<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 1998
REGISTRATION NO. 33-79502
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. [_]
[X]
POST-EFFECTIVE AMENDMENT NO. 5
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X]
AMENDMENT NO. 14
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
(FORMERLY NATIONAL HOME LIFE ASSURANCE COMPANY SEPARATE ACCOUNT V)
(EXACT NAME OF REGISTRANT)
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(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 PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b) of Rule 485.
[_] On pursuant to paragraph (b)(1)(v) of Rule 485.
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[_] On pursuant to paragraph (a)(1) of Rule 485.
[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[_] On pursuant to paragraph (a)(2) of Rule 485.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PURSUANT TO RULE 481
SHOWING LOCATION IN PART A (PROSPECTUS) AND PART B
(STATEMENT OF ADDITIONAL INFORMATION) OF REGISTRATION
STATEMENT OF INFORMATION REQUIRED BY FORM N-4
PART A
<TABLE>
<CAPTION> APPLICABLE CONTRACT
ITEM OF FORM N-4 PROSPECTUS CAPTION
- ---------------- -------------------
<S> <C>
1. Cover Page................. Cover Page
2. Definitions................ GLOSSARY
3. Synopsis................... HIGHLIGHTS; FEE TABLE; Performance Measures
4. Condensed Financial Condensed Financial Information
Information................
5. General Description of
Registrant, Depositor, and Providian Life and Health Insurance Company;
Portfolio Companies........ Providian Life and Health Insurance Company
Separate Account V; The Portfolios; Voting
Rights
6. Deductions................. Charges and Deductions; Federal Tax
Considerations; Fee Table
7. General Description of
Variable CONTRACT FEATURES; Distribution-at-Death Rules;
Annuity Contracts.......... Voting Rights; Allocation of Purchase Payments;
Exchanges Among the Portfolios; Additions,
Deletions, or Substitutions of Investments
8. Annuity Period............. Annuity Payment Options
9. Death Benefit.............. Death of Annuitant Prior to Annuity Date
10. Purchases and Contract Contract Purchase and Purchase Payments;
Value...................... Accumulated Value
11. Redemptions................ Full and Partial Withdrawals; Annuity Payment
Options; Right to Cancel Period
12. Taxes...................... FEDERAL TAX CONSIDERATIONS
13. Legal Proceedings.......... Part B: Legal Proceedings
14. Table of Contents of the
Statement Table of Contents of the Providian Marquee
of Additional Information.. Variable Annuity and the Providian Marquee
Variable Annuity--A Units Statement of
Additional Information
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF STATEMENT OF ADDITIONAL
FORM N-4 INFORMATION CAPTION
- -------- -----------------------
<S> <C>
15. Cover Page................ Cover Page
16. Table of Contents......... Table of Contents
17. General Information and THE COMPANY
History...................
18. Services.................. Part A: Auditors; Part B: SAFEKEEPING OF ACCOUNT
ASSETS; DISTRIBUTION OF THE CONTRACTS
19. Purchase of Securities DISTRIBUTION OF THE CONTRACTS; Exchanges
Being Offered.............
20. Underwriters.............. DISTRIBUTION OF THE CONTRACTS
21. Calculation of Performance PERFORMANCE INFORMATION
Data......................
22. Annuity Payments.......... Computations of Annuity Income Payments
23. Financial Statements...... FINANCIAL STATEMENTS
</TABLE>
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT V
PROSPECTUS
FOR THE
PROVIDIAN MARQUEE VARIABLE ANNUITY
OFFERED BY
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A MISSOURI STOCK COMPANY)
ADMINISTRATIVE OFFICES
P.O. BOX 32700
LOUISVILLE, KENTUCKY 40232
The Providian Marquee variable annuity contract (the "Contract"), offered
through Providian Life and Health Insurance Company (the "Company", "us", "we"
or "our"), provides a vehicle for investing on a tax-deferred basis in 12
investment company Portfolios and our General Account. The Contract is an
individual variable annuity contract and is intended for retirement savings or
other long-term investment purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $5,000.
The minimum initial Purchase Payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (30
days or more in some instances) plus a 5 day grace period to allow for mail
delivery during which you may cancel your investment in the Contract.
You may allocate your Purchase Payments for the Contract among 12 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 six open-end, diversified investment companies):
. Fidelity VIP Money Market . T. Rowe Price Equity Income
Portfolio Portfolio
. Fidelity VIP Equity-Income . T. Rowe Price New America Growth
Portfolio Portfolio
. Fidelity VIP Growth Portfolio . T. Rowe Price International Stock
. Fidelity VIP II Asset Manager Portfolio
Portfolio
. Dreyfus Growth and Income . OCC Accumulation Trust Managed
Portfolio Portfolio
. Dreyfus Quality Bond Portfolio. OCC Accumulation Trust Small Cap
Portfolio
. OCC Accumulation Trust U.S.
Government Income Portfolio
Depending upon the state of issue and provisions of your Contract, your
initial Net Purchase Payment(s) will, when your Contract is issued, either be
(i) invested in the Fidelity VIP Money Market Portfolio during your Right to
Cancel Period and/or invested immediately in your chosen Guaranteed Rate
Options or (ii) invested immediately in your chosen Portfolios and fixed
options (other than the Guaranteed Equity Option).
The Contract's Accumulated Value varies with the investment performance of the
Portfolios you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed except to
the extent 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) and
may be subject to a surrender charge of up to 6%. If you elect an Annuity
Payment Option, Annuity Payments may be received on a fixed and/or variable
basis. You also have significant flexibility in choosing the Annuity Date on
which Annuity Payments begin.
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-0979(B)
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
GLOSSARY.................................................................... 2
HIGHLIGHTS.................................................................. 5
FEE TABLE................................................................... 8
Condensed Financial Information............................................. 10
Financial Statements........................................................ 10
Performance Measures........................................................ 10
Additional Performance Measures............................................. 11
Yield and Effective Yield................................................... 11
The Company and the Separate Account........................................ 12
Variable Insurance Products Fund and Variable Insurance Products Fund II.... 12
Dreyfus Variable Investment Fund............................................ 12
T. Rowe Price Equity Series, Inc............................................ 13
T. Rowe Price International Series, Inc..................................... 13
OCC Accumulation Trust...................................................... 13
The Portfolios.............................................................. 13
CONTRACT FEATURES........................................................... 15
Contract Purchase and Purchase Payments................................... 15
Purchasing by Wire........................................................ 15
Right to Cancel Period.................................................... 15
Allocation of Purchase Payments........................................... 16
Exchanges Among the Portfolios............................................ 16
Dollar Cost Averaging Options............................................. 17
General Account Guaranteed Options........................................ 17
Accumulated Value......................................................... 17
Charges and Deductions.................................................... 18
Minimum Balance Requirement............................................... 20
DISTRIBUTIONS UNDER THE CONTRACT............................................ 20
Full and Partial Withdrawals.............................................. 20
Lump Sum Payment Option................................................... 21
Systematic Withdrawal Option.............................................. 21
Annuity Date.............................................................. 21
Annuity Payment Options................................................... 22
Death Benefit............................................................. 23
Deferment of Payment...................................................... 24
FEDERAL TAX CONSIDERATIONS.................................................. 25
GENERAL INFORMATION......................................................... 29
APPENDIX A
The General Account....................................................... A-1
</TABLE>
GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less
any partial withdrawals subsequently taken.
2
<PAGE>
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 22), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 22), the dollar amount of each Annuity Payment may change over time,
depending upon the investment experience of the Portfolio or Portfolios you
choose. Annuity Payments are based on the Contract's Accumulated Value as of
10 Business Days prior to the Annuity Date.
Annuity Unit - Unit of measure used to calculate Variable Annuity Payments
(see "Annuity Payment Options," page 22).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
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.
Death Benefit - The greater of the Contract's Accumulated Value on the date
the Company receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit. If any portion of the Contract's Accumulated Value on the date we
receive proof of the Annuitant's death is derived from the Multi-Year
Guaranteed Rate Option, that portion of the Accumulated Value will be adjusted
by a positive Market Value Adjustment Factor (see "Multi-Year Guaranteed Rate
Option," at Appendix A), if applicable.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount or General Account Guaranteed Option.
Funds - Each of (i) Variable Insurance Products Fund, (ii) Variable Insurance
Products Fund II, (iii) Dreyfus Variable Investment Fund, (iv) T. Rowe Price
Equity Series, Inc., (v) T. Rowe Price International Series, Inc. and (vi) OCC
Accumulation Trust. The Separate Account invests in the Portfolios contained
within the Funds. (See "The General Account," at Appendix A.)
General Account - The account which contains all of our assets other than
those held in our separate accounts. (See "The General Account," at Appendix
A.)
General Account Guaranteed Option - Any of the following 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, and the structure and characteristics
of these options vary by state. (See "The General Account," at Appendix A.)
Guaranteed Rate Options - The One-Year Guaranteed Rate Option and the Multi-
Year Guaranteed Rate Option.
Market Value Adjustment Factor - The formula applied to the Accumulated Value
in order to determine the net amount of any transfer or surrender under the
Multi-Year Guaranteed Rate Option. (See "Multi-Year Guaranteed Rate Option,"
at Appendix A.)
Net Purchase Payment - Any Purchase Payment less the Premium Tax, if any.
3
<PAGE>
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant - in which case the Annuitant's Beneficiary is entitled to the Death
Benefit. (Note: this transfer of ownership to the Owner's Designated
Beneficiary will generally not be subject to probate, but will be subject to
estate and inheritance taxes. Consult with your tax and estate adviser to be
sure which rules will apply to you.)
Payee - The Contract Owner, Annuitant, Annuitant's Beneficiary, or any other
person, estate, or legal entity to whom benefits are to be paid.
Portfolio - A separate investment portfolio of the Funds. The Funds currently
offer 12 portfolios in the Providian Marquee variable annuity: the Fidelity
VIP Money Market Portfolio, the Fidelity VIP Equity-Income Portfolio and the
Fidelity VIP Growth Portfolio of Variable Insurance Products Fund; the
Fidelity VIP II Asset Manager Portfolio of Variable Insurance Products Fund
II; the Dreyfus Growth and Income Portfolio ("Dreyfus Growth and Income") and
the Dreyfus Quality Bond Portfolio ("Dreyfus Quality Bond") of Dreyfus
Variable Investment Fund; the T. Rowe Price Equity Income Portfolio ("T. Rowe
Price Equity Income") and the T. Rowe Price New America Growth Portfolio ("T.
Rowe Price New America Growth") of T. Rowe Price Equity Series, Inc.; the T.
Rowe Price International Stock Portfolio ("T. Rowe Price International Stock")
of T. Rowe Price International Series, Inc.; and the OCC Accumulation Trust
Managed Portfolio ("OCC Accumulation Trust Managed"), the OCC Accumulation
Trust Small Cap Portfolio ("OCC Accumulation Trust Small Cap") and the OCC
Accumulation Trust U.S. Government Income Portfolio ("OCC Accumulation Trust
U.S. Government Income") of OCC Accumulation Trust (each, a "Portfolio" and
collectively, the "Portfolios"). In this Prospectus, Portfolio will also be
used to refer to the Subaccount that invests in the corresponding Portfolio.
Premium Tax - A regulatory tax that may be assessed by certain states on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Qualified Contract - An annuity contract as defined under Sections 403(b),
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
Separate Account V dedicated to the Contract. The Separate Account consists of
assets that are segregated by Providian Life and Health Insurance Company and,
for Contract Owners, invested in the Portfolios. The Separate Account is
independent of the general assets of the Company.
Subaccount - That portion of the Separate Account that invests in shares of
the Funds' Portfolios. Each Subaccount will only invest in a single Portfolio.
The investment performance of each Subaccount is linked directly to the
investment performance of one of the 12 Portfolios.
Surrender Value - The Accumulated Value, adjusted to reflect any applicable
Market Value Adjustment (see "Multi-Year Guaranteed Rate Option," at Appendix
A) for amounts allocated to the Multi-Year Guaranteed Rate Option, less any
early withdrawal charges for amounts allocated to the One-Year Guaranteed Rate
Option, less any amount allocated to the Guaranteed Equity Option, less any
applicable contingent deferred sales load (i.e., surrender charge) and any
Premium Taxes incurred but not yet deducted.
Valuation Period - The relative performance of your Contract is measured by
the Accumulation Unit Value. This value is calculated each Valuation Period. A
Valuation Period is defined as the period of time between the close of
business on one Business Day and the close of business on the following
Business Day.
4
<PAGE>
HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 2).
THE PROVIDIAN MARQUEE VARIABLE ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in 12
investment company Portfolios offered by the Funds and 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 25)....................... Page 25
GENERAL ACCOUNT GUARANTEED OPTIONS
THE AVAILABILITY, STRUCTURE AND FEATURES OF THE GENERAL ACCOUNT GUARANTEED
OPTIONS VARY BY STATE. CHECK WITH YOUR SALES REPRESENTATIVE FOR DETAILS OF THE
AVAILABILITY AND CHARACTERISTICS OF THESE OPTIONS BEFORE PURCHASING.
The Dollar Cost Averaging Fixed Account Option described in Appendix A may not
be available in all states. Please see your sales representative for details
of the availability of the option before purchasing. If your state of issue is
any state other than those listed in the immediately following sentence, then
your General Account Guaranteed Options (other than the Dollar Cost Averaging
Fixed Account Option) are described in Part 1 of Appendix A. If your state of
issue is IN, MD, MA, OK, PA or TX, then your General Account Guaranteed
Options (other than the Dollar Cost Averaging Fixed Account Option) are
described in Part 2 of Appendix A. Please read Appendix A and the relevant
Part 1 or Part 2 carefully.
In certain marketing and customer communication materials, including the
customer order form and the Contract, used in the states of IN, MD, MA, OK, PA
or TX, the One-Year Guaranteed Rate Option may be titled the "One-Year
Guaranteed Index Rate Option"; the Multi-Year Guaranteed Rate Option may be
titled the "Five-Year Guaranteed Index Rate Option"; and the Guaranteed Equity
Option may be titled the "Five-Year Guaranteed Equity Option."
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 12 Subaccounts of the
Separate Account and/or the General Account Guaranteed Options. The
Subaccounts in turn invest exclusively in the following 12 Portfolios offered
by the Funds: Fidelity VIP Money Market, Fidelity VIP Equity-Income, Fidelity
VIP Growth, Fidelity VIP II Asset Manager, Dreyfus Growth and Income, Dreyfus
Quality Bond, T. Rowe Price Equity Income, T. Rowe Price New America Growth,
T. Rowe Price International Stock, OCC Accumulation Trust Managed, OCC
Accumulation Trust Small Cap and OCC Accumulation Trust U.S. Government
Income. The assets of each Portfolio are separate, and each Portfolio has
distinct investment objectives and policies as described in the corresponding
Fund or Portfolio Prospectus. The General Account Guaranteed Options are
available for sale in most, but not all, states................... Page 13
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in
the Contract. The Contract Owner may designate any person as a Joint Owner. A
Joint Owner shares ownership in all respects with the Contract Owner. Prior
5
<PAGE>
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 agent, who will provide the
necessary information to us in a customer order form. You will need to select
an Annuitant. The Annuitant may not be older than age 75. The minimum initial
Purchase Payment is $5,000 for Non-Qualified Contracts, and $2,000 (or $50
monthly by payroll deduction) for Qualified Contracts; subsequent Purchase
Payments must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Additional Purchase Payments after the first Contract
Year are limited to $10,000 annually. You may make subsequent Purchase
Payments at any time before the Contract's Annuity Date, as long as the
Annuitant specified in the Contract is living..................... Page 15
ALLOCATION OF PURCHASE PAYMENTS
If the state of issue of your Contract is GA, ID, LA, MI, MO, NE, NH, NC, OK,
OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in Fidelity VIP Money Market until the
expiration of the Right to Cancel Period of 10 to 30 days or more in some
instances as specified in your Contract when issued (plus a 5 day grace period
to allow for mail delivery) and then invested according to your initial
allocation instructions (except that any accrued interest will remain in
Fidelity VIP Money Market if it is selected as an initial allocation option),
provided that portions of your initial Net Purchase Payment(s) allocated to
the Guaranteed Rate Options will be invested immediately upon our receipt
thereof in order to lock in the rates then applicable to such options. (Please
note that immediate investment is not applicable with respect to amounts
allocated to the Guaranteed Equity Option.)
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in your
Portfolios and Guaranteed Rate Options immediately upon our receipt thereof,
IN WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO
THE PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that immediate
investment is not available with respect to any amounts allocated to THE
GUARANTEED EQUITY OPTION, WHICH IS ILLIQUID FOR THE GUARANTEE PERIOD.) You
must fill out and send us the appropriate form or comply with other designated
Company procedures if you would like to change how subsequent Net Purchase
Payments are allocated............................................ Page 16
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (30 or more days
in some instances as specified in your Contract) plus a 5 day period to allow
for mail delivery, during which you may cancel your investment in the
Contract. To cancel your investment, please return your Contract to us or to
the agent from whom you purchased the Contract. When we receive the Contract,
(1) if the state of issue of your Contract is GA, ID, LA, MI, MO, NE, NH, NC,
OK, OR, SC, UT, VA or WV, then for any amount of your initial Purchase
Payment(s) invested in Fidelity VIP Money Market, we will return the
Accumulated Value of the amount of your Purchase Payment(s) so invested, or if
greater, the amount of your Purchase Payment(s) so invested, (2) for any
amount of your initial Purchase Payment(s) invested in the Portfolios
immediately following receipt by us, we will return the Accumulated Value of
your Purchase Payment(s) so invested plus fees and/or Premium Taxes that may
have been subtracted from such amount, and (3) for any amount of your initial
Purchase Payment(s) invested in the Guaranteed Rate Options immediately
following receipt by us, we will refund the Accumulated Value of your Purchase
Payment(s) so invested............................................ Page 15
6
<PAGE>
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
18, 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-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 23
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your annuity. 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 22
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
Providian Marquee Contracts have an annual mortality and expense risk charge
of 1.25%. There is no front-end sales load and you may withdraw up to 10% of
the Accumulated Value once per year without a surrender charge. However,
additional withdrawals are subject to a surrender charge of up to 6% during
the first six Contract Years.
Contracts also include administrative charges and policy fees which pay for
administering the Contracts, and management, advisory and other fees, which
reflect the costs of the Funds.....................................Page 18
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior
to age 59 1/2 may be subject to a 10% penalty tax (and a portion may be
subject to ordinary income taxes)..................................Page 20
7
<PAGE>
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed by your state) that you would incur as an owner of a Contract.
The purpose of this table is to assist you in understanding the various costs
and expenses that you would bear directly or indirectly as a purchaser of the
Contract. The fee table reflects all expenses for both the Separate Account
and the Funds. For a complete discussion of Contract costs and expenses,
including charges applicable to the General Account Guaranteed Options, see
"Charges and Deductions," page 18.
<TABLE>
<CAPTION>
FEE
AMOUNT
CONTRACTOWNER TRANSACTION EXPENSES ------
<S> <C>
Sales Load Imposed on Purchases (under $100,000)..................... None
Contingent Deferred Sales Load (surrender charge).................... 6%*
Exchange Fees........................................................ None
ANNUAL CONTRACT FEE.................................................. $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge.................................... 1.25%
Administrative Charge................................................ .15%
----
Total Annual Separate Account Expenses............................... 1.40%**
</TABLE>
*Up to 10% of the Accumulated Value as of the last Contract Anniversary (10%
of the initial Net Purchase Payment during the first Contract Year) can be
withdrawn once per year without a surrender charge. Additional withdrawals
in the first Contract Year are subject to a 6% charge. The charge decreases
1% per year until after the sixth Contract Year there is no surrender
charge. The total surrender charges assessed will not exceed 8.5% of the
Purchase Payments under the Contract.
**Separate Account Annual Expenses are not charged against the General Account
Guaranteed Options.
PORTFOLIO ANNUAL EXPENSES
Except as indicated, the figures below are based on expenses for fiscal year
1997 (as a percentage of each Portfolio's average net assets after fee waiver
and/or expense reimbursement limitation, if applicable).
<TABLE>
<CAPTION>
MANAGEMENT
AND ADVISORY OTHER TOTAL PORTFOLIO
EXPENSES EXPENSES ANNUAL EXPENSES
------------ -------- ---------------
<S> <C> <C> <C>
Fidelity VIP Money Market*............... 0.21% 0.10% 0.31%
Fidelity VIP Equity-Income*.............. 0.50% 0.08% 0.58%
Fidelity VIP Growth*..................... 0.60% 0.09% 0.69%
Fidelity VIP II Asset Manager*........... 0.55% 0.10% 0.65%
Dreyfus Growth and Income**.............. 0.75% 0.05% 0.80%
Dreyfus Quality Bond**................... 0.65% 0.10% 0.75%
T. Rowe Price Equity Income.............. 0.85% 0.00% 0.85%
T. Rowe Price New America Growth......... 0.85% 0.00% 0.85%
T. Rowe Price International Stock........ 1.05% 0.00% 1.05%
OCC Accumulation Trust Managed***........ 0.80% 0.07% 0.87%
OCC Accumulation Small Cap***............ 0.80% 0.17% 0.97%
OCC Accumulation U.S. Government
Income***............................... 0.47% 0.46% 0.93%
</TABLE>
*A portion of the brokerage commissions that certain funds pay was used to
reduce funds' expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances, were used to reduce custodian expenses. Including
these reductions, the Total Portfolio Annual Expenses would have been 0.57%
for Equity-Income Portfolio, 0.67% for Growth Portfolio and 0.64% for Asset
Manager Portfolio.
**From time to time, the Dreyfus Growth and Income and Quality Bond
Portfolios' investment adviser in its sole discretion may waive all or part
of its fees and/or voluntarily assume certain of the Portfolios' expenses.
For a more complete description of the Portfolios' fees and expenses, see
the Dreyfus Variable Investment Fund's Prospectus.
8
<PAGE>
***Total Portfolio Annual Expenses are limited by OpCap Advisors so that each
of the OCC Accumulation Trust Portfolios' annualized operating expenses
(net of any expense offsets) do not exceed 1.00% of average daily net
assets. Without such limitation and without giving effect to any expense
offsets, the Management and Advisory Expenses, Other Expenses, and Total
Annual Portfolio Expenses would have been: 0.80%, 0.07%, and 0.87%,
respectively, for the Managed Portfolio; 0.80%, 0.17%, and 0.97%,
respectively, for the Small Cap Portfolio; and 0.60%, 0.46%, and 1.06%,
respectively, for the U.S. Government Income Portfolio.
The following example illustrates the expenses that you would incur on a
$1,000 Purchase Payment over various periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Fidelity VIP Money Market................ $73.76 $ 94.90 $116.07 $205.85
Fidelity VIP Equity-Income............... $76.31 $102.83 $129.71 $234.48
Fidelity VIP Growth...................... $77.35 $106.04 $135.21 $245.90
Fidelity VIP II Asset Manager............ $76.97 $104.88 $133.22 $241.76
Dreyfus Growth and Income................ $78.39 $109.25 $140.68 $257.20
Dreyfus Quality Bond..................... $77.92 $107.79 $138.20 $252.08
T. Rowe Price Equity Income.............. $78.86 $110.70 $143.16 $262.28
T. Rowe Price New America Growth......... $78.86 $110.70 $143.16 $262.28
T. Rowe Price International Stock........ $80.74 $116.48 $153.00 $282.37
OCC Accumulation Trust Managed........... $79.05 $111.28 $144.15 $264.31
OCC Accumulation Trust Small Cap......... $79.99 $114.17 $149.08 $274.39
OCC Accumulation Trust U.S. Government
Income.................................. $79.61 $113.01 $147.11 $270.37
</TABLE>
The following example illustrates the expenses that you would incur on a
$1,000 Purchase Payment over various periods, assuming (1) a 5% annual rate of
return and (2) you do not surrender your Contract or you annuitize at the end
of each period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Fidelity VIP Money Market................ $17.81 $55.14 $ 94.88 $205.85
Fidelity VIP Equity-Income............... $20.53 $63.39 $108.80 $234.48
Fidelity VIP Growth...................... $21.63 $66.74 $114.41 $245.90
Fidelity VIP II Asset Manager............ $21.23 $65.52 $112.38 $241.76
Dreyfus Growth and Income................ $22.73 $70.07 $120.00 $257.20
Dreyfus Quality Bond..................... $22.23 $68.55 $117.46 $252.08
T. Rowe Price Equity Income.............. $23.24 $71.58 $122.53 $262.28
T. Rowe Price New America Growth......... $23.24 $71.58 $122.53 $262.28
T. Rowe Price International Stock........ $25.24 $77.60 $132.57 $282.37
OCC Accumulation Trust Managed........... $23.44 $72.18 $123.54 $264.31
OCC Accumulation Trust Small Cap......... $24.44 $75.19 $128.57 $274.39
OCC Accumulation Trust U.S. Government
Income.................................. $24.04 $73.99 $126.56 $270.37
</TABLE>
The Annual Contract Fee is reflected in these examples as a percentage equal
to the total amount of fees collected during a calendar year divided by the
total average net assets of the Portfolios during the same calendar year. The
fee is assumed to remain the same in each year of the above periods. (With
respect to partial year periods, if any, in the examples, the Annual Contract
Fee is pro-rated to reflect only the applicable portion of the partial year
period.) The Annual Contract Fee will be deducted on each Contract Anniversary
and upon surrender, on a pro rata basis, from each Subaccount. In some states,
the Company will deduct Premium Taxes as incurred by the Company.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
9
<PAGE>
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1994 THROUGH DECEMBER 31, 1997)
<TABLE>
<CAPTION>
FIDELITY FIDELITY DREYFUS
MONEY FIDELITY ASSET FIDELITY GROWTH AND DREYFUS
MARKET EQUITY-INCOME MANAGER GROWTH INCOME QUALITY BOND
--------- ------------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date***......... 10.041 10.000 10.000 10.000 10.000 10.000
12/31/94.............. 10.144 9.677 9.604 10.159 9.472 9.910
12/31/95.............. 10.592 12.892 11.076 13.562 14.977 11.769
12/31/96.............. 11.010 14.527 12.516 15.338 17.831 11.966
12/31/97.............. 11.452 18.351 14.891 18.676 20.434 12.911
Number of units
outstanding as of:
12/31/94.............. 81,408 14,705 45,464 21,033 9,468 7,987
12/31/95.............. 1,284,076 487,004 298,894 522,172 302,521 167,901
12/31/96.............. 1,548,218 1,184,506 518,430 1,253,800 909,709 450,012
12/31/97.............. 1,015,530 1,437,452 598,055 1,454,049 1,093,082 494,239
<CAPTION>
OCC
OCC OCC ACCUMULATION
TRP TRP TRP NEW ACCUMULATION ACCUMULATION TRUST
EQUITY INTERNATIONAL AMERICA TRUST TRUST SMALL U.S. GOV'T
INCOME STOCK GROWTH MANAGED CAP INCOME
--------- ------------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
Start Date***......... 10.000 10.000 10.000 10.000 10.000 10.000
12/31/94.............. 9.797 9.518 10.000 9.699 10.166 0
12/31/95.............. 13.020 10.435 14.899 13.921 11.551 11.007
12/31/96.............. 15.348 11.802 17.642 16.852 13.522 11.182
12/31/97.............. 19.502 11.998 21.070 20.322 16.299 11.807
Number of units
outstanding as of:
12/31/94.............. 3,274 23,019 1,503 19,221 11,734 N/A
12/31/95.............. 162,561 460,990 235,983 426,184 349,767 52,450
12/31/96.............. 470,214 1,270,362 747,969 926,772 648,328 141,598
12/31/97.............. 714,325 1,409,640 831,485 1,207,354 839,642 173,723
</TABLE>
*** Date of commencement of operations for Fidelity Money Market was 8/2/94,
for Fidelity Equity-Income, Fidelity Growth, Dreyfus Quality Bond and T.
Rowe Price International was 8/17/94; for Dreyfus Growth and Income was
8/31/94; for T. Rowe Price Equity Income was 9/1/94; for Fidelity Asset
Manager was 9/14/94; for OCC Accumulation Trust Managed was 11/3/94; for OCC
Accumulation Trust Small Cap was 11/4/94; for T. Rowe Price New America
Growth was 12/30/94; and for OCC Accumulation Trust U.S. Government Income
was 11/18/94. The OCC Accumulation Trust U.S. Government Income Portfolio
had activity in 1994 but no Accumulation Units were outstanding at 12/31/94.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company and the
financial statements of the Separate Account (as well as the Independent
Auditors' Reports thereon) are contained in the Statement of Additional
Information.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Fidelity VIP Money Market Subaccount, the yield of
the other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission (the "SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated
10
<PAGE>
period had the performance remained constant throughout. The Standardized
Average Annual Total Return assumes a single $1,000 payment made at the
beginning of the period and full redemption at the end of the period. It
reflects the deduction of all applicable sales loads (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.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE
ANNUAL TOTAL RETURN
The Company may show actual Total Return (i.e., the percentage change in the
value of an Accumulation Unit) for one or more Subaccounts with respect to one
or more periods, including Total Return Year-to-Date ("YTD") with respect to
certain periods. The Company may also show actual Average Annual Total Return
(i.e., the average annual change in Accumulation Unit Values) with respect to
one or more periods. For one year, the actual Total Return and the actual
Average Annual Total Return are effective annual rates of return and are
equal. For periods greater than one year, the actual Average Annual Total
Return is the effective annual compounded rate of return for the periods
stated. Because the value of an Accumulation Unit reflects the Separate
Account and Portfolio expenses (see "Fee Table"), the actual Total Return and
actual Average Annual Total Return also reflect these expenses. These
percentages do not reflect the Annual Contract Fee, any sales loads or Premium
Taxes (if any) which, if included, would reduce the percentages reported.
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. These returns do not include
the Annual Contract Fee, any sales loads or Premium Taxes (if any) which, if
included, would reduce the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of the Fidelity VIP Money Market Portfolio. "Yield" refers
to the income generated by an investment in Fidelity VIP Money Market over a
seven-day period, which is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly but, when annualized, the income
earned by an investment in Fidelity VIP Money Market is assumed to be
reinvested. Therefore the effective yield will be slightly higher than the
yield because of the compounding effect of this assumed reinvestment. These
figures do not reflect the Annual Contract Fee, any sales loads or Premium
Taxes (if any) which, if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than Fidelity Money
Market for which the Company advertises yield, the Company shall furnish a
yield quotation referring to the Portfolio computed in the following manner:
the net investment income per Accumulation Unit earned during a recent one
month period is divided by the Accumulation Unit Value on the last day of the
period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
11
<PAGE>
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
THE COMPANY AND THE SEPARATE ACCOUNT
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company is a stock life insurance company incorporated under the laws of
Missouri on August 6, 1920. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in 49 states, the District of Columbia, and Puerto
Rico. 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 12 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Variable Insurance Products Fund and Variable Insurance Products Fund II
(each, a "Fidelity Fund" and collectively, the "Fidelity Funds") are
diversified, open-end management investment companies organized by Fidelity
Management & Research Company ("FMR") and registered under the 1940 Act. Each
Fidelity Fund consists of several investment portfolios, including the Money
Market, Equity-Income, Growth and Asset Manager Portfolios available as part
of the Providian Marquee. FMR serves as the Fidelity Funds' investment
adviser. ("VIP" and "VIP II" refer to Variable Insurance Products Fund and
Variable Insurance Products Fund II, respectively.)
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Variable Investment Fund is an open-end management investment company
organized under the 1940 Act. The Dreyfus Variable Investment Fund consists of
thirteen separate investment portfolios, including the Growth and Income and
Quality Bond Portfolios, which are the only portfolios available as part of
the Providian Marquee. The Dreyfus Corporation serves as this Fund's
investment adviser.
12
<PAGE>
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Series, Inc. is a Maryland corporation organized in 1994
and is registered with the Securities and Exchange Commission under the 1940
Act as a diversified, open-end management investment company, commonly known
as a "mutual fund." Currently, the fund consists of the Equity Income and New
America Growth Portfolios, each of which represents a separate class of shares
having different objectives and investment policies, and both of which are
available as part of the Providian Marquee. T. Rowe Price Associates, Inc. is
responsible for the selection and management of this Fund's portfolio
investments and serves as the Fund's investment adviser.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Series, Inc. is a Maryland corporation organized
in 1994 and is registered with the Securities and Exchange Commission under
the 1940 Act as a diversified, open-end management investment company,
commonly known as a "mutual fund." The corporation is a series fund and has
the authority to issue other series in addition to the International Stock
Portfolio currently available as part of the Providian Marquee. Rowe Price-
Fleming International, Inc. is responsible for selection and management of
this Fund's portfolio investments and serves as the Fund's investment adviser.
OCC ACCUMULATION TRUST
OCC Accumulation Trust is a Massachusetts business trust and is registered
with the Securities and Exchange Commission under the 1940 Act as a
diversified, open-end management investment company. The Fund receives
investment advice with respect to each of its portfolios from OpCap Advisors,
a subsidiary of Oppenheimer Capital, a registered investment adviser. The Fund
currently consists of seven series, including the Managed, Small Cap and
Government Income Portfolios available as part of the Providian Marquee. The
OCC Accumulation Trust was formerly known as the Quest For Value Accumulation
Trust.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH EACH PORTFOLIO'S
INVESTMENTS, PLEASE REFER TO THE APPLICABLE UNDERLYING FUND PROSPECTUS.
FIDELITY VIP MONEY MARKET PORTFOLIO
Fidelity VIP Money Market seeks to obtain as high a level of current income,
while maintaining a stable $1.00 share price, as is consistent with preserving
capital and providing liquidity. It invests only in high-quality U.S. dollar
denominated money market instruments of domestic and foreign issuers.
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Fidelity VIP Equity-Income seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these securities the Portfolio
will also consider the potential for capital appreciation. The Portfolio's
goal is to achieve a yield which exceeds the composite yield on the securities
comprising the Standard & Poor's Composite Index of 500 Stocks.
FIDELITY VIP GROWTH PORTFOLIO
Fidelity VIP Growth seeks to achieve capital appreciation normally through the
purchase of common stocks (although the Portfolio's investments are not
restricted to any one type of security). Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Fidelity VIP II Asset Manager seeks high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks,
bonds and short-term and money market instruments.
DREYFUS GROWTH AND INCOME PORTFOLIO ("DREYFUS GROWTH AND INCOME")
Dreyfus Growth and Income is a non-diversified Portfolio, the goal of which is
long-term capital growth, current income and growth of income, consistent with
reasonable investment risk. The Portfolio invests in equity and debt
securities and money market instruments of domestic and foreign issuers.
13
<PAGE>
DREYFUS QUALITY BOND PORTFOLIO ("DREYFUS QUALITY BOND")
Dreyfus Quality Bond is a diversified Portfolio, the goal of which is to
provide the maximum amount of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity. The Dreyfus Quality
Bond Portfolio invests in debt obligations of corporations, the U.S.
Government and its agencies and instrumentalities, and major U.S. banking
institutions.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ("T. ROWE PRICE EQUITY INCOME")
T. Rowe Price Equity Income seeks to provide substantial dividend income as
well as long-term capital appreciation by investing primarily in dividend-
paying common stocks of established companies. In pursuing its objective, the
Portfolio emphasizes companies with favorable prospects for both increasing
dividend income and capital appreciation.
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO ("T. ROWE PRICE NEW AMERICA
GROWTH")
T. Rowe Price New America Growth seeks long-term growth of capital through
investments primarily in the common stocks of U.S. growth companies which
operate in service industries. In pursuing its objective, this Portfolio
invests primarily in companies deriving a majority of their revenues or
operating earnings from service-related activities and in companies whose
prospects are closely tied to service industries. This Portfolio may also
invest up to 25% of its assets in growth companies outside the service sector.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ("T. ROWE PRICE INTERNATIONAL
STOCK")
T. Rowe Price International Stock seeks long-term growth of capital, through
investments primarily in common stocks of established, non-U.S. companies.
OCC ACCUMULATION TRUST MANAGED PORTFOLIO ("OCC ACCUMULATION TRUST MANAGED")
OCC Accumulation Trust Managed seeks to achieve growth of capital over time
through investment in a portfolio consisting of common stocks, bonds and cash
equivalents, the percentages of which will vary over time based on the
investment manager's assessments of the relative outlook for such investments.
OCC ACCUMULATION TRUST SMALL CAP PORTFOLIO ("OCC ACCUMULATION TRUST SMALL
CAP")
OCC Accumulation Trust Small Cap seeks capital appreciation through
investments in a diversified portfolio consisting primarily of equity
securities of companies with market capitalizations under $1 billion.
OCC ACCUMULATION TRUST U.S. GOVERNMENT INCOME PORTFOLIO ("OCC ACCUMULATION
TRUST U.S. GOVERNMENT INCOME")
The investment objective of OCC Accumulation Trust U.S. Government Income is
to seek a high level of current income together with the protection of
capital. This Portfolio seeks to achieve its investment objective by investing
exclusively in debt obligations, including mortgage-backed securities, issued
or guaranteed by the U.S. Government, its agencies or instrumentalities.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services, total expenses and
charges can be found in the current prospectuses for the corresponding Funds.
THE FUNDS' OR PORTFOLIOS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY
DECISION IS MADE CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A
PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise between the interests
of the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
14
<PAGE>
CONTRACT FEATURES
The rights and benefits under the Contract are 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 upon request 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 agent, who will
provide the necessary information to us in a customer order form and forward
your initial Purchase Payment to such address as the Company may from time to
time designate. If you wish to make personal delivery by hand or courier to
the Company of your initial Purchase Payment (rather than through the mail),
you must do so at our Administrative Offices, 400 West Market Street,
Louisville, KY 40202. Your initial Purchase Payment for a Non-Qualified
Contract must be equal to 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.
If the initial Purchase Payment cannot be credited because the customer order
form is incomplete, we will contact you, explain the reason for the delay and
refund the initial Purchase Payment within five Business Days, unless you
instruct us to retain the initial Purchase Payment and credit it as soon as
the necessary requirements are fulfilled.
You may make additional Purchase Payments at any time before the Annuity Date,
as long as the Annuitant is living. Any additional Purchase Payments must be
for at least $500 for Non-Qualified Contracts or $50 for Qualified Contracts
and are limited to $10,000 annually after the first Contract Anniversary. If
additional Purchase Payments are received prior to the close of the New York
Stock Exchange (generally 4:00 P.M. Eastern time), they will be credited to
the Accumulated Value at the close of business that same day. Additional
Purchase Payments received after the close of the New York Stock Exchange are
processed the next Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
The Company reserves the right to refuse to issue this Contract in cases
involving an exchange for another Contract. In cases where a Contract Owner or
former Contract Owner requests the Company to reverse a surrender or
withdrawal transaction, whether full or partial, the Company reserves the
right to refuse such requests or grant such requests on the condition that the
Contract's Accumulated Value be adjusted to reflect appropriate investment
results, administrative costs or loss of interest during the relevant period.
PURCHASING BY WIRE
For wiring instructions please contact our Administrative Offices at 1-800-
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
15
<PAGE>
Purchase Payment(s) invested in Fidelity VIP Money Market, we will return the
Accumulated Value of the amount of your Purchase Payment(s) so invested, or if
greater, the amount of your Purchase Payment(s) so invested, (2) for any
amount of your initial Purchase Payment(s) invested in the Portfolios
immediately following receipt by us, we will return the Accumulated Value of
your Purchase Payment(s) so invested plus any fees and/or Premium Taxes that
may have been subtracted from such amount, and (3) for any amount of your
initial Purchase Payment(s) invested in the Guaranteed Rate Options
immediately following receipt by us, we will refund the Accumulated Value of
your Purchase Payment(s) so invested.
ALLOCATION OF PURCHASE PAYMENTS
You instruct your agent how your Net Purchase Payments will be allocated. You
may allocate each Net Purchase Payment to one or more of the Portfolios or the
General Account Guaranteed Options as long as such portions are whole number
percentages provided that each allocation to a General Account Guaranteed
Option is at least $1,000 and that no Portfolio or General Account Guaranteed
Option may contain a balance of less than $250 or $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. (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 GA, ID, LA, MI, MO, NE, NH, NC, OK,
OR, SC, UT, VA or WV, then your initial Net Purchase Payment(s) will, when
your Contract is issued, be invested in Fidelity VIP Money Market until the
expiration of the Right to Cancel Period of 10 to 30 days (plus a five day
grace period to allow for mail delivery) or more in some instances as
specified in your Contract after the issuance of your Contract and then
invested according to your initial allocation instructions (except that any
accrued interest will remain in Fidelity VIP Money Market if it is selected as
an initial allocation option), provided that portions of your initial Net
Purchase Payment(s) allocated to the Guaranteed Rate Options will be invested
immediately upon our receipt thereof in order to lock in the rates then
applicable to such options.
If the state of issue of your Contract is any other state, your initial Net
Purchase Payment(s) will, unless you indicate otherwise, be invested in your
Portfolios and Guaranteed Rate Options immediately upon our receipt thereof,
IN WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO
THE PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. (Please note that immediate
investment is not available with respect to any amounts allocated to THE
GUARANTEED EQUITY OPTION WHICH IS ILLIQUID FOR THE GUARANTEE PERIOD.)
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
16
<PAGE>
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 Fidelity VIP Money Market,
you may choose to have a specified dollar amount transferred from this
Portfolio to other Portfolios in the Separate Account or to the General
Account Guaranteed Options on a monthly basis. The main objective of Dollar
Cost Averaging is to shield your investment from short term price
fluctuations. Since the same dollar amount is transferred to other Portfolios
each month, more units are purchased in a Portfolio if the value per unit is
low and less units are purchased if the value per unit is high. Therefore, a
lower average cost per unit may be achieved over the long term. This plan of
investing allows investors to take advantage of market fluctuations but does
not assure a profit or protect against a loss in declining markets.
This Dollar Cost Averaging Option may be elected on the customer order form or
at a later date. The minimum amount that may be transferred each month into
any Portfolio or General Account Guaranteed Option is $250. The maximum amount
which may be transferred is equal to the Accumulated Value in Fidelity VIP
Money Market when elected, divided by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel
this option by sending the appropriate Company form to our Administrative
Offices which must be received at least seven days before the next transfer
date.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION
For information about the Dollar Cost Averaging Fixed Account Option, see
Appendix A.
GENERAL ACCOUNT GUARANTEED OPTIONS
THE AVAILABILITY, STRUCTURE AND FEATURES OF THE GENERAL ACCOUNT GUARANTEED
OPTIONS VARY BY STATE. CHECK WITH YOUR SALES REPRESENTATIVE FOR DETAILS OF THE
AVAILABILITY AND CHARACTERISTICS OF THESE OPTIONS BEFORE PURCHASING.
The Dollar Cost Averaging Fixed Account Option described in Appendix A may not
be available in all states. Please see your sales representative for details
of the availability of this option before purchasing. If your state of issue
is any state other than those listed in the immediately following sentence,
then your General Account Guaranteed Options (other than the Dollar Cost
Averaging Fixed Account Option) are described in Part 1 of Appendix A. If your
state of issue is IN, MD, MA, OK, PA or TX, then your General Account
Guaranteed Options (other than the Dollar Cost Averaging Fixed Account Option)
are described in Part 2 of Appendix A. Please read Appendix A and the relevant
Part 1 or Part 2 carefully.
In certain marketing and customer communication materials, including the
customer order form and the Contract, used in the states of IN, MD, MA, OK, PA
or TX, the One-Year Guaranteed Rate Option may be titled the "One-Year
Guaranteed Index Rate Option"; the Multi-Year Guaranteed Rate Option may be
titled the "Five-Year Guaranteed Index Rate Option"; and the Guaranteed Equity
Option may be titled the "Five-Year Guaranteed Equity Option."
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
17
<PAGE>
Net Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s) and
the interest credited to the General Account Guaranteed Options during the
Valuation Period; and reduced by: (i) any decrease in the Accumulated Value
due to investment results of the selected Portfolio(s), (ii) a daily charge to
cover the mortality and expense risks assumed by the Company, (iii) any charge
to cover the cost of administering the Contract, (iv) any partial withdrawals,
(v) any Market Value Adjustment or other deduction due to early Exchanges from
the Guaranteed Rate Options and, if exercised by the Company, (vi) any charges
for any Exchanges made after the first twelve in any Contract Year.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE SCHEDULE
For Providian Marquee Contracts, no sales load is deducted from Purchase
Payments and up to 10% of the Accumulated Value as of the Contract Date, or,
if more recent, the last Contract Anniversary, can be withdrawn once per year
without a surrender charge, subject to the charges and restrictions of the
General Account Guaranteed Options. Additional withdrawals are subject to a
surrender charge (i.e., a contingent deferred sales load) according to the
following schedule:
<TABLE>
<CAPTION>
SURRENDER
CONTRACT YEAR CHARGE
------------- ---------
<S> <C>
1............................................ 6%
2............................................ 5%
3............................................ 4%
4............................................ 3%
5............................................ 2%
6............................................ 1%
7............................................ 0%
</TABLE>
The total surrender charges assessed will not exceed 8.5% of the Purchase
Payments under the Contract. There will be no surrender charge assessed on the
death of the Annuitant or after the sixth Contract Year.
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the
net asset value of the Separate Account. The annual mortality and expense risk
charge is 1.25% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to the Company surplus and will be used for any lawful purpose,
including any shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
The Annual Contract Fee is deducted proportionately from the Subaccounts. For
any Contract with amounts allocated to the Subaccounts, the $30 fee is
assessed per Contract, not per Portfolio chosen. The Annual Contract Fee will
be deducted on each Contract Anniversary and upon surrender, on a pro rata
18
<PAGE>
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 FEES
Each Contract Year you may make an unlimited number of free Exchanges between
Portfolios and/or General Account Guaranteed Options, provided that after an
Exchange no Portfolio or General Account Guaranteed Option may contain a
balance less than $250 or $1,000, respectively (except the Dollar Cost
Averaging Fixed Account Option). We reserve the right to charge a $15 fee in
the future 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.
At the time of the filing of this Prospectus, the following state assesses a
Premium Tax on all initial and additional Purchase Payments on Non-Qualified
Contracts:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
South Dakota.................. 0% 1.25%
</TABLE>
In addition, a number of states currently impose Premium Taxes at the time an
Annuity Payment Option (other than a Lump Sum Payment Option) is selected. At
the time of the filing of this Prospectus, the following states assess a
Premium Tax against the Accumulated Value if the Contract Owner chooses an
Annuity Payment Option instead of receiving a lump sum distribution:
<TABLE>
<CAPTION>
QUALIFIED NON-QUALIFIED
--------- -------------
<S> <C> <C>
California.................... .50% 2.35%
District of Columbia.......... 2.25% 2.25%
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 25.) Based upon these
expectations, no charge is currently being made to the Separate Account for
federal income taxes that may be attributable to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a
charge may be made in future years for any federal income taxes incurred by
the Company. This might become necessary if the tax treatment of the Company
is ultimately determined to be other than what the Company currently believes
it to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account 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.
19
<PAGE>
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The contingent deferred sales load or other administrative charges or fees may
be reduced for sales of Contracts to a trustee, employer or similar entity
representing a group where the Company determines that such sales result in
savings of sales and/or administrative expenses. In addition, directors,
officers and bona fide full-time employees (and their spouses and minor
children) of the Company, its ultimate parent company, and certain of their
affiliates and certain sales representatives for the Contract are permitted to
purchase Contracts with substantial reduction of the sales load, contingent
deferred sales load or other administrative charges or fees or with a waiver
or modification of certain minimum or maximum purchase and transaction amounts
or balance requirements. Contracts so purchased are for investment purposes
only and may not be resold except to the Company.
In no event will reduction or elimination of the contingent deferred sales
loads or other fees or charges or waiver or modification of transaction or
balance requirements be permitted where such reduction, elimination, waiver or
modification will be unfairly discriminatory to any person. Additional
information about reductions in charges is contained in the Statement of
Additional Information.
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 applicable
contingent deferred sales load (i.e., surrender charge), less any Premium
Taxes incurred but not yet deducted. The withdrawal amount may be paid in a
lump sum to you, or if elected, all or any part may be paid out under an
Annuity Payment Option. (See "Annuity Payment Options," page 22.)
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. You may not make any full or partial withdrawals from
the Guaranteed Equity Option before the end of the guarantee period. Your
proceeds will normally be processed and mailed to you within two Business Days
after the receipt of the request but in no event will it be later than seven
calendar days, subject to postponement in certain circumstances. (See
"Deferment of Payment," page 24.)
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 25.)
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
20
<PAGE>
Company with a written election not to have federal income taxes withheld, the
Company must by law withhold 10% from the taxable portion of any full or
partial withdrawal and remit that amount to the federal government. Moreover,
the Code provides that a 10% penalty tax may be imposed on certain early
withdrawals. (See "Federal Tax Considerations," page 25.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of
the Contract (taking into account any prior withdrawals) may be more or less
than the total Net Purchase Payments made.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated
Value, adjusted for any Market Value Adjustment or other deductions applicable
to amounts allocated to a General Account Guaranteed Option, less any amount
allocated to the Guaranteed Equity Option, less any applicable deferred sales
load (i.e., surrender charge) and any Premium Taxes incurred but not yet
deducted.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semiannual or annual basis. The minimum
amount for each withdrawal is $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.
A surrender charge will apply when withdrawals in any of the first six
Contract Years exceed 10% of that year's beginning Accumulated Value. (See
"Charges and Deductions," page 18.) Like any other partial withdrawal, each
systematic withdrawal is subject to taxes on earnings. If the owner has not
provided the Company with a written election not to have federal income taxes
withheld, the Company must by law withhold 10% from the taxable portion of the
systematic withdrawal and remit that amount to the federal government.
Moreover, the Code provides that a 10% penalty tax may be imposed on certain
early withdrawals. (See "Federal Tax Considerations," page 25.) You may wish
to consult a tax 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.
You may advance or defer the Annuity Date. However, the Annuity Date may not
be advanced to a date prior to 30 days after the date of receipt of a written
request or, without the Company's prior approval, deferred to a date beyond
the first day of the month after the Annuitant's 85th birthday. The Annuity
Date may only be changed by written request during the Annuitant's lifetime
and must be made at least 30 days before the then-scheduled Annuity Date. The
Annuity Date and Annuity Payment Options available for Qualified Contracts may
also be controlled by endorsements, the plan or applicable law.
21
<PAGE>
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $5,000, or less than $2,000 for Texas
Contract Owners, the Company has the right to pay that amount in a lump sum.
From time to time, the Company may require proof that the Annuitant or
Contract Owner is living. Annuity Payment Options are not available to: (1) an
assignee; (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
22
<PAGE>
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 perods, 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.
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
23
<PAGE>
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 the 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 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 23.
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.
24
<PAGE>
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 26 and
"Diversification Standards," page 27.)
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. Ordinarily, the taxable portion of such payments
will be taxed at ordinary income tax rates. Partial withdrawals are generally
taken out of earnings first and then 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 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.
25
<PAGE>
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 primary 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
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 adviser before purchasing
more than one Contract or other annuity contracts.
26
<PAGE>
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), 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 division invests. All securities of the same
issuer are treated as a single investment. Each government agency or
instrumentality will be treated as a separate issuer for purposes of those
limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be issued in this area at some time in the
future. It is not clear, at this time, what these regulations or rulings would
provide. It is possible that when the regulations or ruling are issued, the
Contracts may need to be modified in order to
remain in compliance. For these reasons, the Company reserves the right to
modify the Contracts, as necessary, to prevent the Contract Owner from being
considered the owner of assets of the Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
403(B) CONTRACTS
Contracts will be offered in connection with retirement plans adopted by
public school systems and certain tax-exempt organizations (Code Section
501(c)(3) organizations) for their employees under Section 403(b) of the Code;
except, as discussed below and subject to any conditions in an employer's
plan, a Contract used in connection with a Section 403(b) Plan offers the same
benefits and is subject to the same charges described in this Prospectus.
27
<PAGE>
The Code imposes a maximum limit on annual Purchase Payments which may be
excluded from your gross income. Such limit must be calculated in accordance
with Sections 403(b), 415 and 402(g) of the Code. In addition, Purchase
Payments will be excluded from your gross income only if the 403(b) Plan meets
certain Code non-discrimination requirements.
Under your 403(b) Contract, you may borrow against your Contract's Surrender
Value after the first Contract Year. No additional loans will be extended
until prior loan balances are paid in full. The loan amount must be at least
$1,000 and your Contract must have a minimum vested Accumulated Value of
$2,000. The loan amount may not exceed the lesser of (a) or (b), where (a) is
50% of the Contract's vested Accumulated Value on the date on which the loan
is made, and (b) is $50,000 reduced by the excess, if any, of the highest
outstanding balance of loans during the one-year period ending on the day
before the current loan is made over the outstanding balance of loans on the
date of the current loan. If you are married, your spouse must consent in
writing to a loan request. This consent must be given within the 90-day period
before the loan is to be made.
On the first Business Day of each calendar month, the Company will determine a
loan interest rate. The loan interest rate for the calendar month in which the
loan is effective will apply for one year from the loan effective date.
Annually on the anniversary of the loan effective date, the rate will be
adjusted to equal the loan interest rate determined for the month in which the
loan anniversary occurs.
Principal and interest on loans must be repaid in substantially level
payments, not less frequently than quarterly, over a five year term except for
certain loans for the purchase of a principal residence. If the loan interest
rate is adjusted, future payments will be adjusted so that the outstanding
loan balance is amortized in equal quarterly installments over the remaining
term. A $40 processing fee is charged for each loan. The remainder of each
repayment will be credited to the individual account.
If a loan payment is not made when due, interest will continue to accrue. The
defaulted payment plus accrued interest will be deducted from any future
distributions under the Contract and paid to us. Any loan payment which is not
made when due, plus interest, will be treated as a distribution, as permitted
by law. The loan payment may be taxable to the borrower, and may be subject to
the early withdrawal tax penalty. When a loan is made, unless instructed to
the contrary by the Annuitant, the number of Accumulation Units equal to the
loan amount will be withdrawn from the individual account and placed in the
Collateral Fixed Account. Accumulation Units taken from the individual account
to provide a loan do not participate in the investment experience of the
related Portfolios or the guarantees of the General Account Guaranteed
Options. The loan amount will be withdrawn on a pro rata basis first from the
Portfolios to which Accumulated Value has been allocated, and if that amount
is insufficient, collateral will then be transferred from the General Account
Guaranteed Options--except the Guaranteed Equity Option. As with any
withdrawal, Market Value Adjustments or other deductions applicable to amounts
allocated to General Account Guaranteed Options may be applied and no amounts
may be withdrawn from the Guaranteed Equity Option. Until the loan is repaid
in full, that portion of the Collateral Fixed Account shall be credited with
interest at a rate of 2% less than the loan interest rate applicable to the
loan--however, the interest rate credited will never be less than the General
Account Guaranteed Option's guaranteed rate of 3%.
A bill in the amount of the quarterly principal and interest will be mailed
directly to you in advance of the payment due date. The initial quarterly
repayment will be due three months from the loan date. The loan date will be
the date that the Company receives the loan request form in good order.
Payment is due within 30 calendar days after the due date. Subsequent
quarterly installments are based on the first due date.
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.
28
<PAGE>
Prepayment of the entire loan is allowed. At the time of prepayment, the
Company will bill you for any accrued interest. The Company will consider the
loan paid when the loan balance and accrued interest are paid.
If the individual account is surrendered or if the Annuitant dies with an
outstanding loan balance, the outstanding loan balance and accrued interest
will be deducted from the Surrender Value or the Death Benefit, respectively.
If the individual account is surrendered, with an outstanding loan balance,
due to the Contract Owner's death or the election of an Annuity Payment
Option, the outstanding loan balance and accrued interest will be deducted.
The Company may require that any outstanding loan be paid if the individual
account value falls below an amount equal to 25% of total loans outstanding.
The Code requires the aggregation of all loans made to an individual employee
under a single employer-sponsored 403(b) Plan. However, since the Company has
no information concerning the outstanding loans that you may have with other
companies, it will only use the information available under Contracts issued
by the Company.
The Code imposes restrictions on full or partial surrenders from 403(b)
individual accounts attributable to Purchase Payments under a salary reduction
agreement and to any earnings on the entire 403(b) individual account credited
on and after January 1, 1989. Surrenders of these amounts are allowed only if
the Contract Owner (a) has died, (b) has become disabled, as defined in the
Code, (c) has attained age 59 1/2, or (d) has separated from service.
Surrenders are also allowed if the Contract Owner can show "hardship," as
defined by the Internal Revenue Service, but the surrender is limited to the
lesser of Purchase Payments made on or after January 1, 1989 or the amount
necessary to relieve the hardship. Even if a surrender is permitted under
these provisions, a 10% federal tax penalty may be assessed on the withdrawn
amount if it does not otherwise meet the exceptions to the penalty tax
provisions. (See "Taxation of Annuities in General," page 25.)
Under the Code, you may request a full or partial surrender of an amount equal
to the individual account cash value as of December 31, 1988 (the
"grandfathered" amount), subject to the terms of the 403(b) Plan. Although the
Code surrender restrictions do not apply to this amount, a 10% federal penalty
tax may be assessed on the withdrawn amount if it does not otherwise meet the
exceptions to the penalty tax provisions (See "Taxation of Annuities in
General," page 25.)
The Company believes that the Code surrender restrictions do not apply to tax-
free transfers pursuant to Revenue Ruling 90-24. The Company further believes
that the surrender restrictions will not apply to any "grandfathered" amount
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
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.
29
<PAGE>
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.
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.
30
<PAGE>
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.
31
<PAGE>
TABLE OF CONTENTS FOR THE PROVIDIAN MARQUEE VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
PAGE
THE CONTRACTS..................................................................2
Computation of Variable Annuity Income Payments............................2
Exchanges..................................................................3
Exceptions to Charges and to Transaction or Balance Requirements...........3
GENERAL MATTERS................................................................3
Non-Participating..........................................................3
Misstatement of Age or Sex.................................................3
Assignment.................................................................4
Annuity Data...............................................................4
Annual Statement...........................................................4
Incontestability...........................................................4
Ownership..................................................................4
PERFORMANCE INFORMATION........................................................4
Money Market Subaccount Yields.............................................5
30-Day Yield for Non-Money Market Subaccounts..............................5
Standardized Average Annual Total Return for Market Subaccounts............5
ADDITIONAL PERFORMANCE MEASURES................................................7
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return........................................................7
Non-Standardized Total Return Year-to-Date................................10
Non-Standardized One Year Return..........................................11
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return.................................12
Individualized Computer Generated Illustrations......................26
PERFORMANCE COMPARISONS..................................................26
SAFEKEEPING OF ACCOUNT ASSETS............................................28
THE COMPANY..............................................................28
STATE REGULATION.........................................................28
RECORDS AND REPORTS......................................................29
DISTRIBUTION OF THE CONTRACTS............................................29
LEGAL PROCEEDINGS........................................................29
OTHER INFORMATION........................................................29
FINANCIAL STATEMENTS.....................................................29
32
<PAGE>
APPENDIX A
THE GENERAL ACCOUNT
Because of applicable exemptive and exclusionary provisions, interests in the
General Account have not been registered under the Securities Act of 1933
("1933 Act"), nor under the 1940 Act. Thus, neither our General Account, nor
any interest therein are generally subject to regulation under the provisions
of the 1933 Act or the 1940 Act. Accordingly, the Company has been advised
that the staff of the SEC has not reviewed the disclosure in this Appendix
relating to the General Account. These disclosures regarding the General
Account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in prospectuses.
Note: The General Account Guaranteed Options, or certain of them, are
currently available for sale in most, but not all, states. Please check with
your sales representative for details of the availability of these features
before purchasing.
Note: The following descriptions of the General Account Guaranteed Options
apply to Contracts issued on or after May 1, 1997. Contract Holders with
Contracts issued before that date should refer to the discussion of the
General Account Guaranteed Options in the prospectus which preceded or
accompanied their purchase of the Contract.
The General Account contains all of the assets of the Company other than those
in the separate accounts we establish. The Company has sole discretion to
invest the assets of the General Account, subject to applicable law.
Allocation of any amounts to the General Account does not entitle you to share
directly in the investment experience of these assets.
There are 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 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
A-1
<PAGE>
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 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.
PART 1
If your state of issue is any state other than IN, MD, MA, OK, PA, or TX, this
Part 1 describes the General Account Guaranteed Options (other than the Dollar
Cost Averaging Fixed Account Option) applicable to your Contract. Check with
your sales representative for additional details regarding availability. For
other states, please see Part 2 to this Appendix.
One-Year Guaranteed Rate Option
You may allocate your Accumulated Value to this option at any time. Any
allocations you make to the one-year guarantee period must be at least $1,000
and you must maintain a minimum balance of $1,000 in each one-year guarantee
period. The Accumulated Value you allocate under this option earns interest at
a rate declared by the Company at the time your allocation is made with a
guarantee that the Accumulated Value in this General Account Guaranteed Option
will not be less than the amounts allocated, plus 3% annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the one-year guarantee
period. However, for any amounts so transferred and for full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the one-year guarantee period, we will deduct an amount
equal to the interest earned on the amount transferred or withdrawn during the
previous 90 days at the applicable one-year rate, subject to a guarantee that
any amounts allocated to this General Account Guaranteed Option will earn
interest of at least 3% annually. For full and partial withdrawals of amounts
allocated to this General Account Guaranteed Option, we will also deduct any
applicable surrender charge.
If you have more than one allocation in this option, you may choose which
allocation or allocations any exchanges or surrenders are to be made from. If
you do not specify which allocation or allocations to take the exchanges or
surrenders from, we will first take from the allocation with the shortest time
remaining until the end of its guarantee period and then from the allocation
or allocations with the next shortest time remaining until the amount of the
exchange or withdrawal is reached.
A-2
<PAGE>
At the end of the one-year guarantee period, you may, without loss of
interest, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Notice of such
an election must be provided to the Company by phone or in writing no later
than 10 days after the end of the one-year guarantee period (and each
subsequent one-year guarantee period). If no such election is made, your
Accumulated Value will automatically be renewed under this option for the next
one-year guarantee period.
Multi-Year Guaranteed Rate Option
You may allocate your Accumulated Value to this option at any time. You may
select any guarantee period then offered. The Company currently expects to
offer guarantee periods of two to ten years, inclusive but reserves the right
to change such offerings in its discretion. Any allocations you make to a
guarantee period must be at least $1,000 and you must maintain a minimum
balance of $1,000 in each guarantee period. The Accumulated Value you allocate
under this option earns interest at a rate declared by the Company applicable
to the guarantee period you select at the time your allocation is made with a
guarantee that the Accumulated Value in this General Account Guaranteed Option
will not be less than the amount initially allocated, plus 3%, compounded
annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the selected guarantee
period. However, for any amounts so transferred we will apply a Market Value
Adjustment (as described below) against such amounts. For full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the selected guarantee period, we will apply a Market
Value Adjustment (as described below) against such amounts withdrawn and we
will deduct any applicable surrender charge.
The Market Value Adjustment ("MVA") Factor for the Multi-Year Guaranteed Rate
Option will be as follows:
N X (B-E)
12
where N=the number of months left in the guarantee period at the time of the
transfer or surrender (including any partial months which will count as
full months for purposes of this calculation).
B=the interest rate in effect for the applicable guarantee period which was
declared on the date of the applicable allocation.
E=the constant maturity Treasury rate for the duration equal to that of the
applicable guarantee period (or, if not published, the published constant
maturity rate of the next longest maturity).
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option. Generally, if the
declared interest rate at the beginning of the guarantee period is lower than
the applicable constant maturity Treasury rate prevailing at the time of the
transfer or surrender, then the application of the MVA will result in a lower
payment upon transfer or surrender. Similarly, if the declared rate at the
beginning of the guarantee period is higher than the prevailing applicable
constant maturity Treasury rate at the time of transfer or surrender, then the
application of the MVA will result in a higher payment upon transfer or
surrender.
The following is an example of how your Accumulated Value under the Multi-Year
Guaranteed Rate Option with a five-year guarantee period is affected by a
positive Market Value Adjustment:
Assume an initial allocation of $100,000 when the declared interest rate of a
five-year guarantee period is 8%. At the end of 12 months, your Accumulated
Value is $108,000. Assume also you surrender at the end of one year with 48
months of the guarantee period remaining and the five-year constant maturity
Treasury rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X (.08 - .07) = 4 X .01 = .04
12
Adjustment = $108,000 x .04 = $4,320
= $108,000 + $4,320 = $112,320 = Net amount of transfer or
surrender (before application of a surrender charge)
A-3
<PAGE>
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 (before application of a surrender charge)
Notwithstanding application of a negative Market Value Adjustment, any Net
Purchase Payments allocated to this General Account Guaranteed Option will
earn interest of at least 3%, compounded annually.
If you have more than one allocation in this option, you may choose which
allocation or allocations any exchanges or surrenders are to be made from. If
you do not specify which allocation or allocations to take the exchanges or
surrenders from, we will first take from the allocation with the shortest time
remaining until the end of its guarantee period and then from the allocation
or allocations with the next shortest time remaining until the amount of the
exchange or withdrawal is reached.
At the end of the selected guarantee period and within a ten-day period
starting on the first day of any automatic renewal (as described below), you
may, without loss of interest, elect to transfer any or all of your
Accumulated Value under this option to any of the Subaccounts or transfer to
another General Account Guaranteed Option or renew your participation in this
option for any guarantee period then available whose ending date is not later
than the Annuity Date at a rate the Company declares at the time of renewal.
Such election may also be provided in writing to the Company before the end of
the guarantee period (and each subsequent guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for another guarantee period of the same duration as the one just ended at a
rate we declare at the time of the renewal. In cases where such a renewal
would result in a guarantee period whose ending date is later than the Annuity
Date, we will transfer the value of that allocation to the Federated Money
Market Portfolio.
Guaranteed Equity Option
You may allocate your Accumulated Value to this option as of the first
business day of each month. Any allocations you make must be at least $1,000.
On the date you make an allocation to this option the Company will declare:
(a) the duration of the guarantee period applicable to the allocation; (b) the
duration of the Averaging Period and (c) the Participation Rate. (The
Averaging Period and the Participation Rate are described below.) Each
allocation will have its own guarantee period, Averaging Period and
Participation Rate.
During the guarantee period applicable to Accumulated Value allocated to this
option, the Company will credit 90% of the amount allocated plus interest at a
guaranteed annual effective rate of 3%, compounded annually. At the end of the
guarantee period we will credit an additional amount equal to the amount by
which (x) exceeds (y), where (x) equals the amount allocated plus a declared
portion of the percentage change in the S&P 500 Composite Stock Price Index
("S&P 500 Index") from its value on the date Accumulated Value is allocated to
a value determined at the end of the guarantee period multiplied by the amount
allocated (all calculated as described below); and (y) equals 90% of the
amount allocated plus the total amount of interest credited during the
guarantee period.
A-4
<PAGE>
The amount (x) in the preceding paragraph is equal to (i) the amount allocated
to the applicable guarantee period plus (ii) the amount allocated multiplied
by the following factor:
PR X [(EV/SV)-1]
where PR = the Participation Rate;
EV= the average closing values of the S&P 500 Index on the last business
day of each month during the Averaging Period; and
SV= the closing value of the S&P 500 Index on the date Accumulated Value
is allocated to this option.
The "Participation Rate" is the rate at which you participate in the
percentage change of the S&P 500 Index for an allocation as used in the
calculation above. It will be declared by the Company with respect to each
allocation to this option. In no event will the Participation Rate be less
than 0%.
The "Averaging Period" is the number of months prior to the end of an
allocation's guarantee period that we will use to determine the ending value
of the S&P 500 Index for that allocation's guarantee period for purposes of
this option as used in the calculation above. It will be declared by the
Company with respect to each allocation to this option. In no event will the
Averaging Period be less than one.
("S&P" is a trademark of The McGraw-Hill Companies, Inc. and has been licensed
for use by the Company.)
THIS OPTION IS ILLIQUID FOR THE ENTIRE GUARANTEE PERIOD AND, ACCORDINGLY, DOES
NOT PERMIT ANY EXCHANGES OR REALLOCATIONS OF ACCUMULATED VALUE TO THE
SUBACCOUNTS OR OTHER GENERAL ACCOUNT GUARANTEED OPTIONS OR FULL OR PARTIAL
WITHDRAWALS DURING SUCH GUARANTEE PERIOD. However, during such guarantee
period, the Accumulated Value allocated under this option may be annuitized
under any of the Annuity Payment Options.
(The S&P 500 Index is a stock price index. Its composition and calculation
does not include dividends, if any, paid upon component stocks of the index
nor reinvestment, if any, or such dividends.)
At the end of the guarantee period, you may, without loss of earnings, elect
to transfer all or part of your Accumulated Value under this option to any of
the Subaccounts, transfer into another General Account Guaranteed Option or
renew your participation in this option. Such election must be received by the
Company no later than 30 days prior to the end of the guarantee period. If no
election is received, your Accumulated Value will automatically be transferred
to the Federated Prime Money Portfolio.
PART 2
If your state of issue is IN, MD, MA, OK, PA, or TX, this Part 2 describes the
General Account Guaranteed Options (other than the Dollar Cost Averaging Fixed
Account Option) applicable to your Contract. Check with your sales
representative for additional details regarding availability. For other
states, please see Part 1 to this Appendix.
One-Year Guaranteed Rate Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, the One-Year Guaranteed Rate Option may be
titled the "One-Year Guaranteed Index Rate Option" and this term is used in
the description below.
You may allocate your Accumulated Value to this option at any time. The
Accumulated Value you allocate under this option earns interest equal to 80%
of the one-year constant maturity Treasury rate at the time your allocation is
made with a guarantee that the Accumulated Value in this General Account
Guaranteed Option will not be less than the amounts allocated, plus 3%,
compounded annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the one-year guarantee
period. However, for any amounts so transferred we will deduct an amount equal
to the interest the transferred value earned over the previous 90 days at the
applicable one-year rate. For full and partial withdrawals of amounts
allocated to this General Account Guaranteed Option prior to the end of the
one-year guarantee period, we will deduct an amount equal to the interest
earned on the amount withdrawn during the previous 90 days at the applicable
one-year rate plus we will deduct any applicable surrender charge.
A-5
<PAGE>
At the end of the one-year guarantee period, you may, without loss of
interest, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Notice of such
an election must be provided to the Company no later than 15 days after the
end of the one-year guarantee period (and each subsequent one-year guarantee
period). If no such election is made, your Accumulated Value will
automatically be renewed under this option for the next one-year guarantee
period.
Multi-Year Guaranteed Rate Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, the Multi-Year Guaranteed Rate Option may be
titled the "Five-Year Guaranteed Index Rate Option" and this term is used in
the description below.
You may allocate your Accumulated Value to this option at any time. The only
available guarantee period is five-years. The Accumulated Value you allocate
under this option earns interest equal to 90% of the five-year constant
maturity Treasury rate at the time your allocation is made with a guarantee
that the Accumulated Value in this General Account Guaranteed Option will not
be less than the amount initially allocated, plus 3%, compounded annually.
You may allocate any or all of your Accumulated Value from this General
Account Guaranteed Option to any of the Subaccounts or other General Account
Guaranteed Options at any time before the end of the five-year guarantee
period. However, for any amounts so transferred we will apply a Market Value
Adjustment (as described below) against such amounts. For full and partial
withdrawals of amounts allocated to this General Account Guaranteed Option
prior to the end of the five-year guarantee period, we will apply a Market
Value Adjustment (as described below) against such amounts withdrawn plus we
will deduct any applicable surrender charge.
The Market Value Adjustment ("MVA") Factor for the Five-Year Guaranteed Index
Rate Option will be as follows:
<TABLE>
<S> <C> <C>
N X (B - E)
--- -------
12 1 + E
</TABLE>
where N
=the number of months left in the five-year guarantee period at the time
of the transfer or surrender (including any partial months which will
count as full months for purposes of this calculation);
B =the applicable five-year constant maturity Treasury rate at the beginning
of the five-year guarantee period; and
E =the applicable five-year constant maturity Treasury rate at the time of
the transfer or surrender.
The MVA is applied to the Accumulated Value in order to determine the net
amount of the transfer or surrender under this option prior to the deduction
of any applicable surrender charge. Generally, if the five-year constant
maturity Treasury rate at the beginning of the five-year guarantee period is
lower than the five-year constant maturity Treasury rate prevailing at the
time of the transfer or surrender, then the application of the MVA will result
in a lower payment upon transfer or surrender. Similarly, if the five-year
constant maturity Treasury rate at the beginning of the five-year guarantee
period is higher than the prevailing five-year constant maturity Treasury rate
at the time of transfer or surrender, then the application of the MVA will
result in a higher payment upon transfer or surrender.
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a positive Market Value
Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months of
the guarantee period remaining and the five-year constant maturity Treasury
rate is 7%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .07 = 4 X .00935 = .0374
12 1 + .07
Adjustment = $108,000 X .0374 = $4,039
= $108,000 + $4,039 = $112,039 = Net amount of transfer or
surrender (before application of a surrender charge)
A-6
<PAGE>
The following is an example of how your Accumulated Value under the Five-Year
Guaranteed Index Rate Option is affected by a negative Market Value
Adjustment:
Assume an initial allocation of $100,000 when the five-year constant maturity
Treasury rate is 8%. At the end of 12 months, your Accumulated Value is
$108,000. Assume also you surrender at the end of one year with 48 months
remaining in the guarantee period and the five-year constant maturity Treasury
rate is 9%.
Accumulated Value = $108,000
MVA Factor = 48 X .08 - .09 = 4 X -.00917 = -.0367
12 1 + .09
Adjustment = $108,000 X -.0367 = -$3,964
= $108,000 - $3,964 = $104,036 = Net amount of transfer or
surrender (before application of a surrender charge)
Notwithstanding application of a negative Market Value Adjustment under the
Five-Year Guaranteed Index Rate Option, any Net Purchase Payments allocated to
this General Account Guaranteed Option will earn interest of at least 3%,
compounded annually.
At the end of the five-year guarantee period, you may, without loss of
interest, elect to transfer any or all of your Accumulated Value under this
option to any of the Subaccounts or transfer to another General Account
Guaranteed Option or renew your participation in this option. Such election
must be provided to the Company before the end of the five-year guarantee
period (and each subsequent five-year guarantee period). If no election is
made, your Accumulated Value will automatically be renewed under this option
for the next five-year guarantee period.
Guaranteed Equity Option
Note: In certain marketing and customer communication materials, including the
customer order form and Contract, and the Guaranteed Equity Option may be
titled the "Five-Year Guaranteed Equity Option" and this term is used in the
description below.
You may allocate your Accumulated Value to this option as of the first
business day of each month, provided however that, such allocation may occur
only after the sixth Contract Year. During the five-year guarantee period
applicable to Accumulated Value allocated to this option, we will credit
interest at a guaranteed annual effective rate of 3%, compounded annually. At
the end of the five-year guarantee period we will credit additional interest
in an amount equal to the amount by which (a) exceeds (b), where: (a) equals
the percentage change in the S&P 500(R) Composite Stock Price Index ("S&P
500(R) Index") from the date Accumulated Value is allocated to the end of the
five-year guarantee period, multiplied by the amount allocated; and (b) equals
the total amount of interest credited during the five-year guarantee period.
("S&P 500(R)" is a trademark of The McGraw-Hill Companies, Inc. and has been
licensed for use by the Company.)
THIS OPTION IS ILLIQUID FOR THE ENTIRE FIVE-YEAR GUARANTEE PERIOD AND,
ACCORDINGLY, DOES NOT PERMIT ANY EXCHANGES OR REALLOCATIONS OF ACCUMULATED
VALUE TO THE SUBACCOUNTS OR OTHER GENERAL ACCOUNT GUARANTEED OPTIONS OR FULL
OR PARTIAL WITHDRAWALS DURING SUCH FIVE-YEAR PERIOD. However, during such
guarantee period, the Accumulated Value allocated under this option may be
annuitized under any of the Annuity Payment Options.
At the end of the five-year guarantee period, you may, without loss of
earnings, elect to transfer all or part of your Accumulated Value under this
option to any of the Subaccounts, transfer into another General Account
Guaranteed Option or renew your participation in this option. Such election
must be received by the Company no later than 30 days prior to the end of the
five-year guarantee period. If no election is received, your Accumulated Value
will automatically be transferred to Fidelity Money Market. This option may
not be available at all times.
A-7
<PAGE>
DISCLAIMER REGARDING STANDARD & POOR'S(R) 500 INDEX
The Guaranteed Equity Option (the "GEO") is not sponsored, endorsed, sold or
promoted by Standard & Poor's Corporation ("S&P"). S&P makes no representation
or warranty, express or implied, to investors in the GEO or any member of the
public regarding the advisability of investing in securities generally or in
the GEO particularly or the ability of the S&P 500(R) Index to track general
stock market performance. S&P's only relationship to Providian Life and Health
Insurance Company is the licensing of certain trademarks and trade names of
S&P and of the S&P 500(R) Index which is determined, composed and calculated
by S&P without regard to Providian Life and Health Insurance Company or the
GEO. S&P has no obligation to take the needs of Providian Life and Health
Insurance Company or the investors in the GEO into consideration in
determining, composing or calculating the S&P 500(R) Index. S&P is not
responsible for and has not participated in the determination of the timing of
the issuance or sale or quantities of the GEO or in the determination or
calculation of the equation by which the GEO is to be converted into cash. S&P
has no obligation or liability in connection with the administration,
marketing or trading of the GEO.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P
500(R) INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR
ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY, INVESTORS IN THE GEO, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500(R) INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500(R) INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED
OF THE POSSIBILITY OF SUCH DAMAGES.
A-8
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V
STATEMENT OF ADDITIONAL INFORMATION
FOR THE
PROVIDIAN MARQUEE VARIABLE ANNUITY
Offered by
Providian Life and Health Insurance Company
(A Missouri Stock Company)
Administrative Offices
P.O. Box 32700
Louisville, Kentucky 40232
----------
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Providian Marquee variable 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 1-800-797-9177 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 PAGE
- ----------------- ----
THE CONTRACTS............................................................... 2
Computation of Variable Annuity Income Payments............................ 2
Exchanges.................................................................. 3
Exceptions to Charges and to Transaction or Balance Requirements........... 3
GENERAL MATTERS............................................................. 3
Non-Participating.......................................................... 3
Misstatement of Age or Sex................................................. 3
Assignment................................................................. 4
Annuity Data............................................................... 4
Annual Statement........................................................... 4
Incontestability........................................................... 4
Ownership.................................................................. 4
PERFORMANCE INFORMATION..................................................... 4
Money Market Subaccount Yields............................................. 5
30-Day Yield for Non-Money Market Subaccounts.............................. 5
Standardized Average Annual Total Return for Subaccounts................... 5
ADDITIONAL PERFORMANCE MEASURES............................................. 7
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return....................................................... 7
Non-Standardized Total Return Year-to-Date................................. 10
Non-Standardized One Year Return........................................... 11
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return.................................. 12
Individualized Computer Generated Illustrations............................ 26
PERFORMANCE COMPARISONS..................................................... 26
SAFEKEEPING OF ACCOUNT ASSETS............................................... 28
THE COMPANY................................................................. 28
STATE REGULATION............................................................ 28
RECORDS AND REPORTS......................................................... 29
DISTRIBUTION OF THE CONTRACTS............................................... 29
LEGAL PROCEEDINGS........................................................... 29
OTHER INFORMATION........................................................... 29
FINANCIAL STATEMENTS........................................................ 29
<PAGE>
THE CONTRACTS
In order to supplement the description in the applicable Prospectus and Appendix
A thereto, 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;
(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 1.25% 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; except that in
2
<PAGE>
Massachusetts and Montana, the Annuity Tables contained in the Contract are
based on a 60% female/40% male blending of the above for all annuitants of
either gender.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of any other
Subaccount(s) then available. The written request for an Exchange must be
received by us, however, at least 10 Business Days prior to the first payment
date on which the Exchange is to take effect. An Exchange shall result in the
same dollar amount as that of the Annuity Payment on the date of Exchange (the
Exchange Date). Each year you may make an unlimited number of free Exchanges
between Subaccounts. We reserve the right to charge a $15 fee in the future for
Exchanges in excess of twelve per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, the
Company will establish a value for the current Subaccounts by multiplying the
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing the
Annuity Unit Value of the new Subaccounts into the value previously calculated
for the existing Subaccounts.
EXCEPTIONS TO CHARGES AND TRANSACTION OR BALANCE REQUIREMENTS
In addition to the Purchase Payment breakpoints discussed in the applicable
Prospectus, the Company may impose reduced sales loads, administrative charges
or other deductions from Purchase Payments in certain situations where the
Company expects to realize significant economies of scale or other economic
benefits with respect to the sales of Contracts. This is possible because sales
costs do not increase in proportion to the dollar amount of the Contracts sold.
For example, the per-dollar transaction cost for a sale of a Contract equal to
$5,000 is generally much higher than the per-dollar cost for a sale of Contract
equal to $1,000,000. As a result, the applicable sales charge declines as a
percentage of the dollar amount of Contracts sold as the dollar amount
increases.
The Company may also impose reduced sales loads and reduced administrative
charges and fees on sales to directors, officers and bona fide full-time
employees (and their spouses and minor children) of the Company, its ultimate
parent company, and certain of their affiliates and certain sales
representatives for the Contract. The Company may also grant waivers or
modifications of certain minimum or maximum purchase and transaction amounts or
balance requirements in these circumstances.
Notwithstanding the above, any variations in the sales loads, administrative
charges or other deductions from Purchase Payments or in the minimum or maximum
transaction or balance requirements shall reflect differences in costs or
services and shall not be unfairly discriminatory against any person.
GENERAL MATTERS
NON-PARTICIPATING
The Contract is non-participating. No dividends are payable and the Contract
will not share in the profits or surplus earnings of the Company.
MISSTATEMENT OF AGE OR SEX
The Company may require proof of age and sex before making Annuity Payments. If
the Annuitant's stated age, sex or both in the Contract are incorrect, the
Company will change the annuity benefits payable to those benefits which the
Purchase Payments would have purchased for the correct age and sex. In the case
of correction of the
3
<PAGE>
stated age and/or sex after payments have commenced, the Company will (1) in the
case of underpayment, pay the full amount due with the next payment; (2) in the
case of overpayment, deduct the amount due from one or more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the validity
of any assignment. No assignment will be recognized until the Company receives
the appropriate Company form notifying the Company of such assignment. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum notwithstanding any settlement agreement in effect at
the time assignment was executed. The Company shall not be liable as to any
payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and/or the General
Account Guaranteed Options; and any Purchase Payments, charges, Exchanges or
withdrawals during the year. This report will also give you any other
information required by law or regulation. You may ask for an annual statement
like this at any time. We will also send you quarterly statements. However, we
reserve the right to discontinue quarterly statements at any time.
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
OWNERSHIP
The Contract Owner on the Contract Date is the Annuitant, unless otherwise
specified in the application. The Contract Owner may specify a new Contract
Owner by sending us the appropriate Company form at any time thereafter. The
term Contract Owner also includes any person named as a Joint Owner. A Joint
Owner shares ownership in all respects with the Contract Owner. During the
Annuitant's lifetime, all rights and privileges under this Contract may be
exercised solely by the Contract Owner. Upon the death of the Contract Owner,
ownership is retained by the surviving Joint Owner or passes to the Owner's
Designated Beneficiary, if one has been designated by the Contract Owner. If no
Owner's Designated Beneficiary has been selected or if no Owner's Designated
Beneficiary is living, then the Owner's Designated Beneficiary is the Contract
Owner's estate. From time to time the Company may require proof that the
Contract Owner is still living.
PERFORMANCE INFORMATION
Performance information for the Subaccounts including the yield and effective
yield of the Fidelity Money Market Subaccount, the yield of the remaining
Subaccounts, and the total return of all Subaccounts, may appear in reports or
promotional literature to current or prospective Contract Owners.
Where applicable in calculating performance information, the Annual Contract Fee
is reflected as a percentage equal to the total amount of fees collected during
a calendar year divided by the total average net assets of the Portfolios during
the same calendar year. The fee is assumed to remain the same in each year of
the applicable period. (With respect to partial year periods, if any, in the
examples, the Annual Contract Fee is pro-rated to reflect only the applicable
portion of the partial year period.)
Where applicable, the following Subaccount inception dates are used in the
calculation of performance figures: 8/2/94 for the Fidelity Money Market
Portfolio; 8/17/94 for the Fidelity Equity-Income, Fidelity Growth, Dreyfus
Quality Bond and T. Rowe Price International Portfolios; 8/31/94 for the Dreyfus
Growth and Income Portfolio; 9/1/94 for the T. Rowe Price Equity Income
Portfolio; 9/14/94 for the Fidelity Asset Manager Portfolio; 11/3/94 for the OCC
Accumulation Trust Managed Portfolio; 11/4/94 for the OCC Accumulation Trust
Small Cap Portfolio; 12/30/94 for the T. Rowe Price New America Growth
Portfolio; and 11/18/94 for the OCC Accumulation Trust U.S. Government Income
Portfolio.
4
<PAGE>
MONEY MARKET SUBACCOUNT YIELDS
Current yield for the Fidelity Money Market Subaccount will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular 7-day period, less a pro-rata share of Subaccount expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [((Base Period Return)+1)/365/7/] - 1
30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of a Unit on the last
day of the period, according to the following formula:
a - b
YIELD = 2[(----- + 1)/6/ - 1]
cd
Where:
[a] equals the net investment income earned during the period by the
Portfolio attributable to shares owned by a Subaccount
[b] equals the expenses accrued for the period (net of reimbursement)
[c] equals the average daily number of Units outstanding during the
period
[d] equals the maximum offering price per Accumulation Unit on the
last day of the period
Yield on a Subaccount is earned from the increase in net asset value of shares
of the Portfolio in which the Subaccount invests and from dividends declared and
paid by the Portfolio, which are automatically reinvested in shares of the
Portfolio.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR SUBACCOUNT
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of all applicable sales loads (including the
contingent deferred sales load), the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes, if
any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the life of the Subaccount), calculated pursuant to the formula:
5
<PAGE>
P(1 + T)/n/ = ERV
Where:
(1) [P] equals a hypothetical initial Purchase Payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000
Purchase Payment made at the beginning of the period (or fractional
portion thereof)
The following tables show the Standardized Average Annual Total Return for the
Subaccounts for the period beginning at the inception of each Subaccount and
ending on December 31, 1997.
6
<PAGE>
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR PERIOD
ENDING DECEMBER 31, 1997
<TABLE>
<CAPTION>
Subaccount 1 Year Since Portfolio Inception
---------- ------ -------------------------
<S> <C> <C>
Fidelity Money Market Portfolio -0.70% 3.18%
Fidelity Equity-Income Portfolio 20.60% 19.00%
Fidelity Growth Portfolio 16.25% 19.26%
Fidelity Asset Manager Portfolio 13.58% 11.44%
Dreyfus Growth and Income Portfolio 9.40% 22.83%
Dreyfus Quality Bond Portfolio 2.40% 6.77%
TRP Equity Income Portfolio 21.31% 21.02%
TRP New America Growth Portfolio 14.02% 22.53%
TRP International Stock Portfolio -2.96% 4.29%
OCC Accumulation Trust Managed Portfolio 15.13% 21.65%
OCC Accumulation Trust Small Cap Portfolio 15.08% 14.22%
OCC Accumulation Trust Government Income 0.80% 4.52%
Portfolio
</TABLE>
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the percentage
change in the value of an Accumulation Unit) for one or more Subaccounts with
respect to one or more periods. The Company may also show Non-Standardized
Actual Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year, the
Non-Standardized Actual Total Return and the Non-Standardized Actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Actual Average Annual Total
Return is the effective annual compounded rate of return for the periods stated.
Because the value of an Accumulation Unit reflects the Separate Account and
Portfolio expenses (See Fee Table in the Prospectus), the Non-Standardized
Actual Total Return and Non-Standardized Actual Average Annual Total Return also
reflect these expenses. However, these percentages do not reflect the Annual
Contract Fee, any sales loads or Premium Taxes (if any), which if included would
reduce the percentages reported by the Company.
7
<PAGE>
NON-STANDARDIZED ACTUAL TOTAL RETURN FOR PERIOD ENDING 12/31/97
<TABLE>
<CAPTION>
One Year Since Portfolio Inception
-------- -------------------------
<S> <C> <C>
Fidelity Money Market Portfolio 4.02% 14.52%
Fidelity Equity-Income Portfolio 26.33% 83.51%
Fidelity Growth Portfolio 21.76% 86.76%
Fidelity Asset Manager Portfolio 18.97% 48.91%
Dreyfus Growth and Income Portfolio 14.60% 104.34%
Dreyfus Quality Bond Portfolio 7.27% 28.36%
TRP Equity Income 27.06% 95.02%
TRP New America Growth Portfolio 19.43% 110.70%
TRP International Stock Portfolio 1.66% 19.97%
OCC Accumulation Trust Managed Portfolio 20.59% 103.22%
OCC Accumulation Trust Small Cap Portfolio 20.54% 62.99%
OCC Accumulation Trust Government Income Portfolio 5.59% 18.07%
</TABLE>
8
<PAGE>
NON-STANDARDIZED ACTUAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIOD ENDING 12/31/97
<TABLE>
<CAPTION>
One Year Since Portfolio Inception
-------- -------------------------
<S> <C> <C>
Fidelity Money Market Portfolio 4.02% 4.05%
Fidelity Equity-Income Portfolio 26.33% 19.72%
Fidelity Growth Portfolio 21.76% 20.71%
Fidelity Asset Manager Portfolio 18.97% 12.84%
Dreyfus Growth and Income Portfolio 14.60% 23.90%
Dreyfus Quality Bond Portfolio 7.27% 7.87%
TRP Equity Income Portfolio 27.06% 22.20%
TRP New America Growth Portfolio 19.43% 28.28%
TRP International Stock Portfolio 1.66% 5.68%
OCC Accumulated Trust Managed Portfolio 20.59% 25.16%
OCC Accumulated Trust Small Cap Portfolio 20.54% 16.74%
OCC Accumulated Trust Government Income Portfolio 5.59% 5.82%
</TABLE>
9
<PAGE>
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
The Company may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more Subaccounts with
respect to one or more non-standardized base periods commencing at the beginning
of a calendar year. Total Return YTD figures reflect the percentage change in
actual Accumulation Unit Values during the relevant period. These percentages
reflect a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Fee, any sales loads or Premium Taxes (if any),
which if included would reduce the percentages reported by the Company.
<TABLE>
<CAPTION>
Total Return YTD
as of 12/31/97
--------------
<S> <C>
Fidelity Money Market Portfolio 4.02%
Fidelity Equity-Income Portfolio 26.33%
Fidelity Growth Portfolio 21.76%
Fidelity Asset Manager Portfolio 18.97%
Dreyfus Growth and Income Portfolio 14.60%
Dreyfus Quality Bond Portfolio 7.27%
TRP Equity Income Portfolio 27.06%
TRP New America Growth Portfolio 19.43%
TRP International Stock Portfolio 1.66%
OCC Accumulation Trust Managed Portfolio 20.59%
OCC Accumulation Trust Small Cap Portfolio 20.54%
OCC Accumulation Trust Government Income Portfolio 5.59%
</TABLE>
10
<PAGE>
NON-STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts with respect to one or more non-standardized base periods commencing
at the beginning of a calendar year (or date of Portfolio inception, if during
the relevant year) and ending at the end of such calendar year. One Year Return
figures reflect the historical performance of the Portfolios as if the Contract
were in existence before its inception date (which it was not). After the
Contract's inception date, the figures reflect the percentage change in actual
Accumulation Unit Values during the relevant period. These percentages reflect a
deduction for the Separate Account and Portfolio expenses, but do not include
the Annual Contract Fee, any sales loads or Premium Taxes (if any), which if
included would reduce the percentages reported by the Company.
NON-STANDARDIZED
ONE YEAR RETURN
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Money Market Portfolio 4.02% 3.94% 4.42% 2.79% 1.78% 2.45% 4.60%
Fidelity Equity-Income Portfolio 26.33% 12.68% 33.22% 5.57% 16.63% 15.25% 29.60%
Fidelity Growth Portfolio 21.76% 13.10% 33.49% -1.42% 17.70% 7.79% 43.47%
Fidelity Asset Manager Portfolio 18.97% 13.00% 15.33% -7.40% 19.53% 10.15% 20.84%
Dreyfus Growth and Income Portfolio 14.60% 19.06% 59.65% N/A N/A N/A N/A
Dreyfus Quality Bond Portfolio 7.27% 1.68% 18.75% -5.93% 13.72% 10.52% 12.52%
TRP Equity Income Portfolio 27.06% 21.05% 32.89% N/A N/A N/A N/A
TRP New America Growth Portfolio 19.43% 17.06% 48.99% N/A N/A N/A N/A
TRP International Stock Portfolio 1.66% 13.09% 9.64% N/A N/A N/A N/A
OCC Accumulation Trust Managed Portfolio 20.59% 21.05% 43.53% N/A N/A N/A N/A
OCC Accumulation Trust Small Cap Portfolio 20.54% 17.06% 13.63% N/A N/A N/A N/A
OCC Accumulation Trust U.S. Gov't Income Portfolio 5.59% 1.59% 10.07% N/A N/A N/A N/A
</TABLE>
11
<PAGE>
NON-STANDARDIZED HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN*
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios (calculated beginning from the
end of the year of inception for each Portfolio) and may assume the Contract was
in existence prior to its inception date (which it was not). After the
Contract's inception date, actual Accumulation Unit Values are used for the
calculations. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. However, they reflect a deduction
for the Separate Account expenses and Portfolio expenses. They do not include
the Annual Contract Fee, any sales loads or Premium Taxes (if any), which if
included would reduce the percentages reported.
The Non-Standardized Annual Total Return for a Subaccount is the effective
annual rate of return that would have produced the ending Accumulated Value of
the stated one-year period.
The Non-Standardized Average Annual Total Return for a Subaccount is the
effective annual compounded rate of return that would have produced the ending
Accumulated Value over the stated period had the performance remained constant
throughout.
<TABLE>
<CAPTION>
HYPOTHETICAL TOTAL RETURNS FOR PERIODS ENDING 12/31/97
(BASED ON SINGLE INITIAL PURCHASE)
Total
Since Fund Inception
1 Year 3 Year 5 Year Year-End
------ ------ ------ --------------------
<S> <C> <C> <C> <C>
Fidelity Money Market Portfolio 4.02% 12.89% 18.14% 128.28%
Fidelity Equity-Income Portfolio 26.33% 89.63% 133.76% 297.17%
Fidelity Growth Portfolio 21.76% 83.83% 113.41% 338.02%
Fidelity Asset Manager Portfolio 18.97% 55.05% 71.72% 135.20%
Dreyfus Growth and Income Portfolio 14.60% 117.82% N/A 115.25%
Dreyfus Quality Bond Portfolio 7.27% 29.52% 38.49% 75.38%
TRP Equity Income Portfolio 27.06% 99.06% N/A 111.20%
TRP New America Growth Portfolio 19.43% N/A N/A 110.75%
TRP International Stock Portfolio 1.66% 26.05% N/A 27.02%
OCC Accumulation Trust Managed Portfolio 20.59% 109.34% 130.82% 409.79%
OCC Accumulation Trust Small Cap Portfolio 20.54% 60.33% 84.49% 243.80%
OCC Accumulation Trust Government Income Portfolio 5.59% 15.08% N/A 19.54%
</TABLE>
12
<PAGE>
HYPOTHETICAL AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDING 12/31/97
(BASED ON SINGLE INITIAL PURCHASE)
<TABLE>
<CAPTION>
Since Fund Inception
1 Year 3 Year 5 Year Year-End
------- ------- ------- --------------------
<S> <C> <C> <C> <C>
Fidelity Money Market Portfolio 4.02% 4.13% 3.39% 5.38%
Fidelity Equity-Income Portfolio 26.33% 23.78% 18.51% 13.07%
Fidelity Growth Portfolio 21.76% 22.50% 16.37% 14.06%
Fidelity Asset Manager Portfolio 18.97% 15.74% 11.42% 10.84%
Dreyfus Growth and Income Portfolio 14.60% 29.63% N/A 23.26%
Dreyfus Quality Bond Portfolio 7.27% 9.00% 6.73% 7.96%
TRP Equity Income Portfolio 27.06% 25.79% N/A 22.04%
TRP New America Growth Portfolio 19.43% 28.20% N/A 21.97%
TRP International Stock Portfolio 1.66% 8.02% N/A 6.58%
OCC Accumulation Trust Managed Portfolio 20.59% 27.96% 18.21% 18.88%
OCC Accumulation Trust Small Cap Portfolio 20.54% 17.04% 13.03% 14.01%
OCC Accumulation Trust Government Income Portfolio 5.59% N/A N/A 5.89%
</TABLE>
Note: Advertisements and other sales literature for the Portfolios may quote
total returns which are calculated on non-standardized base periods. These
total returns also represent the historic change in the value of an investment
in the Portfolios based on monthly reinvestment of dividends over a specific
period of time.
* On September 16, 1994, an investment company then called Quest for Value
Accumulation Trust (the "Old Trust") was effectively divided into two investment
funds, the Old Trust and the Quest for Value Accumulation Trust (now known as
the OCC Accumulation Trust) that is included in the Contract (the "New Trust"),
at which time the New Trust commenced operations. The total net assets for each
of the OCC Accumulation Trust Small Cap and OCC Accumulation Trust Managed
Portfolios immediately after the transaction were $139,812,573 and $682,601,380,
respectively, with respect to the Old Trust and, with respect to the New Trust
were $8,129,274 and $51,345,102, for the OCC Accumulation Trust Small Cap and
OCC Accumulation Trust Managed Growth Portfolios, respectively. For the period
prior to September 16, 1994, the performance figures above for each of the OCC
Accumulation Trust Small Cap and OCC Accumulation Trust Managed Portfolios
reflect the performance of the corresponding Portfolios of the Old Trust.
Remainder of Page Intentionally Left Blank
13
<PAGE>
<TABLE>
<CAPTION>
FIDELITY EQUITY INCOME PORTFOLIO FIDELITY EQUITY INCOME PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1986 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1986
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ------------------ ----------------------- -----------------
One Average One Average
Year Annual Year Annual Cumulative
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- ------- -------- --------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A 12/31/86 $50,000 N/A N/A N/A 0.00%
12/31/87 $ 4,000 $ 1,950 -2.51% -2.51% 12/31/87 $50,000 $ 48,743 -2.51% -2.51% -2.51%
12/31/88 $ 6,000 $ 4,779 20.99% 12.46% 12/31/88 $50,000 $ 58,975 20.99% 8.60% 17.95%
12/31/89 $ 8,000 $ 7,843 15.70% 14.00% 12/31/89 $50,000 $ 68,233 15.70% 10.92% 36.47%
12/31/90 $10,000 $ 8,221 -16.48% 1.09% 12/31/90 $50,000 $ 56,991 -16.48% 3.33% 13.98%
12/31/91 $12,000 $13,247 29.60% 9.52% 12/31/91 $50,000 $ 73,860 29.60% 8.12% 47.72%
12/31/92 $14,000 $17,572 15.25% 11.01% 12/31/92 $50,000 $ 85,126 15.25% 9.27% 70.25%
12/31/93 $16,000 $22,828 16.63% 12.25% 12/31/93 $50,000 $ 99,286 16.63% 10.30% 98.57%
12/31/94 $18,000 $26,211 5.57% 10.90% 12/31/94 $50,000 $104,817 5.57% 9.69% 109.63%
12/31/95 $20,000 $37,583 33.22% 14.48% 12/31/95 $50,000 $139,637 33.22% 12.09% 179.27%
12/31/96 $22,000 $44,602 12.68% 14.20% 12/31/96 $50,000 $157,345 12.68% 12.15% 214.69%
12/31/97 $24,000 $58,872 26.33% 15.78% 12/31/97 $50,000 $198,769 26.33% 13.37% 297.54%
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
FIDELITY GROWTH PORTFOLIO FIDELITY GROWTH PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1986 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1986
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ------------------- ----------------------- ----------------
One Average One Average
Year Annual Year Annual Cumulative
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- -------- -------- ---------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/86 $ 2,000 N/A N/A N/A 12/31/86 $50,000 N/A N/A N/A 0.00%
12/31/87 $ 4,000 $ 2,044 2.21% 2.21% 12/31/87 $50,000 $ 51,104 2.21% 2.21% 2.21%
12/31/88 $ 6,000 $ 4,609 13.96% 9.83% 12/31/88 $50,000 $ 58,240 13.96% 7.93% 16.48%
12/31/89 $ 8,000 $ 8,570 29.67% 18.92% 12/31/89 $50,000 $ 75,519 29.67% 14.73% 51.04%
12/31/90 $10,000 $ 9,199 -12.97% 5.67% 12/31/90 $50,000 $ 65,727 -12.97% 7.08% 31.45%
12/31/91 $12,000 $16,068 43.47% 16.25% 12/31/91 $50,000 $ 94,300 43.47% 13.53% 88.60%
12/31/92 $14,000 $19,475 7.79% 14.02% 12/31/92 $50,000 $101,646 7.79% 12.55% 103.29%
12/31/93 $16,000 $25,276 17.70% 14.82% 12/31/93 $50,000 $119,636 17.70% 13.27% 139.27%
12/31/94 $18,000 $26,889 -1.42% 11.46% 12/31/94 $50,000 $117,937 -1.42% 11.32% 135.87%
12/31/95 $20,000 $38,563 33.49% 14.98% 12/31/95 $50,000 $157,433 33.49% 13.59% 214.87%
12/31/96 $22,000 $45,876 13.10% 14.69% 12/31/96 $50,000 $178,051 13.10% 13.54% 256.10%
12/31/97 $24,000 $58,295 21.76% 15.63% 12/31/97 $50,000 $216,803 21.76% 14.27% 333.61%
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FIDELITY ASSET MANAGER PORTFOLIO FIDELITY ASSET MANAGER PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1989 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1989
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average
Year Annual Year Annual Cumulative
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
---- -------- ----- ------ ------ ---- -------- ----- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A 12/31/89 $50,000 N/A N/A N/A 0.00%
12/31/90 $ 4,000 $ 2,105 5.23% 5.23% 12/31/90 $50,000 $ 52,613 5.23% 5.23% 5.23%
12/31/91 $ 6,000 $ 4,960 20.84% 15.23% 12/31/91 $50,000 $ 63,580 20.84% 12.76% 27.16%
12/31/92 $ 8,000 $ 7,666 10.15% 12.76% 12/31/92 $50,000 $ 70,031 10.15% 11.89% 40.06%
12/31/93 $10,000 $11,554 19.53% 15.26% 12/31/93 $50,000 $ 83,709 19.53% 13.75% 67.42%
12/31/94 $12,000 $12,551 -7.40% 7.67% 12/31/94 $50,000 $ 77,511 -7.40% 9.16% 55.02%
12/31/95 $14,000 $16,782 15.33% 9.67% 12/31/95 $50,000 $ 89,396 15.33% 10.17% 78.79%
12/31/96 $16,000 $21,223 13.00% 10.42% 12/31/96 $50,000 $101,016 13.00% 10.57% 102.03%
12/31/97 $18,000 $27,629 18.97% 12.06% 12/31/97 $50,000 $120,182 18.97% 11.59% 140.36%
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
FIDELITY MONEY MARKET PORTFOLIO FIDELITY MONEY MARKET PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1983 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1983
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ---------------- ----------------------- ----------------
One Average One Average
Year Annual Year Annual Cumulative
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/83 $ 2,000 N/A N/A N/A 12/31/83 $50,000 N/A N/A N/A N/A
12/31/84 $ 4,000 $ 2,178 8.88% 8.88% 12/31/84 $50,000 $54,442 8.88% 8.88% 8.88%
12/31/85 $ 6,000 $ 4,453 6.60% 7.37% 12/31/85 $50,000 $58,033 6.60% 7.73% 16.07%
12/31/86 $ 8,000 $ 6,789 5.21% 6.31% 12/31/86 $50,000 $61,055 5.21% 6.88% 22.11%
12/31/87 $10,000 $ 9,224 4.95% 5.78% 12/31/87 $50,000 $64,077 4.95% 6.40% 28.15%
12/31/88 $12,000 $11,885 5.89% 5.81% 12/31/88 $50,000 $67,849 5.89% 6.30% 35.70%
12/31/89 $14,000 $14,939 7.59% 6.29% 12/31/89 $50,000 $73,000 7.59% 6.51% 46.00%
12/31/90 $16,000 $18,045 6.53% 6.35% 12/31/90 $50,000 $77,765 6.53% 6.51% 55.53%
12/31/91 $18,000 $20,968 4.60% 5.98% 12/31/91 $50,000 $81,346 4.60% 6.27% 62.69%
12/31/92 $20,000 $23,530 2.45% 5.32% 12/31/92 $50,000 $83,335 2.45% 5.84% 66.67%
12/31/93 $22,000 $25,985 1.79% 4.71% 12/31/93 $50,000 $84,822 1.78% 5.43% 69.64%
12/31/94 $24,000 $28,766 2.79% 4.41% 12/31/94 $50,000 $87,189 2.79% 5.19% 74.38%
12/31/95 $26,000 $32,125 4.42% 4.41% 12/31/95 $50,000 $91,039 4.42% 5.12% 82.08%
12/31/96 $28,000 $35,469 3.94% 4.35% 12/31/96 $50,000 $94,625 3.94% 5.03% 89.25%
12/31/97 $30,000 $38,000 4.02% 4.31% 12/31/97 $50,000 $98,432 4.02% 4.96% 96.86%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
DREYFUS GROWTH AND INCOME PORTFOLIO DREYFUS GROWTH AND INCOME PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average
Year Annual Year Annual Cumulative
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $3,193 59.65% 59.65% 12/31/95 $50,000 $79,825 59.65% 59.65% 59.65%
12/31/96 $6,000 $6,183 19.06% 32.80% 12/31/96 $50,000 $95,039 19.06% 37.87% 90.08%
12/31/97 $8,000 $9,377 14.60% 24.05% 12/31/97 $50,000 $108,910 14.60% 29.63% 117.82%
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
DREYFUS QUALITY BOND PORTFOLIO DREYFUS QUALITY BOND PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1989 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1989
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average Cumulative
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/89 $ 2,000 N/A N/A N/A 12/31/89 $50,000 N/A N/A N/A 0.00%
12/31/90 $ 4,000 $ 2,019 0.97% 0.97% 12/31/90 $50,000 $50,483 0.97% 0.97% 0.97%
12/31/91 $ 6,000 $ 4,523 12.52% 8.47% 12/31/91 $50,000 $56,805 12.52% 6.59% 13.61%
12/31/92 $ 8,000 $ 7,209 10.52% 9.46% 12/31/92 $50,000 $62,781 10.52% 7.88% 25.56%
12/31/93 $10,000 $10,472 13.72% 11.07% 12/31/93 $50,000 $71,392 13.72% 9.31% 42.78%
12/31/94 $12,000 $11,733 -5.93% 5.38% 12/31/94 $50,000 $67,161 -5.93% 6.08% 34.32%
12/31/95 $14,000 $16,308 18.75% 8.83% 12/31/95 $50,000 $79,755 18.75% 8.09% 59.51%
12/31/96 $16,000 $18,615 1.68% 7.13% 12/31/96 $50,000 $81,000 1.68% 7.15% 62.18%
12/31/97 $18,000 $22,113 7.27% 7.16% 12/31/97 $50,000 $86,987 7.27% 7.17% 73.97%
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE EQUITY INCOME PORTFOLIO T. ROWE PRICE EQUITY INCOME PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average Cumulative
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,658 32.89% 32.89% 12/31/95 $50,000 $66,446 32.89% 32.89% 32.89%
12/31/96 $6,000 $5,491 17.88% 23.07% 12/31/96 $50,000 $78,330 17.88% 25.16% 56.66%
12/31/97 $8,000 $9,518 27.06% 24.92% 12/31/97 $50,000 $99,529 27.06% 25.79% 99.06%
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE INTERNATIONAL PORTOLIO T. ROWE PRICE INTERNATIONAL PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average Cumulative
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,193 9.64% 9.64% 12/31/95 $50,000 $54,818 9.64% 9.64% 9.64%
12/31/96 $6,000 $4,742 13.09% 11.89% 12/31/96 $50,000 $61,995 13.09% 11.35% 23.99%
12/31/97 $8,000 $6,853 1.66% 6.80% 12/31/97 $50,000 $63,023 1.66% 8.02% 26.05%
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
T. ROWE PRICE NEW AMERICAN GROWTH FUND PORTFOLIO T. ROWE PRICE NEW AMERICAN GROWTH FUND PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average Cumulative
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,980 48.99% 48.99% 12/31/95 $50,000 $ 74,495 48.99% 48.99% 48.99%
12/31/96 $6,000 $5,954 19.13% 29.63% 12/31/96 $50,000 $ 89,227 19.13% 33.62% 76.42%
12/31/97 $8,000 $9,431 19.43% 24.39% 12/31/97 $50,000 $105,351 19.43% 28.20% 110.70%
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST MANAGED PORTFOLIO OCC ACCUMULATION TRUST MANAGED PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1988 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1988
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average Cumulative
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A 12/31/88 $50,000 N/A N/A N/A 0.00%
12/31/89 $ 4,000 $ 2,504 25.19% 25.19% 12/31/89 $50,000 $62,595 25.19% 25.19% 25.19%
12/31/90 $ 6,000 $ 3,229 -28.32% -13.46% 12/31/90 $50,000 $44,868 -28.32% -5.27% -10.26%
12/31/91 $ 8,000 $ 7,809 49.36% 13.77% 12/31/91 $50,000 $67,015 49.36% 10.26% 34.03%
12/31/92 $10,000 $ 7,861 -19.86% -0.70% 12/31/92 $50,000 $53,706 -19.86% 1.80% 7.41%
12/31/93 $12,000 $ 9,046 -8.26% -3.32% 12/31/93 $50,000 $49,270 -8.26% -0.29% -1.46%
12/31/94 $14,000 $10,124 -8.35% -4.84% 12/31/94 $50,000 $45,156 -8.35% -1.68% -9.69%
12/31/95 $16,000 $17,402 43.53% -0.25% 12/31/95 $50,000 $64,814 43.53% 3.78% 29.63%
12/31/96 $18,000 $23,487 21.05% 8.49% 12/31/96 $50,000 $78,459 21.05% 5.79% 56.92%
12/31/97 $20,000 $30,736 20.59% 10.56% 12/31/97 $50,000 $94,618 20.59% 7.34% 89.24%
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST US GOVERNMENT INCOME PORTFOLIO OCC ACCUMULATION TRUST US GOVERNMENT INCOME PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1994 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1994
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- -----------------
One Average One Average Cumulative
Year Annual Year Annual Fund
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------ ------- -------- ---------- ----------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/94 $2,000 N/A N/A N/A 12/31/94 $50,000 N/A N/A N/A N/A
12/31/95 $4,000 $2,201 10.07% 10.07% 12/31/95 $50,000 $55,035 10.07% 10.07% 10.07%
12/31/96 $6,000 $4,294 2.21% 4.83% 12/31/96 $50,000 $56,250 2.21% 6.07% 11.82%
12/31/97 $8,000 $6,619 5.59% 4.99% 12/31/97 $50,000 $59,036 5.59% 5.69% 18.07%
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST SMALL CAPITAL PORTFOLIO OCC ACCUMULATION TRUST SMALL CAPITAL PORTFOLIO
$2000 PURCHASE PAYMENT MADE DECEMBER 31, 1988 $50,000 SINGLE PURCHASE PAYMENT MADE DECEMBER 31, 1988
AND YEARLY DECEMBER 31ST THEREAFTER
Values prior to current Values prior to current
years purchase payment Non-Standardized years purchase payment Non-Standardized
----------------------- ----------------- ----------------------- ----------------
One Average One Average
Year Annual Year Annual Cumulative
Cumulative Accumulated Total Total Cumulative Accumulated Total Total Fund Total
Date Payments Value Return Return Date Payments Value Return Return Return
- -------- ---------- ----------- ------- ------- -------- ---------- ----------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/31/88 $ 2,000 N/A N/A N/A 12/31/88 $50,000 N/A N/A N/A 0.00%
12/31/89 $ 4,000 $ 2,290 14.52% 14.52% 12/31/89 $50,000 $57,259 14.52% 14.52% 14.52%
12/31/90 $ 6,000 $ 3,225 -24.82% -13.52% 12/31/90 $50,000 $43,047 -24.82% -7.21% -13.90%
12/31/91 $ 8,000 $ 8,457 61.85% 18.17% 12/31/91 $50,000 $69,670 61.85% 11.69% 39.35%
12/31/92 $10,000 $ 8,457 -19.13% 2.24% 12/31/92 $50,000 $56,345 -19.13% 3.03% 12.69%
12/31/93 $12,000 $10,143 -3.01% 0.47% 12/31/93 $50,000 $54,650 -3.01% 1.79% 9.30%
12/31/94 $14,000 $ 9,917 -18.33% -5.42% 12/31/94 $50,000 $44,634 -18.33% -1.87% -10.74%
12/31/95 $16,000 $13,541 13.63% -0.42% 12/31/95 $50,000 $50,715 13.63% 0.20% 1.43%
12/31/96 $18,000 $18,192 17.06% 2.85% 12/31/96 $50,000 $59,365 17.06% 2.17% 18.73%
12/31/97 $20,000 $24,339 20.54% 5.98% 12/31/97 $50,000 $71,560 20.54% 4.06% 43.12%
</TABLE>
25
<PAGE>
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
The Company may from time to time use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide registered
representatives and existing and/or potential owners of Contracts with
individualized hypothetical performance illustrations for some or all of the
Portfolios. Such illustrations may include, without limitation, graphs, bar
charts and other types of formats presenting the following information: (i) the
historical results of a hypothetical investment in a single Portfolio; (ii) the
historical fluctuation of the value of a single Portfolio (actual and
hypothetical); (iii) the historical results of a hypothetical investment in more
than one Portfolio; (iv) the historical performance of two or more market
indices in relation to one another and/or one or more Portfolios; (v) the
historical performance of two or more market indices in comparison to a single
Portfolio or a group of Portfolios; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Portfolios to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Portfolio data sheets showing various
information about one or more Portfolios (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets).
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of Providian Life and Health Insurance Company as
determined by one or more of the ratings services listed below, or other
recognized rating services. Reports and promotional literature may also contain
other information including (i) the ranking of any Subaccount derived from
rankings of variable annuity separate accounts or other investment products
tracked by Lipper Analytical Services or by other rating services, companies,
publications, or other person who rank separate accounts or other investment
products on overall performance or other criteria, and (ii) the effect of tax-
deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by graphs, charts, or otherwise, and which may
include a comparison, at various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Each Subaccount's performance depends on, among other things, the performance of
the underlying Portfolio which, in turn, depends upon such variables as:
. quality of underlying investments;
. average maturity of underlying investments;
. type of instruments in which the Portfolio is invested;
. changes in interest rates and market value of underlying investments;
. changes in Portfolio expenses; and
. the relative amount of the Portfolio's cash flow.
From time to time, we may advertise the performance of the Subaccounts and the
underlying Portfolios as compared to similar funds or portfolios using certain
indexes, reporting services and financial publications, and we may advertise
rankings or ratings issued by certain services and/or other institutions. These
may include, but are not limited to, the following:
26
<PAGE>
. DOW JONES INDUSTRIAL AVERAGE ("DJIA"), an unmanaged index representing
share prices of major industrial corporations, public utilities, and
transportation companies. Produced by the Dow Jones & Company, it is cited
as a principal indicator of market conditions.
. STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, which can be used to compare to
the total returns of funds whose portfolios are invested primarily in
common stocks. In addition, the Standard & Poor's index assumes
reinvestments of all dividends paid by stocks listed on its index. Taxes
due on any of these distributions are not included, nor are brokerage or
other fees calculated into the Standard & Poor's figures.
. LIPPER ANALYTICAL SERVICES, INC., a reporting service that ranks funds
in various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest
rate is used. Rates are subject to change at any time specified by the
institution.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, an index comprised of
approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly
issued, fixed-rate, non-convertible domestic bonds of companies in
industry, public utilities and finance. The average maturity of these
bonds approximates nine years. Tracked by Shearson Lehman, Inc., the index
calculates total returns for one month, three month, twelve month, and ten
year periods and year-to-date.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (LONG-TERM) INDEX, an index composed
of the same types of issues as defined above. However, the average
maturity of the bonds included in this index approximates 22 years.
. SHEARSON LEHMAN GOVERNMENT INDEX, an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
. MORNINGSTAR, INC., an independent rating service that publishes the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
. MONEY, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money
ranking in advertising and sales literature.
27
<PAGE>
. STANDARD & POOR'S UTILITY INDEX, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price
of the stocks. The index also provides figures for changes in price from
the beginning of the year to date, and for a twelve month period.
. DOW JONES UTILITY INDEX, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The
index also provides the highs and lows for each of the past five years.
. THE CONSUMER PRICE INDEX, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the Funds'
Prospectuses to obtain a more complete view of each Portfolio's performance
before investing. Of course, when comparing each Portfolio's performance to any
index, conditions such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such companies.
Unmanaged indexes may assume the reinvestment of dividends but generally do not
reflect deductions for administrative and management costs and expenses.
When comparing funds using reporting services, or total return and yield, or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Company. The Assets are
kept physically segregated and held separate and apart from the Company's
General Account assets. The General Account contains all of the assets of the
Company. Records are maintained of all purchases and redemptions of eligible
Portfolio shares held by each of the Subaccounts and the General Account.
THE COMPANY
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.
28
<PAGE>
In addition, the Company is subject to the insurance laws and regulations of
all the states where it is licensed to operate. The availability of certain
contract rights and provisions depends on state approval and/or filing and
review processes. Where required by state law or regulation, the Contracts will
be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained
by the Company or by its Administrator. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under
that Act or by any other applicable law or regulation.
DISTRIBUTION OF THE CONTRACTS
AFSG Securities Corporation ("AFSG"), formerly Providian Securities Corporation,
the principal underwriter of the Contract, 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. Commissions not to exceed 6.75% of
Purchase Payments may be paid to entities which sell the Contract. In addition,
expense reimbursement allowances may be paid. Additional payments may be made
for other services not directly related to the sale of the Contract.
The Contract is offered to the public through brokers licensed under the federal
securities laws and state insurance laws that have generally entered into
agreements with AFSG. The offering of the Contract is continuous and AFSG does
not anticipate discontinuing the offering of the Contract. However, AFSG does
reserve the right to discontinue the offering of the Contract.
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
Contract 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 Contract 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
29
<PAGE>
considered only as bearing on the ability of the Company to meet its obligations
under the Contract. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account.
30
<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 - Marquee
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
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................................................ 4
Statements of Changes in Net Assets..................................... 6
Notes to Financial Statements........................................... 8
</TABLE>
<PAGE>
Report of Independent Auditors
Contract Owners
Providian Life and Health Insurance Company Separate Account V - Marquee
We have audited the accompanying statements of assets and liabilities of
Providian Life and Health Insurance Company Separate Account V - Marquee
(comprising the Fidelity VIP Money Market, Fidelity VIP Equity-Income, Fidelity
VIP Growth, Fidelity VIP II Asset Manager, Dreyfus Growth and Income, Dreyfus
Quality Bond, T. Rowe Price Equity Income, T. Rowe Price New America Growth, T.
Rowe Price International Stock, OCC Accumulation Trust Managed, OCC Accumulation
Trust Small Cap and OCC Accumulation Trust U.S. Government Income 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 - Marquee 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 - Marquee
Statements of Assets and Liabilities
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
------------------------------------------
ASSETS
Investments:
<S> <C> <C>
Fidelity VIP Money Market Portfolio (cost: $12,141,067 and
$17,889,754 in 1997 and 1996 respectively) $ 12,141,067 $ 17,889,754
Fidelity VIP Equity-Income Portfolio (cost: $22,143,355 and
$15,979,742 in 1997 and 1996, respectively) 27,386,946 17,940,493
Fidelity VIP Growth Portfolio (cost: $22,345,006 and $18,221,334
in 1997 and 1996, respectively) 27,796,182 19,723,633
Fidelity VIP II Asset Manager Portfolio (cost: $7,862,596 and
$5,969,949 in 1997 and 1996, respectively) 9,120,947 6,663,600
Dreyfus Growth and Income Portfolio (cost: $22,407,284 and
$17,021,874 in 1997 and 1996, respectively) 23,535,886 17,099,203
Dreyfus Quality Bond Portfolio (cost: $6,425,881 and $5,446,316
in 1997 and 1996, respectively) 6,589,510 5,493,032
T. Rowe Price Equity Income Portfolio (cost: $11,713,746 and
$6,670,264 in 1997 and 1996, respectively) 14,532,870 7,597,283
T. Rowe Price New America Growth Portfolio (cost: $13,819,002
and $12,020,116 in 1997 and 1996, respectively) 18,043,038 13,596,375
T. Rowe Price International Stock Portfolio (cost: $16,365,380 and
$14,083,411 in 1997 and 1996, respectively) 17,596,099 15,485,997
OCC Accumulation Trust Managed Portfolio (cost: $19,832,331
and $13,593,631 in 1997 and 1996, respectively) 25,326,138 16,243,400
OCC Accumulation Trust Small Cap Portfolio (cost: $11,725,858
and $7,964,374 in 1997 and 1996, respectively) 14,465,475 9,165,713
OCC Accumulation Trust U.S. Government Income Portfolio (cost:
$2,076,917 and $1,628,586 in 1997 and 1996, respectively 2,106,440 1,630,786
------------------------------------------
Total investments 198,640,598 148,529,269
Amounts due from Fund Manager 9 -
Amounts due from Providian Life and Health Insurance Company - 330,967
------------------------------------------
TOTAL ASSETS 198,640,607 148,860,236
LIABILITIES
Amounts due to Providian Life and Health Insurance Company 1 -
------------------------------------------
NET ASSETS $ 198,640,606 $ 148,860,236
==========================================
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
---------------------------------------
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS
<S> <C> <C>
Fidelity VIP Money Market Subaccount $ 12,141,067 $ 18,220,721
Fidelity VIP Equity-Income Subaccount 27,386,946 17,940,493
Fidelity VIP Growth Subaccount 27,796,182 19,723,633
Fidelity VIP II Asset Manager Subaccount 9,120,947 6,663,600
Dreyfus Growth and Income Subaccount 23,535,886 17,099,203
Dreyfus Quality Bond Subaccount 6,589,499 5,493,032
T. Rowe Price Equity Income Subaccount 14,532,870 7,597,283
T. Rowe Price New America Growth Subaccount 18,043,038 13,596,375
T. Rowe Price International Stock Subaccount 17,596,099 15,485,997
OCC Accumulation Trust Managed Subaccount 25,326,138 16,243,400
OCC Accumulation Trust Small Cap Subaccount 14,465,475 9,165,713
OCC Accumulation Trust U.S. Government Income Subaccount 2,106,459 1,630,786
---------------------------------------
NET ASSETS ATTRIBUTABLE TO VARIABLE ANNUITY CONTRACT OWNERS $ 198,640,606 $ 148,860,236
=======================================
</TABLE>
See accompanying notes.
3
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V - MARQUEE
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
DREYFUS
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP II GROWTH AND
MONEY MARKET EQUITY-INCOME GROWTH ASSET MANAGER INCOME
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 719,242 $ 1,928,884 $ 763,657 $ 812,985 $ 1,927,338
Expenses:
Mortality and expense risk and
administrative charges 189,992 327,963 349,668 111,208 299,592
--------------------------------------------------------------------------------------
Net investment income (expense) 529,250 1,600,921 413,989 701,777 1,627,746
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 19,300,395 2,733,526 3,591,683 841,860 3,024,490
Cost of investments sold 19,300,395 2,368,812 3,270,488 776,498 2,828,486
--------------------------------------------------------------------------------------
- 364,714 321,195 65,362 196,004
Net unrealized appreciation
(depreciation) on investments:
At end of year - 5,243,591 5,451,176 1,258,351 1,128,602
At beginning of year - 1,960,751 1,502,299 693,651 77,330
--------------------------------------------------------------------------------------
- 3,282,840 3,948,877 564,700 1,051,272
--------------------------------------------------------------------------------------
Net gain on investments - 3,647,554 4,270,072 630,062 1,247,276
--------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 529,250 $ 5,248,475 $ 4,684,061 $ 1,331,839 $ 2,875,022
======================================================================================
<CAPTION>
OCC
T. ROWE PRICE T. ROWE PRICE ACCUMULATION
DREYFUS T. ROWE PRICE NEW AMERICA INTERNATIONAL TRUST
QUALITY BOND EQUITY INCOME GROWTH STOCK MANAGED
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 449,694 $ 716,806 $ 42,734 $ 395,449 $ 791,858
Expenses:
Mortality and expense risk and
administrative charges 90,640 158,850 233,044 254,140 313,544
----------------------------------------------------------------------------------------
Net investment income (expense) 359,054 557,956 (190,310) 141,309 478,314
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 1,749,381 1,203,133 3,268,854 2,774,700 3,266,979
Cost of investments sold 1,737,288 983,003 2,692,299 2,520,464 2,663,254
----------------------------------------------------------------------------------------
12,093 220,130 576,555 254,236 603,725
Net unrealized appreciation
(depreciation) on investments:
At end of year 163,629 2,819,124 4,224,036 1,230,719 5,493,807
At beginning of year 46,716 927,019 1,576,259 1,402,586 2,649,769
----------------------------------------------------------------------------------------
116,913 1,892,105 2,647,777 (171,867) 2,844,038
----------------------------------------------------------------------------------------
Net gain on investments 129,006 2,112,235 3,224,332 82,369 3,447,763
----------------------------------------------------------------------------------------
Net increase in net assets
resulting from operations $ 488,060 $ 2,670,191 $ 3,034,022 $ 223,678 $ 3,926,077
========================================================================================
<CAPTION>
OCC
ACCUMULATION
OCC TRUST U.S.
ACCUMULATION GOVERNMENT
TRUST SMALL CAP INCOME TOTAL
-----------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends $ 463,241 $ 106,298 $ 9,118,186
Expenses:
Mortality and expense risk and
administrative charges 167,533 26,835 2,523,009
-----------------------------------------------------
Net investment income (expense) 295,708 79,463 6,595,177
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 2,256,299 260,262 44,271,562
Cost of investments sold 1,927,152 260,693 41,328,832
-----------------------------------------------------
329,147 (431) 2,942,730
Net unrealized appreciation
(depreciation) on investments:
At end of year 2,739,617 29,523 29,782,175
At beginning of year 1,201,339 2,200 12,039,919
-----------------------------------------------------
1,538,278 27,323 17,742,256
-----------------------------------------------------
Net gain on investments 1,867,425 26,892 20,684,986
-----------------------------------------------------
Net increase in net assets
resulting from operations $ 2,163,133 $ 106,355 $ 27,280,163
=====================================================
</TABLE>
See accompanying notes.
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V - MARQUEE
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
DREYFUS
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP II GROWTH AND
MONEY MARKET EQUITY-INCOME GROWTH ASSET MANAGER INCOME
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 869,792 $ 364,076 $ 624,928 $ 241,246 $ 1,899,674
Expenses:
Mortality and expense risk and
administrative charges 213,748 183,429 205,711 71,296 179,240
---------------------------------------------------------------------------------------
Net investment income 656,044 180,647 419,217 169,950 1,720,434
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 20,949,214 1,187,151 1,770,220 542,867 2,293,759
Cost of investments sold 20,949,214 1,115,530 1,692,008 511,206 2,136,898
---------------------------------------------------------------------------------------
- 71,621 78,212 31,661 156,861
Net unrealized appreciation
(depreciation) of investments:
At end of year - 1,960,751 1,502,299 693,651 77,329
At beginning of year - 625,621 395,339 264,130 363,765
---------------------------------------------------------------------------------------
- 1,335,130 1,106,960 429,521 (286,436)
----------------------------------------------------------------------------------------
Net gain (loss) on investments - 1,406,751 1,185,172 461,182 (129,575)
----------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 656,044 $ 1,587,398 $ 1,604,389 $ 631,132 $ 1,590,859
========================================================================================
<CAPTION>
OCC
T.ROWE PRICE T. ROWE PRICE ACCUMULATION
DREYFUS T. ROWE PRICE NEW AMERICA INTERNATIONAL TRUST
QUALITY BOND EQUITY INCOME GROWTH STOCK MANAGED
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 235,203 $ 194,708 $ 218,962 $ 245,670 $ 167,608
Expenses:
Mortality and expense risk and
administrative charges 56,762 68,843 127,108 153,200 159,573
---------------------------------------------------------------------------------------
Net investment income 178,441 125,865 91,854 92,470 8,035
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 1,012,054 562,348 1,633,223 826,257 1,366,652
Cost of investments sold 1,026,848 512,286 1,462,955 774,622 1,213,052
---------------------------------------------------------------------------------------
(14,794) 50,062 170,268 51,635 153,600
Net unrealized appreciation
(depreciation) of investments:
At end of year 46,716 927,019 1,576,259 1,402,586 2,649,769
At beginning of year 70,906 248,357 471,024 252,914 606,294
---------------------------------------------------------------------------------------
(24,190) 678,662 1,105,235 1,149,672 2,043,475
---------------------------------------------------------------------------------------
Net gain (loss) on investments (38,984) 728,724 1,275,503 1,201,307 2,197,075
---------------------------------------------------------------------------------------
Net increase in net assets resulting
from operations $ 139,457 $ 854,589 $ 1,367,357 $ 1,293,777 $ 2,205,110
=======================================================================================
<CAPTION>
OCC
OCC ACCUMULATION
ACCUMULATION TRUST U.S.
TRUST GOVERNMENT
SMALL CAP INCOME TOTAL
---------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividends $ 211,359 $ 59,885 $ 5,333,111
Expenses:
Mortality and expense risk and
administrative charges 92,966 16,179 1,528,055
---------------------------------------------------
Net investment income 118,393 43,706 3,805,056
Realized and unrealized gain (loss)
on investments:
Net realized gain (loss) from
investment transactions:
Proceeds from sales 1,071,680 89,520 33,304,945
Cost of investments sold 982,017 89,558 32,466,194
---------------------------------------------------
89,663 (38) 838,751
Net unrealized appreciation
(depreciation) of investments:
At end of year 1,201,339 2,200 12,039,918
At beginning of year 323,974 16,012 3,638,336
---------------------------------------------------
877,365 (13,812) 8,401,582
---------------------------------------------------
Net gain (loss) on investments 967,028 (13,850) 9,240,333
---------------------------------------------------
Net increase in net assets resulting
from operations $ 1,085,421 $ 29,856 $ 13,045,389
===================================================
</TABLE>
See accompanying notes.
5
<PAGE>
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V - MARQUEE
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP II
MONEY MARKET EQUITY-INCOME GROWTH ASSET MANAGER
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ 18,220,721 $ 17,940,493 $ 19,723,633 $ 6,663,600
Increase in net assets resulting from
operations:
Net investment income (expense) 529,250 1,600,921 413,989 701,777
Net realized gain (loss) on investments - 364,714 321,195 65,362
Net unrealized appreciation (depreciation)
on investments - 3,282,840 3,948,877 564,700
----------------------------------------------------------------------
Net increase in net assets resulting
from operations 529,250 5,248,475 4,684,061 1,331,839
Changes from variable annuity
contract transactions:
Transfers of net premiums 4,440,198 4,129,515 4,082,709 1,132,267
Transfers for terminations (1,880,823) (1,370,409) (1,235,880) (307,316)
Transfers for annuity benefits - - (46,462) -
Net transfers within Separate Account V-
Marquee and transfers to and
from the General Account (9,168,279) 1,438,872 588,121 300,557
----------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions (6,608,904) 4,197,978 3,388,488 1,125,508
----------------------------------------------------------------------
Net increase (decrease) in net assets (6,079,654) 9,446,453 8,072,549 2,457,347
----------------------------------------------------------------------
Balances at December 31, 1997 $ 12,141,067 $ 27,386,946 $ 27,796,182 $ 9,120,947
======================================================================
<CAPTION>
DREYFUS T. ROWE PRICE
GROWTH AND DREYFUS T. ROWE PRICE NEW AMERICA
INCOME QUALITY BOND EQUITY INCOME GROWTH
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1997 $ 17,099,203 $ 5,493,032 $ 7,597,283 $ 13,596,375
Increase in net assets resulting from
operations:
Net investment income (expense) 1,627,746 359,054 557,956 (190,310)
Net realized gain (loss) on investments 196,004 12,093 220,130 576,555
Net unrealized appreciation (depreciation)
on investments 1,051,272 116,913 1,892,105 2,647,777
------------------------------------------------------------------------
Net increase in net assets resulting
from operations 2,875,022 488,060 2,670,191 3,034,022
Changes from variable annuity
contract transactions:
Transfers of net premiums 3,748,081 1,136,459 2,999,769 2,155,478
Transfers for terminations (1,218,963) (518,455) (449,026) (1,271,212)
Transfers for annuity benefits - - - -
Net transfers within Separate Account V-
Marquee and transfers to and
from the General Account 1,032,543 (9,597) 1,714,653 528,375
------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 3,561,661 608,407 4,265,396 1,412,641
------------------------------------------------------------------------
Net increase (decrease) in net assets 6,436,683 1,096,467 6,935,587 4,446,663
------------------------------------------------------------------------
Balances at December 31, 1997 $ 23,535,886 $ 6,589,499 $ 14,532,870 $ 18,043,038
========================================================================
<CAPTION>
OCC
OCC ACCUMULATION
T. ROWE PRICE ACCUMULATION OCC TRUST U.S.
INTERNATIONAL TRUST ACCUMULATION GOVERNMENT
STOCK MANAGED TRUST SMALL CAP INCOME TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1997 $ 15,485,997 $ 16,243,400 $ 9,165,713 $ 1,630,786 $ 148,860,236
Increase in net assets resulting from
operations:
Net investment income (expense) 141,309 478,314 295,708 79,463 6,595,177
Net realized gain (loss) on investments 254,236 603,725 329,147 (431) 2,942,730
Net unrealized appreciation (depreciation)
on investments (171,867) 2,844,038 1,538,278 27,323 17,742,256
------------------------------------------------------------------------------
Net increase in net assets resulting
from operations 223,678 3,926,077 2,163,133 106,355 27,280,163
Changes from variable annuity
contract transactions:
Transfers of net premiums 2,499,219 5,370,560 2,111,272 126,554 33,932,081
Transfers for terminations (1,036,985) (1,459,683) (505,908) (70,583) (11,325,243)
Transfers for annuity benefits (46,872) (57,088) - - (150,422)
Net transfers within Separate Account V-
Marquee and transfers to and
from the General Account 471,062 1,302,872 1,531,265 313,347 43,791
------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from variable annuity contract transactions 1,886,424 5,156,661 3,136,629 369,318 22,500,207
------------------------------------------------------------------------------
Net increase (decrease) in net assets 2,110,102 9,082,738 5,299,762 475,673 49,780,370
------------------------------------------------------------------------------
Balances at December 31, 1997 $ 17,596,099 $ 25,326,138 $ 14,465,475 $ 2,106,459 $ 198,640,606
==============================================================================
</TABLE>
See accompanying notes.
6
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Statement of Changes in Net Assets
Year ended December 31, 1996
<TABLE>
<CAPTION>
FIDELITY VIP FIDELITY VIP FIDELITY VIP FIDELITY VIP II
MONEY MARKET EQUITY-INCOME GROWTH ASSET MANAGER
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996 $ 15,994,397 $ 6,750,129 $ 7,243,352 $3,407,093
Increase in net assets
resulting from operations:
Net investment income 656,044 180,647 419,217 169,950
Net realized gain (loss) on investments - 71,621 78,212 31,661
Net unrealized appreciation (depreciation) of investments - 1,335,130 1,106,960 429,521
-------------------------------------------------------------
Net increase in net assets
resulting from operations 656,044 1,587,398 1,604,389 631,132
Changes from variable annuity
contract transactions:
Transfers of net premiums 16,450,718 8,249,635 9,143,227 2,057,416
Transfers for terminations (1,324,266) (371,114) (319,007) (233,930)
Net transfers within Separate Account V -
Marquee and transfers to and
from the General Account (13,556,172) 1,724,445 2,051,672 801,889
-------------------------------------------------------------
Net increase in net assets derived
from variable annuity contract transactions 1,570,280 9,602,966 10,875,892 2,625,375
-------------------------------------------------------------
Net increase in net assets 2,226,324 11,190,364 12,480,281 3,256,507
-------------------------------------------------------------
Balances at December 31, 1996 $ 18,220,721 $17,940,493 $19,723,633 $6,663,600
=============================================================
<CAPTION>
DREYFUS T. ROWE PRICE
GROWTH AND DREYFUS T. ROWE PRICE NEW AMERICA
INCOME QUALITY BOND EQUITY INCOME GROWTH
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at January 1, 1996 $ 4,747,966 $1,994,518 $2,341,015 $ 3,584,702
Increase in net assets
resulting from operations:
Net investment income 1,720,434 178,441 125,865 91,854
Net realized gain (loss) on investments 156,861 (14,794) 50,062 170,268
Net unrealized appreciation (depreciation) of investments (286,436) (24,190) 678,662 1,105,235
----------------------------------------------------------
Net increase in net assets
resulting from operations 1,590,859 139,457 854,589 1,367,357
Changes from variable annuity
contract transactions:
Transfers of net premiums 9,439,906 3,046,687 3,380,913 7,005,874
Transfers for terminations (491,225) (191,354) (179,193) (150,463)
Net transfers within Separate Account V -
Marquee and transfers to and
from the General Account 1,811,697 503,724 1,199,959 1,788,905
----------------------------------------------------------
Net increase in net assets derived
from variable annuity contract transactions 10,760,378 3,359,057 4,401,679 8,644,316
----------------------------------------------------------
Net increase in net assets 12,351,237 3,498,514 5,256,268 10,011,673
----------------------------------------------------------
Balances at December 31, 1996 $17,099,203 $5,493,032 $7,597,283 $13,596,375
==========================================================
<CAPTION>
OCC
OCC OCC ACCUMULATION
T. ROWE PRICE ACCUMULATION ACCUMULATION TRUST U.S.
INTERNATIONAL TRUST TRUST SMALL GOVERNMENT
STOCK MANAGED CAP INC Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1996 $ 4,916,099 $ 6,159,415 $4,089,627 $ 596,907 $ 61,825,220
Increase in net assets
resulting from operations:
Net investment income 92,470 8,035 118,393 43,706 3,805,056
Net realized gain (loss) on investments 51,635 153,600 89,663 (38) 838,751
Net unrealized appreciation (depreciation) of investments 1,149,672 2,043,475 877,365 (13,812) 8,401,582
----------------------------------------------------------------------
Net increase in net assets 1,293,777 2,205,110 1,085,421 29,856 13,045,389
resulting from operations
Changes from variable annuity
contract transactions:
Transfers of net premiums 7,988,917 7,090,665 3,494,863 812,249 78,161,070
Transfers for terminations (245,610) (492,428) (126,179) (51,656) (4,176,425)
Net transfers within Separate Account V -
Marquee and transfers to and
from the General Account 1,532,814 1,280,638 621,981 243,340 4,982
----------------------------------------------------------------------
Net increase in net assets derived
from variable annuity contract transactions 9,276,121 7,878,875 3,990,665 1,004,023 73,989,627
----------------------------------------------------------------------
Net increase in net assets 10,569,898 10,083,985 5,076,086 1,033,879 87,035,016
----------------------------------------------------------------------
Balances at December 31, 1996 $15,485,997 $16,243,400 $9,165,713 $1,630,786 $148,860,236
======================================================================
</TABLE>
See accompanying notes.
7
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements
December 31, 1997
1. ACCOUNTING POLICIES
ORGANIZATION OF THE ACCOUNT
Providian Life and Health Insurance Company Separate Account V - Marquee (the
"Separate Account") is a separate account of Providian Life and Health Insurance
Company ("PLH"), 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.
The Separate Account has twelve subaccounts which invest exclusively in shares
of the corresponding portfolios of Variable Insurance Products Fund I and
Variable Insurance Products Fund II (both advised by Fidelity Management and
Research Company), Dreyfus Variable Investment Fund (advised by Dreyfus
Corporation), T. Rowe Price Equity Series, Inc. (advised by T. Rowe Price
Associates, Inc.), T. Rowe Price International Series, Inc. (advised by Rowe
Price-Fleming International, Inc.), and OCC Accumulation Trust (advised by OpCap
Advisors) (each, a "Fund" and collectively, the "Funds"). Each Fund is an open-
end management investment company.
8
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
The portfolios available in each Fund as of December 31, 1997 are as follows:
VARIABLE INSURANCE PRODUCTS FUND I AND VARIABLE INSURANCE PRODUCTS FUND II
Fidelity VIP Money Market Portfolio
Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP II Asset Manager Portfolio
DREYFUS VARIABLE INVESTMENT FUND
Dreyfus Growth and Income Portfolio
Dreyfus Quality Bond Portfolio
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price Equity Income Portfolio
T. Rowe Price New America Growth Portfolio
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock Portfolio
OCC ACCUMULATION TRUST
OCC Accumulation Trust Managed Portfolio (formerly OpCap Advisors Managed
Portfolio)
OCC Accumulation Trust Small Cap Portfolio (formerly OpCap Advisors Small Cap
Portfolio)
OCC Accumulation Trust U.S. Government Income Portfolio (formerly OpCap Advisors
U.S. Government Income Portfolio)
Each portfolio has different investment objectives and policies as outlined in
the prospectus of the Separate Account. There is no assurance that a portfolio
will achieve its stated investment objective.
The Separate Account offers a choice of two contracts with differing charge
structures: "A" unit contracts and "B" unit contracts. "A" unit contracts have a
front-end sales load of up to 5.75% of aggregate premium contributions and no
surrender charges. For "B" unit contracts, no sales load is deducted from
premium contributions and up to 10% of the accumulated value can be withdrawn
once per year without a surrender
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
charge. Additional withdrawals are subject to surrender charges of up to 6%
during the first six contract years and the total surrender charges assessed
will not exceed 8.5% of the premium contributions under the contract. No
surrender charges are assessed on the death of the annuitant or after the sixth
contract year.
In certain states of issue, the contract owner's initial premium is
automatically allocated to the Fidelity VIP Money Market Subaccount until the
end of the free look period (typically 10 days or, in certain instances, 30 days
or more). Subsequent to the free look period and a five day grace period, the
contract owner may allocate all or a portion of the initial premium and
additional premiums, if any, to one or more subaccounts of the Separate Account
or to PLH's General Account, which consists of all assets owned by PLH other
than those in the Separate Account or other separate accounts. In all other
states of issue, a contract owner may allocate the initial premium to one or
more subaccounts of the Separate Account or to PLH's General Account.
Effective April 30, 1998, PLH terminated sales of the "A" unit contracts of the
Separate Account. Only additional premiums allowable on existing contracts will
be accepted after that date.
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
10
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
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 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.
11
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
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>
Fidelity VIP Money Market 12,141,067.140 $ 1.00 $ 12,141,067
Fidelity VIP Equity-Income 1,127,963.180 24.28 27,386,946
Fidelity VIP Growth 749,223.235 37.10 27,796,182
Fidelity VIP II Asset Manager 506,437.923 18.01 9,120,947
Dreyfus Growth and Income 1,132,622.040 20.78 23,535,886
Dreyfus Quality Bond 561,765.558 11.73 6,589,510
T. Rowe Price Equity Income 781,757.396 18.59 14,532,870
T. Rowe Price New America Growth 845,107.166 21.35 18,043,038
T. Rowe Price International Stock 1,381,169.466 12.74 17,596,099
OCC Accumulation Trust Managed 597,596.461 42.38 25,326,138
OCC Accumulation Trust Small Cap 548,558.020 26.37 14,465,475
OCC Accumulation Trust U.S. Government
Income 200,422.455 10.51 2,106,440
-----------------
$ 198,640,598
=================
</TABLE>
12
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------
NET ASSET FAIR
PORTFOLIO SHARES VALUE VALUE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fidelity VIP Money Market 17,889,753.551 $ 1.00 $ 17,889,754
Fidelity VIP Equity-Income 853,090.506 21.03 17,940,493
Fidelity VIP Growth 633,385.776 31.14 19,723,633
Fidelity VIP II Asset Manager 393,597.140 16.93 6,663,600
Dreyfus Growth and Income 874,639.565 19.55 17,099,203
Dreyfus Quality Bond 477,654.924 11.50 5,493,032
T. Rowe Price Equity Income 497,855.999 15.26 7,597,283
T. Rowe Price New America Growth 769,460.943 17.67 13,596,375
T. Rowe Price International Stock 1,225,157.997 12.64 15,485,997
OCC Accumulation Trust Managed 448,588.799 36.21 16,243,400
OCC Accumulation Trust Small Cap 405,383.167 22.61 9,165,713
OCC Accumulation Trust U.S. Government 157,108.431 10.38 1,630,786
Income
-------------------
$ 148,529,269
===================
</TABLE>
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>
Fidelity VIP Money Market $ 13,551,708 $ 24,023,076
Fidelity VIP Equity-Income 8,532,425 10,970,764
Fidelity VIP Growth 7,394,160 13,065,329
Fidelity VIP II Asset Manager 2,669,145 3,338,192
Dreyfus Growth and Income 8,213,896 14,774,570
Dreyfus Quality Bond 2,716,853 4,549,552
T. Rowe Price Equity Income 6,026,485 5,089,882
T. Rowe Price New America Growth 4,491,185 10,369,394
T. Rowe Price International Stock 4,802,433 10,194,849
OCC Accumulation Trust Managed 8,901,954 9,253,562
OCC Accumulation Trust Small Cap 5,688,636 5,180,737
OCC Accumulation Trust U.S. Government Income 709,024 1,137,502
--------------------------------------
$ 73,697,904 $ 111,947,409
======================================
</TABLE>
13
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
3. FEDERAL INCOME TAXES
Operations of the Separate Account are included in the federal income tax return
of PLH, which is taxed as a life insurance company under the Internal Revenue
Code. The Separate Account will not be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code. Under current federal income
tax law, no federal income taxes are payable with respect to the Separate
Account.
4. ADVISORY AND SERVICE FEES
The Funds and their advisors furnish corporate management, administrative,
marketing and distribution services. Additionally, the Funds' advisors furnish
investment advisory services to the 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 attributable to the "A" unit
contracts and the "B" unit contracts. For the years ended December 31, 1997 and
1996, the effective annual rate for this charge was .65% for the "A" unit
contracts and 1.25% for the "B" unit contracts.
An administrative charge equal to .15% annually is deducted from the unit values
of the subaccounts of the Separate Account. This charge is assessed daily by
PLH, along with an annual policy fee of $30 per contract. The annual policy fee
is deducted proportionately from the 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.
14
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS
Transactions with contract owners during 1997 and 1996 and end of period values
for each of the respective subaccounts were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- --------------------------------------
"A" UNIT "B" UNIT "A" UNIT "B" UNIT
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
FIDELITY VIP MONEY MARKET
Outstanding units at beginning
of period 105,414.760 1,548,217.573 224,406.097 1,284,075.523
Issuance of units 82,168.537 1,055,488.392 93,889.620 2,077,753.471
Redemption of units (143,817.814) (1,588,175.699) (212,880.957) (1,813,611.421)
--------------------------------------- --------------------------------------
Outstanding units at end of period 43,765.483 1,015,530.266 105,414.760 1,548,217.573
======================================= ======================================
End of period:
Unit value $ 11.669906 $ 11.452468 $ 11.151373 11.009565
======================================= ======================================
Subaccount value $ 510,739 $ 11,630,328 $ 1,175,519 17,045,202
======================================= ======================================
FIDELITY VIP EQUITY-INCOME
Outstanding units at beginning
of period 49,090.261 1,184,506.019 35,784.717 487,004.315
Issuance of units 6,294.218 394,392.977 13,367.025 772,492.507
Redemption of units (2,300.737) (141,446.525) (61.481) (74,990.803)
--------------------------------------- --------------------------------------
Outstanding units at end of period 53,083.742 1,437,452.471 49,090.261 1,184,506.019
======================================= ======================================
End of period:
Unit value $ 18.995496 $ 18.350933 $ 14.946734 14.526523
======================================= ======================================
Subaccount value $ 1,008,352 $ 26,378,594 $ 733,739 17,206,754
======================================= ======================================
</TABLE>
15
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- --------------------------------------
"A" UNIT "B" UNIT "A" UNIT "B" UNIT
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
--------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
FIDELITY VIP GROWTH
Outstanding units at beginning
of period 30,252.238 1,253,800.202 11,298.228 522,171.836
Issuance of units 35,499.301 355,863.933 33,297.284 823,963.189
Redemption of units (33,673.408) (155,614.887) (14,343.274) (92,334.823)
--------------------------------------------- --------------------------------------
Outstanding units at end of period 32,078.131 1,454,049.248 30,252.238 1,253,800.202
============================================= ======================================
End of period:
Unit value $ 19.972797 $ 18.675772 $ 16.304637 $ 15.337676
============================================= ======================================
Subaccount value $ 640,690 $ 27,155,492 $ 493,252 $ 19,230,381
============================================= ======================================
FIDELITY VIP II ASSET MANAGER
Outstanding units at beginning
of period 13,610.290 518,429.838 8,530.759 298,893.509
Issuance of units 2,025.146 132,376.310 5,089.112 260,169.377
Redemption of units (1,628.536) (52,751.487) (9.581) (40,633.048)
--------------------------------------------- --------------------------------------
Outstanding units at end of period 14,006.900 598,054.661 13,610.290 518,429.838
============================================= ======================================
End of period:
Unit value $ 15.378423 $ 14.890851 $ 12.848532 $ 12.516116
============================================= ======================================
Subaccount value $ 215,404 $ 8,905,543 $ 174,872 $ 6,488,728
============================================= ======================================
DREYFUS GROWTH AND INCOME
Outstanding units at beginning
of period 47,193.469 909,708.688 13,982.817 302,521.463
Issuance of units 17,443.171 315,426.571 39,106.602 722,889.543
Redemption of units (8,679.331) (132,053.044) (5,895.950) (115,702.318)
--------------------------------------------- --------------------------------------
Outstanding units at end of period 55,957.309 1,093,082.215 47,193.469 909,708.688
============================================= ======================================
End of period:
Unit value $ 21.451862 $ 20.433502 $ 18.607568 $ 17.831035
============================================= ======================================
Subaccount value $ 1,200,388 $ 22,335,498 $ 878,156 $ 16,221,047
============================================= ======================================
</TABLE>
16
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------------------------------------- -------------------------------------
"A" UNIT "B" UNIT "A" UNIT "B" UNIT
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
---------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
DREYFUS QUALITY BOND
Outstanding units at beginning
of period 8,699.781 450,011.649 1,524.761 167,901.463
Issuance of units 8,107.506 178,434.301 8,077.105 363,872.459
Redemption of units (1,346.509) (134,207.140) (902.085) (81,762.273)
---------------------------------------- --------------------------------------
Outstanding units at end of period 15,460.778 494,238.810 8,699.781 450,011.649
======================================== ======================================
End of period:
Unit value $ 13.491190 $ 12.910591 $ 12.429340 $ 11.966133
======================================== ======================================
Subaccount value $ 208,584 $ 6,380,915 $ 108,133 $ 5,384,899
======================================== ======================================
T. ROWE PRICE EQUITY INCOME
Outstanding units at beginning
of period 23,986.616 470,213.936 16,794.267 162,560.941
Issuance of units 7,519.764 300,261.732 7,804.817 342,579.757
Redemption of units (1,795.546) (56,150.500) (612.468) (34,926.762)
---------------------------------------- --------------------------------------
Outstanding units at end of period 29,710.834 714,325.168 23,986.616 470,213.936
======================================== ======================================
End of period:
Unit value $ 20.268252 $ 19.501879 $ 15.855902 $ 15.348235
======================================== ======================================
Subaccount value $ 602,187 $ 13,930,683 $ 380,329 $ 7,216,954
======================================== ======================================
T. ROWE PRICE NEW AMERICA GROWTH
Outstanding units at beginning
of period 22,858.029 747,969.247 4,669.625 235,983.310
Issuance of units 29,419.897 214,955.391 32,589.226 587,836.966
Redemption of units (27,441.627) (131,439.584) (14,400.822) (75,851.029)
---------------------------------------- --------------------------------------
Outstanding units at end of period 24,836.299 831,485.054 22,858.029 747,969.247
======================================== ======================================
End of period:
Unit value $ 21.079038 $ 21.070148 $ 17.543313 $ 17.641593
======================================== ======================================
Subaccount value $ 523,525 $ 17,519,513 $ 401,006 $ 13,195,369
======================================== ======================================
</TABLE>
17
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------------------------------------- --------------------------------------
"A" UNIT "B" UNIT "A" UNIT "B" UNIT
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
T. ROWE PRICE INTERNATIONAL STOCK
Outstanding units at beginning
of period 40,655.563 1,270,362.217 9,886.447 460,989.932
Issuance of units 32,409.606 327,883.447 30,904.820 870,343.195
Redemption of units (17,969.514) (188,606.035) (135.704) (60,970.910)
--------------------------------------- --------------------------------------
Outstanding units at end of period 55,095.655 1,409,639.629 40,655.563 1,270,362.217
======================================= ======================================
End of period:
Unit value $ 12.413960 $ 11.997495 $ 12.138249 $ 11.801760
======================================= ======================================
Subaccount value $ 683,955 $ 16,912,144 $ 493,487 $ 14,992,510
======================================= ======================================
OCC ACCUMULATION TRUST MANAGED
Outstanding units at beginning
of period 36,116.913 926,771.938 15,926.390 426,183.858
Issuance of units 3,804.056 430,452.919 22,125.242 577,610.041
Redemption of units (2,337.246) (149,870.405) (1,934.719) (77,021.961)
--------------------------------------- --------------------------------------
Outstanding units at end of period 37,583.723 1,207,354.452 36,116.913 926,771.938
======================================= ======================================
End of period:
Unit value $ 21.012542 $ 20.322456 $ 17.319782 $ 16.851895
======================================= ======================================
Subaccount value $ 789,730 $ 24,536,408 $ 625,537 $ 15,617,863
======================================= ======================================
OCC ACCUMULATION TRUST SMALL CAP
Outstanding units at beginning
of period 28,988.647 648,328.166 4,223.205 349,766.661
Issuance of units 22,907.437 325,023.129 24,785.400 377,408.993
Redemption of units (5,194.054) (133,708.882) (19.958) (78,847.488)
--------------------------------------- --------------------------------------
Outstanding units at end of period 46,702.030 839,642.413 28,988.647 648,328.166
======================================= ======================================
End of period:
Unit value $ 16.704191 $ 16.299028 $ 13.774689 $ 13.521552
======================================= ======================================
Subaccount value $ 780,120 $ 13,685,355 $ 399,310 $ 8,766,403
======================================= ======================================
</TABLE>
18
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
6. CONTRACT OWNER TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- ----------------------------------------
"A" UNIT "B" UNIT "A" UNIT "B" UNIT
CONTRACTS CONTRACTS CONTRACTS CONTRACTS
--------------------------------------------- ----------------------------------------
OCC ACCUMULATION TRUST U.S.
GOVERNMENT INCOME
<S> <C> <C> <C> <C>
Outstanding units at beginning
of period 4,379.437 141,598.063 1,849.370 52,450.121
Issuance of units 761.965 52,577.138 3,258.882 95,182.332
Redemption of units (337.530) (20,451.892) (728.815) (6,034.390)
--------------------------------------------- ----------------------------------------
Outstanding units at end of period 4,803.872 173,723.309 4,379.437 141,598.063
============================================= ========================================
End of period:
Unit value $ 11.503160 $ 11.807273 $ 10.828803 11.182088
============================================= ========================================
Subaccount value $ 55,260 $ 2,051,199 $ 47,424 1,583,362
============================================= ========================================
</TABLE>
19
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
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>
FIDELITY VIP EQUITY- FIDELITY VIP ASSET
MONEY MARKET INCOME GROWTH MANAGER
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 10,637,014 $ 19,870,895 $ 21,137,282 $ 6,906,170
Accumulated net investment income 1,504,053 1,826,252 797,039 857,548
Accumulated net realized gain on
investments - 446,208 410,685 98,878
Net unrealized appreciation on
investments - 5,243,591 5,451,176 1,258,351
-----------------------------------------------------------------------
$ 12,141,067 $ 27,386,946 $ 27,796,182 $ 9,120,947
=======================================================================
</TABLE>
<TABLE>
<CAPTION>
DREYFUS T. ROWE T. ROWE PRICE
GROWTH AND DREYFUS PRICE EQUITY NEW AMERICA
INCOME QUALITY BOND INCOME GROWTH
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contract owner transactions $ 18,476,379 $ 5,824,018 $ 10,721,391 $ 13,181,122
Accumulated net investment income
(expense) 3,533,238 602,395 716,699 (116,286)
Accumulated net realized gain (loss)
on investments 397,667 (543) 275,656 754,166
Net unrealized appreciation on
investments 1,128,602 163,629 2,819,124 4,224,036
-----------------------------------------------------------------------
$ 23,535,886 $ 6,589,499 $ 14,532,870 $ 18,043,038
=======================================================================
</TABLE>
20
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
Notes to Financial Statements (continued)
7. NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
OCC
OCC OCC ACCUMULATION
T. ROWE PRICE ACCUMULATION ACCUMULATION TRUST U.S.
INTERNATIONAL TRUST TRUST SMALL GOVERNMENT
STOCK MANAGED CAP INCOME TOTAL
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Contract owner transactions $ 15,848,451 $ 18,606,734 $ 10,910,122 $ 1,937,256 $ 154,056,834
Accumulated net investment income 207,288 455,619 390,344 138,476 10,912,665
Accumulated net realized gain on
investments 309,641 769,978 425,392 1,204 3,888,932
Net unrealized appreciation on
investments 1,230,719 5,493,807 2,739,617 29,523 29,782,175
-----------------------------------------------------------------------------------------
$ 17,596,099 $ 25,326,138 $ 14,465,475 $ 2,106,459 $ 198,640,606
=========================================================================================
</TABLE>
21
<PAGE>
Providian Life and Health Insurance Company
Separate Account V - Marquee
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.
22
<PAGE>
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
Part A. None
Part B. All Financial Statements required to be filed are included in
Part B.
Part C. None
(b) Exhibits.
(1) Resolution of the Board of Directors of National Home Life
Assurance Company ("National Home") authorizing establishment
of the Separate Account./1/
(2) Not Applicable.
(3) Distribution Agreement.
(a) Form of Selling Agreement./5/
(4) (a) Form of variable annuity contract (A Unit)./6/
(b) Form of variable annuity contract (B Unit)./6/
(c) 403(b) Rider./5/
(d) Individual Retirement Annuity Rider./5/
(5) Form of Application./7/
(6) (a) Articles of Incorporation of National Home./1/
(b) Amendment to Articles of Incorporation of National
Home./1/
(c) Amended and Restated Articles of Incorporation of National
Home./1/
(d) Amended and Restated Articles of Incorporation of
Providian Life and Health Insurance Company./9/
(7) Not Applicable.
(8) (a) Form of Participation Agreement for the Funds./6/
- ---------
/1/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account V, File No. 33-45862.
/2/ Incorporated by reference from the initial Registration Statement of
National Home Life Assurance Company Separate Account II, File No. 33-7033.
/3/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/4/ Incorporated by reference from Post-Effective Amendment No. 5 to the
Registration Statement of National Home Life Assurance Company Separate
Account II, File No. 33-7033.
/5/ Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-45862.
/6/ Incorporated by reference from the Registration Statement of National Home
Life Assurance Company Separate Account V, File No. 33-72838, filed on
December 10, 1933.
/7/ Incorporated by reference from the Registration Statement of National Home
Life Assurance Company Separate Account V, File No. 33-79502, filed on May
27, 1994.
/8/ Incorporated by reference from Post-Effective Amendment No. 2 to the
Registration Statement of National Home Life Assurance Company Separate
Account V, File No. 33-79502, filed on April 30, 1995.
/9/ Incorporated by reference from Post-Effective Amendment No. 3 to the
Registration Statement of Providian Life and Health Insurance Company
Separate Account V, File No. 33-79502, filed April 30, 1996.
/10/ 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. 33-79502, filed April 30, 1997.
/11/ Filed herewith.
<PAGE>
(b) Participation Agreement Among T. Rowe Price International
Series, Inc., T. Rowe Price Equity Series, Inc., T. Rowe
Price Investment Services, Inc., and National Home Life
Assurance Company dated as of July 8, 1994./8/
(c) Fund Participation Agreement between Dreyfus Variable
Investment Fund and National Home Life Assurance Company
dated as of October 17, 1994./8/
(d) Participation Agreement Among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and National
Home Life Assurance Company dated as of November 1,
1993./8/
(e) Participation Agreement Among Variable Insurance Products
Fund, Fidelity Distributors and National Home Life
Assurance Company./8/
(f) Amendment dated June 2, 1994 to the Participation
Agreement Among Variable Insurance Product Fund II,
Fidelity Distributors Corporation and Providian Life and
Health Insurance Company (formerly National Home Life
Assurance Company) dated November 1, 1993. /10/
(g) Amendment dated March 20, 1996 to the Participation
Agreement Among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Providian Life and
Health Insurance Company (formerly National Home Life
Assurance Company) dated November 1, 1993. /10/
(9) (a) Opinion and Consent of Counsel./11/
(b) Consent of Counsel./11/
(10) Consent of Independent Auditors./11/
(11) No Financial Statements are omitted from Item 23.
(12) Not Applicable.
(13) Performance Computation./10/
(14) Not Applicable.
<PAGE>
Item 25. Directors and Officers of Depositor
<TABLE>
<CAPTION>
Positions and Offices with Depositor Name and Principal Business Address*
- ------------------------------------ ------------------------------------
<S> <C>
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 & 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
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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. Shaffer
Second Vice President/Investments Clifford Sheets
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
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 & Assistant Secretary Edward P. Reiter
Assistant Secretary L. Jude Clark
Assistant Secretary Colleen S. Lyons
Assistant Secretary Mary Ann Malinyak
Assistant Secretary John R. 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
</TABLE>
*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>
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>
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>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- --------------- ----------------- --------
<S> <C> <C> <C>
Life Investors Agency Group, Inc. Iowa 100% Life Investors Ins. Marketing
Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
AEGON Financial Services Group, Inc. Minnesota 100% PFL Life Insurance Co. Marketing
AEGON Assignment Corporation Kentucky 100% AEGON Financial Services Administrator of structured
Group, Inc. settlements
Southwest Equity Life Ins. Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Iowa Fidelity Life Insurance Co. Arizona 100% of Common Voting Stock Insurance
First AUSA Life Ins. Co.
Western Reserve Life Assurance Co. Ohio 100% First AUSA Life Ins. Co. Insurance
of Ohio
WRL Series Fund, Inc. Maryland Various Mutual fund
WRL Investment Services, Inc. Florida 100% Western Reserve Life Provides administration for
Assurance Co. of Ohio affiliated mutual fund
WRL Investment Management, Inc. Florida 100% Western Reserve Life Registered investment advisor
Assurance Co. of Ohio
Monumental Life Insurance Co. Maryland 100% First AUSA Life Ins. Co. Insurance
AEGON Special Markets Group, Inc. Maryland 100% Monumental Life Ins. Co. Marketing
Monumental General Casualty Co. Maryland 100% First AUSA Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% First AUSA Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% First AUSA Life Ins. Co. Insurance
The Whitestone Corporation Maryland 100% First AUSA Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Commonwealth General Corporation Delaware 100% AEGON USA, Inc. Holding company
("CGC")
PB Series Trust Massachusetts N/A Mutual fund
Monumental Agency Group, Inc. Kentucky 100% CGC Provider of srvcs. to ins. cos.
Benefit Plans, Inc. Delaware 100% CGC TPA for Peoples Security Life
Insurance Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- --------------- ----------------- --------
<S> <C> <C> <C>
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
Commonwealth General Kentucky 100% CGC Administrator of structured
Assignment Corporation settlements
Providian Financial Services Inc. Pennsylvania 100% CGC Financial services
AFSG Securities Corporation Pennsylvania 100% CGC Broker-Dealer
PB Investment Advisors, Inc. Delaware 100% CGC Registered investment advisor
Diversified Financial Products Inc. Delaware 100% CGC Provider of investment,
marketing and admin.
services to ins. cos.
AEGON USA Real Estate Delaware 100% Diversified Financial Real estate and mortgage
Services, Inc. Products Inc. holding company
Capital Real Estate Delaware 100% CGC Furniture and equipment lessor
Development Corporation
Captial General Development Delaware 100% CGC Holding company
Corporation
Commonwealth Life Kentucky 100% Capital General Insurance company
Insurance Company Development Corporation
Agency Holding I, Inc. Delaware 100% Commonwealth Life Investment subsidiary
Insurance Company
Agency Investments I, Inc. Delaware 100% Agency Holding I, Inc. Investment subsidiary
Peoples Security Life North Carolina 100% Capital General Insurance company
Insurance Company Development Corporation
Ammest Realty Corporation Texas 100% Peoples Security Life Special purpose subsidiary
Insurance Company
Agency Holding II, Inc. Delaware 100% Peoples Security Life Investment subsidiary
Insurance Company
Agency Investments II, Inc. Delaware 100% Agency Holding II, Inc. Investment subsidiary
Agency Holding III, Inc. Delaware 100% Peoples Security Life Investment subsidiary
Insurance Company
Agency Investments III, Inc. Delaware 100% Agency Holding III, Inc. Investment subsidiary
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction of Percent of Voting
Name Incorporation Securities Owned Business
- ---- --------------- ----------------- --------
<S> <C> <C> <C>
JMH Operating Company, Inc. Mississippi 100% Peoples Security Life Real estate holdings
Insurance Company
Capital Security Life Ins. Co. North Carolina 100% Capital General Insurance company
Development Corporation
Independence Automobile Florida 100% Capital Security Automobile Club
Association, Inc. Life Insurance Company
Independence Automobile Georgia 100% Capital Security Automobile Club
Club, Inc. Life Insurance Company
Capital 200 Block Corporation Delaware 100% CGC Real estate holdings
Capital Broadway Corporation Kentucky 100% CGC Real estate holdings
Southlife, Inc. Tennessee 100% CGC Investment subsidiary
Ampac Insurance Agency, Inc. Pennsylvania 100% CGC Provider of management
(EIN 23-1720755) support services
National Home Life Corporation Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Ampac Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Association Consultants, Inc. Illinois 100% Ampac Insurance TPA license-holder
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Ampac Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Ampac Insurance Administrator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Financial Planning Services, Inc. Dist. Columbia 100% Ampac Insurance Special-purpose subsidiary
Agency, Inc.
Providian Auto and Home Missouri 100% CGC Insurance company
Insurance Company
Academy Insurance Group, Inc. Delaware 100% CGC Holding company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
Academy Life Insurance Co. Missouri 100% Academy Insurance Insurance company
Group, Inc.
Pension Life Insurance New Jersey 100% Academy Insurance Insurance company
Company of America Group, Inc.
Academy Services, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Development Corp. Inc. Kansas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ammest Insurance Agency, Inc. California 100% Academy Insurance General agent
Group, Inc.
Ammest Massachusetts Massachusetts 100% Academy Insurance Special-purpose subsidiary
Insurance Agency, Inc. Group, Inc.
Ammest Realty, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Ampac, Inc. Texas 100% Academy Insurance Managing general agent
Group, Inc.
Ampac Insurance Agency, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
(EIN 23-2364438) Group, Inc.
Data/Mark Services, Inc. Delaware 100% Academy Insurance Provider of mgmt. services
Group, Inc.
Force Financial Group, Inc. Delaware 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Force Financial Services, Inc. Massachusetts 100% Force Fin. Group, Inc. Special-purpose subsidiary
Military Associates, Inc. Pennsylvania 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
NCOA Motor Club, Inc. Georgia 100% Academy Insurance Automobile club
Group, Inc.
NCOAA Management Company Texas 100% Academy Insurance Special-purpose subsidiary
Group, Inc.
Unicom Administrative Pennsylvania 100% Academy Insurance Provider of admin. services
Services, Inc. Group, Inc.
Unicom Administrative Germany 100% Unicom Administrative Provider of admin. services
Services, GmbH Services, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
Providian Property and Casualty Kentucky 100% Providian Auto and Insurance company
Insurance Company Home Insurance Company
Providian Fire Insurance Co. Kentucky 100% Providian Property Insurance company
and Casualty Insurance Co.
Capital Liberty, L.P. Delaware 79.2% Commonwealth Life Holding Company
Insurance Company
19.8% Peoples Security Life
Insurance Company
1% CGC
Commonwealth General LLC Turks & 100% CGC Special-purpose subsidiary
Caicos Islands
Providian Life and Health Missouri 3.7% CGC Insurance company
Insurance Company 15.3% Peoples Security Life
Insurance Company
20% Capital Liberty, L.P.
61% Commonwealth Life
Insurance Company
Veterans Life Insurance Co. Illinois 100% Providian Life and Insurance company
Health Insurance Company
Peoples Benefit Services, Inc. Pennsylvania 100% Veterans Life Ins. Co. Special-purpose subsidiary
First Providian Life and New York 100% Veterans Life Ins. Co. Insurance Company
Health Insurance Company
</TABLE>
<PAGE>
ITEM 27. NUMBER OF CONTRACT OWNERS
As of February 28, 1998, there were 2,938 Contract Owners.
ITEM 28. INDEMNIFICATION
Item 28 is incorporated by reference from the Post-Effective Amendment No. 6 to
the Registration Statement of the National Home Life Assurance Company Separate
Account II, File No. 33-7033.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) AFSG Securities Corporation ("AFSG"), which serves as the principal
underwriter for the variable annuity contracts funded by Separate
Account V, also serves as the principal underwriter for variable life
insurance policies funded by Separate Account I and Variable Annuity
contracts funded by Separate Account II of Providian Life and Health
Insurance Company. In addition, AFSG serves as principal underwriter
for variable annuity contracts funded by Separate Account C of First
Providian Life and Health Insurance Company; PFL Life Variable Annuity
Account A, PFL Endeavor VA Separate Account, PFL Wright Variable
Annuity Account and PFL Retirement Builder Variable Annuity Account of
PFL Life Insurance Company and AUSA Endeavor Variable Annuity Account
of AUSA Life Insurance Company, Inc.
<PAGE>
(b) Directors and Officers
<TABLE>
<CAPTION>
Positions and Officers
Name with Underwriter
---- ----------------------
<S> <C>
Lorri E. Mchaffey President and Director
Kimberly A. Scouller Vice President and Chief Compliance Officer
Harvey E. Willis Vice President and Secretary
Michael F. Lane Vice President
Sarah J. Strange Vice President and Director
Michael G. Ayers Treasurer/Controller
Colleen S. Lyons Assistant Secretary
John F. Reesor Assistant Secretary
Anne Spaes Vice President
Debra C. Cubero Vice President
Larry N. Norman Director
</TABLE>
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The books, accounts and other documents required by Section 31(a) under the
Investment Company Act and the rules promulgated thereunder will be maintained
in the Administrative Offices of Providian Life and Health Insurance Company in
Louisville, Kentucky.
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B.
ITEM 32. UNDERTAKINGS.
(a) Providian Life and Health Insurance Company represents that the fees
and charges deducted under the contracts in this registration statement, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by Providian Life and Health
Insurance Company.
<PAGE>
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, Providian Life and Health Insurance Company Separate
Account V, certifies that it meets the requirements of Securities Act Rule
485(b) for effectiveness of this amended Registration Statement and has caused
this amended Registration Statement to be signed on its behalf in the County of
Jefferson and Commonwealth of Kentucky on the 30th day of April, 1998.
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT V (REGISTRANT)
By: Providian Life and Health Insurance Company
/s/ BART HERBERT, JR.
By: ___________________________________________
Bart Herbert, Jr., President
PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(DEPOSITOR)
/s/ BART HERBERT, JR.
By: ___________________________________________
Bart Herbert, Jr., President
*By: /s/ R. Michael Slaven
-----------------------
R. Michael Slaven
Attorney-in-fact
<PAGE>
As required by the Securities Act of 1933, this amended Registration
Statement has been duly signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ JAY H. BERMAN* Director April 30, 1998
- ---------------------------
Jay H. Berman
/s/ G. DOUGLAS MANGUM, JR.* Director and Senior Vice President April 30, 1998
- ---------------------------
G. Douglas Mangum, Jr.
/s/ MARTHA A. McCONNELL* Treasurer (Chief Accounting Officer) April 30, 1998
- ---------------------------
Martha A. McConnell
/s/ DOUGLAS A. SARCIA* Director and Vice President April 30, 1998
- ---------------------------
Douglas A. Sarcia
/s/ THOMAS B. NESSPOR* Director and Vice President April 30, 1998
- ---------------------------
Thomas B. Nesspor
/s/ BRIAN A. SMITH* Director and Senior Vice President April 30, 1998
- ---------------------------
Brian A. Smith
/s/ SUSAN E. MARTIN* Director, Vice President, Secretary April 30, 1998
- --------------------------- and Associate General Counsel
Susan E. Martin
/s/ BART HERBERT, JR.* Director and President April 30, 1998
- ---------------------------
Bart Herbert, Jr.
/s/ JOHN C. PRESTWOOD, JR.* Director, Vice President and Actuary April 30, 1998
- ---------------------------
John C. Prestwood, Jr.
/s/ CRAIG D. VERMIE* Director April 30, 1998
- ---------------------------
Craig D. Vermie
*By: /s/ R. Michael Slaven
----------------------
R. Michael Slaven
Attorney-in-fact
</TABLE>
<PAGE>
SEPARATE ACCOUNT V
PROVIDIAN MARQUEE VARIABLE ANNUITY
INDEX TO EXHIBITS
EXHIBIT 9(a) OPINION AND CONSENT OF COUNSEL
EXHIBIT 9(b) CONSENT OF COUNSEL
EXHIBIT 10 CONSENT OF INDEPENDENT AUDITORS
<PAGE>
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 (PROVIDIAN MARQUEE VARIABLE ANNUITY)- OPINION AND
CONSENT
To Whom It May Concern:
This opinion and consent is furnished in connection with the filing of Post-
Effective Amendment No. 5 (the "Amendment") to the Registration Statement on
Form N-4, File No. 33-79502 (the "Registration Statement") under the Securities
Act of 1933, as amended (the "Act"), of Providian Life and Health Insurance
Company Separate Account V ("Separate Account V"). Separate Account V receives
and invests premiums allocated to it under a flexible premium multi-funded
annuity contract (the "Annuity Contract"). The Annuity Contract is offered in
the manner described in the prospectuses contained in the Registration Statement
(the "Prospectuses").
In my capacity as legal adviser to Providian Life and Health Insurance Company,
I hereby confirm the establishment of Separate Account V pursuant to a
resolution adopted by the Board of Directors of Providian Life and Health
Insurance Company for a separate account for assets applicable to the Annuity
Contract, pursuant to the provisions of Section 376.309 of the Missouri
Insurance Statutes. In addition, I have made such examination of the law in
addition to consultation with outside counsel and have examined such corporate
records and such other documents as I consider appropriate as a basis for the
opinion hereinafter expressed. On the basis of such examination, it is my
professional opinion that:
1. Providian Life and Health Insurance Company is a corporation duly organized
and validly existing under the laws of the State of Missouri.
2. Separate Account V is an account established and maintained by Providian
Life and Health Insurance Company pursuant to the laws of the State of
Missouri, under which income, capital gains and capital losses incurred on
the assets of Separate Account V are credited to or charged against the
assets of Separate
<PAGE>
Providian Life and Health Insurance Company
Separate Account V
April 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. 5 to the
Registration Statement on Form N-4 (file No.33-79502) filed by Providian Life
and Health Insurance Company and Providian Life and Health Insurance Company
Separate Account V with the Securities and Exchange Commission under the
Securities Act of 1933 and the Investment Company Act of 1940.
Very truly yours,
/s/ Jorden Burt 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--
Marquee and the statutory-basis financial statements of Providian Life and
Health Insurance Company in Post-Effective Amendment No. 5 to the Registration
Statement (Form N-4 No. 33-79502) and related Prospectus of Providian Life and
Health Insurance Company Separate Account V--Marquee Variable Annuity.
/s/ ERNST & YOUNG LLP
Louisville, Kentucky
April 24, 1998
