known
until the Year 2000 is reached (or an earlier date to the extent that the
systems or equipment addresses Year 2000 data prior to the year 2000). Even
with appropriate and diligent pursuit of a well conceived response plan,
including testing procedures, there is no certainty that any company will
achieve complete success. Further, notwithstanding its efforts or results, the
Company's ability to function unaffected to and through the Year 2000 may be
adversely affected by actions (or failures to act) of third parties beyond its
knowledge or control.
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 Boros Cicchetti 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 Gregory E. Miller-Breetz, Esquire, on behalf of the
Company.
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PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
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 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 May 1, 1998, by
calling 1-800-797-9177 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.
May 1, 1998
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 Yield............................................. 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>
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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
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
Advisor's Edge variable annuity contract:
Federated American Leaders Portfolio
Federated Utility Portfolio
Federated High Income Bond Portfolio
Federated U.S. Government Securities Portfolio
Montgomery Growth Portfolio
Montgomery Emerging Markets Portfolio
Stein Roe Special Venture Portfolio
Strong International Stock Portfolio
Wanger U.S. Small Cap Advisor Portfolio
Wanger International Small Cap Advisor Portfolio
Warburg Pincus International Equity Portfolio
Warburg Pincus Small Growth Portfolio
Strong Schafer Value Portfolio
T. Rowe Price International Stock Portfolio
Dreyfus Small Cap Value Portfolio
Endeavor Enhanced Index Portfolio
On and after such date the following portfolio is available through both the
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, 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 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 Subaccount 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; 10/3/95 for the DFA International; 10/9/95 for DFA
Short-Term Fixed Portfolios; 3/10/95 for the Federated American Leaders
Portfolio; 7/20/95 for the Federated Utility Portfolio; 12/7/94 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 Portfolio; 3/31/97 for Stein Roe Special
Venture Portfolio; 3/31/97 for Strong International Stock Portfolio; 3/31/97 for
Warburg Pincus International Equity Portfolio; 3/31/97 for Warburg Pincus Small
Company Growth Portfolio; 10/13/97 for Strong Schafer Value Portfolio; 10/31/97
for T. Rowe Price International Stock Portfolio; 10/31/97 for Dreyfus Small Cap
Value Portfolio; and 10/13/97 for Endeavor Enhanced Index 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, 1997.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING 12/31/97
Subaccount One Year Since Portfolio Inception
---------- -------- -------------------------
Federated Prime Money 4.23% 4.23%
Federated American Leaders 31.45% 28.21%
Federated US Govt Securities 7.84% 6.78%
Federated Utility 25.78% 20.58%
Federated High Income Bond 13.06% 12.78%
Wanger Intl Smll Cap -2.13% 15.86%
Wanger US Smll Cap 28.54% 29.66%
Montgomery Emerg Mkt -1.26% 2.49%
Montgomery Growth 27.70 28.96%
DFA Global Bond 7.06% 9.55%
DFA Large Value 28.36% 22.43%
DFA Internatl Value -2.90% 3.85%
DFA Internatl Small -25.60% -11.98%
DFA Small Value 29.57% 22.07%
DFA Short-Term Fixed 4.97% 4.71%
Stein Roe Special Venture N/A 15.69%
Strong Internatl Stk N/A -16.16%
Warburg Pincus Intl Equity N/A -4.01%
Warburg Pincus Smll Co Growth N/A -31.80%
Dreyfus Small Cap Value N/A -7.16%
Endeavor Enchanced Index N/A 0.01%
Strong Schafer Value N/A 0.68%
T. Rowe Price Int'l N/A -8.10%
6
<PAGE>
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 12/31/97
Since Portfolio
Subaccount One Year Inception
---------- -------- ---------------
Federated Prime Money 4.26% 13.65%
Federated American Leaders 31.48% 101.30%
Federated US Govt Security 7.88% 18.01%
Federated Utility 25.81% 58.33%
Federated High Income Bond 13.09% 31.74%
Wanger Intl Smll Cap -2.10% 40.11%
Wanger US Smll Cap 28.57% 80.98%
Montgomery Emerg Mkt -1.22% 4.86%
Montgomery Growth 27.74% 61.57%
DFA Global Bond 7.09% 31.03%
DFA Large Value 28.39% 81.87%
DFA Internatl Value -2.86% 8.93%
DFA Internatl Small -25.56% -24.77%
DFA Small Value 29.60% 56.33%
DFA Short-Term Fixed 5.00% 10.89%
Stein Roe Special Venture N/A 15.71%
Strong Internatl Stock N/A -16.16%
Warburg Pincus Intl Equity N/A -3.99%
Warburg Pincus Smll Co Growth N/A 31.83%
Dreyfus Small Cap Value N/A -7.16%
Endeavor Enhanced Index N/A 0.02%
Strong Schafer Value N/A 0.69%
T. Rowe Price Int'l N/A -8.09%
7
<PAGE>
NON-STANDARDIZED ACTUAL AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING 12/31/97
<TABLE>
<CAPTION>
Subaccount One Year Since Portfolio Inception
---------- -------- -------------------------
<S> <C> <C>
Federated Prime Money 4.26% 4.26%
Federated American Leaders 31.48 28.25
Federated US Govt Securities 7.88 6.82
Federated Utility 25.81 20.62
Federated High Income Bond 13.09 12.81
Wanger Intl Smll Cap -2.10 15.90
Wanger US Smll Cap 28.57 29.71
Montgomery Emerg Mkt -1.22 2.53
Montgomery Growth 27.74 29.01
DFA Global Bond 7.09 9.59
DFA Large Value 28.39 22.47
DFA Internatl Value -2.86 3.88
DFA Internatl Small -25.56 -11.95
DFA Small Value 29.60 22.11
DFA Short-Term Fixed 5.00 4.75
Stein Roe Special Venture N/A 15.71
Strong Internatl Stock N/A -16.16
Warburg Pincus Intl Equity N/A -3.99
Warburg Pincus Smll Co Growth N/A 31.83
Dreyfus Small Cap Value N/A -7.16
Endeavor Enhanced Index N/A 0.02
Strong Schafer Value N/A 0.69
T. Rowe Price Int'l N/A -8.09
</TABLE>
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
The Company may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more Subaccounts with
respect to one or more non-standardized base periods commencing at the beginning
of a calendar year. Total Return YTD figures reflect the percentage change in
actual Accumulation Unit Values during the relevant period. These percentages
reflect a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Fee, any sales loads or Premium Taxes (if any),
which if included would reduce the percentages reported by the Company.
<TABLE>
<CAPTION>
Total Return
Subaccount as of 12/31/97
---------- --------------
<S> <C>
Federated Prime Money 4.26%
Federated American Leaders 31.48%
Federated US Govt Securities 7.88%
Federated Utility 25.81%
Federated High Income Bond 13.09%
Wanger Intl Smll Cap -2.10%
Wanger US Smll Cap 28.57%
Montgomery Emerg Mkt -1.22%
Montgomery Growth 27.74%
DFA Global Bond 7.09%
DFA Large Value 28.39%
DFA Internatl Value -2.86%
DFA Internatl Small -25.56%
DFA Small Value 29.60%
DFA Short-Term Fixed 5.00%
Stein Roe Special Venture N/A
Strong Internatl Stock N/A
Warburg Pincus Intl Equity N/A
Warburg Pincus Smll Co Growth N/A
Dreyfus Small Cap Value N/A
Endeavor Enhanced Index N/A
Strong Schafer Value N/A
T. Rowe Price Int'l N/A
</TABLE>
8
<PAGE>
NON-STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts with respect to one or more non-standardized base periods commencing
at the beginning of a calendar year (or date of inception, if during the
relevant year) and ending at the end of such calendar year. One Year Return
figures reflect the percentage change in actual Accumulation Unit Values during
the relevant period. These percentages reflect a deduction for the Separate
Account and Portfolio expenses, but do not include the Annual Contract Fee, any
sales loads or Premium Taxes (if any), which if included would reduce the
percentages reported by the Company.
<TABLE>
<CAPTION>
NON-STANDARDIZED
ONE YEAR RETURN
Subaccount 1997
---------- ----------------
<S> <C>
Federated Prime Money 4.26%
Federated American Leaders 31.48%
Federated US Govt Securities 7.88%
Federated Utility 25.81%
Federated High Income Bond 13.09%
Wanger Intl Small Cap -2.10%
Wanger US Small Cap 28.57%
Montgomery Emerg Mkt -1.22%
Montgomery Growth 27.74%
DFA Global Bond 7.09%
DFA Large Value 28.39%
DFA Internat'l Value -2.86%
DFA Internat'l Small -25.56%
DFA Small Value 29.60%
DFA Short-Term Fixed 5.00%
Stein Roe Special Venture N/A
Strong Internatl Stock N/A
Warburg Pincus Intl Equity N/A
Warburg Pincus Smll Co Growth N/A
Dreyfus Small Cap Value N/A
Endeavor Enhanced Index N/A
Strong Schafer Value N/A
T. Rowe Price Int'l N/A
</TABLE>
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios (calculated beginning from the
end of the year of inception for each Portfolio) and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, 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.
9
<PAGE>
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
10
<PAGE>
. 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,
11
<PAGE>
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
Commonwealth General Corporation owns a 3.7% interest in the Company and 61%,
15.3% 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 Capital General Development Corporation, which in turn
is wholly owned by Commonwealth General Corporation. A 1% interest in Capital
Liberty, L.P. is owned by Commonwealth General Corporation, which is the general
partner, and 79.2% and 19.8% interests, respectively, are held by two limited
partners, Commonwealth Life Insurance Company and Peoples Security Life
Insurance Company.
Commonwealth General Corporation is wholly owned by AEGON USA, Inc., which in
turn is wholly owned by AEGON U.S. Holding Corporation, a wholly owned
subsidiary of AEGON International n.v. AEGON International n.v. is a wholly
owned subsidiary of AEGON n.v. Vereniging AEGON (a Netherlands membership
association) has a 53.63% interest in AEGON n.v.
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
12
<PAGE>
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
AFSG Securities Corporation ("AFSG"), formerly Providian Securities Corporation,
the principal underwriter of the Contracts, is ultimately a wholly owned
subsidiary of AEGON n.v. AFSG 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 AFSG. The offering of the Contracts is continuous
and AFSG does not anticipate discontinuing the offering of the Contracts.
However, AFSG 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, 1997 and 1996, including the Report of Independent Auditors
thereon, are included in this Statement of Additional Information.
The audited statutory-basis financial statements of the Company for the years
ended December 31, 1997 and 1996, 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 May 1, 1998, by calling 1-800-866-0005 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.
May 1, 1998
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. No fee is currently imposed for such Exchanges; however, we reserve
the right to charge 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
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.
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. During the first year of operations, we have assumed an
average Contract size of $3,000. The fee is assumed to remain the same in each
year of the applicable period. (With respect to partial year periods, if any, in
the examples, the Annual Contract Fee is pro-rated to reflect only the
applicable portion of the partial year period.)
Where applicable, 5/8/97 is the Subaccount inception date used in the
calculation of performance figures.
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).
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, 1997.
<TABLE>
<CAPTION>
Since
Subaccount One Year* Portfolio Inception
---------- --------- -------------------
<S> <C> <C>
Capital Preservation Portfolio N/A 3.79%
Income Oriented Portfolio N/A 7.70%
Growth and Income Portfolio N/A 9.10%
Capital Growth Portfolio N/A 1.51%
Maximum Appreciation Portfolio N/A 13.65%
</TABLE>
*Returns shown are for the period from each Portfolio's inception date. As of
12/31/97, the Portfolios had not been in operation for an entire year.
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 ACTUAL TOTAL RETURN FOR THE PERIOD ENDING 12/31/97
<TABLE>
<CAPTION>
Since
Subaccount One Year* Portfolio Inception
---------- --------- -------------------
<S> <C> <C>
Capital Preservation Portfolio N/A 3.79%
Income Oriented Portfolio N/A 7.70%
Growth and Income Portfolio N/A 9.10%
Capital Growth Portfolio N/A 1.51%
Maximum Appreciation Portfolio N/A 13.65%
</TABLE>
*Returns shown are for the period from each Portfolio's inception date. As of
12/31/97, the Portfolios had not been in operation for an entire year.
NON-STANDARDIZED ACTUAL AVERAGE ANNUAL TOTAL RETURN FOR PERIOD ENDING 12/31/97
<TABLE>
<CAPTION>
Since
Subaccount One Year* Portfolio Inception
---------- --------- -------------------
<S> <C> <C>
Capital Preservation Portfolio N/A 3.79%
Income Oriented Portfolio N/A 7.70%
Growth and Income Portfolio N/A 9.10%
Capital Growth Portfolio N/A 1.51%
Maximum Appreciation Portfolio N/A 13.65%
</TABLE>
*Returns shown are for the period from each Portfolio's inception date. As of
12/31/97, the Portfolios had not been in operation for an entire year.
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 TOTAL RETURN YEAR-TO-DATE
<TABLE>
<CAPTION>
Total Return YTD
Subaccount as of 12/31/97*
---------- ----------------
<S> <C>
Capital Preservation Portfolio 4.44%
Income Oriented Portfolio 8.35%
Growth and Income Portfolio 9.75%
Capital Growth Portfolio 2.16%
Maximum Appreciation Portfolio 14.30%
</TABLE>
*Returns shown are for the period from each Portfolio's inception date. As of
12/31/97, the Portfolios had not been in operation for an entire year.
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.
<TABLE>
<CAPTION>
Non-Standardized
Subaccount One Year Return 1997*
---------- ---------------------
<S> <C>
Capital Preservation Portfolio 4.44%
Income Oriented Portfolio 8.35%
Growth and Income Portfolio 9.75%
Capital Growth Portfolio 2.16%
Maximum Appreciation Portfolio 14.30%
</TABLE>
*Returns shown are for the period from each Portfolio's inception date.
As of 12/31/97, the Portfolios had not been in operation for an entire year.
<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
Commonwealth General Corporation owns a 3.7% interest in the Company and 61%,
15.3%, 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 Capital General Development Corporation, which in turn
is wholly owned by Commonwealth General Corporation. A 1% interest in Capital
Liberty, L.P. is owned by Commonwealth General Corporation, which is the general
partner, and 79.2% and 19.8% interests, respectively, are held by two limited
partners, Commonwealth Life Insurance Company and Peoples Security Life
Insurance Company.
Commonwealth General Corporation is wholly owned by AEGON USA, Inc., which in
turn is wholly owned by AEGON U.S. Holding Corporation, a wholly owned
subsidiary of AEGON International n.v. AEGON International n.v. is a wholly
owned subsidiary of AEGON n.v. Vereniging AEGON (a Netherlands membership
association) has a 53.63% interest in AEGON n.v.
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. 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
AFSG Securities Corporation, formerly Providian Securities Corporation ("AFSG"),
the principal underwriter of the Contracts, is ultimately a wholly owned
subsidiary of AEGON n.v. AFSG 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 ("PGA") and other golf related associations approved by
the PGA and the Company through persons or entities licensed under the federal
securities laws and state insurance laws that have generally entered into
agreements with AFSG. The offering of the Contracts is continuous and AFSG does
not anticipate discontinuing the offering of the Contracts. However, AFSG 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 year ended
December 31, 1997, including the Report of Independent Auditors thereon, are
included in this Statement of Additional Information. The Subaccounts described
in the Contract Prospectus had not yet commenced operations as of the year ended
December 31, 1996, and consequently had no assets or liabilities. Accordingly,
no financial statements are included for the Separate Account for the year ended
December 31, 1996. The audited statutory-basis financial statements of the
Company for the years ended December 31, 1997 and 1996, including the Reports of
Independent Auditors thereon, which are included in this Statement of Additional
Information, should be considered only as bearing on the ability of the Company
to meet its obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets to be held in the Separate
Account.
11
<PAGE>
STATUTORY- BASIS FINANCIAL STATEMENTS
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATUTORY-BASIS FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<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, 1997 and 1996, and the
related statutory-basis statements of operations, changes in capital and sur-
plus, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to ex-
press an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
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 de-
terminable but are presumed to be material.
In our opinion, because of the effects of the matter described in the pre-
ceding paragraph, the financial statements referred to above do not present
fairly, in conformity with generally accepted accounting principles, the fi-
nancial position of Providian Life and Health Insurance Company at December
31, 1997 and 1996, or the results of its operations or its cash flows for the
years then ended.
However, 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, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended, in conformity with ac-
counting practices prescribed or permitted by the Missouri Department of In-
surance.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 24, 1998
1
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
BALANCE SHEETS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ADMITTED ASSETS
Cash and invested assets:
Bonds................................................. $ 4,363,420 $ 4,249,252
Preferred stocks...................................... 31,519 30,658
Common stocks......................................... 487,831 438,067
Mortgage loans........................................ 2,269,507 2,651,611
Real estate........................................... 8,759 6,653
Policy loans.......................................... 155,430 158,186
Cash and short-term investments....................... 45,122 139,705
Other invested assets................................. 216,266 168,430
----------- -----------
Total cash and invested assets......................... 7,577,854 7,842,562
Deferred and uncollected premiums...................... 46,428 49,186
Accrued investment income.............................. 91,639 89,539
Other receivables...................................... 15,150 38,556
Amounts due from affiliates............................ 17,480 7,687
Federal income taxes recoverable from parent........... 230 5,840
Other admitted assets.................................. 32 1,385
Separate account assets................................ 3,573,052 2,427,504
----------- -----------
TOTAL ADMITTED ASSETS.............................. $11,321,865 $10,462,259
=========== ===========
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate policy reserves............................. $ 4,573,048 $ 4,736,127
Policy and contract claims............................ 49,145 43,006
Policyholder contract deposits........................ 1,770,902 1,961,549
Other policy or contract liabilities.................. 460,461 366,441
Amounts due to affiliates............................. 18,429 12,719
Asset valuation reserve............................... 109,465 97,169
Accrued expenses and other liabilities................ 165,840 212,433
Separate account liabilities.......................... 3,544,304 2,427,504
----------- -----------
Total liabilities...................................... 10,691,594 9,856,948
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.................................... 589,903 564,943
----------- -----------
Total capital and surplus.............................. 630,271 605,311
----------- -----------
TOTAL LIABILITIES AND CAPITAL AND SURPLUS.......... $11,321,865 $10,462,259
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF OPERATIONS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Premiums earned:
Life and annuity..................................... $ 406,561 $ 343,086
Accident and health.................................. 144,713 154,993
Annuity fund deposits................................. 995,014 1,073,366
Net investment income................................. 559,656 569,860
Commissions and expense allowances on reinsurance
ceded................................................ 2,323 1,123
Amortization of interest maintenance reserve.......... 6,333 3,109
Other income.......................................... 7,770 10,196
---------- ----------
2,122,370 2,155,733
Benefits and expenses:
Accident and health, life and other benefits.......... 1,474,430 1,417,390
Decrease in aggregate policy reserves................. (381,758) (111,769)
Interest on policyholder contract deposits............ 122,478 102,631
Commissions and expense allowances on reinsurance
assumed.............................................. 41,990 39,533
General insurance and other expenses.................. 129,266 122,906
Reinsurance recapture fee............................. 553 2,320
Net transfers to separate accounts.................... 599,633 425,800
---------- ----------
1,986,592 1,998,811
---------- ----------
Net gain from operations before federal income taxes... 135,778 156,922
Federal income tax expense............................. 54,615 50,639
---------- ----------
Net gain from operations............................... 81,163 106,283
Net realized capital gains, net of income taxes (1997--
$9,506; 1996--$1,402) and excluding gains transferred
to the interest maintenance reserve (1997--$10,093;
1996--$2,921)......................................... 24,702 3,394
---------- ----------
Net income............................................. $ 105,865 $ 109,677
========== ==========
</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
------- --------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances, January 1, 1996................. $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
Net income................................ -- -- -- 105,865
Change in net unrealized gains on
investments.............................. -- -- -- 45,907
Dividends to shareholders................. -- -- -- (120,000)
Prior year federal income tax adjustment.. -- -- -- 4,719
Decrease in nonadmitted assets............ -- -- -- 341
Increase in asset valuation reserve....... -- -- -- (12,296)
Change in surplus in separate accounts.... -- -- -- 424
------- ------- ------ --------
Balances, December 31, 1997............... $12,595 $25,190 $2,583 $589,903
======= ======= ====== ========
</TABLE>
See accompanying notes.
4
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
STATEMENTS OF CASH FLOWS (STATUTORY-BASIS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31
----------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash and short-term investments provided
Operations:
Premiums and annuity fund deposits................... $1,549,498 $1,573,203
Net investment income received....................... 544,108 574,079
Allowances and reserve adjustments received on
reinsurance ceded................................... 2,323 1,125
Other income received.................................. 5,906 10,182
---------- ----------
2,101,835 2,158,589
Benefits paid........................................ 1,468,102 1,412,797
General insurance and other expenses................. 170,488 169,580
Federal income taxes paid............................ 53,792 56,121
Net increase (decrease) in policy loans and premium
notes............................................... (2,745) 3,520
Paid reinsurance reserves and other items............ 18 293
Net transfers to separate accounts................... 602,788 412,252
---------- ----------
2,292,443 2,054,563
---------- ----------
Total cash provided (applied) by operations........... (190,608) 104,026
Investments sold, matured or repaid................... 5,059,887 3,688,955
Other cash provided:
Increase in amounts due to affiliates................ 5,709 7,826
Net increase in broker receivables................... 891 31,112
Other items.......................................... 15,014 40,047
---------- ----------
Total other cash provided............................. 21,614 78,985
---------- ----------
Total cash and short-term investments provided......... 4,890,893 3,871,966
Cash and short-term investments applied:
Investments acquired.................................. 4,783,450 3,717,511
Other cash applied:
Dividends paid to shareholders....................... 120,000 125,000
Decrease in amounts due to affiliates................ 9,770 6,162
Net decrease in broker payables...................... 22,505 --
Net cash and short-term investments transferred on
reinsurance recaptured.............................. 650 78,980
Capital contribution to separate account............. 26,362 --
Other items.......................................... 22,739 9,874
---------- ----------
Total other cash applied.............................. 202,026 220,016
---------- ----------
Total cash and short-term investments applied.......... 4,985,476 3,937,527
---------- ----------
Decrease in cash and short-term investments............ (94,583) (65,561)
Cash and short-term investments:
Beginning of year..................................... 139,705 205,266
---------- ----------
End of year........................................... $ 45,122 $ 139,705
========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION, NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Organization
Providian Life and Health Insurance Company (PLH) is a life and health in-
surance company domiciled in Missouri. Prior to June 10, 1997, PLH was an in-
direct, wholly owned subsidiary of Providian Corporation (Providian). On June
10, 1997, Providian's insurance operations, including the operations of PLH,
were merged with an indirect, wholly owned subsidiary of AEGON N.V., an inter-
national insurance organization headquartered in The Hague, The Netherlands.
Providian was the surviving corporation in the merger. Effective October 15,
1997, Providian's name was changed to Commonwealth General Corporation (Com-
monwealth). Effective December 31, 1997, ownership of Commonwealth was trans-
ferred to AEGON USA, Inc., an indirect, wholly owned subsidiary of AEGON N.V.
PLH is directly owned by Commonwealth Life Insurance Company (CLICO) 61%,
Capital Liberty, L.P. (CLLP) 20%, Peoples Security Life Insurance Company
(PSI) 15%, and Commonwealth 4%. Commonwealth is the ultimate parent of CLICO,
CLLP, and PSI. PLH wholly owns an insurance subsidiary, Veterans Life Insur-
ance Company (VLIC), which wholly owns an insurance subsidiary, First
Providian Life and Health Insurance Company (FPLH), and a non-insurance sub-
sidiary.
Nature of Operations
PLH sells and services life and accident and health insurance products, pri-
marily 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, pri-
marily utilizing brokers, fund managers, financial planners, stock brokerage
firms and a mutual fund.
Management's Estimates
The preparation of financial statements of insurance companies requires man-
agement to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Such estimates and assump-
tions 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 accor-
dance with the accounting practices prescribed or permitted by the Missouri
Department of Insurance. Such practices vary from generally accepted account-
ing principles (GAAP). The more significant variances from GAAP are as fol-
lows:
Investments
Investments in bonds and mandatorily redeemable preferred stocks are re-
ported at amortized cost or fair value based on their National Association
of Insurance Commissioners (NAIC) rating; for GAAP, such fixed maturity in-
vestments are designated at purchase as held-to-maturity, trading or avail-
able-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.
6
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 inter-
nally 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 pro-
vided 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 in-
come and operating expenses include amounts representing rent for PLH's oc-
cupancy of such real estate. Changes between cost and admitted asset in-
vestment 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 dif-
ference 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 estab-
lished 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 es-
timated 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 real-
ized capital gains and losses attributable to changes in the general level
of interest rates on sales of certain liabilities and fixed income invest-
ments, 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 "inter-
est maintenance reserve" (IMR). Realized capital gains and losses are re-
ported in income net of federal income tax and transfers to the IMR. At De-
cember 31, 1997 and 1996, the IMR balance was in an asset position of
$7,002,000 and $10,762,000, respectively, and was non-admitted for statu-
tory accounting purposes. The "asset valuation reserve" (AVR) is also de-
termined 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 cred-
ited directly to unassigned surplus. Under GAAP, realized capital gains and
losses are reported in the income statement on a pretax basis in the period
that the asset giving rise to the gain or loss is sold and direct write-
downs are recorded (or valuation allowances are provided, where appropriate
under GAAP) when there has been a decline in value deemed to be other than
temporary, in which case, write-downs (or provisions) for such declines are
charged to income.
Subsidiaries
The accounts and operations of PLH's subsidiaries are not consolidated
with the accounts and operations of PLH as would be required under GAAP.
Policy Acquisition Costs
Costs of acquiring and renewing business are expensed when incurred. Un-
der 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 uni-
versal life insurance and investmenttype contracts, to the extent recover-
able from future gross profits, deferred policy acquisition costs are amor-
tized generally in
7
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 accompanying
balance sheets and are charged directly to unassigned surplus.
Premiums
Revenues for universal life policies and investment-type contracts con-
sist of the entire premium received and benefits incurred represent the to-
tal of death benefits paid, surrenders and the change in policy reserves.
Under GAAP, premiums received in excess of policy charges are not recog-
nized 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 mor-
tality assumptions rather than on expected experience and actual account
balances as would be required under GAAP.
Reinsurance
Policy and contract liabilities ceded to reinsurers have been reported as
reductions of the related reserves rather than as assets as would be re-
quired under GAAP.
Commissions allowed by reinsurers on business ceded are reported as in-
come when received rather than being deferred and amortized with deferred
policy acquisition costs.
Federal Income Taxes
Deferred federal income taxes are not provided for differences between
the financial statement amounts and the tax bases of assets and liabili-
ties.
Statements of Cash Flows
Cash and short term investments in the statements of cash flows represent
cash balances and investments with initial maturities of one year or less.
Under GAAP, the corresponding captions of cash and cash equivalents include
cash balances and investments with initial maturities of three months or
less.
The effects of the foregoing variances from GAAP on the accompanying statu-
tory-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, pol-
icy loans, short-term investments, other invested assets and derivative fi-
nancial instruments are stated at values prescribed by the NAIC, as fol-
lows:
Bonds not backed by other loans are stated at amortized cost using
the constant effective yield method.
8
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Loan-backed bonds and structured securities are valued at amortized
cost using the constant effective yield 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 inter-
est 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 ba-
sis.
Mortgage loans in good standing are carried at unpaid principal bal-
ances while statutorily delinquent mortgages are carried at their un-
paid 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 principal 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 comprised of limited partnership invest-
ments 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 ef-
fective hedges are valued at fair value.
Bond and other loan interest is credited to income as it accrues. Divi-
dends on preferred and common stocks are credited to income on exdividend
dates. For securities, PLH follows the guidelines of the NAIC for each se-
curity on an individual basis in determining the admitted or nonadmitted
status of accrued income amounts. There was no interest on securities ex-
cluded from investment income at December 31, 1997 and 1996. For mortgage
loans, PLH's policy is to exclude from investment income interest in excess
of three months past due. At December 31, 1997 and 1996, the total amount
excluded from accrued investment income for delinquent mortgage loans was
approximately $308,000 and $504,000, 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
capital 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 termi-
nation.
Net income includes realized capital gains and losses on investments
sold, net of federal income tax and transfers to the IMR. The cost of in-
vestments 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 con-
tract holders have no claim against the assets of the general account of
PLH. Separate account assets are reported at estimated fair value. Separate
account liabilities are also reported at estimated fair value and are ex-
clusive of capital contributions
9
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
made by PLH. The operations of the separate accounts are not included in
the accompanying statutory-basis financial statements. Fees charged on sep-
arate account policyholder deposits are included in net transfers to sepa-
rate accounts in the accompanying statements of operations.
Policy Reserves
Unearned premiums represent the portion of premiums written which are ap-
plicable 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 re-
serves.
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 classi-
fication. Mean reserves are determined by computing the regular mean re-
serve for the plan at the issued age and holding, in addition, onehalf of
the extra premium charged for the year.
The tabular interest has been determined from the basic data for the cal-
culation of policy reserves. The tabular less actual reserve released and
the tabular cost have been determined by formula as described in the NAIC
instructions.
Policy reserves also include single premium and flexible premium annuity
contracts and structured settlement contracts. The single premium and flex-
ible 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 1997 and 1996.
Liabilities for Policy and Contract Claims
Liabilities for policy and contract claims, principally related to acci-
dent 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 meth-
ods 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 are comprised primarily of guaranteed in-
vestment contracts (GICs). The GICs consist of three types. One type is
guaranteed as to principal along with interest guarantees based upon prede-
termined indices. The second type guarantees principal and interest, but
also includes a penalty if the contract is surrendered early. The third
type guarantees principal and interest and is non-surrenderable before the
fixed maturity date. Policy reserves on the GICs are determined following
the retrospective deposit method and consist of contract values that accrue
to the benefit of the policyholder. Annual effective rates credited to
these GICs ranged from 5.5 percent to 6.6 percent and from 5.2 percent to
6.6 percent during 1997 and 1996, respectively.
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 an-
nuities, 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
10
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
a pro rata basis over the coverage period for which the premiums were col-
lected 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 meth-
ods by which assessments are levied against PLH vary from state to state.
Also, some states permit guaranty fund assessments to be partially recov-
ered through reductions in future premium taxes. At December 31, 1997 and
1996, PLH has established an estimated liability for guaranty fund assess-
ments 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, 1997 may vary from the
estimated liability included in the accompanying financial statements. The
estimated liability for guaranty fund assessments recorded at December 31,
1997 and 1996 was $12,354,000 and $11,525,000, respectively.
Permitted Statutory Accounting Practices
PLH's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Missouri Depart-
ment of Insurance. Currently, "prescribed" statutory accounting practices
include state insurance laws, regulations, and general administrative
rules, as well as a variety of publications of the NAIC, including the
NAIC's Accounting Practices and Procedures Manual. "Permitted" statutory
accounting practices encompass all accounting practices that are not pre-
scribed; 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 is in the process of codifying statutory accounting practices
(Codification). Codification 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 state-
ments. Codification, which is expected to be approved by the NAIC in 1998,
will require adoption by the various states before it becomes the pre-
scribed statutory basis of accounting for insurance companies domesticated
within those states. Accordingly, before Codification becomes effective for
PLH, Missouri must adopt Codification as the prescribed basis of accounting
on which domestic insurers must report their statutory-basis results to the
Department of Insurance. At this time it is unclear whether Missouri will
adopt Codification. However, based on current draft guidance, management
believes that the impact of codification will not be material to PLH's
statutory-basis financial statements.
11
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Reclassifications
Certain reclassifications have been made to the prior year financial state-
ments to conform with the current year presentation.
2. INVESTMENTS
The tables below contain amortized cost (carrying value or statement value)
and fair value information on bonds.
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. government obligations......... $ 133,391 $ 931 $ 229 $ 134,093
States and political subdivisions... 19,464 1,217 -- 20,681
Foreign government obligations*..... 29,293 227 67 29,453
Corporate and other................. 2,595,091 95,032 4,976 2,685,147
Foreign corporate*.................. 384,898 14,292 10,739 388,451
Asset-backed........................ 541,542 434 -- 541,976
Mortgage-backed..................... 659,741 -- -- 659,741
---------- -------- ------- ----------
$4,363,420 $112,133 $16,011 $4,459,542
========== ======== ======= ==========
</TABLE>
<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
========== ======= ======= ==========
</TABLE>
- --------
* Substantially all are U.S. dollar denominated.
12
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and fair value of bonds at December 31, 1997, by contrac-
tual maturity, are shown below. Actual maturities may differ from contractual
maturities because certain borrowers may have the right to call or prepay ob-
ligations, sometimes without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less............................ $ 123,776 $ 123,553
Due after one year through five years.............. 524,363 525,913
Due after five years through ten years............. 886,610 895,178
Due after ten years................................ 1,627,388 1,713,181
---------- ----------
3,162,137 3,257,825
Asset-backed securities............................ 541,542 541,976
Mortgage-backed securities......................... 659,741 659,741
---------- ----------
$4,363,420 $4,459,542
========== ==========
</TABLE>
Proceeds during 1997 and 1996 from sales, maturities and calls of bonds were
$4,006,319,000 and $2,992,250,000, respectively. Gross gains of $43,227,000
and $36,104,000 and gross losses of $29,488,000 and $28,403,000 in 1997 and
1996, respectively, were realized on those sales.
The cost of preferred stocks of unaffiliated companies was $31,519,000 and
$30,886,000 at December 31, 1997 and 1996, respectively, and the related fair
value was $31,640,000 and $30,681,000 at December 31, 1997 and 1996, respec-
tively. There was no difference between cost and statement value of preferred
stocks at December 31, 1997. The difference between cost and statement value
of $228,000 at December 31, 1996 was credited directly to unassigned surplus
as of that date and did not affect net income.
The change in unrealized gains and losses on investments in common stocks
and on investments in subsidiaries is credited or charged directly to unas-
signed surplus and does not affect net income. The cost and fair value of
those investments at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Common stocks........................... $ 34,723 $ 1,527 $3,455 $ 32,795
Subsidiaries............................ 202,606 252,430 -- 455,036
-------- -------- ------ --------
$237,329 $253,957 $3,455 $487,831
======== ======== ====== ========
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
======== ======== ====== ========
</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 $3,966,000
at December 31, 1997 which were on deposit with various state insurance de-
partments to satisfy regulatory requirements.
13
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The carrying value of mortgage loans is net of an allowance for loan losses
of $868,000 and $2,526,000 at December 31, 1997 and 1996, respectively. The
maximum and minimum lending rates for commercial mortgage loans made during
1997 were 8.8 percent and 6.9 percent, respectively; the maximum and minimum
lending rates for residential mortgage loans made during 1997 were 9.0 percent
and 4.3 percent, respectively; and the maximum and minimum lending rates for
farm mortgage loans made during 1997 were 8.5 percent and 7.8 percent, respec-
tively. 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 mort-
gages, was 80 percent. Hazard insurance is required on all properties covered
by mortgage loans at least equal to the excess of the loan over the maximum
loan which would be permitted by law on the land without buildings. As of De-
cember 31, 1997, PLH held $1,059,000 of mortgages with interest more than one
year overdue amounting to $137,000. As of December 31, 1997, 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 1997, $440,000
of taxes and maintenance expenses were paid by PLH on property acquired
through foreclosure. During 1997, PLH did not reduce interest rates on any
outstanding mortgages.
3. FINANCIAL INSTRUMENTS
PLH utilizes a variety of financial instruments in its asset/liability man-
agement 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 in-
clude derivative financial instruments, primarily interest rate swap agree-
ments and futures contracts, and commitments to extend credit. Other deriva-
tives, such as forwards, are used to a much lesser extent in the
asset/liability management process. All of these instruments involve (to vary-
ing degrees) elements of market and credit risks in excess of the amounts rec-
ognized 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 expo-
sure 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 con-
tract. This exposure includes settlement risk (risk that the counterparty de-
faults after PLH has delivered funds or securities under the terms of the con-
tract) which results in an accounting loss and replacement cost risk (cost to
replace the contract at current market rates should the counterparty default
prior to the settlement date). There is no off-balance sheet exposure to
credit risk that would result in an immediate accounting loss (settlement
risk) associated with counterparty non-performance on interest rate swap
agreements and futures. Interest rate swap agreements are subject to replace-
ment 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
14
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
and aggregate counterparty exposure limits. In order to limit exposure associ-
ated with counterparty nonperformance 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 $20,344,000 and $22,188,000 at December 31, 1997 and 1996, re-
spectively.
PLH manages interest rate risk through the use of duration analysis. Dura-
tion is a key portfolio management tool and is measured for both assets and
liabilities. For the simplest forms of assets or liabilities, duration is pro-
portional 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 fu-
ture. 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 dura-
tion number. PLH uses derivatives as a less costly and less burdensome alter-
native to restructuring the underlying cash instruments to manage interest
rate risk based upon the aggregate net duration level of its aggregate portfo-
lio. Information is provided below for each significant derivative product
type.
Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payments, without an exchange of the underlying princi-
pal amount. PLH also enters into basis swap agreements where amounts received
are based primarily upon three month LIBOR or less and pays amounts 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 real-
ized on closed or terminated agreements are deferred and amortized as a compo-
nent 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 in-
strument at a specified price. The daily change in fair value for futures used
as accounting hedges both for products that provide a return based on the mar-
ket 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.
The following table summarizes the activity by notional or contract value in
derivative products for 1997 and 1996:
<TABLE>
<CAPTION>
RECEIVE PAY FIXED/
FIXED/PAY RECEIVE
FLOATING FLOATING BASIS FUTURES FORWARDS
---------- ---------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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.... 922,767 10,000 160,640 70,783 250,000
Additions.................... 266,290 25,958 -- 319,168 --
Maturities................... 194,567 -- 22,002 314,449 --
Terminations................. 5,000 -- -- -- --
---------- ------- -------- -------- --------
Balances, December 31, 1997.... $ 989,490 $35,958 $138,638 $ 75,502 $250,000
========== ======= ======== ======== ========
</TABLE>
15
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
During 1997 and 1996, PLH terminated or closed certain interest rate swap
agreements which were
accounted for as hedges. The net deferred gains on these agreements during
1997 and 1996 were $71,000 and $1,279,000, respectively, and are being amor-
tized to investment income over a period of one to six years, the expected re-
maining life of the related investments, 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, residential and/or
farm real estate. At December 31, 1997 and 1996, commitments to extend credit
were $155,185,000 and $136,317,000, respectively. Additionally, at December
31, 1997, PLH has agreed to fund additional investments through the year 2002
in an amount not to exceed $75,313,000.
Concentrations of Credit Risk
PLH limits credit risk by diversifying its investment portfolio among common
and preferred stocks, public bonds, private placement securities, and commer-
cial 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 pur-
chasing insurance protection in certain cases. In addition, PLH establishes
credit approval processes, credit limits and monitoring procedures on an indi-
vidual 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 fi-
nal 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 re-
sult from applying statutory rates to pretax income primarily due to differ-
ences in the statutory and tax treatment of certain statutory investments, de-
ferred policy acquisition costs, bad debts, and differences in policy and con-
tract liabilities.
Included in the statements of changes in capital and surplus are certain ad-
justments increasing surplus by $4,719,000 and $6,546,000 at December 31, 1997
and 1996, respectively, relating to tax accrual adjustments applicable to
prior tax years.
At December 31, 1997, accumulated earnings of PLH for federal income tax
purposes included a "Policyholders' Surplus" account balance of $17,425,000, a
special memorandum tax account. This is a special memorandum account balance
which 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 Policy-
holders' Surplus account. The "Shareholders' Surplus" account is also a spe-
cial memorandum tax account, and generally represents an accumulation of tax-
able income (net of tax thereon) plus the dividends received deduction, tax-
exempt interest, and certain other special deductions as provided by the Act.
At December 31, 1997, the balance in the Shareholders' Surplus account
amounted to approximately $611,347,000. There is no present intention to make
distributions in excess of the Shareholders' Surplus account.
16
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 set-
tlement policies issued during 1987 by CLICO. The agreements were amended in
1988 whereby PLH also assumes 100 percent of the risks reinsured on all struc-
tured settlement, pension buyout, and single premium immediate annuities is-
sued subsequent to 1987 by CLICO. The agreements were also amended in 1988 to
change the agreements from indemnity reinsurance to coinsurance. The agree-
ments were further amended in 1992 whereby CLICO recaptured structured settle-
ments 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 in-
vestment contracts issued by CLICO. The agreement was amended in 1996 to pro-
vide 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 1997 and 1996 was $1,986,000 and $1,733,000, respectively. In addi-
tion, the agreement was amended to provide CLICO with reimbursement of ex-
traordinary expenses related to the assumed policies, including guaranty fund
assessment payments. There were no expense reimbursements made to CLICO in
1997 or 1996.
PLH entered into indemnity reinsurance agreements with PSI in 1987 whereby
PLH assumes 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.
PLH entered into a reinsurance agreement with PSI in 1996 on a coinsurance
basis whereby PLH assumes 100 percent of the risk on certain guaranteed in-
vestment contracts issued by PSI. The agreement provides PSI with profit shar-
ing on the assumed business of up to 20 basis points of account value. The
amount of profit sharing paid to PSI in 1997 and 1996 was $984,000 and
$164,000, respectively.
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
Manufacturers Life Insurance Company of North America (MLIC), formerly North
American Security Life. This agreement coinsured existing deposits of MLIC's
fixed account portion of their variable annuity product business. In addition,
this agreement included prospective coinsurance of future sales of MLIC's
fixed account portion of their variable annuity product. This agreement also
contained a provision which provided 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. Under the initial agreement, PLH re-
ceived cash and invested assets in exchange for its coinsurance of
$724,700,000 of fixed annuity deposits. As of November 1, 1996, the coinsur-
ance agreement was amended whereby PSI recaptured the fixed annuity deposits
from PLH. The recapture resulted in PLH transferring to PSI liabilities previ-
ously reinsured related to the business of $575,450,000 and assets of
$577,000,000 as of December 31, 1996. The $1,550,000 difference represented
the net expense incurred by PLH as of December 31, 1996.
17
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(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, 1997
------------------------------------------------------------------
ASSUMED FROM
------------------------------------------------------------------
CLICO CLICO PSI PSI PSI TOTAL
ITEM ASSUMED (ANNUITIES) (GIC'S) (ANNUITIES) (GIC'S) (MLIC) ASSUMED
- ------------ ----------- --------- ----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Premium income.......... $(173,892) $ (2,555) $(1,982) $(100,941) $ -- $(279,370)
Life, annuity and other
benefits............... 79,100 353,690 10,116 84,908 -- 527,814
Commissions and
expenses............... 6,995 -- 19 -- -- 7,014
Change in reserves or
policyholder contract
deposits............... 178,450 (269,172) 56 45,651 -- (45,015)
<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) (MLIC) ASSUMED
- ------------ ----------- --------- ----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Premium income.......... $(105,397) $(105,319) $ (307) $(244,197) $(126,736) $(581,956)
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
</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:
<TABLE>
<CAPTION>
EXPENSE (REVENUE)
FOR THE YEAR
ENDED DECEMBER 31
------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Premium income assumed............................... $(46,442) $(49,974)
Life, accident and health and other benefit assumed.. 32,957 32,048
Commissions and expense allowances on reinsurance
assumed............................................. 9,143 11,547
Change in policy reserves assumed.................... 2,788 3,983
Other income assumed................................. (167) (165)
</TABLE>
18
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Other Agreements and Transactions with Related Parties
PLH has entered into agreements with its affiliates whereby PLH performs ad-
ministrative 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 $63,000,000 and
$70,000,000 in 1997 and 1996, respectively. Such amounts are classified as re-
ductions of general insurance and other expenses in the accompanying state-
ments of operations.
PLH entered into a revolving credit note with Commonwealth on April 8, 1996,
whereby PLH can borrow from Commonwealth up to $35,000,000. Interest is com-
puted monthly at a rate designated in the note. At December 31, 1997 and 1996,
there was no outstanding balance. During 1997, PLH paid $24,000 in interest
expense related to this note. No such interest expense was incurred or paid
during 1996.
PLH participates in various benefit plans sponsored by Commonwealth 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 cumu-
lative 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 1997, PLH paid ordinary cash dividends of $35,154,000 and paid an ex-
traordinary cash dividend of $84,846,000 ($46,716,000 to CLLP and $73,284,000
to its common stock shareholders). During 1996, PLH paid ordinary cash divi-
dends 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.
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.
Commonwealth provides general management, advisory, legal and other general
services to PLH. Diversified Financial Products, Inc., (DFP), formerly
Providian Capital Management, Inc., an affiliate, provides investment manage-
ment 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 reinsur-
ance agreements provide PLH with increased capacity to write larger risks and
maintain its exposure to loss within its capital resources.
19
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PLH's assumed and ceded reinsurance agreements with affiliated and
nonaffiliated insurance companies reduced (increased) certain items in the ac-
companying financial statements by the following amounts:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSUMED:
Policy and contract liabilities*...................... $3,006,401 $3,040,667
Claim reserves*....................................... 14,169 13,796
Advance premiums*..................................... 908 928
Unearned premium reserves*............................ 6,697 7,273
CEDED:
Benefits paid or provided............................. 743 1,512
Commissions and expense allowances on reinsurance
ceded................................................ (2,323) (1,123)
Other income-reserves on ceded business............... 17 39
Policy and contract liabilities*...................... 1,408 1,412
Claim reserves*....................................... 682 392
Advance premiums*..................................... 9 10
Unearned premium reserves*............................ 43 35
</TABLE>
- --------
* At year end.
For all long-duration contracts, the effect of reinsurance on life and annu-
ity premiums earned in 1997 and 1996 was as follows:
<TABLE>
<CAPTION>
1997 1996
PREMIUMS PREMIUMS
EARNED EARNED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Direct................................................. $168,988 $162,087
Assumed................................................ 238,181 180,812
Ceded.................................................. (608) 187
-------- --------
Net.................................................... $406,561 $343,086
======== ========
</TABLE>
For all short-duration contracts, the effect of all reinsurance agreements
on accident and health premiums written and earned in 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 PREMIUMS 1996 PREMIUMS
------------------ ------------------
WRITTEN EARNED WRITTEN EARNED
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Direct.................................. $ 84,959 $ 84,959 $ 92,721 $ 92,721
Assumed................................. 61,427 61,427 63,960 63,960
Ceded................................... (1,673) (1,673) (1,688) (1,688)
-------- -------- -------- --------
Net..................................... $144,713 $144,713 $154,993 $154,993
======== ======== ======== ========
</TABLE>
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,
1997, PLH reinsurance recoverables are not material and no individual rein-
surer owed PLH an amount equal to or greater than 3% of PLH's surplus.
PLH remains obligated for amounts ceded in the event that the reinsurers do
not meet their obligations.
20
<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 liabil-
ities at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
---------- -------
(IN THOUSANDS)
<S> <C> <C>
Subject to discretionary
withdrawal (with
adjustment):
With market value
adjustment............. $1,360,368 15.0%
At book value less
surrender charge....... 385,683 4.2%
At market value......... 3,519,863 38.7%
---------- -----
5,265,914 57.9%
Subject to discretionary
withdrawal (without
adjustment)
at book value with
minimal or no charge or
adjustment............... 1,691,979 18.6%
Not subject to
discretionary withdrawal. 2,134,391 23.5%
---------- -----
Total annuity reserves and
deposit fund liabilities
before reinsurance....... 9,092,284 100.0%
=====
Less reinsurance.......... --
----------
Net annuity reserves and
deposit fund
liabilities*............. $9,092,284
==========
</TABLE>
- --------
* Includes $3,521,516,000 of annuities reported in PLH's separate account li-
abilities. The remaining balance, $5,570,768,000 is included in aggregate
policy reserves and policyholder contract deposits in the accompanying bal-
ance sheet.
The above amount subject to discretionary withdrawal with market value ad-
justment includes approximately $862,931,000 at December 31, 1997 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, 1997, PLH had $114,171,000 of insurance in force, and re-
lated policy reserves of $559,000, for which the gross premiums were less than
the net premiums according to the standard of valuation set by the state of
Missouri.
8. SEPARATE ACCOUNTS
Separate accounts held by PLH represent funds held for individual policy-
holders. The separate accounts do not have any minimum guarantees and the in-
vestment risks associated with market value changes are borne entirely by the
policyholder. The assets in the separate accounts, carried at estimated fair
value, consist of common stocks, mortgage loans, long-term bonds and cash.
During 1997, PLH made a capital contribution of $26,362,000 to the separate
accounts. At December 31, 1997, the fair value of this capital contribution
was $28,748,000 which is included in the separate account assets but is ex-
cluded from the corresponding liabilities. No such capital contributions were
made during 1996.
21
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Information regarding the separate accounts of PLH as of and for the year
ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
NONINDEXED
GUARANTEED NON-
MORE THAN 4% GUARANTEED TOTAL
------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Premiums, deposits and other
considerations......................... $ 3,481 $ 781,075 $ 784,556
======== ========== ==========
Separate account liabilities*........... $166,241 $3,376,067 $3,542,308
======== ========== ==========
Reserves for separate accounts by
withdrawal characteristics:
Subject to discretionary withdrawal
(with adjustment):
With market value adjustment........ $166,241 $ -- $ 166,241
At market value..................... -- 3,376,067 3,376,067
-------- ---------- ----------
Total separate account liabilities...... $166,241 $3,376,067 $3,542,308
======== ========== ==========
</TABLE>
- --------
* Separate account liabilities are exclusive of $1,996,000 which represents
amounts due to the general account net of other amounts payable as of De-
cember 31, 1997.
A reconciliation of the amounts transferred to and from PLH's separate ac-
counts for the year ended December 31, 1997 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................................ $784,931
Transfers from separate accounts.............................. (189,627)
--------
Net transfers to separate accounts.............................. 595,304
--------
Reconciling adjustments:
Fees paid to external fund manager............................ 2,311
Transfers to modified separate account........................ 2,018
--------
4,329
--------
Transfers as reported in the Summary of Operations
of PLH's Life, Accident & Health Annual Statement.............. $599,633
========
</TABLE>
9. DEFERRED AND UNCOLLECTED PREMIUMS
Deferred and uncollected accident and health and life insurance premiums and
annuity considerations as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
NET OF
TYPE GROSS LOADING LOADING
---- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Ordinary new...................................... $ 2,975 $ 2,161 $ 814
Ordinary renewal.................................. 18,330 5,589 12,741
------- ------- -------
Total ordinary.................................... 21,305 7,750 13,555
------- ------- -------
Group new business................................ 2,399 1,440 959
Group renewal..................................... 39,231 10,013 29,218
------- ------- -------
Total group....................................... 41,630 11,453 30,177
------- ------- -------
Total Life and annuity............................ 62,935 19,203 43,732
Accident and health............................... 2,696 -- 2,696
------- ------- -------
Total............................................. $65,631 $19,203 $46,428
======= ======= =======
</TABLE>
22
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. CAPITAL AND SURPLUS AND STATUTORY RESTRICTIONS ON DIVIDENDS
Life/Health insurance companies are subject to certain Risk-Based Capital
(RBC) requirements as specified by the NAIC. Under those requirements, the
amount of capital and surplus maintained by a life/health insurance company is
to be determined based on the various risk factors related to it. At December
31, 1997, PLH meets the RBC requirements.
PLH is subject to limitations, imposed by the state of Missouri, on the pay-
ment 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 maxi-
mum payment which may be made in 1998, without prior regulatory approval, is
$105,866,000.
11. CONTINGENCIES
In the ordinary course of business, PLH is a defendant in litigation princi-
pally involving insurance policy claims for damages, including compensatory
and punitive damages. In the opinion of management, the outcome of such liti-
gation 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 by PLH in estimating fair
value disclosures for financial instruments in the accompanying financial
statements and notes thereto:
Bonds, Preferred Stocks and Common Stocks
The fair values of bonds, preferred stocks and common stocks are gener-
ally 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 investments in bonds, pre-
ferred 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.
Policy Loans
The carrying values of policy loans reported in the accompanying balance
sheets approximate their fair values.
Cash, Short-Term Investments, Other Invested Assets and Deferred and
Uncollected Premiums
The carrying values of cash, short-term investments, other invested as-
sets and deferred and uncollected premiums reported in the accompanying
balance sheets approximate their fair values.
Investment Contracts
The fair values of floating rate guaranteed investment contracts approxi-
mate their carrying values. The fair values of fixed rate guaranteed in-
vestment contracts and investmenttype fixed annuity contracts are
23
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
estimated using discounted cash flow calculations, based on current inter-
est rates for similar contracts. The fair values of variable annuity con-
tracts 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, res-
idential and farm mortgage loans are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1997
Commercial mortgages................................ $1,376,289 $1,423,046
Residential mortgages............................... 797,525 806,891
Farm mortgages...................................... 95,693 99,515
---------- ----------
$2,269,507 $2,329,452
========== ==========
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
========== ==========
</TABLE>
The carrying values and fair values of PLH's interest rate swap and forward-
rate agreements are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- -------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1997
Interest rate swaps...................................... $ -- $18,417
Forwards................................................. 1,927 1,927
------ -------
$1,927 $20,344
====== =======
DECEMBER 31, 1996
Interest rate swaps...................................... $ -- $21,178
Forwards................................................. 210 210
------ -------
$ 210 $21,388
====== =======
</TABLE>
24
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The carrying values and fair values of PLH's liabilities for investment-type
contracts are summarized as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
DECEMBER 31, 1997
Fixed annuity contracts........................... $2,922,910 $2,968,539
Guaranteed investment contracts................... 1,770,902 1,781,897
Variable annuity contracts *...................... 3,542,308 3,542,308
---------- ----------
$8,236,120 $8,292,744
========== ==========
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
========== ==========
</TABLE>
- --------
*Included in PLH's separate account liabilities.
The fair values for PLH's insurance contracts other than investment con-
tracts are not required to be disclosed. However, the fair values of liabili-
ties under all insurance contracts are taken into consideration in PLH's over-
all management of interest rate risk, such that PLH's exposure to changing in-
terest rates is minimized through the matching of investment maturities with
amounts due under insurance contracts.
13. YEAR 2000 (UNAUDITED)
Commonwealth's parent has adopted and has in place a Year 2000 Assessment
and Planning Project (the Project) to review and analyze its information tech-
nology and systems to determine if they are Year 2000 compatible. Commonwealth
and PLH have begun to convert or modify, where necessary, critical data
processing systems. It is contemplated that the Project will be substantially
completed by early 1999. Commonwealth and PLH do not expect this Project to
have a significant effect on operations. However, to mitigate the effect of
outside influences upon the success of the Project, Commonwealth and PLH have
undertaken communications with their significant customers, suppliers and
other third parties to determine their Year 2000 compatibility and readiness.
Management believes that the issues associated with the Year 2000 will be re-
solved with no material financial impact on Commonwealth and PLH.
Since the Year 2000 computer problem, and its resolution, is complex and
multifaceted, the success of a response plan cannot be conclusively known un-
til the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with ap-
propriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete suc-
cess. Notwithstanding the efforts or results of Commonwealth and PLH, their
ability to function unaffected to and through the Year 2000 may be adversely
affected by actions (or failure to act) of third parties beyond their knowl-
edge or control.
25
<PAGE>
Financial Statements
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Financial Statements
Years ended December 31, 1997 and 1996
CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
<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; Strong International
Stock Fund II; Strong Schafer Value Fund II; T. Rowe Price International Stock;
Dreyfus Small Cap Value; Endeavor Enhanced Index; Stein Roe Special Venture
Fund, Variable Series; Warburg Pincus International Equity; Warburg Pincus Small
Company Growth; Weiss, Peck & Greer's Core Large-Cap Stock Fund; and Weiss, Peck
& Greer's Core Small-Cap Stock Fund Subaccounts) as of December 31, 1997 and
1996, 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, 1997 and 1996, 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, 1997 and 1996, 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 24, 1998
1
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
December 31
1997 1996
---------------------------------------
<S> <C> <C>
ASSETS
Investments:
DFA Small Value Portfolio (cost: $11,488,857 and $7,650,704
in 1997 and 1996, respectively $ 13,514,905 $ 8,584,122
DFA Large Value Portfolio (cost: $16,686,627 and $13,099,100
in 1997 and 1996, respectively) 19,330,542 13,931,100
DFA International Value Portfolio (cost: $13,689,372 and
$10,624,909 in 1997 and 1996, respectively 13,376,851 11,028,225
DFA International Small Portfolio (cost: $8,852,652 and
$6,636,469 in 1997 and 1996, respectively 6,702,050 6,239,162
DFA Short-Term Fixed Portfolio (cost: $9,560,501 and
$8,686,672 in 1997 and 1996, respectively 9,559,254 8,673,478
DFA Global Bond Portfolio (cost: $4,834,572 and $4,031,352 in
1997 and 1996, respectively) 4,543,301 3,884,280
Federated American Leaders Fund II (cost: $3,286,752 and
$905,283 in 1997 and 1996, respectiv 3,656,323 1,038,864
Federated Utility Fund II (cost: $271,649 and $286,346 in 1997
and 1996, respectively) 317,030 303,018
Federated Prime Money Fund II (cost: $3,549,345 and
$5,329,177 in 1997 and 1996, respectively) 3,549,345 5,329,177
Federated High Income Bond Fund II (cost: $5,313,319 and
$1,657,085 in 1997 and 1996, respectively) 5,594,529 1,708,936
Federated Fund for U.S. Government Securities II (cost:
$2,846,690 and $1,276,884 in 1997 and 1996, respectively 2,945,969 1,283,465
Wanger U.S. Small Cap Advisor (cost: $4,897,600 and
$1,350,900 in 1997 and 1996, respectively) 4,986,213 1,556,081
Wanger International Small Cap Advisor (cost: $2,213,083 and
$1,092,518 in 1997 and 1996, respectively 2,098,792 1,146,486
Montgomery Growth Portfolio (cost: $1,187,657 and $437,869
in 1997 and 1996, respectively) 1,235,561 361,986
Montgomery Emerging Markets Portfolio (cost: $3,006,463 and
$1,413,664 in 1997 and 1996, respectively) 2,646,257 1,442,873
</TABLE>
2
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------------------------------------
<S> <C> <C>
Strong International Stock Fund II (cost: $66,299) 58,720 -
Strong Schafer Value Fund II (cost: $204,320) 208,268 -
T. Rowe Price International Stock Portfolio (cost: $226,876) 228,188 -
Dreyfus Small Cap Value Portfolio (cost: $5,449) 5,435 -
Endeavor Enhanced Index Portfolio (cost: $341,678) 345,943 -
Stein Roe Special Venture Fund, Variable Series (cost: $90,061) 85,710 -
Warburg Pincus International Equity Portfolio (cost: $1,213,181) 1,019,757 -
Warburg Pincus Small Company Growth Portfolio (cost: $647,429) 643,218 -
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
---------------------------------------
Total investments 96,652,161 68,175,321
Amounts due from Providian Life and Health Insurance Company - 254,871
---------------------------------------
TOTAL ASSETS 96,652,161 68,430,192
LIABILITIES
Amounts due to Fund Manager 277 -
---------------------------------------
NET ASSETS $ 96,651,884 $ 68,430,192
=======================================
</TABLE>
3
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statement of Assets and Liabilities (continued)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-----------------------------------
<S> <C> <C>
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS
DFA Small Value Subaccount $ 13,514,905 8,584,122
DFA Large Value Subaccount 19,330,542 13,931,100
DFA International Value Subaccount 13,376,851 11,028,225
DFA International Small Subaccount 6,701,243 6,239,162
DFA Short-Term Fixed Subaccount 9,559,254 8,673,478
DFA Global Bond Subaccount 4,543,301 3,884,280
Federated American Leaders Fund II Subaccount 3,656,323 1,038,864
Federated Utility Fund II Subaccount 317,030 303,018
Federated Prime Money Fund II Subaccount 3,549,875 5,584,048
Federated High Income Bond Fund II Subaccount 5,594,529 1,708,936
Federated Fund for U.S. Government Securities II Subaccount 2,945,969 1,283,465
Wanger U.S. Small Cap Advisor Subaccount 4,986,213 1,556,081
Wanger International Small Cap Advisor Subaccount 2,098,792 1,146,486
Montgomery Growth Subaccount 1,235,561 361,986
Montgomery Emerging Markets Subaccount 2,646,257 1,442,873
Strong International Stock Fund II Subaccount 58,720 -
Strong Schafer Value Fund II Subaccount 208,268 -
T. Rowe Price International Stock Subaccount 228,188 -
Dreyfus Small Cap Value Subaccount 5,435 -
Endeavor Enhanced Index Subaccount 345,943 -
Stein Roe Special Venture Fund, Variable Series Subaccount 85,710 -
Warburg Pincus International Equity Subaccount 1,019,757 -
Warburg Pincus Small Company Growth Subaccount 643,218 -
Weiss, Peck & Greer's Core Large-Cap Stock Fund Subaccount - 992,496
Weiss, Peck & Greer's Core Small-Cap Stock Fund Subaccount - 671,572
===================================
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS $ 96,651,884 $ 68,430,192
===================================
</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, 1997
<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 $ 964,467 $ 1,511,391 $ 387,268 $ 160,321 $ 522,524 $ 534,098
Expenses:
Mortality and expense risk and
administrative charges 82,753 122,664 93,206 50,193 66,892 34,014
---------------------------------------------------------------------------------------------
Net investment income (expense) 881,714 1,388,727 294,062 110,128 455,632 500,084
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 5,616,477 7,846,318 2,981,559 1,704,458 4,357,284 2,357,974
Cost of investments sold 4,359,205 6,507,418 2,825,326 2,044,162 4,339,887 2,368,952
---------------------------------------------------------------------------------------------
1,257,272 1,338,900 156,233 (339,704) 17,397 (10,978)
Net unrealized appreciation
(depreciation) of investments:
At end of year 2,026,048 2,643,915 (312,521) (2,150,602) (1,247) (291,271)
At beginning of year 933,418 832,000 403,316 (397,307) (13,194) (147,072)
---------------------------------------------------------------------------------------------
1,092,630 1,811,915 (715,837) (1,753,295) 11,947 (144,199)
---------------------------------------------------------------------------------------------
Net gain (loss) on investments 2,349,902 3,150,815 (559,604) (2,092,999) 29,344 (155,177)
---------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 3,231,616 $ 4,539,542 $ (265,542) $ (1,982,871) $ 484,976 $ 344,907
=============================================================================================
<CAPTION>
FEDERATED FEDERATED
AMERICAN FEDERATED FEDERATED HIGH FUND FOR U.S WANGER U.S.
LEADERS FEDERATED PRIME MONEY INCOME BOND GOVERNMENT SMALL CAP
FUND II UTILITY FUND II FUND II FUND II SECURITIES II ADVISOR
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 27,161 $ 12,748 $ 240,456 $ 171,009 $ 65,889 $ 39,736
Expenses:
Mortality and expense risk and
administrative charges 11,895 1,764 34,230 23,082 12,850 17,817
----------------------------------------------------------------------------------------------
Net investment income (expense) 15,266 10,984 206,226 147,927 53,039 21,919
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 850,229 259,989 18,159,989 1,475,916 715,938 4,314,935
Cost of investments sold 737,739 240,951 18,159,989 1,429,223 704,270 3,441,892
----------------------------------------------------------------------------------------------
112,490 19,038 - 46,693 11,668 873,043
Net unrealized appreciation
(depreciation) of investments:
At end of year 369,571 45,381 - 281,210 99,279 88,613
At beginning of year 133,581 16,672 - 51,851 6,581 205,181
----------------------------------------------------------------------------------------------
235,990 28,709 - 229,359 92,698 (116,568
----------------------------------------------------------------------------------------------
Net gain (loss) on investments 348,480 47,747 - 276,052 104,366 756,475
----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 363,746 $ 58,731 $ 206,226 $ 423,979 $ 157,405 $ 778,394
==============================================================================================
<CAPTION>
WANGER
INTERNATIONAL MONTGOMERY STRONG STRONG T. ROWE PRICE
SMALL CAP MONTGOMERY EMERGING INTERNATIONAL SCHAFER VALUE INTERNATIONAL
ADVISOR GROWTH MARKETS STOCK FUND II FUND II STOCK
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 31,551 $ 58,920 $ 4,326 $ 103 $ 388 $ -
Expenses:
Mortality and expense risk and
administrative charges 12,075 5,319 17,016 171 152 267
---------------------------------------------------------------------------------------------
Net investment income (expense) 19,476 53,601 (12,690) (68) 236 (267)
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 1,683,393 573,118 2,611,381 53,103 286 404,046
Cost of investments sold 1,627,210 602,510 2,384,353 55,691 288 410,632
---------------------------------------------------------------------------------------------
56,183 (29,392) 227,028 (2,588) (2) (6,586)
Net unrealized appreciation
(depreciation) of investments:
At end of year (114,291) 47,904 (360,206) (7,579) 3,948 1,312
At beginning of year 53,968 (75,883) 29,209 - - -
---------------------------------------------------------------------------------------------
(168,259) 123,787 (389,415) (7,579) 3,948 1,312
---------------------------------------------------------------------------------------------
Net gain (loss) on investments (112,076) 94,395 (162,387) $(10,167) 3,946 (5,274)
---------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ (92,600) $ 147,996 $ (175,077) (10,235) 4,182 (5,541)
=============================================================================================
<CAPTION>
STEIN ROE WARBURG WARBURG
ENDEAVOR SPECIAL VENTURE PINCUS PINCUS SMALL
DREYFUS SMALL ENHANCED FUND, VARIABLE INTERNATIONAL COMPANY
CAP VALUE INDEX SERIES EQUITY GROWTH
----------------------------------------------------------------------------------------------
Investment income:
Dividends $ - $ - $ - $ 63,838 $ -
Expenses:
Mortality and expense risk and
administrative charges 3 353 202 2,715 1,645
----------------------------------------------------------------------------------------------
Net investment income (expense) (3) (353) (202) 61,123 (1,645)
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 3 25,843 27,646 59,899 608,381
Cost of investments sold 3 25,889 27,718 71,146 563,616
----------------------------------------------------------------------------------------------
- (46) (72) (11,247) 44,765
Net unrealized appreciation
(depreciation) of investments:
At end of year (14) 4,265 (4,351) (193,424) (4,211)
At beginning of year - - - - -
----------------------------------------------------------------------------------------------
(14) 4,265 (4,351) (193,424) (4,211)
----------------------------------------------------------------------------------------------
Net gain (loss) on investments (14) 4,219 (4,423) (204,671) 40,554
----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ (17) $ 3,866 $ (4,625) $ (143,548) $ 38,909
==============================================================================================
<CAPTION>
WEISS, PECK & WEISS, PECK &
GREER'S CORE GREER'S CORE
LARGE-CAP SMALL-CAP TOTAL
STOCK FUND STOCK FUND
-------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends $ - $ - $ 4,796,194
Expenses:
Mortality and expense risk and
administrative charges 8,029 3,930 603,237
-------------------------------------------------------------
Net investment income (expense) (8,029) (3,930) 4,192,957
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 2,886,717 1,624,750 61,199,632
Cost of investments sold 2,526,550 1,365,772 56,820,392
-------------------------------------------------------------
360,167 258,978 4,379,240
Net unrealized appreciation
(depreciation) of investments:
At end of year - - 2,171,729
At beginning of year 37,023 44,010 2,113,354
-------------------------------------------------------------
(37,023) (44,010) 58,375
-------------------------------------------------------------
Net gain (loss) on investments 323,144 214,968 4,437,615
-------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 315,115 $ 211,038 $ 8,630,572
=============================================================
</TABLE>
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statement of Operations
Year ended December 31, 1996
<TABLE>
<CAPTION>
FEDERATED
DFA DFA DFA AMERICAN
DFA SMALL DFA LARGE INTERNATIONAL INTERNATIONAL SHORT-TERM DTA GLOBAL LEADERS FUND
VALUE VALUE VALUE SMALL FIXED BOND II
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 97,770 $ 632,933 $ 143,523 $ 172,945 $259,364 $ 381,220 $ 10,418
Expenses:
Mortality and expense risk and
administrativ e charges 32,129 58,945 47,120 28,815 28,815 18,639 4,331
----------------------------------------------------------------------------------------------
Net investment income (expense) 65,641 573,988 96,403 144,130 230,549 362,581 6,087
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 593,769 2,784,190 1,101,576 367,091 668,375 464,952 501,411
Cost of investments sold 554,356 2,666,822 1,054,715 355,524 668,794 462,730 492,952
----------------------------------------------------------------------------------------------
39,413 117,368 46,861 11,567 (419) 2,222 8,459
Net unrealized appreciation
(depreciation) of investments:
At end of year 933,418 832,000 403,316 (397,307) (13,194) (147,072) 133,581
At beginning of year 28,633 75,680 154,846 54,231 (2,386) (10,179) 9,250
----------------------------------------------------------------------------------------------
904,785 756,320 248,470 (451,538) (10,808) (136,893) 124,331
----------------------------------------------------------------------------------------------
Net gain (loss) on investments 944,198 873,688 295,331 (439,971) (11,227) (134,671) 132,790
----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $1,009,839 $1,447,676 $ 391,734 $(295,841) $219,322 $ 227,910 $138,877
==============================================================================================
<CAPTION>
FEDERATED WAGNER
FEDERATED FEDERATED FEDERATED HIGH FUND FOR U.S WANGER U.S. INTERNATIONAL
UTILITY PRIME INCOME BOND GOVERNMENT SMALL CAP SMALL CAP MONTGOMERY
FUND II MONEY FUND II FUND II SECURITIES II ADVISOR ADVISOR GROWTH
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 10,709 $ 183,473 $ 62,660 $ 36,643 $ 539 $ 227 $ 16,611
Expenses:
Mortality and expense risk and
administrative charges 1,728 26,184 4,547 4,051 5,361 2,329 967
-----------------------------------------------------------------------------------------------
Net investment income (expense) 8,981 157,289 58,113 32,592 (4,822) (2,102) 15,644
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 108,349 8,181,733 250,595 121,655 782,253 198,376 100,683
Cost of investments sold 103,980 8,181,733 245,936 121,734 743,676 189,132 3,695
-----------------------------------------------------------------------------------------------
4,369 - 4,659 (79) 38,577 9,244 96,988
Net unrealized appreciation
(depreciation) of investments:
At end of year 16,672 - 51,851 6,581 205,181 53,968 (75,883)
At beginning of year 1,107 - 345 324 (3,919) 2,066 -
-----------------------------------------------------------------------------------------------
15,565 - 51,506 6,257 209,100 51,902 (75,883)
-----------------------------------------------------------------------------------------------
Net gain (loss) on investments 19,934 - 56,165 6,178 247,677 61,146 21,105
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 28,915 $ 157,289 $114,278 $ 38,770 $242,855 $ 59,044 $ 36,749
===============================================================================================
<CAPTION>
WEISS, PECK & WEISS, PECK &
MONTGOMERY GREER'S CORE GREER'S CORE SEI
EMERGING LARGE-CAP SMALL-CAP INTERNATIONAL SEI SEI AGGRESSIVE SEI INCOME
MARKETS STOCK FUND STOCK FUND GROWTH GROWTH GROWTH EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 3,737 $ 27,853 $15,562 $ - $ 56 $ - $ 397
Expenses:
Mortality and expense risk and
administrative charges 4,144 2,045 1,164 32 128 54 161
-----------------------------------------------------------------------------------------------
Net investment income (expense) (407) 25,808 14,398 (32) (72) (54) 236
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 167,618 383,697 11,330 41,453 68,477 59,922 80,756
Cost of investments sold 167,313 374,777 8,143 40,492 67,183 58,256 77,285
-----------------------------------------------------------------------------------------------
305 8,920 3,187 961 1,294 1,666 3,471
Net unrealized appreciation
(depreciation) of investments:
At end of year 29,209 37,023 44,010 - - - -
At beginning of year - - - 485 (349) 1,035 (983)
-----------------------------------------------------------------------------------------------
29,209 37,023 44,010 (485) 349 (1,035) 983
-----------------------------------------------------------------------------------------------
Net gain (loss) on investments 29,514 45,943 47,197 476 1,643 631 4,454
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 29,107 $ 71,751 $ 61,595 $ 444 $ 1,571 $ 577 $ 4,690
=============================================================================================
<CAPTION>
SEI INTERMEDIATE
FIXED INCOME TOTAL
- -------------------------------------------------------------------
<S> <C> <C>
Investment income:
Dividends $ 1,522 $ 2,058,162
Expenses:
Mortality and expense risk and
administrative charges 219 271,908
---------------------------------
Net investment income (expense) 1,303 1,786,254
Realized and unrealized gain
(loss) on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 162,847 17,201,108
Cost of investments sold 166,608 16,805,836
---------------------------------
(3,761) 395,272
Net unrealized appreciation
(depreciation) of investments:
At end of year - 2,113,354
At beginning of year 1,571 311,757
---------------------------------
(1,571) 1,801,597
---------------------------------
Net gain (loss) on investments (5,332) 2,196,869
---------------------------------
Net increase (decrease) in net
assets resulting from operations $ (4,029) $ 3,983,123
=================================
</TABLE>
See accompanying notes.
6
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Statement of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
DFA DFA
DFA SMALL DFA LARGE INTERNATIONAL INTERNATIONAL
VALUE VALUE VALUE SMALL
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ 8,584,122 $ 13,931,100 $ 11,028,225 $ 6,239,162
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) 881,714 1,388,727 294,062 110,128
Net realized gain (loss) on investments 1,257,272 1,338,900 156,233 (339,704)
Net unrealized appreciation (depreciation)
of investments 1,092,630 1,811,915 (715,837) (1,753,295)
---------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 3,231,616 4,539,542 (265,542) (1,982,871)
Changes from variable annuity contract transactions:
Transfers of net premiums 2,486,689 3,832,376 3,268,144 1,710,998
Transfers for terminations (1,471,808) (2,205,491) (1,731,719) (985,234)
Transfers for annuity benefits (592) (569) (228) (190)
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 684,878 (766,416) 1,077,971 1,719,378
---------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 1,699,167 859,900 2,614,168 2,444,952
---------------------------------------------------------
Net increase (decrease) in net assets 4,930,783 5,399,442 2,348,626 462,081
---------------------------------------------------------
Balance at December 31, 1997 $ 13,514,905 $ 19,330,542 $ 13,376,851 $ 6,701,243
=========================================================
<CAPTION>
FEDERATED
AMERICAN FEDERATED FEDERATED
DFA SHORT- DFA GLOBAL LEADERS UTILITY PRIME MONEY
TERM FIXED BOND FUND II FUND II FUND II
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $ 8,673,478 $ 3,884,280 $ 1,038,864 $ 303,018 $ 5,584,048
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) 455,632 500,084 15,266 10,984 206,226
Net realized gain (loss) on investments 17,397 (10,978) 112,490 19,038 -
Net unrealized appreciation (depreciation)
of investments 11,947 (144,199) 235,990 28,709 -
-------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 484,976 344,907 363,746 58,731 206,226
Changes from variable annuity contract transactions:
Transfers of net premiums 2,289,000 1,233,894 1,015,394 122,628 7,342,353
Transfers for terminations (2,435,539) (755,238) (219,672) (36,898) (2,810,859)
Transfers for annuity benefits (1,582) (1,666) - - -
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 548,921 (162,876) 1,457,991 (130,449) (6,771,893)
-------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 400,800 314,114 2,253,713 (44,719) (2,240,399)
-------------------------------------------------------------------
Net increase (decrease) in net assets 885,776 659,021 2,617,459 14,012 (2,034,173)
-------------------------------------------------------------------
Balance at December 31, 1997 $ 9,559,254 $ 4,543,301 $ 3,656,323 $ 317,030 $ 3,549,875
===================================================================
<CAPTION>
FEDERATED WANGER
FEDERATED HIGH FUND FOR U.S. WANGER U.S. INTERNATIONAL
INCOME BOND GOVERNMENT SMALL CAP SMALL CAP
FUND II SECURITIES II ADVISOR ADVISOR
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ 1,708,936 $ 1,283,465 $ 1,556,081 $ 1,146,486
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) 147,927 53,039 21,919 19,476
Net realized gain (loss) on investments 46,693 11,668 873,043 56,183
Net unrealized appreciation (depreciation)
of investments 229,359 92,698 (116,568) (168,259)
--------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 423,979 157,405 778,394 (92,600)
Changes from variable annuity contract transactions:
Transfers of net premiums 2,451,641 1,509,515 1,276,053 1,046,974
Transfers for terminations (513,745) (232,081) (198,851) (168,858)
Transfers for annuity benefits - - - -
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 1,523,718 227,665 1,574,536 166,790
--------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 3,461,614 1,505,099 2,651,738 1,044,906
--------------------------------------------------------------
Net increase (decrease) in net assets 3,885,593 1,662,504 3,430,132 952,306
--------------------------------------------------------------
Balance at December 31, 1997 $ 5,594,529 $ 2,945,969 $ 4,986,213 $ 2,098,792
==============================================================
<CAPTION>
STRONG T. ROWE
MONTGOMERY STRONG SCHAFER PRICE
MONTGOMERY EMERGING INTERNATIONAL VALUE INTERNATIONAL
GROWTH MARKETS STOCK FUND II FUND II STOCK
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $ 361,986 $ 1,442,873 $ - $ - $ -
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) 53,601 (12,690) (68) 236 (267)
Net realized gain (loss) on investments (29,392) 227,028 (2,588) (2) (6,586)
Net unrealized appreciation (depreciation)
of investments 123,787 (389,415) (7,579) 3,948 1,312
--------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 147,996 (175,077) (10,235) 4,182 (5,541)
Changes from variable annuity contract transactions:
Transfers of net premiums 450,494 1,521,737 62,049 80,917 77,833
Transfers for terminations (48,237) (161,380) (916) (130) -
Transfers for annuity benefits - - - - -
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 323,322 18,104 7,822 123,299 155,896
-------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 725,579 1,378,461 68,955 204,086 233,729
-------------------------------------------------------------------
Net increase (decrease) in net assets 873,575 1,203,384 58,720 208,268 228,188
-------------------------------------------------------------------
Balance at December 31, 1997 $ 1,235,561 $ 2,646,257 $ 58,720 $ 208,268 $ 228,188
===================================================================
<CAPTION>
STEIN ROE WARBURG
DREYFUS ENDEAVOR SPECIAL VENTURE PINCUS
SMALL CAP ENHANCED FUND, VARIABLE INTERNATIONAL
VALUE INDEX SERIES EQUITY
-------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ - $ - $ - $ -
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) (3) (353) (202) 61,123
Net realized gain (loss) on investments - (46) (72) (11,247)
Net unrealized appreciation (depreciation)
of investments (14) 4,265 (4,351) (193,424)
-------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations (17) 3,866 (4,625) (143,548)
Changes from variable annuity contract transactions:
Transfers of net premiums 3,084 - 58,768 754,420
Transfers for terminations - (2,479) (1,027) (14,436)
Transfers for annuity benefits - - - -
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 2,368 344,556 32,594 423,321
-------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 5,452 342,077 90,335 1,163,305
-------------------------------------------------------
Net increase (decrease) in net assets 5,435 345,943 85,710 1,019,757
-------------------------------------------------------
Balance at December 31, 1997 $ 5,435 $ 345,943 $ 85,710 $ 1,019,757
=======================================================
<CAPTION>
WARBURG WEISS, PECK & WEISS, PECK &
PINCUS GREER'S CORE GREER'S CORE
COMPANY LARGE-CAP SMALL-CAP
GROWTH STOCK FUND STOCK FUND TOTAL
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ - $ 992,496 $ 671,572 $ 68,430,192
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) (1,645) (8,029) (3,930) 4,192,957
Net realized gain (loss) on investments 44,765 360,167 258,978 4,379,240
Net unrealized appreciation (depreciation)
of investments (4,211) (37,023) (44,010) 58,375
--------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 38,909 315,115 211,038 8,630,572
Changes from variable annuity contract transactions:
Transfers of net premiums 265,257 1,006,757 451,518 34,318,493
Transfers for terminations (11,331) (129,632) (121,906) (14,257,467)
Transfers for annuity benefits - - - (4,827)
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 350,383 (2,184,736) (1,212,222) (465,079)
--------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 604,309 (1,307,611) (882,610) 19,591,120
--------------------------------------------------------------
Net increase (decrease) in net assets 643,218 (992,496) (671,572) 28,221,692
--------------------------------------------------------------
Balance at December 31, 1997 $ 643,218 $ - $ - $ 96,651,884
==============================================================
</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, 1996
<TABLE>
<CAPTION>
DFA DFA DFA
DFA SMALL DFA LARGE INTERNATIONAL INTERNATIONAL SHORT-TERM
VALUE VALUE VALUE SMALL FIXED
--------------------------------------------------------------------
<S> <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
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) 65,641 573,988 96,403 144,130 230,549
Net realized gain (loss) on investments 39,413 117,368 46,861 11,567 (419)
Net unrealized appreciation (depreciation)
of investments 904,785 756,320 248,470 (451,538) (10,808)
--------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 1,009,839 1,447,676 391,734 (295,841) 219,322
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
Transfers for terminations (80,040) (233,893) (214,889) (82,736) (277,338)
Transfers for annuity benefits (381) (569) (180) (179) (1,243)
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
------------------------------------------------------------------
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
-------------------------------------------------------------------
Net increase (decrease) in net assets 6,961,868 9,616,401 8,173,809 4,325,762 7,645,801
-------------------------------------------------------------------
Balance at December 31, 1996 $ 8,584,122 $13,931,100 $11,028,225 $ 6,239,162 $ 8,673,478
===================================================================
<CAPTION>
FEDERATED FEDERATED
AMERICAN PRIME MONEY FEDERATED
DFA GLOBAL LEADERS FEDERATED FUND HIGH INCOME
BOND FUND II UTILITY FUND II II BOND FUND II
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $ 1,728,410 $ 129,032 $ 22,979 $ 3,806,256 $ 64,819
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) 362,581 6,087 8,981 157,289 58,113
Net realized gain (loss) on investments 2,222 8,459 4,369 - 4,659
Net unrealized appreciation (depreciation)
of investments (136,893) 124,331 15,565 - 51,506
--------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 227,910 138,877 28,915 157,289 114,278
Changes from variable annuity contract transactions:
Transfers of net premiums 1,756,915 627,867 70,733 8,737,254 995,539
Transfers for terminations (45,047) (131,099) - (150,314) (29,989)
Transfers for annuity benefits (1,606) - - - -
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 217,698 274,187 180,391 (6,966,437) 564,289
--------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 1,927,960 770,955 251,124 1,620,503 1,529,839
--------------------------------------------------------------------
Net increase (decrease) in net assets 2,155,870 909,832 280,039 1,777,792 1,644,117
--------------------------------------------------------------------
Balance at December 31, 1996 $ 3,884,280 $1,038,864 $ 303,018 $ 5,584,048 $ 1,708,936
====================================================================
<CAPTION>
FEDERATED
FUND FOR U.S WANGER
GOVERNMENT WANGER U.S. INTERNATIONAL MONTGOMERY
SECURITIES SMALL CAP SMALL CAP MONTGOMERY EMERGING
II ADVISOR ADVISOR GROWTH MARKETS
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1996 75,655 $ 211,326 $ 46,241 $ - $ -
Increase (decrease) in net assets resulting from operations:
Net investment income (expense) 32,592 (4,822) (2,102) 15,644 (407)
Net realized gain (loss) on investments (79) 38,577 9,244 96,988 305
Net unrealized appreciation (depreciation)
of investments 6,257 209,100 51,902 (75,883) 29,209
---------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 38,770 242,855 59,044 36,797 29,107
Changes from variable annuity
contract transactions:
Transfers of net premiums 724,884 746,483 654,948 220,587 1,023,332
Transfers for terminations (480) (11,916) (2,565) - (6,702)
Transfers for annuity benefits - - - - -
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account 444,636 367,333 388,818 104,650 397,136
---------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 1,169,040 1,101,900 1,041,201 325,237 1,413,766
---------------------------------------------------------------------
Net increase (decrease) in net assets 1,207,810 1,344,755 1,100,245 361,986 1,442,873
---------------------------------------------------------------------
Balance at December 31, 1996 1,283,465 $1,556,081 $ 1,146,486 361,986 1,442,873
=====================================================================
<CAPTION>
WEISS, PECK WEISS, PECK
& GREER'S & GREER'S
CORE LARGE- CORE SMALL- SEI
CAP STOCK CAP STOCK INTERNATIONAL SEI
FUND FUND GROWTH GROWTH
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996 $ - $ - $ 25,184 (65,905)
Increase (decrease) in net assets
resulting from operations:
Net investment income (expense) 25,808 14,398 (32) (72)
Net realized gain (loss) on investments 8,920 3,187 961 1,294
Net unrealized appreciation (depreciation)
of investments 37,023 44,010 (485) 349
-------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 71,751 61,595 444 1,571
Changes from variable annuity contract transactions:
Transfers of net premiums 780,685 581,633 14,648 -
Transfers for terminations (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 143,389 33,628 (40,276) (67,476)
----------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 920,745 609,977 (25,628) (67,476)
----------------------------------------------------------------
Net increase (decrease) in net assets 992,496 671,572 (25,184) (65,905)
----------------------------------------------------------------
Balance at December 31, 1996 $ 992,496 $ 671,572 $ - $ -
================================================================
<CAPTION>
SEI SEI
AGRESSIVE SEI INCOME INTERMEDIATE
GROWTH EQUITY FIXED INCOME TOTAL
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996 $ 40,935 $ 75,931 (121,203) $18,146,322
Increase (decrease) in net assets
resulting from operations: (54) 236 1,303 1,786,254
Net investment income (expense) 1,666 3,471 (3,761) 395,272
Net realized gain (loss) on investments
Net unrealized appreciation (depreciation)
of investments (1,035) 983 (1,571) 1,801,597
-----------------------------------------------------------
Net increase (decrease) in net assets 577 4,690 (4,029) 3,983,123
resulting from operations
1,375 - 44,662 47,791,599
Changes from variable annuity contract transactions: - - - (1,275,621)
Transfers of net premiums - - - (4,158)
Transfers for terminations
Transfers for annuity benefits
Net transfers within Separate Account V-
Advisor's Edge and transfers to and
from the General Account (42,887) (80,621) (161,836) (211,073)
-----------------------------------------------------------
(41,512) (80,621) (117,174) 46,300,747
Net increase (decrease) in net assets derived
-----------------------------------------------------------
from variable annuity contract transactions (40,935) (75,931) (121,203) 50,283,870
-----------------------------------------------------------
Net increase (decrease) in net assets $ - $ - $ - $ 68,430,192
===========================================================
Balance at December 31, 1996
</TABLE>
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements
December 31, 1997
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"), 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.
Prior to June 10, 1997, PLH was an indirect, wholly owned subsidiary of
Providian Corporation ("Providian"). On June 10, 1997, Providian's insurance
operations, including the operations of PLH, were merged with an indirect,
wholly owned subsidiary of AEGON N.V., an international insurance organization
headquartered in The Hague, The Netherlands. Providian was the surviving
corporation in the merger. Effective October 15, 1997, Providian's name was
changed to Commonwealth General Corporation ("CGC"). Effective December 31,
1997, ownership of CGC was transferred to AEGON USA, Inc., an indirect, wholly
owned subsidiary of AEGON N.V.
As of December 31, 1997, the Separate Account has twenty-three subaccounts that
invest exclusively in shares of the corresponding portfolios of DFA Investment
Dimensions Group, Inc. (advised by Dimensional Fund Advisors, Inc.), The
Federated Insurance Series (advised by Federated Advisers), Wanger Advisors
Trust (advised by Wanger Asset Management, L.P.), The Montgomery Funds III
(advised by Montgomery Asset Management, LLC), Strong Variable Insurance Funds,
Inc. (advised by Strong Capital Management, Inc.), Endeavor Series Trust
(advised by Endeavor Investment Advisers), SteinRoe Variable Investment Trust
(advised by Stein Roe & Farnham Incorporated), and Warburg Pincus Trust (advised
by Warburg Pincus Asset Management, Inc., formerly Warburg Pincus Counsellors,
Inc.) (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, 1997 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
THE FEDERATED INSURANCE SERIES
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 ADVISORS TRUST
Wanger U.S. Small Cap Advisor
Wanger International Small Cap Advisor
THE MONTGOMERY FUNDS III
Montgomery Growth Portfolio
Montgomery Emerging Markets Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.
Strong International Stock Fund II
Strong Schafer Value Fund II
ENDEAVOR SERIES TRUST
T. Rowe Price International Stock Portfolio
Dreyfus Small Cap Value Portfolio
Endeavor Enhanced Index Portfolio
10
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
STEINROE VARIABLE INVESTMENT TRUST
Stein Roe Special Venture Fund, Variable Series
WARBURG PINCUS TRUST
Warburg Pincus International Equity Portfolio
Warburg Pincus Small Company Growth Portfolio
The subaccounts corresponding to the portfolios of SteinRoe Variable Investment
Trust, the Warburg Pincus Trust, and the Strong International Stock Fund II
Subaccount of the Strong Variable Insurance Funds, Inc. were added to the
Separate Account in March 1997.
The subaccounts corresponding to the portfolios of Endeavor Series Trust and the
Strong Schafer Value Fund II subaccount of the Strong Variable Insurance Funds,
Inc. were added to the Separate Account in October 1997.
Prior to October 1997, the Separate Account had 2 additional subaccounts that
invested exclusively in shares of the following portfolios of Tomorrow Funds
Retirement Trust (advised by Weiss, Peck & Greer, L.L.C.): Weiss, Peck &
Greer's Core Large-Cap Stock Fund Portfolio and Weiss, Peck & Greer's Core
Small-Cap Stock Fund Portfolio. Effective October 1997, contract owners were no
longer permitted to allocate purchase payments to, or transfers into, these
subaccounts.
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. are no longer available to new contract owners within this Separate
Account. Existing contract owners may continue to allocate purchase payments
to, or transfers into, these subaccounts.
11
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
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 and a five day grace 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.
INVESTMENTS
The Separate Account purchases shares of the portfolios at net asset value in
connection with premium payments allocated to the subaccounts in accordance with
contract owners' directions and redeems shares of the portfolios 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 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.
12
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
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. A fourth
fixed option will be made available in 1998.
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.
13
<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, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------
NET ASSET FAIR
PORTFOLIO SHARES VALUE VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DFA Small Value 942,461.994 $14.34 $13,514,905
DFA Large Value 1,267,576.525 15.25 19,330,542
DFA International Value 1,265,548.817 10.57 13,376,851
DFA International Small Value 908,136.856 7.38 6,702,050
DFA Short-Term Fixed 954,017.365 10.02 9,559,254
DFA Global Bond 465,502.152 9.76 4,543,301
Federated American Leaders Fund II 186,261.997 19.63 3,656,323
Federated Utility Fund II 22,185.444 14.29 317,030
Federated Prime Money Fund II 3,549,344.787 1.00 3,549,345
Federated High Income Bond Fund II 510,915.890 10.95 5,594,529
Federated Fund for U.S. Government
Securities II 279,503.700 10.54 2,945,969
Wanger U.S. Small Cap Advisor 232,349.161 21.46 4,986,213
Wanger International Small Cap Advisor 123,096.305 17.05 2,098,792
Montgomery Growth 81,879.457 15.09 1,235,561
Montgomery Emerging Markets 250,355.440 10.57 2,646,257
Strong International Stock Fund II 6,300.430 9.32 58,720
Strong Schafer Value Fund II 21,037.172 9.90 208,268
T. Rowe Price International Stock 16,046.976 14.22 228,188
Dreyfus Small Cap Value 331.200 16.41 5,435
Endeavor Enhanced Index 28,148.332 12.29 345,943
Stein Roe Special Venture Fund, Variable
Series 4,761.667 18.00 85,710
Warburg Pincus International Equity 97,212.297 10.49 1,019,757
Warburg Pincus Small Company Growth 39,030.218 16.48 643,218
-----------
$96,652,161
===========
</TABLE>
14
<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, 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>
15
<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, 1997
and 1996 for each of the respective portfolios is as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------------------
<S> <C> <C>
DFA Small Value $ 8,197,358 $ 6,611,439
DFA Large Value 10,094,945 11,526,903
DFA International Value 5,889,789 8,980,054
DFA International Small 4,260,345 5,132,824
DFA Short-Term Fixed 5,213,716 8,325,403
DFA Global Bond 3,172,172 2,755,494
Federated American Leaders Fund II 3,119,208 1,278,453
Federated Utility Fund II 226,254 368,454
Federated Prime Money Fund II 16,380,157 10,141,496
Federated High Income Bond Fund II 5,085,457 1,838,547
Federated Fund for U.S. Government Securities II 2,274,076 1,323,286
Wanger U.S. Small Cap Advisor 6,988,592 1,879,331
Wanger International Small Cap Advisor 2,747,775 1,237,475
Montgomery Growth 1,352,298 441,564
Montgomery Emerging Markets 3,977,152 1,580,977
Strong International Stock Fund II 121,990 -
Strong Schafer Value Fund II 204,608 -
T. Rowe Price International Stock 637,508 -
Dreyfus Small Cap Value 5,452 -
Endeavor Enhanced Index 367,567 -
Stein Roe Special Venture Fund, Variable Series 117,779 -
Warburg Pincus International Equity 1,284,327 -
Warburg Pincus Small Company Growth 1,211,045 -
Weiss, Peck & Greer's Core Large-Cap Stock Fund 1,571,077 1,330,250
Weiss, Peck & Greer's Core Small-Cap Stock Fund 738,210 635,705
SEI International Growth - 15,794
SEI Growth - 929
SEI Aggressive Growth - 18,356
SEI Income Equity - 371
SEI Intermediate Fixed Income - 46,977
-----------------------------
$ 85,238,857 $65,470,082
=============================
</TABLE>
16
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES
Operations of the Separate Account are included in the federal income tax return
of PLH, which is taxed as a life insurance company under the Internal Revenue
Code. The Separate Account will not be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code. Under current federal income
tax law, no federal income taxes are payable with respect to the Separate
Account.
4. ADVISORY AND SERVICE FEES
The Funds and their advisors furnish corporate management, administrative,
marketing and distribution services 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,
1997 and 1996, 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.
17
<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 1997 and 1996 and end of period
values for each of the respective subaccounts were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
<S> <C> <C>
DFA SMALL VALUE
Outstanding units at beginning
of period 711,633.813 163,078.091
Issuance of units 523,358.250 599,098.907
Redemption of units (370,502.684) (50,543.185)
--------------------- ---------------------
Outstanding units at end of period 864,489.379 711,633.813
===================== =====================
End of period:
Unit value $ 15.633396 $ 12.062555
===================== =====================
Subaccount value $ 13,514,905 $ 8,584,122
===================== =====================
DFA LARGE VALUE
Outstanding units at beginning
of period 983,457.962 358,553.292
Issuance of units 532,720.456 837,229.882
Redemption of units (453,311.799) (212,325.212)
--------------------- ---------------------
Outstanding units at end of period 1,062,866.619 983,457.962
===================== =====================
End of period:
Unit value $ 18.187176 $ 14.165425
===================== =====================
Subaccount value $ 19,330,542 $ 13,931,100
===================== =====================
DFA INTERNATIONAL VALUE
Outstanding units at beginning
of period 983,425.366 271,241.506
Issuance of units 496,446.228 809,179.722
Redemption of units (251,828.377) (96,995.862)
--------------------- ---------------------
Outstanding units at end of period 1,228,043.217 983,425.366
===================== =====================
End of period:
Unit value $ 10.892818 $ 11.214095
===================== =====================
Subaccount value $ 13,376,851 $ 11,028,225
===================== =====================
</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>
1997 1996
--------------------- ---------------------
<S> <C> <C>
DFA INTERNATIONAL SMALL
Outstanding units at beginning
of period 617,388.083 188,596.818
Issuance of units 427,566.255 460,065.826
Redemption of units (175,566.685) (31,274.561)
--------------------- ---------------------
Outstanding units at end of period 869,387.653 617,388.083
===================== =====================
End of period:
Unit value $ 7.708003 $ 10.105738
===================== =====================
Subaccount value $ 6,701,243 $ 6,239,162
===================== =====================
DFA SHORT-TERM FIXED
Outstanding units at beginning
of period 821,350.934 101,709.022
Issuance of units 438,191.217 780,211.693
Redemption of units (397,455.058) (60,569.781)
--------------------- ---------------------
Outstanding units at end of period 862,087.093 821,350.934
===================== =====================
End of period:
Unit value $ 11.088502 $ 10.560015
===================== =====================
Subaccount value $ 9,559,254 $ 8,673,478
===================== =====================
DFA GLOBAL BOND
Outstanding units at beginning
of period 317,469.922 152,950.452
Issuance of units 210,701.127 204,392.722
Redemption of units (181,423.606) (39,873.252)
--------------------- ---------------------
Outstanding units at end of period 346,747.443 317,469.922
===================== =====================
End of period:
Unit value $ 13.102623 $ 12.235112
===================== =====================
Subaccount value $ 4,543,301 $ 3,884,280
===================== =====================
</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>
1997 1996
------------------ -----------------
<S> <C> <C>
FEDERATED AMERICAN LEADERS FUND II
Outstanding units at beginning
of period 67,852.881 10,179.256
Issuance of units 161,471.497 90,525.636
Redemption of units (47,690.545) (32,852.011)
----------------- -----------------
Outstanding units at end of period 181,633.833 67,852.881
================= =================
End of period:
Unit value $ 20.130186 $ 15.310533
================= =================
Subaccount value $ 3,656,323 $ 1,038,864
================= =================
FEDERATED UTILITY FUND II
Outstanding units at beginning
of period 24,079.634 2,023.934
Issuance of units 15,042.938 31,249.995
Redemption of units (19,098.604) (9,194.295)
----------------- ------------------
Outstanding units at end of period 20,023.968 24,079.634
================= =================
End of period:
Unit value $ 15.832516 $ 12.584004
================= =================
Subaccount value $ 317,030 $ 303,018
================= =================
FEDERATED PRIME MONEY FUND II
Outstanding units at beginning
of period 512,274.999 363,418.231
Issuance of units 1,450,016.646 913,653.209
Redemption of units (1,649,948.229) (764,796.441)
----------------- ------------------
Outstanding units at end of period 312,343.416 512,274.999
================= =================
End of period:
Unit value $ 11.365295 $ 10.900489
================= =================
Subaccount value $ 3,549,875 $ 5,584,048
================= =================
</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>
1997 1996
--------------------- ---------------------
<S> <C> <C>
FEDERATED HIGH INCOME BOND FUND II
Outstanding units at beginning
of period 146,709.453 6,319.636
Issuance of units 394,648.919 162,607.969
Redemption of units (116,685.354) (22,218.152)
--------------------- ---------------------
Outstanding units at end of period 424,673.018 146,709.453
===================== =====================
End of period:
Unit value $ 13.173733 $ 11.648435
===================== =====================
Subaccount value $ 5,594,529 $ 1,708,936
===================== =====================
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II
Outstanding units at beginning
of period 117,322.665 7,159.282
Issuance of units 194,181.107 121,181.022
Redemption of units (61,870.206) (11,017.639)
--------------------- ---------------------
Outstanding units at end of period 249,633.566 117,322.665
===================== =====================
End of period:
Unit value $ 11.801173 $ 10.939620
===================== =====================
Subaccount value $ 2,945,969 $ 1,283,465
===================== =====================
WANGER U.S. SMALL CAP ADVISOR
Outstanding units at beginning
of period 110,550.735 21,864.180
Issuance of units 415,668.468 148,068.115
Redemption of units (250,702.173) (59,381.560)
--------------------- ---------------------
Outstanding units at end of period 275,517.030 110,550.735
===================== =====================
End of period:
Unit value $ 18.097659 $ 14.075721
===================== =====================
Subaccount value $ 4,986,213 $ 1,556,081
===================== =====================
</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>
1997 1996
--------------------- ---------------------
<S> <C> <C>
WANGER INTERNATIONAL SMALL CAP ADVISOR
Outstanding units at beginning
of period 80,108.161 4,237.306
Issuance of units 180,265.726 90,487.385
Redemption of units (110,581.807) (14,616.530)
--------------------- ---------------------
Outstanding units at end of period 149,792.080 80,108.161
===================== =====================
End of period:
Unit value $ 14.011366 $ 14.311721
===================== =====================
Subaccount value $ 2,098,792 $ 1,146,486
===================== =====================
MONTGOMERY GROWTH
Outstanding units at beginning
of period 28,618.294 -
Issuance of units 89,511.379 36,545.547
Redemption of units (41,658.383) (7,927.253)
--------------------- ---------------------
Outstanding units at end of period 76,471.290 28,618.294
===================== =====================
End of period:
Unit value $ 16.157185 $ 12.648763
===================== =====================
Subaccount value $ 1,235,561 $ 361,986
===================== =====================
MONTGOMERY EMERGING MARKETS
Outstanding units at beginning
of period 135,912.794 -
Issuance of units 332,972.015 151,705.186
Redemption of units (216,530.789) (15,792.392)
--------------------- ---------------------
Outstanding units at end of period 252,354.020 135,912.794
===================== =====================
End of period:
Unit value $ 10.486289 $ 10.616164
===================== =====================
Subaccount value $ 2,646,257 $ 1,442,873
===================== =====================
</TABLE>
22
<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>
1997 1996
--------------------- ---------------------
STRONG INTERNATIONAL STOCK FUND II
<S> <C> <C>
Outstanding units at beginning
of period - -
Issuance of units 12,736.844 -
Redemption of units (5,732.664) -
--------------------- ---------------------
Outstanding units at end of period 7,004.180 -
===================== =====================
End of period:
Unit value $ 8.383621 $ -
===================== =====================
Subaccount value $ 58,720 $ -
===================== =====================
STRONG SCHAFER VALUE FUND II
Outstanding units at beginning
of period - -
Issuance of units 20,700.927 -
Redemption of units (13.391) -
--------------------- ---------------------
Outstanding units at end of period 20,687.536 -
===================== =====================
End of period:
Unit value $ 10.067339 $ -
===================== =====================
Subaccount value $ 208,268 $ -
===================== =====================
T. ROWE PRICE INTERNATIONAL STOCK
Outstanding units at beginning
of period - -
Issuance of units 69,692.464 -
Redemption of units (44,865.007) -
--------------------- ---------------------
Outstanding units at end of period 24,827.457 -
===================== =====================
End of period:
Unit value $ 9.190942 $ -
===================== =====================
Subaccount value $ 228,188 $ -
===================== =====================
</TABLE>
23
<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>
1997 1996
--------------------- ---------------------
DREYFUS SMALL CAP VALUE
<S> <C> <C>
Outstanding units at beginning
of period - -
Issuance of units 585.410 -
Redemption of units - -
--------------------- ---------------------
Outstanding units at end of period 585.410 -
===================== =====================
End of period:
Unit value $ 9.284373 $ -
===================== =====================
Subaccount value $ 5,435 $ -
===================== =====================
ENDEAVOR ENHANCED INDEX
Outstanding units at beginning
of period - -
Issuance of units 37,193.193 -
Redemption of units (2,606.610) -
--------------------- ---------------------
Outstanding units at end of period 34,586.583 -
===================== =====================
End of period:
Unit value $ 10.002229 $ -
===================== =====================
Subaccount value $ 345,943 $ -
===================== =====================
STEIN ROE SPECIAL VENTURE FUND, VARIABLE SERIES
Outstanding units at beginning
of period - -
Issuance of units 9,733.161 -
Redemption of units (2,325.973) -
--------------------- ---------------------
Outstanding units at end of period 7,407.188 -
===================== =====================
End of period:
Unit value $ 11.571187 $ -
===================== =====================
Subaccount value $ 85,710 $ -
===================== =====================
</TABLE>
24
<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>
1997 1996
--------------------- ---------------------
WARBURG PINCUS INTERNATIONAL EQUITY
<S> <C> <C>
Outstanding units at beginning
of period - -
Issuance of units 112,012.470 -
Redemption of units (5,800.398) -
--------------------- ---------------------
Outstanding units at end of period 106,212.072 -
===================== =====================
End of period:
Unit value $ 9.601136 $ -
===================== =====================
Subaccount value $ 1,019,757 $ -
===================== =====================
WARBURG PINCUS SMALL COMPANY GROWTH
Outstanding units at beginning
of period - -
Issuance of units 97,130.895 -
Redemption of units (48,339.459) -
--------------------- ---------------------
Outstanding units at end of period 48,791.436 -
===================== =====================
End of period:
Unit value $ 13.183010 $ -
===================== =====================
Subaccount value $ 643,218 $ -
===================== =====================
WEISS, PECK & GREER'S CORE LARGE-CAP STOCK FUND
Outstanding units at beginning
of period 87,202.732 -
Issuance of units 123,531.929 121,093.379
Redemption of units (210,734.661) (33,890.647)
--------------------- ---------------------
Outstanding units at end of period - 87,202.732
============================================
End of period:
Unit value $ 13.799370 $ 11.381480
===================== =====================
Subaccount value $ - $ 992,496
===================== =====================
</TABLE>
25
<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>
1997 1996
--------------------- ---------------------
<S> <C> <C>
WEISS, PECK & GREER'S CORE SMALL-CAP STOCK FUND
Outstanding units at beginning
of period 57,028.849 -
Issuance of units 59,161.303 57,510.663
Redemption of units (116,190.152) (481.814)
--------------------- ---------------------
Outstanding units at end of period - 57,028.849
===================== =====================
End of period:
Unit value $ 14.863288 $ 11.776001
===================== =====================
Subaccount value $ - $ 671,572
===================== =====================
</TABLE>
26
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
7. NET ASSETS
Net assets at December 31, 1997 for each of the respective subaccounts are as
summarized in the following tables:
<TABLE>
<CAPTION>
DFA DFA DFA
DFA SMALL DFA LARGE INTERNATIONAL INTERNATIONAL SHORT-TERM
VALUE VALUE VALUE SMALL FIXED
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract owner transactions $ 9,242,836 $ 12,884,919 $ 13,094,707 $ 8,927,431 $ 8,848,052
Accumulated net investment
income 949,267 2,155,182 387,634 252,545 695,456
Accumulated net realized gain
(loss) on investments 1,296,753 1,646,526 207,031 (328,131) 16,993
Net unrealized appreciation
(depreciation) on investments 2,026,049 2,643,915 (312,521) (2,150,602) (1,247)
-----------------------------------------------------------------------------------
$13,514,905 $ 19,330,542 $ 13,376,851 $ 6,701,243 $ 9,559,254
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED HIGH
DFA GLOBAL AMERICAN FEDERATED PRIME MONEY INCOME BOND
BOND LEADERS FUND II UTILITY FUND II FUND II FUND II
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract owner transactions $ 3,877,361 $ 3,127,816 $ 228,132 $ 3,115,265 $ 5,055,284
Accumulated net investment
income 958,123 22,966 20,109 434,610 206,681
Accumulated net realized gain
(loss) on investments (912) 135,970 23,408 - 51,355
Net unrealized appreciation
(depreciation) on investments (291,271) 369,571 45,381 - 281,209
------------------------------------------------------------------------------------------
$ 4,543,301 $ 3,656,323 $ 317,030 $ 3,549,875 $ 5,594,529
==========================================================================================
</TABLE>
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
7. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
FEDERATED
FUND FOR WANGER
U.S. WANGER U.S. INTERNATIONAL
GOVERNMENT SMALL CAP SMALL CAP MONTGOMERY
SECURITIES II ADVISOR ADVISOR GROWTH
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 2,744,148 $ 3,970,141 $ 2,130,309 $ 1,050,816
Accumulated net investment
income 87,917 16,765 17,346 69,245
Accumulated net realized gain
on investments 14,624 910,693 65,428 67,596
Net unrealized appreciation
(depreciation) on investments 99,280 88,614 (114,291) 47,904
---------------------------------------------------------------------
$ 2,945,969 $ 4,986,213 $ 2,098,792 $ 1,235,561
=====================================================================
</TABLE>
<TABLE>
<CAPTION>
T. ROWE
MONTGOMERY STRONG STRONG PRICE
EMERGING INTERNATIONAL SCHAFER VALUE INTERNATIONAL
MARKETS STOCK FUND II FUND II STOCK
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 2,792,227 $ 68,955 $ 204,086 $ 233,729
Accumulated net investment
income (expense) (13,097) (68) 236 (267)
Accumulated net realized gain
(loss)on investments 227,334 (2,588) (2) (6,586)
Net unrealized appreciation
(depreciation) on investments (360,207) (7,579) 3,948 1,312
---------------------------------------------------------------------
$ 2,646,257 $ 58,720 $ 208,268 $ 228,188
=====================================================================
</TABLE>
28
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
7. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
STEIN ROE
SPECIAL WARBURG
DREYFUS VENTURE FUND, PINCUS
SMALL CAP ENDEAVOR VARIABLE INTERNATIONAL
VALUE ENHANCED INDEX SERIES EQUITY
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 5,452 $ 342,077 $ 90,335 $ 1,163,305
Accumulated net investment
income (expense) (3) (353) (202) 61,123
Accumulated net realized
(loss) on investments - (46) (72) (11,247)
Net unrealized appreciation
(depreciation) on investments (14) 4,265 (4,351) (193,424)
-------------------------------------------------------------------
$ 5,435 $ 345,943 $ 85,710 $ 1,019,757
===================================================================
</TABLE>
<TABLE>
<CAPTION>
WARBURG WEISS, PECK & WEISS, PECK &
PINCUS SMALL GREER'S CORE GREER'S CORE
COMPANY LARGE-CAP SMALL-CAP
GROWTH STOCK FUND STOCK FUND TOTAL
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 604,309 $ (386,866) $ (272,633) $ 83,142,193
Accumulated net investment
income (expense) (1,645) 17,779 10,468 6,347,817
Accumulated net realized gain
on investments 44,765 369,087 262,165 4,990,144
Net unrealized appreciation
(depreciation) on investments (4,211) - - 2,171,730
-------------------------------------------------------------------
$ 643,218 $ - $ - $ 96,651,884
===================================================================
</TABLE>
29
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Advisor's Edge
Notes to Financial Statements (continued)
8. YEAR 2000 (UNAUDITED)
CGC's parent has adopted and has in place a Year 2000 Assessment and Planning
Project (the "Project") to review and analyze its information technology and
systems to determine if they are Year 2000 compatible. CGC and PLH have begun
to convert or modify, where necessary, critical data processing systems. It is
contemplated that the Project will be substantially completed by early 1999.
CGC and PLH do not expect this Project to have a significant effect on
operations. However, to mitigate the effect of outside influences upon the
success of the Project, CGC and PLH have undertaken communications with their
significant customers, suppliers and other third parties to determine their Year
2000 compatibility and readiness. Management believes that the issues
associated with the Year 2000 will be resolved with no material financial impact
on CGC and PLH.
Since the Year 2000 computer problem, and its resolution, is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of CGC and PLH, their ability
to function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond their knowledge or control.
30
<PAGE>
Financial Statements
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
For the Period Since Inception through December 31, 1997
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Financial Statements
For the Period Since Inception through December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................... 1
Audited Financial Statements
Statement of Assets and Liabilities...................................... 2
Statement of Operations.................................................. 4
Statement of Changes in Net Assets....................................... 5
Notes to Financial Statements............................................ 6
</TABLE>
<PAGE>
Report of Independent Auditors
Contract Owners
Providian Life and Health Insurance Company Separate Account V - Dimensional
Variable Annuity
We have audited the accompanying statement of assets and liabilities of
Providian Life and Health Insurance Company Separate Account V - Dimensional
Variable Annuity (comprising Federated Prime Money Fund II, DFA Large Value, DFA
Global Bond, DFA Small Value, DFA Short-Term Fixed, DFA International Value, and
DFA International Small Subaccounts) as of December 31, 1997, and the related
statements of operations and changes in net assets for the period then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997 by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity at December 31, 1997 and the
results of their operations and changes in their net assets for the period then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young, LLP
Louisville, Kentucky
April 24, 1998
1
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31
1997
----------------
<S> <C>
ASSETS
Investments:
Federated Prime Money Fund II (cost: $1,706,937) $ 1,706,937
DFA Large Value Portfolio (cost: $6,873,838) 6,831,887
DFA Global Bond Portfolio (cost: $2,795,784) 2,621,842
DFA Small Value Portfolio (cost: $3,830,124) 3,822,514
DFA Short-Term Fixed Portfolio (cost: $6,187,880) 6,163,340
DFA International Value Portfolio (cost: $5,091,353) 4,675,344
DFA International Small Portfolio (cost: $3,618,797) 2,948,088
----------------
Total investments 28,769,952
Amounts due from Fund Manager 2,802
----------------
TOTAL INVESTMENTS AND TOTAL ASSETS 28,772,754
LIABILITIES
Amounts due to Providian Life and Health Insurance Company 11
----------------
NET ASSETS $ 28,772,743
================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
December 31
1997
---------------------
<S> <C>
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS
Federated Prime Money Fund II Subaccount $ 1,707,193
DFA Large Value Subaccount 6,831,887
DFA Global Bond Subaccount 2,621,842
DFA Small Value Subaccount 3,822,514
DFA Short-Term Fixed Subaccount 6,163,340
DFA International Value Subaccount 4,675,344
DFA International Small Subaccount 2,950,623
=====================
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS $ 28,772,743
=====================
</TABLE>
See accompanying notes.
3
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Statement of Operations
For the Period Since Inception through December 31, 1997
<TABLE>
<CAPTION>
FEDERATED DFA DFA
PRIME MONEY DFA LARGE DFA GLOBAL DFA SMALL SHORT-TERM INTERNATIONAL
FUND II VALUE BOND VALUE FIXED VALUE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 59,748 $ 425,088 $ 256,181 $ 263,196 $ 132,011 $ 130,141
Expenses:
Mortality and expense risk and
administrative charges 8,004 14,357 6,851 9,390 12,260 11,254
----------------------------------------------------------------------------------
Net investment income 51,744 410,731 249,330 253,806 119,751 118,887
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 1,655,703 1,010,286 175,934 408,547 536,042 154,419
Cost of investments sold 1,655,703 981,602 180,575 384,445 536,107 157,728
----------------------------------------------------------------------------------
- 28,684 (4,641) 24,102 (65) (3,309)
Net unrealized depreciation on
investments:
At end of year - (41,951) (173,942) (7,610) (24,540) (416,009)
----------------------------------------------------------------------------------
Net gain (loss) on investments - (13,267) (178,583) 16,492 (24,605) (419,318)
----------------------------------------------------------------------------------
Net increase (decrease) in net
assets resulting from operations $ 51,744 $ 397,464 $ 70,747 $ 270,298 $ 95,146 $ (300,431)
==================================================================================
<CAPTION>
DFA
INTERNATIONAL
SMALL TOTAL
------------------------------
<S> <C> <C>
Investment income:
Dividends $ 67,731 $ 1,334,096
Expenses:
Mortality and expense risk and
administrative charges 8,103 70,219
------------------------------
Net investment income 59,628 1,263,877
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 120,280 4,061,211
Cost of investments sold 133,690 4,029,850
------------------------------
(13,410) 31,361
Net unrealized depreciation on
investments:
At end of year (670,709) (1,334,761)
------------------------------
Net gain (loss) on investments (684,119) (1,303,400)
------------------------------
Net increase (decrease) in net
assets resulting from operations $ (624,491) $ (39,523)
==============================
</TABLE>
See accompanying notes.
4
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Statement of Changes in Net Assets
For the Period Since Inception through December 31, 1997
<TABLE>
<CAPTION>
FEDERATED DFA DFA
PRIME MONEY DFA LARGE DFA GLOBAL DFA SMALL SHORT-TERM INTERNATIONAL
FUND II VALUE BOND VALUE FIXED VALUE
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in net assets
resulting from operations:
Net investment income $ 51,744 $ 410,731 $ 249,330 $ 253,806 $ 119,751 $ 118,887
Net realized gain (loss) on investments - 28,684 (4,641) 24,102 (65) (3,309)
Net unrealized depreciation on
investments - (41,951) (173,942) (7,610) (24,540) (416,009)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations 51,744 397,464 70,747 270,298 95,146 (300,431)
Changes from variable annuity
contract transactions:
Transfers for net premiums 3,071,015 6,785,460 2,169,375 3,515,328 6,034,831 4,698,520
Transfers for terminations (53,077) (198,325) (116,964) (117,634) (123,978) (99,368)
Net transfers within Separate Account
V - Dimensional Variable Annuity
and transfers to and from the
General Account (1,362,489) (152,712) 498,684 154,522 157,341 376,623
--------------------------------------------------------------------------------
Net increase in net assets derived from
variable annuity contract transactions 1,655,449 6,434,423 2,551,095 3,552,216 6,068,194 4,975,775
--------------------------------------------------------------------------------
Net increase in net assets 1,707,193 6,831,887 2,621,842 3,822,514 6,163,340 4,675,344
--------------------------------------------------------------------------------
Balances at December 31, 1997 $ 1,707,193 $6,831,887 $2,621,842 $3,822,514 $6,163,340 $4,675,344
================================================================================
<CAPTION>
DFA
INTERNATIONAL
SMALL TOTAL
-----------------------------
<S> <C> <C>
Increase (decrease) in net assets
resulting from operations:
Net investment income $ 59,628 $ 1,263,877
Net realized gain (loss) on investments (13,410) 31,361
Net unrealized depreciation on
investments (670,709) (1,334,761)
-----------------------------
Net increase (decrease) in net assets
resulting from operations (624,491) (39,523)
Changes from variable annuity
contract transactions:
Transfers for net premiums 3,326,475 29,601,004
Transfers for terminations (86,791) (796,137)
Net transfers within Separate Account
V - Dimensional Variable Annuity
and transfers to and from the
General Account 335,430 7,399
-----------------------------
Net increase in net assets derived from
variable annuity contract transactions 3,575,114 28,812,266
-----------------------------
Net increase in net assets 2,950,623 28,772,743
-----------------------------
Balances at December 31, 1997 $2,950,623 $ 28,772,743
=============================
</TABLE>
See accompanying notes.
5
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements
December 31, 1997
1. ACCOUNTING POLICIES
ORGANIZATION OF THE ACCOUNT
Providian Life and Health Insurance Company Separate Account V - Dimensional
Variable Annuity (the "Separate Account") is a separate account of Providian
Life and Health Insurance Company ("PLH"), 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. The Separate Account had no activity until the first
contract application was processed in March 1997.
Prior to June 10, 1997, PLH was an indirect, wholly owned subsidiary of
Providian Corporation ("Providian"). On June 10, 1997, Providian's insurance
operations, including the operations of PLH, were merged with an indirect,
wholly owned subsidiary of AEGON N.V., an international insurance organization
headquartered in The Hague, The Netherlands. Providian was the surviving
corporation in the merger. Effective October 15, 1997, Providian's name was
changed to Commonwealth General Corporation ("CGC"). Effective December 31,
1997, ownership of CGC was transferred to AEGON USA, Inc., an indirect, wholly
owned subsidiary of AEGON N.V.
As of December 31, 1997, the Separate Account has seven subaccounts which invest
exclusively in shares of the corresponding portfolios of The Federated Insurance
Series (advised by Federated Advisers) and DFA Investment Dimensions Group Inc.
(advised by Dimensional Fund Advisors Inc.) (each a "Fund" and collectively the
"Funds"). Each Fund is an open-end management investment company.
6
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
The portfolios available in each Fund as of December 31, 1997 are as follows:
THE FEDERATED INSURANCE SERIES
Federated Prime Money Fund II
DFA INVESTMENT DIMENSIONS GROUP INC.
DFA Large Value Portfolio
DFA Global Bond Portfolio
DFA Small Value Portfolio
DFA Short-Term Fixed Portfolio
DFA International Value Portfolio
DFA International Small Portfolio
Each portfolio has different investment objectives and policies as outlined in
the prospectus of the Separate Account. There is no assurance that a portfolio
will achieve its stated 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 and a 5 day grace 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.
INVESTMENTS
The Separate Account purchases shares of the portfolios at net asset value in
connection with premium payments allocated to the subaccounts in accordance with
contract owners' directions and redeems shares of the portfolios 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.
7
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
All dividends and capital gains earned on the portfolios are reinvested in the
portfolios and are reflected in the unit values of the subaccounts of the
Separate Account.
Investments in the 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. A fourth fixed option will be
made available during 1998.
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.
8
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
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, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
NET ASSET FAIR
PORTFOLIO SHARES VALUE VALUE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federated Prime Money Fund II 1,706,937.310 $ 1.00 $ 1,706,937
DFA Large Value 447,992.590 15.25 6,831,887
DFA Global Bond 268,631.352 9.76 2,621,842
DFA Small Value 266,563.040 14.34 3,822,514
DFA Short-Term Fixed 615,103.792 10.02 6,163,340
DFA International Value 442,322.044 10.57 4,675,344
DFA International Small 399,469.919 7.38 2,948,088
------------
$28,769,952
============
</TABLE>
The aggregate cost of shares purchased during the period since inception through
December 31, 1997 for each of the respective portfolios is as follows:
<TABLE>
<CAPTION>
Aggregate
Cost of Shares
PORTFOLIO Purchased
- -------------------------------------------------------------------------------
<S> <C>
Federated Prime Money Fund II $ 3,362,640
DFA Large Value 7,855,440
DFA Global Bond Portfolio 2,976,359
DFA Small Value 4,214,569
DFA Short-Term Fixed 6,723,987
DFA International Value 5,249,081
DFA International Small 3,752,487
---------------
$34,134,563
===============
</TABLE>
9
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES
Operations of the Separate Account are included in the federal income tax return
of PLH, which is taxed as a life insurance company under the Internal Revenue
Code. The Separate Account will not be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code. Under current federal income
tax law, no federal income taxes are payable with respect to the Separate
Account.
4. ADVISORY AND SERVICE FEES
The Funds and their advisors furnish corporate management, administrative,
marketing and distribution services to the funds of the Separate Account.
Additionally, the Funds' advisors furnish investment advisory services to the
Funds' 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 period since inception
through December 31, 1997, 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 subaccounts' 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.
10
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS
Transactions with contract owners during the period since inception through
December 31, 1997 and end of period values for each of the respective
subaccounts were as follows:
<TABLE>
<CAPTION>
1997
-----------------
<S> <C>
FEDERATED PRIME MONEY FUND II
Issuance of units 282,499.003
Redemption of units (132,287.914)
-----------------
Outstanding units at end of period 150,211.089
=================
End of period:
Unit value $ 11.365295
=================
Subaccount value $ 1,707,193
=================
DFA LARGE VALUE
Issuance of units 431,173.895
Redemption of units (55,530.826)
-----------------
Outstanding units at end of period 375,643.069
=================
End of period:
Unit value $ 18.187176
=================
Subaccount value $ 6,831,887
=================
DFA GLOBAL BOND
Issuance of units 213,116.192
Redemption of units (13,015.647)
-----------------
Outstanding units at end of period 200,100.545
=================
End of period:
Unit value $ 13.102623
=================
Subaccount value $ 2,621,842
=================
</TABLE>
11
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997
-----------------
<S> <C>
DFA Small Value
Issuance of units 269,741.169
Redemption of units (25,231.681)
-----------------
Outstanding units at end of period 244,509.488
=================
End of period:
Unit value $ 15.633396
=================
Subaccount value $ 3,822,514
=================
DFA Short-Term Fixed
Issuance of units 603,482.783
Redemption of units (47,651.205)
-----------------
Outstanding units at end of period 555,831.578
=================
End of period:
Unit value $ 11.088502
=================
Subaccount value $ 6,163,340
=================
DFA International Value
Issuance of units 441,624.670
Redemption of units (12,411.244)
-----------------
Outstanding units at end of period 429,213.426
=================
End of period:
Unit value $ 10.892818
=================
Subaccount value $ 4,675,344
=================
</TABLE>
12
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997
---------------
<S> <C>
DFA International Small
Issuance of units 396,017.454
Redemption of units (13,217.462)
---------------
Outstanding units at end of period 382,799.992
===============
End of period:
Unit value $ 7.708003
===============
Subaccount value $ 2,950,623
===============
</TABLE>
13
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
7. NET ASSETS
Net assets at December 31, 1997 for each of the respective subaccounts are
summarized in the following tables:
<TABLE>
<CAPTION>
FEDERATED
PRIME MONEY DFA LARGE DFA GLOBAL DFA SMALL
FUND II VALUE BOND VALUE
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 1,655,449 $ 6,434,423 $ 2,551,095 $ 3,552,216
Accumulated net investment
income 51,744 410,731 249,330 253,806
Accumulated net realized gain
(loss) on investments - 28,684 (4,641) 24,102
Net unrealized depreciation on
investments - (41,951) (173,942) (7,610)
-----------------------------------------------------------
$ 1,707,193 $ 6,831,887 $ 2,621,842 $ 3,822,514
===========================================================
</TABLE>
<TABLE>
<CAPTION>
DFA DFA DFA
SHORT-TERM INTERNATIONAL INTERNATIONAL
FIXED VALUE SMALL TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 6,068,194 $ 4,975,775 $ 3,575,114 $ 28,812,266
Accumulated net investment
income 119,751 118,887 59,628 1,263,877
Accumulated net realized gain
(loss) on investments (65) (3,309) (13,410) 31,361
Net unrealized depreciation on
investments (24,540) (416,009) (670,709) (1,334,761)
--------------------------------------------------------------
$ 6,163,340 $ 4,675,344 $ 2,950,623 $ 28,772,743
==============================================================
</TABLE>
14
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Dimensional Variable Annuity
Notes to Financial Statements (continued)
8. YEAR 2000 (UNAUDITED)
CGC's parent has adopted and has in place a Year 2000 Assessment and Planning
Project (the "Project") to review and analyze its information technology and
systems to determine if they are Year 2000 compatible. CGC and PLH have begun to
convert or modify, where necessary, critical data processing systems. It is
contemplated that the Project will be substantially completed by early 1999. CGC
and PLH do not expect this Project to have a significant effect on operations.
However, to mitigate the effect of outside influences upon the success of the
Project, CGC and PLH have undertaken communications with their significant
customers, suppliers and other third parties to determine their Year 2000
compatibility and readiness. Management believes that the issues associated with
the Year 2000 will be resolved with no material financial impact on CGC and PLH.
Since the Year 2000 computer problem, and its resolution, is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of CGC and PLH, their ability to
function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond their knowledge or control.
15
<PAGE>
Financial Statements
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
For the Period Since Inception through December 31, 1997
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Financial Statements
For the Period Since Inception through December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Statement of Assets and Liabilities......................................... 2
Statement of Operations..................................................... 3
Statement of Changes in Net Assets.......................................... 4
Notes to Financial Statements............................................... 5
</TABLE>
<PAGE>
Report of Independent Auditors
Contract Owners
Providian Life and Health Insurance Company Separate Account V - PGA Retirement
Annuity
We have audited the accompanying statements of assets and liabilities of
Providian Life and Health Insurance Company Separate Account V - PGA Retirement
Annuity (comprising the Money Market, Capital Preservation, Income Oriented,
Growth and Income, Capital Growth, and Maximum Appreciation Subaccounts) as of
December 31, 1997, and the related statements of operations and changes in net
assets for the period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
subaccounts constituting the Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity at December 31, 1997, and the
results of their operations and changes in their net assets for the period then
ended in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Louisville, Kentucky
April 24, 1998
1
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Statement of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31
1997
---------------------
<S> <C>
ASSETS
Investments:
Money Market Fund (cost: $262,863) $ 262,863
Capital Preservation Portfolio (cost: $26,965) 26,761
Income Oriented Portfolio (cost: $8,322) 8,245
Growth and Income Portfolio (cost: $180,080) 180,815
Capital Growth Portfolio (cost: $812,110) 816,337
Maximum Appreciation Portfolio (cost: $239,089) 244,726
---------------------
Total investments 1,539,747
Amounts due from Fund Manager 8,569
---------------------
TOTAL INVESTMENTS AND TOTAL ASSETS 1,548,316
LIABILITIES -
---------------------
NET ASSETS $ 1,548,316
=====================
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS
Money Market Subaccount $ 262,863
Capital Preservation Subaccount 26,761
Income Oriented Subaccount 8,245
Growth and Income Subaccount 180,815
Capital Growth Subaccount 824,906
Maximum Appreciation Subaccount 244,726
---------------------
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS $ 1,548,316
=====================
</TABLE>
See accompanying notes.
2
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Statement of Operations
For the Period Since Inception through December 31, 1997
<TABLE>
<CAPTION>
MONEY CAPITAL INCOME GROWTH AND CAPITAL MAXIMUM
MARKET PRESERVATION ORIENTED INCOME GROWTH APPRECIATION TOTAL
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 346 $ 676 $ 192 $ 5,015 $ 5,933 $ 4,111 $ 16,273
Expenses:
Mortality and expense risk and
administrative charges 47 49 4 268 409 326 1,103
------------------------------------------------------------------------------------
Net investment income 299 627 188 4,747 5,524 3,785 15,170
Realized and unrealized gain
on investments:
Net realized gain from
investment transactions:
Proceeds from sales 47 3,576 4 6,245 428 341 10,641
Cost of investments sold 47 3,564 4 6,127 426 336 10,504
------------------------------------------------------------------------------------
- 12 - 118 2 5 137
Net unrealized appreciation
(depreciation) on investments:
At end of year - (204) (77) 735 4,227 5,637 10,318
------------------------------------------------------------------------------------
Net gain (loss) on investments - (192) (77) 853 4,229 5,642 10,455
------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 299 $ 435 $ 111 $ 5,600 $ 9,753 $ 9,427 $ 25,625
====================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Statement of Changes in Net Assets
For the Period Since Inception through December 31, 1997
<TABLE>
<CAPTION>
MONEY CAPITAL INCOME GROWTH AND
MARKET PRESERVATION ORIENTED INCOME
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 299 $ 627 $ 188 $ 4,747
Net realized gain on investments - 12 - 118
Net unrealized appreciation
(depreciation) on investments - (204) (77) 735
-------------------------------------------------------------------
Net increase in net assets resulting
from operations 299 435 111 5,600
Changes from variable annuity contract transactions:
Transfers of net premiums 262,564 29,836 8,134 181,162
Transfers for terminations - - - (2,000)
Net transfers within Separate
Account V - PGA Retirement Annuity - (3,510) - (3,947)
-------------------------------------------------------------------
Net increase in net assets derived from
variable annuity contract transactions 262,564 26,326 8,134 175,215
-------------------------------------------------------------------
Net increase in net assets 262,863 26,761 8,245 180,815
-------------------------------------------------------------------
Balances at December 31, 1997 $ 262,863 $ 26,761 $ 8,245 $ 180,815
===================================================================
<CAPTION>
CAPITAL MAXIMUM
GROWTH APPRECIATION TOTAL
-----------------------------------------------------
<S> <C> <C> <C>
Increase in net assets resulting from operations:
Net investment income $ 5,524 $ 3,785 $ 15,170
Net realized gain on investments 2 5 137
Net unrealized appreciation
(depreciation) on investments 4,227 5,637 10,318
-----------------------------------------------------
Net increase in net assets resulting
from operations 9,753 9,427 25,625
Changes from variable annuity contract transactions:
Transfers of net premiums 815,153 227,842 1,524,691
Transfers for terminations - - (2,000)
Net transfers within Separate
Account V - PGA Retirement Annuity - 7,457 -
-----------------------------------------------------
Net increase in net assets derived from
variable annuity contract transactions 815,153 235,299 1,522,691
-----------------------------------------------------
Net increase in net assets 824,906 244,726 1,548,316
-----------------------------------------------------
Balances at December 31, 1997 $ 824,906 $ 244,726 $ 1,548,316
=====================================================
</TABLE>
See accompanying notes.
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Notes to Financial Statements
December 31, 1997
1. ACCOUNTING POLICIES
ORGANIZATION OF THE ACCOUNT
Providian Life and Health Insurance Company Separate Account V - PGA Retirement
Annuity (the "Separate Account") is a separate account of Providian Life and
Health Insurance Company ("PLH"), 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.
The Separate Account had no activity until the first contract application was
processed in May, 1997.
Prior to June 10, 1997, PLH was an indirect, wholly owned subsidiary of
Providian Corporation ("Providian"). On June 10, 1997, Providian's insurance
operations, including the operations of PLH, were merged with an indirect,
wholly owned subsidiary of AEGON N.V., an international insurance organization
headquartered in The Hague, The Netherlands. Providian was the surviving
corporation in the merger. Effective October 15, 1997, Providian's name was
changed to Commonwealth General Corporation ("CGC"). Effective December 31,
1997, ownership of CGC was transferred to AEGON USA, Inc., an indirect, wholly
owned subsidiary of AEGON N.V.
The contract owner's investment in the variable annuity contract may be
allocated among five subaccounts of the Separate Account. The subaccounts in
turn invest exclusively in the five portfolios offered by the PB Series Trust
(formerly Providian Series Trust) (the "Trust"). The Trust is registered under
the Investment Company Act of 1940 and the Securities Act of 1933 as a
diversified, no-load, open-end management investment company. The Trust has
retained PB Investment Advisors, Inc. (formerly Providian Investment Advisors,
Inc.) (the "Adviser"), a wholly owned subsidiary of CGC, to supervise the
management and investment program of the Trust. 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. to serve as sub-adviser to the
other Portfolios.
5
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
The five portfolios available in the Trust are the Capital Preservation
Portfolio, the Income Oriented Portfolio, the Growth and Income Portfolio, the
Capital Growth Portfolio, and the Maximum Appreciation Portfolio. Each portfolio
has distinct investment objectives and policies as described in the prospectus
of the Separate Account. There is no assurance that a portfolio will achieve its
stated investment objective. Each Portfolio seeks to achieve its objective by
investing in a number of funds offered by the Trust (the "Underlying Funds").
A Money Market Fund is available only for the purposes of depositing and holding
initial purchase payments during the free look period (typically ten days, or in
certain instances, 30 days of more) for the contracts issued in certain states.
Subsequent to the free look period and a five day grace period, the contract
owner allocates all of the initial premium to one or more of the five
subaccounts described above. The Money Market Fund and the five Portfolios
offered by the Trust are collectively referred to as "Portfolios".
INVESTMENTS
The Separate Account purchases shares of the Portfolios at net asset value in
connection with premium payments allocated to the subaccounts in accordance with
contract owners' directions and redeems shares of the Portfolios 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 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.
6
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
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.
Although the assets in the Separate Account are the property of PLH, the assets
in the Separate Account attributable to the contracts cannot be used to
discharge the liabilities arising out of any other business which PLH may
conduct. The assets of the Separate Account are available to cover the general
liabilities of PLH only to the extent that the Separate Account's assets exceed
its liabilities under the contracts.
2. INVESTMENTS
The following is a summary of shares and amounts outstanding for each of the
respective Portfolios as of December 31, 1997:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
NET ASSET FAIR
PORTFOLIO SHARES VALUE VALUE
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Money Market 262,862.582 $ 1.00 $ 262,863
Capital Preservation 2,615.934 10.23 26,761
Income Oriented 775.635 10.63 8,245
Growth and Income 16,867.071 10.72 180,815
Capital Growth 73,943.569 11.04 816,337
Maximum Appreciation 21,676.351 11.29 244,726
-------------
$1,539,747
=============
</TABLE>
7
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The aggregate cost of shares purchased during the period since inception through
December 31, 1997, for each of the respective Portfolios is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
AGGREGATE
COST OF SHARES
PORTFOLIO PURCHASED
- ----------------------------------------------------------------------------------------
<S> <C>
Money Market $ 262,910
Capital Preservation 30,529
Income Oriented 8,326
Growth and Income 186,207
Capital Growth 812,536
Maximum Appreciation 239,425
---------------
$1,539,933
===============
</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.
4. ADVISORY AND SERVICE FEES
The Adviser does not receive an investment management fee for the advisory and
asset allocation services it provides to the five Portfolios offered by the
Trust and has agreed to waive and absorb all operating expenses. However,
contract owners in those Portfolios bear indirectly the expenses of the
Underlying Funds in which those Portfolios invest.
8
<PAGE>
Providian Life and Health Insurance Company
Separate Account V- PGA Retirement Annuity
Notes to Financial Statements (continued)
4. ADVISORY AND SERVICE FEES (CONTINUED)
Each Underlying Fund pays an advisory fee to the Adviser as full compensation
for all investment advisory services furnished or provided to the Underlying
Funds and to the five Portfolios offered by the Trust and as full reimbursement
for all expenses assumed by the Adviser. During the first three years (1997
through 1999), the Adviser has agreed to limit the operating expenses of each
Underlying Fund so that the ratio of expenses (excluding the advisory fee paid
to the Adviser) to net assets on an annual basis does not exceed 0.25%. The net
asset value of the five Portfolios offered by the Trust is net of these expenses
and advisory fees. The Adviser is solely responsible for paying the sub-advisers
a fee calculated on the daily net asset value of the Underlying Fund(s) in which
they serve as a sub-adviser.
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 period since inception
through December 31, 1997, the effective annual rate for this charge was .55%.
An administrative charge equal to .15% annually is deducted from the unit values
of the subaccounts of the Separate Account. This charge is assessed daily by
PLH, along with an annual policy fee of $30 per contract. The annual policy fee
is deducted proportionately from the subaccounts' 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.
9
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS
Transactions with contract owners during the period since inception through
December 31, 1997 and end of period values for each of the respective
subaccounts were as follows:
<TABLE>
<CAPTION>
1997
----------------
<S> <C>
MONEY MARKET
Issuance of units 25,557.842
Redemption of units -
----------------
Outstanding units at end of period 25,557.842
================
End of period:
Unit value $ 10.285007
================
Subaccount value $ 262,863
================
CAPITAL PRESERVATION
Issuance of units 2,907.616
Redemption of units (345.211)
----------------
Outstanding units at end of period 2,562.405
================
End of period:
Unit value $ 10.443852
================
Subaccount value $ 26,761
================
INCOME ORIENTED
Issuance of units 760.995
Redemption of units -
----------------
Outstanding units at end of period 760.995
================
End of period:
Unit value $ 10.834648
================
Subaccount value $ 8,245
================
</TABLE>
10
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997
-----------------
<S> <C>
GROWTH AND INCOME
Issuance of units 17,029.803
Redemption of units (554.653)
-----------------
Outstanding units at end of period 16,475.150
=================
End of period:
Unit value $ 10.975010
=================
Subaccount value $ 180,815
=================
CAPITAL GROWTH
Issuance of units 73,548.161
Redemption of units -
-----------------
Outstanding units at end of period 73,548.161
=================
End of period:
Unit value $ 11.215858
=================
Subaccount value $ 824,906
=================
MAXIMUM APPRECIATION
Issuance of units 21,411.147
Redemption of units -
-----------------
Outstanding units at end of period 21,411.147
=================
End of period:
Unit value $ 11.429840
=================
Subaccount value $ 244,726
=================
</TABLE>
11
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - PGA Retirement Annuity
Notes to Financial Statements (continued)
7. NET ASSETS
Net assets at December 31, 1997 for each of the respective subaccounts are
summarized in the following tables:
<TABLE>
<CAPTION>
MONEY CAPITAL INCOME GROWTH AND
MARKET PRESERVATION ORIENTED INCOME
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 262,564 $ 26,326 $ 8,134 $ 175,215
Accumulated net investment 299 627 188 4,747
income
Accumulated net realized gain
on investments - 12 - 118
Net unrealized appreciation
(depreciation) on investments - (204) (77) 735
----------------------------------------------------------------------
$ 262,863 $ 26,761 $ 8,245 $ 180,815
======================================================================
<CAPTION>
CAPITAL MAXIMUM
GROWTH APPRECIATION TOTAL
----------------------------------------------------
<S> <C> <C> <C>
Contract owner transactions $ 815,153 $ 235,299 $ 1,522,691
Accumulated net investment
income 5,524 3,785 15,170
Accumulated net realized gain
on investments 2 5 137
Net unrealized appreciation
on investments 4,227 5,637 10,318
----------------------------------------------------
$ 824,906 $ 244,726 $ 1,548,316
====================================================
</TABLE>
<PAGE>
Providian Life and Health Insurance Company
Separate Account V- PGA Retirement Annuity
Notes to Financial Statements (continued)
8. YEAR 2000 (UNAUDITED)
CGC's parent has adopted and has in place a Year 2000 Assessment and Planning
Project (the "Project") to review and analyze its information technology and
systems to determine if they are Year 2000 compatible. CGC and PLH have begun
to convert or modify, where necessary, critical data processing systems. It is
contemplated that the Project will be substantially completed by early 1999.
CGC and PLH do not expect this Project to have a significant effect on
operations. However, to mitigate the effect of outside influences upon the
success of the Project, CGC and PLH have undertaken communications with their
significant customers, suppliers and other third parties to determine their Year
2000 compatibility and readiness. Management believes that the issues
associated with the Year 2000 will be resolved with no material financial impact
on CGC and PLH.
Since the Year 2000 computer problem, and its resolution, is complex and
multifaceted, the success of a response plan cannot be conclusively known until
the Year 2000 is reached (or an earlier date to the extent that systems or
equipment addresses Year 2000 date data prior to the Year 2000). Even with
appropriate and diligent pursuit of a well-conceived project, including testing
procedures, there is no certainty that any company will achieve complete
success. Notwithstanding the efforts or results of CGC and PLH, their ability
to function unaffected to and through the Year 2000 may be adversely affected by
actions (or failure to act) of third parties beyond their knowledge or control.
13
<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/
(m) Participation Agreement Among Endeavor Series Trust, Endeavor
Management Co. and PFL Life Insurance Company dated February
28, 1991, as amended./ 13/
<PAGE>
(9) (a) Opinion and Consent of Counsel./13/
(b) Consent of Counsel./13/
- -----------
/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/ Incorporated by reference from Post-Effective Amendment No. 7 to the
Registration Statement of Providian Life and Health Insurance Company
Separate Account V, File No. 33-80958.
/13/ Filed herewith.
<PAGE>
(10) Consent of Independent Auditors./13/
(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 Depositor
Positions and Offices with Depositor Name and Principal Business Address*
- ------------------------------------ ------------------------------------
President Bart Herbert, Jr.
Senior Vice President Edward A. Biemer
Senior Vice President Thomas P. Bowie
Senior Vice President G. Douglas Mangum, Jr.
Executive Vice President William L. Busler
Treasurer Martha A. McConnell
Vice President Brian Alford
Vice President & Assistant Treasurer Nathan C. Anguiano
Vice President & Division General Counsel Frank A. Camp
Vice President Brenda K. Clancy
Vice President Michele M. Coan
Vice President Jane A. Coyne
Vice President Karen H. Fleming
Vice President Carolyn M. Johnson
Vice President Michael F. Lane
Vice President, Secretary and
Associate General Counsel Susan E. Martin
Vice President John A. Mazzuca
Vice President Daniel C. Mohwinkel
Vice President Thomas B. Nesspor
Vice President Maureen E. Nielsen
Vice President Larry N. Norman
Vice President G. Eric O'Brien
Vice President Daniel H. Odum
Vice President and Actuary John C. Prestwood, Jr.
Vice President Frank J. Rosa
Vice President Douglas A. Sarcia
Vice President Gary H. Scott
Vice President Brian A. Smith
Vice President Colleen M. Tobiason
Vice President William A. Waldie, Jr.
Vice President Michael A. Wapp
Vice President and Actuary Ronald L. Ziegler
Assistant Vice President Janice Boehmler
Assistant Vice President & Qualified
Actuary Michael A. Cioffi
Assistant Vice President Kimberly A. Cushing
Assistant Vice President Mary Ellen Fahringer
Assistant Vice President JoAnn Herndon
Assistant Vice President Patricia A. Lukacs
Assistant Vice President William R. Maurer
1
<PAGE>
Assistant Vice President Robert E. Payne
Assistant Vice President Teresa L. Stolba
Assistant Vice President Harvey Waite
Assistant Treasurer Cliford W. Flenniken
Assistant Treasurer William C. White, IV
Assistant Controller Paul J. Lukacs
Assistant Controller Joseph C. Noone
Second Vice President Amy E. Anders
Second Vice President George E. Claiborne, Jr.
Second Vice President Cindy L. Chanley
Second Vice President Marvin A. Johnson
Second Vice President Anne M. Spaes
Second Vice President/Investments David L. Blankenship
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 Donald E. Flynn
Second Vice President/Investments Eric B. Goodman
Second Vice President/Investments M. Josette Goulet
Second Vice President/Investments James Grant
Second Vice President/Investments David R. Halfpap
Second Vice President/Investments Robert L. Hansen
Second Vice President/Investments Donna L. Heitzman
Second Vice President/Investments David W. Hopewell
Second Vice President/Investments Frederick B. Howard
Second Vice President/Investments Claudia Jackson
Second Vice President/Investments Jon D. Kettering
Second Vice President/Investments Tim Kuussalo
Second Vice President/Investments James D. MacKinnon
Second Vice President/Investments Kathleen B. Madden
Second Vice President/Investments Jeffrey T. McGlaun
Second Vice President/Investments Paul D. Mier
Second Vice President/Investments Thomas L. Nordstrom
Second Vice President/Investments Ralph M. O'Brien
Second Vice President/Investments Douglas H. Owen, Jr.
Second Vice President/Investments Dennis Roland
Second Vice President/Investments James D. Ross
Second Vice President/Investments J. Alan Schork
Second Vice President/Investments Lindsay Schumacher
Second Vice President/Investments Michael B. Schaffer
Second Vice President/Investments Clifford Sheets
2
<PAGE>
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 Michael S. Smith
Second Vice President/Investments Anne M. Spaes
Second Vice President/Investments Donna J. Spalding
Second Vice President/Investments Robert T. Stanley
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 Lisa L. Patterson
Second Vice President/Special Markets Rhonda L. Pritchett
Second Vice President/Special Markets Thomas E. Walsh
Second Vice President/Special Markets Harvey Willis
Second Vice President/Special Markets Edward P. Reiter
Secretary
Assistant Secretary L. Jude Clark
Assistant Secretary Colleen S. Lyons
Assistant Secretary Mary Ann Malinyak
Assistant Secretary John F. Reesor
Assistant Secretary Mary L. Schaefer
Assistant Secretary Kimberly A. Scouller
Assistant Secretary R. Michael Slaven
Assistant Secretary Craig D. Vermie
Assistant Secretary Carolyn Wetterer
Advertising Compliance Officer Nancy E. Partington
Product Compliance Officer James T. Bradley
DIRECTORS:
- ---------
Jay H. Berman John C. Prestwood, Jr.
Bart Herbert, Jr. Douglas A. Sarcia
G. Douglas Mangum, Jr. Brian A. Smith
Susan E. Martin Craig D. Vermie
Thomas B. Nesspor
*The business address of each director and officer of Providian Life and Health
Insurance Company is 20 Moores Road, Frazer, Pennsylvania 19355; 400 West Market
Street, Louisville, Kentucky 40202 or 4333 Edgewood Road NE, Cedar Rapids, Iowa
52499.
3
<PAGE>
Item 26. Persons controlled by or Under Common Control with the Depositor or
Registrant.
The Depositor, Providian Life and Health Insurance Company is directly and
indirectly wholly owned by AEGON USA, INC., which is indirectly wholly owned by
AEGON n.v. The Registrant is a segregated asset account of Providian Life and
Health Insurance Company.
The following chart indicates the persons controlled by or under common
control with Providian Life and Health Insurance Company:
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- --------------- ----------------- --------
<S> <C> <C> <C>
AEGON N.V. Netherlands 53.63% of Vereniging Holding company
Corporation AEGON Netherlands
Membership Association
Groninger Financieringen B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Netherland N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON Nevak Holding B.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
AEGON International N.V. Netherlands 100% of AEGON N.V. Holding company
Corporation Netherlands Corporation
Voting Trust Delaware Voting Trust
Trustees:
K.J. Storm
Donald J. Shepard
H.B. Van Wijk
Dennis Hersch
AEGON U.S. Holding Delaware 100% of Voting Trust Holding company
Corporation
Short Hills Management New Jersey 100% of AEGON U.S. Holding company
Company Holding Corporation
CORPA Reinsurance New York 100% of AEGON U.S. Holding company
Company Holding Corporation
AEGON Management Indiana 100% of AEGON U.S. Holding company
Company Holding Corporation
RCC North America Inc. Delaware 100% of AEGON U.S. Holding company
Holding Corporation
AEGON USA, Inc. Iowa 100% AEGON U.S. Holding company
Holding Corporation
AUSA Holding Company Maryland 100% AEGON USA, Inc. Holding company
Monumental General Insurance Maryland 100% AUSA Holding Co. Holding company
Group, Inc.
Trip Mate Insurance Agency, Inc. Kansas 100% Monumental General Sale/admin. of travel
Insurance Group, Inc. insurance
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
Monumental General Maryland 100% Monumental General Provides management srvcs.
Administrators, Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Maryland 100% Monumental General Provides actuarial consulting
Consultant Services, Inc. Administrators, Inc. services
Monumental General Mass Maryland 100% Monumental General Marketing arm for sale of
Marketing, Inc. Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Delaware 100% AUSA Holding Co. Registered investment advisor
Advisors, Inc.
Diversified Investors Securities Delaware 100% Diversified Investment Broker-Dealer
Corp. Advisors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
Supplemental Ins. Division, Inc. Tennessee 100% AUSA Holding Co. Insurance
Creditor Resources, Inc. Michigan 100% AUSA Holding Co. Credit insurance
CRC Creditor Resources Canada 100% Creditor Resources, Inc. Insurance agency
Canadian Dealer Network Inc.
AEGON USA Investment Iowa 100% AUSA Holding Co. Investment advisor
Management, Inc.
AEGON USA Realty Iowa 100% AUSA Holding Co. Provides real estate
Advisors, Inc. administrative and real
estate investment services
Quantra Corporation Delaware 100% AEGON USA Realty Real estate and financial
Advisors, Inc. software production and sales
Quantra Software Corporation Delaware 100% Quantra Corporation Manufacture and sell
mortgage loan and security
management software
Landauer Realty Advisors, Inc. Iowa 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Landauer Associates, Inc. Delaware 100% AEGON USA Realty Real estate counseling
Advisors, Inc.
Realty Information Systems, Inc. Iowa 100% AEGON USA Realty Information Systems for
Advisors, Inc. real estate investment
management
AEGON USA Realty Iowa 100% AEGON USA Real estate management
Management, Inc Realty Advisors, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Ins. Co. Real estate investment trust
13.11% PFL Life Ins. Co.
4.86% Bankers United Life
Assurance Co.
Cedar Income Fund, Ltd. Iowa 16.73% PFL Life Ins. Co. Real estate investment trust
3.77% Bankers United Life
Assurance Company
3.38% Life Investors Co. of America
1.97% AEGON USA Realty Advisors, Inc.
.18% First AUSA Life Ins. Co.
RCC Properties Limited Iowa AEGON USA Realty Advisors, Limited Partnership
Partnership Inc. is General Partner and 5%
owner.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Endeavor Investment Advisors California 49.9% AUSA Financial General Partnership
Markets, Inc.
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of Iowa 100% AUSA Holding Co. Provider of automobile
America, Inc. extended maintenance
contracts
Massachusetts Fidelity Trust Co. Iowa 100% AUSA Holding Co. Trust company
Money Services, Inc. Delaware 100% AUSA Holding Co. Provides financial counseling
for employees and agents of
affiliated companies
Zahorik Company, Inc. California 100% AUSA Holding Co. Broker-Dealer
ZCI, Inc. Alabama 100% Zahorik Company, Inc. Insurance agency
AEGON Asset Management Delaware 100% AUSA Holding Co. Registered investment advisor
Services, Inc.
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
ISI Insurance Agency, Inc. California 100% Intersecurities, Inc. Insurance agency
ISI Insurance Agency Ohio 100% ISI Insurance Agency, Inc. Insurance agency
of Ohio, Inc.
ISI Insurance Agency Texas 100% ISI Insurance Agency, Inc. Insurance agency
of Texas, Inc.
ISI Insurance Agency Massachusetts 100% ISI Insurance Agency, Inc. Insurance agency
of Massachusetts, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- --------------- ----------------- --------
<S> <C> <C> <C>
Associated Mariner Financial Group, Inc. Michigan 100% Intersecurities, Inc. Holding co./management services
Mariner Financial Services, Inc. Michigan 100% Associated Mariner Broker/Dealer
Financial Group, Inc.
Mariner Planning Corporation Michigan 100% Mariner Financial Financial planning
Services, Inc.
Associated Mariner Agency, Inc. Michigan 100% Associated Mariner Insurance agency
Financial Group, Inc.
Associated Mariner Agency Hawaii 100% Associated Mariner Insurance agency
of Hawaii, Inc. Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio, Inc. Ohio 100% Associated Mariner Insurance agency
Agency, Inc.
Associated Mariner Agency Texas, Inc. Texas 100% Associated Mariner Insurance agency
Agency, Inc.
Associated Mariner Agency New Mexico 100% Associated Mariner Insurance agency
New Mexico, Inc. Agency, Inc.
Mariner Mortgage Corp. Michigan 100% Associated Mariner Mortgage origination
Financial Group, Inc.
Idex Investor Services, Inc. Florida 100% AUSA Holding Co. Shareholder services
Idex Management, Inc. Delaware 50% AUSA Holding Co. Investment advisor
50% Janus Capital Corp.
IDEX II Series Fund Massachusetts Various Mutual fund
IDEX Fund Massachusetts Various Mutual fund
IDEX Fund 3 Massachusetts Various Mutual fund
First AUSA Life Insurance Company Maryland 100% AEGON USA, Inc. Insurance holding company
AUSA Life Insurance Company, Inc. New York 100% First AUSA Life Insurance
Insurance Company
Life Investors Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
of America
Bankers United Life Assurance Company Iowa 100% Life Investors Inc. Insurance
Company of America
</TABLE>
<PAGE>
SEPARATE ACCOUNT V
ADVISOR'S EDGE VARIABLE ANNUITY
DIMENSIONAL VARIABLE ANNUITY
PGA RETIREMENT ANNUITY
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT 8(M) PARTICIPATION AGREEMENT AMONG ENDEAVOR SERIES TRUST,
ENDEAVOR MANAGEMENT CO. AND PFL LIFE INSURANCE COMPANY DATED
FEBRUARY 28, 1991, AS AMENDED
EXHIBIT 9(a) OPINION AND CONSENT OF COUNSEL
EXHIBIT 9(b) CONSENT OF COUNSEL
EXHIBIT 10 CONSENT OF INDEPENDENT AUDITORS
</TABLE>
<PAGE>
Exhibit 8(m)
PARTICIPATION AGREEMENT
Among
ENDEAVOR SERIES TRUST,
ENDEAVOR MANAGEMENT CO.,
and
PFL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 28th day of February, 1991 by
and among PFL LIFE INSURANCE COMPANY, an Iowa corporation (hereinafter the
"Company") on its own behalf and on behalf of the PFL Endeavor Variable Annuity
Account, and other segregated asset accounts of the Company (hereinafter the
"Account" or "Accounts"), and ENDEAVOR SERIES TRUST, a Massachusetts business
trust (hereinafter the "Fund"), and ENDEAVOR MANAGEMENT CO., a California
corporation (hereinafter the "Manager").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for the Account, and
may be available for other separate accounts established for variable life
insurance policies and variable annuity contracts only if the Company so
consents; and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares each designated a "Portfolio" and each representing the interests in a
particular managed pool of securities and other assets; and
<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended
(hereinafter the "1933 Act"); and
WHEREAS, the Manager is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940 and any applicable state securities law,
and will be the Fund's investment adviser; and
WHEREAS, the Company has registered or will register certain variable
annuity and/or life insurance contracts under the 1933 Act (hereinafter
"Policies"); and
WHEREAS, the Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or life insurance contracts that are allocated to the Accounts (the Policies
and Account(s) covered by this Agreement, and the corresponding Portfolios
covered by this Agreement in which the Account(s) invest(s), are specified in
Schedule A attached hereto as may be modified from time to time); and
WHEREAS, the Company has registered or will register the Account(s) as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of the Account(s) to fund the
-2-
<PAGE>
Policies and the Fund intends to sell such shares to the Account(s) at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Manager, and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund and Manager agree to sell to the Company those shares of
the Fund which the Account(s) 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 Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from Policy
owners and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 9:30 a.m. New York 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 Securities and Exchange
Commission.
1.2. The Fund and Manager agree to make Fund shares available
indefinitely for purchase at the applicable net asset value per share by the
Company and the Account on those days on which the Fund calculates its net asset
value pursuant to rules of the Securities and Exchange Commission and the Fund
shall use reasonable efforts to calculate such net asset value on each day which
the New York Stock Exchange is open for trading.
-3-
<PAGE>
Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter
the "Trustees") may refuse to sell shares of any Portfolio to the Company and
the Account, 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 Trustees 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.
1.3. The Fund and Manager agree that shares of the Fund will be sold
only to the Company and the Account except that share of the Fund may be sold to
other insurance companies or their separate accounts with the express written
consent of the Company. Shares will not be sold to the general public or to
other investors. The Account(s) shall invest exclusively in the Fund, or in
other investment vehicles managed or advised by the Manager or affiliates of the
Manager, except with the express written consent of the Manager.
1.4. The Fund agrees to redeem for cash, on 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 by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Fund; provided
-4-
<PAGE>
that the Fund receives notice of such request for redemption by 9:30 a.m. New
York time on the next following Business Day.
1.5. The Company shall pay for the Fund shares on the next Business
Day after an order to purchase shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire or
by a credit for any shares redeemed. For purpose of Section 2.8, upon receipt by
the Fund of the federal funds so wired, such funds shall cease to be the
responsibility of the Company and shall become the responsibility of the Fund.
1.6. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Fund will be recorded in an appropriate title for the
Account or the appropriate subaccount of the Account.
1.7. The Fund shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such dividends and distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.8. The Fund shall make the net asset value per share for each
Portfolio available to the Company on each Business Day as soon as reasonably
practical after the net asset value per
-5-
<PAGE>
share is calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. New York time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Policies are or
will be registered under the 1933 Act. 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 the Account
as a segregated asset account under Iowa law and has registered or, prior to any
issuance or sale of the Policies, will register the Account(s) as a unit
investment trust in accordance with the provisions of the 1940 Act (unless
exempt therefrom) to serve as a segregated investment account for the Policies.
2.2. The Fund and Manager represent and warrant that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of Massachusetts
and all applicable federal and state securities laws and that the Fund is and
shall remain registered under the 1940 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. 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 and Manager.
-6-
<PAGE>
2.3. The Fund and Manager represent that each Portfolio of the Fund
is currently qualified or will be qualified as a Regulated Investment Company
under Subchapter M of the Internal Revenue Code of 1986, as amended, (the
"Code") and that every effort will be made to maintain such qualification (under
Subchapter M or any successor or similar provision) and that the Fund or Manager
will notify the Company orally (followed by written notice) or by wire
immediately upon having a reasonable basis for believing that any Portfolio of
the Fund has ceased to so qualify or that any Portfolio might not so qualify in
the future.
2.4. The Fund will not make any payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise. However, if the
Fund were authorized to establish a 12b-1 plan, the Fund would undertake to have
a board of trustees, a majority of whom are not interested persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.5. The Fund represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of California and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act.
-7-
<PAGE>
2.6. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Massachusetts and that it does and will
comply with the 1940 Act.
2.7. The Manager 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 with any applicable
state and federal securities laws.
2.8. The Fund and Manager each represents and warrants that all of
its directors, trustees, 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 as required currently by Section 17(g) and Rule 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.
ARTICLE III. Prospectus and Proxy Statements; Voting
3.1. At least annually, the Fund or the Manager shall provide the
Company, free of charge, with as many copies of the Fund's current prospectus as
the Company may reasonably request for distribution to both existing Policy
owners and prospective purchasers. If requested by the Company in lieu thereof,
the
-8-
<PAGE>
Fund shall provide such documentation (including a final "camera ready" copy of
the new prospectus as set in type at the Fund's expense) and other assistance as
is reasonably necessary in order for the parties hereto once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Policies and the Fund's prospectus printed together in
one document; the expenses of such printing to be apportioned between (a) the
Company, and (b) the Fund or the Manager, in proportion to the number of pages
of the Policy and Fund Prospectuses, taking account of other relevant factors
affecting the expense of printing, such as columns, charts, etc.; the Fund or
the Manager to bear the cost of printing the Fund's portion of such document,
and the Company to bear the expenses of printing the Account's portion of such
document.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Fund (or a specified
affiliate). The Fund or an affiliate, at its expense, shall print and provide
such Statement free of charge to the Company and to any owner of a Policy or
prospective purchaser who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy material, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Policy owners.
-9-
<PAGE>
3.4. If and to the extent required by law, the Company shall:
(i) solicit voting instructions from Policy owners;
(ii) vote the Fund shares in accordance with instructions
received from Policy 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 Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in the Account in its own right, to the extent permitted by law.
3.5. The process of soliciting Policy owners' voting instructions,
tabulating votes, etc. shall be conducted in accordance with Schedule B attached
hereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or Manager is named, at least ten Business Days prior
to its use. No such material shall be used if the Fund or its designee object
-10-
<PAGE>
to such use within ten Business Days after receipt of such material.
4.2 The 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 Policies 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
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund.
4.3 The Fund and Manager shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company and/or its separate account(s),
is named, at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee object to such use within ten Business Days
after receipt of such material.
4.4 The Fund and Manager shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Policies other than information or representations contained in a
registration statement or prospectus for the Policies, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
reports for the Account approved by the Company for
-11-
<PAGE>
distribution to Policy owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5 The Company and Fund will each provide to the other at least one
complete copy of all registration statements, prospectuses, Statements of
Additional Information, reports, proxy statements, sale literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Policies, or
to the Fund or its shares, prior to or contemporaneously with the filing of such
document with the Securities and Exchange Commission or other regulatory
authorities. The Company or Fund shall also each promptly inform the other of
the results of any examination by the Securities and Exchange Commission (or
other regulatory authorities) that relates to the Policies, the Fund or its
shares, and the party that was the subject of the examination shall provide the
other party with a copy of any "deficiency letter" or other correspondence or
written report regarding any such examination.
4.6 For purposes of this Article IV, the phrase "sales literature or
other promotional material" means 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 billboard),
and sales literature (such as brochures, circulars,
-12-
<PAGE>
market letters and form letters), distributed or made generally available to
customers or the public.
ARTICLE V. Fees and Expenses
5.1 The Fund and Manager shall pay no fee or other compensation to the
Company under this agreement, and the Company shall pay no fee or other
compensation to the Fund or Manager; provided, however, that in accordance with
the allocation of expenses specified in Articles III and V hereof, each party
shall reimburse other parties for expenses initially paid by one party but
allocated to another party.
5.2 Subject to Section 5.4 below, the Fund shall bear the expenses
for the cost of registration and qualification of the Fund's shares under all
applicable federal and state laws, including preparation and filing of the
Fund's registration statement, and payment of filing fees and registration fees;
preparation and filing of the Fund's proxy materials and reports; setting in
type and printing its prospectus (determined in accordance with Section 3.1
above); setting in type and printing the proxy materials and reports to
shareholders; the preparation of all statements and notices required of the Fund
by any federal or state law; all taxes on the issuance or transfer of the Fund's
shares; and the costs of distributing prospectuses and proxy materials to Policy
owners. The Fund shall not bear any expenses of marketing the Policies.
-13-
<PAGE>
5.3 The Company shall bear the expenses of distributing the Fund's
prospectus in connection with new sales of the Policies and of distributing the
Fund's shareholder reports to Policy owners. The Company shall bear all expenses
associated with the registration, qualification, and filing of the Policies
under applicable Federal securities and state insurance laws; the cost of
printing the Policy prospectus; and the cost of preparing and printing annual
individual account statements for Policy owners as required by state insurance
laws.
5.4 The expenses allocated herein to the Fund shall be paid initially
by the Company until such time as the Fund's net assets are $100,000,000 or
higher. The Fund shall then reimburse the Company for all such expenses paid for
by the Company or accrued as of that date, with such reimbursement to be paid in
36 equal monthly installments over the three year period beginning on the date
when the Fund's net assets reach $100,000,000. After that date, the Fund shall
directly pay its own expenses, as allocated herein.
-14-
<PAGE>
ARTICLE VI. Diversification and Related Limitations
6.1 The Fund and Manager represent and warrant that the Fund will at
all times invest its assets in such a manner as to ensure that the Policies will
be treated as annuity, endowment, or life insurance contracts under the Code and
the regulations issued thereunder. Without limiting the scope of the foregoing,
the Fund will at all times comply with Section 817(h) of the Code and Treas.
Reg. Section 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 to such Section or Regulations.
6.2 Fund shares will not be sold to any person or entity that would
result in the Policies not being treated as annuity, endowment, or life
insurance contracts, in accordance with the statutes and regulations referred to
in the preceding paragraph (Section 6.1 hereof).
ARTICLE VII. Indemnification
7.1 Indemnification By The Company
7.1(a) The Company agrees to indemnify and hold harmless the Fund,
Manager, and each of their directors, trustees and officers and each person, if
any, who controls the Fund or Manager within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
-15-
<PAGE>
7.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the 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, 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 Policies 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 for the Policies or
contained in the Policies or sales literature for the
Policies (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 the Company by or on
behalf of the Fund or Manager for use in the Registration
Statement or prospectus for the Policies or in the Policies
or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Policies or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of
the Fund not supplied by the Company, or persons under its
control) or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the
Policies or Fund shares; or
-16-
<PAGE>
(iii) arise out of 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 statement or
omission was made in reliance upon information furnished
to the Fund or Manager by or on behalf of the Company; or
(iv) arise out of or result from 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 of this Agreement by the Company;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b) The 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 willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Fund,
whichever is applicable.
7.1(c) The 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 the 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
-17-
<PAGE>
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the 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. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
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 the
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.
7.1(d) The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Policies or the operation of the
Fund and the Indemnified Parties will provide the Company with all relevant
information and documents requested by the Company. For purposes of this Section
7.1(d), the "commencement" of proceedings shall include any informal or formal
communications from the Securities
-18-
<PAGE>
and Exchange Commission or its staff (or the receipt of information from any
other persons or entities) indicating that enforcement action by said Commission
or staff may be contemplated or forthcoming; this includes any information to
the effect that any matter(s) has been referred to the SEC's Division of
Enforcement, or that any matter(s) is being discussed with that Division.
7.2 Indemnification by the Fund and Manager
7.2(a) The Fund and Manager, jointly and severally, agree to indemnify
and hold harmless the Company and each of its directors and officers and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
7.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Manager) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute, 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
Policies and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales literature
of 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
-19-
<PAGE>
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 the Manager or Fund by or on
behalf of the 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 Policies or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Policies not supplied by the Fund
or Manager, or persons under their control) or wrongful
conduct of the Fund or Manager or persons under their
control, with respect to the sale or distribution of the
Policies 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 sale literature covering the
Policies, 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 to the Company by or
on behalf of the Fund or Manager; or
(iv) rise out of or result from any material breach of any
representation and/or warranty made by the Fund or Manager
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Fund or Manager
(including a failure, whether unintentional or in good
faith or otherwise, to comply with the requirements
specified in Article VI of this Agreement);
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
-20-
<PAGE>
7.2(b) The Fund and Manager 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 the Company or the Account.
7.2(c) The Fund and Manager ("Indemnifiers" for purposes of this
Section 7.2) 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 Indemnifier 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 Indemnifier of any such claim shall not
relieve the Indemnifier from any liability which they may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, the Indemnifiers will be entitled to participate, at
their own expense, in the defense thereof. The Indemnifier also shall be
entitled to assume the defense thereof, with counsel satisfactory
-21-
<PAGE>
to the party named in the action. After notice from the Indemnifier to such
party of their election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of additional counsel retained by it, and the
Indemnifier 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.
ARTICLE VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of Iowa.
8.2 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 statues, rules and regulations as the
Securities and Exchange Commission may grant and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE IX. Termination
9.1 This Agreement shall terminate with respect to the Account, or
one, some, or all Portfolios:
(a) at the option of any party upon six month's advance written
notice to the other parties; or
-22-
<PAGE>
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the requirements of the Policies
or are not "appropriate funding vehicles" for the Policies, as determined by the
Company reasonably and in good faith. Without limiting the generality of the
foregoing, shares of a Portfolio would not be "appropriate funding vehicles" if,
for example, such shares did not meet the diversification or other requirements
referred to in Article VI hereof; or if the Portfolio did not qualify under
Subchapter M of the Code, as referred to in Section 2.3 hereof; or if the
investments or investment policies, objectives, and/or limitations of the
portfolio would impose unanticipated risks on the Company; or if the Company
would be permitted to disregard policy owner voting instructions pursuant to
Rules 6e-2 or 6e-3(T) under the 1940 Act; etc. Prompt notice of the election to
terminate for such cause and an explanation of such cause shall be furnished by
the Company.
9.2 The notice shall specify the Portfolio(s) and Policy(s) as to
which the Agreement is to be terminated, or that the Agreement is to be
terminated as to the Account.
9.3 It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 9.1(a) may be exercised for cause
or for no cause.
9.4 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and Manager shall, at the option of the Company, continue to
make available additional
-23-
<PAGE>
shares of the Portfolios pursuant to the terms and conditions of this Agreement,
for all Policies in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Policies"). Specifically,
without limitation, the owner of the Existing Policies shall be permitted to
transfer or reallocate investments under the Policies, redeem investments in the
Fund and/or invest in the Fund upon the making of additional purchase payments
under the Existing Policies.
ARTICLE X. 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:
Endeavor Series Trust
1100 Newport Center, Suite 200 Newport
Beach, California 92660
Attention: James A. Shepherdson
If to the Manager:
Endeavor Management Co.
1100 Newport Center, Suite 200
Newport Beach, California 92660
Attention: Vincent J. McGuinness
If to the Company:
PFL Life Insurance Company
4333 Edgewood Rd., N.E.
Cedar Rapids, Iowa 52499
Attention: Craig Vermie, Esq.
-24-
<PAGE>
ARTICLE XI. Miscellaneous
11.1 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 Policies 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 it may come into the public domain.
11.2 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.
11.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.4 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.
11.5 The Schedules attached hereto, as modified from time to time, are
incorporated herein by references and are part of this Agreement.
11.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (in
-25-
<PAGE>
cluding without limitation the Securities and Exchange Commission, the National
Association of Securities Dealers, 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.
11.7 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.
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.
Company:
PFL LIFE INSURANCE COMPANY
By its authorized officer,
By: /s/ William J. Busler
------------------------
Title: Exec. V.P.
--------------------
Date: 2-28-91
----------------------
Fund:
ENDEAVOR SERIES TRUST
By its authorized officer,
By: /s/
----------------------
Title: President
-------------------
Date: 2/27/91
-------------------
-26-
<PAGE>
Manager:
ENDEAVOR MANAGEMENT CO.
By its authorized officer,
By: /s/ Vincent J. McGuinness
---------------------------------
Title: C.E.O.
-------------------------------
Date: 3/1/91
--------------------------------
- 27 -
<PAGE>
ADDENDUM NO. 1 TO
PARTICIPATION AGREEMENT
AMONG
ENDEAVOR SERIES TRUST,
ENDEAVOR MANAGEMENT CO.,
AND
PFL LIFE INSURANCE COMPANY
Amendment No. 1 to the Participation Agreement among Endeavor Series Trust,
Endeavor Management Co., and PFL Life Insurance Company dated February 20, 1991
("Participation Agreement").
WHEREAS, International Life Investors Insurance Company has recently
established a separate account for the purposes of selling a variable annuity
product funded by the Endeavor Series Trust; and
WHEREAS, each of the parties is desirous of adding International Life
Investors Insurance company as a party, subject to the same terms and
conditions, to the Participation Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED that International Life Investors
Insurance Company, through its separate account, the ILI Endeavor Separate
Account, is authorized to acquire shares issued by the Endeavor Series Trust,
subject to the terms and conditions of the Participation Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be
executed in its name and on its behalf by its duly authorized representative as
of July 14, 1993.
PFL LIFE INSURANCE COMPANY ENDEAVOR SERIES TRUST
By its authorized officer, By its authorized officer,
By: xxxxxx By: xxxxxx
------------------------------- -------------------------------
Title: Vice President & Actuary Title: President
---------------------------- ----------------------------
Date: 8/12/93 Date: 8/12/93
----------------------------- -----------------------------
INTERNATIONAL LIFE INVESTORS ENDEAVOR MANAGEMENT CO.
INSURANCE COMPANY By its authorized officer,
By its authorized officer,
By: /s/ Craig D. Vermie By: xxxxxx
------------------------------- -------------------------------
Title: Secretary Title: Vice Chairman
---------------------------- ----------------------------
Date: 8/12/93 Date: 8/12/93
----------------------------- -----------------------------
Addendum
<PAGE>
ADDENDUM NO. 2 TO
PARTICIPATION AGREEMENT
AMONG
ENDEAVOR SERIES TRUST,
ENDEAVOR MANAGEMENT CO.,
AND
PFL LIFE INSURANCE COMPANY
Amendment No. 2 to the Participation Agreement among Endeavor Series Trust,
Endeavor Management Co., and PFL Life Insurance Company dated February 20, 1991
("Participation Agreement").
WHEREAS, AUSA Life Insurance Company, Inc. has recently established a
separate account for the purposes of selling a variable annuity product funded
by the Endeavor Series Trust; and
WHEREAS, each of the parties is desirous of adding AUSA Life Insurance
Company, Inc. as a party, subject to the same terms and conditions, to the
Participation Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED THAT AUSA Life Insurance Company, Inc.,
through its separate account, the AUSA Endeavor Separate Account, is authorized
to acquire shares issued by the Endeavor Series Trust, subject to the terms and
conditions of the Participation Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Addendum to be
executed in its name and on its behalf by its duly authorized representative as
of Oct. 7, 1994.
PFL LIFE INSURANCE COMPANY ENDEAVOR SERIES TRUST
By its authorized officer, By its authorized officer,
By: /s/ William L. Busler By: xxxxxx
------------------------------- -------------------------------
William L. Busler
Title: President Title: President
---------------------------- ----------------------------
Date: October 7, 1994 Date: October 7, 1994
----------------------------- -----------------------------
AUSA LIFE INSURANCE COMPANY, INC. ENDEAVOR MANAGEMENT CO.
By its authorized officer, By its authorized officer,
By: /s/ Craig D. Vermie By: /s/ Vincent J. McGuinness
------------------------------- -------------------------------
Title: Vice President Title: C. E. O.
---------------------------- ----------------------------
Date: October 7, 1994 Date: October 7, 1994
----------------------------- -----------------------------
Addendum
<PAGE>
AMENDED
SCHEDULE A
----------
EFFECTIVE NOVEMBER 4, 1996
Account(s), Policy(ies) and Portfolio(s) Subject
to the Participation Agreement
------------------------------
Account: PFL Endeavor Variable Annuity Account
- ------- AUSA Endeavor Variable Annuity Account
Policies: The Endeavor Variable Annuity
- -------- The Endeavor Platinum Variable Annuity
The AUSA Endeavor Variable Annuity
Portfolios: Managed Asset Allocation
- ---------- Money Market
Global Growth
Quest for Value Equity
Quest for Value Small Cap
U.S. Government Securities
T. Rowe Price Equity Income
T. Rowe Price Growth Stock
Opportunity Value
Enhanced Index
Approved:
Endeavor Management Co. PFL Life Insurance Company
By: /s/ Vincent J. McGuinness By: /s/ /s/ William L. Busler
------------------------------- -------------------------------
Title: C. E. O. Title: President
---------------------------- ----------------------------
Date: October 30, 1996 Date: October 11, 1996
----------------------------- -----------------------------
AUSA Life Insurance Company Endeavor Series Trust
By: /s/ Craig D. Vermie By: /s/ James R. McInnis
------------------------------- -------------------------------
James R. McInnis
Title: Vice President Title: President
---------------------------- ----------------------------
Date: October 11, 1996 Date: October 31, 1996
----------------------------- -----------------------------
<PAGE>
ADDENDUM NO. 3 TO
PARTICIPATION AGREEMENT
AMONG
ENDEAVOR SERIES TRUST,
ENDEAVOR MANAGEMENT CO.,
AND
PFL LIFE INSURANCE COMPANY
Amendment No. 3 to the Participation Agreement among Endeavor Series Trust,
Endeavor Management Co., and PFL Life Insurance Company dated February 20, 1991
("Participation Agreement").
WHEREAS, Providian Life and Health Insurance Company ("Providian") and
First Providian Life and Health Insurance Company ("First Providian") have
established separate accounts for the purpose of selling variable annuities,
some of which are to be funded in part by the Endeavor Series Trust; and
WHEREAS, the original parties to the Participation Agreement and AUSA Life
Insurance Company, Inc. (which was made party by a subsequent addendum to the
Participation Agreement) are desirous of adding Providian and First Providian as
parties, subject to the same terms and conditions except as modified herein
below, to the Participation Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED that Providian and First Providian,
through their respective separate accounts, Providian Life and Health Insurance
Company Separate Account V and First Providian Life and Health Insurance Company
Separate Account C, are authorized to acquire shares issued by the Endeavor
Series Trust, subject to the terms and conditions of the Participation Agreement
as modified herein below.
MODIFICATIONS TO THE PARTICIPATION AGREEMENT FOR THE PURPOSE OF ADDING PROVIDIAN
AND FIRST PROVIDIAN AS PARTIES
Section 2.1 is hereby modified only to the extent that Providian represents
and warrants that it has legally and validly established its Separate Account V
as a segregated asset account under Missouri law.
<PAGE>
Addendum No. 3 to Participation Agreement Among
Endeavor Series Trust,
Endeavor Management Co., and
PFL Life Insurance Company
Page 2 of 3
Section 2.1 is hereby further modified only to the extent that First
Providian represents and warrants that it has legally and validly established
its Separate Account C as a segregated asset account under New York law.
Section 5.4 is hereby modified only to the extent that expenses to be paid
initially under Section 5.4 by Providian and First Providian, respectively,
shall be in amounts proportionate to the Fund's net assets attributable to
shares purchased by Providian and First Providian, respectively.
The parties agree that no life insurance company that is a party to the
Participation Agreement shall incur any liability under the Participation
Agreement (in particular under the provisions of Article VII (relating to
indemnification)) which is premised on the acts or omissions of other life
insurance companies that are parties to the Participation Agreement. Each life
insurance company severally indemnifies and is severally indemnified under the
Participation Agreement.
IN WITNESS WHEREOF, each of the original and subsequent parties has caused
this Addendum to be executed in its name and on its behalf by its duly
authorized representative as of October 13, 1997.
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY ENDEAVOR SERIES TRUST
By its authorized officer By its authorized officer
<S> <C>
By: /s/ William L. Busler By: /s/ James R. McInnis
------------------------- -------------------------
Title: President Title: President
---------------------- ----------------------
Date: 10/7/97 Date: 10/14/97
----------------------- -----------------------
</TABLE>
<PAGE>
Addendum No. 3 to Participation Agreement Among
Endeavor Series Trust,
Endeavor Management Co., and
PFL Life Insurance Company
Page 3 of 3
<TABLE>
<CAPTION>
<S> <C>
ENDEAVOR MANAGEMENT CO. AUSA LIFE INSURANCE CO., INC.
By its authorized officer By its authorized officer
By: /s/ James R. McInnis By: /s/ William L. Busler
---------------------------- ----------------------------
Title: President Title: Vice President
------------------------- -------------------------
Date: 10/14/97 Date: 10/7/97
-------------------------- --------------------------
PROVIDIAN LIFE AND HEALTH FIRST PROVIDIAN LIFE AND
INSURANCE COMPANY HEALTH INSURANCE COMPANY
By its authorized officer By its authorized officer
By: /s/ Michael F. Lane By: /s/ Michael F. Lane
---------------------------- ----------------------------
Title: Vice President Title: Second Vice President
------------------------- -------------------------
Date: 10/2/97 Date: 10/2/97
-------------------------- --------------------------
</TABLE>
<PAGE>
Amended Schedule A
Page 1 of 2
AMENDED
SCHEDULE A
----------
EFFECTIVE OCTOBER 13, 1997
Account(s), Policy(ies) and Portfolio(s) Subject
to the Participation Agreement
Among
Endeavor Series Trust,
Endeavor Management Company,
and
PFL Life Insurance Company
<TABLE>
<CAPTION>
<S> <C>
Accounts: PFL Endeavor Variable Annuity Account
- -------- AUSA Endeavor Variable Annuity Account
Providian Life and Health Insurance Company
Separate Account V
First Providian Life and Health Insurance Company
Separate Account C
Policies: The Endeavor Variable Annuity
- -------- The Endeavor Platinum Variable Annuity
The AUSA Endeavor Variable Annuity
Providian Advisor's Edge Variable Annuity
Portfolios: TCW Money Market Portfolio
- ---------- TCW Managed Asset Allocation Portfolio
T. Rowe Price International Stock Portfolio
Value Equity Portfolio
Dreyfus Small Cap Value Portfolio
Dreyfus U.S. Government Securities Portfolio
T. Rowe Price Equity Income Portfolio
T. Rowe Price Growth Stock Portfolio
Opportunity Value Portfolio
Enhanced Index Portfolio
</TABLE>
Approved:
<TABLE>
<CAPTION>
PFL LIFE INSURANCE COMPANY ENDEAVOR SERIES TRUST
By its authorized officer By its authorized officer
<S> <C>
By: /s/ William L. Busler By: /s/ James R. McInnis
--------------------------- ---------------------------
Title: President Title: President
------------------------ ------------------------
Date: 10/7/97 Date: 10/14/97
------------------------- -------------------------
</TABLE>
<PAGE>
Amended Schedule A
Page 2 of 2
<TABLE>
<CAPTION>
ENDEAVOR MANAGEMENT CO. AUSA LIFE INSURANCE CO., INC.
By its authorized officer By its authorized officer
<S> <C>
By: /s/ James R. McInnis By: /s/ William L. Busler
-------------------------- --------------------------
Title: President Title: Vice President
----------------------- -----------------------
Date: Date: 10/7/97
------------------------ ------------------------
PROVIDIAN LIFE AND HEALTH FIRST PROVIDIAN LIFE AND
INSURANCE COMPANY HEALTH INSURANCE COMPANY
By its authorized officer By its authorized officer
By: /s/ Michael F. Lane By: /s/ Michael F. Lane
-------------------------- --------------------------
Title: Vice President Title: Second Vice President
----------------------- -----------------------
Date: 10/2/97 Date: 10/2/97
------------------------ ------------------------
</TABLE>
<PAGE>
EXHIBIT 9(a)
April 30, 1998
Providian Life and Health Insurance Company
Administrative Offices
20 Moores Road
Frazer, Pennsylvania 19355
RE: PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V (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. 8 (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 30, 1998
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/ Gregory E. Miller-Breetz
Gregory E. Miller-Breetz
Attorney
<PAGE>
EXHIBIT 9(b)
JORDEN BURT BOROS CICCHETTI 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 30, 1998
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. 8 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 Boros Cicchetti Berenson &
Johnson LLP
Jorden Burt Boros Cicchetti 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 24, 1998, with respect to the financial
statements 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, Providian Life and Health Insurance Company
Separate Account V--PGA Retirement Annuity, and the statutory-basis financial
statements of Providian Life and Health Insurance Company in Post-Effective
Amendment No. 8 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 24, 1998
