<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 29, 1997
REGISTRATION NO. 33-94204
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 2 (X)
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 4 (X)
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT C
(Exact Name of Registrant)
First Providian Life and Health Insurance Company
(Formerly National Home Life Assurance Company of New York)
(Name of Depositor)
520 Columbia Drive
Johnson City, New York 13790
(Address of Depositor's Principal Executive Office)
Depositor's Telephone Number: (607) 772-8750
Kimberly A. Scouller, Esq.
First 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
Margaret E. Hankard, Esquire
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
It is proposed that this filing will become effective (check appropriate box):
[X] Immediately upon filing pursuant to paragraph (b) of Rule 485.
On _____________, pursuant to paragraph (b)(1)(v) of Rule 485.
60 days after filing pursuant to paragraph (a)(1) of Rule 485.
On _____________, pursuant to paragraph (a)(1) of Rule 485.
75 days after filing pursuant to paragraph (a)(2) of Rule 485.
On _____________, 1995 pursuant to paragraph (a)(2) of Rule 485.
Pursuant to Rule 24f-2 of the Investment Company Act of 1940, the Registrant has
elected to register an indefinite amount of securities being offered pursuant to
this Registration Statement. Pursuant to paragraph (b)(2) of Rule 24f-2 of the
Investment Company Act of 1940, the Registrant need not file a Rule 24f-2 Notice
because it did not sell any securities pursuant to such declaration during the
fiscal year ended December 31, 1996.
<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>
ITEM OF
- ------- PROSPECTUS CAPTION
FORM N-4 ------------------
- --------
<S> <C>
1. Cover Page...................... Cover Page
2. Definitions..................... GLOSSARY
3. Synopsis........................ HIGHLIGHTS; FEE TABLE;
Performance Measures
4. Condensed Financial Information. Condensed Financial Information
5. General Description of
Registrant, Depositor, and
Portfolio Companies............. First Providian Life and Health Insurance
Company; First Providian Life and Health
Insurance Company Separate Account C;
The Portfolios; Voting Rights
6. Deductions...................... Charges and Deductions; FEDERAL TAX
CONSIDERATIONS; FEE TABLE
7. General Description of Variable
Annuity Contracts............... CONTRACT FEATURES; Distribution-at-
Death Rules; Voting Rights; Allocation of
Purchase Payments; Exchanges Among
the Portfolios; Additions, Deletions, or
Substitutions of Investments
8. Annuity Period.................. Annuity Payment Options
9. Death Benefit................... Death of Annuitant Prior to Annuity Date
10. Purchases and Contract Value.... Contract Application and Purchase
Payments; Accumulated Value
11. Redemptions..................... Full and Partial Withdrawals; Annuity
Payment Options; Right to Cancel Period
12. Taxes........................... FEDERAL TAX CONSIDERATIONS
13. Legal Proceedings............... Part B: Legal Proceedings
14. Table of Contents of the
Statement of Additional
Information..................... Table of Contents of the Providian
Advisor's Edge and Dimensional Variable Annuity
Statement of Additional Information
</TABLE>
<PAGE>
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 History.... THE COMPANY
18. Services........................... Part A: Auditors; Part B:
SAFEKEEPING OF ACCOUNT
ASSETS; DISTRIBUTION OF THE
CONTRACTS
19. Purchase of Securities Being
Offered............................ DISTRIBUTION OF THE
CONTRACTS; Exchanges
20. Underwriters....................... DISTRIBUTION OF THE
CONTRACTS
21. Calculation of Performance Data.... PERFORMANCE INFORMATION
22. Annuity Payments................... Computations of Annuity Income
Payments
23. Financial Statements............... FINANCIAL STATEMENTS
</TABLE>
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT C
PROSPECTUS
FOR THE
PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
OFFERED BY
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A NEW YORK STOCK COMPANY)
ADMINISTRATIVE OFFICES
520 COLUMBIA DRIVE
JOHNSON CITY, NEW YORK 13790
The Providian Advisor's Edge variable annuity contract (the "Contract"),
offered through First Providian Life and Health Insurance Company (the
"Company", "us", "we" or "our," and formerly, "National Home Life Assurance
Company of New York"), provides a vehicle for investing on a tax-deferred basis
in 13 investment company Portfolios. The Contract is a group 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 (20 days
for replacement) plus a 5 day grace period to allow for mail delivery, during
which you may cancel your investment in the Contract.
Your Net Purchase Payments for the Contract may be allocated among 13
Subaccounts of First Providian Life and Health Insurance Company's Separate
Account C. Assets of each Subaccount are invested in one of the following
Portfolios (which are contained within 6 open-end, diversified investment
companies):
. Federated American Leaders Fund
II
. Montgomery Emerging Markets
. Federated Utility Fund II Portfolio
. SteinRoe Capital Appreciation
. Federated Prime Money Fund II Fund
. Strong International Stock Fund
II
. Federated High Income Bond Fund
II
. Federated Fund for U.S. . Wanger U.S. Small Cap Advisor
Government Securities II . Wanger International Small Cap
. Montgomery Growth Portfolio Advisor
. Warburg Pincus International
Equity Portfolio
Your initial Net Purchase Payment(s) will, when your Contract is issued, be
invested immediately in your chosen Portfolios, unless you indicate otherwise.
. Warburg Pincus Small Company
Growth Portfolio
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.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals of the Contract's Surrender Value may be made at any time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% penalty tax (and a portion may be subject to ordinary income taxes). If
you elect an Annuity Payment Option, Annuity Payments may be received on a
fixed and/or variable basis. You also have significant flexibility in choosing
the Annuity Date on which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for each Fund.
Please read the Prospectuses carefully and retain them for future reference. A
Statement of Additional Information for the Contract Prospectus, which has the
same date as this Prospectus, has also been filed with the Securities and
Exchange Commission, is incorporated herein by reference and is available free
by calling our Administrative Offices at 1-800-250-1828. The Table of Contents
of the Statement of Additional Information is included at the end of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is available only in the State of New York.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The date of this Prospectus is July 31, 1997. FM-0989 (NY)
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
GLOSSARY.................................................................... 2
HIGHLIGHTS.................................................................. 5
FEE TABLE................................................................... 7
Condensed Financial Information............................................. 9
Financial Statements........................................................ 9
Performance Measures........................................................ 10
Additional Performance Measures............................................. 10
Yield and Effective Yield................................................... 11
The Company and the Separate Account........................................ 11
The Federated Insurance Series.............................................. 12
The Montgomery Funds III.................................................... 12
SteinRoe Variable Investment Trust.......................................... 12
Strong Variable Insurance Funds, Inc........................................ 12
Wanger Advisors Trust....................................................... 12
Warburg Pincus Trust........................................................ 13
The Portfolios.............................................................. 13
CONTRACT FEATURES........................................................... 15
Right to Cancel Period.................................................... 15
Contract Application and Purchase Payments................................ 15
Purchasing by Wire........................................................ 16
Allocation of Purchase Payments........................................... 16
Charges and Deductions.................................................... 16
Accumulated Value......................................................... 18
Exchanges Among the Portfolios............................................ 18
Full and Partial Withdrawals.............................................. 18
Systematic Withdrawal Option.............................................. 19
Dollar Cost Averaging Option.............................................. 19
IRS-Required Distributions................................................ 20
Minimum Balance Requirement............................................... 20
Designation of an Annuitant's Beneficiary................................. 20
Death of Annuitant Prior to Annuity Date.................................. 21
Annuity Date.............................................................. 21
Lump Sum Payment Option................................................... 21
Annuity Payment Options................................................... 21
Deferment of Payment...................................................... 23
FEDERAL TAX CONSIDERATIONS.................................................. 23
GENERAL INFORMATION......................................................... 28
</TABLE>
GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less
any partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
2
<PAGE>
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 21), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 21), the dollar amount of each Annuity Payment may change over time,
depending upon the investment experience of the Portfolio or Portfolios you
choose. Annuity Payments are based on the Contract's Accumulated Value as of
10 Business Days prior to the Annuity Date.
Annuity Unit - Unit of measure used to calculate Variable Annuity Payments
(see "Annuity Payment Options," page 22).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
Company ("we", "us", "our") - First Providian Life and Health Insurance
Company, a New York stock company.
Contract - The group flexible premium variable annuity contract described in
this Prospectus, participation in which will be evidenced by a certificate
issued to the Contract Owner.
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 application. 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.
Contract Year - A period of 12 months starting with the Contract Date or any
Contract Anniversary.
Death Benefit - The greater of the Contract's Accumulated Value on the date
the Company receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount.
Funds - Each of (i) Federated Insurance Series (advised by Federated
Advisers), (ii) The Montgomery Funds III (advised by Montgomery Asset
Management, L.P.), (iii) Wanger Advisors Trust (advised by Wanger Asset
Management, L.P.) (iv) SteinRoe Variable Investment Trust (advised by Stein
Roe & Farnham, Incorporated), (v) Strong Variable Insurance Funds, Inc.
(advised by Strong Capital Management Inc.) and (vi) Warburg Pincus Trust
(advised by Warburg Pincus Counsellors, Inc.).
General Account - The account which contains all of our assets other than
those held in our separate accounts.
Net Purchase Payment - Any Purchase Payment less the Premium Tax, if any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
3
<PAGE>
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 13 Portfolios in the Providian Advisor's Edge Variable Annuity: the
Federated American Leaders Fund II (the "Federated American Leaders
Portfolio"), the Federated Utility Fund II (the "Federated Utility
Portfolio"), the Federated Prime Money Fund II (the "Federated Prime Money
Portfolio"), the Federated Fund for U.S. Government Securities II (the
"Federated U.S. Government Securities Portfolio") and the Federated High
Income Bond Fund II (the "Federated High Income Bond Portfolio") of Federated
Insurance Series; the Montgomery Variable Series: Growth Fund (the "Montgomery
Growth Portfolio") and the Montgomery Variable Series: Emerging Markets Fund
(the "Montgomery Emerging Markets Portfolio") of The Montgomery Funds III; the
Capital Appreciation Fund (the "SteinRoe Capital Appreciation Portfolio") of
the SteinRoe Variable Investment Trust; the Strong International Stock Fund II
(the "Strong International Stock Portfolio") of the Strong Variable Insurance
Funds, Inc.; the Wanger U.S. Small Cap Advisor (the "Wanger U.S. Small Cap
Advisor Portfolio"); the Wanger International Small Cap Advisor (the "Wanger
International Small Cap Advisor Portfolio") of Wanger Advisors Trust; and the
Warburg Pincus Small Company Growth Portfolio (the "Warburg Pincus Small
Company Growth Portfolio") of the Warburg Pincus Trust (each, a "Portfolio"
and collectively, the "Portfolios"). In this Prospectus, Portfolio will also
be used to refer to the Subaccount that invests in the corresponding
Portfolio.
Premium Tax - A regulatory tax that may be assessed by your state on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax, if any, will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Qualified Contract - An annuity contract as defined under Sections 403(b) and
408(b) of the Internal Revenue Code of 1986, as amended (the "Code").
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of First Providian Life and Health Insurance
Company's Separate Account C dedicated to the Contract. The Separate Account
consists of assets that are segregated by First Providian Life and Health
Insurance Company and, for Contract Owners, invested in the Portfolios. The
Separate Account is independent of the general assets of the Company. The
Separate Account invests in the Portfolios.
Subaccount - That portion of the Separate Account that invests in shares of
the Funds' Portfolios. Each Subaccount will only invest in a single Portfolio.
The investment performance of each Subaccount is linked directly to the
investment performance of one of the 13 Portfolios.
Surrender Value - The Accumulated Value less any Premium Taxes incurred but
not yet deducted.
Valuation Period - The relative performance of your Contract is measured by
the Accumulation Unit Value. This value is calculated each Valuation Period. A
Valuation Period is defined as the period of time between the close of
business on one Business Day and the close of business on the following
Business Day.
4
<PAGE>
HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 2).
PROVIDIAN ADVISOR'S EDGE
The Contract provides a vehicle for investing on a tax-deferred basis in 13
investment company Portfolios. Monies may be subsequently withdrawn from the
Contract either as a lump sum or as annuity income as permitted under the
Contract. Accumulated Values and Annuity Payments depend on the investment
experience of the selected Portfolios. The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement but also for other long-term
investment purposes. The tax-deferred feature of the Contract is most
attractive to investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract and a Non-
Qualified Contract. Both Qualified and Non-Qualified Contracts offer tax-
deferral on increases in the Contract's value prior to withdrawal or
distribution; however Purchase Payments made by Contract Owners of Qualified
Contracts may be excludible or deductible from gross income in the year such
payments are made, subject to certain statutory restrictions and limitations.
(See "Federal Tax Considerations," at page 23.)
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 13 Subaccounts of the
Separate Account. The Subaccounts in turn invest exclusively in the following
13 Portfolios offered by the Funds: the Federated American Leaders Portfolio,
the Federated Utility Portfolio, the Federated Prime Money Portfolio, the
Federated U.S. Government Securities Portfolio, the Federated High Income Bond
Portfolio, the Montgomery Growth Portfolio, the Montgomery Emerging Markets
Portfolio, the SteinRoe Capital Appreciation Portfolio, the Strong
International Stock Portfolio, the Wanger U.S. Small Cap Advisor Portfolio,
the Wanger International Small Cap Advisor Portfolio, the Warburg Pincus
International Equity Portfolio and the Warburg Pincus Small Company Growth
Portfolio. The assets of each Portfolio are separate, and each Portfolio has
distinct investment objectives and policies as described in the corresponding
Fund Prospectus....................................................Page 13
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in
the Contract application. The Contract Owner may designate any person as a
Joint Owner. A Joint Owner shares ownership in all respects with the Contract
Owner. Prior to the Annuity Date, the Contract Owner has the right to assign
ownership, designate beneficiaries, and make permitted withdrawals and
Exchanges among the Subaccounts.
ANNUITANT
The Annuitant is a person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
ANNUITANT'S BENEFICIARY
The Contract Owner may designate any person to receive benefits under the
Contract which are payable upon the death of the Annuitant prior to the
Annuity Date.
HOW TO INVEST
To invest in the Contract, please consult your advisor who will assist you in
completing the Contract application. You will need to select an Annuitant. The
Annuitant may not be older than age 75. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts, and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for
5
<PAGE>
Qualified Contracts); subsequent Purchase Payments must be at least $500 for
Non-Qualified Contracts or $50 for Qualified Contracts. You may make
subsequent Purchase Payments at any time before the Contract's Annuity Date,
as long as the Annuitant specified in the Contract is living.......Page 15
ALLOCATION OF PURCHASE PAYMENTS
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in your chosen Portfolios immediately upon our receipt thereof, IN
WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE
PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. You must fill out and send us
the appropriate form or comply with other designated Company procedures if you
would like to change how subsequent Net Purchase Payments are allocated....Page
16
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (20 days for
replacement) plus a 5 day grace period to allow for mail delivery, during
which you may cancel your investment in the Contract. To cancel your
investment, please return your Contract to us or to the agent from whom you
purchased the Contract. When we receive the Contract, we will return the
Accumulated Value of your Purchase Payment(s) invested in the Portfolios plus
any fees and/or Premium Taxes that may have been subtracted from such
amount.............................................................Page 15
EXCHANGES
You may make unlimited Exchanges among the Portfolios provided you maintain a
minimum balance of $250, except in cases where Purchase Payments are made by
monthly payroll deduction, in each Subaccount to which you have allocated a
portion of your Accumulated Value. No fee is currently imposed for such
Exchanges; however, we reserve the right to charge a $15 fee for Exchanges in
excess of 12 per Contract Year. Exchanges must not reduce the value of any
Subaccount below $250, except in cases where Purchase Payments are made by
monthly payroll deduction, or that remaining amount will be transferred to
your other Subaccounts on a pro rata basis. (See also "Charges and
Deductions," page 16.).............................................Page 18
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value or the
Adjusted Death Benefit on the date we receive due proof of the Annuitant's
death. During the first six Contract Years, the Adjusted Death Benefit will be
the sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period before age 75 occurs plus any Net Purchase Payments subsequently made,
less any partial withdrawals subsequently taken. The Annuitant's Beneficiary
may elect to receive these proceeds as a lump sum or as Annuity Payments. If
the Annuitant dies on or after the Annuity Date, any unpaid payments certain
will be paid, generally to the Annuitant's Beneficiary, in accordance with the
Contract................................................................Page 21
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your Contract. We provide you with a variety of options as it
relates to those payments. At your discretion, payments may be either fixed or
variable or both. Fixed payouts are guaranteed for a designated period or for
life (either single or joint). Variable payments will vary depending on the
performance of the underlying Portfolio or Portfolios selected.....Page 21
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-250-1828 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.
6
<PAGE>
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .50%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
administrative charges and policy fees which pay for administering the
Contract, and management, advisory and other fees, which reflect the costs of
the Funds..........................................................Page 16
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior
to age 59 1/2 may be subject to a 10% penalty tax (and a portion thereof may
be subject to ordinary income taxes)...............................Page 18
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed by your state) that you would incur as an owner of a Contract
(see page 16). 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, see "Charges and Deductions," page 16.
CONTRACTOWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
Exchange Fees........................................................... None
ANNUAL CONTRACT FEE..................................................... $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge....................................... .50%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .65%
</TABLE>
7
<PAGE>
PORTFOLIO ANNUAL EXPENSES
Except as may be indicated, the figures below are based on actual expenses for
fiscal year 1996 (as a percentage of each Portfolio's average net assets after
fee waiver and/or expense reimbursement, if applicable).
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT PORTFOLIO
AND ADVISORY OTHER ANNUAL
EXPENSES EXPENSES EXPENSES
------------ -------- ---------
<S> <C> <C> <C>
Federated American Leaders Portfolio(1)........ 0.53% 0.32% 0.85%
Federated Utility Portfolio(1)................. 0.24% 0.61% 0.85%
Federated Prime Money Portfolio(1)............. 0.00% 0.80% 0.80%
Federated U.S. Government Securities
Portfolio(1).................................. 0.00% 0.80% 0.80%
Federated High Income Bond Portfolio(1)........ 0.01% 0.79% 0.80%
Montgomery Growth Portfolio(2)................. 0.01% 0.00% 0.01%
Montgomery Emerging Markets Portfolio(2)....... 0.23% 1.22% 1.45%
SteinRoe Capital Appreciation Portfolio(3)..... 0.50% 0.23% 0.73%
Strong International Stock Portfolio(4)........ 1.00% 0.90% 1.90%
Wanger U.S. Small Cap Advisor Portfolio(5)..... 0.99% 0.22% 1.21%
Wanger International Small Cap Advisor
Portfolio(5).................................. 1.30% 0.49% 1.79%
Warburg Pincus International Equity
Portfolio(6).................................. 0.96% 0.40% 1.36%
Warburg Pincus Small Company Growth
Portfolio(6).................................. 0.90% 0.26% 1.16%
</TABLE>
(1) The expense figures shown reflect actual expenses for fiscal year 1996
including voluntary waivers of a portion of the management fees and/or
assumption of expenses. The maximum Management and Advisory Expenses
and Total Portfolio Annual Expenses absent the voluntary waivers would
have been as follows: 0.75% and 1.07%, respectively, for the Federated
American Leaders Portfolio; 0.75% and 1.36%, respectively, for the
Federated Utility Portfolio; 0.50% and 1.37%, respectively, for the
Federated Prime Money Portfolio; and 0.60% and 1.81%, respectively, for
the Federated U.S. Government Securities Portfolio and 0.60 and 1.39%,
respectively, for the Federated High Income Bond Portfolio.
(2) The figures above are based on actual expenses for fiscal year 1996 (as
a percentage of each Portfolio's average net assets after fee waiver
and/or expense reimbursement). The expense figures shown reflect
voluntary waivers of a portion of the management fees and/or assumption
of expenses. The maximum Management and Advisory Expenses, Other
Expenses, and Total Portfolio Annual Expenses absent the voluntary
waivers would have been as follows: 1.00%, 5.98%, and 6.98%,
respectively, for the Montgomery Growth Portfolio and 1.25%, 1.22%, and
2.47%, respectively, for the Montgomery Emerging Markets Portfolio.
(3) The figures shown reflect actual expenses for fiscal year 1996. The
advisor has voluntarily agreed until April 30, 1998 to reimburse all
expenses, including management and administrative fees, incurred by
SteinRoe Capital Appreciation Portfolio in excess of 0.80% of average
net assets.
(4) The figures shown reflect actual expenses for fiscal year 1996.
(5) As required by the Securities and Exchange Commission rules, "Other
Expenses" reflects gross custodian fees. Net of custodian fees paid
indirectly, Other Expenses would have been 0.20% for U.S. Small Cap
Advisor Portfolio and 0.45% for International Small Cap Advisor
Portfolio; Total Portfolio Annual Expenses would have been 1.19% and
1.75%, respectively.
(6) Management and Advisory Expenses, Other Expenses and Total Portfolio
Annual Expenses are based on actual expenses for the fiscal year ended
December 31, 1996, net of any fee waivers or expense reimbursements.
Without such waivers or reimbursements, Management and Advisory
Expenses would have equaled 1.00% and 0.90%, Other Expenses would have
equaled 0.40% and 0.27% and Total Portfolio Annual Expenses would have
equaled 1.40% and 1.17% for the Warburg Pincus International Equity and
Small Company Growth Portfolios, respectively. The investment adviser
and co-administrator have undertaken to limit Total Portfolio Annual
Expenses to the limits shown in the table above through December 31,
1997.
8
<PAGE>
The following example illustrates the expenses that you would incur on a
$1,000 Purchase Payment over various periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each period. As noted in the table
above, the Contract imposes no surrender or withdrawal charges of any kind.
Your expenses are identical whether you continue the Contract or withdraw the
entire value of your Contract at the end of the applicable period as a lump
sum or under one of the Contract's Annuity Payment Options.
<TABLE>
<CAPTION>
3 5 10
1 YEAR YEARS YEARS YEARS
------ ------ ------ -------
<S> <C> <C> <C> <C>
Federated American Leaders Portfolio............... $15.60 $48.40 $83.47 $182.15
Federated Utility Portfolio........................ 15.60 48.40 83.47 182.15
Federated Prime Money Portfolio.................... 15.09 46.85 80.84 176.63
Federated U.S. Government Securities Portfolio..... 15.09 46.85 80.84 176.63
Federated High Income Bond Portfolio............... 15.09 46.85 80.84 176.63
Montgomery Growth Portfolio........................ 17.11 53.02 91.31 198.52
Montgomery Emerging Markets Portfolio.............. 21.64 66.77 114.48 246.10
SteinRoe Capital Appreciation Portfolio............ 14.39 44.69 77.15 168.86
Strong International Stock Portfolio............... 26.15 80.32 137.12 291.44
Wanger U.S. Small Cap Advisor Portfolio............ 19.23 59.46 102.19 221.01
Wanger International Small Cap Advisor Portfolio... 25.05 77.03 131.64 280.56
Warburg Pincus International Equity Portfolio...... 20.74 64.03 109.89 236.77
Warburg Pincus Small Company Growth Portfolio...... 18.72 57.93 99.61 215.70
</TABLE>
The Annual Contract Fee is reflected in these examples as a percentage equal
to the estimated total amount of fees collected during a calendar year divided
by the estimated total average net assets of the Portfolios during the same
calendar year. The fee is assumed to remain the same in each of the above
periods. (With respect to partial year periods, if any, in the examples, the
Annual Contract Fee is pro-rated to reflect only the applicable portion of the
partial year period.) The Annual Contract Fee will be deducted on each
Contract Anniversary and upon surrender or annuitization of the Contract, on a
pro rata basis, from each Subaccount. The Company may also deduct Premium
Taxes, if any, as incurred by the Company.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1996 THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
FEDERATED FEDERATED FEDERATED FEDERATED MONTGOMERY
AMERICAN FEDERATED PRIME US GOV'T HIGH INCOME MONTGOMERY EMERGING
LEADERS UTILITY MONEY SECURITIES BOND GROWTH MARKETS
--------- --------- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
12/31/96.............. 10.000 10.000 10.000 10.000 10.000 10.000 10.000
Number of units
outstanding as of:
12/31/96.............. 0 0 0 0 0 0 0
</TABLE>
<TABLE>
<CAPTION>
WARBURG WARBURG
STEIN ROE STRONG WANGER WANGER PINCUS PINCUS
CAP. APPREC. INT'L. STOCK U.S. SMALL CAP INT'L SMALL CAP INT'L EQUITY SMALL CO. GROWTH
------------ ------------ -------------- --------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
12/31/96.............. N/A N/A 10.000 10.000 N/A N/A
Number of units
outstanding as of:
12/31/96.............. N/A N/A 0 0 N/A N/A
</TABLE>
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company (as well as
the Independent Auditors' Report thereon) are contained in the Statement of
Additional Information. No financial statements are included for the Separate
Account because, as of the end of the most recent fiscal year, the Subaccounts
of the Separate Account which invest in the Portfolios offered by the
Providian Advisor's Edge Variable Annuity had not commenced operations with
respect to the Portfolios, and consequently had no assets or liabilities.
9
<PAGE>
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Federated Prime Money Portfolio, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission ("SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the deduction of the Annual Contract Fee and
all other Portfolio, Separate Account and Contract level charges except
Premium Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE
ANNUAL TOTAL RETURN
The Company may show actual Total Return (i.e., the percentage change in the
value of an Accumulation Unit) for one or more Subaccounts with respect to one
or more periods. The Company may also show actual Average Annual Total Return
(i.e., the average annual change in Accumulation Unit Values) with respect to
one or more periods. For one year, the actual Total Return and the actual
Average Annual Total Return are effective annual rates of return and are
equal. For periods greater than one year, the actual Average Annual Total
Return is the effective annual compounded rate of return for the periods
stated. Because the value of an Accumulation Unit reflects the Separate
Account and Portfolio expenses (see "Fee Table"), the actual Total Return and
actual Average Annual Total Return also reflect these expenses. These
percentages, however, do not reflect the Annual Contract Fee or Premium Taxes
(if any) which, if included, would reduce the percentages reported.
NON-STANDARDIZED 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.
NON STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts which respect to one or more non-standardized base periods
commencing at the beginning of a calendar year (or date of inception, if
during the relevant year) and ending at the end of such calendar year. One
Year Return figures reflect the percentage change in actual Accumulation Unit
Values during the relevant period. These percentages reflect a deduction for
the Separate Account and Portfolios 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 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
10
<PAGE>
calculations will reflect actual Accumulation Unit Values. These returns are
based on specified premium patterns which produce the resulting Accumulated
Values. They reflect a deduction for the Separate Account expenses and
Portfolio expenses. They do not include the Annual Contract Fee or Premium
Taxes (if any) which, if included, would reduce the percentages reported.
The Non-Standardized Hypothetical 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 Hypothetical Average Annual Total Return for a Subaccount
is the effective annual compounded rate of return that would have produced the
ending Accumulated Value over the stated period had the performance remained
constant throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of the Federated Prime Money Portfolio. "Yield" refers to
the income generated by an investment in the Federated Prime Money Portfolio
over a seven-day period, which is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Federated Prime Money
Portfolio is assumed to be reinvested. Therefore the effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment. These figures do not reflect the Annual Contract Fee or
Premium Taxes (if any) which, if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than the Federated
Prime Money Portfolio for which the Company advertises yield, the Company
shall furnish a yield quotation referring to the Portfolio computed in the
following manner: the net investment income per Accumulation Unit earned
during a recent one month period is divided by the Accumulation Unit Value on
the last day of the period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria. Performance figures will be calculated in accordance with
standardized methods established by each reporting service.
THE COMPANY AND THE SEPARATE ACCOUNT
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company (formerly National Home Life Assurance Company of New York) is a
stock life insurance company incorporated under the laws of the State of New
York on March 23, 1970, with administrative offices at 520 Columbia Drive,
Johnson City, New York 13790. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in 10 states and the District of Columbia. As of
December 31, 1996, the Company had assets of approximately $324 million. The
Company is a wholly owned subsidiary of AEGON International N.V., 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 International N.V. is 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.
11
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT C
The Separate Account was established by the Company as a separate account
under the laws of the State of New York on November 4, 1994, 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 13 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
THE FEDERATED INSURANCE SERIES (ADVISED BY FEDERATED ADVISERS)
The Federated Insurance Series is an open-end management investment company
organized as a Massachusetts business trust and registered under the 1940 Act.
The Fund consists of eight investment portfolios, five of which are available
as part of the Providian Advisor's Edge: the Federated American Leaders
Portfolio, the Federated Utility Portfolio, the Federated Prime Money
Portfolio, the Federated U.S. Government Securities Portfolio and the
Federated High Income Bond Portfolio. Federated Advisers serves as this Fund's
investment advisor.
THE MONTGOMERY FUNDS III (ADVISED BY MONTGOMERY ASSET MANAGEMENT, LLC)
The Montgomery Funds III (the "Montgomery Fund"), an open-end management
investment company, was organized as a Delaware business trust in 1994 and is
registered under the 1940 Act. The Montgomery Funds consist of three
professionally managed investment portfolios, two of which are available as
part of the Providian Advisor's Edge: the Montgomery Growth Portfolio and the
Montgomery Emerging Markets Portfolio. Montgomery Asset Management, LLC, a
subsidiary of Commerzbank AG, was organized as a Delaware limited liability
company and is the investment adviser for the Montgomery Funds.
STEINROE VARIABLE INVESTMENT TRUST (ADVISED BY STEIN ROE & FARNHAM
INCORPORATED)
The SteinRoe Variable Investment Trust is an open-end, diversified management
investment company organized as a Massachusetts business trust and registered
under the 1940 Act. The Fund currently consists of five investment portfolios,
including the SteinRoe Capital Appreciation Portfolio, which is the only
portfolio available as part of the Providian Advisor's Edge. Stein Roe &
Farnham Incorporated serves as the Fund's investment adviser.
STRONG VARIABLE INSURANCE FUNDS, INC. (ADVISED BY STRONG CAPITAL MANAGEMENT,
INC.)
Strong Variable Insurance Funds, Inc. is an open-end management investment
company organized under Wisconsin law and is registered under the 1940 Act.
One series issued by the Fund is available as part of the Providian Advisor's
Edge: the Strong International Stock Portfolio. Strong Capital Management,
Inc. serves as the Fund's investment adviser.
WANGER ADVISORS TRUST (ADVISED BY WANGER ASSET MANAGEMENT, L.P.)
Wanger Advisors Trust, an open-end management investment company, was
organized as a Massachusetts business trust in 1994 and is registered under
the 1940 Act. The Fund consists of two series available as part of the
Providian
12
<PAGE>
Advisor's Edge: the Wanger U.S. Small Cap Advisor Portfolio and the Wanger
International Small Cap Advisor Portfolio. Wanger Asset Management, L.P., a
limited partnership managed by its general partner, Wanger Asset Management,
Ltd., serves as this Fund's investment advisor.
WARBURG PINCUS TRUST (ADVISED BY WARBURG PINCUS COUNSELLORS, INC.)
Warburg Pincus Trust, an open-end management investment company, was organized
as a Massachusetts business trust in 1995 and is registered under the 1940
Act. The Fund currently offers four investment portfolios, two of which are
available as part of the Providian Advisor's Edge: the Warburg Pincus
International Equity Portfolio and the Warburg Pincus Small Company Growth
Portfolio. Warburg Pincus Counsellors, Inc. serves as the Fund's investment
adviser.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUSES)
FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH EACH PORTFOLIO'S
INVESTMENTS, PLEASE REFER TO THE APPLICABLE UNDERLYING FUND PROSPECTUS.
FEDERATED AMERICAN LEADERS FUND II ("FEDERATED AMERICAN LEADERS PORTFOLIO")
The primary investment objective of the Federated American Leaders Portfolio
is to achieve long-term growth of capital. The Portfolio's secondary objective
is to provide income. The Portfolio pursues its investment objectives by
investing, under normal circumstances, at least 65% of its total assets in
common stock of "blue-chip" companies. This Portfolio was formerly known as
the Federated Equity Growth and Income Portfolio.
FEDERATED UTILITY FUND II ("FEDERATED UTILITY PORTFOLIO")
The investment objective of the Federated Utility Portfolio is to achieve high
current income and moderate capital appreciation. The Portfolio endeavors to
achieve its objective by investing primarily in a professional managed and
diversified portfolio of equity and debt securities of utility companies.
FEDERATED PRIME MONEY FUND II ("FEDERATED PRIME MONEY PORTFOLIO")
The investment objective of the Federated Prime Money Portfolio is to provide
current income consistent with stability of principal and liquidity. The
Portfolio pursues its investment objective by investing exclusively in a
portfolio of money market instruments maturing in 397 days or less.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II ("FEDERATED U.S. GOVERNMENT
SECURITIES PORTFOLIO")
The investment objective of the Federated U.S. Government Securities Portfolio
is to provide current income. Under normal circumstances, the Portfolio
pursues its investment objective by investing at least 65% of the value of its
total assets in securities issued or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities. This
Portfolio was formerly known as the Federated U.S. Government Bond Portfolio.
FEDERATED HIGH INCOME BOND FUND II ("FEDERATED HIGH INCOME BOND PORTFOLIO")
The investment objective of the Federated High Income Bond Portfolio is to
seek high current income. The Portfolio endeavors to achieve its investment
objective by investing primarily in a diversified portfolio of professionally
managed fixed income securities. The fixed income securities in which the
Portfolio intends to invest are lower-rated corporate debt obligations, which
are commonly referred to as "junk-bonds." Some of these fixed income
securities may involve equity features. Capital growth will be considered, but
only when consistent with the investment objective of high current income.
This Portfolio was formerly known as the Federated Corporate Bond Portfolio.
MONTGOMERY VARIABLE SERIES: GROWTH FUND ("MONTGOMERY GROWTH PORTFOLIO")
The investment objective of the Montgomery Growth Portfolio is capital
appreciation, which, under normal conditions it seeks by investing at least
65% of its total assets in equity securities of domestic companies. The
Portfolio emphasizes investments in common stocks but also invests in other
types of equity securities. In addition to capital appreciation, the Portfolio
emphasizes value.
13
<PAGE>
MONTGOMERY VARIABLE SERIES: EMERGING MARKETS FUND ("MONTGOMERY EMERGING
MARKETS PORTFOLIO")
The investment objective of the Montgomery Emerging Markets Portfolio is
capital appreciation, which, under normal conditions it seeks by investing at
least 65% of its total assets in equity securities of companies in countries
having emerging markets. For these purposes, the Portfolio defines an emerging
market country as having an economy that is or would be considered by the
World Bank or the United Nations to be emerging or developing. The Portfolio
invests primarily in common stock but may also invest in other types of equity
securities, and in certain types of debt securities issued by the governments
of emerging market countries that are or may be eligible for conversion into
investments in emerging market companies under debt conversion programs
sponsored by such governments.
CAPITAL APPRECIATION FUND ("STEINROE CAPITAL APPRECIATION PORTFOLIO")
The investment objective of the SteinRoe Capital Appreciation Portfolio is to
achieve growth of capital. This Portfolio seeks to achieve its investment
objective by investing primarily in common stocks, securities convertible into
common stocks and securities having common stock characteristics, including
rights and warrants, selected primarily for prospective capital growth. The
Portfolio invests in both domestic and foreign companies.
STRONG INTERNATIONAL STOCK FUND II ("STRONG INTERNATIONAL STOCK PORTFOLIO")
The investment objective of the Strong International Stock Portfolio is to
achieve capital growth. This Portfolio seeks to achieve its investment
objective by investing primarily in the equity securities of issuers located
outside the United States. This Portfolio will invest at least 65% of its
total assets in foreign equity securities, including common stocks, preferred
stocks, and securities that are convertible into common or preferred stocks,
such as warrants and convertible bonds, that are issued by companies whose
principal headquarters are located outside the United States. Under normal
market conditions, this Portfolio expects to invest at least 90% of its net
assets in foreign equity securities. This Portfolio will normally invest in
securities of issuers located in at least three different countries.
WANGER U.S. SMALL CAP ADVISOR ("WANGER U.S. SMALL CAP ADVISOR PORTFOLIO")
The investment objective of the Wanger U.S. Small Cap Advisor Portfolio is to
seek long-term growth of capital. The Portfolio pursues its investment
objective by investing primarily in stocks of United States companies with a
total common stock market capitalization of less than $1 billion. The Fund is
not required to sell a security that grows to a larger market capitalization.
The Portfolio may also invest in debt securities, including lower-rated debt
securities, which may be regarded as having speculative characteristics and
are commonly referred to as "junk bonds."
WANGER INTERNATIONAL SMALL CAP ADVISOR ("WANGER INTERNATIONAL SMALL CAP
ADVISOR PORTFOLIO")
The investment objective of the Wanger International Small Cap Advisor
Portfolio is to seek long-term growth of capital. The Portfolio pursues its
investment objective by investing primarily in the stocks of foreign companies
with a total common stock market capitalization of less than $1 billion. The
Fund is not required to sell a security that grows to a larger market
capitalization. The Portfolio may also invest in debt securities, including
lower-rated debt securities, which may be regarded as having speculative
characteristics and are commonly referred to as "junk bonds."
WARBURG PINCUS INTERNATIONAL EQUITY PORTFOLIO ("WARBURG PINCUS INTERNATIONAL
EQUITY PORTFOLIO")
The investment objective of the Warburg Pincus International Equity Portfolio
is to achieve long-term capital appreciation. This Portfolio seeks to achieve
its investment objective by investing primarily in equity securities of
companies, wherever organized, that in the judgment of the Portfolio's
adviser, have their principal business activities and interests outside of the
United States. This Portfolio will ordinarily invest substantially all its
assets--but no less than 65% of its total assets--in common stocks, warrants
and securities convertible into or exchangeable for common stocks. Generally
this Portfolio will hold no less than 65% of its total assets in at least
three countries other than the United States. Investment may be made in equity
securities of companies of any size, whether traded on or off a national
securities exchange.
14
<PAGE>
WARBURG PINCUS SMALL COMPANY GROWTH PORTFOLIO ("WARBURG PINCUS SMALL COMPANY
GROWTH PORTFOLIO")
The investment objective of the Warburg Pincus Small Company Growth Portfolio
is to achieve capital growth. This Portfolio seeks to achieve its investment
objective by investing in a portfolio of equity securities of small-sized
domestic companies. This Portfolio will ordinarily invest at least 65% of its
total assets in common stocks or warrants of small-sized companies (i.e.,
companies having stock market capitalizations of between $25 million and $1
billion at the time of purchase) that represent attractive opportunities for
capital growth. It is anticipated that this Portfolio will invest primarily in
companies whose securities are traded on domestic stock exchanges or in the
over-the-counter market. This Portfolio's investment will be made on the basis
of equity characteristics and securities ratings generally will not be a
factor in the selection process.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services, total expenses and
charges can be found in the current prospectuses for the corresponding Funds.
THE FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise among the interests of
the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
CONTRACT FEATURES
The rights and benefits under the Contract are as described below and in the
Contract. The Company reserves the right to make any modification to conform
the Contract to, or give the Contract Owner the benefit of, any federal or
state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for 10 days after you receive the Contract (20
days for replacement) plus a 5 day grace period to allow for mail delivery.
You may cancel the Contract during the Right to Cancel Period by returning the
Contract to our Administrative Offices, 520 Columbia Drive, Johnson City, New
York 13790 or to the agent from whom you purchased the Contract or mailing it
to us at P.O. Box 1950, Binghamton, New York 13902. Upon cancellation, the
Contract is treated as void from the Contract Date and when we receive the
Contract, we will return the Accumulated Value of your Purchase Payment(s)
invested in the Portfolios plus any fees and/or Premium Taxes that may have
been subtracted from such amount.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
If an applicant wishes to purchase a Contract, the applicant should send his
or her completed application and initial Purchase Payment to the address
indicated on the application, or to such other location as the Company may
from time to time designate. If the applicant wishes to make personal delivery
by hand or courier to the Company of the completed application and initial
Purchase Payment (rather than through the mail), he or she must do so at our
Administrative Offices at 520 Columbia Drive, Johnson City, New York 13790.
The initial Purchase Payment for a Non-Qualified Contract must be equal to or
greater than the $5,000 minimum investment requirement. The initial Purchase
Payment for a Qualified Contract must be equal to or greater than $2,000 (or
you may establish a payment schedule of $50 a month by payroll deduction).
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The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within two Business Days after acceptance of the
application and the initial Purchase Payment. Acceptance is subject to the
application being received in good order, and the Company reserves the right
to reject any application or initial Purchase Payment.
Acceptance is subject to the application being received in good order, and the
Company reserves the right to reject any application or initial Purchase
Payment.
If the initial Purchase Payment cannot be credited because the application is
incomplete, we will contact the applicant, explain the reason for the delay
and will refund the initial Purchase Payment within five Business Days, unless
the applicant instructs us to retain the initial Purchase Payment and credit
it as soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity
Date, as long as the Annuitant is living. Additional Purchase Payments must be
for at least $500 for Non-Qualified Contracts, or $50 for Qualified Contracts.
Additional Purchase Payments received prior to the close of the New York Stock
Exchange (generally 4:00 P.M. Eastern time) are credited to the Accumulated
Value at the close of business that same day. Additional Purchase Payments
received after the close of the New York Stock Exchange are processed the next
Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
The Company reserves the right to refuse to issue this Contract in cases
involving an exchange for another Contract. In cases where a Contract Owner or
former Contract Owner requests the Company to reverse a surrender or
withdrawal transaction, whether full or partial, the Company reserves the
right to refuse such requests or to 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-
250-1828.
ALLOCATION OF PURCHASE PAYMENTS
You specify in the Contract application how your Net Purchase Payments will be
allocated. You may allocate each Net Purchase Payment to one or more of the
Portfolios as long as such portions are whole number percentages provided no
Portfolio may contain a balance less than $250, except in cases where Purchase
Payments are made by monthly payroll deduction. 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.
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in your Portfolios immediately upon our receipt thereof, in which
case you will bear full investment risk for any amounts allocated to the
Portfolios during the Right to Cancel Period.
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts.
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the
net asset value of the Separate Account. The annual mortality and expense risk
charge is .50% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to the Company surplus and will be used for any lawful purpose,
including any shortfall on the costs of distributing the Contracts.
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The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
The Annual Contract Fee is deducted proportionately from the Subaccounts. For
any Contract with amounts allocated to the Subaccounts, the $30 fee is
assessed per Contract, not per Portfolio chosen. The Annual Contract Fee will
be deducted on each Contract Anniversary and upon surrender, on a pro rata
basis, from each Subaccount. These deductions represent reimbursement for the
costs expected to be incurred over the life of the Contract for issuing and
maintaining each Contract and the Separate Account.
EXCHANGES
Each Contract Year you may make an unlimited number of Exchanges between
Portfolios, provided that after an Exchange no Portfolio may contain a balance
less than $250, except in cases where Purchase Payments are made by monthly
payroll deduction. No fee is currently imposed for such Exchanges; however, we
reserve the right to charge a $15 fee for Exchanges in excess of 12 per
Contract Year.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The administrative charges or fees may be reduced for sales of Contracts to a
trustee, employer or similar entity representing a group where the Company
determines that such sales result in savings of administrative expenses. In
addition, directors, officers and bona fide full-time employees (and their
spouses and minor children) of the Company, its ultimate parent company, AEGON
N.V., and certain of their affiliates are permitted to purchase Contracts with
substantial reduction of administrative charges or fees or with a waiver or
modification of certain minimum or maximum purchase and transaction amounts or
balance requirements. Contracts so purchased are for investment purposes only
and may not be resold except to the Company.
In no event will reduction or elimination of fees or charges or waiver or
modification of transaction or balance requirements be permitted where such
reduction, elimination, waiver or modification will be unfairly discriminatory
to any person. Additional information about reductions in charges is contained
in the Statement of Additional Information.
TAXES
Under present laws, the Company will not incur New York state or local taxes.
If there is a change in state or local tax laws, charges for such taxes may be
made. The Company does not expect to incur any federal income tax liability
attributable to investment income or capital gains retained as part of the
reserves under the Contracts. (See "Federal Tax Considerations," page 23.)
Based upon these expectations, no charge is currently being made to the
Separate Account for corporate federal income taxes that may be attributable
to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a
charge may be made in future years for any federal income taxes incurred by
the Company. This might become necessary if the tax treatment of the Company
is ultimately determined to be other than what the Company currently believes
it to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
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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.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s); and
reduced by: (i) any decrease in the Accumulated Value due to investment
results of the selected Portfolio(s), (ii) a daily charge to cover the
mortality and expense risks assumed by the Company, (iii) any charge to cover
the cost of administering the Contract, (iv) any partial withdrawals, and, if
exercised by the Company, (v) any charges for any Exchanges made after the
first 12 in any Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds. 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 application or by completing 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.
The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Prior to the acceptance of any request,
the caller will be asked by a customer service representative for his or her
Contract number and social security number. In addition, telephone
communications from a third party authorized to transact in an account will
undergo reasonable procedures to confirm that instructions are genuine. The
third party caller will be asked for his or her name, company affiliation (if
appropriate), the Contract number to which he or she is referring, and the
social security number of the Contract Owner. All calls will be recorded, and
this information will be verified with the Contract Owner's records prior to
processing a transaction. Furthermore, all transactions performed by a
customer service representative will be verified with the Contract Owner
through a written confirmation statement. Neither the Company nor the Funds
shall be liable for any loss, cost or expense for action on telephone
instructions that are believed to be genuine in accordance with these
procedures.
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of
the Surrender Value by sending a written request to our Administrative
Offices. Full or partial withdrawals may only be made before the Annuity Date
and all partial withdrawal requests must be for at least $500. The amount
available for full or partial withdrawal is the Surrender Value at the end of
the Valuation Period during which the written request for withdrawal is
received. The Surrender Value is an amount equal to the Accumulated Value,
less any Premium Taxes incurred but not yet deducted. The withdrawal amount
may be paid in a lump sum to you, or if elected, all or any part may be paid
out under an Annuity Payment Option. (See "Annuity Payment Options," page 21.)
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. Your proceeds will normally be processed and mailed to
you within two Business Days after the receipt of the request but in no event
will it be later than seven calendar days, subject to postponement in certain
circumstances. (See "Deferment of Payment," page 23.)
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Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank. If, at the
time the Contract Owner requests a full or partial withdrawal, he has not
provided the Company with a written election not to have federal income taxes
withheld, the Company must by law withhold 10% from the taxable portion of any
full or partial withdrawal and remit that amount to the federal government.
Moreover, the Code provides that a 10% penalty tax may be imposed on certain
early withdrawals. (See "Federal Tax Considerations," page 23.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of
the Contract (taking into account any prior withdrawals) may be more or less
than the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the
day and at the frequency indicated on the Systematic Withdrawal Request Form.
The start date for the systematic withdrawals must be between the first and
twenty-eighth day of the month. You may discontinue the Systematic Withdrawal
Option at any time by notifying us in writing at least 30 days prior to your
next scheduled withdrawal date.
Like any other partial withdrawal, each Systematic Withdrawal is subject to
taxes on earnings. If the Contract Owner has not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold 10% from the taxable portion of the Systematic Withdrawal and
remit that amount to the federal government. Moreover, the Code provides that
a 10% penalty tax may be imposed on certain early withdrawals. (See "Federal
Tax Considerations," page 23.) You may wish to consult a tax advisor regarding
any tax consequences that might result prior to electing the Systematic
Withdrawal Option.
We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for
such service.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in the Federated Prime Money
Portfolio, you may choose to have a specified dollar amount transferred from
this Portfolio to other Portfolios in the Separate Account 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 application or at a
later date. The minimum amount that may be transferred each month into any
Portfolio is $250. The maximum amount which may be transferred is equal to the
Accumulated Value in the Federated Prime Money Portfolio when elected, divided
by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel
this option by sending the appropriate Company form to our Administrative
Offices which must be received at least seven days before the next transfer
date.
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IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within five years after
date of death or be paid under an Annuity Payment Option under which payments
will begin within one year of the Contract Owner's death and will be made for
the life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason
of death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $250, except in
cases where Purchase Payments are made by monthly payroll deduction, 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, and if no Purchase Payment has been received
within three years, we reserve the right to liquidate the account. You would
be notified that the Accumulated Value of your account is below the Contract's
minimum requirement and be allowed 60 days to make an additional investment
before the account is liquidated. Proceeds would be promptly paid to the
Contract Owner. The full proceeds would be taxable as a withdrawal. We will
not exercise this right with respect to Qualified Contracts.
DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the application. Thereafter, while the Annuitant is living, the
Contract Owner may change the Annuitant's Beneficiary by sending us the
appropriate Company form. Such change will take effect on the date such form
is signed by the Contract Owner but will not affect any payment made or other
action taken before the Company acknowledges such form. You may also make the
designation of Annuitant's Beneficiary irrevocable by sending us the
appropriate Company form and obtaining approval from the Company. Changes in
the Annuitant's Beneficiary may then be made only with the consent of the
designated irrevocable Annuitant's Beneficiary.
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died, that
share of the Death Benefit will be paid equally to the survivor(s);
(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) Unless otherwise provided, 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. Unless otherwise provided, if
an Annuitant's Beneficiary dies within 15 days after the Annuitant's
death and before the Company receives due proof of the Annuitant's
death, proceeds will be paid as though the Annuitant's Beneficiary had
died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's
named beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her
estate. If a Life Annuity with Period Certain option was elected, and if the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid to the Annuitant's Beneficiary or your designated Payee.
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DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and
is payable upon receipt of due Proof of Death of the Annuitant as well as
proof that the Annuitant died prior to the Annuity Date. Upon receipt of this
proof, the Death Benefit will be paid within seven days, or as soon thereafter
as the Company has sufficient information about the Annuitant's Beneficiary to
make the payment. The Annuitant's Beneficiary may receive the amount payable
in a lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the
sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period before age 75 occurs plus any Net Purchase Payments subsequently made,
less any partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date in the application, which can be no later than
the first day of the month after the Annuitant's 85th birthday, without the
Company's prior approval. The Annuity Date is the date that Annuity Payments
are scheduled to commence under the Contract unless the Contract has been
surrendered or an amount has been paid as proceeds to the designated
Annuitant's Beneficiary prior to that date.
You may advance or defer the Annuity Date. However, the Annuity Date may not
be advanced to a date prior to 30 days after the date of receipt of a written
request or, without the Company's prior approval, deferred to a date beyond
the first day of the month after the Annuitant's 85th birthday. The Annuity
Date may only be changed by written request during the Annuitant's lifetime
and must be made at least 30 days before the then-scheduled Annuity Date. The
Annuity Date and Annuity Payment options available for Qualified Contracts may
also be controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated
Value, less any Premium Taxes incurred but not yet deducted.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
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Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $2,000, the Company has the right to pay
that amount in a lump sum. From time to time, the Company may require proof
that the Annuitant or Contract Owner is living. Annuity Payment Options are
not available to: (1) an assignee; or (2) any other than a natural person,
except with the consent of the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; conversely, they will decrease if the actual experience is
lower. The method of computation of Variable Annuity Payments is described in
more detail in the Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-250-1828.
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DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within seven days from the date the election becomes
effective except that the Company may be permitted to defer such payment if:
(1) the New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on the New York Stock Exchange is otherwise restricted;
or (2) an emergency exists as defined by the SEC, or the SEC requires that
trading be restricted; or (3) the SEC permits a delay for the protection of
Contract Owners.
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 advisor regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation
is made regarding the likelihood of continuation of the federal income tax
laws, the Treasury regulations or the current interpretations by the Internal
Revenue Service. We reserve the right to make uniform changes in the Contract
to the extent necessary to continue to qualify the Contract as an annuity. For
a discussion of federal income taxes as they relate to the Funds, please see
the accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons" and "Diversification
Standards," page 25.)
Section 72 provides that the proceeds of a full or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to the
extent the amounts held under the Contract exceed the "investment in the
Contract," as that term is defined in the Code. The "investment in the
Contract" can generally be described as the cost of the Contract, and
generally constitutes all Purchase Payments paid for the Contract less any
amounts received under the Contract that are excluded from the individual's
gross income. The taxable portion is taxed at ordinary income tax rates. For
purposes of this rule, a pledge or assignment of a Contract is treated as a
payment received on account of a partial withdrawal of a Contract.
Upon receipt of a full or partial withdrawal or an Annuity Payment under the
Contract, you will be taxed if the value of the Contract exceeds the
investment in the Contract. Ordinarily, the taxable portion of such payments
will be taxed at ordinary income tax rates. Partial withdrawals are generally
taken out of earnings first and then Purchase Payments.
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after tax
contributions, the Contract Owner is entitled to exclude the portion of each
withdrawal or annuity payment constituting a return of after tax
contributions. Once all of your after tax contributions have been returned to
you on a non-taxable basis, subsequent withdrawals or annuity payments are
fully taxable as ordinary
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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.
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 flat 30% rate unless an exemption
from withholding applies under an applicable tax treaty.
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals (i) made on or after the death of the Contract Owner or, where the
Contract Owner is not an individual, the death of the Annuitant, who is defined
as the individual the events in whose life are of primary importance in
affecting the timing and payment under the Contracts; (ii) attributable to the
taxpayer's becoming disabled within the meaning of Code Section 72(m)(7); (iii)
that are part of a series of substantially equal periodic payments made at
least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi) under
an immediate annuity contract as defined in Section 72(u)(4); (vii) allocable
to the investment in the Contract prior to August 14, 1982; or (viii) that are
purchased by an employer on termination of certain types of qualified plans and
that are held by the employer until the employee separates from service. Other
tax penalties may apply to certain distributions as well as to certain
contributions and other transactions under Qualified Contracts.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the year in
which the modification occurs will be increased by an amount (as determined
under Treasury Regulations) equal to the penalty tax that would have been
imposed but for item (iii) above, plus interest for the deferral period. The
foregoing rule applies if the modification takes place (a) before the close of
the period that is five years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Separate Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of the Separate
Account are reinvested and taken into account in determining the Accumulated
Value. Under existing federal income tax law, the Separate Account's investment
income, including realized net capital gains, is not taxed to the Company. The
Company reserves the right to make a deduction for taxes should they be imposed
with respect to such items in the future.
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract, a Contract must generally
provide the following two distribution rules: (a) if any Contract Owner dies on
or after the Annuity Date and before the entire interest in the Contract has
been distributed, the remaining portion of such interest must be distributed at
least as quickly as the method in effect on the Contract Owner's death; and (b)
if any Contract Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death. To the
extent such interest is payable to the Owner's Designated Beneficiary, however,
such interests may be annuitized over the life of that Owner's Designated
Beneficiary or over a period not extending beyond the life expectancy of that
Owner's Designated Beneficiary, so long as distributions commence within one
year after the Contract Owner's death. If the Owner's Designated Beneficiary is
the spouse of the Contract Owner, the Contract (together with the deferral on
tax on the accrued and future income thereunder) may be continued unchanged in
the name of the spouse as Contract Owner. The term Owner's Designated
Beneficiary means the natural person named by the Contract Owner as a
beneficiary and to whom ownership of the Contract passes by reason of the
Contract Owner's death (unless the Contract Owner was also the Annuitant--in
which case the Annuitant's Beneficiary is entitled to the Death Benefit).
If the Contract Owner is not an individual, the death of the "primary
Annuitant" (as defined under the Code) is treated as the death of the Contract
Owner. The primary Annuitant is the individual who is of primary importance in
affecting
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the timing or the amount of payout under a Contract. In addition, when the
Contract Owner is not an individual, a change in the primary Annuitant is
treated as the death of the Contract Owner. Finally, in the case of joint
Contract Owners, the distribution will be required at the death of the first of
the Contract Owners.
TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger tax on the gain in
the Contract to the Contract Owner at the time of such transfer. The investment
in the Contract of the transferee will be increased by any amount included in
the Contract Owner's income. This provision, however, does not apply to those
transfers between spouses or incident to a divorce which are governed by Code
Section 1041(a).
CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. The rule also does not apply where the Contract is acquired
by the estate of a decedent, where the Contract is a qualified funding asset
for structured settlements, where the Contract is purchased on behalf of an
employee upon termination of a qualified plan, and in the case of an immediate
annuity, as defined under Section 72(u)(4) of the Code.
ASSIGNMENTS
A transfer of ownership of a Contract, a collateral assignment or the
designation of an Annuitant or other beneficiary who is not also the Contract
Owner may result in tax consequences to the Contract Owner, Annuitant or
beneficiary that are not discussed herein. A Contract Owner contemplating such
a transfer or assignment of a Contract should contact a tax advisor with
respect to the potential tax effects of such a transaction.
MULTIPLE CONTRACTS RULE
All non-qualified annuity contracts issued by the same company (or affiliate)
to the same Contract Owner during any calendar year are to be aggregated and
treated as one contract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received under any Contract prior
to the Contract's Annuity Date, such as a partial withdrawal, will be taxable
(and possibly subject to the 10% federal penalty tax) to the extent of the
combined income in all such contracts. The Treasury Department has specific
authority to issue regulations that prevent the avoidance of Code Section 72(e)
through the serial purchase of annuity contracts or otherwise. In addition,
there may be other situations in which the Treasury Department may conclude
that it would be appropriate to aggregate two or more Contracts purchased by
the same Contract Owner. The aggregation rules do not apply to immediate
annuities as defined under Section 72(u)(4) of the Code. Accordingly, a
Contract Owner should consult a tax advisor before purchasing more than one
Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, the Separate Account will be
required to diversify its investments. The Regulations generally require that
on the last day of each quarter of a calendar year, no more than 55% of the
value of the Separate Account is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is represented
by any three investments, and no more than 90% is represented by any four
investments. A "look-through" rule applies that suggests that each Subaccount
of the Separate Account will be tested for compliance with the percentage
limitations by looking through to the assets of the Portfolios in which each
such Subaccount invests. All securities of the same issuer are treated as a
single investment. Each government agency or instrumentality will be treated as
a separate issuer for purposes of those limitations.
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
25
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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.
Under 403(b) Contracts, the Contract Owner and the Annuitant must be the same
person. 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, or
$10,000, 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.
The loan interest rate is variable, is determined monthly, and is based on the
Moody's Corporate Bond Yield Averages-Monthly Average Corporates (the
"Average"), which is published by Moody's Investors Service, Inc. We will
notify you of the initial loan interest rate at the time the loan is made. The
initial interest rate may be increased or reduced by us during the life of the
loan based on changes of the Average. If a change in the Average would cause
the initial loan interest rate (or a subsequent rate that has been previously
increased or reduced by us) to be reduced by 0.50% per annum or more, we must
reduce the loan interest rate. If a change in the Average would cause the
initial loan interest rate (or a subsequent rate that has been previously
increased or reduced by us) to be increased by 0.50% per annum, we may increase
the loan interest rate at our discretion. In no event will the loan interest
rate be greater than the maximum allowed by the insurance regulations of the
State of New York. 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. 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 you instruct us to the contrary, 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
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Portfolios. Unless instructed to the contrary by you, the loan amount will be
withdrawn on a pro rata basis from the Portfolios to which Accumulated Value
has been allocated. 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 to the Collateral Fixed Account will never be less than the 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 in the same
proportion as when the loan was initially made, unless you specify otherwise.
If a repayment in excess of a billed amount is received, the excess will be
applied towards the principal portion of the outstanding loan. Payments
received which are less than the billed amount will not be accepted and will be
returned to you.
If a partial surrender is taken from your individual account due to nonpayment
of a billed quarterly installment, the date of the surrender will be the first
Business Day following the 30 calendar day period in which the repayment was
due.
Prepayment of the entire loan is allowed. At the time of prepayment, the
Company will bill you for any accrued interest. The Company will consider the
loan paid when the loan balance and accrued interest are paid.
If the individual account is surrendered or if the Contract Owner 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 an Annuity Payment Option is elected while there is an outstanding loan
balance, the outstanding loan balance and accrued interest will be deducted
from the Accumulated Value.
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 23.)
Under the Code, you may request a full or partial surrender of an amount equal
to the individual account cash value as of December 31, 1988 (the
"grandfathered" amount), subject to the terms of the 403(b) Plan. Although the
Code surrender restrictions do not apply to this amount, a 10% federal penalty
tax may be assessed on the withdrawn amount if it does not otherwise meet the
exceptions to the penalty tax provisions (See "Taxation of Annuities in
General," page 23.)
The Company believes that the Code surrender restrictions do not apply to tax-
free transfers pursuant to Revenue Ruling 90-24. The Company further believes
that the surrender restrictions will not apply to any "grandfathered" amount
transferred pursuant to Revenue Ruling 90-24 into another 403(b) Contract.
27
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GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio of the Funds, or of
another registered, open-end management investment company, if the shares of
the Portfolios are no longer available for investment, or, if in the Company's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
New Portfolios may be established at the discretion of the Company. Any new
Portfolio will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be
necessary or appropriate to reflect such substitution or change. Furthermore,
if deemed to be in the best interests of persons having voting rights under
the Contracts, the Separate Account may be operated as a management company
under the 1940 Act or any other form permitted by law, may be deregistered
under the 1940 Act in the event such registration is no longer required, or
may be combined with one or more other separate accounts.
VOTING RIGHTS
The Funds do not hold regular meetings of shareholders. The Directors/Trustees
of each Fund may call special meetings of shareholders as may be required by
the 1940 Act or other applicable law. To the extent required by law, the
Portfolio shares held in the Separate Account will be voted by the Company at
shareholder meetings of each Fund in accordance with instructions received
from persons having voting interests in the corresponding Portfolio. Fund
shares as to which no timely instructions are received or shares held by the
Company as to which Contract Owners have no beneficial interest will be voted
in proportion to the voting instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the
Annuity Date will be determined by dividing the reserve for such Contract
allocated to the Portfolio by the net asset value per share of the
corresponding Portfolio. After the Annuity Date, the votes attributable to a
Contract decrease as the reserves allocated to the Portfolio decrease. In
determining the number of votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the corresponding
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by such Fund.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
the Company and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt Berenson & Johnson LLP of Washington, D.C. has provided legal
advice relating to the federal securities laws applicable to the issue and
sale of the Contracts. All matters of New York law pertaining to the validity
of the Contract and the Company's right to issue such Contracts have been
passed upon by Kimberly A. Scouller, Esquire, on behalf of the Company.
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TABLE OF CONTENTS FOR THE PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
AND FOR THE DIMENSIONAL VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE CONTRACT.............................................................. 2
Computation of Variable Annuity Income Payments......................... 2
Exchanges............................................................... 3
Exceptions to Charges and to Transaction or Balance Requirements........ 3
GENERAL MATTERS........................................................... 3
Non-Participating....................................................... 3
Misstatement of Age or Sex.............................................. 3
Assignment.............................................................. 4
Annuity Data............................................................ 4
Annual Statement........................................................ 4
Incontestability........................................................ 4
Ownership............................................................... 4
PERFORMANCE INFORMATION................................................... 4
Federated Prime Money Portfolio Subaccount Yields....................... 5
30-Day Yield for Non-Money Market Subaccounts........................... 5
Standardized Average Annual Total Return for Subaccounts................ 6
ADDITIONAL PERFORMANCE MEASURES........................................... 6
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return.................................................... 6
Non-Standardized Total Return Year-to-Date.............................. 6
Non-Standardized One Year Return........................................ 7
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 7
Individual Computer Generated Illustrations............................. 7
PERFORMANCE COMPARISONS................................................... 7
SAFEKEEPING OF ACCOUNT ASSETS............................................. 9
THE COMPANY............................................................... 10
STATE REGULATION.......................................................... 10
RECORDS AND REPORTS....................................................... 10
DISTRIBUTION OF THE CONTRACTS............................................. 10
LEGAL PROCEEDINGS......................................................... 11
OTHER INFORMATION......................................................... 11
FINANCIAL STATEMENTS...................................................... 11
Audited Financial Statements............................................ 11
</TABLE>
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FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT C
PROSPECTUS
FOR THE
DIMENSIONAL VARIABLE ANNUITY
OFFERED BY
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A NEW YORK STOCK COMPANY)
ADMINISTRATIVE OFFICES
520 COLUMBIA DRIVE
JOHNSON CITY, NEW YORK 13790
The Dimensional Variable Annuity contract (the "Contract"), offered through
First Providian Life and Health Insurance Company (the "Company", "us", "we"
or "our," and formerly, "National Home Life Assurance Company of New York"),
provides a vehicle for investing on a tax-deferred basis in 7 investment
company Portfolios. The Contract is a group 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 (20
days for replacement) plus a 5 day grace period to allow for mail delivery,
during which you may cancel your investment in the Contract.
Your Net Purchase Payments for the Contract may be allocated among 7
Subaccounts of First Providian Life and Health Insurance Company's Separate
Account C. Assets of each Subaccount are invested in one of the following
Portfolios (which are contained within two open-end, diversified investment
companies):
. DFA Small Value Portfolio . DFA Short-term Fixed Portfolio
. DFA Large Value Portfolio . DFA Global Bond Portfolio
. DFA International Value Portfolio
. Federated Prime Money Fund II
. DFA International Small Portfolio
Your initial Net Purchase Payment(s) will, when your Contract is issued, be
invested immediately in your chosen Portfolios, unless you indicate otherwise.
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.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals of the Contract's Surrender Value may be made at any time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% penalty tax (and a portion may be subject to ordinary income taxes). If
you elect an Annuity Payment Option, Annuity Payments may be received on a
fixed and/or variable basis. You also have significant flexibility in choosing
the Annuity Date on which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for each Fund.
Please read the Prospectuses carefully and retain them for future reference. A
Statement of Additional Information for the Contract Prospectus, which has the
same date as this Prospectus, has also been filed with the Securities and
Exchange Commission, is incorporated herein by reference and is available free
by calling our Administrative Offices at 1-800-250-1828. The Table of Contents
of the Statement of Additional Information is included at the end of this
Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is available only in the State of New York.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON
IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON.
The date of this Prospectus is July 31, 1997. FM-1206 (NY)
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
GLOSSARY.................................................................... 2
HIGHLIGHTS.................................................................. 5
FEE TABLE................................................................... 7
Condensed Financial Information............................................. 8
Financial Statements........................................................ 9
Performance Measures........................................................ 9
Additional Performance Measures............................................. 9
Yield and Effective Yield................................................... 10
The Company and the Separate Account........................................ 11
DFA Investment Dimensions Group Inc......................................... 11
The Federated Insurance Series.............................................. 11
The Portfolios.............................................................. 12
CONTRACT FEATURES........................................................... 13
Right to Cancel Period.................................................... 14
Contract Application and Purchase Payments................................ 14
Purchasing by Wire........................................................ 14
Allocation of Purchase Payments........................................... 14
Charges and Deductions.................................................... 15
Accumulated Value......................................................... 16
Exchanges Among the Portfolios............................................ 16
Full and Partial Withdrawals.............................................. 17
Systematic Withdrawal Option.............................................. 17
Dollar Cost Averaging Option.............................................. 18
IRS-Required Distributions................................................ 18
Minimum Balance Requirement............................................... 18
Designation of an Annuitant's Beneficiary................................. 18
Death of Annuitant Prior to Annuity Date.................................. 19
Annuity Date.............................................................. 19
Lump Sum Payment Option................................................... 20
Annuity Payment Options................................................... 20
Deferment of Payment...................................................... 21
FEDERAL TAX CONSIDERATIONS.................................................. 21
GENERAL INFORMATION......................................................... 26
</TABLE>
GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
before age 75 occurs plus any Net Purchase Payments subsequently made, less
any partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
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<PAGE>
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 20), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 20), the dollar amount of each Annuity Payment may change over time,
depending upon the investment experience of the Portfolio or Portfolios you
choose. Annuity Payments are based on the Contract's Accumulated Value as of
10 Business Days prior to the Annuity Date.
Annuity Unit - Unit of measure used to calculate Variable Annuity Payments
(see "Annuity Payment Options," page 19).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
Company ("we", "us", "our") - First Providian Life and Health Insurance
Company, a New York stock company.
Contract - The group flexible premium variable annuity contract described in
this Prospectus, participation in which will be evidenced by a certificate
issued to the Contract Owner.
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 application. 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.
Contract Year - A period of 12 months starting with the Contract Date or any
Contract Anniversary.
Death Benefit - The greater of the Contract's Accumulated Value on the date
the Company receives due Proof of Death of the Annuitant or the Adjusted Death
Benefit.
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount.
Funds - Each of (i) DFA Investment Dimensions Group Inc., and (ii) Federated
Insurance Series (advised by Federated Advisers).
General Account - The account which contains all of our assets other than
those held in our separate accounts.
Net Purchase Payment - Any Purchase Payment less the Premium Tax, if any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant-in which case the Annuitant's Beneficiary is entitled to the
3
<PAGE>
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 7 Portfolios in the Dimensional Variable Annuity: the VA Small Value
Portfolio (the "DFA Small Value Portfolio"), the VA Large Value Portfolio (the
"DFA Large Value Portfolio"), the VA International Value Portfolio (the "DFA
International Value Portfolio"), the VA International Small Portfolio (the
"DFA International Small Portfolio"), the VA Short-Term Fixed Portfolio (the
"DFA Short-Term Fixed Portfolio") and the VA Global Bond Portfolio (the "DFA
Global Bond Portfolio") of DFA Investment Dimensions Group Inc.; and the
Federated Prime Money Fund II (the "Federated Prime Money Portfolio") of
Federated Insurance Series (each, a "Portfolio" and collectively, the
"Portfolios"). In this Prospectus, Portfolio will also be used to refer to the
Subaccount that invests in the corresponding Portfolio.
Premium Tax - A regulatory tax that may be assessed by your state on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax, if any, will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Qualified Contract - An annuity contract as defined under Sections 403(b) and
408(b) of the Internal Revenue Code of 1986, as amended (the "Code").
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of First Providian Life and Health Insurance
Company's Separate Account C dedicated to the Contract. The Separate Account
consists of assets that are segregated by First Providian Life and Health
Insurance Company and, for Contract Owners, invested in the Portfolios. The
Separate Account is independent of the general assets of the Company. The
Separate Account Invests in the Portfolios.
Subaccount - That portion of the Separate Account that invests in shares of
the Funds' Portfolios. Each Subaccount will only invest in a single Portfolio.
The investment performance of each Subaccount is linked directly to the
investment performance of one of the 7 Portfolios.
Surrender Value - The Accumulated Value less any Premium Taxes incurred but
not yet deducted.
Valuation Period - The relative performance of your Contract is measured by
the Accumulation Unit Value. This value is calculated each Valuation Period. A
Valuation Period is defined as the period of time between the close of
business on one Business Day and the close of business on the following
Business Day.
4
<PAGE>
HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 2).
DIMENSIONAL VARIABLE ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in 7
investment company Portfolios. Monies may be subsequently withdrawn from the
Contract either as a lump sum or as annuity income as permitted under the
Contract. Accumulated Values and Annuity Payments depend on the investment
experience of the selected Portfolios. The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement but also for other long-term
investment purposes. The tax-deferred feature of the Contract is most
attractive to investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract and a Non-
Qualified Contract. Both Qualified and Non-Qualified Contracts offer tax-
deferral on increases in the Contract's value prior to withdrawal or
distribution; however Purchase Payments made by Contract Owners of Qualified
Contracts may be excludible or deductible from gross income in the year such
payments are made, subject to certain statutory restrictions and limitations.
(See "Federal Tax Considerations," at page 21.)
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 7 Subaccounts of the
Separate Account. The Subaccounts in turn invest exclusively in the following
7 Portfolios offered by the Funds: the DFA Small Value Portfolio, the DFA
Large Value Portfolio, the DFA International Value Portfolio, the DFA
International Small Portfolio, the DFA Short-Term Fixed Portfolio, the DFA
Global Bond Portfolio and the Federated Prime Money Portfolio. The assets of
each Portfolio are separate, and each Portfolio has distinct investment
objectives and policies as described in the corresponding Fund Prospectus..Page
12
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in
the Contract application. The Contract Owner may designate any person as a
Joint Owner. A Joint Owner shares ownership in all respects with the Contract
Owner. Prior to the Annuity Date, the Contract Owner has the right to assign
ownership, designate beneficiaries, and make permitted withdrawals and
Exchanges among the Subaccounts.
ANNUITANT
The Annuitant is a person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
ANNUITANT'S BENEFICIARY
The Contract Owner may designate any person to receive benefits under the
Contract which are payable upon the death of the Annuitant prior to the
Annuity Date.
HOW TO INVEST
To invest in the Contract, please consult your advisor who will assist you in
completing the Contract application. You will need to select an Annuitant. The
Annuitant may not be older than age 75. The minimum initial Purchase Payment
is $5,000 for Non-Qualified Contracts, and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); subsequent Purchase
Payments must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. You may make subsequent Purchase Payments at any time
before the Contract's Annuity Date, as long as the Annuitant specified in the
Contract is living.................................................Page 14
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ALLOCATION OF PURCHASE PAYMENTS
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in your chosen Portfolios immediately upon our receipt thereof, IN
WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE
PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. You must fill out and send us
the appropriate form or comply with other designated Company procedures if you
would like to change how subsequent Net Purchase Payments are allocated....Page
14
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (20 days for
replacement) plus a 5 day grace period to allow for mail delivery, during
which you may cancel your investment in the Contract. To cancel your
investment, please return your Contract to us or to the agent from whom you
purchased the Contract. When we receive the Contract, we will return the
Accumulated Value of your Purchase Payment(s) invested in the Portfolios plus
any fees and/or Premium Taxes that may have been subtracted from such
amount.............................................................Page 14
EXCHANGES
You may make unlimited Exchanges among the Portfolios provided you maintain a
minimum balance of $250, except in cases where Purchase Payments are made by
monthly payroll deduction, in each Subaccount to which you have allocated a
portion of your Accumulated Value. No fee is currently imposed for such
Exchanges, however, we reserve the right to charge a $15 fee for Exchanges in
excess of 12 per Contract Year. Exchanges must not reduce the value of any
Subaccount below $250, except in cases where Purchase Payments are made by
monthly payroll deduction, or that remaining amount will be transferred to
your other Subaccounts on a pro rata basis. (See also "Charges and
Deductions," page 15.).............................................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 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 19
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your Contract. We provide you with a variety of options as it
relates to those payments. At your discretion, payments may be either fixed or
variable or both. Fixed payouts are guaranteed for a designated period or for
life (either single or joint). Variable payments will vary depending on the
performance of the underlying Portfolio or Portfolios selected.....Page 20
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-250-1828 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.
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<PAGE>
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .50%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
administrative charges and policy fees which pay for administering the
Contract, and management, advisory and other fees, which reflect the costs of
the Funds..........................................................Page 15
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior
to age 59 1/2 may be subject to a 10% penalty tax (and a portion thereof may
be subject to ordinary income taxes)...............................Page 17
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed by your state) that you would incur as an owner of a Contract
(see page 15). The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as a
purchaser of the Contract. The fee table reflects all expenses for both the
Separate Account and the Funds. For a complete discussion of Contract costs
and expenses, see "Charges and Deductions," page 15.
CONTRACTOWNER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
Exchange Fees........................................................... None
ANNUAL CONTRACT FEE..................................................... $30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge....................................... .50%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .65%
</TABLE>
7
<PAGE>
PORTFOLIO ANNUAL EXPENSES
Except as may be indicated, the figures below are based on actual expenses for
fiscal year 1996 (as a percentage of each Portfolio's average net assets after
fee waiver and/or expense reimbursement, if applicable).
<TABLE>
<CAPTION>
TOTAL
MANAGEMENT PORTFOLIO
AND ADVISORY OTHER ANNUAL
EXPENSES EXPENSES EXPENSES
------------ -------- ---------
<S> <C> <C> <C>
DFA Small Value Portfolio....................... 0.50% 0.55% 1.05%
DFA Large Value Portfolio....................... 0.25% 0.78% 1.03%
DFA International Value Portfolio............... 0.40% 0.77% 1.17%
DFA International Small Portfolio............... 0.50% 0.77% 1.27%
DFA Short-Term Fixed Portfolio.................. 0.25% 0.45% 0.70%
DFA Global Bond Portfolio....................... 0.25% 1.48% 1.73%
Federated Prime Money Portfolio*................ 0.00% 0.80% 0.80%
</TABLE>
*The expense figures shown reflect actual expenses for fiscal year 1996
including voluntary waivers of a portion of the management fees and/or
assumption of expenses. The maximum Management and Advisory Expenses and
Total Portfolio Annual Expenses absent the voluntary waivers would have been
as follows: 0.50% and 1.36%, respectively, for the Federated Prime Money
Portfolio.
The following example illustrates the expenses that you would incur on a
$1,000 Purchase Payment over various periods, assuming (1) a 5% annual rate of
return and (2) redemption at the end of each period. As noted in the table
above, the Contract imposes no surrender or withdrawal charges of any kind.
Your expenses are identical whether you continue the Contract or withdraw the
entire value of your Contract at the end of the applicable period as a lump
sum or under one of the Contract's Annuity Payment Options.
<TABLE>
<CAPTION>
3
1 YEAR YEARS 5 YEARS 10 YEARS
------ ------ ------- --------
<S> <C> <C> <C> <C>
DFA Small Value Portfolio........................ $17.62 $54.56 $ 93.91 $203.92
DFA Large Value Portfolio........................ 17.41 53.94 92.87 201.77
DFA International Value Portfolio................ 18.82 58.24 100.13 216.77
DFA International Small Portfolio................ 19.83 61.29 105.28 227.35
DFA Short-Term Fixed Portfolio................... 14.08 43.76 75.57 165.51
DFA Global Bond Portfolio........................ 24.45 75.22 128.63 274.57
Federated Prime Money Portfolio.................. 15.09 46.85 80.84 176.63
</TABLE>
The Annual Contract Fee is reflected in these examples as a percentage equal
to the estimated total amount of fees collected during a calendar year divided
by the estimated total average net assets of the Portfolios during the same
calendar year. The fee is assumed to remain the same in each of the above
periods. (With respect to partial year periods, if any, in the examples, the
Annual Contract Fee is pro-rated to reflect only the applicable portion of the
partial year period.) The Annual Contract Fee will be deducted on each
Contract Anniversary and upon surrender or annuitization of the Contract, on a
pro rata basis, from each Subaccount. The Company may also deduct Premium
Taxes, if any, as incurred by the Company.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1996 THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
DFA
DFA DFA DFA DFA SHORT DFA FEDERATED
SMALL LARGE INT'L INT'L TERM GLOBAL PRIME
VALUE VALUE VALUE SMALL FIXED BOND MONEY
------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulation unit value as
of:
12/31/96................ 10.000 10.000 10.000 10.000 10.000 10.000 10.000
Number of units
outstanding as of:
12/31/96................ 0 0 0 0 0 0 0
</TABLE>
8
<PAGE>
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company (as well as
the Independent Auditors' Report thereon) are contained in the Statement of
Additional Information. No financial statements are included for the Separate
Account because, as of the end of the most recent fiscal year, the Subaccounts
of the Separate Account which invest in the Portfolios offered by the
Dimensional Variable Annuity had not commenced operations with respect to the
Portfolios, and consequently had no assets or liabilities.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and effective yield of the Federated Prime Money Portfolio, the yield of the
other Subaccounts, and the total return of all Subaccounts may appear in
reports and promotional literature to current or prospective Contract Owners.
Certain total return and performance information for operations of the DFA
Small Value Portfolio, DFA Large Value Portfolio, DFA International Value
Portfolio, DFA International Small Portfolio, DFA Short-Term Fixed Portfolio,
and DFA Global Bond Portfolio (collectively, the "DFA Subaccounts") for the
period from the inception of the DFA Subaccounts to March 30, 1997 reflect
operations of the DFA Subaccounts in the Providian Advisor's Edge Variable
Annuity.
Until October 1995, the DFA Large Value Portfolio (formerly DFA Global Value
Portfolio) invested its assets in both U.S. and international securities.
Depending on the period presented, total return and performance information
presented for the DFA Large Value Portfolio may reflect the performance of the
Portfolio when it invested in the stocks of both U.S. and international
companies. Total return and performance information for the DFA Large Value
Portfolio which include the period prior to October 1995 should not be
considered indicative of the Portfolio's future performance. (See also "VA
Large Value Portfolio," page 12.)
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's yield and total return, and a list of the indexes and other
benchmarks used in evaluating a Portfolio's performance.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission ("SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the deduction of the Annual Contract Fee and
all other Portfolio, Separate Account and Contract level charges except
Premium Taxes, if any.
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE
ANNUAL TOTAL RETURN
The Company may show actual Total Return (i.e., the percentage change in the
value of an Accumulation Unit) for one or more Subaccounts with respect to one
or more periods. The Company may also show actual Average Annual Total Return
(i.e., the average annual change in Accumulation Unit Values) with respect to
one or more periods. For one year, the actual Total Return and the actual
Average Annual Total Return are effective annual rates of return and are
equal. For periods greater than one year, the actual Average Annual Total
Return is the effective annual compounded rate of return for the periods
stated. Because the value of an Accumulation Unit reflects the Separate
Account and Portfolio expenses (see "Fee Table"), the actual Total Return and
actual Average Annual Total Return also reflect these expenses. These
percentages, however, do not reflect the Annual Contract Fee or Premium Taxes
(if any) which, if included, would reduce the percentages reported.
NON-STANDARDIZED 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
9
<PAGE>
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.
NON STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts which respect to one or more non-standardized base periods
commencing at the beginning of a calendar year (or date of inception, if
during the relevant year) and ending at the end of such calendar year. One
Year Return figures reflect the percentage change in actual Accumulation Unit
Values during the relevant period. These percentages reflect a deduction for
the Separate Account and Portfolios 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 HYPOTHETICAL TOTAL RETURN AND NON-STANDARDIZED HYPOTHETICAL
AVERAGE ANNUAL TOTAL RETURN
The Company may show Non-Standardized Hypothetical Total Return and Non-
Standardized Hypothetical Average Annual Total Return, calculated on the basis
of the historical performance of the Portfolios, and may assume the Contract
was in existence prior to its inception date (which it was not). After the
Contract's inception date, the calculations will reflect actual Accumulation
Unit Values. These returns are based on specified premium patterns which
produce the resulting Accumulated Values. They reflect a deduction for the
Separate Account expenses and Portfolio expenses. They do not include the
Annual Contract Fee or Premium Taxes (if any) which, if included, would reduce
the percentages reported.
The Non-Standardized Hypothetical 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 Hypothetical Average Annual Total Return for a Subaccount
is the effective annual compounded rate of return that would have produced the
ending Accumulated Value over the stated period had the performance remained
constant throughout.
YIELD AND EFFECTIVE YIELD
The Company may also show yield and effective yield figures for the Subaccount
investing in shares of the Federated Prime Money Portfolio. "Yield" refers to
the income generated by an investment in the Federated Prime Money Portfolio
over a seven-day period, which is then "annualized." That is, the amount of
income generated by the investment during that week is assumed to be generated
each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly but, when
annualized, the income earned by an investment in the Federated Prime Money
Portfolio is assumed to be reinvested. Therefore the effective yield will be
slightly higher than the yield because of the compounding effect of this
assumed reinvestment. These figures do not reflect the Annual Contract Fee or
Premium Taxes (if any) which, if included, would reduce the yields reported.
From time to time a Portfolio of a Fund may advertise its yield and total
return investment performance. For each Subaccount other than the Federated
Prime Money Portfolio for which the Company advertises yield, the Company
shall furnish a yield quotation referring to the Portfolio computed in the
following manner: the net investment income per Accumulation Unit earned
during a recent one month period is divided by the Accumulation Unit Value on
the last day of the period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
10
<PAGE>
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
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company (formerly National Home Life Assurance Company of New York) is a
stock life insurance company incorporated under the laws of the State of New
York on March 23, 1970, with administrative offices at 520 Columbia Drive,
Johnson City, New York 13790. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in 10 states and the District of Columbia. As of
December 31, 1996, the Company had assets of approximately $324 million. The
Company is a wholly owned subsidiary of AEGON International N.V., 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 International N.V. is 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.
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT C
The Separate Account was established by the Company as a separate account
under the laws of the State of New York on November 4, 1994, pursuant to a
resolution of the Company's Board of Directors. The Separate Account is a unit
investment trust registered with the SEC under the Investment Company Act of
1940 (the "1940 Act"). Such registration does not signify that the SEC
supervises the management or the investment practices or policies of the
Separate Account. The Separate Account meets the definition of a "separate
account" under the federal securities laws.
The assets of the Separate Account are owned by the Company and the
obligations under the Contract are obligations of the Company. These assets
are held separately from the other assets of the Company and are not
chargeable with liabilities incurred in any other business operation of the
Company (except to the extent that assets in the Separate Account exceed the
reserves and other liabilities of the Separate Account). Income, gains and
losses incurred on the assets in the Separate Account, whether or not
realized, are credited to or charged against the Separate Account without
regard to other income, gains or losses of the Company. Therefore, the
investment performance of the Separate Account is entirely independent of the
investment performance of the General Account assets or any other separate
account maintained by the Company.
The Separate Account has dedicated 7 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Funds. Additional
Subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
DFA INVESTMENT DIMENSIONS GROUP INC. (ADVISED BY DIMENSIONAL FUND ADVISORS
INC.)
DFA Investment Dimensions Group Inc. is an open-end management investment
company organized under Maryland law in 1981, and is registered under the 1940
Act. The Fund issues 28 series of shares, including the DFA Small Value
Portfolio, the DFA Large Value Portfolio (formerly, the DFA Global Value
Portfolio), the DFA International Value Portfolio, the DFA International Small
Portfolio, the DFA Short-Term Fixed Portfolio and the DFA Global Bond
Portfolio, which are the only portfolios available as part of the Dimensional
Variable Annuity. Dimensional Fund Advisors Inc. serves as this Fund's
investment advisor.
THE FEDERATED INSURANCE SERIES (ADVISED BY FEDERATED ADVISERS)
The Federated Insurance Series is an open-end management investment company
organized as a Massachusetts business trust and registered under the 1940 Act.
The Fund consists of eight investment portfolios, one of which is available as
part of the Dimensional Variable Annuity: the Federated Prime Money Portfolio.
Federated Advisers serves as this Fund's investment advisor.
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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.
The median market capitalization referred to in the description of the VA
Small Value and VA Large Value Portfolios set forth below is determined based
on size ranges on the appropriate securities markets. Size ranges are created
by ranking companies listed on the appropriate securities market by market
capitalization. Once the ranking is done, companies are divided into ten
groups (deciles) with each group containing an equal number of companies. The
first decile contains the 10% largest companies and the tenth decile contains
the 10% smallest companies. The median is determined by averaging the market
capitalization of the last company in the fifth decile and the market
capitalization of the first company in the sixth decile.
VA SMALL VALUE PORTFOLIO ("DFA SMALL VALUE PORTFOLIO")
The investment objective of the DFA Small Value Portfolio is to achieve long-
term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in common stocks of U.S. companies (a) with shares that
have a high book value in relation to their market value (a "book to market
ratio") and (b) whose market capitalizations are smaller than that of the
company having the median market capitalization of companies whose shares are
listed on the NYSE. Book to market distributions are created by ranking the
NYSE by book to market ratios, forming 10 groups (deciles) with each group
containing an equal number of companies. A company's shares will be considered
to have a high book to market ratio if the ratio equals or exceeds the ratios
of any of the 30% of companies with the highest positive book to market ratios
whose shares are listed on the NYSE.
VA LARGE VALUE PORTFOLIO ("DFA LARGE VALUE PORTFOLIO")
The investment objective of the DFA Large Value Portfolio is to achieve long-
term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in common stocks of U.S. Companies (a) that have a high
book to market ratio and (b) whose market capitalizations equal or exceed that
of the company having the median market capitalization of companies, whose
shares are listed on the NYSE. Pursuant to a special meeting of this
Portfolio's shareholders held on September 15, 1995, the DFA Large Value
Portfolio's investment policy was changed to permit the Portfolio to achieve
its investment objective by investing substantially all of its assets in the
stock of U.S. companies and the sale of the Portfolio's non-U.S. securities to
another series of shares of DFA Investment Dimensions Group Inc.
VA INTERNATIONAL VALUE PORTFOLIO ("DFA INTERNATIONAL VALUE PORTFOLIO")
The investment objective of the DFA International Portfolio is to achieve
long-term capital appreciation. This Portfolio seeks to achieve its investment
objective by investing in value stocks of large non-U.S. companies. A
company's shares will be considered eligible for investment if the adviser
believes such shares are value stocks at the time of purchase. Securities are
considered value stocks primarily because a company's shares have a book to
market ratio that equals or exceeds the ratios of any of the 30% of companies
in that country with the highest positive book to market ratios.
VA INTERNATIONAL SMALL PORTFOLIO ("DFA INTERNATIONAL SMALL PORTFOLIO")
The investment objective of the DFA International Small Portfolio is to
achieve long-term capital appreciation. This Portfolio provides investors with
access to securities portfolios consisting of small Japanese, United Kingdom,
Continental and Pacific Rim companies. The Portfolio seeks to achieve its
investment objective by investing its assets in a broad and diverse group of
marketable stocks of (1) Japanese small companies which are traded in the
Japanese securities markets; (2) United Kingdom small companies which are
traded principally on the International Stock Exchange of the United Kingdom
and the Republic of Ireland ("ISE"); (3) small companies organized under the
laws of certain European countries; and (4) small companies located in
Australia, New Zealand and Asian countries whose shares are traded principally
on the securities markets located in those countries. A "Japanese small
company" means a company located in Japan whose market capitalization is not
larger than the largest of those in the smaller one-half (deciles 6 through
10) of companies whose securities are listed on the First Section of the Tokyo
Stock Exchange. A "United Kingdom small company" means a company organized in
the United Kingdom, with shares listed on the ISE
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whose market capitalization is not larger than the largest of those in the
smaller one-half (deciles 6 through 10) of companies included in the Financial
Times-Actuaries All Share Index. With respect to small companies organized
under the laws of certain European countries, company size will be determined
by the investment advisor in a manner that will compare the market
capitalizations for companies in all countries of this segment in which the
Portfolio invests (i.e., on a European basis). The size of companies located
in Australia, New Zealand and Asian countries will be determined by the
investment advisor in a manner that will compare the market capitalizations of
the companies in all countries of this segment in which the Portfolio invest
(i.e., on a Pacific Rim basis).
VA SHORT-TERM FIXED PORTFOLIO ("DFA SHORT-TERM FIXED PORTFOLIO")
The investment objective of the DFA Short-Term Fixed Portfolio is to achieve a
stable real value (i.e., a return in excess of the rate of inflation) of
invested capital with a minimum of risk. This Portfolio seeks to achieve its
investment objective by investing in U.S. government obligations, U.S.
government agency obligations, dollar denominated obligations of foreign
issuers issued in the U.S., bank obligations, including U.S. subsidiaries and
branches of foreign banks, corporate obligations, commercial paper, repurchase
agreements and obligations of supranational organizations. Generally, this
Portfolio will acquire obligations which mature within one year from the date
of settlement, but substantial investments may be made in obligations maturing
within two years from the date of settlement when greater returns are
available.
VA GLOBAL BOND PORTFOLIO ("DFA GLOBAL BOND PORTFOLIO")
The DFA Global Bond Portfolio seeks to provide a market rate of return for a
global fixed income portfolio with low relative volatility of returns. This
Portfolio will invest primarily in obligations issued or guaranteed by the
U.S. and foreign governments, their agencies and instrumentalities,
obligations of other foreign issuers rated AA or better and supranational
organizations, such as the World Bank, the European Investment Bank, European
Economic Community, and European Coal and Steel Community and corporate debt
obligations.
FEDERATED PRIME MONEY FUND II ("FEDERATED PRIME MONEY PORTFOLIO")
The investment objective of the Federated Prime Money Portfolio is to provide
current income consistent with stability of principal and liquidity. The
Portfolio pursues its investment objective by investing exclusively in a
portfolio of money market instruments maturing in 397 days or less.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services, total expenses and
charges can be found in the current prospectuses for the corresponding Funds.
THE FUNDS' PROSPECTUSES SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may be made available to registered separate accounts offering
variable annuity and variable life products of the Company as well as other
insurance companies or to a person or plan, including a pension or retirement
plan receiving favorable tax treatment under the Code, that qualifies to
purchase shares of the Funds under Section 817(h) of the Code. Although we
believe it is unlikely, a material conflict could arise among the interests of
the Separate Account and one or more of the other participating separate
accounts and other qualified persons or plans. In the event of a material
conflict, the affected insurance companies agree to take any necessary steps,
including removing their separate accounts from the Funds if required by law,
to resolve the matter.
CONTRACT FEATURES
The rights and benefits under the Contract are described below and in the
Contract. The Company reserves the right to make any modification to conform
the Contract to, or give the Contract Owner the benefit of, any federal or
state statute or any rule or regulation of the United States Treasury
Department.
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RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for 10 days after you receive the Contract (20
days for replacement) plus a 5 day grace period to allow for mail delivery.
You may cancel the Contract during the Right to Cancel Period by returning the
Contract to our Administrative Offices, 520 Columbia Drive, Johnson City, New
York 13790 or to the agent from whom you purchased the Contract or mailing it
to us at P.O. Box 1950, Binghamton, New York 13902. Upon cancellation, the
Contract is treated as void from the Contract Date and when we receive the
Contract, we will return the Accumulated Value of your Purchase Payment(s)
invested in the Portfolios plus any fees and/or Premium Taxes that may have
been subtracted from such amount.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
If an applicant wishes to purchase a Contract, the applicant should send his
or her completed application and initial Purchase Payment to the address
indicated on the application, or to such other location as the Company may
from time to time designate. If the applicant wishes to make personal delivery
by hand or courier to the Company of the completed application and initial
Purchase Payment (rather than through the mail), he or she must do so at our
Administrative Offices at 520 Columbia Drive, Johnson City, New York 13790.
The initial Purchase Payment for a Non-Qualified Contract must be equal to or
greater than the $5,000 minimum investment requirement. The initial Purchase
Payment for a Qualified Contract must be equal to or greater than $2,000 (or
you may establish a payment schedule of $50 a month by payroll deduction).
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within two Business Days after acceptance of the
application and the initial Purchase Payment. Acceptance is subject to the
application being received in good order, and the Company reserves the right
to reject any application or initial Purchase Payment.
Acceptance is subject to the application being received in good order, and the
Company reserves the right to reject any application or initial Purchase
Payment.
If the initial Purchase Payment cannot be credited because the application is
incomplete, we will contact the applicant, explain the reason for the delay
and will refund the initial Purchase Payment within five Business Days, unless
the applicant instructs us to retain the initial Purchase Payment and credit
it as soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity
Date, as long as the Annuitant is living. Additional Purchase Payments must be
for at least $500 for Non-Qualified Contracts, or $50 for Qualified Contracts.
Additional Purchase Payments received prior to the close of the New York Stock
Exchange (generally 4:00 P.M. Eastern time) are credited to the Accumulated
Value at the close of business that same day. Additional Purchase Payments
received after the close of the New York Stock Exchange are processed the next
Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
The Company reserves the right to refuse to issue this Contract in cases
involving an exchange for another Contract. In cases where a Contract Owner or
former Contract Owner requests the Company to reverse a surrender or
withdrawal transaction, whether full or partial, the Company reserves the
right to refuse such requests or to 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-
250-1828.
ALLOCATION OF PURCHASE PAYMENTS
You specify in the Contract application how your Net Purchase Payments will be
allocated. You may allocate each Net Purchase Payment to one or more of the
Portfolios as long as such portions are whole number percentages provided
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no Portfolio may contain a balance less than $250, except in cases where
Purchase Payments are made by monthly payroll deduction. 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.
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in your Portfolios immediately upon our receipt thereof, in which
case you will bear full investment risk for any amounts allocated to the
Portfolios during the Right to Cancel Period.
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts.
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the
net asset value of the Separate Account. The annual mortality and expense risk
charge is .50% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to the Company surplus and will be used for any lawful purpose,
including any shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
The Annual Contract Fee is deducted proportionately from the Subaccounts. For
any Contract with amounts allocated to the Subaccounts, the $30 fee is
assessed per Contract, not per Portfolio chosen. The Annual Contract Fee will
be deducted on each Contract Anniversary and upon surrender, on a pro rata
basis, from each Subaccount. These deductions represent reimbursement for the
costs expected to be incurred over the life of the Contract for issuing and
maintaining each Contract and the Separate Account.
EXCHANGES
Each Contract Year you may make an unlimited number of Exchanges between
Portfolios, provided that after an Exchange no Portfolio may contain a balance
less than $250, except in cases where Purchase Payments are made by monthly
payroll deduction. No fee is currently imposed for such Exchanges; however, we
reserve the right to charge a $15 fee for Exchanges in excess of 12 per
Contract Year.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The administrative charges or fees may be reduced for sales of Contracts to a
trustee, employer or similar entity representing a group where the Company
determines that such sales result in savings of administrative expenses. In
addition, directors, officers and bona fide full-time employees (and their
spouses and minor children) of the Company, its ultimate parent company, AEGON
N.V., and certain of their affiliates are permitted to purchase Contracts with
substantial reduction of administrative charges or fees or with a waiver or
modification of certain minimum or maximum
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purchase and transaction amounts or balance requirements. Contracts so
purchased are for investment purposes only and may not be resold except to the
Company.
In no event will reduction or elimination of fees or charges or waiver or
modification of transaction or balance requirements be permitted where such
reduction, elimination, waiver or modification will be unfairly discriminatory
to any person. Additional information about reductions in charges is contained
in the Statement of Additional Information.
TAXES
Under present laws, the Company will not incur New York state or local 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 21.)
Based upon these expectations, no charge is currently being made to the
Separate Account for corporate federal income taxes that may be attributable
to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a
charge may be made in future years for any federal income taxes incurred by
the Company. This might become necessary if the tax treatment of the Company
is ultimately determined to be other than what the Company currently believes
it to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflect the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in each Fund's Prospectus and
Statement of Additional Information.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s); and
reduced by: (i) any decrease in the Accumulated Value due to investment
results of the selected Portfolio(s), (ii) a daily charge to cover the
mortality and expense risks assumed by the Company, (iii) any charge to cover
the cost of administering the Contract, (iv) any partial withdrawals, and, if
exercised by the Company, (v) any charges for any Exchanges made after the
first 12 in any Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios of the Funds. 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 application or by completing 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.
The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Prior to the acceptance of any request,
the caller will be asked by a customer service representative for his
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or her Contract number and social security number. In addition, telephone
communications from a third party authorized to transact in an account will
undergo reasonable procedures to confirm that instructions are genuine. The
third party caller will be asked for his or her name, company affiliation (if
appropriate), the Contract number to which he or she is referring, and the
social security number of the Contract Owner. All calls will be recorded, and
this information will be verified with the Contract Owner's records prior to
processing a transaction. Furthermore, all transactions performed by a
customer service representative will be verified with the Contract Owner
through a written confirmation statement. Neither the Company nor the Funds
shall be liable for any loss, cost or expense for action on telephone
instructions that are believed to be genuine in accordance with these
procedures.
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of
the Surrender Value by sending a written request to our Administrative
Offices. Full or partial withdrawals may only be made before the Annuity Date
and all partial withdrawal requests must be for at least $500. The amount
available for full or partial withdrawal is the Surrender Value at the end of
the Valuation Period during which the written request for withdrawal is
received. The Surrender Value is an amount equal to the Accumulated Value,
less any Premium Taxes incurred but not yet deducted. The withdrawal amount
may be paid in a lump sum to you, or if elected, all or any part may be paid
out under an Annuity Payment Option. (See "Annuity Payment Options," page 20.)
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. Your proceeds will normally be processed and mailed to
you within 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 21.)
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank. If, at the
time the Contract Owner requests a full or partial withdrawal, he has not
provided the Company with a written election not to have federal income taxes
withheld, the Company must by law withhold such taxes from the taxable portion
of any full or partial withdrawal and remit that amount to the federal
government. Moreover, the Code provides that a 10% penalty tax may be imposed
on certain early withdrawals. (See "Federal Tax Considerations," page 21.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of
the Contract (taking into account any prior withdrawals) may be more or less
than the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the
day and at the frequency indicated on the Systematic Withdrawal Request Form.
The start date for the systematic withdrawals must be between the first and
twenty-eighth day of the month. You may discontinue the Systematic Withdrawal
Option at any time by notifying us in writing at least 30 days prior to your
next scheduled withdrawal date.
Like any other partial withdrawal, each Systematic Withdrawal is subject to
taxes on earnings. If the Contract Owner has not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold 10% from the taxable portion of the Systematic Withdrawal and
remit that amount to the federal government. Moreover, the Code provides that
a 10% penalty tax may be imposed on certain early withdrawals. (See "Federal
Tax Considerations," page 21.) You may wish to consult a tax advisor regarding
any tax consequences that might result prior to electing the Systematic
Withdrawal Option.
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We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for
such service.
DOLLAR COST AVERAGING OPTION
If you have at least $5,000 of Accumulated Value in the Federated Prime Money
Portfolio, you may choose to have a specified dollar amount transferred from
this Portfolio to other Portfolios in the Separate Account 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 application or at a
later date. The minimum amount that may be transferred each month into any
Portfolio is $250. The maximum amount which may be transferred is equal to the
Accumulated Value in the Federated Prime Money Portfolio when elected, divided
by 12.
The transfer date will be the same calendar day each month as the Contract
Date. The dollar amount will be allocated to the Portfolios in the proportions
you specify on the appropriate Company form, or, if none are specified, in
accordance with your original investment allocation. If, on any transfer date,
the Accumulated Value is equal to or less than the amount you have elected to
have transferred, the entire amount will be transferred and the option will
end. You may change the transfer amount once each Contract Year, or cancel
this option by sending the appropriate Company form to our Administrative
Offices which must be received at least seven days before the next transfer
date.
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within five years after
date of death or be paid under an Annuity Payment Option under which payments
will begin within one year of the Contract Owner's death and will be made for
the life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason
of death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $250, except in
cases where Purchase Payments are made by monthly payroll deduction, 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, and if no Purchase Payment has been received
within three years, we reserve the right to liquidate the account. You would
be notified that the Accumulated Value of your account is below the Contract's
minimum requirement and be allowed 60 days to make an additional investment
before the account is liquidated. Proceeds would be promptly paid to the
Contract Owner. The full proceeds would be taxable as a withdrawal. We will
not exercise this right with respect to Qualified Contracts.
DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the application. 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
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any payment made or other action taken before the Company acknowledges such
form. You may also make the designation of Annuitant's Beneficiary irrevocable
by sending us the appropriate Company form and obtaining approval from the
Company. Changes in the Annuitant's Beneficiary may then be made only with the
consent of the designated irrevocable Annuitant's Beneficiary.
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died, that
share of the Death Benefit will be paid equally to the survivor(s);
(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) Unless otherwise provided, 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. Unless otherwise provided, if
an Annuitant's Beneficiary dies within 15 days after the Annuitant's
death and before the Company receives due proof of the Annuitant's
death, proceeds will be paid as though the Annuitant's Beneficiary had
died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's
named beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her
estate. If a Life Annuity with Period Certain option was elected, and if the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid to the Annuitant's Beneficiary or your designated Payee.
DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and
is payable upon receipt of due Proof of Death of the Annuitant as well as
proof that the Annuitant died prior to the Annuity Date. Upon receipt of this
proof, the Death Benefit will be paid within seven days, or as soon thereafter
as the Company has sufficient information about the Annuitant's Beneficiary to
make the payment. The Annuitant's Beneficiary may receive the amount payable
in a lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the
sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period before age 75 occurs plus any Net Purchase Payments subsequently made,
less any partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date in the application, 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
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Date and Annuity Payment options available for Qualified Contracts may also be
controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated
Value, less any Premium Taxes incurred but not yet deducted.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $2,000, 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
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is living. Annuity Payment Options are not available to: (1) an assignee; or
(2) any other than a natural person, except with the consent of the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; conversely, they will decrease if the actual experience is
lower. The method of computation of Variable Annuity Payments is described in
more detail in the Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-250-1828.
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.
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 advisor regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation
is made regarding the likelihood of continuation of the federal income tax
laws, the Treasury regulations or the current interpretations by the Internal
Revenue Service. We reserve the right to make uniform changes in the Contract
to the extent necessary to continue to qualify the Contract as an annuity. For
a discussion of federal income taxes as they relate to the Funds, please see
the accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons," page 23, and
"Diversification Standards," page 24.)
Section 72 provides that the proceeds of a full or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to the
extent the amounts held under the Contract exceed the "investment in the
Contract,"
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as that term is defined in the Code. The "investment in the Contract" can
generally be described as the cost of the Contract, and generally constitutes
all Purchase Payments paid for the Contract less any amounts received under
the Contract that are excluded from the individual's gross income. The taxable
portion is taxed at ordinary income tax rates. For purposes of this rule, a
pledge or assignment of a Contract is treated as a payment received on account
of a partial withdrawal of a Contract.
Upon receipt of a full or partial withdrawal or an Annuity Payment under the
Contract, you will be taxed if the value of the Contract exceeds the
investment in the Contract. Ordinarily, the taxable portion of such payments
will be taxed at ordinary income tax rates. Partial withdrawals are generally
taken out of earnings first and then Purchase Payments.
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after tax
contributions, the Contract Owner is entitled to exclude the portion of each
withdrawal or annuity payment constituting a return of after tax
contributions. Once all of your after tax contributions have been returned to
you on a non-taxable basis, subsequent withdrawals or annuity payments are
fully taxable as ordinary income. Since the Company has no knowledge of the
amount of after tax contributions you have made, you will need to make this
computation in the preparation of your federal income tax return.
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 an applicable tax treaty.
With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals (i) made on or after the death of the Contract Owner or, where the
Contract Owner is not an individual, the death of the Annuitant, who is
defined as the individual the events in whose life are of primary importance
in affecting the timing and payment under the Contracts; (ii) attributable to
the taxpayer's becoming disabled within the meaning of Code Section 72(m)(7);
(iii) that are part of a series of substantially equal periodic payments made
at least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi)
under an immediate annuity contract as defined in Section 72(u)(4); (vii)
allocable to the investment in the Contract prior to August 14, 1982; or
(viii) that are purchased by an employer on termination of certain types of
qualified plans and that are held by the employer until the employee separates
from service. Other tax penalties may apply to certain distributions as well
as to certain contributions and other transactions under Qualified Contracts.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the year
in which the modification occurs will be increased by an amount (as determined
under Treasury Regulations) equal to the penalty tax that would have been
imposed but for item (iii) above, plus interest for the deferral period. The
foregoing rule applies if the modification takes place (a) before the close of
the period that is five years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Separate Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
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Investment income and realized capital gains on the assets of the Separate
Account are reinvested and taken into account in determining the Accumulated
Value. Under existing federal income tax law, the Separate Account's investment
income, including realized net capital gains, is not taxed to the Company. The
Company reserves the right to make a deduction for taxes should they be imposed
with respect to such items in the future.
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract, a Contract must generally
provide the following two distribution rules: (a) if any Contract Owner dies on
or after the Annuity Date and before the entire interest in the Contract has
been distributed, the remaining portion of such interest must be distributed at
least as quickly as the method in effect on the Contract Owner's death; and (b)
if any Contract Owner dies before the Annuity Date, the entire interest must
generally be distributed within five years after the date of death. To the
extent such interest is payable to the Owner's Designated Beneficiary, however,
such interests may be annuitized over the life of that Owner's Designated
Beneficiary or over a period not extending beyond the life expectancy of that
Owner's Designated Beneficiary, so long as distributions commence within one
year after the Contract Owner's death. If the Owner's Designated Beneficiary is
the spouse of the Contract Owner, the Contract (together with the deferral on
tax on the accrued and future income thereunder) may be continued unchanged in
the name of the spouse as Contract Owner. The term Owner's Designated
Beneficiary means the natural person named by the Contract Owner as a
beneficiary and to whom ownership of the Contract passes by reason of the
Contract Owner's death (unless the Contract Owner was also the Annuitant--in
which case the Annuitant's Beneficiary is entitled to the Death Benefit).
If the Contract Owner is not an individual, the death of the "primary
Annuitant" (as defined under the Code) is treated as the death of the Contract
Owner. The primary Annuitant is the individual who is of primary importance in
affecting the timing or the amount of payout under a Contract. In addition,
when the Contract Owner is not an individual, a change in the primary Annuitant
is treated as the death of the Contract Owner. Finally, in the case of joint
Contract Owners, the distribution will be required at the death of the first of
the Contract Owners.
TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger tax on the gain in
the Contract to the Contract Owner at the time of such transfer. The investment
in the Contract of the transferee will be increased by any amount included in
the Contract Owner's income. This provision, however, does not apply to those
transfers between spouses or incident to a divorce which are governed by Code
Section 1041(a).
CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. The rule also does not apply where the Contract is acquired
by the estate of a decedent, where the Contract is a qualified funding asset
for structured settlements, where the Contract is purchased on behalf of an
employee upon termination of a qualified plan, and in the case of an immediate
annuity, as defined under Section 72(u)(4) of the Code.
ASSIGNMENTS
A transfer of ownership of a Contract, a collateral assignment or the
designation of an Annuitant or other beneficiary who is not also the Contract
Owner may result in tax consequences to the Contract Owner, Annuitant or
beneficiary that are not discussed herein. A Contract Owner contemplating such
a transfer or assignment of a Contract should contact a tax advisor with
respect to the potential tax effects of such a transaction.
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MULTIPLE CONTRACTS RULE
All non-qualified annuity contracts issued by the same company (or affiliate)
to the same Contract Owner during any calendar year are to be aggregated and
treated as one contract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received under any Contract prior
to the Contract's Annuity Date, such as a partial withdrawal, will be taxable
(and possibly subject to the 10% federal penalty tax) to the extent of the
combined income in all such contracts. The Treasury Department has specific
authority to issue regulations that prevent the avoidance of Code Section 72(e)
through the serial purchase of annuity contracts or otherwise. In addition,
there may be other situations in which the Treasury Department may conclude
that it would be appropriate to aggregate two or more Contracts purchased by
the same Contract Owner. The aggregation rules do not apply to immediate
annuities as defined under Section 72(u)(4) of the Code. Accordingly, a
Contract Owner should consult a tax advisor before purchasing more than one
Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), after a start up period, the Separate Account will be
required to diversify its investments. The Regulations generally require that
on the last day of each quarter of a calendar year, no more than 55% of the
value of the Separate Account is represented by any one investment, no more
than 70% is represented by any two investments, no more than 80% is represented
by any three investments, and no more than 90% is represented by any four
investments. A "look-through" rule applies that suggests that each Subaccount
of the Separate Account will be tested for compliance with the percentage
limitations by looking through to the assets of the Portfolios in which each
such Subaccount invests. All securities of the same issuer are treated as a
single investment. Each government agency or instrumentality will be treated as
a separate issuer for purposes of those limitations.
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.
Under 403(b) Contracts, the Contract Owner and the Annuitant must be the same
person. 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, or
$10,000, 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.
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The loan interest rate is variable, is determined monthly, and is based on the
Moody's Corporate Bond Yield Averages-Monthly Average Corporates (the
"Average"), which is published by Moody's Investors Service, Inc. We will
notify you of the initial loan interest rate at the time the loan is made. The
initial interest rate may be increased or reduced by us during the life of the
loan based on changes of the Average. If a change in the Average would cause
the initial loan interest rate (or a subsequent rate that has been previously
increased or reduced by us) to be reduced by 0.50% per annum or more, we must
reduce the loan interest rate. If a change in the Average would cause the
initial loan interest rate (or a subsequent rate that has been previously
increased or reduced by us) to be increased by 0.50% per annum, we may increase
the loan interest rate at our discretion. In no event will the loan interest
rate be greater than the maximum allowed by the insurance regulations of the
State of New York. 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. 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 you instruct us to the contrary, 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. Unless instructed to the
contrary by you, the loan amount will be withdrawn on a pro rata basis from the
Portfolios to which Accumulated Value has been allocated. 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 to the Collateral Fixed Account
will never be less than the 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 in the same
proportion as when the loan was initially made, unless you specify otherwise.
If a repayment in excess of a billed amount is received, the excess will be
applied towards the principal portion of the outstanding loan. Payments
received which are less than the billed amount will not be accepted and will be
returned to you.
If a partial surrender is taken from your individual account due to nonpayment
of a billed quarterly installment, the date of the surrender will be the first
Business Day following the 30 calendar day period in which the repayment was
due.
Prepayment of the entire loan is allowed. At the time of prepayment, the
Company will bill you for any accrued interest. The Company will consider the
loan paid when the loan balance and accrued interest are paid.
If the individual account is surrendered or if the Contract Owner 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
an Annuity Payment Option is elected while there is an outstanding loan
balance, the outstanding loan balance and accrued interest will be deducted
from the Accumulated Value.
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.
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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 21.)
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 21.)
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
Portfolio will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be necessary
or appropriate to reflect such substitution or change. Furthermore, if deemed
to be in the best interests of persons having voting rights under the
Contracts, the Separate Account may be operated as a management company under
the 1940 Act or any other form permitted by law, may be deregistered under the
1940 Act in the event such registration is no longer required, or may be
combined with one or more other separate accounts.
VOTING RIGHTS
The Funds do not hold regular meetings of shareholders. The Directors/Trustees
of each Fund may call special meetings of shareholders as may be required by
the 1940 Act or other applicable law. To the extent required by law, the
Portfolio shares held in the Separate Account will be voted by the Company at
shareholder meetings of each Fund in accordance with instructions received from
persons having voting interests in the corresponding Portfolio. Fund shares as
to which no timely instructions are received or shares held by the Company as
to which Contract Owners have no beneficial interest will be voted in
proportion to the voting instructions that are received with respect to all
Contracts participating in that Portfolio. Voting instructions to abstain on
any item to be voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
26
<PAGE>
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the Annuity
Date will be determined by dividing the reserve for such Contract allocated to
the Portfolio by the net asset value per share of the corresponding Portfolio.
After the Annuity Date, the votes attributable to a Contract decrease as the
reserves allocated to the Portfolio decrease. In determining the number of
votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the corresponding
Fund. Voting instructions will be solicited by written communication prior to
such meeting in accordance with procedures established by such Fund.
AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
the Company and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt Berenson & Johnson LLP of Washington, D.C. has provided legal
advice relating to the federal securities laws applicable to the issue and sale
of the Contracts. All matters of New York law pertaining to the validity of the
Contract and the Company's right to issue such Contracts have been passed upon
by Kimberly A. Scouller, Esquire, on behalf of the Company.
27
<PAGE>
TABLE OF CONTENTS FOR THE PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY AND FOR THE
DIMENSIONAL VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
THE 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
Federated Prime Money Portfolio Subaccount Yields....................... 5
30-Day Yield for Non-Money Market Subaccounts........................... 5
Standardized Average Annual Total Return for Subaccounts................ 6
ADDITIONAL PERFORMANCE MEASURES........................................... 6
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return.................................................... 6
Non-Standardized Total Return Year-to-Date.............................. 6
Non-Standardized One Year Return........................................ 7
Non-Standardized Hypothetical Total Return and Non-Standardized
Hypothetical Average Annual Total Return............................... 7
Individual Computer Generated Illustrations............................. 7
PERFORMANCE COMPARISONS................................................... 7
SAFEKEEPING OF ACCOUNT ASSETS............................................. 9
THE COMPANY............................................................... 10
STATE REGULATION.......................................................... 10
RECORDS AND REPORTS....................................................... 10
DISTRIBUTION OF THE CONTRACTS............................................. 10
LEGAL PROCEEDINGS......................................................... 11
OTHER INFORMATION......................................................... 11
FINANCIAL STATEMENTS...................................................... 11
Audited Financial Statements............................................ 11
</TABLE>
28
<PAGE>
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT C
PROSPECTUS
FOR THE
PGA RETIREMENT ANNUITY
OFFERED BY
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A NEW YORK STOCK COMPANY)
ADMINISTRATIVE OFFICES
520 COLUMBIA DRIVE
JOHNSON CITY, NEW YORK 13790
The PGA Retirement Annuity contract (the "Contract"), offered through First
Providian Life and Health Insurance Company (the "Company," "us," "we" or
"our," and formerly, "National Home Life Assurance Company of New York"),
provides a vehicle for investing on a tax-deferred basis in 5 investment
company Portfolios. The Contract is a group variable annuity contract and is
intended for retirement savings or other long-term investment purposes.
The minimum initial Purchase Payment for Non-Qualified Contracts is $3,000. The
minimum initial purchase payment for Qualified Contracts is $2,000 (or $50
monthly by payroll deduction). The Contract is a flexible-premium deferred
variable annuity that provides for a Right to Cancel Period of 10 days (20 days
for replacement) plus a 5 day grace period to allow for mail delivery, during
which you may cancel your investment in the Contract.
Your Net Purchase Payments for the Contract may be allocated among 5
Subaccounts of First Providian Life and Health Insurance Company's Separate
Account C. Assets of each Subaccount are invested in one of the following
Portfolios:
. CAPITAL PRESERVATION PORTFOLIO
. INCOME ORIENTED PORTFOLIO
. GROWTH AND INCOME PORTFOLIO
. CAPITAL GROWTH PORTFOLIO
. MAXIMUM APPRECIATION PORTFOLIO
Your initial Net Purchase Payment(s), when your Contract is issued, will be
invested immediately in your chosen Portfolio(s), unless you indicate
otherwise.
The Contract's Accumulated Value varies with the investment performance of the
Portfolio(s) you select. You bear all investment risk associated with the
Portfolios. Investment results for your Contract are not guaranteed.
The Contract offers a number of ways of withdrawing monies at a future date,
including a lump sum payment and several Annuity Payment Options. Full or
partial withdrawals of the Contract's Surrender Value may be made at any time,
although in many instances withdrawals made prior to age 59 1/2 are subject to
a 10% federal tax penalty (and a portion may be subject to ordinary income
taxes). If you elect an Annuity Payment Option, Annuity Payments may be
received on a fixed and/or variable basis. You also have significant
flexibility in choosing the Annuity Date on which Annuity Payments begin.
This Prospectus sets forth the information you should know before investing in
the Contract. It must be accompanied by a current Prospectus for the
Portfolios. Please read the Prospectus carefully and retain it for future
reference. A Statement of Additional Information for the Contract Prospectus,
which has the same date as this Prospectus, has also been filed with the
Securities and Exchange Commission, is incorporated herein by reference and is
available free by calling our Administrative Offices at 1-800-250-1828. The
Table of Contents of the Statement of Additional Information is included at the
end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The Contract is available only in the State of New York.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The date of this Prospectus is July 31, 1997.
FM-1189 (NY)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GLOSSARY................................................................... 3
HIGHLIGHTS................................................................. 5
FEE TABLE.................................................................. 7
Condensed Financial Information............................................ 8
Financial Statements....................................................... 8
Performance Measures....................................................... 8
Additional Performance Measures............................................ 9
Yield and Effective Yield.................................................. 9
The Company and the Separate Account....................................... 9
Providian Series Trust..................................................... 10
The Portfolios............................................................. 10
CONTRACT FEATURES.......................................................... 11
Right to Cancel Period................................................... 11
Contract Purchase and Purchase Payments.................................. 11
Purchasing by Wire....................................................... 12
Allocation of Purchase Payments.......................................... 12
Charges and Deductions................................................... 12
Accumulated Value........................................................ 13
Exchanges Among the Portfolios........................................... 13
Full and Partial Withdrawals............................................. 14
Systematic Withdrawal Option............................................. 14
IRS-Required Distributions............................................... 15
Minimum Balance Requirement.............................................. 15
Designation of an Annuitant's Beneficiary................................ 15
Death of Annuitant Prior to Annuity Date................................. 16
Annuity Date............................................................. 16
Lump Sum Payment Option.................................................. 16
Annuity Payment Options.................................................. 16
Deferment of Payment..................................................... 17
FEDERAL TAX CONSIDERATIONS................................................. 18
GENERAL INFORMATION........................................................ 21
</TABLE>
2
<PAGE>
GLOSSARY
Accumulation Unit - A measure of your ownership interest in the Contract prior
to the Annuity Date.
Accumulation Unit Value - The value of each Accumulation Unit which is
calculated each Valuation Period.
Accumulated Value - The value of all amounts accumulated under the Contract
prior to the Annuity Date.
Adjusted Death Benefit - The sum of all Net Purchase Payments made during the
first six Contract Years, less any partial withdrawals taken. During each
subsequent six-year period, the Adjusted Death Benefit will be the Death
Benefit on the last day of the previous six-year period plus any Net Purchase
Payments made, less any partial withdrawals taken during the current six-year
period. After the Annuitant attains age 75, the Adjusted Death Benefit will
remain equal to the Death Benefit on the last day of the six-year period
ending before age 75 occurs plus any Net Purchase Payments subsequently made,
less any partial withdrawals subsequently taken.
Annual Contract Fee - The $30 annual fee charged by the Company to cover the
cost of administering each Contract. The Annual Contract Fee will be deducted
on each Contract Anniversary and upon surrender, on a pro rata basis, from
each Subaccount.
Annuitant - The person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid.
Annuitant's Beneficiary - The person(s) to whom any benefits are due upon the
Annuitant's death prior to the Annuity Date.
Annuity Date - The date on which Annuity Payments begin. The Annuity Date is
always the first day of the month you specify.
Annuity Payment - One of a series of payments made under an Annuity Payment
Option.
Annuity Payment Option - One of several ways in which withdrawals from the
Contract may be made. Under a Fixed Annuity Option (see "Annuity Payment
Options," page 16), the dollar amount of each Annuity Payment does not change
over time. Under a Variable Annuity Option (see "Annuity Payment Options,"
page 16), 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 16).
Annuity Unit Value - The value of each Annuity Unit which is calculated each
Valuation Period.
Business Day - A day when the New York Stock Exchange is open for trading.
Company ("we," "us," "our") - First Providian Life and Health Insurance
Company, a New York 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.
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.
3
<PAGE>
Exchange - One Exchange will be deemed to occur with each voluntary transfer
from any Subaccount.
General Account - The account which contains all of our assets other than
those held in our separate accounts.
Net Purchase Payment - Any Purchase Payment less the Premium Tax, if any.
Non-Qualified Contract - Any Contract other than those described under the
Qualified Contract reference in this Glossary.
Owner's Designated Beneficiary - The person to whom ownership of this Contract
passes upon the Contract Owner's death, unless the Contract Owner was also the
Annuitant, in which case the Annuitant's Beneficiary is entitled to the Death
Benefit. (Note: this transfer of ownership to the Owner's Designated
Beneficiary will generally not be subject to probate, but will be subject to
estate and inheritance taxes. Consult with your tax and estate adviser to be
sure which rules will apply to you.)
Payee - The Contract Owner, Annuitant, Annuitant's Beneficiary, or any other
person, estate, or legal entity to whom benefits are to be paid.
Portfolio - A separate investment series of the Trust. The Trust currently
offers 5 series in the PGA Retirement Annuity: the Capital Preservation
Portfolio, the Income Oriented Portfolio, the Growth and Income Portfolio, the
Capital Growth Portfolio, and the Maximum Appreciation Portfolio (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 your state on the
Purchase Payments you make to this Contract. The amount which we must pay as
Premium Tax, if any, will be deducted from each Purchase Payment or from your
Accumulated Value as it is incurred by us.
Proof of Death - (a) A certified death certificate; (b) a certified decree of
a court of competent jurisdiction as to the finding of death; (c) a written
statement by a medical doctor who attended the deceased; or (d) any other
proof of death satisfactory to the Company.
Purchase Payment - Any premium payment. The minimum initial Purchase Payment
is $3,000 for Non-Qualified Contracts and $2,000 for Qualified Contracts (or
$50 monthly by payroll deduction for Qualified Contracts); each additional
Purchase Payment must be at least $500 for Non-Qualified Contracts or $50 for
Qualified Contracts. Purchase Payments may be made at any time prior to the
Annuity Date as long as the Annuitant is living.
Qualified Contract - An annuity contract as defined under Sections 403(b) and
408(b) of the Internal Revenue Code of 1986, as amended (the "Code").
Right to Cancel Period - The period during which the Contract can be canceled
and treated as void from the Contract Date.
Separate Account - That portion of First Providian Life and Health Insurance
Company's Separate Account C dedicated to the Contract. The Separate Account
consists of assets that are segregated by First Providian Life and Health
Insurance Company and, for Contract Owners, invested in the Portfolios. The
Separate Account is independent of the general assets of the Company.
Subaccount - That portion of the Separate Account that invests in shares of
the Portfolios. Each Subaccount will only invest in a single Portfolio. The
investment performance of each Subaccount is linked directly to the investment
performance of one of the Portfolios.
Surrender Value - The Accumulated Value less any Premium Taxes incurred but
not yet deducted.
Trust - The Providian Series Trust.
Underlying Funds - Four series of the Trust in which the Portfolios invest.
The four series are the High Quality Stock Fund, Fixed Income Fund,
International Active Fund, and Money Market Fund.
Valuation Period -- The performance of your Contract is measured by using the
Accumulation Unit Value. This value is calculated at the close of each
Business Day. A Valuation Period is defined as the period of time between the
close of business on one Business Day and the close of business on the
following Business Day.
4
<PAGE>
HIGHLIGHTS
YOU CAN FIND DEFINITIONS OF IMPORTANT TERMS IN THE GLOSSARY (PAGE 3).
PGA RETIREMENT ANNUITY
The Contract provides a vehicle for investing on a tax-deferred basis in 5
investment company Portfolios. Monies may be subsequently withdrawn from the
Contract either as a lump sum or as annuity income as permitted under the
Contract. Accumulated Values and Annuity Payments depend on the investment
experience of the selected Portfolio(s). The investment performance of the
Portfolios is not guaranteed. Thus, you bear all investment risk for monies
invested under the Contract.
WHO SHOULD INVEST
The Contract is designed for investors seeking long term, tax-deferred
accumulation of funds, generally for retirement but also for other long-term
investment purposes. The tax-deferred feature of the Contract is most
attractive to investors in high federal and state marginal income tax
brackets. The Contract is offered as both a Qualified Contract and a Non-
Qualified Contract. Both Qualified and Non-Qualified Contracts offer tax-
deferral on increases in the Contract's value prior to withdrawal or
distribution; however, Purchase Payments made by Contract Owners of Qualified
Contracts may be excludible or deductible from gross income in the year such
payments are made, subject to certain statutory restrictions and limitations.
(See "Federal Tax Considerations," page 18.)
INVESTMENT CHOICES
Your investment in the Contract may be allocated among 5 Subaccounts of the
Separate Account. The Subaccounts in turn invest exclusively in the following
5 Portfolios offered by the Trust: the Capital Preservation Portfolio, the
Income Oriented Portfolio, the Growth and Income Portfolio, the Capital Growth
Portfolio, and the Maximum Appreciation Portfolio. The assets of each
Portfolio are separate. Each Portfolio has distinct investment objectives and
policies as described in the prospectus for the Portfolios. (See page 10.)
CONTRACT OWNER
The Contract Owner is the person designated as the owner of the Contract in
the Contract application. The Contract Owner may designate any person as a
Joint Owner. A Joint Owner shares ownership in all respects with the Contract
Owner. Prior to the Annuity Date, the Contract Owner has the right to assign
ownership, designate beneficiaries, and make permitted withdrawals and
Exchanges among the Subaccounts.
ANNUITANT
The Annuitant is a person whose life is used to determine the duration of any
Annuity Payments and upon whose death, prior to the Annuity Date, benefits
under the Contract are paid. The Annuitant may not be older than age 75.
ANNUITANT'S BENEFICIARY
The Contract Owner may designate any person to receive benefits under the
Contract which are payable upon the death of the Annuitant prior to the
Annuity Date.
HOW TO INVEST
To invest in the Contract, you will need to provide the necessary information
to us in the Contract application. You will need to select an Annuitant. The
Annuitant may not be older than age 75 at the time the Contract is issued. The
minimum initial Purchase Payment is $3,000 for Non-Qualified Contracts, and
$2,000 for Qualified Contracts (or $50 monthly by payroll deduction for
Qualified Contracts). Subsequent Purchase Payments must be at least $500 for
Non-Qualified Contracts or $50 for Qualified Contracts. You may make
subsequent Purchase Payments at any time before the Contract's Annuity Date,
as long as the Annuitant specified in the Contract is living. A waiver of the
Initial Purchase Payment and additional Purchase Payment minimum requirements
may be available. (See page 11.)
5
<PAGE>
ALLOCATION OF PURCHASE PAYMENTS
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in the Portfolio(s) you selected immediately upon our receipt
thereof, IN WHICH CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS
ALLOCATED TO THE PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD. You must fill
out and send us the appropriate form or comply with other designated Company
procedures if you would like to change how subsequent Net Purchase Payments
are allocated. (See page 12.)
RIGHT TO CANCEL PERIOD
The Contract provides for a Right to Cancel Period of 10 days (20 days for
replacement) plus a 5 day grace period to allow for mail delivery, during
which you may cancel your investment in the Contract. To cancel your
investment, please return your Contract to us. When we receive the Contract,
we will return the Accumulated Value of your Purchase Payment(s) invested in
the Portfolios plus any fees and/or Premium Taxes that may have been
subtracted from such amount. (See page 11.)
EXCHANGES
You may make unlimited Exchanges among the Portfolios provided you maintain a
minimum balance of $250, except in cases where Purchase Payments are made by
monthly payroll deduction, in each Subaccount to which you have allocated a
portion of your Accumulated Value. No fee is currently imposed for such
Exchanges; however, we reserve the right to charge a $15 fee for Exchanges in
excess of 12 per Contract Year. Exchanges must not reduce the value of any
allocation to any Subaccount below $250, except in cases where Purchase
Payments are made by monthly payroll deduction, or that remaining amount will
be transferred to your other Subaccounts on a pro rata basis. (See also
"Charges and Deductions," page 12.)
DEATH BENEFIT
If the Annuitant specified in your Contract dies prior to the Annuity Date,
your named Annuitant's Beneficiary will receive the Death Benefit under the
Contract. The Death Benefit is the greater of your Accumulated Value or the
Adjusted Death Benefit on the date we receive due proof of the Annuitant's
death. During the first six Contract Years, the Adjusted Death Benefit will be
the sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period ending before age 75 occurs plus any Net Purchase Payments subsequently
made, less any partial withdrawals subsequently taken. The Annuitant's
Beneficiary may elect to receive these proceeds as a lump sum or as Annuity
Payments. If the Annuitant dies on or after the Annuity Date, any unpaid
payments certain will be paid, generally to the Annuitant's Beneficiary, in
accordance with the Contract. (See page 16.)
ANNUITY PAYMENT OPTIONS
In addition to the full and partial withdrawal privileges, you may also choose
to create an income stream by requesting an annuity income from us. As the
Contract Owner, you may elect one of several Annuity Payment Options. By
electing an Annuity Payment Option, you are asking us to systematically
liquidate your Contract. We provide you with a variety of options as it
relates to those payments. At your discretion, payments may be either fixed or
variable or both. Fixed payouts are guaranteed for a designated period or for
life (either single or joint). Variable payments will vary depending on the
performance of the Portfolio(s) selected. (See page 16.)
CONTRACT AND POLICYHOLDER INFORMATION
If you have questions about your Contract, please telephone our Administrative
Offices at 1-800-250-1828 between the hours of 8:00 A.M. to 5:00 P.M. Eastern
time. Please have the Contract number and the Contract Owner's name ready when
you call. As Contract Owner you will receive periodic statements confirming
any financial transactions that take place, as well as quarterly statements
and an annual statement.
CHARGES AND DEDUCTIONS UNDER THE CONTRACT
The Contract has no sales charges and has an annual mortality and expense risk
charge of .55%. Contract Owners may withdraw up to 100% of the Accumulated
Value without incurring a surrender charge. The Contract also includes
6
<PAGE>
administrative charges and policy fees, which pay for administering the
Contract, as well as portions of the management, advisory and other fees,
which reflect the costs of operating the Portfolios. (See page 12.)
FULL AND PARTIAL WITHDRAWALS
You may withdraw all or part of the Surrender Value of the Contract before the
earlier of the Annuity Date or the Annuitant's death. Withdrawals made prior
to age 59 1/2 may be subject to a 10% federal tax penalty (and a portion
thereof may be subject to ordinary income taxes). (See page 14.)
FEE TABLE
The following table illustrates all expenses (except for Premium Taxes that
may be assessed by your state) that you would incur as an owner of a Contract
(see page 12). The purpose of this table is to assist you in understanding the
various costs and expenses that you would bear directly or indirectly as a
purchaser of the Contract. The fee table reflects all expenses for both the
Separate Account and the Portfolios. For a complete discussion of Contract
costs and expenses, see "Charges and Deductions," page 12.
<TABLE>
<S> <C>
CONTRACTOWNER TRANSACTION EXPENSES
Sales Load Imposed on Purchases......................................... None
Contingent Deferred Sales Load (surrender charge)....................... None
Exchange Fees........................................................... None
ANNUAL CONTRACT FEE..................................................... $ 30
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of assets in the
Separate Account)
Mortality and Expense Risk Charge....................................... .55%
Administrative Charge................................................... .15%
----
Total Annual Separate Account Expenses.................................. .70%
</TABLE>
PORTFOLIO ANNUAL EXPENSES
The Portfolios will operate at a zero expense level during the first three
years of operations. However, while those Portfolios are expected to operate
without expenses, including management fees, Contract Owners in those
Portfolios bear indirectly the expenses of the Underlying Funds in which those
Portfolios invest. The following chart illustrates the indirect expense ratio
that each Portfolio is estimated to incur based on certain allocations among
the Underlying Funds. Except as may be indicated, the figures below are based
on estimated expenses for the first fiscal year of operation (as a percentage
of each such Portfolio's average net assets after fee waiver and/or expense
reimbursement).
<TABLE>
<CAPTION>
TOTAL
PORTFOLIO
ANNUAL
EXPENSES
---------
<S> <C>
Capital Preservation Portfolio.................................. 0.77%*
Income Oriented Portfolio....................................... 0.89%*
Growth and Income Portfolio..................................... 0.90%*
Capital Growth Portfolio........................................ 0.94%*
Maximum Appreciation Portfolio.................................. 0.96%*
</TABLE>
* These numbers are based on an agreement by Providian Investment Advisors,
Inc. (the "Adviser") to limit the Other Expenses of each Underlying Fund
so that the ratio of expenses (excluding advisory fees) to net assets on
an annual basis does not exceed 0.25%. Expenses in excess of such amounts
will be assumed by the Adviser until the earlier of (a) the end of three
years after commencement of operations or (b) the termination by the
Trust's Trustees or the Portfolios' shareholders, but not the Adviser, of
the Trust's Advisory Agreement with the Adviser. In the absence of this
agreement and the agreement that the Portfolio will operate at a zero
expense level during the first three years of operations, it is estimated
that the total Portfolio annual expenses would have been as follows:
Capital Preservation Portfolio 4.77%; Income Oriented Portfolio 3.95%;
Growth and Income Portfolio 3.75%; Capital Growth Portfolio 3.42%; and
Maximum Appreciation Portfolio 3.31%.
7
<PAGE>
The following example illustrates the expenses that you would incur on a $1,000
Purchase Payment over various periods, assuming (1) a 5% annual rate of return
and (2) redemption at the end of each period. As noted in the table above, the
Contract imposes no surrender or withdrawal charges of any kind. Your expenses
are identical whether you continue the Contract or withdraw the entire value of
your Contract at the end of the applicable period as a lump sum or under one of
the Contract's Annuity Payment Options.
<TABLE>
<CAPTION>
3
1 YEAR YEARS
------ ------
<S> <C> <C>
Capital Preservation Portfolio............................. $22.22 $67.99
Income Oriented Portfolio.................................. $23.47 $71.80
Growth and Income Portfolio................................ $23.60 $72.17
Capital Growth Portfolio................................... $23.85 $72.93
Maximum Appreciation Portfolio............................. $24.10 $73.69
</TABLE>
The Annual Contract Fee in these examples is estimated and reflects a
percentage equal to the total amount of fees collected during a calendar year
divided by the total average net assets of the Portfolios during the same
calendar year. The fee is assumed to remain the same in each year of the above
periods. (With respect to partial year periods, if any, in the examples, the
Annual Contract Fee is pro-rated to reflect only the applicable portion of the
partial year period.) The Annual Contract Fee will be deducted on each
Contract Anniversary and upon surrender or annuitization of the Contract, on a
pro rata basis, from each Subaccount. The Company may also deduct Premium
Taxes, if any, as incurred by the Company.
This example should not be considered a representation of past or future
expenses or performance. Actual expenses may be higher or lower than those
shown, subject to the guarantees in the Contract.
CONDENSED FINANCIAL INFORMATION
(FOR THE PERIOD JANUARY 1, 1996 THROUGH DECEMBER 31, 1996)
<TABLE>
<CAPTION>
GROWTH
CAPITAL INCOME AND CAPITAL MAXIMUM
PRESERVATION ORIENTED INCOME GROWTH APPRECIATION
------------ -------- ------ ------- ------------
<S> <C> <C> <C> <C> <C>
Accumulation unit value
as of:
12/31/96.............. N/A N/A N/A N/A N/A
Number of units
outstanding as of:
12/31/96.............. N/A N/A N/A N/A N/A
</TABLE>
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company (as well as
the Independent Auditors' Report thereon) are contained in the Statement of
Additional Information. No financial statements are included for the Separate
Account because, as of the end of the most recent fiscal year, the Subaccounts
of the Separate Account offered by the PGA Retirement Annuity had not
commenced operations, and consequently had no assets or liabilities.
PERFORMANCE MEASURES
Performance for the Subaccounts of the Separate Account, including the yield
and the total return of all Subaccounts, may appear in reports and promotional
literature to current or prospective Contract Owners.
Please refer to the discussion below and to the Statement of Additional
Information for a more detailed description of the method used to calculate a
Portfolio's and Subaccount's yield and total return, and a list of the indexes
and other benchmarks used in evaluating a Portfolio's and Subaccount's
performance.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN
When advertising performance of the Subaccounts, the Company will show the
Standardized Average Annual Total Return for a Subaccount which, as prescribed
by the rules of the Securities and Exchange Commission ("SEC"), is the
effective annual compounded rate of return that would have produced the cash
redemption value over the stated period had the performance remained constant
throughout. The Standardized Average Annual Total Return assumes a single
$1,000 payment made at the beginning of the period and full redemption at the
end of the period. It reflects the deduction of the Annual Contract Fee and
all other Portfolio, Separate Account and Contract level charges except
Premium Taxes, if any.
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ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE
ANNUAL TOTAL RETURN
The Company may show actual Total Return (i.e., the percentage change in the
value of an Accumulation Unit) for one or more Subaccounts with respect to one
or more periods, including Total Return Year-to-Date with respect to certain
periods. The Company may also show actual Average Annual Total Return (i.e.,
the average annual change in Accumulation Unit Values) with respect to one or
more periods. For one year, the actual Total Return and the actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the actual Average Annual Total Return is the
effective annual compounded rate of return for the periods stated. Because the
value of an Accumulation Unit reflects the Separate Account and Portfolio
expenses (see "Fee Table"), the actual Total Return and actual Average Annual
Total Return also reflect these expenses. These percentages, however, do not
reflect the Annual Contract Fee or Premium Taxes (if any) which, if included,
would reduce the percentages reported.
YIELD AND EFFECTIVE YIELD
From time to time a Portfolio may advertise its yield and total return
investment performance. For each Subaccount for which the Company advertises
yield, the Company shall furnish a yield quotation referring to the Portfolio
computed in the following manner: the net investment income per Accumulation
Unit earned during a recent one month period is divided by the Accumulation
Unit Value on the last day of the period.
Please refer to the Statement of Additional Information for a description of
the method used to calculate a Portfolio's yield and total return, and a list
of the indexes and other benchmarks used in evaluating a Portfolio's
performance.
The performance measures discussed above reflect results of the Portfolios and
are not intended to indicate or predict future performance. For more detailed
information, see the Statement of Additional Information.
Performance information for the Subaccounts may be contrasted with other
comparable variable annuity separate accounts or other investment products
surveyed by Lipper Analytical Services, a nationally recognized independent
reporting service which ranks mutual funds and other investment companies by
overall performance, investment objectives and assets. Performance may also be
tracked by other ratings services, companies, publications or persons who rank
separate accounts or other investment products on overall performance or other
criteria, including Morningstar, Inc. Performance figures will be calculated
in accordance with standardized methods established by each reporting service.
THE COMPANY AND THE SEPARATE ACCOUNT
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
The Company (formerly National Home Life Assurance Company of New York) is a
stock life insurance company incorporated under the laws of the State of New
York on March 23, 1970, with administrative offices at 520 Columbia Drive,
Johnson City, New York 13790. The Company is principally engaged in offering
life insurance, annuity contracts, and accident and health insurance and is
admitted to do business in 10 states and the District of Columbia. As of
December 31, 1996, the Company had assets of approximately $324 million. The
Company is a wholly owned subsidiary of AEGON International N.V., 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 International N.V. is 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.
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY SEPARATE ACCOUNT C
The Separate Account was established by the Company as a separate account
under the laws of the State of New York on November 4, 1994, 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.
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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 5 Subaccounts to the Contract, each of
which invests solely in a corresponding Portfolio of the Trust. Additional
subaccounts may be established at the discretion of the Company. The Separate
Account also includes other subaccounts which are not available under the
Contract.
PROVIDIAN SERIES TRUST
The Trust is a diversified investment company presently consisting of 9
separate series each having different investment objectives and policies. This
Contract offers 5 series of shares, each a professionally managed investment
Portfolio. Each Portfolio seeks to achieve its objective by investing in a
number of other series offered by the Trust. The Adviser has retained Atlanta
Capital Management Company, L.L.C. ("Atlanta Capital") to serve as sub-adviser
for the Portfolios. Subject to the supervision and direction of the Board of
Trustees of the Trust, Atlanta Capital determines how each of its Portfolio's
assets will be invested in the Underlying Funds. Atlanta Capital receives a
fee, which is paid by the Adviser and is a percentage of the annual net asset
value of the Underlying Funds for which Atlanta Capital serves as sub-adviser
and in which the Portfolios invest. The advisory fee is deducted automatically
from the assets of the Underlying Funds, and is therefore paid indirectly by
the Portfolios.
THE PORTFOLIOS (SEE ACCOMPANYING PROSPECTUS)
FOR MORE INFORMATION CONCERNING THE RISKS ASSOCIATED WITH EACH PORTFOLIO'S
INVESTMENTS, PLEASE REFER TO THE PROSPECTUS FOR THE PORTFOLIOS.
THE CAPITAL PRESERVATION PORTFOLIO-seeks high current income with low
volatility of principal.
THE INCOME ORIENTED PORTFOLIO-seeks income and, secondarily, long term growth
of capital.
THE GROWTH AND INCOME PORTFOLIO-seeks growth of capital and income.
THE CAPITAL GROWTH PORTFOLIO-seeks long term growth of capital and,
secondarily, current income.
THE MAXIMUM APPRECIATION PORTFOLIO-seeks capital appreciation.
OTHER PORTFOLIO INFORMATION
There is no assurance that a Portfolio will achieve its stated investment
objective.
Additional information concerning the investment objectives and policies of
the Portfolios and the investment advisory services, total expenses and
charges can be found in the current prospectuses for the Portfolios. THE
PORTFOLIOS' PROSPECTUS SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
CONCERNING THE ALLOCATION OF NET PURCHASE PAYMENTS TO A PORTFOLIO.
The Portfolios may, in the future, be made available to registered separate
accounts offering variable annuity and variable life products of the Company
as well as other insurance companies or to a person or plan, including a
pension or retirement plan receiving favorable tax treatment under the Code,
that qualifies to purchase shares of the Portfolios under Section 817(h) of
the Code. Although we believe it is unlikely, a material conflict could arise
among the interests of the Separate Account and one or more of the other
participating separate accounts and other qualified persons or plans. In the
event of a material conflict, the affected insurance companies agree to take
any necessary steps, including removing their separate accounts from the
Portfolios if required by law, to resolve the matter.
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CONTRACT FEATURES
The rights and benefits under the Contract are as described below and in the
Contract. The Company reserves the right to make any modification to conform
the Contract to, or give the Contract Owner the benefit of, any federal or
state statute or any rule or regulation of the United States Treasury
Department.
RIGHT TO CANCEL PERIOD
A Right to Cancel Period exists for 10 days after you receive the Contract (20
days for replacement) 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, 520 Columbia
Drive, Johnson City, New York 13790 or mailing it to us at P.O. Box 1950,
Binghamton, New York 13902. Upon cancellation, the Contract is treated as void
from the Contract Date and when we receive the Contract, we will return the
Accumulated Value of your Purchase Payment(s) invested in the Portfolios plus
any fees and/or Premium Taxes that may have been subtracted from such amount.
CONTRACT PURCHASE AND PURCHASE PAYMENTS
If you wish to purchase a Contract, you should complete the application and
forward it and the initial Purchase Payment to the address indicated on the
application, or to such address as the Company may from time to time
designate. If you wish to make personal delivery by hand or courier to the
Company of the completed application form and the initial Purchase Payment
(rather than through the mail), you must do so at our Administrative Offices
at 520 Columbia Drive, Johnson City, New York 13790. The initial Purchase
Payment for a Non-Qualified Contract must be equal to or greater than the
$3,000 minimum investment requirement. The Initial Purchase Payment for a
Qualified Contract must be equal to or greater than $2,000 (or you may
establish a payment schedule of $50 a month by payroll deduction). To obtain
an application, please call our Administrative Offices at 1-800-250-1828.
The Contract will be issued and the initial Purchase Payment less any Premium
Taxes will be credited within 2 Business Days after receipt of the application
and the initial Purchase Payment in good order. The Company reserves the right
to reject any application or initial Purchase Payment.
If the initial Purchase Payment cannot be credited within 5 Business Days
because the application is incomplete, we will contact the applicant, explain
the reason for the delay and will refund the initial Purchase Payment, unless
the applicant instructs us to retain the initial Purchase Payment and credit
it as soon as the necessary requirements are fulfilled.
Additional Purchase Payments may be made at any time prior to the Annuity
Date, as long as the Annuitant is living. Additional Purchase Payments must be
for at least $500 for Non-Qualified Contracts, or $50 for Qualified Contracts.
Additional Purchase Payments received prior to the close of the New York Stock
Exchange (generally 4:00 P.M. Eastern time) are credited to the Accumulated
Value at the close of business that same day. Additional Purchase Payments
received after the close of the New York Stock Exchange are processed the next
Business Day.
Total Purchase Payments may not exceed $1,000,000 without our prior approval.
With respect to Non-Qualified Contracts, an amendatory rider (the "Rider") to
the Contract has been filed for approval with the insurance regulatory
authority in New York. The Rider provides that during the first two Contract
years, we will waive the applicable minimum Initial Purchase Payment and
additional Purchase Payment limitations explained in the above paragraphs to
the extent that we will accept an Initial Purchase Payment of not less than
$250 and additional Purchase Payments of not less than $125. On the first day
of the third Contract Year, the applicable minimum limitations will be
imposed. If at any time after the second Contract Anniversary the sum of all
Purchase Payments made less any withdrawals taken does not meet the minimum
limitation for the Initial Purchase Payment amount specified in the above
paragraphs, we reserve the right to terminate the Contract, in which case we
will pay you the Accumulated Value. If (a) the New York insurance regulatory
authority has approved the Rider and (b) the Company has determined to make
the Rider available in New York, then the minimums set forth in the Rider
apply to your Contract.
The Company reserves the right to refuse to issue this Contract in cases
involving an exchange for another Contract. In cases where a Contract Owner or
former Contract Owner requests the Company to reverse a surrender or
withdrawal transaction, whether full or partial, the Company reserves the
right to refuse such requests or grant such requests on condition that the
Contract's Accumulated Value be adjusted to reflect appropriate investment
results, administration costs or loss of interest during the relevant period.
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<PAGE>
PURCHASING BY WIRE
For wiring instructions please contact our Administrative Offices at 1-800-
250-1828.
ALLOCATION OF PURCHASE PAYMENTS
You decide how your Net Purchase Payments will be allocated. You may allocate
each Net Purchase Payment to one of the Portfolios as long as such portions
are whole number percentages provided no Portfolio may contain a balance less
than $250, except in cases where Purchase Payments are made by monthly payroll
deduction. 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. If an additional Net Purchase Payment is not
accompanied by allocation instructions, it will be allocated to the same
Portfolio(s) as your prior Net Purchase Payments are invested at that time,
unless otherwise directed by you in writing in advance.
Your initial Net Purchase Payment(s) will, unless you indicate otherwise, be
invested in your Portfolio(s) immediately upon our receipt thereof, IN WHICH
CASE YOU WILL BEAR FULL INVESTMENT RISK FOR ANY AMOUNTS ALLOCATED TO THE
PORTFOLIOS DURING THE RIGHT TO CANCEL PERIOD.
CHARGES AND DEDUCTIONS
There are no sales charges for the Contracts.
MORTALITY AND EXPENSE RISK CHARGE
We impose a charge as compensation for bearing certain mortality and expense
risks under the Contracts. The annual charge is assessed daily based on the
net asset value of the Separate Account. The annual mortality and expense risk
charge is .55% of the net asset value of the Separate Account.
We guarantee that this annual charge will never increase. If this charge is
insufficient to cover actual costs and assumed risks, the loss will fall on
us. Conversely, if the charge proves more than sufficient, any excess will be
added to the Company surplus and will be used for any lawful purpose,
including any shortfall on the costs of distributing the Contracts.
The mortality risk borne by us under the Contracts, where one of the life
Annuity Payment Options is selected, is to make monthly Annuity Payments
(determined in accordance with the annuity tables and other provisions
contained in the Contract) regardless of how long all Annuitants may live. We
also assume mortality risk as a result of our guarantee of a Death Benefit in
the event the Annuitant dies prior to the Annuity Date.
The expense risk borne by us under the Contracts is the risk that the charges
for administrative expenses which are guaranteed for the life of the Contract
may be insufficient to cover the actual costs of issuing and administering the
Contract.
ADMINISTRATIVE CHARGE AND ANNUAL CONTRACT FEE
An administrative charge equal to .15% annually of the net asset value of the
Separate Account is assessed daily along with the Annual Contract Fee of $30.
The Annual Contract Fee is deducted proportionately from the Subaccounts. For
any Contract with amounts allocated to the Subaccounts, the $30 fee is
assessed per Contract, not per Portfolio chosen. The Annual Contract Fee will
be deducted from each Subaccount on each Contract Anniversary and upon
surrender, on a pro rata basis based on the number of months that have passed
since the last anniversary date. These deductions represent reimbursement for
the costs expected to be incurred over the life of the Contract for issuing
and maintaining each Contract and the Separate Account.
EXCHANGES
Each Contract Year you may make an unlimited number of Exchanges between
Portfolios, provided that after an Exchange no Portfolio may contain a balance
less than $250, except in cases where Purchase Payments are made by monthly
payroll deduction. No fee is currently imposed for such Exchanges; however, we
reserve the right to charge a $15 fee for Exchanges in excess of 12 per
Contract Year.
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EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The administrative charges or fees may be reduced for sales of Contracts to a
trustee, employer or similar entity representing a group where the Company
determines that such sales result in savings of administrative expenses. In
addition, directors, officers and bona fide full-time employees (and their
spouses and minor children) of the Company, its ultimate parent company, AEGON
N.V., and certain of their affiliates are permitted to purchase Contracts with
substantial reduction of administrative charges or fees or with a waiver or
modification of certain minimum or maximum purchase and transaction amounts or
balance requirements. Contracts so purchased are for investment purposes only
and may not be resold except to the Company.
In no event will reduction or elimination of fees or charges or waiver or
modification of transaction or balance requirements be permitted where such
reduction, elimination, waiver or modification will be unfairly discriminatory
to any person. Additional information about reductions in charges is contained
in the Statement of Additional Information.
TAXES
Under present laws, the Company will not incur New York state or local 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 18.)
Based upon these expectations, no charge is currently being made to the
Separate Account for corporate federal income taxes that may be attributable
to the Separate Account.
The Company will periodically review the question of a charge to the Separate
Account for federal income taxes related to the Separate Account. Such a
charge may be made in future years for any federal income taxes incurred by
the Company. This might become necessary if the tax treatment of the Company
is ultimately determined to be other than what the Company currently believes
it to be, if there are changes made in the federal income tax treatment of
annuities at the corporate level, or if there is a change in the Company's tax
status. In the event that the Company should incur federal income taxes
attributable to investment income or capital gains retained as part of the
reserves under the Contracts, the Accumulated Value of the Contract would be
correspondingly adjusted by any provision or charge for such taxes.
PORTFOLIO EXPENSES
The value of the assets in the Separate Account reflects the fees and expenses
paid by the Portfolios. A complete description of these expenses is found in
the "Fee Table" section of this Prospectus and in the Trust's Prospectus and
Statement of Additional Information.
ACCUMULATED VALUE
At the commencement of the Contract, the Accumulated Value equals the initial
Net Purchase Payment. Thereafter, the Accumulated Value equals the Accumulated
Value from the previous Business Day increased by: (i) any additional Net
Purchase Payments received by the Company and (ii) any increase in the
Accumulated Value due to investment results of the selected Portfolio(s)
during the Valuation Period; and reduced by: (i) any decrease in the
Accumulated Value due to investment results of the selected Portfolio(s), (ii)
a daily charge to cover the mortality and expense risks assumed by the
Company, (iii) any charge to cover the cost of administering the Contract,
(iv) any partial withdrawals, and (v) any charges for any Exchanges made after
the first 12 in any Contract Year.
EXCHANGES AMONG THE PORTFOLIOS
Should your investment goals change, you may exchange Accumulated Value among
the Portfolios. Requests for Exchanges, received by mail or by telephone,
prior to the close of the New York Stock Exchange (generally 4:00 P.M. Eastern
time) are processed at the close of business that same day. Requests received
after the close of the New York Stock Exchange are processed the next Business
Day. If you experience difficulty in making a telephone Exchange your Exchange
request may be made by regular or express mail. It will be processed on the
date received.
To take advantage of the privilege of initiating transactions by telephone,
you must first elect the privilege by completing the appropriate section of
the application or by completing 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.
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The Company will undertake reasonable procedures to confirm that instructions
communicated by telephone are genuine. Prior to the acceptance of any request,
the caller will be asked by a customer service representative for his or her
Contract number and social security number. In addition, telephone
communications from a third party authorized to transact in an account will
undergo reasonable procedures to confirm that instructions are genuine. The
third party caller will be asked for his or her name, company affiliation (if
appropriate), the Contract number to which he or she is referring, and the
social security number of the Contract Owner. All calls will be recorded, and
this information will be verified with the Contract Owner's records prior to
processing a transaction. Furthermore, all transactions performed by a
customer service representative will be verified with the Contract Owner
through a written confirmation statement. The Company, the Adviser, the Trust,
the Portfolios, and Atlanta Capital shall not be liable for any loss, cost or
expense for action on telephone instructions that are believed to be genuine
in accordance with these procedures.
FULL AND PARTIAL WITHDRAWALS
At any time before the Annuity Date and while the Annuitant is living, you may
make a partial or full withdrawal of the Contract to receive all or part of
the Surrender Value by sending a written request to our Administrative
Offices. Full or partial withdrawals may only be made before the Annuity Date
and all partial withdrawal requests must be for at least $500. The amount
available for full or partial withdrawal is the Surrender Value at the end of
the Valuation Period during which the written request for withdrawal is
received. The Surrender Value is an amount equal to the Accumulated Value,
less any Premium Taxes incurred but not yet deducted. The withdrawal amount
may be paid in a lump sum to you, or if elected, all or any part may be paid
out under an Annuity Payment Option. (See "Annuity Payment Options," page 16.)
You can make a withdrawal by sending the appropriate Company form to our
Administrative Offices. Your proceeds will normally be processed and mailed to
you within 2 Business Days after the receipt of the request but in no event
will it be later than 7 calendar days, subject to postponement in certain
circumstances. (See "Deferment of Payment," page 17.)
Payments under the Contract of any amounts derived from premiums paid by check
may be delayed until such time as the check has cleared your bank. If, at the
time the Contract Owner requests a full or partial withdrawal, he has not
provided the Company with a written election not to have federal income taxes
withheld, the Company must by law withhold 10% from the taxable portion of any
full or partial withdrawal and remit that amount to the federal government.
Moreover, the Code provides that a 10% penalty tax may be imposed on certain
early withdrawals. (See "Federal Tax Considerations," page 18.)
Since the Contract Owner assumes the investment risk with respect to amounts
allocated to the Separate Account, the total amount paid upon withdrawal of
the Contract (taking into account any prior withdrawals) may be more or less
than the total Net Purchase Payments made.
SYSTEMATIC WITHDRAWAL OPTION
You may choose to have a specified dollar amount provided to you on a regular
basis from the portion of your Contract's Accumulated Value that is allocated
to the Portfolios. By electing the Systematic Withdrawal Option, withdrawals
may be made on a monthly, quarterly, semi-annual or annual basis. The minimum
amount for each withdrawal is $250.
This option may be elected by completing the Systematic Withdrawal Request
Form. This form must be received by us at least 30 days prior to the date
systematic withdrawals will begin. Each withdrawal will be processed on the
day and at the frequency indicated on the Systematic Withdrawal Request Form.
The start date for the systematic withdrawals must be between the first and
twenty-eighth day of the month. You may discontinue the Systematic Withdrawal
Option at any time by notifying us in writing at least 30 days prior to your
next scheduled withdrawal date.
Like any other partial withdrawal, each Systematic Withdrawal is subject to
taxes on earnings. If the owner has not provided the Company with a written
election not to have federal income taxes withheld, the Company must by law
withhold 10% from the taxable portion of the Systematic Withdrawal and remit
that amount to the federal government. Moreover, the Code provides that a 10%
penalty tax may be imposed on certain early withdrawals. (See "Federal Tax
Considerations," page 18.) You may wish to consult a tax adviser regarding any
tax consequences that might result prior to electing the Systematic Withdrawal
Option.
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We reserve the right to discontinue offering the Systematic Withdrawal Option
upon 30 days written notice. We also reserve the right to charge a fee for
such service.
IRS-REQUIRED DISTRIBUTIONS
Prior to the Annuity Date, if you or, if applicable, a Joint Owner dies before
the entire interest in the Contract is distributed, the value of the Contract
must be distributed to the Owner's Designated Beneficiary (unless the Contract
Owner was also the Annuitant--in which case the Annuitant's Beneficiary is
entitled to the Death Benefit) as described in this section so that the
Contract qualifies as an annuity under the Code. If the death occurs on or
after the Annuity Date, the remaining portions of such interest will be
distributed at least as rapidly as under the method of distribution being used
as of the date of death. If the death occurs before the Annuity Date, the
entire interest in the Contract will be distributed within 5 years after date
of death or be paid under an Annuity Payment Option under which payments will
begin within 1 year of the Contract Owner's death and will be made for the
life of the Owner's Designated Beneficiary or for a period not extending
beyond the life expectancy of that beneficiary. The Owner's Designated
Beneficiary is the person to whom ownership of the Contract passes by reason
of death.
If any portion of the Contract Owner's interest is payable to (or for the
benefit of) the surviving spouse of the Contract Owner, the Contract may be
continued with the surviving spouse as the new Contract Owner.
MINIMUM BALANCE REQUIREMENT
We will transfer the balance in any Portfolio that falls below $250, except in
cases where Purchase Payments are made by monthly payroll deduction, due to a
partial withdrawal or Exchange, to the remaining Portfolio(s) held under that
Contract on a pro rata basis. Except as may be provided in the Rider, in the
event that the entire value of the Contract falls below $1,000, and if no
Purchase Payment has been received within three years, we reserve the right to
liquidate the account. You would then be allowed 60 days to make an additional
investment before the account is liquidated. Proceeds would be promptly paid
to the Contract Owner. The full proceeds would be taxable as a withdrawal. We
will not exercise this right with respect to Qualified Contracts.
DESIGNATION OF AN ANNUITANT'S BENEFICIARY
The Contract Owner may select one or more Annuitant's Beneficiaries and name
them in the application. Thereafter, while the Annuitant is living, the
Contract Owner may change the Annuitant's Beneficiary by sending us the
appropriate Company form. Such change will take effect on the date such form
is signed by the Contract Owner but will not affect any payment made or other
action taken before the Company acknowledges such form. You may also make the
designation of Annuitant's Beneficiary irrevocable by sending us the
appropriate Company form and obtaining approval from the Company. Changes in
the Annuitant's Beneficiary may then be made only with the consent of the
designated irrevocable Annuitant's Beneficiary.
If the Annuitant dies prior to the Annuity Date, the following will apply
unless the Contract Owner has made other provisions.
(a) If there is more than one Annuitant's Beneficiary, each will share in
the Death Benefits equally;
(b) If one or two or more Annuitant's Beneficiaries have already died, that
share of the Death Benefit will be paid equally to the survivor(s);
(c) If no Annuitant's Beneficiary is living, the proceeds will be paid to
the Contract Owner;
(d) If an Annuitant's Beneficiary dies at the same time as the Annuitant,
the proceeds will be paid as though the Annuitant's Beneficiary had
died first. If an Annuitant's Beneficiary dies within 15 days after the
Annuitant's death and before the Company receives due proof of the
Annuitant's death, proceeds will be paid as though the Annuitant's
Beneficiary had died first.
If an Annuitant's Beneficiary who is receiving Annuity Payments dies, any
remaining payments certain will be paid to that Annuitant's Beneficiary's
named beneficiary(ies) when due. If no Annuitant's Beneficiary survives the
Annuitant, the right to any amount payable will pass to the Contract Owner. If
the Contract Owner is the Annuitant, this right will pass to his or her
estate. If a Life Annuity with Period Certain option was elected, and if the
Annuitant dies on or after the Annuity Date, any unpaid payments certain will
be paid to the Annuitant's Beneficiary or your designated Payee.
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DEATH OF ANNUITANT PRIOR TO ANNUITY DATE
If the Annuitant dies prior to the Annuity Date, an amount will be paid as
proceeds to the Annuitant's Beneficiary. The Death Benefit is calculated and
is payable upon receipt of due Proof of Death of the Annuitant as well as
proof that the Annuitant died prior to the Annuity Date. Upon receipt of this
proof, the Death Benefit will be paid within seven days, or as soon thereafter
as the Company has sufficient information about the Annuitant's Beneficiary to
make the payment. The Annuitant's Beneficiary may receive the amount payable
in a lump sum cash benefit or under one of the Annuity Payment Options.
The Death Benefit is the greater of:
(1) The Accumulated Value on the date we receive due Proof of Death; or
(2) The Adjusted Death Benefit.
During the first six Contract Years, the Adjusted Death Benefit will be the
sum of all Net Purchase Payments made, less any partial withdrawals taken.
During each subsequent six-year period, the Adjusted Death Benefit will be the
Death Benefit on the last day of the previous six-year period plus any Net
Purchase Payments made, less any partial withdrawals taken during the current
six-year period. After the Annuitant attains age 75, the Adjusted Death
Benefit will remain equal to the Death Benefit on the last day of the six-year
period ending before age 75 occurs plus any Net Purchase Payments subsequently
made, less any partial withdrawals subsequently taken.
ANNUITY DATE
You may specify an Annuity Date in the application, which can be no later than
the first day of the month after the Annuitant's 85th birthday, without the
Company's prior approval. The Annuity Date is the date that Annuity Payments
are scheduled to commence under the Contract unless the Contract has been
surrendered or an amount has been paid as proceeds to the designated
Annuitant's Beneficiary prior to that date.
You may advance or defer the Annuity Date. However, the Annuity Date may not
be advanced to a date prior to 30 days after the date of receipt of a written
request or, without the Company's prior approval, deferred to a date beyond
the first day of the month after the Annuitant's 85th birthday. The Annuity
Date may only be changed by written request during the Annuitant's lifetime
and must be made at least 30 days before the then-scheduled Annuity Date. The
Annuity Date and the Annuity Payment options available for Qualified Contracts
may also be controlled by endorsements, the plan or applicable law.
LUMP SUM PAYMENT OPTION
You may surrender the Contract at any time while the Annuitant is living and
before the Annuity Date. The Surrender Value is equal to the Accumulated
Value, less any Premium Taxes incurred but not yet deducted.
ANNUITY PAYMENT OPTIONS
All Annuity Payment Options (except for the Designated Period Annuity Option)
are offered as "Variable Annuity Options." This means that Annuity Payments,
after the initial payment, will reflect the investment experience of the
Portfolio or Portfolios you have chosen. All Annuity Payment Options are also
offered as "Fixed Annuity Options." This means that the amount of each payment
will be set on the Annuity Date and will not change. The following Annuity
Payment Options are available under the Contract:
Life Annuity--Monthly Annuity Payments are paid for the life of an Annuitant,
ceasing with the last Annuity Payment due prior to the Annuitant's death.
Joint and Last Survivor Annuity--Monthly Annuity Payments are paid for the
life of two Annuitants and thereafter for the life of the survivor, ceasing
with the last Annuity Payment due prior to the survivor's death.
Life Annuity with Period Certain--Monthly Annuity Payments are paid for the
life of an Annuitant, with a Period Certain of not less than 120, 180, or 240
months, as elected.
Installment or Unit Refund Life Annuity--Available as either a Fixed
(Installment Refund) or Variable (Unit Refund) Annuity Option. Monthly Annuity
Payments are paid for the life of an Annuitant, with a Period Certain
determined by dividing the Accumulated Value by the first Annuity Payment.
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Designated Period Annuity--Only available as a Fixed Annuity Option. Monthly
Annuity Payments are paid for a Period Certain as elected, which may be from
10 to 30 years.
Before the Annuity Date and while the Annuitant is living, you may change the
Annuity Payment Option by written request. The request for change must be made
at least 30 days prior to the Annuity Date and is subject to the approval of
the Company. If an Annuity Payment Option is chosen that depends on the
continuation of the life of the Annuitant, proof of birth date may be required
before Annuity Payments begin. For Annuity Payment Options involving life
income, the actual age of the Annuitant will affect the amount of each
payment. Since payments to older Annuitants are expected to be fewer in
number, the amount of each Annuity Payment will generally be greater.
All or part of the Accumulated Value may be placed under one or more Annuity
Payment Options. If Annuity Payments are to be paid under more than one
option, the Company must be told what part of the Accumulated Value is to be
paid under each option.
If at the time of any Annuity Payment you have not provided the Company with a
written election not to have federal income taxes withheld, the Company must
by law withhold such taxes from the taxable portions of such Annuity Payment
and remit that amount to the federal government.
In the event that an Annuity Payment Option is not selected, the Company will
make monthly Annuity Payments that will go on for as long as the Annuitant
lives (120 payments guaranteed) in accordance with the Life Annuity with
Period Certain Option and the annuity benefit sections of the Contract. That
portion of the Accumulated Value that has been held in a Portfolio prior to
the Annuity Date will be applied under a Variable Annuity Option based on the
performance of that Portfolio. Subject to approval by the Company, you may
select any other Annuity Payment Option then being offered by the Company. All
Fixed Annuity Payments and the initial Variable Annuity Payment are guaranteed
to be not less than as provided by the Annuity Tables and the Annuity Payment
Option elected by the Contract Owner. The minimum payment, however, is $100.
If the Accumulated Value is less than $2,000, the Company has the right to pay
that amount in a lump sum. From time to time, the Company may require proof
that the Annuitant or Contract Owner is living. Annuity Payment Options are
not available to: (1) an assignee; or (2) any other than a natural person,
except with the consent of the Company.
We may, at the time of election of an Annuity Payment Option, offer more
favorable rates in lieu of the guaranteed rates specified in the Annuity
Tables found in the Contract.
The value of Variable Annuity Payments will reflect the investment experience
of the chosen Portfolio. Only one Variable Annuity Option may be chosen from
among those made available by the Company for each Portfolio. The Annuity
Tables, which are contained in the Contract and are used to calculate the
value of the initial Variable Annuity Payment, are based on an assumed
interest rate of 4%. If the actual net investment experience exactly equals
the assumed interest rate, then the Variable Annuity Payments will remain the
same (equal to the first Annuity Payment). However, if actual investment
experience exceeds the assumed interest rate, the Variable Annuity Payments
will increase; conversely, they will decrease if the actual experience is
lower. The method of computation of Variable Annuity Payments is described in
more detail in the Statement of Additional Information.
The value of all payments, both fixed and variable, will be greater for
shorter guaranteed periods than for longer guaranteed periods, and greater for
life annuities than for joint and survivor annuities, because they are
expected to be made for a shorter period.
After the Annuity Date, you may change the Portfolio funding the Variable
Annuity Payments on the appropriate Company form or by calling our
Administrative Offices at 1-800-250-1828.
DEFERMENT OF PAYMENT
Payment of any cash withdrawal or lump sum Death Benefit due from the Separate
Account will occur within 7 days from the date the election becomes effective
except that the Company may be permitted to defer such payment if: (1) the New
York Stock Exchange is closed for other than usual weekends or holidays, or
trading on the New York Stock Exchange is otherwise restricted; or (2) an
emergency exists as defined by the SEC, or the SEC requires that trading be
restricted; or (3) the SEC permits a delay for the protection of Contract
Owners.
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FEDERAL TAX CONSIDERATIONS
INTRODUCTION
The ultimate effect of federal income taxes on the amounts paid for the
Contract, on the investment return on assets held under a Contract, on Annuity
Payments, and on the economic benefits to the Contract Owner, Annuitant or
Annuitant's Beneficiary, depends on the terms of the Contract, the Company's
tax status and upon the tax status of the individuals concerned. The following
discussion is general in nature and is not intended as tax advice. You should
consult a tax adviser regarding the tax consequences of purchasing a Contract.
No attempt is made to consider any applicable state or other tax laws.
Moreover, the discussion is based upon the Company's understanding of the
federal income tax laws as they are currently interpreted. No representation
is made regarding the likelihood of continuation of the federal income tax
laws, the Treasury regulations or the current interpretations by the Internal
Revenue Service. We reserve the right to make uniform changes in the Contract
to the extent necessary to continue to qualify the Contract as an annuity. For
a discussion of federal income taxes as they relate to the Funds, please see
the accompanying Prospectuses for the Funds.
TAXATION OF ANNUITIES IN GENERAL
Section 72 of the Code governs taxation of annuities. In general, a Contract
Owner is not taxed on increases in value under a Contract until some form of
withdrawal or distribution is made under it. However, under certain
circumstances, the increase in value may be subject to current federal income
tax. (See "Contracts Owned by Non-Natural Persons" and "Diversification
Standards," page 20.)
Section 72 provides that the proceeds of a full or partial withdrawal from a
Contract prior to the Annuity Date will be treated as taxable income to the
extent the amounts held under the Contract exceed the "investment in the
Contract," as that term is defined in the Code. The "investment in the
Contract" can generally be described as the cost of the Contract, and
generally constitutes all Purchase Payments paid for the Contract less any
amounts received under the Contract that are excluded from the individual's
gross income. The taxable portion is taxed at ordinary income tax rates. For
purposes of this rule, a pledge or assignment of a Contract is treated as a
payment received on account of a partial withdrawal of a Contract.
Upon receipt of a full or partial withdrawal or an Annuity Payment under the
Contract, you will be taxed if the value of the Contract exceeds the
investment in the Contract. Generally, the taxable portion of such payments
will be taxed at ordinary income tax rates. Partial withdrawals are generally
taken out of earnings first and then Purchase Payments.
For Fixed Annuity Payments, in general, the taxable portion of each payment is
determined by using a formula known as the "exclusion ratio," which
establishes the ratio that the investment in the Contract bears to the total
expected amount of Annuity Payments for the term of the Contract. That ratio
is then applied to each payment to determine the non-taxable portion of the
payment. The remaining portion of each payment is taxed at ordinary income tax
rates. For Variable Annuity Payments, in general, the taxable portion is
determined by a formula that establishes a specific dollar amount of each
payment that is not taxed. The dollar amount is determined by dividing the
investment in the Contract by the total number of expected periodic payments.
The remaining portion of each payment is taxed at ordinary income tax rates.
Once the excludible portion of Annuity Payments to date equals the investment
in the Contract, the balance of the Annuity Payments will be fully taxable.
Generally, the entire amount distributed from a Qualified Contract is taxable
to the Contract Owner. In the case of Qualified Contracts with after tax
contributions, the Contract Owner is entitled to exclude the portion of each
withdrawal or annuity payment constituting a return of after tax
contributions. Once all of your after tax contributions have been returned to
you on a non-taxable basis, subsequent withdrawals or annuity payments are
fully taxable as ordinary income. Since the Company has no knowledge of the
amount of after tax contributions you have made, you will need to make this
computation in the preparation of your federal income tax return.
Withholding of federal income taxes on all distributions is required unless
the recipient elects not to have any amounts withheld and properly notifies
the Company of that election.
In certain situations, taxes will be withheld on distributions to nonresident
aliens at a 30% flat rate unless an exemption from withholding applies under
the applicable tax treaty.
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With respect to amounts withdrawn or distributed before the taxpayer reaches
age 59 1/2, a penalty tax is imposed equal to 10% of the taxable portion of
amounts withdrawn or distributed. However, the penalty tax will not apply to
withdrawals (i) made on or after the death of the Contract Owner or, where the
Contract Owner is not an individual, the death of the Annuitant, who is
defined as the individual the events in whose life are of primary importance
in affecting the timing and payment under the Contracts; (ii) attributable to
the taxpayer's becoming disabled within the meaning of Code Section 72(m)(7);
(iii) that are part of a series of substantially equal periodic payments made
at least annually for the life (or life expectancy) of the taxpayer, or joint
lives (or joint life expectancies) of the taxpayer and his or her beneficiary;
(iv) from a qualified plan (note, however, other penalties may apply); (v)
under a qualified funding asset (as defined in Code Section 130(d)); (vi)
under an immediate annuity contract as defined in Section 72(u)(4); (vii)
allocable to the investment in the Contract prior to August 14, 1982; or
(viii) that are purchased by an employer on termination of certain types of
qualified plans and that are held by the employer until the employee separates
from service. Other tax penalties may apply to certain distributions as well
as to certain contributions and other transactions under Qualified Contracts.
If the penalty tax does not apply to a withdrawal as a result of the
application of item (iii) above, and the series of payments are subsequently
modified (other than by reason of death or disability), the tax for the year
in which the modification occurs will be increased by an amount (as determined
under Treasury Regulations) equal to the penalty tax that would have been
imposed but for item (iii) above, plus interest for the deferral period. The
foregoing rule applies if the modification takes place (a) before the close of
the period that is five years from the date of the first payment and after the
taxpayer attains age 59 1/2, or (b) before the taxpayer reaches age 59 1/2.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under Part I of Subchapter L
of the Code. Since the Separate Account is not a separate entity from the
Company and its operations form a part of the Company, it will not be taxed
separately as a "regulated investment company" under Subchapter M of the Code.
Investment income and realized capital gains on the assets of the Separate
Account are reinvested and taken into account in determining the Accumulated
Value. Under existing federal income tax law, the Separate Account's
investment income, including realized net capital gains, is not taxed to the
Company. The Company reserves the right to make a deduction for taxes should
they be imposed with respect to such items in the future.
DISTRIBUTION-AT-DEATH RULES
In order to be treated as an annuity contract, a Contract must generally
provide the following two distribution rules: (a) if any Contract Owner dies
on or after the Annuity Date and before the entire interest in the Contract
has been distributed, the remaining portion of such interest must be
distributed at least as quickly as the method in effect on the Contract
Owner's death; and (b) if any Contract Owner dies before the Annuity Date, the
entire interest must generally be distributed within five years after the date
of death. To the extent such interest is payable to the Owner's Designated
Beneficiary, however, such interests may be annuitized over the life of that
Owner's Designated Beneficiary or over a period not extending beyond the life
expectancy of that Owner's Designated Beneficiary, so long as distributions
commence within one year after the Contract Owner's death. If the Owner's
Designated Beneficiary is the spouse of the Contract Owner, the Contract
(together with the deferral on tax on the accrued and future income
thereunder) may be continued unchanged in the name of the spouse as Contract
Owner. The term Owner's Designated Beneficiary means the natural person named
by the Contract Owner as a beneficiary and to whom ownership of the Contract
passes by reason of the Contract Owner's death (unless the Contract Owner was
also the Annuitant--in which case the Annuitant's Beneficiary is entitled to
the Death Benefit).
If the Contract Owner is not an individual, the death of the "primary
Annuitant" (as defined under the Code) is treated as the death of the Contract
Owner. The primary Annuitant is the individual who is of primary importance in
affecting the timing or the amount of payout under a Contract. In addition,
when the Contract Owner is not an individual, a change in the primary
Annuitant is treated as the death of the Contract Owner. Finally, in the case
of joint Contract Owners, the distribution will be required at the death of
the first of the Contract Owners.
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TRANSFERS OF ANNUITY CONTRACTS
Any transfer of a Non-Qualified Contract prior to the Annuity Date for less
than full and adequate consideration will generally trigger tax on the gain in
the Contract to the Contract Owner at the time of such transfer. The investment
in the Contract of the transferee will be increased by any amount included in
the Contract Owner's income. This provision, however, does not apply to those
transfers between spouses or incident to a divorce which are governed by Code
Section 1041(a).
CONTRACTS OWNED BY NON-NATURAL PERSONS
Where the Contract is held by a non-natural person (for example, a
corporation), the Contract is generally not treated as an annuity contract for
federal income tax purposes, and the income on that Contract (generally the
increase in the net Accumulated Value less the payments) is includible in
taxable income each year. The rule does not apply where the non-natural person
is only a nominal owner such as a trust or other entity acting as an agent for
a natural person. The rule also does not apply where the Contract is acquired
by the estate of a decedent, where the Contract is a qualified funding asset
for structured settlements, where the Contract is purchased on behalf of an
employee upon termination of a qualified plan, and in the case of an immediate
annuity, as defined under Section 72(u)(4) of the Code.
ASSIGNMENTS
A transfer of ownership of a Contract, a collateral assignment or the
designation of an Annuitant or other beneficiary who is not also the Contract
Owner may result in tax consequences to the Contract Owner, Annuitant or
beneficiary that are not discussed herein. A Contract Owner contemplating such
a transfer or assignment of a Contract should contact a tax adviser with
respect to the potential tax effects of such a transaction.
MULTIPLE CONTRACTS RULE
All non-qualified annuity contracts issued by the same company (or affiliate)
to the same Contract Owner during any calendar year are to be aggregated and
treated as one contract for purposes of determining the amount includible in
the taxpayer's gross income. Thus, any amount received under any Contract prior
to the Contract's Annuity Date, such as a partial withdrawal, will be taxable
(and possibly subject to the 10% federal penalty tax) to the extent of the
combined income in all such contracts. The Treasury Department has specific
authority to issue regulations that prevent the avoidance of Code Section 72(e)
through the serial purchase of annuity contracts or otherwise. In addition,
there may be other situations in which the Treasury Department may conclude
that it would be appropriate to aggregate two or more Contracts purchased by
the same Contract Owner. The aggregation rules do not apply to immediate
annuities as defined under Section 72(u)(4) of the Code. Accordingly, a
Contract Owner should consult a tax adviser before purchasing more than one
Contract or other annuity contracts.
DIVERSIFICATION STANDARDS
To comply with certain diversification regulations (the "Regulations") under
Code Section 817(h), one year after the start up period, the Separate Account
will be required to diversify its investments. The Regulations generally
require that on the last day of each quarter of a calendar year, no more than
55% of the value of the Separate Account is represented by any one investment,
no more than 70% is represented by any two investments, no more than 80% is
represented by any three investments, and no more than 90% is represented by
any four investments. A "look-through" rule applies that suggests that each
Subaccount of the Separate Account will be tested for compliance with the
percentage limitations by looking through to the assets of the Portfolios in
which each such Subaccount invests. The Company believes that under this rule,
the Separate Account must be tested for compliance with the percentage
limitations by "looking through" both the shares in Portfolios that are held by
the Separate Account and the shares in the Underlying Funds that are held by
the Portfolios to the investment assets held by the Underlying Funds. All
securities of the same issuer are treated as a single investment. Each
government agency or instrumentality will be treated as a separate issuer for
purposes of those limitations.
In connection with the issuance of temporary diversification regulations in
1986, the Treasury Department announced that such regulations did not provide
guidance concerning the extent to which Contract Owners may direct their
investments to particular divisions of a separate account. It is possible that
regulations or revenue rulings may be
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issued in this area at some time in the future. It is not clear, at this time,
what these regulations or rulings would provide. It is possible that when the
regulations or ruling are issued, the Contracts may need to be modified in
order to remain in compliance. For these reasons, the Company reserves the
right to modify the Contracts, as necessary, to prevent the Contract Owner from
being considered the owner of assets of the Separate Account.
We intend to comply with the Regulations to assure that the Contracts continue
to be treated as annuity contracts for federal income tax purposes.
GENERAL INFORMATION
ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS
The Company retains the right, subject to any applicable law, to make certain
changes. The Company reserves the right to eliminate the shares of any of the
Portfolios and to substitute shares of another Portfolio, or of another
registered, open-end management investment company, if the shares of the
Portfolios are no longer available for investment, or, if in the Company's
judgment, investment in any Portfolio would be inappropriate in view of the
purposes of the Separate Account. To the extent required by the 1940 Act,
substitutions of shares attributable to a Contract Owner's interest in a
Portfolio will not be made until SEC approval has been obtained and the
Contract Owner has been notified of the change.
New portfolios may be established at the discretion of the Company. Any new
portfolios will be made available to existing Contract Owners on a basis to be
determined by the Company. The Company may also eliminate one or more
Portfolios if marketing, tax, investment or other conditions so warrant.
In the event of any such substitution or change, the Company may, by
appropriate endorsement, make such changes in the Contracts as may be necessary
or appropriate to reflect such substitution or change. Furthermore, if deemed
to be in the best interests of persons having voting rights under the
Contracts, the Separate Account may be operated as a management company under
the 1940 Act or any other form permitted by law, may be deregistered under the
1940 Act in the event such registration is no longer required, or may be
combined with one or more other separate accounts.
VOTING RIGHTS
The Trust does not hold regular meetings of shareholders. The Trustees of the
Trust may call special meetings of shareholders as may be required by the 1940
Act or other applicable law. To the extent required by law, the Portfolio
shares held in the Separate Account will be voted by the Company at shareholder
meetings of the Trust in accordance with instructions received from persons
having voting interests in the corresponding Portfolio. Trust shares as to
which no timely instructions are received or shares held by the Company as to
which Contract Owners have no beneficial interest will be voted in proportion
to the voting instructions that are received with respect to all Contracts
participating in that Portfolio. Voting instructions to abstain on any item to
be voted upon will be applied on a pro rata basis to reduce the votes eligible
to be cast.
The number of votes that are available to a Contract Owner will be calculated
separately for each Portfolio. That number will be determined by applying his
or her percentage interest, if any, in a particular Portfolio to the total
number of votes attributable to the Portfolio.
Prior to the Annuity Date, a Contract Owner holds a voting interest in each
Portfolio to which the Accumulated Value is allocated. The number of votes
which are available to a Contract Owner will be determined by dividing the
Accumulated Value attributable to a Portfolio by the net asset value per share
of the applicable Portfolio. After the Annuity Date, the person receiving
Annuity Payments has the voting interest. The number of votes after the Annuity
Date will be determined by dividing the reserve for such Contract allocated to
the Portfolio by the net asset value per share of the corresponding Portfolio.
After the Annuity Date, the votes attributable to a Contract decrease as the
reserves allocated to the Portfolio decrease. In determining the number of
votes, fractional shares will be recognized.
The number of votes of the Portfolio that are available will be determined as
of the date coincident with the date established by that Portfolio for
determining shareholders eligible to vote at the meeting of the corresponding
Portfolio. Voting instructions will be solicited by written communication prior
to such meeting in accordance with procedures established by the Trust.
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AUDITORS
Ernst & Young LLP serves as independent auditors for the Separate Account and
the Company and will audit their financial statements annually.
LEGAL MATTERS
Jorden Burt Berenson & Johnson LLP of Washington, D.C. has provided legal
advice relating to the federal securities laws applicable to the issue and sale
of the Contracts. All matters of New York law pertaining to the validity of the
Contract and the Company's right to issue such Contracts have been passed upon
by Kimberly A. Scouller, Esquire, on behalf of the Company.
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FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT C
STATEMENT OF ADDITIONAL INFORMATION
FOR THE PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
AND FOR THE DIMENSIONAL VARIABLE ANNUITY
Offered by First Providian Life and Health
Insurance Company (A New York Stock Company)
Administrative Offices
520 Columbia Drive
Johnson City, New York 13790
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the Providian Advisor's Edge and the Dimensional Variable
Annuity variable annuity contracts (the "Contracts" and each a "Contract,"
respectively) offered by First Providian Life and Health Insurance Company (the
"Company"). You may obtain a copy of either or both Prospectuses dated July 31,
1997, by calling 1-800-250-1828 or by writing to our Administrative Offices, 520
Columbia Drive, Johnson City, New York 13790. Terms used in the current
Prospectuses for the respective Contracts are incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE APPLICABLE PROSPECTUS FOR EACH CONTRACT.
July 31, 1997
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
- ----------------- ----
<S> <C>
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
Federated Prime Money Portfolio Subaccount Yields................................................ 5
30-Day Yield for Non-Money Market Subaccounts.................................................... 5
Standardized Average Annual Total Return for Subaccounts......................................... 6
ADDITIONAL PERFORMANCE MEASURES................................................................... 6
Non-Standardized Actual Total Return and Non-Standardized Actual Average Annual Total
Return.......................................................................................... 6
Non-Standardized Total Return Year-to-Date....................................................... 6
Non-Standardized One Year Return................................................................. 7
Non-Standardized Hypothetical Total Return and Non-Standardized Hypothetical Average
Annual Total Return............................................................................ 7
Individualized Computer Generated Illustrations.................................................. 7
PERFORMANCE COMPARISONS........................................................................... 7
SAFEKEEPING OF ACCOUNT ASSETS..................................................................... 9
THE COMPANY....................................................................................... 10
STATE REGULATION.................................................................................. 10
RECORDS AND REPORTS............................................................................... 10
DISTRIBUTION OF THE CONTRACTS..................................................................... 10
LEGAL PROCEEDINGS................................................................................. 11
OTHER INFORMATION................................................................................. 11
FINANCIAL STATEMENTS.............................................................................. 11
Audited Financial Statements.................................................................... 11
</TABLE>
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THE CONTRACTS
In order to supplement the description in the applicable Prospectus, the
following provides additional information about the Contracts which may be of
interest to Contract Owners.
PLEASE NOTE THE FOLLOWING INFORMATION IN CONNECTION WITH THIS STATEMENT OF
ADDITIONAL INFORMATION AND THE CONTRACT PROSPECTUSES.
On and after March 31, 1997, the following portfolios are available through the
Dimensional Variable Annuity contract (and no longer offered through the
Providian Advisor's Edge variable annuity contract):
DFA Small Value Portfolio DFA International Small Portfolio
DFA Large Value Portfolio DFA Short-Term Fixed Portfolio
DFA International Value Portfolio DFA Global Bond Portfolio
On and after the same date, the following portfolios are available through the
Providian Advisor's Edge variable annuity contract:
Federated American Leaders Portfolio Wanger International Small Cap
Federated Utility Portfolio Advisor Portfolio
Federated High Income Bond Warburg Pincus International
Portfolio Equity Portfolio
Federated U.S. Government Warburg Pincus Small
Securities Portfolio Growth Portfolio
Montgomery Growth Portfolio
SteinRoe Capital Appreciation
Portfolio
Strong International Stock Portfolio
Wanger U.S. Small Cap Advisor
Portfolio
On and after such date the following portfolio is available through both the
Providian Advisor's Edge and Dimensional Variable Annuity contracts:
Federated Prime Money Portfolio
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent the
guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the
Accumulated Value (or the portion of the Accumulated Value used to provide
variable payments) is applied under the Annuity Tables contained in your
Contract corresponding to the Annuity Payment Option elected by the Contract
Owner and based on an assumed interest rate of 4%. This will produce a dollar
amount which is the first monthly payment. The Company may, at the time annuity
income payments are computed, offer more favorable rates in lieu of the
guaranteed rates specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set forth
below) is made. After the first Annuity Payment, the dollar amount of each
subsequent Annuity Payment is equal to the number of Annuity Units multiplied by
the Annuity Unit Value for the Subaccount ten Business Days before the due date
of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date money was first deposited in that Subaccount. The Annuity Unit
Value for any subsequent Business Day is equal to (a) times (b) times (c), where
(a) = the Annuity Unit Value for the immediately preceding Business Day;
(b) = the Net Investment Factor for the day;
(c) = the investment result adjustment factor (.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in
determining the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a) = any increase or decrease in the value of the Subaccount due to
investment results;
(b) = a daily charge assessed at an annual rate of .50% for the
mortality and expense risks assumed by the Company;
(c) = a daily charge for the cost of administering the Contract
corresponding to an annual charge of .15% of the value of the
Subaccount, plus the Annual Contract Fee.
The Annuity Tables contained in the Contract are based on the 1983 Table "A"
Mortality Table projected for mortality improvement to the year 2000 using
Projection Scale G and an interest rate of 4% a year.
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EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of any other
Subaccount(s) then available. The written request for an Exchange must be
received by us, however, at least 10 Business Days prior to the first payment
date on which the Exchange is to take effect. This Exchange shall result in the
same dollar amount as that of the Annuity Payment on the date of Exchange (the
"Exchange Date"). Each year you may make an unlimited number of free Exchanges
between Subaccounts. The Company reserves the right to impose a $15 fee for
Exchanges in excess of twelve per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, the
Company will establish a value for the current Subaccounts by multiplying the
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing the
Annuity Unit Value of the new Subaccounts into the value previously calculated
for the existing Subaccounts.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The Company may reduce administrative charges or other deductions from Purchase
Payments in certain situations where the Company expects to realize significant
economies of scale or other economic benefits with respect to the sale of
Contracts. This is possible because sales costs do not increase in proportion
to the dollar amount of the Contracts sold. For example, the per-dollar
transaction cost for a sale of a Contract equal to $5,000 is generally much
higher than the per-dollar cost for a sale of a Contract equal to $1,000,000.
As a result, any applicable sales charge declines as a percentage of the dollar
amount of Contracts sold as the dollar amount increases.
The Company may also reduce any applicable sales loads and reduce administrative
charges and fees on sales to directors, officers and bona fide full-time
employees (and their spouses and minor children) of the Company, its ultimate
parent company, AEGON N.V., and their affiliates and certain sales
representatives for the Contract. The Company may also grant waivers or
modifications of certain minimum or maximum purchase or transaction amounts or
balance requirements in these circumstances.
Notwithstanding the above, any variations in the sales loads, administrative
charges or other deductions from Purchase Payments or in the minimum or maximum
transaction or balance requirements shall reflect differences in costs or
services and shall not be unfairly discriminatory against any person.
GENERAL MATTERS
NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the Contracts
will not share in the profits or surplus earnings of the Company.
MISSTATEMENT OF AGE OR SEX
The Company may require proof of age and sex before making Annuity Payments. If
the Annuitant's stated age, sex or both in the Contract are incorrect, the
Company will change the annuity benefits payable to those benefits which the
Purchase Payments would have purchased for the correct age and sex. In the case
of correction of the stated age and/or sex after payments have commenced, the
Company will (1) in the case of underpayment, pay the full amount due with the
next payment; (2) in the case of overpayment, deduct the amount due from one or
more future payments.
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ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the
validity of any assignment. No assignment will be recognized until the Company
receives the appropriate Company form notifying the Company of such assignment.
The interest of any beneficiary which the assignor has the right to change shall
be subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum notwithstanding any settlement agreement in effect at
the time assignment was executed. The Company shall not be liable as to any
payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount; and any Purchase
Payments, charges, Exchanges or withdrawals during the year. This report will
also give you any other information required by law or regulation. You may ask
for an annual statement like this at any time. We will also send you quarterly
statements. However, we reserve the right to discontinue quarterly statements
at any time.
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 Federated Prime Money Subaccount, the yield of the remaining
Subaccounts, and the total return of all Subaccounts, may appear in reports or
promotional literature to current or prospective Contract Owners.
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Where applicable in calculating performance information, the Annual Contract Fee
is reflected as a percentage equal to the estimated total amount of fees
collected during a calendar year divided by the estimated 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, the Annual Contract Fee is pro-rated to reflect only the
applicable portion of the partial year period.)
Certain total return and performance information for operations of the DFA Small
Value Portfolio, DFA Large Value Portfolio, DFA International Value Portfolio,
DFA International Small Portfolio, DFA Short-Term Fixed Portfolio and DFA Global
Bond Portfolio for periods prior to 3/31/97 reflect operations of these
Subaccounts in the Providian Advisor's Edge Variable Annuity.
Until October 1995, the DFA Large Value Portfolio (formerly DFA Global Value
Portfolio) invested its assets in both U.S. and international securities.
Depending on the period presented, total return and performance information
presented for the DFA Large Value Portfolio may reflect the performance of the
Portfolio when it invested in the stocks of both U.S. and international
companies. Total return and performance information for the DFA Large Value
Portfolio which includes the period prior to October 1995 should not be
considered indicative of the Portfolio's future performance.
FEDERATED PRIME MONEY PORTFOLIO SUBACCOUNT YIELDS
Current yield for the Federated Prime Money Subaccount will be based on the
change in the value of a hypothetical investment (exclusive of capital changes)
over a particular 7-day period, less a pro-rata share of Subaccount expenses
accrued over that period (the "base period"), and stated as a percentage of the
investment at the start of the base period (the "base period return"). The base
period return is then annualized by multiplying by 365/7, with the resulting
yield figure carried to at least the nearest hundredth of one percent.
Calculation of "effective yield" begins with the same "base period return" used
in the calculation of yield, which is then annualized to reflect weekly
compounding pursuant to the following formula:
Effective Yield = [((Base Period Return)+1)/365/7/] - 1
30-DAY YIELD FOR NON-MONEY MARKET SUBACCOUNTS
Quotations of yield for the remaining Subaccounts will be based on all
investment income per Unit earned during a particular 30-day period, less
expenses accrued during the period ("net investment income"), and will be
computed by dividing net investment income by the value of a Unit on the last
day of the period, according to the following formula:
YIELD = 2[(a-b + 1)/6/ - 1]
---
cd
Where:
[a] equals the net investment income earned during the period by the
Portfolio attributable to shares owned by a Subaccount
[b] equals the expenses accrued for the period (net of reimbursement)
[c] equals the average daily number of Units outstanding during the period
[d] equals the maximum offering price per Accumulation Unit on the last
day of the period
Yield on the Subaccount is earned from the increase in net asset value of shares
of the Portfolio in which the Subaccount invests and from dividends declared and
paid by the Portfolio, which are automatically reinvested in shares of the
Portfolio.
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STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR SUBACCOUNTS
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of all applicable sales loads (including any
contingent deferred sales load), the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes, if
any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the life of the Subaccount), calculated pursuant to the formula:
P(1 + T)/n/ = ERV
Where:
(1) [P] equals a hypothetical initial Purchase Payment of $1,000
(2) [T] equals an average annual total return
(3) [n] equals the number of years
(4) [ERV] equals the ending redeemable value of a hypothetical $1,000
Purchase Payment made at the beginning of the period (or fractional
portion thereof)
ADDITIONAL PERFORMANCE MEASURES
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NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the percentage
change in the value of an Accumulation Unit) for one or more Subaccounts with
respect to one or more periods. The Company may also show Non-Standardized
Actual Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year, the
Non-Standardized Actual Total Return and the Non-Standardized Actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Actual Average Annual Total
Return is the effective annual compounded rate of return for the periods stated.
Because the value of an Accumulation Unit reflects the Separate Account and
Portfolio expenses (See Fee Table in the Prospectus), the Non-Standardized
Actual Total Return and Non-Standardized Actual Average Annual Total Return also
reflect these expenses. However, these percentages do not reflect the Annual
Contract Fee, any sales loads or Premium Taxes (if any), which if included would
reduce the percentages reported by the Company.
NON-STANDARDIZED 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.
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NON-STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts which respect to one or more non-standardized base periods
commencing at the beginning of a calendar year (or date of inception, if during
the relevant year) and ending at the end of such calendar year. One Year Return
figures reflect the percentage change in actual Accumulation Unit Values during
the relevant period. These percentages reflect a deduction for the Separate
Account and Portfolios 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 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. 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. 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 Hypothetical 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 Hypothetical Average Annual Total Return for a Subaccount
is the effective annual compounded rate of return that would have produced the
ending Accumulated Value over the stated period had the performance remained
constant throughout.
INDIVIDUALIZED COMPUTER GENERATED ILLUSTRATIONS
The Company may from time to time use computer-based software available through
Morningstar, CDA/Wiesenberger and/or other firms to provide registered
representatives and existing and/or potential owners of Contracts with
individualized hypothetical performance illustrations for some or all of the
Portfolios. Such illustrations may include, without limitation, graphs, bar
charts and other types of formats presenting the following information: (i) the
historical results of a hypothetical investment in a single Portfolio; (ii) the
historical fluctuation of the value of a single Portfolio (actual and
hypothetical); (iii) the historical results of a hypothetical investment in more
than one Portfolio; (iv) the historical performance of two or more market
indices in relation to one another and/or one or more Portfolios; (v) the
historical performance of two or more market indices in comparison to a single
Portfolio or a group of Portfolios; (vi) a market risk/reward scatter chart
showing the historical risk/reward relationship of one or more mutual funds or
Portfolios to one or more indices and a broad category of similar anonymous
variable annuity subaccounts; and (vii) Portfolio data sheets showing various
information about one or more Portfolios (such as information concerning total
return for various periods, fees and expenses, standard deviation, alpha and
beta, investment objective, inception date and net assets).
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market
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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 First 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:
. 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.
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. 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.
. 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
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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
All the stock of the Company is owned by Veterans Life Insurance Company, which
is a subsidiary of Providian Life and Health Insurance Company, a Missouri
insurance company ("PLH"). Providian Corporation owns a 4% interest in PLH and
61%, 15%, and 20% interests in PLH, 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 Providian Corporation. A 3% interest in Capital
Liberty, L.P. is owned by Providian Corporation, which is the general partner,
and 78% and 19% interests, respectively, are held by two limited partners,
Commonwealth Life Insurance Company and Peoples Security Life Insurance Company.
Providian Corporation is 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% interest in AEGON N.V.
STATE REGULATION
The Company is a stock life insurance company organized under the laws of the
State of New York, and is subject to regulation by the New York State Department
of Insurance. An annual statement is filed with the New York Superintendent of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of the Company as of December 31 of the
preceding calendar year. Periodically, the New York Superintendent of Insurance
examines the financial condition of the Company, including the liabilities and
reserves of the Separate Account.
The availability of certain contract rights and provisions depends on state
approval and/or filing and review processes. Where required by state law or
regulation, the Contracts will be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained by
the Company or by its Administrator. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under that
Act or by any other applicable law or regulation.
DISTRIBUTION OF THE CONTRACTS
Providian Securities Corporation ("PSC"), the principal underwriter of the
Contracts, is a wholly owned subsidiary of Providian Financial Services, Inc.,
which is a wholly owned subsidiary of Providian Corporation. PSC is registered
with the SEC under the Securities Exchange Act of 1934 as a broker-dealer and is
a member of the National Association of Securities Dealers, Inc.
The Contracts are offered to the public through persons or entities licensed
under the federal securities laws and New York State insurance laws that have
entered into agreements with PSC. The offering of the Contracts is continuous
and PSC does not anticipate discontinuing the offering of the Contracts.
However, PSC does reserve the right to discontinue the offering of the
Contracts.
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LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
The audited statutory-basis financial statements of the Company, for the years
ended December 31, 1996 and 1995, respectively, including the Report of
Independent Auditors, thereon, which are also included in this Statement of
Additional Information, should be distinguished from the financial statements of
the Separate Account and should be considered only as bearing on the ability of
the Company to meet its obligations under the Contracts. They should not be
considered as bearing on the investment performance of the assets held in the
Separate Account. No financial statements are included for the Separate Account
because, as of the end of the most recent fiscal year, the Subaccounts of the
Separate Account, which invest in the Portfolios offered by the Contracts, had
not commenced operations and consequently had no assets or liabilities with
respect thereto.
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FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
SEPARATE ACCOUNT C
STATEMENT OF ADDITIONAL INFORMATION
FOR THE PGA RETIREMENT ANNUITY
OFFERED BY
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
(A NEW YORK STOCK COMPANY)
ADMINISTRATIVE OFFICES
520 COLUMBIA DRIVE
JOHNSON CITY, NEW YORK 13790
This Statement of Additional Information expands upon subjects discussed in the
current Prospectus for the PGA Retirement Annuity contracts (the "Contracts" and
each a "Contract," respectively) offered by First Providian Life and Health
Insurance Company (the "Company"). You may obtain a copy of the Prospectus dated
July 31, 1997, by calling 1-800-250-1828 or by writing to our Administrative
Offices, 520 Columbia Drive, Johnson City, New York 13790. 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.
July 31, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
THE CONTRACT 1
Computation of Variable Annuity Income Payments 1
Exchanges 2
Exceptions to Charges and to Transaction or Balance Requirements 2
GENERAL MATTERS 3
Non-Participating 3
Misstatement of Age or Sex 3
Assignment 3
Annuity Data 3
Annual Statement 3
Incontestability 4
Ownership 4
PERFORMANCE INFORMATION 4
30-Day Yield for Subaccounts 4
Standardized Average Annual Total Return for Subaccounts 5
ADDITIONAL PERFORMANCE MEASURES 6
Non-Standardized Actual Total Return and Non-Standardized Actual Average
Annual Total Return 6
Non-Standardized Total Return Year-to-Date 6
Non-Standardized One Year Return 6
PERFORMANCE COMPARISONS 7
SAFEKEEPING OF ACCOUNT ASSETS 10
THE COMPANY 10
STATE REGULATION 10
RECORDS AND REPORTS 10
DISTRIBUTION OF THE CONTRACTS 11
LEGAL PROCEEDINGS 11
OTHER INFORMATION 11
FINANCIAL STATEMENTS 11
<PAGE>
THE CONTRACT
In order to supplement the description in the Prospectus, the following provides
additional information about the Contract which may be of interest to Contract
Owners.
COMPUTATION OF VARIABLE ANNUITY INCOME PAYMENTS
The amounts shown in the Annuity Tables contained in your Contract represent the
guaranteed minimum for each Annuity Payment under a Fixed Payment Option.
Variable annuity income payments are computed as follows. First, the Accumulated
Value (or the portion of the Accumulated Value used to provide variable
payments) is applied under the Annuity Tables contained in your Contract
corresponding to the Annuity Payment Option elected by the Contract Owner and
based on an assumed interest rate of 4%. This will produce a dollar amount which
is the first monthly payment. The Company may, at the time annuity income
payments are computed, offer more favorable rates in lieu of the guaranteed
rates specified in the Annuity Tables.
The amount of each Annuity Payment after the first is determined by means of
Annuity Units. The number of Annuity Units is determined by dividing the first
Annuity Payment by the Annuity Unit Value for the selected Subaccount ten
Business Days prior to the Annuity Date. The number of Annuity Units for the
Subaccount then remains fixed, unless an Exchange of Annuity Units (as set forth
below) is made. After the first Annuity Payment, the dollar amount of each
subsequent Annuity Payment is equal to the number of Annuity Units multiplied by
the Annuity Unit Value for the Subaccount ten Business Days before the due date
of the Annuity Payment.
The Annuity Unit Value for each Subaccount was initially established at $10.00
on the date money was first deposited in that Subaccount. The Annuity Unit Value
for any subsequent Business Day is equal to (a) times (b) times (c), where
(a) = the Annuity Unit Value for the immediately preceding Business Day;
(b) = the Net Investment Factor for the day; and
(c) = the investment result adjustment factor (.99989255 per day), which
recognizes an assumed interest rate of 4% per year used in
determining the Annuity Payment amounts.
The Net Investment Factor is a factor applied to a Subaccount that reflects
daily changes in the value of the Subaccount due to:
(a) = any increase or decrease in the value of the Subaccount due to
investment results;
(b) = a daily charge assessed at an annual rate of .55% for the mortality
and expense risks assumed by the Company; and
<PAGE>
(c) = a daily charge for the cost of administering the Contract
corresponding to an annual charge of .15% of the value of the
Subaccount, plus the Annual Contract Fee.
The Annuity Tables contained in the Contract are based on the 1983 Table "A"
Mortality Table projected for mortality improvement to the year 2000 using
Projection Scale G and an interest rate of 4% a year.
EXCHANGES
After the Annuity Date you may, by making a written request, exchange the
current value of an existing Subaccount to Annuity Units of any other
Subaccount(s) then available. The written request for an Exchange must be
received by us, however, at least 10 Business Days prior to the first payment
date on which the Exchange is to take effect. This Exchange shall result in the
same dollar amount as that of the Annuity Payment on the date of Exchange (the
"Exchange Date"). Each year you may make an unlimited number of free Exchanges
between Subaccounts. A $15 fee is currently imposed for Exchanges in excess of
twelve per Contract Year.
Exchanges will be made using the Annuity Unit Value for the Subaccounts on the
date the written request for Exchange is received. On the Exchange Date, the
Company will establish a value for the current Subaccounts by multiplying the
Annuity Unit Value by the number of Annuity Units in the existing Subaccounts
and compute the number of Annuity Units for the new Subaccounts by dividing the
Annuity Unit Value of the new Subaccounts into the value previously calculated
for the existing Subaccounts.
EXCEPTIONS TO CHARGES AND TO TRANSACTION OR BALANCE REQUIREMENTS
The Company may reduce administrative charges or other deductions from Purchase
Payments in certain situations where the Company expects to realize significant
economies of scale or other economic benefits with respect to the sale of
Contracts. The Company may reduce administrative charges and fees on sales to
directors, officers and bona fide full-time employees (and their spouses and
minor children) of the Company, its ultimate parent company, AEGON N.V., and
their affiliates and certain sales representatives for the Contract. The
Company may also grant waivers or modifications of certain minimum or maximum
purchase or transaction amounts or balance requirements in these circumstances.
Notwithstanding the above, any variations in administrative charges or other
deductions from Purchase Payments or in the minimum or maximum transaction or
balance requirements shall reflect differences in costs or services and shall
not be unfairly discriminatory against any person.
2
<PAGE>
GENERAL MATTERS
NON-PARTICIPATING
The Contracts are non-participating. No dividends are payable and the Contracts
will not share in the profits or surplus earnings of the Company.
MISSTATEMENT OF AGE OR SEX
The Company may require proof of age and sex before making Annuity Payments. If
the Annuitant's stated age, sex or both in the Contract are incorrect, the
Company will change the annuity benefits payable to those benefits which the
Purchase Payments would have purchased for the correct age and sex. In the case
of correction of the stated age and/or sex after payments have commenced, the
Company will (1) in the case of underpayment, pay the full amount due with the
next payment; (2) in the case of overpayment, deduct the amount due from one or
more future payments.
ASSIGNMENT
Any Non-Qualified Contract may be assigned by you prior to the Annuity Date and
during the Annuitant's lifetime. The Company is not responsible for the validity
of any assignment. No assignment will be recognized until the Company receives
the appropriate Company form notifying the Company of such assignment. The
interest of any beneficiary which the assignor has the right to change shall be
subordinate to the interest of an assignee. Any amount paid to the assignee
shall be paid in one sum notwithstanding any settlement agreement in effect at
the time assignment was executed. The Company shall not be liable as to any
payment or other settlement made by the Company before receipt of the
appropriate Company form.
ANNUITY DATA
The Company will not be liable for obligations which depend on receiving
information from a Payee until such information is received in a form
satisfactory to the Company.
ANNUAL STATEMENT
Once each Contract Year, the Company will send you an annual statement of the
current Accumulated Value allocated to each Subaccount and any Purchase
Payments, charges, Exchanges or withdrawals during the year. This report will
also give you any other information required by law or regulation. You may ask
for an annual statement like this at any time. We will also send you quarterly
statements. However, we reserve the right to discontinue quarterly statements at
any time.
3
<PAGE>
INCONTESTABILITY
This Contract is incontestable from the Contract Date, subject to the
"Misstatement of Age or Sex" provision.
OWNERSHIP
The Contract Owner on the Contract Date is the Annuitant, unless otherwise
specified in the application. The Contract Owner may specify a new Contract
Owner by sending us the appropriate Company form at any time thereafter. The
term Contract Owner also includes any person named as a Joint Owner. A Joint
Owner shares ownership in all respects with the Contract Owner. During the
Annuitant's lifetime, all rights and privileges under this Contract may be
exercised solely by the Contract Owner. Upon the death of the Contract Owner,
ownership is retained by the surviving Joint Owner or passes to the Owner's
Designated Beneficiary, if one has been designated by the Contract Owner. If no
Owner's Designated Beneficiary has been selected or if no Owner's Designated
Beneficiary is living, then the Owner's Designated Beneficiary is the Contract
Owner's estate. From time to time the Company may require proof that the
Contract Owner is still living.
PERFORMANCE INFORMATION
Performance information for the Subaccounts, including the yield and the total
return of all Subaccounts, may appear in reports or promotional literature to
current or prospective Contract Owners.
Where applicable in calculating performance information, the Annual Contract Fee
is reflected as a percentage equal to the total amount of fees collected during
a calendar year divided by the total average net assets of the Portfolios during
the same calendar year. The fee is assumed to remain the same in each year of
the applicable period. (With respect to partial year periods, if any, in the
examples, the Annual Contract Fee is pro-rated to reflect only the applicable
portion of the partial year period.)
30-DAY YIELD FOR SUBACCOUNTS
Quotations of yield for the Subaccounts will be based on all investment income
per Unit earned during a particular 30-day period, less expenses accrued during
the period ("net investment income"), and will be computed by dividing net
investment income by the value of a Unit on the last day of the period,
according to the following formula:
a - b
YIELD = 2[(----- + 1)/6/ - 1]
cd
4
<PAGE>
Where:
[a] = the net investment income earned during the period by the Portfolio
attributable to shares owned by a Subaccount;
[b] = the expenses accrued for the period (net of reimbursement);
[c] = the average daily number of Units outstanding during the period;
and
[d] = the maximum offering price per Accumulation Unit on the last day of
the period.
Yield on the Subaccount is earned from the increase in net asset value of shares
of the Portfolio in which the Subaccount invests and from dividends declared and
paid by the Portfolio, which are automatically reinvested in shares of the
Portfolio.
STANDARDIZED AVERAGE ANNUAL TOTAL RETURN FOR SUBACCOUNTS
When advertising performance of the Subaccounts, the Company will show the
"Standardized Average Annual Total Return," calculated as prescribed by the
rules of the SEC, for each Subaccount. The Standardized Average Annual Total
Return is the effective annual compounded rate of return that would have
produced the cash redemption value over the stated period had the performance
remained constant throughout. The calculation assumes a single $1,000 payment
made at the beginning of the period and full redemption at the end of the
period. It reflects the deduction of the Annual Contract Fee and all other
Portfolio, Separate Account and Contract level charges except Premium Taxes, if
any.
Quotations of average annual total return for any Subaccount will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in a Contract over a period of one, five and ten years (or, if less,
up to the life of the Subaccount), calculated pursuant to the formula:
P(1 + T)/n/ = ERV
Where:
[P] = a hypothetical initial Purchase Payment of $1,000;
[T] = an average annual total return;
[n] = the number of years; and
5
<PAGE>
[ERV] = the ending redeemable value of a hypothetical $1,000 Purchase
Payment made at the beginning of the period (or fractional
portion thereof).
ADDITIONAL PERFORMANCE MEASURES
NON-STANDARDIZED ACTUAL TOTAL RETURN AND NON-STANDARDIZED ACTUAL AVERAGE ANNUAL
TOTAL RETURN
The Company may show Non-Standardized Actual Total Return (i.e., the percentage
change in the value of an Accumulation Unit) for one or more Subaccounts with
respect to one or more periods. The Company may also show Non-Standardized
Actual Average Annual Total Return (i.e., the average annual change in
Accumulation Unit Value) with respect to one or more periods. For one year, the
Non-Standardized Actual Total Return and the Non-Standardized Actual Average
Annual Total Return are effective annual rates of return and are equal. For
periods greater than one year, the Non-Standardized Actual Average Annual Total
Return is the effective annual compounded rate of return for the periods stated.
Because the value of an Accumulation Unit reflects the Separate Account and
Portfolio expenses (See Fee Table in the Prospectus), the Non-Standardized
Actual Total Return and Non-Standardized Actual Average Annual Total Return also
reflect these expenses. However, these percentages do not reflect the Annual
Contract Fee or Premium Taxes (if any), which if included would reduce the
percentages reported by the Company.
NON-STANDARDIZED TOTAL RETURN YEAR-TO-DATE
The Company may show Non-Standardized Total Return Year-to-Date as of a
particular date, or simply Total Return YTD, for one or more Subaccounts with
respect to one or more non-standardized base periods commencing at the beginning
of a calendar year. Total Return YTD figures reflect the percentage change in
actual Accumulation Unit Values during the relevant period. These percentages
reflect a deduction for the Separate Account and Portfolio expenses, but do not
include the Annual Contract Fee or Premium Taxes (if any), which if included
would reduce the percentages reported by the Company.
NON-STANDARDIZED ONE YEAR RETURN
The Company may show Non-Standardized One Year Return, for one or more
Subaccounts with respect to one or more non-standardized base periods commencing
at the beginning of a calendar year (or date of inception, if during the
relevant year) and ending at the end of such calendar year. One Year Return
figures reflect the percentage change in actual Accumulation Unit Values during
the relevant period. These percentages reflect a deduction for the Separate
Account and Portfolio expenses, but do not include the Annual Contract Fee or
Premium Taxes (if any), which if included would reduce the percentages reported
by the Company.
6
<PAGE>
PERFORMANCE COMPARISONS
Performance information for any Subaccount reflects only the performance of a
hypothetical Contract under which Accumulation Value is allocated to a
Subaccount during a particular time period on which the calculations are based.
Performance information should be considered in light of the investment
objectives and policies, characteristics and quality of the Portfolio in which
the Subaccount invests, and the market conditions during the given period, and
should not be considered as a representation of what may be achieved in the
future.
Reports and marketing materials may, from time to time, include information
concerning the rating of First 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:
. DOW JONES INDUSTRIAL AVERAGE ("DJIA"), an unmanaged index representing
share prices of major industrial corporations, public utilities, and
7
<PAGE>
transportation companies. Produced by Dow Jones & Company, it is cited as a
principal indicator of market conditions.
. STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a
composite index of common stocks in industrial, transportation, and
financial and public utility companies, which can be used to compare to the
total returns of funds whose portfolios are invested primarily in common
stocks. In addition, the Standard & Poor's index assumes reinvestments of
all dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
into the Standard & Poor's figures.
. LIPPER ANALYTICAL SERVICES, INC., a reporting service that ranks funds
in various fund categories by making comparative calculations using total
return. Total return assumes the reinvestment of all income dividends and
capital gains distributions, if any. From time to time, we may quote the
Portfolios' Lipper rankings in various fund categories in advertising and
sales literature.
. BANK RATE MONITOR NATIONAL INDEX, Miami Beach, Florida, a financial
reporting service which publishes weekly average rates of 50 leading bank
and thrift institution money market deposit accounts. The rates published
in the index are an average of the personal account rates offered on the
Wednesday prior to the date of publication by ten of the largest banks and
thrifts in each of the five largest Standard Metropolitan Statistical
Areas. Account minimums range upward from $2,500 in each institution, and
compounding methods vary. If more than one rate is offered, the lowest rate
is used. Rates are subject to change at any time specified by the
institution.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, an index comprised
of approximately 5,000 issues which include: non-convertible bonds publicly
issued by the U.S. government or its agencies; corporate bonds guaranteed
by the U.S. government and quasi-federal corporations; and publicly issued,
fixed-rate, non-convertible domestic bonds of companies in industry, public
utilities and finance. The average maturity of these bonds approximates
nine years. Tracked by Shearson Lehman, Inc., the index calculates total
returns for one month, three month, twelve month, and ten year periods and
year-to-date.
. SHEARSON LEHMAN GOVERNMENT/CORPORATE (LONG-TERM) INDEX, an index composed
of the same types of issues as defined above. However, the average
maturity of the bonds included in this index approximates 22 years.
8
<PAGE>
. SHEARSON LEHMAN GOVERNMENT INDEX, an unmanaged index comprised of all
publicly issued, non-convertible domestic debt of the U.S. government, or
any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Only notes and bonds with a minimum
outstanding principal of $1 million and a minimum maturity of one year are
included.
. MORNINGSTAR, INC., an independent rating service that publishes the bi-
weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-
listed mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two weeks.
. MONEY, a monthly magazine that regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, the Fund will quote its Money ranking
in advertising and sales literature.
. STANDARD & POOR'S UTILITY INDEX, an unmanaged index of common stocks from
forty different utilities. This index indicates daily changes in the price
of the stocks. The index also provides figures for changes in price from
the beginning of the year to date, and for a twelve month period.
. DOW JONES UTILITY INDEX, an unmanaged index comprised of fifteen utility
stocks that tracks changes in price daily and over a six month period. The
index also provides the highs and lows for each of the past five years.
. THE CONSUMER PRICE INDEX, a measure for determining inflation.
Investors may use such indexes (or reporting services) in addition to the Funds'
Prospectuses to obtain a more complete view of each Portfolio's performance
before investing. Of course, when comparing each Portfolio's performance to any
index, conditions such as composition of the index and prevailing market
conditions should be considered in assessing the significance of such
comparisons. Unmanaged indexes may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and management costs and
expenses.
When comparing funds using reporting services, or total return and yield, or
effective yield, investors should take into consideration any relevant
differences in funds such as permitted portfolio compositions and methods used
to value portfolio securities and compute offering price.
9
<PAGE>
SAFEKEEPING OF ACCOUNT ASSETS
Title to assets of the Separate Account is held by the Company. The Assets are
kept physically segregated and held separate and apart from the Company's
General Account assets. The General Account contains all of the assets of the
Company. Records are maintained of all purchases and redemptions of eligible
Portfolio shares held by each of the Subaccounts and the General Account.
THE COMPANY
All the stock of the Company is owned by Veterans Life Insurance Company, which
is a subsidiary of Providian Life and Health Insurance Company, a Missouri
insurance company ("PLH"). Providian Corporation owns a 4% interest in PLH and
61%, 15%, and 20% interests in PLH, 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 Providian Corporation. A 3% interest in Capital
Liberty, L.P. is owned by Providian Corporation, which is the general partner,
and 78% and 19% interests, respectively, are held by two limited partners,
Commonwealth Life Insurance Company and Peoples Security Life Insurance Company.
Providian Corporation is 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% interest in AEGON N.V.
STATE REGULATION
The Company is a stock life insurance company organized under the laws of the
State of New York, and is subject to regulation by the New York State Department
of Insurance. An annual statement is filed with the New York Superintendent of
Insurance on or before March 1 of each year covering the operations and
reporting on the financial condition of the Company as of December 31 of the
preceding calendar year. Periodically, the New York Superintendent of Insurance
examines the financial condition of the Company, including the liabilities and
reserves of the Separate Account.
The availability of certain contract rights and provisions depends on state
approval and/or filing and review processes. Where required by state law or
regulation, the Contracts will be modified accordingly.
RECORDS AND REPORTS
All records and accounts relating to the Separate Account will be maintained by
the Company or by its Administrator. As presently required by the Investment
Company Act of 1940 and regulations promulgated thereunder, the Company will
mail to all Contract Owners at their last known address of record, at least
semi-annually, reports containing such information as may be required under that
Act or by any other applicable law or regulation.
10
<PAGE>
DISTRIBUTION OF THE CONTRACTS
Providian Securities Corporation ("PSC"), the principal underwriter of the
Contracts, is ultimately a wholly owned subsidiary of Providian Corporation. PSC
is registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc.
The Contracts are offered to members and employees of the Professional Golfers
Association of America and to certain key employees of golf courses through
persons or entities licensed under the federal securities laws and New York
State insurance laws that have generally entered into agreements with PSC. The
offering of the Contracts is continuous and PSC does not anticipate
discontinuing the offering of the Contracts. However, PSC does reserve the right
to discontinue the offering of the Contracts.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. The Company is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
OTHER INFORMATION
A Registration Statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933 as amended, with respect to the
Contracts discussed in this Statement of Additional Information. Not all of the
information set forth in the Registration Statement, amendments and exhibits
thereto has been included in this Statement of Additional Information.
Statements contained in this Statement of Additional Information concerning the
content of the Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these documents, reference
should be made to the instruments filed with the Securities and Exchange
Commission.
FINANCIAL STATEMENTS
No financial statements are included for the Separate Account in this Statement
of Additional Information because, as of the end of the most recent fiscal year,
the Subaccounts of the Separate Account, which invest in the Portfolios offered
by the PGA Retirement Annuity, had not commenced operations and consequently had
no assets or liabilities with respect thereto. The audited statutory-basis
financial statements of the Company for the periods ended December 31, 1996 and
1995, including the Reports of Independent Auditors thereon, which are included
in this Statement of Additional Information, should be considered only as
bearing on the ability of the Company to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets to be held in the Separate Account.
11
<PAGE>
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements.
Part A. None
Part B. As of the date of the Prospectus and Statement of Additional
Information, First Providian Life and Health Insurance
Company Separate Account C had no assets or liabilities and
therefore, no financial statements are presented with respect
to the Separate Account.
Part C. None
(b) Exhibits.
(1) Resolution of the Board of Directors of First Providian Life
and Health Insurance Company ("First Providian") authorizing
establishment of the Separate Account./2/
(2) Not Applicable.
(3) Distribution Agreement.
(a) Form of Selling Agreement./2/
(4) (a) Form of variable annuity contract./2/
(5) (a) Form of Application./2/
(6) (a) Amended and Restated Charter of First Providian/2/
(b) By-Laws of First Providian as amended February 28,
1995./2/
(7) Not Applicable.
(8) (a) Participation Agreement by and between Wanger Advisors
Trust and First Providian Life and Health Insurance
Company dated November 15, 1996.
(b) Amendment No. 1 dated December 16, 1996 to
Participation Agreement by and between Wanger Advisors
Trust and First Providian dated November 15, 1996.
(c) Participation Agreement among Federated Insurance
Series, Federated Advisers, Federated Securities Corp.
and First Providian dated November 15, 1996.
(d) Participation Agreement among DFA Investment
Dimensions Group Inc., Dimensional Fund Advisors Inc.,
DFA Securities, Inc. and First Providian dated
November 15, 1996.
(e) Marketing Agreement between DFA Securities, Inc. and
First Providian dated November 15, 1996.
(f) Amendment dated February 10, 1997 to the Marketing
Agreement between DFA Securities, Inc. and First
Providian dated November 15, 1996.
(g) Amendment dated March 4, 1997 to the Participation
Agreement among DFA Investment Dimensions Group Inc.,
Dimensional Fund Advisors Inc., DFA Securities, Inc.
and First Providian and Marketing Agreement between
DFA Securities, Inc. and First Providian dated
November 15, 1996.
(h) Amendment dated April 15, 1997 to the Participation
Agreement among DFA Investment Dimensions Group Inc.,
Dimensional Fund Advisors Inc., DFA Securities, Inc.
and First Providian dated November 15, 1996.
(i) Participation Agreement among Montgomery Funds III,
Montgomery Asset Management, L.P. and First Providian
dated November 15, 1996.
(9) (a) Opinion and Consent of Counsel./1/
(b) Consent of Counsel./1/
(10) Consent of Independent Auditors./1/
(11) No Financial Statements are omitted from Item 23.
(12) Not Applicable.
(13) Not Applicable.
(14) Not Applicable.
- -------------------------------------
/1/Filed herewith.
/2/Incorporated by reference from Pre-Effective Amendment No. 1 to the
Registration Statement of First Providian Life and Health Insurance Company,
File No. 33-94204.
<PAGE>
Item 25. Directors and Officers of the Depositor
Principal business address is 520 Columbia Drive, Johnson City, New York
13790.
Chairman of the Board & President David J. Miller
Senior Vice President Martin Renninger
Senior Vice President Carol E. Ballentine
Vice President Brian Alford
Vice President Nathan C. Anguiano
Vice President Edward A. Biemer
Vice President Thomas P. Bowie
Senior Vice President, Treasurer &
Senior Financial Officer Dennis E. Brady
Vice President Gregory J. Garvin
Vice President Carolyn M. Johnson
Vice President/Underwriting William J. Kline
Vice President & Secretary Susan E. Martin
Vice President Kevin P. McGlynn
Vice President Thomas B. Nesspor
Vice President G. Eric O'Brien
Vice President Daniel H. Odum
Vice President and Actuary John C. Prestwood, Jr.
Vice President Nancy B. Schuckert
Vice President Joseph D. Strenk
Assistant Vice President Geralyn Barbato
Assistant Vice President &
Qualified Actuary Michael A. Cioffi
Assistant Vice President Mary Ellen Fahringer
Assistant Vice President Patricia A. Lukacs
Assistant Vice President and
Consumer Services Officer Rosalie M. Smith
Assistant Controller Paul J. Lukacs
Assistant Controller Joseph C. Noone
Second Vice President Cindy L. Chanley
Second Vice President George E. Claiborne, Jr.
Second Vice President Michele Coan
Second Vice President Karen H. Fleming
Second Vice President Michael F. Lane
Second Vice President Robin Morgan
Second Vice President Frank J. Rosa
Second Vice President/Investments Terri L. Allen
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 Eric B. Goodman
Second Vice President/Investments James Grant
Second Vice President/Investments Frederick B. Howard
<PAGE>
Second Vice President/Investments Tim Kuussalo
Second Vice President/Investments Mark E. Lamb
Second Vice President/Investments James D. MacKinnon
Second Vice President/Investments Jeffrey T. McGlaun
Second Vice President/Investments Douglas H. Owen, Jr.
Second Vice President/Investments Jon L. Skaggs
Second Vice President/Investments Robert A. Smedley
Second Vice President/Investments Bradley L. Stofferahn
Second Vice President/Investments Randall K. Waddell
Second Vice President and Assistant
Secretary Edward P. Reiter
Assistant Secretary L. Jude Clark
Assistant Secretary Colleen S. Lyons
Assistant Secretary Mary Ann Malinyak
Assistant Secretary John F. Reesor
Assistant Secretary Kimberly A. Scouller
Assistant Secretary R. Michael Slaven
Product Compliance Officer James T. Bradley
DIRECTORS:
Dennis E. Brady David J. Miller
I. Donald Britton Thomas B. Nesspor
Patricia A. Collins Brian H. Perry
Jeffrey H. Goldberger Martin Renninger
Susan E. Martin Rosalie M. Smith
Kevin McGlynn John C. Prestwood, Jr.
Item 26. Persons controlled by or Under Common Control with the Depositor or
Registrant.
The Depositor, First Providian Life and Health Insurance Company ("First
Providian"), is directly and indirectly wholly owned by Providian Corporation,
which is indirectly wholly owned by AEGON N.V. The Registrant is a segregated
asset account of First Providian.
The following chart indicates the persons controlled by or under common
control with First Providian:
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
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.
Monumental General Administrators, Maryland 100% Monumental General Provides management srvcs.
Inc. Insurance Group, Inc. to unaffiliated third party
administrator
Executive Management and Consultant Maryland 100% Monumental General Provides actuarial consulting
Services, Inc. Administrators, Inc. services
Monumental General Mass Marketing, Inc. Maryland 100% Monumental General Marketing arm for sale of
Insurance Group, Inc. mass marketed insurance
coverages
Diversified Investment Advisors, Inc. Delaware 100% AUSA Holding Co. Registered investment advisor
Diversified Investors Securities Corp. Delaware 100% Diversified Investment Broker-Dealer
Advsiors, Inc.
AEGON USA Securities, Inc. Iowa 100% AUSA Holding Co. Broker-Dealer
American Forum For Fiscal Fitness, Inc. Iowa 100% AUSA Holding Co. Marketing
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 Management, Inc. Iowa 100% AUSA Holding Co. Investment advisor
AEGON USA Realty Advisors, Inc. Iowa 100% AUSA Holding Co. Provides real estate
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 Management, Inc. Iowa 100% AEGON USA Real estate management
Realty Advisors, Inc.
USP Real Estate Investment Trust Iowa 21.89% First AUSA Life Real estate investment trust
Ins. Co.
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.
AUSA Financial Markets, Inc. Iowa 100% AUSA Holding Co. Marketing
Universal Benefits Corporation Iowa 100% AUSA Holding Co. Third party administrator
Investors Warranty of America, Inc. Iowa 100% AUSA Holding Co. Provider of automobile
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
AUSA Institutional Marketing Group, Inc. Minnesota 100% AUSA Holding Co. Insurance agency
AEGON Asset Management Services, Inc. Delaware 100% AUSA Holding Co. Registered investment advisor
Intersecurities, Inc. Delaware 100% AUSA Holding Co. Broker-Dealer
ISI Insurance Agency, Inc. California 100% Intersecurities, Inc. Insurance agency
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
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.
Associated Mariner Financial Michigan 100% Intersecurities, Inc. Holding co./management
Group, Inc. - Holding company 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.
Mariner Agency of Hawaii, Inc. Hawaii 100% Associated Mariner Insurance agency
Agency, Inc.
Associated Mariner Ins. Agency Massachusetts 100% Associated Mariner Insurance agency
of Massachusetts, Inc. Agency, Inc.
Associated Mariner Agency Ohio 100% Associated Mariner Insurance agency
Ohio, Inc. Agency, Inc.
Associated Mariner Agency Texas 100% Associated Mariner Insurance agency
Texas, Inc. 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 Co. Maryland 100% AEGON USA, Inc. Insurance holding company
AUSA Life Insurance Co. Inc. New York 100% First AUSA Life Insurance
Insurance Company
Life Investors Insurance Iowa 100% First AUSA Life Ins. Co. Insurance
Company of America
Bankers United Life Iowa 100% Life Investors Ins. Insurance
Assurance Company Company of America
PFL Life Insurance Company Iowa 100% First AUSA Life Ins. Co. Insurance
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
Monumental General Casualty Co. Maryland 100% Monumental Life Ins. Co. Insurance
United Financial Services, Inc. Maryland 100% Monumental Life Ins. Co. General agency
Bankers Financial Life Ins. Co. Arizona 100% Monumental Life Insurance
Insurance Company
The Whitestone Corporation Maryland 100% Monumental Life Ins. Co. Insurance agency
Cadet Holding Corp. Iowa 100% First AUSA Life Holding company
Insurance Company
Providian Corporation Delaware 100% AEGON International N.V. Holding company
Providian Series Trust Massachusetts Various Mutual fund
Providian Agency Group, Inc. Kentucky 100% Providian Corp. Provider of services to ins. cos.
Benefit Plans, Inc. Delaware 100% Providian Corp. TPA for Peoples Security Life
Insurance Company
Durco Agency, Inc. Virginia 100% Benefit Plans, Inc. General agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
Providian Assignment Corp. Kentucky 100% Providian Corp. Administrator of structured
settlements
Providian Financial Services, Pennsylvania 100% Providian Corp. Financial services
Inc.
Providian Securities Corporation Pennsylvania 100% Providian Financial Broker-Dealer
Services, Inc.
Wannalancit Corp. Massachusetts 100% Providian Corp. Real estate holding company
Providian Investment Delaware 100% Providian Corp. Registered investment advisor
Advisors, Inc.
Providian Capital Delaware 100% Providian Corp. Provider of investment,
Management, Inc. marketing and admin. services
to ins. cos.
Providian Capital Management Delaware 100% Providian Capital Real estate and mortgage
Real Estate Services, Inc. Management, Inc. holding company
Capital Real Estate Delaware 100% Providian Corp. Furniture and equipment lessor
Development Corporation
Capital General Development Delaware 100% Providian Corp. 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
Commonwealth Agency, Inc. Kentucky 100% Commonwealth Life Special purpose subsidiary
Insurance Company
Camden Asset Management L.P. California 51% Commonwealth Life Investment entity
Insurance Company
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
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% Providian Corp. Real estate holdings
Capital Broadway Corporation Kentucky 100% Providian Corp. Real estate holdings
Southlife, Inc. Tennessee 100% Providian Corp. Investment subsidiary
Providian Insurance Agency, Inc. Pennsylvania 100% Providian Corp. Provider of management
support services
National Home Life Corporation Pennsylvania 100% Providian Insurance Special-purpose subsidiary
Agency, Inc.
Compass Rose Development Pennsylvania 100% Providian Insurance Special-purpose subsidiary
Corporation Agency, Inc.
Association Consultants, Inc. Illinois 100% Providian Insurance TPA license-holder
Agency, Inc.
Valley Forge Associates, Inc. Pennsylvania 100% Providian Insurance Furniture & equipment lessor
Agency, Inc.
Veterans Benefits Plans, Inc. Pennsylvania 100% Providian Insurance Administator of group
Agency, Inc. insurance programs
Veterans Insurance Services, Inc. Delaware 100% Providian Insurance Special-purpose subsidiary
Agency, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Jurisdication of Percent of Voting
Name Incorporation Securities Owned Business
- ---- ---------------- ----------------- --------
<S> <C> <C> <C>
Financial Planning Services, Inc. Dist. Columbia 100% Providian Insurance Special-purpose subsidiary
Agency, Inc.
Providian Auto and Home Missouri 100% Providian Corp. Insurance company
Insurance Company
Academy Insurance Group, Inc. Delaware 100% Providian Auto and Holding company
Home Insurance Company
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
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. servcies
Services, GmbH Services, Inc.
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 78% Commonwealth Life Holding Company
Insurance Company
19% Peoples Security Life
Insurance Company
3% Providian Corp.
Providian LLC Turks & 100% Providian Corp. Special-purpose subsidiary
Caicos Islands
Providian Life and Health Missouri 4% Providian Corp. Insurance company
Insurance Company 15% 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
Providian 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>
Item 27. Number of Contract Owners
As of June 30, 1997, there were seven Advisor's Edge Variable Annuity
contract owners and no contract owners of the Dimensional Variable Annuity and
PGA Retirement Annuity.
Item 28. Indemnification.
Item 28 is incorporated by reference from Pre-Effective Amendment No. 1 to
the Registration Statement of First Providian Life and Health Insurance Company,
File No. 33-94204.
<PAGE>
Item 29. Principal Underwriters
(a) Providian Securities Corporation, which serves as the principal
underwriter for the variable annuity contracts funded by Separate
Account C, also serves as the principal underwriter for variable
life insurance policies funded by Separate Account I, Separate
Account II and Separate Account V of Providian Life and Health
Insurance Company (formerly National Home Life Assurance Company).
(b) Directors and Officers
Positions and Officers
Name with Underwriter
---- ----------------
Lorri E. Mehaffy President and Director
Harvey E. Willis Vice President and Secretary
Kimberly A. Scouller Vice President and Chief Compliance
Officer
Michael F. Lane Vice President
Debra C. Cubero Vice President
Gregory J. Garvin Vice President
Larry N. Norman Vice President and Director
Anne M. Spaes Vice President
<PAGE>
Sarah J. Strange Vice President
Michael G. Ayers Controller and Treasurer
Robert. L. Walker Director
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 physical possession of First Providian Life and Health
Insurance Company at its administrative offices at 520 Columbia Drive, Johnson
City, New York 13790.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 31. Undertakings
(a) The Registrant hereby undertakes to file a post-effective amendment to
this registration statement as frequently as is necessary to ensure that the
audited financial statements in the registration statement are never more than
16 months old for so long as payments under the variable annuity contracts may
be accepted;
(b) The Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
prospectus that the applicant can remove to sent for a Statement of Additional
Information;
(c) The Registrant hereby undertakes to deliver any Statement of
Additional Information and any financial statements required to be made
available under this Form promptly upon written or oral request.
(d) First Providian Life and Health Insurance Company represents that the
fees and charges deducted under the contract described 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 First
Providian Life and Health Insurance Company.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant and the Depositor, have caused this amended Registration
Statement to be signed on its behalf in the County of Jefferson Commonwealth of
Kentucky on the 25th day of July, 1997.
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY SEPARATE ACCOUNT C (REGISTRANT)
By: First Providian Life and Health Insurance Company
By: David J. Miller*
------------------------------------------------
David J. Miller
Chairman of the Board and President
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY (DEPOSITOR)
By: David J. Miller*
------------------------------------------------
David J. Miller
Chairman of the Board and President
/s/ R. Michael Slaven
*By: ------------------------------------------------
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>
David J. Miller* Director, Chairman of the Board July 25, 1997
- --------------------------- and President
David J. Miller
Dennis E. Brady* Director, Senior Vice President, July 25, 1997
- --------------------------- Treasurer and Senior Financial
Dennis E. Brady Officer
(Chief Accounting Officer)
Susan E. Martin* Director, Vice President and July 25, 1997
- --------------------------- Secretary
Susan E. Martin
I. Donald Britton* Director July 25, 1997
- ---------------------------
I. Donald Britton
Patricia A. Collins* Director July 25, 1997
- ---------------------------
Patricia A. Collins
Jeffrey H. Goldberger* Director July 25, 1997
- ---------------------------
Jeffrey H. Goldberger
Brian H. Perry* Director July 25, 1997
- ---------------------------
Brian H. Perry
Martin Renninger* Director and Senior Vice July 25, 1997
- --------------------------- President
Martin Renninger
Rosalie M. Smith* Director, Vice President and July 25, 1997
- --------------------------- Consumer Services Officer
Rosalie M. Smith
Thomas B. Nesspor* Director and Vice President July 25, 1997
- ---------------------------
Thomas B. Nesspor
Kevin P. McGlynn* Director and Vice President July 25, 1997
- ---------------------------
Kevin P. McGlynn
John C. Prestwood Jr.* Director, Vice President July 25, 1997
- --------------------------- and Actuary
John C. Prestwood Jr.
</TABLE>
* By: /s/ R. Michael Slaven
----------------------------
R. Michael Slaven
Attorney-in-Fact
<PAGE>
SEPARATE ACCOUNT C
PROVIDIAN ADVISOR'S EDGE VARIABLE ANNUITY
INDEX TO EXHIBITS
EXHIBIT 8(a) Participation Agreement by and between Wanger Advisors
Trust and First Providian Life and Health Insurance
Company dated November 15, 1996.
EXHIBIT 8(b) Amendment No. 1 dated December 16, 1996 to Participation
Agreement by and between Wanger Advisors Trust and First
Providian Life and Health Insurance Company dated November
15, 1996.
EXHIBIT 8(c) Participation Agreement among Federated Insurance Series,
Federated Advisers, Federated Securities Corp. and First
Providian Life and Health Insurance Company dated November
15, 1996.
EXHIBIT 8(d) Participation Agreement among DFA Investment Dimensions
Group Inc., Dimensional Fund Advisors Inc., DFA Securities
Inc. and First Providian Life and Health Insurance Company
dated November 15, 1996.
EXHIBIT 8(e) Marketing Agreement between DFA Securities, Inc. and First
Providian Life and Health Insurance Company dated November
1, 1996.
EXHIBIT 8(f) Amendment dated February 10, 1997 to the Marketing Agreement
between DFA Securities, Inc. and First Providian Life and
Health Insurance Company dated November 15, 1996.
EXHIBIT 8(g) Amendment Dated March 4, 1997 to the Participation
Agreement among DFA Investment Dimensions Group Inc.,
Dimensional Fund Advisors Inc., DFA Securities Inc. and
First Providian Life and Health Insurance Company and
Marketing Agreement between DFA Securities, Inc. and
First Providian Life and Health Insurance Company dated
November 15, 1996.
EXHIBIT 8(h) Amendment dated April 15, 1997 to the Participation
Agreement among DFA Investment Dimensions Group Inc.,
Dimensional Fund Advisors Inc., DFA Securities Inc., and
First Providian Life and Health Insurance Company dated
November 15, 1996.
EXHIBIT 8(i) Participation Agreement among Montgomery Funds III,
Montgomery Asset Management, L.P. and First Providian
Life and Health Insurance Company dated November 15, 1996.
EXHIBIT 9(a) OPINION AND CONSENT OF COUNSEL
EXHIBIT 9(b) CONSENT OF COUNSEL
EXHIBIT 10 CONSENT OF INDEPENDENT AUDITORS
<PAGE>
Exhibit 8(a)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into this 15th day of November, 1996 by
and between WANGER ADVISORS TRUST, an unincorporated business trust formed under
the laws of Massachusetts (the "Trust"), and FIRST PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY, a New York life insurance company (the "Company"), on its own
behalf and on behalf of each separate account of the Company identified herein.
WHEREAS, the Trust is a series-type mutual fund offering shares of
beneficial interest (the "Trust shares") consisting of one or more separate
series ("Series") of shares ("Series shares"), each such series representing an
interest in a particular managed portfolio of securities and other assets; and
WHEREAS, the Trust was established for the purpose of serving as an
investment vehicle for (i) separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies, and (ii) certain pension and retirement plans receiving favorable tax
treatment under the Internal Revenue Code of 1986, as amended; and
WHEREAS, the Company desires that the Trust serve as an investment vehicle
for certain separate accounts of the Company;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
ARTICLE I. Additional Definitions
----------------------
1.1. "Account" -- each separate account of the Company described more
specifically in Schedule 1 to this Agreement.
1.2. "Business Day" -- each day that the Trust is open for business as
provided in the Trust Prospectus.
1.3. "Code" -- the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
1.4. "Contracts" -- the class or classes of variable annuity contracts
issued by the Company and described more specifically on Schedule 2 to this
Agreement.
<PAGE>
1.5. "Contract Owners" -- the owners of the Contracts, as distinguished
from all Product Owners.
1.6. "Investment Adviser" -- the investment manager of the Trust, Wanger
Asset Management, L.P.
1.7. "Participating Account" -- a separate account investing all or a
portion of its assets in the Trust, including the Account.
1.8. "Participating Insurance Company" -- any insurance company investing
in the Trust on its behalf or on behalf of a Participating Account, including
the Company.
1.9. "Products" -- variable annuity contracts and variable life insurance
policies supported by Participating Accounts investing assets attributable
thereto in the Trust, including the Contracts.
1.10. "Product Owners" -- owners of Products.
1.11. "Prospectus" -- with respect to a class of Contracts, each version
of the definitive prospectus or supplement thereto filed with the SEC pursuant
to Rule 497 under the 1933 Act ("Contracts Prospectus"). With respect to Trust
shares, each version of the definitive prospectus or supplement thereto filed
with the SEC pursuant to Rule 497 under the 1933 Act with respect to a series of
the Trust listed on Schedule 3 to this Agreement ("Trust Prospectus"). With
respect to any provision of this Agreement requiring a party to take action in
accordance with a Prospectus, such reference thereto shall be deemed to be to
the version last filed prior to the taking of such action. For purposes of
Article VIII, the term "Prospectus" shall include any statement of additional
information incorporated therein.
1.12. "Qualified Entity" -- A person or plan, including a pension or
retirement plan receiving favorable tax treatment under the Code, that qualifies
to purchase shares of the Trust under Section 817(h) of the Code. A natural
person having an indirect interest in the Trust by virtue of such natural
person's participation in a Qualified Entity is a "Qualified Participant."
1.13. "Registration Statement" -- with respect to the Trust Shares or a
class of Contracts, the registration statement filed with the SEC to register
the securities issued thereby
2
<PAGE>
under the 1933 Act, or the most recently filed amendment thereto, in either case
in the form in which it was declared or became effective. The Contracts
Registration Statement is described more specifically on Schedule 2 to this
Agreement. The Trust Registration Statement was filed on Form N-lA (File No.
33-83598).
1.14. "1940 Act Registration Statement" -- with respect to the Trust or
the Account, the registration statement filed with the SEC to register such
entity as an investment company under the 1940 Act, or the most recently filed
amendment thereto. The Account 1940 Act Registration Statement is described
more specifically on Schedule 2 to this Agreement. The Trust 1940 Act
Registration Statement was filed on Form N-lA (File No. 811-8748).
1.15. "Statement of Additional Information" -- with respect to the Trust
or a class of Contracts, each version of the definitive statement of additional
information or supplement thereto filed with the SEC pursuant to Rule 497 under
the 1933 Act.
1.16. "SEC" -- the Securities and Exchange Commission.
1.17. "1933 Act" -- the Securities Act of 1933, as amended.
1.18. "1940 Act" -- the Investment Company Act of 1940, as amended.
ARTICLE II. Sale of Trust Shares
--------------------
2.1. The Trust shall make shares of those Series listed on Schedule 3 to
this Agreement available for purchase by the Company on behalf of the Account,
such purchases to be effected at net asset value in accordance with Section 2.3
of this Agreement. Notwithstanding the foregoing, (i) other than those Series
listed on Schedule 3, Trust Series in existence now or that may be established
in the future will be made available to the Company only as the Trust and the
Company may agree pursuant to Article XI hereof, and (ii) the Board of Trustees
of the Trust (the "Trust Board") may suspend or terminate the offering of Trust
shares of any Series, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole
3
<PAGE>
discretion of the Trust Board acting in good faith and in light of its fiduciary
duties under Federal and any applicable state laws, suspension or termination is
necessary in the best interests of the shareholders of any Series (it being
understood that "shareholders" for this purpose shall mean Product Owners and
Qualified Participants).
2.2. The Trust shall redeem, at the Company's request, any full or
fractional shares of the Trust held by the Company on behalf of the Account,
such redemptions to be effected at net asset value in accordance with Section
2.3 of this Agreement. Notwithstanding the foregoing, (i) the Company shall not
redeem Trust shares attributable to Contract Owners except in the circumstances
permitted in Section 2.7 of this Agreement, and (ii) the Trust may delay
redemption of Trust shares of any Series to the extent permitted by the 1940
Act, any rules, regulations or orders thereunder, and the Trust Prospectus.
2.3.
(a) The Trust hereby appoints the Company as its designee for the
limited purpose of receiving purchase and redemption requests from the Account
based on allocations of net amounts to the Account or subaccounts thereof under
the Contracts and other transactions relating to the Contracts or the Account.
Purchase and redemption requests shall be processed by the Trust at the net
asset value per share next calculated after the Trust receives such request. The
Trust shall calculate its net asset value per share at the Trust's close of
business on each Business Day (as defined from time to time in the Trust
Prospectus, and which as of the date of execution of this Agreement is the time
of the close of regular session trading on the New York Stock Exchange, which is
generally 4:00 p.m. Eastern Time. Receipt of any such request on any Business
Day by the Company as designee of the Trust prior to the Trust's close of
business shall constitute receipt by the Trust on that same Business Day,
provided that the Trust receives notice of such request by 10 a.m. Eastern Time
on the next following Business Day.
(b) The Company shall pay for shares of each Series on the same day
that it notifies the Trust of a purchase request for such shares. Payment for
Series shares shall be made in Federal funds transmitted to the Trust by wire by
2:30 p.m. Eastern Time on the day the Trust is notified of the purchase request
for Series shares (unless the Trust determines and so advises the
4
<PAGE>
Company that sufficient proceeds are available from redemption of shares of
other Series effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If payment in Federal funds for any purchase is not
received, or is received by the Trust after 3 p.m. Eastern Time on such Business
Day, the Company shall promptly, upon the Trust's request, reimburse the Trust
for any charges, costs, fees, interest or other expenses incurred by the Trust
in connection with any advances to, or borrowings or overdrafts by, the Trust,
or any similar expenses incurred by the Trust, as a result of portfolio
transactions effected or dilution suffered by the Trust based upon such failure
to receive the funds by 3:00 p.m. Eastern Time. If Federal funds are not
received on time, such funds will be invested, and Series shares purchased
thereby will be issued, as soon as practicable. Upon receipt of Federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Trust.
(c) Payment for Series shares redeemed by the Account or the
Company shall be made in Federal funds transmitted by wire to the Company or any
other designated person by 3:00 p.m. Eastern Time on the Business Day during
which the Trust is properly notified of the redemption order of Series shares
(unless redemption proceeds are to be applied to the purchase of Trust shares of
other Series in accordance with Section 2.3(b) of this Agreement), except that
(i) the Trust reserves the right to delay payment of redemption proceeds to the
extent permitted under Section 22(e) of the 1940 Act; and (ii) the Trust
reserves the right to effect payment of redemptions in kind, but only to the
extent described in the Trust Prospectus. The Trust shall not bear any
responsibility whatsoever for the proper disbursement or crediting of redemption
proceeds under the Contracts; the Company alone shall be responsible for such
action.
2.4. The Trust shall use reasonable efforts to make the net asset value
per share for each Series available to the Company by 6:30 p.m. Eastern Time
each Business Day, and shall use its best efforts to make the net asset value
available to the Company by 7:00 p.m. Eastern Time each Business Day, and in any
event, as soon as reasonably practicable after the net asset value per share for
such Series is calculated, and shall calculate such net asset value in
accordance with the Trust Prospectus. Neither the Trust, any Series, the
Investment Adviser, nor any of their affiliates shall be liable for any
information provided to the
5
<PAGE>
Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company or any other Participating Company to the
Trust or the Investment Adviser.
2.5. The Trust shall furnish notice to the Company as soon as reasonably
practicable of any income dividends or capital gain distributions payable on any
Series shares. The Trust shall notify the Company promptly of the number of
Series shares so issued as payment of such dividends and distributions. The
Company, on its behalf and on behalf of the Account, hereby elects to receive
all such dividends and distributions as are payable on any Series shares in the
form of additional shares of that Series. The Company reserves the right, on
its behalf and on behalf of the Account, to revoke this election and to receive
all such dividends and capital gains distributions in cash.
2.6. Issuance and transfer of Trust shares shall be by book entry only.
Stock certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Trust shares shall be recorded in an appropriate
ledger for the Account or the appropriate subaccount of the Account.
2.7.
(a) The Company shall invest amounts available for investment under
the Contracts in the Series of the Trust specified in Schedule 3 in accordance
with allocation instructions received from Contract Owners, it being understood
that no changes shall be made to Schedule 3 without the prior written consent of
the Trust and the Investment Adviser. The Company may withdraw the Account's
investment in the Trust or a Series of the Trust only: (i) as necessary to
facilitate Contract owner requests; (ii) upon a determination by a majority of
the Trust Board, or a majority of disinterested Trust Board members, that an
irreconcilable material conflict exists among the interests of (x) all Product
Owners or (y) the interests of the Participating Insurance Companies and/or
Qualified Entities investing in the Trust; (iii) in the event that the shares of
another investment company are substituted for series shares in accordance with
the terms of the Contracts upon the (x) requisite vote of the Contract Owners
having an interest in the affected Series and the written consent of the Trust
(unless otherwise required by applicable law) or (y) upon issuance of an SEC
exemptive order pursuant to Section 26(b) of the 1940 Act permitting such
substitution; or (iv) as required by state and/or
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federal laws or regulations or judicial or other legal precedent of general
application.
(b) The Company shall not, without prior written notice to the
Trust (unless otherwise required by applicable law), take any action to operate
the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without the prior written consent of
the Trust (unless otherwise required by applicable law), solicit, induce or
encourage Contract Owners to change or modify the Trust or change the Trust's
investment adviser.
(d) Notwithstanding Section 2.7(a) of this Agreement, the Company
and the Trust acknowledge that the arrangement contemplated by this Agreement is
not exclusive; Trust shares may be sold to other insurance companies; and the
cash value of the Contracts may be invested in other investment companies,
provided, however, that (a) such other investment company, or series thereof,
has investment objectives or policies that are substantially different from the
investment objectives and policies of the Trust; or (b) the Company gives the
Trust 45 days written notice of its intention to make such other investment
company available as a funding vehicle for the Contracts; or (c) such other
investment company was available as a funding vehicle for the Contracts prior to
the date of this Agreement and appears on Schedule 3 to this Agreement; or (d)
the Trust consents to the use of such other investment company, such consent not
to be unreasonably withheld.
2.8. The Trust shall sell Trust shares only to Participating Insurance
Companies and their separate accounts and to Qualified Entities. The Trust shall
not sell Trust shares to any insurance company or separate account unless an
agreement containing provisions substantially the same as Article V and Article
VII of this Agreement is in effect to govern such sales.
ARTICLE III. Representations and warranties
------------------------------
3.1. The Company represents and warrants that: (i) the Company is an
insurance company duly organized and in good standing under New York law; (ii)
the Account is a validly existing separate account, duly established and
maintained in accordance with applicable law; (iii) the Account 1940 Act
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Registration Statement has been filed with the SEC in accordance with the
provisions of the 1940 Act and the Account is duly registered as a unit
investment trust thereunder; (iv) the Contracts Registration Statement has been
declared effective by the SEC; (v) the Contracts will be issued in compliance in
all material respects with all applicable Federal and state laws; and (vi) the
Contracts currently are and at the time of issuance will be treated as annuity
contracts under applicable provisions of the Code.
3.2. The Trust represents and warrants that: (i) the Trust is an
unincorporated business trust duly formed and validly existing under
Massachusetts law; (ii) the Trust 1940 Act Registration Statement has been filed
with the SEC in accordance with the provisions of the 1940 Act and the Trust is
duly registered as an open-end management investment company thereunder; (iii)
the Trust Registration Statement has been declared effective by the SEC; (iv)
the Trust shares will be issued in compliance in all material respects with all
applicable federal laws; (v) the Trust will remain registered under and will
comply in all material respects with the 1940 Act; (vi) the Trust currently
qualifies as a "regulated investment company" under Subchapter M of the Code and
is in compliance with Section 817(h) of the Code; and (vii) the Trust's
investment policies are in material compliance with any investment restrictions
set forth on Schedule 4 to this Agreement. Subject to Section 4.5 of this
Agreement, the Trust makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) otherwise complies with the insurance laws or regulations of any
state. Further, the Trust shall register and qualify its shares for sale under
the securities laws of any state only if and to the extent that such
registration and qualification is deemed to be advisable by the Trust.
3.3. Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party, and, when so executed and delivered, this Agreement will be the
valid and binding obligation of such party enforceable in accordance with its
terms.
3.4. Each party represents and warrants that all of its directors,
officers and employees dealing with the money and/or
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securities of the Trust are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an
amount not less than the amount required by the federal securities laws or any
self-regulatory organization applicable to such party. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. Each party agrees to make reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and each
agrees to notify the other party promptly in the event that such coverage no
longer applies.
ARTICLE IV. Filings, Information and Expenses
---------------------------------
4.1. The Trust shall amend the Trust Registration Statement and the Trust
1940 Act Registration Statement from time to time as required in order to effect
the continuous offering of Trust shares and to maintain the Trust's registration
under the 1940 Act for so long as Trust shares are sold or any Trust shares are
outstanding.
4.2. The Company shall amend the Contracts Registration Statement and the
Account 1940 Act Registration Statement from time to time as required in order
to effect the continuous offering of the Contracts or as may otherwise be
required by applicable law. The Company shall maintain a current effective
Contracts Registration Statement and the Account's registration under the 1940
Act for so long as the Contracts are outstanding, unless (a) a no-action letter
from the SEC has been obtained by the Company to the effect that such
registration statement need no longer be maintained; or (b) the Company has
supplied the Trust with an opinion of counsel to the effect that maintaining
such registration statement is no longer required; or (c) the Company has
notified the Trust in writing that, with respect to such registration statement,
the Company meets the terms and conditions of, and is relying on, Great West
Life & Annuity Insurance Company (pub. avail. Oct. 23, 1990), and any subsequent
no-action letter released by the staff of the SEC addressing the same subject
matter. The Company shall file, register, qualify and obtain approval of the
Contracts for sale to the extent required by applicable insurance and securities
laws of the various states.
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4.3. The Trust shall provide the Company with as many copies of the Trust
Prospectus as the Company may reasonably request. If requested by the Company in
lieu thereof, the Trust shall provide such documentation (including a final copy
of the Trust Prospectus in 8-1/2" X 11" size camera-ready form at the Trust's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the Trust Prospectus is more
frequently amended) to have the Contracts Prospectus and Trust Prospectus
printed together in one document.
4.4. The Company shall deliver Contracts, Contracts and Trust
Prospectuses, Contracts and Trust Statements of Additional Information, and all
amendments or supplements to any of the foregoing to Contract Owners and
prospective Contract Owners, all in accordance with the federal securities laws.
4.5. The Company shall inform the Trust of any investment restrictions
imposed by New York insurance law that may become applicable to the Trust from
time to time as a result of the Account's investment therein (including, but not
limited to, restrictions with respect to fees and expenses and investment
policies), other than those set forth on Schedule 4 to this Agreement. In
addition, the Company shall inform the Trust of any other investment
restrictions imposed by state insurance law that the Company is aware may become
applicable to the Trust from time to time as a result of the Account's
investment therein (including, but not limited to, restrictions with respect to
fees and expenses and investment policies), other than those set forth on
Schedule 4 to this Agreement. Upon receipt of any such information from the
Company, the Trust shall determine whether it is in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Product Owners and Qualified Participants) to comply with any such
restrictions. If the Trust, acting reasonably and in good faith, determines that
it is not in the best interests of shareholders, the Trust shall so inform the
Company, and the Trust and the Company shall discuss alternative accommodations
in the circumstances. If the Trust determines that it is in the best interests
of shareholders to comply with such restrictions, the Trust and the Company
shall amend Schedule 4 to this Agreement to reflect such restrictions, The Trust
shall comply with Schedule 4 to this Agreement as in effect from time to time.
4.6. All expenses incident to each party's performance under this
Agreement (including expenses expressly assumed by such
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party pursuant to this Agreement) shall be paid by such party to the extent
permitted by law.
(a) Expenses assumed by the Trust include, but are not limited to,
the costs of: registration and qualification of the Trust shares under the
federal securities laws; preparation and filing with the SEC of the Trust
Prospectus, Trust Registration Statement, Trust proxy materials and shareholder
reports; the printing and mailing of all proxy statements and periodic reports;
the preparation of camera-ready copy of Trust Prospectuses and Statements of
Additional Information required to be provided by the Trust to its then-current
shareholders; preparation of all statements and notices required by any Federal
or state securities law; all taxes on the issuance or transfer of Trust shares;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Trust; and any expenses permitted to be paid or
assumed by the Trust pursuant to a plan, if any, under Rule 12b-1 under the 1940
Act. The Trust shall pay no fee or other compensation to the Company under this
Agreement, and shall not he charged for the costs of printing and mailing to
prospective Contract Owners copies of the Trust Prospectus, Trust Statement of
Additional Information, notices, proxy statements, periodic reports, or other
printed materials.
(b) Expenses assumed by the Company include, but are not limited
to, the costs of: registration and qualification of the Contracts under the
federal securities laws; preparation and filing with the SEC of the Contracts
Prospectus, Contracts Registration Statement, and Contract Owner reports;
payment Of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Contracts; and the printing and mailing of all
periodic reports, Contracts Prospectuses, Statements of Additional Information,
and notices to current and prospective Contract Owners required by any Federal
or state insurance law other than those paid for by the Trust.
4.7. No piece of advertising or sales literature or other promotional
material in which the Trust is named shall be used, except with the prior
written consent of the Trust. Any such piece shall be furnished to the Trust for
such consent prior to its use. The Trust shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Company of the obligation to obtain the prior written consent of the
Trust. The Trust may at any time in
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its sole discretion revoke such written consent, and upon notification of such
revocation, the Company shall no longer use the material subject to such
revocation. The Trust may delegate its rights and responsibilities under this
provision to the Investment Adviser.
4.8. No piece of advertising or sales literature or other promotional
material in which the Company is named shall be used, except with the prior
written consent of the Company. Any such piece shall be furnished to the Company
for such consent prior to its use. The Company shall respond to any request for
written consent on a prompt and timely basis, but failure to respond shall not
relieve the Trust of the obligation to obtain the prior written consent of the
Company. The Company may at any time in its sole discretion revoke such written
consent, and upon notification of such revocation, the Trust shall no longer use
the material subject to such revocation.
4.9. The Company shall not give any information or make any
representations or statements on behalf of the Trust or concerning the Trust
other than the information or representations contained in the Trust
Registration Statement or Trust Prospectus or in reports or proxy statements for
the Trust which are in the public domain or approved in writing by the Trust for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.7 of this Agreement, except with
the prior written consent of the Trust.
4.10. The Trust shall not give any information or make any representations
on behalf of the Company or concerning the Company, the Account or the Contracts
other than the information or representations contained in the Contracts
Registration Statement or Contracts Prospectus or in reports of the Account
which are in the public domain or approved in writing by the Company for
distribution to Contract Owners, or in sales literature or other promotional
material approved in accordance with Section 4.8 of this Agreement, except with
the prior written consent of the Company.
4.11. Each party shall provide to the other at least one complete copy of
all Registration Statements, Prospectuses, Statements of Additional Information,
periodic and other shareholder or Contract Owner reports, proxy statements,
solicitations of voting instructions, sales literature and other
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promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, that relate to
the Trust, the Contracts or the Account, as the case may be, promptly after the
filing by or on behalf of such party of such document with the SEC or other
regulatory authorities. Each party shall provide to the other any complaints
from Contract Owners pertaining to the Contracts.
4.12. Each party shall provide to the other upon request copies of draft
versions of any Registration Statements, Prospectuses, Statements of Additional
Information, periodic and other shareholder or Contract Owner reports, proxy
statements, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments or supplements to any of the above, to the extent
that the other party reasonably needs such information for purposes of preparing
a report or other filing to be filed with or submitted to a regulatory agency.
if a party requests any such information before it has been filed, the other
party will provide the requested information if then available and in the
version then available at the time of such request.
4.13. Each party hereto shall cooperate with the other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. However, such access shall not extend to attorney-client
privileged information.
4.14. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any material
constituting sales literature or advertising under the NASD rules, the 1940 Act
or the 1933 Act.
4.15. No party shall use any other party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior written
consent of such party.
4.16. To the extent required by applicable law, including the
administrative requirements of regulatory authorities, or as mutually agreed
between the Company and the Trust, the Company reserves the right to modify the
Contracts in
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any respect whatsoever. The Company reserves the right in its sole discretion to
suspend the sale of Contracts, in whole or in part, or to accept or reject any
application for the purchase of a Contract. The Company agrees to notify the
Trust promptly upon the occurrence of any event the Company believes might
necessitate a material modification of the Contracts or suspension of Contract
sales; in the case of an anticipated material modification of the Contracts,
written notice of such modification shall be provided to the Trust at least
sixty (60) days prior to the date that such material modification of the
Contracts shall be effective.
ARTICLE V. Voting of Trust Shares
----------------------
With respect to any matter put to vote by the holders of Trust shares or
Series shares ("Voting Shares"), the Company shall:
(a) solicit voting instructions from Contract Owners to which
Voting Shares are attributable;
(b) vote Voting Shares of each Series attributable to Contract
Owners in accordance with instructions or proxies timely
received from such Contract Owners;
(c) vote Voting Shares of each Series attributable to Contract
Owners for which no instructions have been received in the
same proportion as Voting Shares of such Series for which
instructions have been timely received; and
(d) vote Voting Shares of each Series held by the Company on its
own behalf or on behalf of the Account that are not
attributable to Contract Owners in the same proportion as
Voting Shares of such Series for which instructions have been
timely received.
The Company shall be responsible for assuring that voting privileges for
the Account are calculated in a manner consistent with the provisions set forth
above.
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ARTICLE VI. Compliance with Code
--------------------
6.1. The Trust shall comply with Section 817(h) of the Code and the
regulations issued thereunder to the extent applicable to the Trust as a fund
underlying the Account, and shall notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
6.2. The Trust shall maintain its qualification as a registered investment
company (under Subchapter M of the Code or any successor or similar provision),
and shall notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
6.3. The Company shall ensure the continued treatment of the Contracts as
annuity contracts or life insurance policies, whichever is appropriate, under
applicable provisions of the Code and shall notify the Trust immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
ARTICLE VII. Potential Conflicts
-------------------
The parties to this Agreement acknowledge that the Trust may file an
application with the SEC to request an order granting relief from various
provisions of the 1940 Act and the rules thereunder to the extent necessary to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies, as well as by Qualified Entities. Any conditions or
undertakings that may be imposed on the Company and the Trust by virtue of such
order shall be incorporated herein by this reference, as of the date such order
is granted, as though set forth herein in full, and the parties to this
Agreement shall comply with such conditions and undertakings to the extent
applicable to each such party. The Trust will not enter into a participation
agreement with any other Participating Insurance Company unless it imposes the
same conditions and undertakings imposed by virtue of such order and
incorporated by reference herein on the parties to such agreement.
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ARTICLE VIII. Indemnification
---------------
8.1. The Company shall indemnify and hold harmless the Trust and each
person who controls the Trust within the meaning of such term under Section 15
of the 1933 Act (but not any Participating Insurance Companies or Qualified
Entities) and any officer, trustee, director, employee or agent of the
foregoing, against any and all losses, claims, damages or liabilities, joint or
several (including any investigative, legal and other expenses reasonably
incurred in connection with, and any amounts paid in settlement of, any action,
suit or proceeding or any claim asserted), to which they or any of them may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature or other promotional material
for the Contracts or the Contracts themselves (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of the Trust for
use in the Contracts Registration Statement, Contracts Prospectus or in the
Contracts or sales literature or promotional material for the Contracts (or any
amendment or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the Trust Registration Statement, Trust
Prospectus or sales literature or other promotional material of the Trust (or
any amendment or supplement to any of the foregoing), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made,
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if such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Trust by or on behalf of the Company; or
(c) arise out of or are based upon any wrongful conduct of the
Company or persons under its control (or subject to its authorization or
supervision) with respect to the sale or distribution of the Contracts or Trust
shares; or
(d) arise as a result of any failure by the Company, or persons
under its control (or subject to its authorization), to perform its obligations
under the terms of this Agreement (including a failure, whether unintentional or
in good faith or otherwise, to comply with the undertaking specified in Article
VI of this Agreement, unless such failure is a result of the Trust's material
breach of this Agreement); or
(e) arise out of any material breach by the Company of this
Agreement, including but not limited to any failure to transmit a request for
redemption or purchase of Trust shares on a timely basis in accordance with the
procedures set forth in Article II.
This indemnification will be in addition to any liability that the Company may
otherwise have; provided, however, that no person otherwise entitled to
indemnification pursuant to this Section 8.1 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.2. The Trust shall indemnify and hold harmless the Company and each
person who controls the Company within the meaning of such term under Section 15
of the 1933 Act and any officer, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust Registration
Statement, Trust Prospectus
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or sales literature or other promotional material of the Trust (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made; provided that this
obligation to indemnify shall not apply if such statement or omission or alleged
statement or alleged omission was made in reliance upon and in conformity with
information furnished in writing by or on behalf of the Company to the Trust for
use in the Trust Registration Statement, Trust Prospectus or sales literature or
promotional material for the Trust (or any amendment or supplement to any of the
foregoing) or otherwise for use in connection with the sale of the Contracts or
Trust shares; or
(b) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement, Contracts
Prospectus or sales literature or other promotional material for the Contracts
(or any amendment or supplement to any of the foregoing), or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission was made in
reliance upon information furnished in writing by or on behalf of the Trust to
the Company; or
(c) arise out of or are based upon wrongful conduct of the Trust or persons
under its control (or subject to its authorization) with respect to the sale or
distribution of the Contracts or the Trust shares; or
(d) arise as a result of any failure by the Trust to perform its
obligations under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the undertakings
specified in Article VI of this Agreement, unless such failure is a result of
the Company's material breach of this Agreement); or
(e) arise out of any material breach by the Trust of this Agreement.
For purposes of Section 8.2(c) above, persons under the Trust's control or
subject to its authorization shall not include any
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persons under the Company's control or subject to the Company's authorization or
supervision.
This indemnification will be in addition to any liability that the
Trust may otherwise have; provided, however, that no person otherwise entitled
to indemnification pursuant to this Section 8.2 shall be entitled to
indemnification if such loss, claim, damage or liability is due to the willful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
person seeking indemnification.
8.3. After receipt by a party entitled to indemnification ("indemnified
party") under this Article VIII of notice of the commencement of any action, if
a claim in respect thereof is to be made by the indemnified party against any
person obligated to provide indemnification under this Article VIII
("indemnifying party"), such indemnified party will notify the indemnifying
party in writing of the commencement thereof as soon as practicable thereafter,
provided that the omission to so notify the indemnifying party will not relieve
it from any liability under this Article VIII, except to the extent that the
omission results in a failure of actual notice to the indemnifying party and
such indemnifying party is damaged solely as a result of the failure to give
such notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and expenses
of such counsel shall be at the expense of such indemnified party unless (i) the
indemnifying party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them.
The indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment.
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A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Massachusetts,
without giving effect to the principles of conflicts of laws.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
1940 Act and Securities Exchange Act of 1934, as amended, and the rules and
regulations and rulings thereunder, including such exemptions from those
statutes, rules and regulations as the SEC may grant, and the terms hereof
shall be limited, interpreted and construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall not terminate as to any Series of the Trust
until the Account no longer invests in that Series and the Company has confirmed
in writing to the Trust that it no longer intends to invest in such Series.
However, certain obligations of, or restrictions on, the parties to this
Agreement may terminate as provided in Sections 10.2 and 10.3 and the Company
may be required to redeem shares pursuant to Section 10.4 or in circumstances
contemplated by Article VII.
10.2. The obligation of the Trust to make Series shares available to the
Company for purchase pursuant to Article II of this Agreement shall terminate at
the option of the Trust upon written notice to the Company as provided below:
(a) at any time more than two years after the date of this Agreement,
upon 60 days prior written notice;
(b) upon institution of formal proceedings against the Company by the
NASD, the SEC, the insurance commission of any state or any other regulatory
body regarding
20
<PAGE>
the Company's duties under this Agreement or related to the sale of the
Contracts, the operation of the Account, the administration of the Contracts or
the purchase of Trust shares, or an expected or anticipated ruling, judgment or
outcome which would, in the Trust's reasonable judgment exercised in good faith,
materially impair the Company's ability to meet and perform the Company's
obligations and duties hereunder, such termination effective upon 15 days prior
written notice;
(c) in the event that any Contracts are not registered, issued, sold,
or administered in accordance with applicable Federal and/or state law,
including Federal income tax law ("Non-Complying Contracts"), then with respect
to such Non-Complying Contracts, such termination effective upon 5 days prior
written notice;
(d) if the Trust shall determine, in its sole judgment exercised in
good faith, that either (1) the Company shall have suffered a material adverse
change in its business or financial condition or (2) the Company shall have been
the subject of material adverse publicity which is likely to have a material
adverse impact upon the business and operations of the Trust, such termination
effective upon 30 days prior written notice;
(e) upon the Company's assignment of this Agreement (including, without
limitation, any transfer of the Contracts or the Account to another insurance
company pursuant to an assumption reinsurance agreement) unless the Trust
consents thereto, such termination effective upon 30 days prior written notice;
(f) if the Company is in material breach of any provision of this
Agreement, which breach has not been cured to the satisfaction of the Trust
within 30 days after written notice of such breach has been delivered to the
Company; or
(g) upon termination, as to a Series, pursuant to Section 10.1 or
notice from the Company pursuant to Section 10.3, such termination hereunder
effective upon 15 days prior written notice unless a longer notice and cure
period is provided in Section 10.1 or Section 10.3, as applicable, in which case
the longer notice and cure period shall apply.
Notwithstanding an exercise of its option to terminate its obligation to make
shares available to the Company, the Trust shall continue to make Trust shares
available to the extent necessary to permit owners of Contracts in effect on the
effec-
21
<PAGE>
tive date of such termination (hereinafter referred to as "Existing Contracts")
to reallocate investments in the Trust, redeem investments in the Trust and/or
invest in the Trust upon the making of additional purchase payments under the
Existing Contracts. Existing Contracts shall not include Non-Complying
Contracts, if any. In the event that the Trust terminates this Agreement, the
Trust shall promptly notify the Company whether the Trust is electing to make
Trust shares available after termination for Non-Complying Contracts (or a class
thereof). In determining whether to make Shares available for such Non-Complying
Contracts (or a class thereof), the Trust shall act in good faith giving due
consideration to the interests of owners of such Non-Complying Contracts (or a
class thereof).
10.3. Subject to compliance with applicable law, the Company may elect to
cease investing in a Series or the Trust or promoting a Series or the Trust as
an investment option under the Contracts, or withdraw its investment in a Series
or the Trust, upon the occurrence of one of the following events, upon 30 days
prior written notice to the Trust, unless otherwise provided below:
(a) at any time more than two years after the effective date of this
Agreement, upon 60 days prior written notice;
(b) as to a Series, if shares of such Series are not reasonably
available to meet the requirements of the Contracts as determined by the
Company, and the Trust, after receiving written notice from the Company of such
non-availability, fails to make available a sufficient number of Trust shares to
meet the requirements of the Contracts within 10 days after receipt thereof, it
being understood that, in such event, the Company's rights pursuant to this
Section 10.3 shall be limited to such Series;
(c) as to the Trust, upon institution of formal proceedings against the
Trust by the NASD, the SEC or any state securities or insurance commission or
any other regulatory body, upon 15 days prior written notice;
(d) as to a Series or the Trust, as applicable, if such Series or the
Trust ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code, or under any successor or similar provision, or if such Series or the
Trust
22
<PAGE>
may fail to so qualify, and the Trust, upon written request, fails to provide
reasonable assurance acceptable to the Company that it will take action to cure
or correct such failure, it being understood that, if the event does not involve
all Series, the Company's rights pursuant to this Section 10.3 shall be limited
to the affected Series;
(e) as to a Series or the Trust, as applicable, if such Series or the
Trust fails to meet the diversification requirements specified in Section 817(h)
of the Code and any regulations thereunder and the Trust, upon written request,
fails to provide reasonable assurance acceptable to the Company that it will
take action to cure or correct such failure, it being understood that, if the
event does not involve all Series, the Company's rights pursuant to this Section
10.3 shall be limited to the affected Series;
(f) as to a Series or the Trust, as applicable, if such Series or Trust
ceased to qualify as a Regulated Investment Company or failed to meet the
diversification requirements specified in Section 817(h) of the Code, and the
Trust failed to cure such failure within the time period agreed upon when
reasonable assurances were accepted by the Company, it being understood that, if
the failure does not involve all Series, the Company's rights pursuant to this
Section 10.3 shall be limited to the affected Series;
(g) as to a series or the Trust, as applicable, it the Trust informs
the Company pursuant to Section 4.5 that such Series or the Trust will not
comply with investment restrictions as requested by the Company and the Trust
and the Company are unable to agree upon any reasonable alternative
accommodations, it being understood that, if the event does not involve all
Series, the Company's rights pursuant to this Section 10.3 shall be limited to
the affected Series;
(h) if the Trust is in material breach of a provision of this
Agreement, which breach has not been cured to the satisfaction of the Company
within 30 days after written notice of such breach has been delivered to the
Trust;
(i) with respect to any Series, in the event any of the Series shares
are not registered, issued or sold in accordance with applicable state and/or
Federal law or such law precludes the use of such Series shares as the
underlying
23
<PAGE>
investment medium of the Contracts, such termination effective upon 5 days prior
written notice; or
(j) if the Company shall determine, in its sole judgment exercised in
good faith, that either (1) the Trust or the Investment Adviser shall have
suffered a material adverse change in its business or financial condition or (2)
the Trust or the Investment Adviser shall have been the subject of material
adverse publicity which is likely to have a material adverse impact upon the
business and operations of the Contracts, such termination effective upon 30
days prior written notice.
10.4. The parties understand and acknowledge that it is essential for
compliance with Section 817(h) of the Code that the Contracts qualify as annuity
contracts or life insurance policies, as applicable, under the Code.
Accordingly, if any of the Contracts cease to qualify as annuity contracts or
life insurance policies, as applicable, under the Code, or if any such Contracts
may fail to so qualify (in either case, other than solely as a result of the
Trust's failure to comply with Section 817(h) of the Code), the Trust shall have
the right to require the Company to redeem Trust shares attributable to such
Non-Complying Contracts upon notice to the Company and the Company shall so
redeem such shares in order to ensure that the Trust complies with the
provisions of Section 817(h) of the Code applicable to ownership of Trust
Shares. Notice to the Company shall specify the period of time the Company has
to redeem the Trust shares or to make other arrangements satisfactory to the
Trust and its counsel, such period of time to be determined with reference to
the requirements of Section 817(h) of the Code. The Company agrees to redeem
Trust shares in the circumstances described herein.
ARTICLE XI. Applicability to New Accounts and New Contracts
The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect, as appropriate, changes in or relating to the
Contracts or Series, or additions of new classes of Contracts to be issued by
the Company through separate accounts investing in the Trust. The provisions of
this Agreement shall be equally applicable to each such class of Contracts,
Series and Accounts, effective as of the date of
24
<PAGE>
amendment of such Schedule, unless the context otherwise requires.
ARTICLE XII. Non-Liability of Trustees and Shareholders
------------------------------------------
Any obligation of the Trust hereunder shall be binding only upon the assets
of the Trust (or applicable Series thereof) and shall not be binding upon any
trustee, officer, employee, agent or shareholder of the Trust. Neither the
authorization of any action by the Trust Board or shareholders of the Trust, nor
the execution of this Agreement on behalf of the Trust, shall impose any
liability upon any trustee, officer, or shareholder of the Trust.
ARTICLE XIII. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust;
Merrillyn J. Kosier
Vice President
Wanger Advisors Trust
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
If to the Company:
John P. Fendig
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
with a copy to:
First Providian Life and Health Insurance Company
Attention: Marketing Director
520 Columbia Drive
Johnson City, New York 13790
25
<PAGE>
ARTICLE XIV. Miscellaneous
-------------
14.1. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
14.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
14.3. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
14.4. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
14.5. Subject to the requirements of legal process and regulatory
authority, the Trust shall treat as confidential the names and addresses of the
Contract Owners and all information reasonably identified as confidential in
writing by the Company and except as permitted by this Agreement, shall not
disclose, disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
14.6. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party hereto without the prior written consent of all
other parties.
14.7. Notwithstanding the provisions of Article VII of this Agreement, the
Trust acknowledges that it has no intention to file an application with SEC to
permit Trust shares to be sold to and held by variable annuity and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies.
26
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized officer on the date
specified below.
FIRST PROVIDIAN LIFE AND
HEALTH INSURANCE COMPANY
(Company)
Date: 11/18/96 By: /s/ Gregory J. Garvin
---------- -----------------------------
Name: Gregory J. Garvin
Title: Vice President
WANGER ADVISORS TRUST (Trust)
Date: By: /s/ Charles P. McQuaid
---------- -----------------------------
Name: Charles P. McQuaid
Title: Senior Vice President
27
<PAGE>
Schedule 1
----------
Accounts of the Company
Investing in the Trust
Effective as of the date the Agreement was executed, the following separate
accounts are subject to the Agreement:
<TABLE>
<CAPTION>
==========================================================================================================
Name of Account and Date Established by SEC 1940 Act Type of Product
Subaccounts Board of Directors of the Registration Number Supported by Account
Company
==========================================================================================================
<S> <C> <C> <C>
First Providian Life and November 4, 1994 811-9062 Variable Annuity
Health Insurance
Company Separate
Account C
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
==========================================================================================================
</TABLE>
Effective as of ________, the following separate accounts are hereby added to
this Schedule 1 and made subject to the Agreement:
<TABLE>
<CAPTION>
==========================================================================================================
Name of Account and Date Established by SEC 1940 Act Type of Product
Subaccounts Board of Directors of the Registration Number Supported by Account
Company
==========================================================================================================
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
==========================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 1 in
accordance with Article XI of the Agreement.
/s/ Charles P. McQuaid /s/ Gregory J. Garvin
- ----------------------------- -----------------------------
Wanger Advisors Trust First Providian Life and Health
Insurance Company
i
<PAGE>
Schedule 2
----------
Classes of Contracts
Supported by Separate Accounts
Listed on Schedule 1
Effective as of the date the Agreement was executed, the following classes of
Contracts are subject to the Agreement:
<TABLE>
<CAPTION>
=================================================================================================
SEC 1933 Act Registration Name of Support Account
Contract Marketing Name Number
=================================================================================================
<S> <C> <C>
First Providian Life and File No. 33-94204 First Providian Life and Health
Health Insurance Advisor's Edge Insurance Company Separate
Account C
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
=================================================================================================
</TABLE>
Effective as of __________, the following classes of Contracts are hereby added
to this Schedule 2 and made subject to the Agreement:
<TABLE>
<CAPTION>
=================================================================================================
<S> <C> <C>
SEC 1933 Act Registration Name of Support Account
Contract Marketing Name Number
=================================================================================================
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
=================================================================================================
</TABLE>
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 2 in
accordance with Article XI of the Agreement.
/s/ Charles P. McQuaid /s/ Gregory J. Garvin
- ------------------------ -----------------------------
Wanger Advisors Trust First Providian Life and
Health Insurance Company
ii
<PAGE>
Schedule 3
----------
Trust Series Available Under
Each Class of Contracts
Effective as of the date the Agreement was executed, the following Trust Series
are available under the Contracts:
====================================================================
Contracts Marketing Name Trust Series
====================================================================
First Providian Life and Health - Wanger U.S. Small Cap Advisor
Insurance Advisor's Edge
- Wanger International Small Cap
Advisor
--------------------------------------------------------------------
--------------------------------------------------------------------
====================================================================
Effective as of the date the Agreement was executed, the following other funding
vehicles are available under the Contracts:
=============================================================================
Contracts Marketing Name Funding Vehicle
=============================================================================
First Providian Life and Health - DFA Investment Dimensions Group, Inc.
Insurance Advisor's Edge - Insurance Management Series (Federated)
- The Montgomery Funds III
- Weiss, Peck & Greer
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
=============================================================================
Effective as of _________, this Schedule 3 is hereby amended to reflect the
following changes in Trust Series:
==================================================
Contracts Marketing Name Trust Series
==================================================
--------------------------------------------------
--------------------------------------------------
==================================================
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 3 in
accordance with Article XI of the Agreement.
/s/ Charles P. McQuaid /s/ Gregory J. Garvin
- ------------------------ -----------------------
Wanger Advisors Trust First Providian Life
and Health Insurance Company
iii
<PAGE>
Schedule 4
----------
Investment Restrictions
Applicable to the Trust
Effective as of the date the Agreement was executed, the following New York
investment restrictions are applicable to the Trust:
NONE
Effective as of _______, this Schedule 4 is hereby amended to reflect the
following changes:
IN WITNESS WHEREOF, the Trust and the Company hereby amend this Schedule 4 in
accordance with Article XI of the Agreement.
/s/ Charles P. McQuaid /s/ Gregory J. Garvin
- ---------------------- ---------------------
Wanger Advisors Trust First Providian Life and Health Insurance Company
iv
<PAGE>
EXHIBIT 8(b)
AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT
THIS AMENDMENT NO. 1 TO PARTICIPATION AGREEMENT, made and entered into as
of this 16th day of December, 1996, supplementing and amending the Participation
Agreement made and entered into the 15th day of November, 1996 (the "Original
Participation Agreement", and together with this Amendment No. 1, the
"Agreement") by and between WANGER ADVISORS TRUST, an unincorporated business
trust formed under the laws of Massachusetts (the "Trust"), and FIRST PROVIDIAN
LIFE AND HEALTH INSURANCE COMPANY, a New York life insurance company (the
"Company"), on its own behalf and on behalf of each separate account of the
Company identified in the Agreement.
WHEREAS, the Trust currently serves as an investment vehicle for certain
accounts of the Company pursuant to the Original Participation Agreement; and
WHEREAS, the Trust has applied for an order from the Securities and
Exchange Commission (the "SEC") (File No. 812-10198), granting Participating
Insurance Companies (as defined in the Original Participation Agreement) and
variable annuity and variable life separate accounts exemptions from the
provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act (as defined
in the Original Participation Agreement) and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust
and each Series thereof to be sold to and held by variable annuity and variable
life insurance separate accounts of life insurance companies that may or may not
be affiliated with one another and qualified pension and retirement plans
outside of the separate account context (the "Exemptive Order"); and
WHEREAS, the Company and the Trust have agreed to hereby supplement and
amend the Original Participation Agreement in order to reflect the conditions
and undertakings that are expected to be imposed on the Company and the Trust by
virtue of such Exemptive Order;
NOW, THEREFORE, in consideration of their mutual promises, the Trust and
the Company agree as follows:
SECTION 1. Definitions
-----------
For all purposes of this Amendment No. 1, except as otherwise generally
provided or unless the context otherwise requires:
(1) All references in this Amendment No. 1 and the Original Participation
Agreement to designated "Articles" and other subdivisions are to the designated
Articles and other subdivisions of the Original Participation Agreement. The
words "herein", "hereto," "hereby" and "hereunder" and other words of similar
import refer to this Amendment No. 1 as a whole and not to any particular
"Section" or other subdivision.
(2) All terms used herein and not otherwise defined shall have the same
meanings as those given to such terms in the Original Participation Agreement,
and include the plural as well
<PAGE>
as the singular, and the Original Participation Agreement is hereby amended to
included any terms defined herein.
(3) Any references to the "Agreement" in the Original Participation
Agreement are hereby amended to include, collectively, the Original
Participation Agreement and this Amendment No. 1.
SECTION 2. Amendment to Article VII
------------------------
Article VII of the Original Participation Agreement is hereby amended to
read in its entirety as follows:
"ARTICLE VII. Potential Conflicts and Compliance with
---------------------------------------
Exemptive Order
---------------
7.1. The Trust Board will monitor the Trust for the existence of any
material irreconcilable conflict between the interests of the Contract
Owners of all Participating Accounts and of Qualified Participants
investing in the Trust and each Series thereof. A material irreconcilable
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Series are
managed; (e) a difference in voting instructions give by variable annuity
contract and variable life insurance contract owners; (f) a decision by a
Participating Insurance Company to disregard the voting instructions of
contract owners; or (g) if applicable, a decision by a Qualified Entity to
disregard the voting instructions of Qualified Participants. The Trust
Board shall promptly inform the Company in writing if it determines that a
material irreconcilable conflict exists and the implications thereof.
7.2 The Company shall report any potential or existing conflicts to
the Trust Board. The Company will be responsible for assisting the Trust
Board in carrying out its responsibilities by providing the Trust Board
with all information reasonably necessary for the Trust Board to consider
any issues raised. This responsibility includes, but is not limited to, an
obligation by the Company to inform the Trust Board whenever it has
determined to disregard Contract Owner voting instructions. Such
responsibilities shall be carried out by the Participants with a view only
to the interests of Contracts Owners.
7.3. If it is determined by a majority of the Trust Board, or a
majority of the members of the Trust Board who are not interested persons
of the Trust, the Investment Adviser or any sub-adviser to any of the
Series (the "Independent Trustees"), that a material irreconcilable
conflict exists, the Company shall, at its expense and to the extent
reasonably practicable (as determined by a majority of
2
<PAGE>
the Independent Trustees), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict including: (a) withdrawing
the assets allocable to some or all of the separate accounts from the Trust
or any Series and reinvesting such assets in a different investment medium,
which may include another Series of the Trust, or submitting the questions
of whether such segregation should be implemented to a vote of all affected
Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the
affected Contract Owners of the option of making such a change; and (b)
establishing a new registered management investment company or managed
separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract Owner voting instructions and
that decision represents a minority position or would preclude a majority
vote, the Company may be required, at the Trust's election, to withdraw the
Account's investment in the Trust and terminate this Agreement and no
charge or penalty will be imposed as a result of such withdrawal. Any such
withdrawal and termination must take place within six (6) months after the
Trust gives written notice that this provision is being implemented, and
until the end of that six month period the Investment Adviser and the Trust
shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Trust.
7.5 If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company
will withdraw the Account's investment in the Trust and terminate this
Agreement within six months after the Trust Board informs the Company in
writing that it has determined that such decision has created a material
irreconcilable conflict. Until the end of the foregoing six month period,
the Investment Adviser and the Trust shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the
Trust.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Trustees shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no
even will the Trust or the Investment Adviser be required to establish a
new funding medium for the Contracts. The Company shall not be required by
Section 7.3 to establish a new funding medium for the Contracts if an offer
to do so has been declined by vote of a majority of Contract Owners
materially adversely affected by the material irreconcilable conflict. In
the event that the Trust Board determines that any proposed action does not
adequately remedy any material irreconcilable conflict, then the Company
will withdraw the Account's Investment in the Trust
3
<PAGE>
and terminate this Agreement within six (6) months after the Trust Board
informs the Company in writing of the foregoing determination.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any
provision of the 1940 Act or the rules promulgated thereunder with respect
to mixed or shared funding (as defined in the Exemptive Order) on terms and
conditions materially different from those contained in the Exemptive
Order, then (a) the Trust and/or the Company, as appropriate, shall take
such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Article V and Sections 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue to effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
7.8 The Company shall at least annually submit to the Trust Board
such reports, materials or data as the Trust Board may reasonable request
so that the Trust Board may fully carry out its obligations under the
Exemptive Order; provided, however, that the Board may require the
submission of such reports on data on a more frequent basis if it so deems
appropriate.
7.9. The Company, or any affiliate, will maintain at its home
office, available to the SEC, (a) a list of its officers, directors and
employees who participate directly in the management of administration of
any Account and/or (b) a list of its agents who, as registered
representatives, offer and sell Contracts."
SECTION 3. Schedules
---------
Schedules 1, 2 and 3 to the Original Participation Agreement are hereby
amended to read as Schedules 1, 2 and 3 to this Amendment No. 1, respectively.
SECTION 4. Miscellaneous
-------------
4.1 The captions in this Amendment No. 1 are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
4.2 This Amendment No. 1 may be executed simultaneously in two or more
counterparts, each of which together shall constitute one and the same
instrument.
4.3 If any provision of this Amendment No. 1 shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereby has caused this Amendment
No. 1 to be executed in its name and behalf of its duly authorized office on the
date specified below.
FIRST PROVIDIAN LIFE AND
HEALTH INSURANCE COMPANY
(Company)
Date: By: /s/ Gregory J. Garvin
--------------------------- ----------------------------
Name: Gregory J. Garvin
Title: Vice President
WANGER ADVISORS TRUST
(Trust)
Date: By: /s/ Charles P. McQuaid
--------------------------- ----------------------------
Name: Charles P. McQuaid
Title: Senior Vice President
5
<PAGE>
EXHIBIT 8(c)
PARTICIPATION AGREEMENT
Among
FEDERATED INSURANCE SERIES,
FEDERATED ADVISERS,
FEDERATED SECURITIES CORP.
And
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
- ------- ----------- ----
<S> <C> <C>
1 Sales of Fund Shares.................. 1
2 Proxy Solicitations and Voting........ 3
3 Representations and Warranties........ 5
4 Sales Material and Information........ 9
5 Fees and Expenses..................... 12
6 Indemnification....................... 13
7 Potential Conflicts................... 23
8 Term and Termination.................. 26
9 Notices............................... 30
10 Miscellaneous......................... 31
11 Administrative Expenses............... 33
</TABLE>
<PAGE>
THIS AGREEMENT, made and entered into this 15th day of November, 1996, by
and among First Providian Life and Health Insurance Company ("Company"), on its
own behalf and on behalf of First Providian Life and Health Insurance Company
Separate Account C, a segregated asset account of the Company ("Account"),
Federated Insurance Series ("Fund"), the Fund's investment adviser, Federated
Advisers ("Adviser") and Federated Securities Corp. ("Underwriter")
(collectively, "Parties").
Company, Fund, Adviser and Underwriter intending to be legally bound,
hereby agree as follows:
1. Sales of Fund Shares
1.1 Fund shares shall be sold by the respective portfolios of Fund and
purchased by Company for the appropriate subaccount at the net asset value next
computed after receipt by Fund or its designee of each order of the Account or
its designee, in accordance with the provisions of this Agreement, and of the
then current prospectuses of the Fund, and the variable annuity contract that
uses the Fund as an underlying investment medium (the "Contracts"). Company may
purchase Fund shares for its own Account subject to (a) receipt of prior written
approval by Underwriter; and (b) such purchases being in accordance with the
then current prospectuses of the Fund and the Contracts. For purposes of this
Section, each purchaser of the Contracts ("Owner") shall be a designee of the
Account for placing such orders, to the extent that such Owner's orders are
consistent with the
<PAGE>
provisions of the applicable Contract, and Underwriter shall be designee of Fund
for receipt of such orders. Orders or payments for shares purchased will be sent
promptly to Fund and will be made payable in the manner reasonably established
from time to time by Fund for the receipt of such payments.
1.2 Fund will redeem the shares when requested on behalf of the Company or
the corresponding subaccount of the Account at the net asset value next computed
after receipt of each request for redemption, as established in accordance with
the provisions of the then current prospectuses of the Fund and the Contracts.
Fund will make payment in the manner established from time to time by Fund for
the receipt of such redemption requests, but in no event shall payment be
delayed for a greater period than permitted by the Investment Company Act of
1940 or the rules, orders or regulations thereunder (the "1940 Act"). The Board
of Trustees of Fund ("Board") may refuse to sell shares of Fund or any
particular portfolio of Fund ("Portfolio") to any person, or suspend or
terminate the offering of shares of any particular Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board, acting in good faith and in light of the Board's
duties under applicable law, necessary in the best interests of the shareholders
of any Portfolio.
1.3 Company agrees to purchase and redeem the shares of each Portfolio in
accordance with the provisions of this Agreement, of the Contracts and of the
then current
2
<PAGE>
prospectuses for the Contracts and Fund. Except as necessary to implement Owner
initiated transactions, or as otherwise permitted by state and/or federal laws
or regulations, Company shall not redeem Fund shares attributable to the
Contracts.
1.4 Issuance and transfer of Fund shares will be by book entry only. Stock
certificates will not be issued to the Company or the Account. Shares ordered
from Fund will be recorded in appropriate book entry titles for the Account.
1.5 Fund shall furnish prompt notice followed by written confirmation to
Company or its delegates of any income, dividends or capital gain distributions
payable on the Fund's shares. Company hereby elects to receive all such
dividends and distributions as are payable on shares of a Portfolio in
additional shares of that portfolio. Fund shall notify Company or its delegates
of the number of shares so issued as payment of such dividends and
distributions.
1.6 Fund shall use its best efforts to make the net asset value per share
for each Portfolio available to Company or its delegates by 7:00 p.m. Louisville
(Eastern) time on each business day of Fund.
2. Proxy Solicitations and Voting
2.1 Underwriter and Fund agree that the terms on which the Fund is offered
to the Account under this Agreement will not be materially altered without the
prior written consent of Company, which consent will not be unreasonably
withheld,
3
<PAGE>
during any period in which Fund shares are held by the Account.
2.2 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Owners;
(ii) vote the Fund shares in accordance with instructions reviewed
from Owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long and to the extent that the Securities and Exchange Commission (the
"SEC") continues to interpret the 1940 Act to require pass-through voting
privileges for various contract owners. The Company reserves the right to vote
Fund shares held in any segregated asset account in its own right, to the extent
permitted by law.
2.3 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
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3. Representations and Warranties
3.1 Company represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the laws of New York and that it has and will
maintain the capacity to issue all Contracts that may be sold; and that it is
properly licensed, qualified and in good standing to sell the Contracts in New
York.
3.2 Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act").
3.3 Company represents and warrants that it has or will have registered
the Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
3.4 Company represents that the Contracts are currently treated as annuity
contracts, under applicable provisions of the Internal Revenue Code of 1986, as
amended ("Code"), and that it will maintain such treatment and that it will
notify Underwriter and Fund promptly upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future.
3.5 Fund represents and warrants that it is lawfully established and
validly existing under the laws of the State of Massachusetts.
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<PAGE>
3.6 Fund represents and warrants that Fund shares sold pursuant to this
Agreement are registered under the 1933 Act and duly authorized for issuance;
that Fund shall amend the registration statement for its shares under the 1933
Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares; that Fund will sell such shares in compliance
with all applicable federal and state laws; and that Fund is and will remain
registered under and complies and will comply in all material respects with the
1940 Act. Fund shall register and qualify the shares for sale in accordance with
the laws of the various states only if and to the extent deemed advisable by
Fund.
3.7 Fund represents and warrants that it will invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable annuity contracts under the Code and the regulations issued thereunder,
and that Fund will comply with Section 817(h) of the Code as amended from time
to time and with all applicable regulations promulgated thereunder. Fund agrees
to notify Company immediately upon having a reasonable basis for believing that
any Portfolio has ceased to comply with Section 817(h) of the Code and to take
all reasonable steps to diversify such Portfolio so as to achieve compliance
within the grace period afforded by Treasury Regulation (S) 1.817-5.
3.8 Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
maintain such qualification
6
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(under Subchapter M or any successor or similar provision) and that it will
promptly notify Company upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
3.9 Fund represents and warrants that Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with New York law
regarding separate accounts of domestic insurers and with any other applicable
state insurance laws of which it is aware, provided Fund shall have no
obligation to conduct an independent investigation, or of which Company has made
it aware. Fund further represents that its operations are and shall at all times
remain in material compliance with the laws of the State of Massachusetts to the
extent required to perform this Agreement.
3.10 Underwriter represents and warrants that it is and will be a member in
good standing of the National Association of Securities Dealers, Inc., ("NASD")
and is and will be registered as a broker-dealer with the SEC. Underwriter
further represents that it will sell and distribute Fund shares in accordance
with all applicable state and federal laws and regulations, including without
limitation the 1933 Act, the Securities Exchange Act of 1934 (the "1934 Act")
and the 1940 Act. Underwriter represents that its operations are and shall at
all times remain in material compliance with the laws of the State of
Pennsylvania to the extent required to perform this Agreement.
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<PAGE>
3.11 Underwriter represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws and shall perform its obligations hereunder in
compliance in all material respects with any applicable state and federal laws.
3.12 All parties hereto represent and warrant to each other that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of Fund in an amount not less than the amount required
by the applicable rules of the NASD and the federal securities laws. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. All parties hereto agree to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and each agrees to notify promptly the other
parties hereto in the event that such coverage no longer applies.
3.13 Company agrees not to solicit or cause to be solicited directly, or
indirectly at any time in the future, any proxies from the Owners in opposition
to proxies solicited by management of the Fund, unless a court of competent
jurisdiction shall have determined that the conduct of a majority of the Board
constitutes willful misfeasance, bad faith, gross negligence or reckless
disregard of their
8
<PAGE>
duties. This Section 3.13 will survive the term of this Agreement.
4. Sales Material and Information
4.1 Company shall promptly inform Underwriter as to the status of all such
sales literature filings and shall promptly notify Underwriter of all approvals
or disapprovals of sales literature filings in the States. Underwriter and Fund
shall promptly provide Company with copies of correspondence and reports of
inquiries, meetings and discussions concerning regulation of the Contracts and
Owner complaints respecting the Contracts.
4.2 Company shall not make any material representations concerning the
Adviser, the Underwriter, or the Fund other than the information or
representations contained in: (a) a registration statement or prospectus for the
Fund, as amended or supplemented from time to time; (b) published reports or
statements of the Fund which are in the public domain or are approved by Fund;
or (c) sales literature or other promotional material of the Fund.
4.3 Adviser, Underwriter, or the Fund shall not make any material
representations concerning Company other than the information or representations
contained in: (a) a registration statement or prospectus for the Contracts, as
amended or supplemented from time to time; (b) published reports or statements
of the Contracts or the Account which are in the public domain or are approved
by Company; or (c)
9
<PAGE>
sales literature or other promotional material of the Company.
4.4 No Party shall use any other Party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior consent of
such Party.
4.5 Fund will provide to Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to Fund or its shares, in final form as filed with the SEC, NASD and
other regulatory authorities. Fund agrees to notify Company of material changes
in the management of the Fund within a reasonable time prior to any such change
becoming effective.
4.6 Company will provide to Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters and all amendments to any of the above, that relate to the Fund and the
Contracts, in final form as filed with the SEC, NASD and other regulatory
authorities. Company agrees to notify Fund of material changes in the management
of the Contracts within a reasonable time prior to any such changes becoming
effective. If requested by Company in lieu
10
<PAGE>
thereof, Fund shall provide such documentation (including a final copy of the
new prospectus as set in type at Fund's or Underwriter's expense) and other
assistance as is reasonably necessary in order for Company once each year (or
more frequently if the prospectus for Company is amended) to have the prospectus
for the Contracts and Fund's prospectus printed together in one document.
4.7 For purposes of this Section 4, the phrase "sales literature or other
promotional material" shall be construed in accordance with all applicable
securities laws and regulations.
4.8 To the extent required by applicable law, including the administrative
requirements of regulatory authorities, or as mutually agreed between Company
and Underwriter, Company reserves the right to modify any of the Contracts in
any respect whatsoever. Company reserves the right in its sole discretion to
suspend the sale of any of the Contracts, in whole or in part, or to accept or
reject any application for the sale of a Contract. Company agrees to notify the
other Parties promptly upon the occurrence of any event Company believes might
necessitate a material modification or suspension.
4.9 The Parties agree to review the Contracts and the Fund during the last
calendar quarter of each year for possible changes and will make their personnel
reasonably available for this purpose.
11
<PAGE>
5. Fees and Expenses
5.1 Fund or Underwriter shall bear the cost of registration and
qualification of Fund's shares; preparation and filing of Fund's prospectus and
registration statement, proxy materials and reports including postage;
preparation of all other statements and notices relating to Fund or Underwriter
required by any federal or state law; payment of all applicable fees, including,
without limitation, all fees due under Rule 24f-2 relating to Fund; all taxes on
the issuance or transfer of Fund's shares.
5.2 Company shall see to it that the Contracts are registered under the 1933
Act, and that the Account is registered as a unit investment trust in accordance
with the 1940 Act. Company shall bear the expenses for the costs of preparation
and filing of Company's prospectus and registration statement with respect to
the Contracts; preparation of all other statements and notices relating to the
Account or the Contracts required by any federal or state law; expenses for the
solicitation and sale of the Contracts, including all costs of printing and
distributing all copies of advertisements, prospectuses, Statements of
Additional Information, proxy materials, and reports to Owners or potential
purchasers of the Contracts as required by applicable state and federal law;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Contracts; all costs of drafting, filing and
obtaining approvals of the Contracts in the
12
<PAGE>
various states under applicable insurance laws; filing of annual reports on form
N-SAR, and all other costs associated with ongoing compliance with all such laws
and its obligations hereunder.
6. Indemnification
6.1 Indemnification By Company
6.1(a) Company agrees to indemnify and hold harmless Fund and
Underwriter and each of their directors and officers, and each person, if any,
who controls any of them within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 6.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the
Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or
13
<PAGE>
necessary to make the statements therein not misleading, provided
that this paragraph 6.1(a) shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to Company by or on behalf of Fund for use
in the registration statement or prospectus for the Contracts or
in the Contracts (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company or persons under
its control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Fund or
any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein, or necessary to
14
<PAGE>
make the statements therein not misleading, if such a statement
or omission was made in reliance upon information furnished to
Fund by or on behalf of Company; or
(iv) arise out of, or as a result of, any failure by
Company or persons under its control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of
any representation and/or warranty made by Company or persons
under its control in this Agreement or arise out of or result
from any other material breach of this Agreement by Company or
persons under its control;
as limited by and in accordance with the provisions of sections 6.1(b) and
6.1(c) hereof.
6.1(b) Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
Fund.
15
<PAGE>
6.1(c) Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Company of any such
claim shall not relieve Company from any liability which it may have to the
Indemnified Party otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, Company
shall be entitled to participate, at its own expense, in the defense of such
action. Company also shall be entitled to assume and to control the defense
thereof. After notice from Company to such Party of Company's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and Company will not be liable to such
Party under this Agreement for any legal or other expenses subsequently incurred
by such Party independently in connection with the defense thereof other than
reasonable costs of investigation.
6.1(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or
16
<PAGE>
sale of Fund shares or the Contracts or the operation of Fund.
6.2 Indemnification by Underwriter
6.2(a) Underwriter agrees to indemnify and hold harmless Company and
each of its directors and officers and each person, if any, who controls Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Underwriter) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of Fund
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this section 6.2(a) shall not apply as
to any Indemnified Party if such statement or omission or such
alleged
17
<PAGE>
statement or omission was made in reliance upon and in conformity
with information furnished to Fund by or on behalf of Company for
use in the registration statement or prospectus for Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Underwriter or Fund or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the
statements therein not misleading, if such statement or omission
was made in reliance upon information furnished to Company by or
on behalf of Fund; or
18
<PAGE>
(iv) arise out of, or as a result of, any failure by
Underwriter, Fund or persons under their control to provide the
services and furnish the materials contemplated under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Underwriter, Fund or
persons under their control in this Agreement or arise out of or
result from any other material breach of this Agreement by
Underwriter, Fund or persons under their control;
as limited by and in accordance with the provisions of Sections 6.2(b) and
6.2(c) hereof.
6.2(b) Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
Company or the Account.
6.2(c) Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party
19
<PAGE>
shall have notified Underwriter in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Underwriter of any such claim shall not relieve
Underwriter from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Underwriter will be entitled
to participate, at its own expense, in the defense thereof. Underwriter also
shall be entitled to assume and to control the defense thereof. After notice
from Underwriter to such Party of Underwriter's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and Underwriter will not be liable to such
party under this Agreement for any legal or other expenses subsequently incurred
by such Party independently in connection with the defense thereof other than
reasonable costs of investigation.
6.2(d) The Indemnified Parties will promptly notify Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
20
<PAGE>
6.3 Indemnification by Adviser of the Fund
6.3(a) Adviser agrees to indemnify and hold harmless Company and
each of its directors and officers and each person, if any, who controls Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Fund or Adviser) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, and:
(i) arise out of, or as a result of, any failure by
Adviser, Fund or persons under their control to provide the
services and furnish the materials contemplated under the terms
of this Agreement; or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by Adviser, Fund or persons
under their control in this Agreement or arise out of or result
from any other material breach of this Agreement by Adviser, Fund
or persons under their control;
as limited by and in accordance with the provisions of Sections 6.3(b) and
6.3(c) hereof.
6.3(b) Adviser shall not be liable under this indemnification
provision with respect to any losses, claims,
21
<PAGE>
damages, liabilities or litigation to which an Indemnified Party would otherwise
be subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to Company or the Account.
6.3(c) Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Fund or Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Fund or Adviser of
any such claim shall not relieve Adviser from any liability which it may have to
the Indemnified Party otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
Adviser will be entitled to participate, at its own expense, in the defense
thereof. Adviser also shall be entitled to assume and to control the defense
thereof. After notice from Adviser to such Party of Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and Adviser will not be liable to such
party under this
22
<PAGE>
Agreement for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
6.3(d) The Indemnified Parties will promptly notify Fund or Adviser
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
7. Potential Conflicts
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretive letter, or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
23
<PAGE>
7.2 The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under any applicable provisions of the federal securities laws
and/or any exemptive orders granted by the SEC ("Exemptive Order"), by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company shall, to the extent reasonably practicable, take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected Owners and, as appropriate, segregating
the assets of any appropriate group that votes in favor of such segregation, or
offering to the affected Owners the option of making such a change; and (2),
establishing a new registered management investment company or managed separate
account.
24
<PAGE>
7.4 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six (6) months after the Board informs the
Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.5 For purposes of Sections 7.3 through 7.5 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict. The Company
shall not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of Owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's
25
<PAGE>
investment in the Fund and terminate this Agreement within six (6) months after
the Board informs the Company in writing of the foregoing determination,
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict.
7.6 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in any Exemptive Order) on terms and conditions materially different
from those contained in any Exemptive Order, then (a) the Fund and/or the
Company, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 7.1, 7.2, 7.3 and 7.4 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
8. Term and Termination
8.1 The initial term of this Agreement shall be from November 15, 1996
through November 14, 1999. Unless terminated upon thirty (30) days' prior
written notice to the other Party, this Agreement shall thereafter automatically
renew from year to year, provided that any Party may terminate this Agreement
without cause following the initial
26
<PAGE>
term upon six (6) months' advance written notice to the other.
8.2 Notwithstanding any other provision of this Agreement, Underwriter or
the Fund may terminate this Agreement for cause on not less than thirty (30)
days' prior written notice to the Company, unless Company has cured such cause
within thirty (30) days of receiving such notice, for any material breach by
Company of any representation, warranty, covenant or obligation hereunder.
8.3 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to Underwriter and Fund unless Underwriter or Fund has cured such
cause within thirty (30) days of receiving such notice, for any material breach
by Underwriter or Fund of any representation, warranty, covenant or obligation
hereunder.
8.4 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Underwriter with
respect to any Portfolio based upon the Company's determination that shares of
such Portfolio are not reasonably available to meet the requirements of the
Contracts.
8.5 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Underwriter with
respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable
27
<PAGE>
state and/or federal law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be issued by the
Company.
8.6 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Underwriter with
respect to any Portfolio in the event that such Portfolio ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify.
8.7 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Underwriter with
respect to any Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Paragraph 3.7.
8.8 Notwithstanding any other provision of this Agreement, Fund or
Underwriter may terminate this Agreement by written notice to the Company, if
either one or both shall determine, in their sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity, or if formal proceedings against
Company have been instituted by the NASD, SEC or any state securities or
insurance department or any other regulatory body regarding Company's duties
under this Agreement or
28
<PAGE>
related to the sale of the Contracts, the operation of the Account or the
purchase of Fund shares; provided, however, that the Fund determines in its sole
judgment exercised in good faith, that any such administrative proceedings will
have a material adverse effect upon the ability of Company to perform its
obligations under this Agreement.
8.9 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the Underwriter, if
the Company shall determine, in its sole judgment exercised in good faith, that
either the Fund or the Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity, or if formal
proceedings against Fund or Underwriter have been instituted by the NASD, SEC or
any state securities or insurance department or any other regulatory body;
provided, however, that Company determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of Fund or Underwriter to perform its
obligations under this Agreement.
8.10 Notwithstanding the termination of this Agreement, each Party shall
continue for so long as any Contracts remain outstanding to perform such of its
duties hereunder as are necessary to ensure the continued tax deferred status
thereof and the payment of benefits thereunder, except to the extent proscribed
by law, the SEC or other regulatory body.
29
<PAGE>
9. Notices
Any notice shall be deemed sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to Fund:
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA 15222-3779
If to Adviser:
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA 15222-3779
If to Underwriter:
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA 15222-3779
If to Company:
Jeffrey P. Lammers
Providian Corporation
400 West Market Street
P.O. Box 32830
Louisville, Kentucky 40202
With a copy to:
Marketing Director
First Providian Life and Health Insurance Company
520 Columbia Drive
Johnson City, New York 13790
10. Miscellaneous
10.1 The captions in this Agreement are included for convenience of
reference only and in no way affect the construction or effect of any provisions
hereof.
30
<PAGE>
10.2 If any portion of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance and securities regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement.
10.5 Each Party hereto grants to the other the right to audit its records
relating to the terms and conditions of this Agreement upon reasonable notice
during reasonable business hours in order to confirm compliance with this
Agreement.
10.6 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
10.7 Subject to the requirements of legal process and regulatory authority,
the Fund and Underwriter shall treat as confidential the names and addresses of
the owners of the Contracts and all information reasonably identified as
confidential in writing by the Company hereto and, except as
31
<PAGE>
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the Company until such time as it may come into the public
domain.
10.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
10.9 In any dispute arising hereunder, each party waives its right to
demand a trial by jury and hereby consents to a bench trial of all such
disputes.
10.10 The terms of this Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of Kentucky; provided,
however, that all performances rendered hereunder shall be subject to compliance
with all applicable state and federal laws and regulations.
10.11 Sections 1, 2, 3, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 6, 7.4, 8, 9 and
11 hereof shall survive termination of this Agreement.
10.12 Company is hereby expressly put on notice of the limitation of
liability as set forth in the Declarations of Trust of the Fund and the Adviser
and agrees that the obligations assumed by the Fund and the Adviser pursuant to
this Agreement shall be limited in any case to the Fund and Adviser and their
respective assets and that Company shall not seek satisfaction of any such
obligation from the
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shareholders of the Fund or the Adviser, the Trustees, officers, employees or
agents of the Fund or Adviser, or any of them.
11. Administrative Expenses
11.1 Administrative services to Owners shall be the responsibility of
Company. Fund, Adviser and Underwriter recognize Company as the sole shareholder
of record of Fund shares under this Agreement. Fund, Adviser and Underwriter
further recognize that they will derive a substantial savings in administrative
expense by virtue of having a sole shareholder rather than multiple
shareholders. In consideration of the administrative savings resulting from such
arrangement, Underwriter agrees to pay to Company an amount computed at an
annual rate of .25 of 1% of the average daily net asset value of shares held in
subaccounts for which Company provides administrative services. Underwriter's
payments to Company are for administrative services only and do not constitute
payment in any manner for investment advisory services.
11.2 Underwriter will calculate the reimbursement of administrative
expenses at the end of each calendar quarter and will make such reimbursement to
Company within thirty days thereafter. The reimbursement check will be
accompanied by a statement showing the calculation of the amounts payable by
Underwriter and such other supporting data as may be reasonably requested by
Company.
33
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date first set forth above.
Company:
FIRST PROVIDIAN LIFE AND HEALTH
INSURANCE COMPANY
By: /s/ Gregory J. Garvin
-----------------------
Fund:
FEDERATED INSURANCE SERIES
By: /s/ John W. McGonigle
-----------------------
Fund Adviser:
FEDERATED ADVISERS
By: /s/
-----------------------
Underwriter:
FEDERATED SECURITIES CORP.
By: /s/
-----------------------
34
<PAGE>
EXHIBIT 8(d)
PARTICIPATION AGREEMENT
Among
DFA INVESTMENT DIMENSIONS GROUP INC.,
DIMENSIONAL FUND ADVISORS INC.,
DFA SECURITIES INC.
And
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
- -------- ----------- ----
<S> <C> <C>
1 Sales of Fund Shares....................... 1
2 Proxy Solicitations and Voting............. 5
3 Representations and Warranties............. 6
4 Sales Material and Information............. 10
5 Fees and Expenses.......................... 13
6 Indemnification............................ 14
7 Potential Conflicts........................ 26
8 Term and Termination....................... 30
9 Notices.................................... 33
10 Miscellaneous.............................. 35
</TABLE>
<PAGE>
THIS AGREEMENT, made and entered into this 15th day of November, 1996, by
and among First Providian Life and Health Insurance Company ("Company"), on its
own behalf and on behalf of First Providian Life and Health Insurance Company
Separate Account C, a segregated asset account of the Company ("Account"), DFA
Investment Dimensions Group Inc. ("Fund"), the Fund's investment adviser,
Dimensional Fund Advisors Inc. ("Adviser") and DFA Securities Inc. ("DFAS")
(collectively, "Parties").
Company, Fund, Adviser and DFAS intending to be legally bound, hereby agree
as follows:
1. Sales of Fund Shares
1.1 Fund shares shall be sold by the respective portfolios of Fund listed
on Schedule 1.1 hereto, as amended from time to time by the Parties
("Portfolios"), and purchased by Company for the appropriate subaccount of
Account at the net asset value next computed after receipt by Fund or its
designee of each order of the Account, in accordance with the provisions of this
Agreement, the then current prospectuses of the Fund that describe the
Portfolios and the variable annuity contract that uses the Portfolios as an
underlying investment medium (the "Contracts"). For purposes of this Section
1.1, Company shall be the designee of Fund for receipt of such orders from
Account and receipt by such designee shall constitute receipt by Fund; provided
that company receives the order by 4:00 p.m. Louisville (Eastern) time and Fund
receives notice from Company by
1
<PAGE>
telephone or facsimile (or by such other means as Fund and Company may agree to
in writing) of such order no later than 10:30 a.m. Louisville (Eastern) time on
the next following Business Day, provided that Company shall use its best
efforts to communicate such order to Fund by 10:00 a.m. Louisville (Eastern)
time. Fund will cause its transfer agent to send confirmation to Company and
Fund by 10:30 a.m. Louisville (Eastern) time on the same Business Day that
Company communicates the orders to Funds. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which Fund
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission (the "SEC"). Company may purchase Portfolio shares for its
own account subject to (a) receipt of prior written approval by Adviser; and (b)
such purchases being in accordance with the then current prospectuses of the
Fund that describe the Portfolios and the Contracts. Wire orders for payment for
shares purchased will be sent to Fund prior to 3:00 p.m. Louisville (Eastern)
time on the same Business Day that Company communicates the orders to Fund in
accordance with written instructions provided by Fund to Company.
1.2 Fund will redeem the shares when requested on behalf of the Company or
the corresponding subaccount of the Account at the net asset value next computed
after receipt by Fund or its designee of each request for redemption, in
accordance with the provisions of this Agreement, the then
2
<PAGE>
current prospectuses of the Fund that describe the Portfolios and the Contracts.
For purposes of this Section 1.2, Company shall be designee for Fund for receipt
of requests for redemption from Account and receipt by such designee shall
constitute receipt by Fund; provided that Company receives the request for
redemption by 4:00 p.m. Louisville (Eastern) time and Fund receives notice from
Company by telephone or facsimile (or by such other means as Fund and Company
may agree to in writing) of such request for redemption no later than 10:30 a.m.
Louisville (Eastern) time on the next following Business Day, provided that
Company shall use its best efforts to communicate such request to Fund by 10:00
a.m. Louisville (Eastern) time. Fund will use its best efforts to transmit to
Company the proceeds of all redemption orders placed by Company by 4:00 p.m.
Louisville (Eastern) time on the same Business Day that Company communicates the
request to Fund by wire transfer in accordance with written instructions
provided by Company to Fund. In no event shall payment be delayed for a greater
period than permitted by the Investment Company Act of 1940 or the rules, orders
or regulations thereunder (the "1940 Act"). The Board of Directors of Fund
("Directors") may refuse to sell shares of any Portfolio to any person,
including Account, or suspend or terminate the offering of shares of any
particular Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is deemed, by the Directors, acting in good
faith and in light of the
3
<PAGE>
Directors' duties under applicable law, necessary in the best interests of
shareholders of any Portfolio.
1.3 Company agrees to purchase and redeem the shares of each Portfolio in
accordance with the provisions of this Agreement, of the Contracts and of the
then current prospectuses for the Contracts and Fund that describe the
Portfolios. Except as necessary to implement Owner initiated transactions, or as
otherwise required by state and/or federal laws or regulations, Company shall
not redeem Portfolio shares attributable to the Contracts.
1.4 Issuance and transfer of Fund shares will be by book entry only. Stock
certificates will not be issued to the Company or the Account. Shares ordered
from Fund will be recorded in appropriate book entry titles for the Account by
Fund or its designee.
1.5 Fund shall furnish prompt notice followed by written confirmation to
Company of any income, dividends or capital gain distributions payable on the
Portfolios' shares. Company hereby elects to receive all such dividends and
distributions as are payable on shares of a Portfolio in additional shares of
that Portfolio. Fund shall notify Company or its delegates of the number of
shares so issued as payment of such dividends and distributions.
1.6 Fund shall make the net asset value per share for each Portfolio
available to Company or its delegates on a daily basis as soon as reasonably
practical after the net asset value per share is calculated
4
<PAGE>
(normally by 6:00 p.m. Louisville (Eastern) time) and shall use its best efforts
to make such net asset value per share available by 7:00 p.m. Louisville
(Eastern) time on each Business Day.
2. Proxy Solicitations and Voting
2.1 Fund agrees that the terms on which the Portfolios are offered to the
Account will not be materially altered without at least sixty (60) days prior
written notice to Company during the period in which Portfolio shares are held
by the Account.
2.2 If and to the extent required by law the Company shall:
(I) solicit voting instructions from the purchasers of the Contracts
("Owners");
(ii) vote the Portfolio shares in accordance with instructions received
from Owners; and
(iii) vote Portfolio shares for which no instructions have been received
in the same proportion as Portfolio shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for various contract owners. The Company
reserves the right to vote Portfolio shares held in any segregated asset account
in its own right, to the extent permitted by law. Company will calculate voting
privileges in a manner
5
<PAGE>
consistent with other separate accounts investing in the Portfolio and in
accordance with applicable law.
2.3 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund, at its option, will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act as well
as with Sections 16(a) and, if and when applicable, 16(b) and the rules
thereunder. Further, the Fund will act in accordance with the SEC's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of Directors and with whatever rules the SEC may promulgate with
respect thereto.
3. Representations and Warranties
3.1 Company represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the laws of New York and that it has and will
maintain the capacity to issue all Contracts that may be sold; and that it is
properly licensed, qualified and in good standing to sell the Contracts in New
York. Company represents and warrants that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws.
3.2 Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act").
6
<PAGE>
3.3 Company represents and warrants that it has or will have registered
the Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
3.4 Company represents that the Contracts are currently treated as annuity
contracts, under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will maintain such treatment and that it will
notify Adviser and Fund promptly upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
3.5 Fund represents and warrants that it is lawfully established and
validly existing under the laws of the State of Maryland.
3.6 Fund represents and warrants that Portfolio shares sold pursuant to
this Agreement are registered under the 1933 Act and duly authorized for
issuance; that Fund shall amend the registration statement for the Portfolios
under the 1933 Act and the 1940 Act, from time to time, as required in order to
effect the continuous offering of its shares; that Fund will sell such shares in
compliance with all applicable federal and state laws; and that Fund is and will
remain registered under and complies and will comply in all material respects
with the 1940 Act. Fund shall register and qualify the shares of the Portfolios
for sale in accordance with the laws of the various states only if, and to the
extent, deemed advisable by Fund.
7
<PAGE>
3.7 Fund represents and warrants that it will invest money from the sale
of Portfolio shares in such a manner as to ensure that the Contracts will be
treated as variable annuity contracts under the Code and the regulations issued
thereunder, and that Fund will comply with Section 817(h) of the Code as amended
from time to time and with all applicable regulations promulgated thereunder.
Fund agrees to notify Company upon having a reasonable basis for believing that
any Portfolio has ceased to comply with Section 817(h) of the Code and to take
all reasonable steps to diversify such Portfolio so as to achieve compliance
within the grace period afforded by Treasury Regulation (S) 1.817-5.
3.8 Fund represents and warrants that the Portfolios are currently
qualified as Regulated Investment Companies under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that it will promptly notify
Company upon having a reasonable basis for believing that a Portfolio has ceased
to so qualify or that it might not so qualify in the future.
3.9 Fund represents and warrants that each Portfolio's investment
policies, fees and expenses are and shall at all times remain in compliance with
New York law regarding separate accounts of domestic insurers and with any other
applicable state insurance laws of which it is aware, provided the Portfolios
shall have no obligation to conduct an independent investigation. Company shall
inform a
8
<PAGE>
Portfolio in writing if Company determines that such Portfolio is not in
compliance with applicable insurance laws, but this provision shall not be
construed to limit or qualify Fund's representation and warranty given in the
immediately preceding sentence. Fund further represents that its operations are
and shall at all times remain in material compliance with the laws of the State
of Maryland to the extent required to perform this Agreement.
3.10 DFAS represents and warrants that it is and will be a member in good
standing of the National Association of Securities Dealers, Inc., ("NASD") and
is and will be registered as a broker-dealer with the SEC. DFAS represents that
is operations are and shall at all times remain in material compliance with the
laws of the State of Delaware to the extent required to perform this Agreement.
3.11 DFAS represents and warrants that it is and will remain duly
registered in all material respects under all applicable federal and state
securities laws and shall perform its obligations hereunder in compliance in all
material respects with any such applicable state and federal laws.
3.12 All parties hereto represent and warrant to each other that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of Fund in an amount
9
<PAGE>
not less than the amount required by the applicable rules of the NASD and the
federal securities laws. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding company. All parties
hereto agree to make all reasonable efforts to see that this bond or another
bond containing these provisions is always in effect, and each agrees to notify
promptly the other parties hereto in the event that such coverage no longer
applies.
4. Sales Material and Information
4.1 Company shall promptly inform DFAS as to the status of all such sales
literature filings and shall promptly notify DFAS of all approvals or
disapprovals of sales literature filings in the States. DFAS and Fund shall
promptly provide Company with copies of any correspondence and reports of
inquiries, meetings and discussions concerning regulation of the Contracts and
any Owner complaints respecting the Contracts. Company shall promptly provide
Fund with copies of any Owner complaints respecting the Contracts.
4.2 Except with the written consent of Adviser, Fund or DFAS, as
appropriate, Company shall not make any material representations concerning the
Adviser, DFAS, or the Fund other than the information or representations
contained in: (a) a registration statement or prospectus for the Fund, as
amended or supplemented from time to time; (b) published reports or statements
of the Fund which are in the public
10
<PAGE>
domain or are approved by Fund; or (c) sales literature or other promotional
material of the Fund.
4.3 Except with the written consent of Company, Adviser, DFAS, or the Fund
shall not make any material representations concerning Company other than the
information or representations contained in: (a) a registration statement or
prospectus for the Contracts, as amended or supplemented from time to time; (b)
published reports or statements of the Contracts or the Account which are in the
public domain or are approved by Company; or (c) sales literature or other
promotional material of the Company.
4.4 No Party shall use any other Party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior written
consent of such Party.
4.5 Fund will provide to Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to Fund or its shares, (a) in draft form prior to the filing of such
document with the SEC or other regulatory authorities with reasonable time
allowed for Company to provide Fund with its comments and (b) in final form as
filed. If requested by Company, Fund shall provide such documentation
(including a final copy of the new
11
<PAGE>
prospectus of the Portfolios as set in type (including an 8 1/2 x 11 size camera
ready stat) at Fund's expense) and other assistance as is reasonably necessary
in order for Company once each year (or more frequently if the prospectus for
Company is amended) to have, at Company's expense, the prospectus for the
Contracts and Portfolios' prospectus printed together in one document.
4.6 Company will provide to Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters and all amendments to any of the above, that relate to the Fund and the
Contracts, (a) in draft form prior to the filing of such document with the SEC,
with reasonable time allowed for Fund to provide Company with its comments and
(b) in final form as filed.
4.7 For purposes of this Section 4, the phrase "sales literature or other
promotional material" shall be construed in accordance with all applicable
securities laws and regulations.
4.8 To the extent required by applicable law, including the administrative
requirements of regulatory authorities, or as mutually agreed between Company
and DFAS, Company reserves the right to modify any of the Contracts in any
respect whatsoever. Company reserves the right in its sole discretion to
suspend the sale of any of the Contracts, in
12
<PAGE>
whole or in part, or to accept or reject any application for the sale of a
Contract. Company agrees to notify the other Parties promptly upon the
occurrence of any event Company believes might necessitate a material
modification or suspension.
4.9 The Parties agree to review the arrangements set forth herein during
the last calendar quarter of each year for possible changes and will make their
personnel reasonably available for this purpose.
5. Fees and Expenses
5.1 Fund shall bear the cost of registration and qualification of Fund's
shares; preparation and filing of Fund's prospectus and registration statement,
proxy materials and reports including postage; preparation of all other
statements and notices relating to Fund required by any federal or state law;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to Fund; all taxes on the issuance or transfer of
Fund's shares.
5.2 Company shall see to it that the Contracts are registered under the
1933 Act, and that the Account is registered as a unit investment trust in
accordance with the 1940 Act. Company shall bear the expenses for the costs of
preparation and filing of Company's prospectus and registration statement with
respect to the Contracts; preparation of all other statements and notices
relating to the Account or the Contracts required by any federal or state
13
<PAGE>
law; expenses for the solicitation and sale of the Contracts, including all
costs of printing and distributing all copies of advertisements, prospectuses,
Statements of Additional Information, proxy materials, and reports to Owners or
potential purchasers of the Contracts as required by applicable state and
federal law; payment of all applicable fees, including, without limitation, all
fees due under Rule 24f-2 relating to the Contracts; all costs of drafting,
filing and obtaining approvals of the Contracts in the various states under
applicable insurance laws; filing of annual reports on form N-SAR, and all other
costs associated with ongoing compliance with all such laws and its obligations
hereunder.
6. Indemnification
6.1 Indemnification By Company
6.1(a) Company agrees to indemnify and hold harmless Fund, DFAS and
Adviser and each of their directors and officers, and each person, if any, who
controls any of them within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 6.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, and:
14
<PAGE>
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the
Contracts or contained in the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
paragraph 6.1(a) shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission
was made in reliance upon and in conformity with information
furnished to Company by or on behalf of Fund for use in the
registration statement or prospectus for the Contracts or in the
Contracts (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company or persons under
its control, with respect to the sale or
15
<PAGE>
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Fund or
any amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance
upon information furnished to Fund by or on behalf of Company; or
(iv) arise out of, or as a result of, any failure by
Company or persons under its control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach
of any representation and/or warranty made by Company or persons
under its control in this Agreement or arise out of or result
from any other material breach of this Agreement by Company or
persons under its control;
16
<PAGE>
as limited by and in accordance with the provisions of sections 6.1(b) and
6.1(c) hereof.
6.1(b) Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to Fund,
whichever is applicable, or to the extent of such Indemnified Party's
negligence.
6.1(c) Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Company of any such claim shall not
relieve Company from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Company shall be entitled to
participate, at its own expense, in the defense of such action provided that it
gives written notice of such
17
<PAGE>
intention to the Indemnified Parties. Company also shall be entitled to assume
and to control the defense thereof. After notice from Company to such Party of
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and Company
will not be liable to such Party under this Agreement for any legal or other
expenses subsequently incurred by such Party independently in connection with
the defense thereof other than reasonable costs of investigation.
6.1(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of Fund shares or the Contracts or the operation of Fund.
6.2 Indemnification by DFAS
6.2(a) DFAS agrees to indemnify and hold harmless Company and each of
its directors and officers and each person, if any, who controls Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of DFAS) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
18
<PAGE>
the registration statement or prospectus or sales literature of
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this section 6.2(a) shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to Fund by or on behalf of
Company for use in the registration statement or prospectus for
Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of DFAS or Fund or persons
under their control, with respect to the sale or distribution of
the Contracts or Fund shares (it is understood that the persons
who are involved in the sale of distribution of the Contracts are
not under the control of DFAS, Adviser or Fund); or
19
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the
statements therein not misleading, if such statement or omission
was made in reliance upon information furnished to Company by or
on behalf of Fund; or
(iv) arise out of, or as a result of, any failure by DFAS,
Fund or persons under their control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by DFAS, Fund or persons
under their control in this Agreement or arise out of or result
from any other material breach of this Agreement by DFAS, Fund or
persons under their control;
as limited by and in accordance with the provisions of Sections 6.2(b) and
6.2(c) hereof.
20
<PAGE>
6.2(b) DFAS shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which an
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to Company
or the Account, whichever is applicable, or to the extent of such Indemnified
Party's negligence.
6.2(c) DFAS shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified DFAS in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify DFAS of any such claim shall not relieve DFAS from
any liability which it may have to the Indemnified Party otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, DFAS will be entitled to participate, at its
own expense, in the defense thereof provided that it gives written notice of
such intention to the Indemnified Parties. DFAS also shall be entitled to
assume and to control the defense thereof. After
21
<PAGE>
notice from DFAS to such Party of DFAS's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and DFAS will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
6.2(d) The Indemnified Parties will promptly notify DFAS of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
6.3 Indemnification by Adviser
6.3(a) Adviser agrees to indemnify and hold harmless Company and each
of its directors and officers and each person, if any, who controls Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Fund or Adviser) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, and:
(i) arise out of or based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of Fund
(or any amendment or
22
<PAGE>
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this section
6.3(a) shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to Fund or Adviser by or on behalf of Company for use
in the registration statement or prospectus for Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of DFAS, Fund or Adviser or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares (it is understood
that the persons who are involved in the sale or distribution of
the Contracts are not under the control of DFAS, Adviser or
Fund);
23
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the
statements therein not misleading, if such statement or omission
was made in reliance upon information furnished to Company by or
on behalf of Fund or Adviser;
(iv) arise out of, or as a result of, any failure by DFAS,
Adviser, Fund or persons under their control to provide the
services and furnish the materials contemplated under the terms
of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by DFAS, Fund, Adviser or
persons under their control in this Agreement or arise out of or
result from any other material breach of this Agreement by DFAS,
Adviser, Fund or persons under their control;
24
<PAGE>
as limited by and in accordance with the provisions of Sections 6.3(b) and
6.3(c) hereof.
6.3(b) Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to Company
or the Account, whichever is applicable, or to the extent of such Indemnified
Party's negligence.
6.3(c) Adviser shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Fund or Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Fund or Adviser of
any such claim shall not relieve Adviser from any liability which it may have to
the Indemnified Party otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties,
Adviser will be entitled to participate, at its own expense, in the defense
thereof provided that it gives
25
<PAGE>
written notice of such intention to the Indemnified Parties. Adviser also shall
be entitled to assume and to control the defense thereof. After notice from
Adviser to such Party of Adviser's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Adviser will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
6.3(d) The Indemnified Parties will promptly notify Fund or Adviser of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
7. Potential Conflicts
7.1 The Directors will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretive letter, or any similar action by
insurance, tax or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
26
<PAGE>
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Directors shall promptly inform the Company
if they determine that an irreconcilable material conflict exists and the
implications thereof and, on an annual basis, shall provide Company with written
notification that the Directors are not aware of any conflict, if such is the
case.
7.2 The Company will report any potential or existing conflicts of which
it is aware to the Directors and, on an annual basis, shall provide Fund with
written notification that Company is not aware of any conflict, if such is the
case. The Company will assist the Directors in carrying out their
responsibilities under any applicable provisions of the federal securities laws
and/or any exemptive orders granted by the Securities & Exchange Commission
("Exemptive Order"), by providing the Directors with all information reasonably
necessary for the Directors to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Directors whenever
Owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Directors, or a majority of
its disinterested Directors, that a material irreconcilable conflict exists, the
Company shall, at its expense and to the extent reasonably practicable (as
27
<PAGE>
determined by a majority of disinterested Directors), take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, up to and
including: (1), withdrawing the assets allocable to some or all of the separate
accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected Owners and, as appropriate, segregating
the assets of any appropriate group that votes in favor of such segregation, or
offering to the affected Owners the option of making such a change; and (2),
establishing a new registered management investment company or managed separate
account.
7.4 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six (6) months after the Directors inform the
Company in writing that they have determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Directors. Until the end of the foregoing six (6) month
28
<PAGE>
period, DFAS and Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5 For purposes of Sections 7.3 through 7.5 of this Agreement, a majority
of the disinterested Directors shall determine whether any proposed action
adequately remedies any irreconcilable material conflict. The Company shall not
be required by Section 7.3 to establish a new funding medium for the Contracts
if an offer to do so has been declined by vote of a majority of Owners
materially adversely affected by the irreconcilable material conflict. In the
event that the Directors determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Fund and terminate this Agreement within six (6)
months after the Directors inform the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict.
7.6 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in any Exemptive Order) on terms and conditions materially different
from those contained in any Exemptive Order, then (a) the Fund and/or the
Company, as appropriate, shall take such steps as may be necessary to
29
<PAGE>
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable; and (b) Sections 7.1, 7.2, 7.3 and 7.4 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
8. Term and Termination
8.1 The initial term of this Agreement shall be from November 15, 1996
through November 14, 1999. Unless terminated upon thirty (30) days' prior
written notice to the other Party, this Agreement shall thereafter automatically
renew from year to year, provided that any Party may terminate this Agreement
without cause following the initial term upon six (6) days' advance written
notice to the other.
8.2 Notwithstanding any other provision of this Agreement, DFAS, Adviser
or the Fund may terminate this Agreement for cause on not less than thirty (30)
days' prior written notice to the Company, unless Company has cured such cause
within thirty (30) days of receiving such notice, for any material breach by
Company of any representation, warranty, covenant or obligation hereunder.
8.3 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to DFAS, Adviser and Fund unless DFAS, Adviser or Fund, as
appropriate, has cured such cause within thirty (30) days of receiving such
notice, for any material breach by DFAS,
30
<PAGE>
Adviser or Fund of any representation, warranty, covenant or obligation
hereunder.
8.4 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund and the DFAS with respect
to any Portfolio based upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the requirements of the
Contracts.
8.5 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund, Adviser and the DFAS
with respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company.
8.6 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund, Adviser and the DFAS
with respect to any Portfolio in the event that such Portfolio ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably believes that the
Fund may fail to so qualify.
8.7 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund, Adviser and the DFAS
with respect to any
31
<PAGE>
Portfolio in the event that such Portfolio fails to meet the diversification
requirements specified in Paragraph 3.7.
8.8 Notwithstanding any other provision of this Agreement, Fund, Adviser
or DFAS may terminate this Agreement by written notice to the Company, if any
one or all shall determine, in their sole judgment, exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity.
8.9 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement by written notice to the Fund, Adviser and DFAS, if the
Company shall determine, in its sole judgment, exercised in good faith, that any
of the Fund, Adviser or DFAS has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity.
8.10 Notwithstanding any other provision of this Agreement, any Party may
terminate this Agreement for cause on not less than sixty (60) days' prior
written notice to all other Parties, unless any of the other Parties has cured
such cause within sixty (60) days of receiving such notice, for any one of the
following reasons:
(a) change in control of any Party or such Party's ultimate
controlling person; however, a
32
<PAGE>
change in the name of the Party will not constitute a change in
control;
(b) a material change in, or other material revision to the
Contracts or the prospectuses of Fund that describe the Portfolios,
which material change or revision is not acceptable to any of the
other Parties; or
(c) any action taken by federal or state regulatory authorities
of competent jurisdiction which, in the reasonable judgment of any of
the Parties, either (i) materially and adversely alters the terms,
advantages and/or benefits of the Contracts to current or prospective
purchasers; or (ii) materially or adversely alters the terms or
conditions of such Party's participation in the subject matter of this
Agreement.
8.11 Notwithstanding the termination of this Agreement, each Party shall
continue for so long as any Contracts remain outstanding to perform such of its
duties hereunder as are necessary to ensure the continued tax deferred status
thereof and the payment of benefits thereunder.
9. Notices
Any notice shall be deemed sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
33
<PAGE>
If to Fund:
Irene R. Diamant
Vice President
DFA Investment Dimensions Group, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
If to Adviser:
Irene R. Diamant
Vice President
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
If to DFAS:
Irene R. Diamant
Vice President
DFA Securities Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
If to Company:
Jeffrey P. Lammers
Providian Corporation
400 West Market Street
P.O. Box 32830
Louisville, Kentucky 40202
with a copy to:
Marketing Director
First Providian Life and Health Insurance Company
520 Columbia Drive
Johnson City, New York 13790
34
<PAGE>
10. Miscellaneous
10.1 The captions in this Agreement are included for convenience of
reference only and in no way affect the construction or effect of any provisions
hereof.
10.2 If any portion of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance and securities regulators) and shall permit such authorities
reasonable access to its books and records as required by applicable law in
connection with any investigation or inquiry relating to this Agreement.
10.5 Each Party hereto grants to the other the right to audit its records
relating to the terms and conditions of this Agreement upon reasonable notice
during reasonable business hours in order to confirm compliance with this
Agreement.
10.6 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
35
<PAGE>
10.7 Subject to the requirements of legal process and regulatory
authority, the Fund, Adviser and DFAS shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by the Company hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the Company until such time as it may come into the public
domain.
10.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
10.9 In any dispute arising hereunder, each party waives its right to
demand a trial by jury and hereby consents to a bench trial of all such
disputes.
10.10 The terms of this Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of Kentucky; provided,
however, that all performances rendered hereunder shall be subject to compliance
with all applicable state and federal laws and regulations.
10.11 Notwithstanding any termination of this Agreement, Fund shall, at the
option of the Company, continue to make available additional shares of the
Portfolios pursuant to the terms and conditions of this Agreement, for all
Contracts in effect on the effective date of termination of this Agreement
36
<PAGE>
(hereinafter referred to as "Existing Contracts"). Specifically, the owners of
the Existing Contracts shall be permitted to reallocate investments in the
Portfolios, redeem investments in the Portfolios and/or invest in the Portfolios
upon the making of additional purchase payments under the Existing contracts.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date first set forth above.
Company:
FIRST PROVIDAN LIFE AND HEALTH INSURANCE
COMPANY
By: /s/ Gregory J. Garvin
------------------------------------------------
Gregory J. Garvin, Vice President & Secretary
Fund:
DFA INVESTMENT DIMENSIONS GROUP INC.
By: /s/ Irene R. Diamant
------------------------------------------------
Irene R. Diamant, Vice President & Secretary
DFAS:
DFA SECURITIES INC.
By: /s/ Irene R. Diamant
------------------------------------------------
Irene R. Diamant, Vice President & Secretary
Fund Adviser:
DIMENSIONAL FUND ADVISORS INC.
By: /s/ Irene R. Diamant
------------------------------------------------
Irene R. Diamant, Vice President & Secretary
37
<PAGE>
SCHEDULE 1.1
VA Small Value Portfolio
VA Large Value Portfolio
VA International Value Portfolio
VA International Small Portfolio
VA Short-Term Fixed Portfolio
VA Global Bond Portfolio
<PAGE>
EXHIBIT 8(e)
MARKETING AGREEMENT
Between
DFA SECURITIES, INC.
And
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
- ------- ------------ ----
<S> <C> <C>
1 Sales of the Contract......... 1
2 Representations and
Warranties.................... 3
3 Contracts, Sales Material 5
and Information...............
4 Indemnification............... 7
5 Term and Termination.......... 14
6 Notices....................... 15
7 Miscellaneous................. 16
</TABLE>
<PAGE>
THIS AGREEMENT, made and entered into this 15th day of November 1996, by
and between First Providian Life and Health Insurance Company ("Company"), on
its own behalf and on behalf of First Providian Life and Health Insurance
Company Separate Account C, a segregated asset account of the Company
("Account"), and DFA Securities Inc. ("DFAS") (collectively, "Parties").
Company and DFAS intending to be legally bound, hereby agree as follows:
1. Sales of the Contracts
1.1 Company and DFAS hereby agree to perform the duties and assume the
responsibilities set forth herein in connection with the offering of certain
mutually agreed upon variable annuity contracts ("Contracts") in substantially
the forms appearing at Schedule 1.1 hereto. Company shall establish and
maintain subdivisions of the Account as required by law to perform Company's
obligations under the Contracts, including the obligation to establish a
subdivision for each portfolio offered by DFA Investment Dimensions Group Inc.
("Fund") and accepted by Company for investment under the Contract.
1.2 DFAS will assist, or through one or more independent contractors will
have assistance provided to, Company in developing a marketing program for the
Contracts. Either DFAS or its independent contractors will be available at
reasonable times to assist Company and investment advisors whose clients
purchase the Contracts in understanding the Fund and its investment strategies
and to provide information
<PAGE>
regarding the Fund. DFAS' assistance will not involve the handling of monies
and/or securities of the Contracts.
1.3 Neither DFAS nor any of its affiliates or independent contractors
shall have any authority as the Company's agent or otherwise to, and DFAS shall
not (a) make any promise or incur any debt on behalf of Company; (b) hold itself
out as an employee of Company; (c) misrepresent, add, alter, waive, discharge,
or omit any material provision(s) of the Contracts or the then current
prospectuses for the Contracts or confirmation statements or any other Company
materials; (d) engage in exchanges of Contracts for other deferred annuity
contracts; (e) pay or allow to be paid to any owner of a Contract ("Owner") or
potential purchaser any rebate or other inducement not specified in the
Contracts; (f) give or offer to give any specific advice or opinion regarding
any specific tax or estate planning result for any individual or entity in
connection with the purchase of any Contract; or (g) take any other action
beyond the scope of the authority granted under this Agreement.
1.4 Except as required by law or regulation, DFAS and the Company each
agree that all information communicated to it by the other, including, without
limitation, the names and addresses of Owners, shall be received in strict
confidence, shall be used by the recipient party only for the purposes of this
Agreement or the Participation Agreement of even date herewith among Fund, DFAS,
Dimensional Fund Advisors Inc. and Company and that no such information shall be
disclosed by the recipient party, its agents or employees without the prior
written consent of the other party; provided, however, that this Paragraph 1.4
shall not prohibit persistency programs with respect to the Contracts.
2
<PAGE>
1.5 To the extent required by applicable law, including the administrative
requirements of regulatory authorities, or as mutually agreed between Company
and DFAS, Company reserves the right to modify any of the Contracts in any
respect whatsoever. Company reserves the right in its sole discretion to
suspend the sale of any of the Contracts, in whole or in part, or to accept or
reject any application for the sale of a Contract. Company agrees to notify
DFAS upon the occurrence of any event Company believes might necessitate a
material modification or suspension. Company and DFAS further agree to provide
prompt notice to each other of any communications received from any regulatory
authority with respect to the sale of the Contracts.
1.6 DFAS and Company agree that the Contracts will only be accepted from
agents with whom the Company has executed a General Agent Contract. DFAS
reserves the right to reject contracts submitted by agents whom DFAS has
determined to be market timers.
2. Representations and Warranties
2.1 Company represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the laws of New York and that it has and will
maintain the capacity to issue all Contracts that may be sold; and that it is
properly licensed, qualified and in good standing to sell the Contracts in New
York.
2.2 Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 (the "1933 Act").
3
<PAGE>
2.3 Company represents and warrants that it has or will have registered
the Account as a unit investment trust in accordance with the provisions of the
Investment Company Act of 1940 (the "1940 Act") to serve as a segregated
investment account for the Contracts.
2.4 Company represents that the Contracts are currently treated as annuity
contracts, under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will maintain such treatment and that it will
notify DFAS promptly upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.5 DFAS represents and warrants that it is lawfully established and
validly existing under the laws of the State of Delaware.
2.6 DFAS does not charge any fees or expenses in connection with its
obligations under this Agreement.
2.7 DFAS represents and warrants that it is and will be a member in good
standing of the National Association of Securities Dealers, Inc. ("NASD") and is
and will be registered as a broker-dealer with the Securities and Exchange
Commission ("SEC"). DFAS further represents that it and any independent
contractor acting on behalf of DFAS under this Agreement will perform its
obligations hereunder in accordance with all applicable state and federal laws
and regulations, including without limitation the Securities Exchange Act of
1934 (the "1934 Act"), the 1940 Act and state insurance laws of which it is
aware, provided DFAS shall have no obligation to conduct an independent
investigation, or of which Company has made it aware by providing DFAS with
written advice.
4
<PAGE>
2.8 DFAS represents and warrants that it is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities laws.
3. Contracts, Sales Material and Information
3.1 Company shall file the Contracts in New York and use its best efforts
to secure approval for sale of the Contracts in New York, and Company further
agrees to maintain such approvals.
3.2 In the event Company and DFAS agree that DFAS will prepare sales
literature or other promotional material for the Contracts pursuant to Section
3.4 below, all such sales material prepared by DFAS will be filed by Company
with the appropriate state regulatory authorities as required in New York and
Company will use its best efforts to effect prompt review of such material in
New York and to provide DFAS with such assistance as DFAS may reasonably require
in order to develop sales literature in compliance with the laws and regulations
of New York. Company shall be responsible for filing all such material in
compliance with the federal securities law and the rules of the NASD.
3.3 Company shall promptly inform DFAS as to the status of all such sales
literature filings and shall promptly notify DFAS of all approvals or
disapprovals of sales literature filings in New York. Except for internal
correspondence, inquiries, meetings and discussions, DFAS shall promptly provide
Company with copies of correspondence and written reports of inquiries, meetings
and discussions concerning the Contracts and Owner complaints respecting the
Contracts.
3.4 DFAS shall not, unless otherwise agreed to by Company, create any
sales literature or other promotional material for the Contracts. In the event
Company and
5
<PAGE>
DFAS agree that DFAS will prepare sales literature or other promotional material
for the Contracts, DFAS shall furnish to company each piece of such literature
or material at the earliest practical stage of its development, and Company
commits to comment upon, approve or disapprove all proposed advertising within
five (5) business days of receipt from DFAS. No such material shall be used if
Company reasonably objects to such use after receipt of such material. Each
Party agrees to cooperate with the other to facilitate the other's ongoing
efforts to comply with all applicable laws and regulations.
3.5 Except with Company's consent, DFAS shall not give any material
information or make any material representations on behalf of Company or
concerning Company, the Account, or the Contracts other than the information or
representations contained in: (a) a registration statement or prospectus for
the Contracts, as amended or supplemented from time to time; (b) published
reports for the Account which are in the public domain or approved by Company
for distribution to Contract Owners; or (c) sales literature or other
promotional material approved by Company.
3.6 No Party shall use the other Party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior written
consent of such Party.
3.7 DFAS will provide to Company at least one complete copy of all
requests for no action letters, and all amendments thereto that relate to the
Company, the Account or the Contracts, (a) in draft form prior to the filing of
such document with the SEC or other regulatory authorities with reasonable time
allowed for Company to provide DFAS with its comments, and (b) in final form as
filed.
3.8 Company will provide to DFAS at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports,
6
<PAGE>
solicitations for voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no action letters and all
amendments to any of the above, that relate to the Contracts, (a) in draft form
prior to the filing of such document with the SEC, with reasonable time allowed
for DFAS to provide Company with its comments and (b) in final form as filed.
3.9 For purposes of this Section 3, the phrase "sales literature or other
promotional material" shall be construed in accordance with all applicable
securities laws and regulations.
3.10 The Parties agree to review the Contracts during the last calendar
quarter of each year for possible changes and will make their personnel
reasonably available for this purpose.
4. Indemnification
4.1 Indemnification By Company
4.1(a) Company agrees to indemnify and hold harmless DFAS and its
directors and officers, and each person, if any, who controls it within the
meaning of Section 15 of the 1933 Act (the "Indemnified Party" for purposes of
this Section 4.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Company) or
litigation (including legal and other expenses), to which the Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature for the
7
<PAGE>
Contracts or contained in the Contracts or any sales literature
for the Fund created by Company or agents of the company (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this section 4.1(a) shall not apply as to the Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with written
information furnished to Company or agents of Company by or on
behalf of DFAS for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts; or
8
<PAGE>
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company or persons under
its control, with respect to the sale or distribution of the
Contracts; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement or prospectus covering the Fund, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not
misleading, if such a statement or omission was made in reliance
upon written information furnished to DFAS by or on behalf of
Company; or
(iv) arise out of, or as a result of, any failure by
Company or persons under its control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of
any representation and/or warranty made by Company or persons
under its control in this Agreement or arise out of or result
from any other material breach of this Agreement by Company or
persons under its control; or
(vi) arise out of or are based upon noncompliance by DFAS
or its independent contractors with applicable state
9
<PAGE>
insurance laws in connection with DFAS' obligations under this
Agreement unless DFAS was aware of such law or Company made DFAS
aware of such law by providing DFAS with written advice;
as limited by and in accordance with the provisions of sections 4.1(b) and
4.1(c) hereof.
4.1(b) Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
the Indemnified Party would otherwise by subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to the
Company, the Account or the Contracts, whichever is applicable, or to the extent
of such Indemnified Party's negligence.
4.1(c) Company shall not be liable under this indemnification provision
with respect to any claim made against the Indemnified Party unless such
Indemnified Party shall have notified Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Company of any such claim shall not
relieve Company from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Party, Company shall be entitled to
participate, at its own expense, in the defense of such action provided that it
gives written notice of such intention to the Indemnified Parties. Company also
shall be entitled to assume and to control the defense thereof. After notice
from Company to
10
<PAGE>
such Party of Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and Company will not be liable to such Party under this Agreement for any legal
or other expenses subsequently incurred by such Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
4.1(d) The Indemnified Party will promptly notify Company of the
commencement of any litigation or proceedings against it in connection with the
issuance or sale of the Contracts or the subject matter of this Agreement.
4.2 Indemnification by DFAS
4.2(a) DFAS agrees to indemnify and hold harmless Company and each of
its directors and officers and each person, if any, who controls Company within
the meaning of Section 15 of the 1933 Act (the "Indemnified Party" for purposes
of this Section 4.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of DFAS) or
litigation (including legal and other expenses) to which the Indemnified Party
may become subject under any statute, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature for the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided
11
<PAGE>
that this section 4.2(a) shall not apply as to the Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with written
information furnished to DFAS by or on behalf of Company for use
in the registration statement or prospectus for the Fund (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Contracts; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of DFAS or persons under its
control, with respect to the sale or distribution of the
Contracts (it is understood that the persons who are involved in
the sale or distribution of the contracts are not under the
control of DFAS); or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein, or necessary to make the
statements therein not misleading, if such statement or omission
was made in reliance upon written information furnished to
Company by or on behalf of DFAS; or
12
<PAGE>
(iv) arise out of, or as a result of, any failure by DFAS or
persons under its control to provide the services and furnish the
materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by DFAS or persons under its
control in this Agreement or arise out of or result from any
other material breach of this Agreement by DFAS or persons under
its control;
as limited by and in accordance with the provisions of Sections 4.2(b) and
4.2(c) hereof.
4.2(b) DFAS shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation to which the
Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement, or to the
extent of such Indemnified Party's negligence.
4.2(c) DFAS shall not be liable under this indemnification provision with
respect to any claim made against the Indemnified Party unless such Indemnified
Party shall have notified DFAS in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify DFAS of any such claim shall not relieve DFAS from
any liability which it may have to the Indemnified Party otherwise than on
account of this indemnification provision. In case any such action is
13
<PAGE>
brought against the Indemnified Parties, DFAS will be entitled to participate,
at its own expense, in the defense thereof provided that it gives written notice
of such intention to the Indemnified Parties. DFAS also shall be entitled to
assume and to control the defense thereof. After notice from DFAS to such Party
of DFAS's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and DFAS
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such Party independently in connection with
the defense thereof other than reasonable costs of investigation.
4.2(d) The Indemnified Party will promptly notify DFAS of the commencement
of any litigation or proceedings against it in connection with the issuance or
sale of the Contracts or the subject matter of this Agreement.
5. Term and Termination
5.1 The initial term of this Agreement shall be from November 15, 1996
through November 14, 1999. This Agreement shall thereafter automatically renew
from year to year, provided that either Party may terminate this Agreement
without cause upon sixty (60) days' advance written notice to the other.
5.2 Notwithstanding any other provision of this Agreement, DFAS may
terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to the Company, unless Company has cured such cause within thirty
(30) days of receiving such notice, for any material breach by Company of any
representation, warranty, covenant or obligation hereunder.
5.3 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement for cause on not less than thirty (30) days' prior
written notice
14
<PAGE>
to DFAS, unless DFAS has cured such cause within thirty (30) days of receiving
such notice, for any material breach by DFAS of any representation, warranty,
covenant or obligation under the Contracts or hereunder.
5.4 This Agreement shall automatically terminate at such time as there are
no subdivisions of the Account funding the Contracts that are invested in the
Fund.
5.5 Notwithstanding the termination of this Agreement, each Party shall
continue for so long as any Contracts remain outstanding to perform such of its
duties hereunder as are necessary to ensure the continued tax deferred status
thereof and the payment of benefits thereunder.
6. Notices
Any notice shall be deemed sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to DFAS:
Irene R. Diamant
Vice President
DFA Securities Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
15
<PAGE>
If to Company:
Jeffrey P. Lammers
Providian Corporation
400 West Market Street
P.O. Box 32830
Louisville, Kentucky 40202
With a copy to:
First Providian Life and Health Insurance Company
520 Columbia Drive
Johnson City, New York 13790
Attention: Marketing Director
7. Miscellaneous
7.1 The captions in this Agreement are included for convenience of
reference only and in no way affect the construction or effect of any provisions
hereof.
7.2 If any portion of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
7.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
7.4 Each Party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance and securities regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement.
16
<PAGE>
7.5 Each Party hereto grants to the other the right to audit its records
relating to the terms and conditions of this Agreement upon reasonable notice
during reasonable business hours in order to confirm compliance with this
Agreement.
7.6 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
7.7 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of the other party
hereto.
7.8 In any dispute arising hereunder, each party waives its right to
demand a trial by jury and hereby consents to a bench trial of all such
disputes.
7.9 The terms of this Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of Kentucky; provided,
however, that all performances rendered hereunder shall be subject to compliance
with all applicable state and federal laws and regulations.
7.10 Sections 1.2 (excluding the first sentence), 1.3, 1.4, 1.5, 2, 3.6,
3.7, 3.8, 3.9, 4, 5.5, 6 and 7 hereof shall survive termination of this
Agreement
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date first set forth above.
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY
By: /s/ Gregory J. Garvin
-----------------------
Name: Gregory J. Garvin
----------------------
Title: Vice President
--------------------
17
<PAGE>
DFA SECURITIES INC.
By: /s/ Irene R. Diamant
------------------------------
Name: Irene R. Diamant
-----------------------------
Title: Vice President and Secretary
----------------------------
18
<PAGE>
EXHIBIT 8(f)
[LETTERHEAD OF PROVIDIAN CORPORATION]
February 10, 1997
Ms. Irene Diamant
Vice President
DFA Investment Dimensions Group Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Re: Marketing agreement dated November 15, 1996 (the "Marketing Agreement")
among First Providian Life and Health Insurance Company ("Company"), DFA
Investment Dimensions Group Inc. ("Fund"), Dimensional Fund Advisors Inc.
("Advisor"), and DFA Securities Inc. ("DFAS"), collectively the "Parties"
Dear Irene:
Because of an oversight on the Company's part, the Marketing Agreement that the
Parties concluded in November 1996 failed to include the Schedule 1.1 referred
to in Section 1.1 of that Marketing Agreement. This schedule specifies the
variable annuity contract that is the subject of both the Marketing Agreement
and the participation agreement executed on the same date. Enclosed herewith is
a Schedule 1.1, which consists a copy of a Providian Advisor's Edge contract for
issue in New York state only. The Company hereby intends to amend the Marketing
Agreement so as to include the enclosed Schedule 1.1, effective retroactively to
the date of the Marketing Agreement. In all other respects, the Parties affirm
and ratify the terms, conditions, and covenants of the Marketing Agreement.
If the foregoing is acceptable to you, please acknowledge your receipt of this
Schedule 1.1 and your acceptance of the amendment set forth above by executing
and returning a copy of this Letter Agreement to the attention of Mr. John
Fendig.
Sincerely,
/s/ Jeffrey P. Lammers
Jeffrey P. Lammers
Vice President
First Providian Life and Health Insurance Company
<PAGE>
Ms. Irene Diamant
February 10, 1997
Page 2
Acknowledged and agreed to this 18th day of February, 1997.
DFA Investment Dimensions Group Inc.
Dimensional Fund Advisors Inc.
DFA Securities Inc.
By: /s/ Michael T. Scardina
-------------------------
Name: Michael T. Scardina
-----------------------
Title: VP & CFO
----------------------
<PAGE>
EXHIBIT 8(g)
Providian Corporation [Providian LOGO]
400 West Market Street
Post Office Box 32830
Louisville, Kentucky 40232
502 560-2000
March 4, 1997
Ms. Catherine Newell
Legal Counsel
DFA Investment Dimensions Group Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Re: Marketing agreement dated November 15, 1996 (the "Marketing Agreement")
among First Providian Life and Health Insurance Company ("Company"), DFA
Investment Dimensions Group Inc. ("Fund"), Dimensional Fund Advisors Inc.
("Advisor"), and DFA Securities Inc. ("DFAS"), collectively the "Parties,"
as amended by letter agreement dated February 10, 1997, and participation
agreement dated November 15, 1996 (the "Participation Agreement") among the
Parties
Dear Catherine:
This Letter Agreement will serve to acknowledge the agreement among the Company,
the Fund, the Advisor, and DFAS (the "Parties") to amend the Marketing Agreement
and the Participation Agreement in the manner hereinafter provided for and to
notify Fund, Advisor, and DFAS of the Company's current plans with respect to
certain matters.
The Parties agree to adopt the addendum to Schedule 1.1 (the "Addendum")
attached hereto. Once so amended, Schedule 1.1 will consist of a copy of a
variable annuity contract form marketed under the name Providian Advisor's Edge
and a sample in blank of a variable annuity contract form to be marketed under
the name Dimensional Variable Annuity.
In all other respects, the Parties affirm and ratify the terms, conditions, and
covenants of the Marketing Agreement and of the Participation Agreement, and the
Parties agree that all terms, conditions, and covenants of the Marketing
Agreement and of the Participation Agreement shall remain in full force and
effect except to the extent herein modified.
<PAGE>
Ms. Catherine Newell
March 4, 1997
Page 2
The Company's current plan is to cease to offer portfolios of the Fund as
underlying investment media to purchasers of Providian Advisor's Edge contracts
once the Company begins to offer Dimensional Variable Annuity contracts pursuant
to the Marketing Agreement and the Participation Agreement.
Please acknowledge your acceptance of the foregoing by executing and returning a
copy of this Letter Agreement to Mr. John Fendig.
Sincerely,
/s/ Michael Lane
Michael Lane
Vice President
First Providian Life and Health Insurance Company
Acknowledged and agreed to this 7th day of May, 1997.
DFA Investment Dimensions Group Inc.
Dimensional Fund Advisors Inc.
DFA Securities Inc.
By: /s/ Irene R. Diamant
-------------------------------
Name: Irene R. Diamant
-----------------------------
Title: Vice President and Secretary
----------------------------
<PAGE>
EXHIBIT 8(h)
Providian Corporation [Providian LOGO]
400 West Market Street
Post Office Box 32830
Louisville, Kentucky 40232
502-560-2000
April 14, 1997
Ms. Catherine Newell
Legal Counsel
DFA Investment Dimensions Group Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Re: Participation agreement dated November 15, 1996 (the "Participation
Agreement") among First Providian Life and Health Insurance Company
("Company"), DFA Investment Dimensions Group Inc. ("Fund"), Dimensional
Fund Advisors Inc. ("Advisor"), and DFA Securities Inc. ("DFAS"),
collectively the "Parties"
Dear Catherine:
Because of a typographical error, the Participation Agreement that the Parties
concluded in November 1996 misstates one of the time periods in its Section 8.1.
We would like to take this opportunity to correct that time period by amending
and restating Section 8.1 in its entirety using the language immediately
following:
8.1 The initial term of this Agreement shall be from November 15, 1996
through November 14, 1999. Unless terminated upon thirty (30) days' prior
written notice to the other Party, this Agreement shall thereafter automatically
renew from year to year, provided that any Party may terminate this Agreement
without cause following the initial term upon sixty (60) days' advance written
notice to the other.
In all other respects, the Parties affirm and ratify the terms, conditions, and
covenants of the Participation Agreement.
<PAGE>
Ms. Catherine Newell
April 14, 1997
Page 2
If the foregoing is acceptable, please cause the parties listed below to
acknowledge their consent to the amendment set forth above by executing and
returning a copy of this Letter Agreement to the attention of Mr. John Fendig.
Sincerely,
/s/ Michael Lane
Michael Lane
Second Vice President
First Providian Life and Health Insurance Company
Acknowledged and agreed this 21th day of April 1997.
DFA Investment Dimensions Group Inc.
Dimensional Fund Advisors Inc.
DFA Securities Inc.
By: /s/ Irene R. Diamant
-------------------------------
Name: Irene R. Diamant
-----------------------------
Title: Vice President and Secretary
----------------------------
<PAGE>
EXHIBIT 8(i)
PARTICIPATION AGREEMENT
Among
MONTGOMERY FUNDS III,
MONTGOMERY ASSET MANAGEMENT, L.P.
And
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Section Description Page
- ------- ----------- ----
<S> <C> <C>
1 Sales of Fund Shares...................... 1
2 Proxy Solicitations and Voting............ 4
3 Representations and Warranties............ 6
4 Sales Material and Information............ 11
5 Fees and Expenses......................... 16
6 Indemnification........................... 17
7 Potential Conflicts....................... 28
8 Term and Termination...................... 33
9 Notices................................... 37
10 Miscellaneous............................. 38
</TABLE>
<PAGE>
THIS AGREEMENT, made and entered into this 15th day of November, 1996,
by and among First Providian Life and Health Insurance Company ("Company"), on
its own behalf and on behalf of First Providian Life and Health Insurance
Company Separate Account C, a segregated asset account of the Company
("Account"), Montgomery Funds III ("Fund"), and the Fund's investment adviser,
Montgomery Asset Management, L.P. ("Adviser") (collectively, "Parties").
Company, Fund and Adviser intending to be legally bound, hereby agree
as follows:
1. Sales of Fund Shares
--------------------
1.1 Fund agrees to sell to Company those shares of the portfolios
listed on Schedule 1.1 hereto (the "Portfolios") which Company purchases for the
appropriate subaccount of the Account at the net asset value next computed after
receipt by Fund or its designee of each order of the Account or its designee, in
accordance with the provisions of this Agreement, and of the then current
prospectuses of Fund and of each variable annuity contract that uses Fund as an
underlying investment medium (the "Contracts"). Company may purchase shares of
the Portfolios for its own account subject to (a) Company's receipt of prior
written approval by Fund; and (b) such purchases being in accordance with the
then current prospectuses of Fund and of the Contracts. For purposes of this
Section 1.1, Company shall be the designee of Fund for receipt of such orders
and receipt by such designee shall constitute receipt by Fund, provided that
Fund
<PAGE>
receives notice of any such order by 11:00 a.m. Eastern time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission ("SEC").
Company will pay for Fund shares on the same Business Day that an order to
purchase Fund shares is communicated by Company to Fund in accordance with this
Section 1.1. Payment for Fund shares shall be made in Federal funds transmitted
to Fund by wire sent no later than 2:30 p.m. Eastern time on such Business Day.
1.2 The Board of Trustees of Fund ("Board") may refuse to sell shares
of Fund or any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action (a) is required by law or by regulatory
authorities having jurisdiction or (b) is, in the sole discretion of the Board,
acting in good faith and in light of the Board's duties under applicable law,
necessary in the best interests of the shareholders of any Portfolio, provided
that with respect to (b), any such suspension is temporary and any such
termination is specifically found in writing by the Board to be necessary in the
best interests of the shareholders of the applicable Portfolio. Fund will
redeem the shares when requested on behalf of the Company or the corresponding
subaccount of the Account at the net asset value next computed after receipt by
Fund or its designee of each request for redemption, as established in
accordance
2
<PAGE>
with the provisions of the then current prospectuses of Fund and of
the Contracts. For purposes of this Section 1.2, Company will be the designee
of Fund for receipt of requests for redemption and receipt by such designee will
constitute receipt by Fund, provided that Fund receives notice of such request
for redemption by 11:00 a.m. Eastern time on the next following Business Day.
Fund will make payment in Federal funds transmitted to Company by wire on the
same Business Day that Fund is properly notified of the redemption order
pursuant to this Section 1.2; provided that Fund may postpone the date of
payment upon redemption in accordance with Section 22(e) of the Investment
Company Act of 1940 and the rules, orders and regulations promulgated thereunder
(the "1940 Act"). Fund will not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds by Company; Company
alone will be responsible for such action. If notification of a redemption
request is received by Fund after 11:00 a.m. Eastern time, payment for redeemed
shares will be made on the next following Business Day.
1.3 Company agrees to purchase and redeem the shares of the
Portfolios in accordance with the provisions of this Agreement, of the Contracts
and of the then current prospectuses of the Contracts and of Fund. Except as
necessary to implement Owner initiated transactions initiated by purchasers of
the Contracts ("Owners"), or as otherwise permitted or required by state and/or
federal laws or
3
<PAGE>
regulations, Company shall not redeem Fund shares of the Portfolios attributable
to the Contracts.
1.4 Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from Fund will be recorded in appropriate book entry titles for the
Account or the appropriate subaccount of the Account.
1.5 Fund shall furnish prompt notice followed by written
confirmation to Company or its delegates of any income, dividends or capital
gain distributions payable on each Portfolio's shares. Company hereby elects to
receive all such dividends and distributions as are payable on shares of a
Portfolio in additional shares of that Portfolio. Fund shall notify Company or
its delegates of the number of shares so issued as payment of such dividends and
distributions.
1.6 Fund shall use its best efforts to make the net asset value per
share for each Portfolio available to Company or its delegates by 6:30 p.m. on
each Business Day, and shall notify Company promptly if it is unable to make the
net asset value per share available to Company by 7:00 p.m. Eastern time on such
Business Day.
2. Proxy Solicitations and Voting
------------------------------
2.1 Adviser and Fund agree that the terms on which Fund shares are
offered to the Account under this Agreement will not be materially altered
("Material Alteration") without the prior written consent of Company, which
consent will not be unreasonably withheld, during any period in which Fund
shares
4
<PAGE>
are held by the Account, provided that the 1940 Act requires that such Material
Alteration be approved by the shareholders of Fund. In all other cases, Fund
will provide Company with as much advance notice as is reasonably practicable of
Material Alterations.
2.2 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Owners;
(ii) vote Portfolio shares in accordance with instructions received
from Owners; and
(iii) vote Portfolio shares for which no instructions have been
received in the same proportion as shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. Company
reserves the right to vote Portfolio shares held in any segregated asset account
in its own right, to the extent permitted by law. Company shall be responsible
for assuring that each of its separate accounts holding shares of a Portfolio
calculates voting privileges as set forth above and consistent with Fund's mixed
and shared funding exemptive order (the "Exemptive Order").
2.3 Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar
5
<PAGE>
as the SEC may interpret Section 16 of the 1940 Act not to require such
meetings) or comply with Section 16(c) of the 1940 Act (although Fund is not one
of the trusts described in Section 16(c) of the 1940 Act), as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
3. Representations and Warranties
------------------------------
3.1 Company represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it has legally
and validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the laws of New York and that it has and will
maintain the capacity to issue all Contracts that may be sold; and that it is
properly licensed, qualified and in good standing to sell the Contracts in New
York.
3.2 Company represents and warrants that the Contracts are or will
be registered under the Securities Act of 1933 (the "1933 Act"); and that the
Contracts will be issued and sold in compliance with all applicable federal and
state laws.
3.3 Company represents and warrants that it has registered or will
have registered the Account as a unit investment trust in accordance with the
provisions of the
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1940 Act to serve as a segregated investment account for the Contracts, and that
it will maintain such registration for so long as any Contracts are outstanding.
Company will amend the registration statement under the 1933 Act for the
Contracts and the registration statement under the 1940 Act for the Account from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law.
3.4 Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended ("Code"), and that
it will make every effort to maintain such treatment and that it will notify
Adviser and Fund immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so treated
in the future.
3.5 Fund represents and warrants that it is lawfully established and
validly existing under the laws of the State of Delaware.
3.6 Fund represents and warrants that Fund shares of the Portfolios
sold pursuant to this Agreement are registered under the 1933 Act and duly
authorized for issuance; that Fund shall amend the registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares; that Fund will sell
shares of the Portfolios sold pursuant to this Agreement in compliance with all
applicable
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federal and state securities laws including without limitation the 1933 Act, the
1934 Act and the 1940 Act; and that Fund is and will remain registered under and
complies and will comply in all material respects with the 1940 Act. Fund shall
register and qualify Portfolio shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by Fund.
3.7 Fund represents and warrants that it will invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable annuity contracts under the Code and the regulations issued thereunder,
and that Fund will comply with Section 817(h) of the Code as amended from time
to time and with all applicable regulations promulgated thereunder. Fund agrees
to notify Company immediately upon having a reasonable basis for believing that
any Portfolio has ceased to comply with Section 817(h) of the Code and to take
all reasonable steps to diversify such Portfolio so as to achieve compliance
within the grace period afforded by Treasury Regulation (S) 1.817-5.
3.8 Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
maintain such qualification (under Subchapter M or any successor or similar
provision) and that it will notify Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
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3.9 Fund represents and warrants that the investment policies, fees
and expenses of the Portfolios are and shall at all times remain in compliance
with applicable state investment laws as they may apply to the Portfolios. Fund
makes no representation as to whether any aspect of its operations (including,
but not limited to, fees and expenses and investment policies) complies with the
insurance laws and regulations of any state. Company shall inform Fund of any
restrictions imposed by state insurance laws that may become applicable to Fund
from time to time as a result of the Account's investment therein, but Company
shall not be responsible for informing Fund of any restrictions imposed by state
insurance laws that may become applicable to Fund from time to time solely as a
result of investments in the Fund by other insurance companies. If Fund, acting
reasonably and in good faith, determines that it is not in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Owners) to comply with such restrictions, Fund shall so inform Company, and
Fund and Company shall discuss alternative accommodations in the circumstances.
If Fund neither makes the determination stated in the previous sentence nor
determines that a material irreconcilable conflict exists pursuant to Section 7
of this Agreement, (i) to the extent feasible and consistent with market
conditions, Fund will adjust its investments to comply with the aforementioned
restrictions upon written notice from Company of such restrictions and proposed
9
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adjustments, it being agreed and understood that in any such case Fund will be
allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustments, and (ii) if amendment of this
Agreement is deemed reasonably necessary by Company, Fund and Company shall
negotiate in good faith to amend this Agreement to reflect such restrictions.
3.10 Adviser represents and warrants that it is and will remain duly
registered under all applicable federal and state securities laws and that it
will perform its obligations for Fund in accordance in all material respects
with the laws of the State of California and any applicable state and federal
securities laws.
3.11 All parties hereto represent and warrant to each other that all
of their directors, trustees officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of Fund in an amount not less than the amount required
by the applicable rules of the NASD and the federal securities laws. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. All parties hereto agree to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and each agrees to
10
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notify promptly the other parties hereto in the event that such coverage no
longer applies.
3.12 Company agrees not to solicit or cause to be solicited directly,
or indirectly at any time in the future, any proxies from the Owners in
opposition to proxies solicited by management of Fund, unless a court of
competent jurisdiction shall have determined that the conduct of a majority of
the Board constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties. This Section 3.12 will survive the term of
this Agreement.
4. Sales Material and Information
------------------------------
4.1 Company will furnish or cause to be furnished, to Fund or
Adviser, each piece of sales literature or other promotional material in which
Fund or Adviser is named, (i) if such sales literature or other promotional
material is to be distributed only to broker-dealers that are selling the
Contracts and not to the general public, at least four (4) Business Days prior
to its use, and (ii) in the case of all other sales literature or other
promotional material, at least ten (10) days prior to its use. No such material
will be used if Fund or Adviser reasonably objects to such use within, (x) in
the case of sales material specified in clause (i) above, two (2) Business Days
after receipt of such material, and (y) in the case of sales material specified
in clause (ii) above, five (5) Business Days after receipt of such material.
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4.2 Company shall not give any information or make any material
representations or statements on behalf of or concerning the Adviser or the Fund
other than the information or representations contained in: (a) a registration
statement or prospectus for Fund shares, as amended or supplemented from time to
time; (b) reports or proxy statements for Fund; (c) published reports for Fund
which are in the public domain or are approved by Fund or Adviser; or (d) sales
literature or other promotional material provided by or approved by Fund or
Adviser; except with permission of Fund or Adviser. Fund and Adviser agree to
respond to any request for approval on a prompt and timely basis.
4.3 Fund or Adviser will furnish, or will cause to be furnished, to
Company or its designee, each piece of sales literature or other promotional
material in which Company or the Account is named, at least ten (10) Business
Days prior to its use. No such material will be used if Company reasonably
objects to such use within five (5) Business Days after receipt of such
material.
4.4 Adviser or the Fund shall not give any information or make any
material representations or statements on behalf of or concerning Company other
than the information or representations contained in: (a) a registration
statement or prospectus for the Contracts, as amended or supplemented from time
to time; (b) published reports or statements of the Contracts or the Account
which are in the public domain or are approved by Company; or (c) sales
literature or other
12
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promotional material provided or approved by Company; except with permission of
Company. Company agrees to respond to any request for approval on a prompt and
timely basis.
4.5 The sales literature and promotional material described in
Sections 4.1 and 4.3, and the requests for approval described in Sections 4.2
and 4.4, shall be sent by the parties via facsimile or overnight delivery
service.
4.6 No Party shall use any other Party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior consent of
such Party.
4.7 Fund will provide to Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above, that
relate to Fund or its shares, in final form as filed with the SEC, NASD and
other regulatory authorities. If requested by Company in lieu thereof, Fund
shall provide such documentation (including a final copy of the current
prospectus set in type at Fund's expense) and other assistance as is reasonably
necessary in order for Company once each year (or more frequently if the
prospectus for Fund is amended more frequently) to have the prospectus for the
Contracts and Fund's prospectus printed together in one document, in which case
Fund will pay its share of reasonable expenses directly related to the required
disclosure of
13
<PAGE>
information concerning Fund. Fund agrees to notify Company of material changes
in the management of Fund within a reasonable time prior to any such change
becoming effective.
4.8 Company will provide to Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters and all amendments to any of the above, that relate to the Fund and the
Contracts, in final form as filed with the SEC, NASD and other regulatory
authorities. Company agrees to notify Fund of material changes in the
management of the Contracts within a reasonable time prior to any such changes
becoming effective.
4.9 For purposes of this Section 4, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures or other public media, i.e., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature or published article),
14
<PAGE>
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act. Such phrase
shall be construed in accordance with all applicable securities laws and
regulations.
4.10 To the extent required by applicable law, including the administrative
requirements of regulatory authorities, or as mutually agreed between Company
and Adviser, Company reserves the right to modify any of the Contracts in any
respect whatsoever. Company reserves the right in its sole discretion to
suspend the sale of any of the Contracts, in whole or in part, or to accept or
reject any application for the sale of a Contract, provided that any such
suspension is temporary. Company agrees to notify the other Parties promptly
upon the occurrence of any event Company believes might necessitate a material
modification or suspension.
4.11 The Parties agree to review the prospectuses for the Contracts and the
Fund during the first calendar quarter of each year for possible changes and
will make their personnel reasonably available to discuss such possible changes.
4.12 At the request of any Party, each other Party will make available to
the requesting Party's independent auditors
15
<PAGE>
and or representative of the appropriate regulatory agencies, all records, data
and access to operating procedures that may be reasonably requested in
connection with compliance and regulatory requirements related to this Agreement
or to any Party's obligations under this Agreement.
5. Fees and Expenses
5.1 Fund shall bear the cost of registration and qualification of Fund's
shares; preparation and filing of Fund's prospectus and registration statement,
proxy materials and reports including postage; preparation of all other
statements and notices relating to Fund required by any federal or state law;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to Fund; all taxes on the issuance or transfer of
Fund's shares; and any expenses permitted to be paid or assumed by Fund pursuant
to a plan, if any, under Rule 12b-1 under the 1940 Act.
5.2 Fund will pay no fee or other compensation to Company under this
Agreement, except as provided below: (a) If Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses, then, subject to obtaining any required exemptive orders
or other regulatory approvals, Fund may make payments to Company or to the
underwriter for the Contracts if and in such amounts as agreed to by Fund in
writing; and (b) Fund may pay fees to Company for services provided to Owners
that are not primarily intended to result
16
<PAGE>
in the sale of shares of the Portfolios or of underlying contracts.
5.3 Company shall see to it that the Contracts are registered under the
1933 Act, and that the Account is registered as a unit investment trust in
accordance with the 1940 Act. Company shall bear the expenses for the costs of
preparation and filing of Company's prospectus and registration statement with
respect to the Contracts; preparation of all other statements and notices
relating to the Account or the Contracts required by any federal or state law;
expenses for the solicitation and sale of the Contracts, including all costs of
printing and distributing all copies of advertisements, prospectuses, Statements
of Additional Information, proxy materials, and reports to Owners or potential
purchasers of the Contracts as required by applicable state and federal law;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Contracts; all costs of drafting, filing and
obtaining approvals of the Contracts in the various states under applicable
insurance laws; filing of annual reports on form N-SAR, and all other costs
associated with ongoing compliance with all such laws and its obligations
hereunder.
6. Indemnification
6.1 Indemnification By Company
6.1(a) Company agrees to indemnify and hold harmless Fund and Adviser
and each of their directors,
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trustees and officers, and each person, if any, who controls any of them within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.1) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of Company) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature or other
promotional material for the Contracts or contained in the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this Section 6.1(a) shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to Company by or on behalf
of Fund
18
<PAGE>
or Adviser for use in the registration statement or prospectus
for the Contracts or in the Contracts or in sales literature (or
any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature or other promotional material of Fund, not supplied by
Company or persons under its control) or wrongful conduct of
Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature or other promotional
material of Fund (or any amendment or supplement to any of the
foregoing), or the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to
make the statements therein not misleading, if such a statement
or omission was made in
19
<PAGE>
reliance upon information furnished to Fund or to Adviser by or
on behalf of Company; or
(iv) arise out of, or as a result of, any failure by
Company or persons under its control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of
any representation and/or warranty made by Company or persons
under its control in this Agreement or arise out of or result
from any other material breach of this Agreement by Company or
persons under its control;
as limited by and in accordance with the provisions of sections 6.1(b) and
6.1(c) hereof.
6.1(b) Company shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
Fund.
6.1(c) Company shall not be liable under this indemnification provision
with respect to any claim made
20
<PAGE>
against an Indemnified Party unless such Indemnified Party shall have notified
Company in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify
Company of any such claim shall not relieve Company from any liability which it
may have to the Indemnified Party otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, Company shall be entitled to participate, at its own
expense, in the defense of such action. Company also shall be entitled to assume
and to control the defense thereof, with counsel reasonably satisfactory to the
Party named in the action. After notice from Company to such Party of Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and Company will not
be liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
6.1(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of Fund shares or the Contracts or the operation of Fund.
21
<PAGE>
6.2 Indemnification by Adviser
6.2(a) Adviser agrees to indemnify and hold harmless Company and each
of its directors and officers and each person, if any, who controls Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of Adviser) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature or other
promotional material of Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this Section 6.2(a) shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information
22
<PAGE>
furnished to Fund or Adviser by or on behalf of Company for use
in the registration statement or prospectus for Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature or other promotional material for the Contracts, not
supplied by Adviser or Fund, or persons under their control) or
wrongful conduct of Adviser or Fund or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any
of the foregoing), or the omission or alleged omission to state
therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, if
23
<PAGE>
such statement or omission was made in reliance upon information
furnished to Company by or on behalf of Fund or Adviser; or
(iv) arise out of, or as a result of, any failure by
Adviser, Fund or persons under their control to provide the
services and furnish the materials contemplated under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Adviser, Fund or persons
under their control in this Agreement or arise out of or result
from any other material breach of this Agreement by Adviser, Fund
or persons under their control;
as limited by and in accordance with the provisions of Sections 6.2(b) and
6.2(c) hereof.
6.2(b) Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
Company or the Account.
24
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6.2(c) Adviser shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified Adviser in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify Adviser of any such claim shall not
relieve Adviser from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Adviser will be entitled to
participate, at its own expense, in the defense thereof, with counsel reasonably
satisfactory to the Party named in the action. Adviser also shall be entitled
to assume and to control the defense thereof. After notice from Adviser to such
Party of Adviser's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
6.2(d) The Indemnified Parties will promptly notify Adviser of the
commencement of any litigation or proceedings
25
<PAGE>
against them in connection with the issuance or sale of the Contracts or the
operation of the Account.
6.3 Indemnification by Fund
6.3(a) Fund agrees to indemnify and hold harmless Company and each of
its directors and officers and each person, if any, who controls Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, and:
(i) arise out of, or as a result of, any failure by Fund
to provide the services and furnish the materials contemplated
under the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with the
diversification requirements specified in Section 3.7 of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by Fund or persons under its control;
26
<PAGE>
as limited by and in accordance with the provisions of Sections 6.3(b) and
6.3(c) hereof.
6.3(b) Fund shall not be liable under this indemnification provision with
respect to any losses, claims, expenses, damages, liabilities or litigation to
which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations and duties under this Agreement or
to Company or the Account.
6.3(c) Fund shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified Fund in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Fund of any such claim shall not relieve Fund from
any liability which it may have to the Indemnified Party otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, Fund will be entitled to participate, at its
own expense, in the defense thereof. Fund also shall be entitled to assume and
to control the defense thereof, with counsel reasonably
27
<PAGE>
satisfactory to the Party named in the action. After notice from Fund to such
Party of Fund's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
6.3(d) The Indemnified Parties will promptly notify Fund of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
7. Potential Conflicts
7.1 The Board will monitor Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretive letter, or any similar action by insurance,
tax or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable
28
<PAGE>
life insurance contract owners or by contract owners of different insurers which
have entered into participation agreements similar to this Agreement
("Participating Insurance Companies"); or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform Company if it determines that an irreconcilable material conflict exists
and the implications thereof.
7.2 Company will report any potential or existing conflicts of which it is
aware to the Board. Company will assist the Board in carrying out its
responsibilities under any applicable provisions of the federal securities laws
and/or the Exemptive Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This
includes, but is not limited to, an obligation by Company to inform the Board
whenever Owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, Company
and other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a
29
<PAGE>
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e. variable annuity contract
owners or variable insurance contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account.
7.4 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Company conflicts with the
majority of other state insurance regulators, then Company will withdraw the
affected Account's investment in Fund and terminate this Agreement with respect
to such Account within six (6) months after the Board informs the Company in
writing that it has determined that such decision has created a material
irreconcilable conflict; provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Adviser and Fund shall, to
the extent permitted by law and any exemptive relief previously granted to Fund,
continue to
30
<PAGE>
accept and implement orders by Company for the purchase (and redemption) of
shares of Fund.
7.5 If a material irreconcilable conflict arises because of a decision by
Company to disregard Owner voting instructions and that decision represents a
minority position or would preclude a majority vote, Company may be required, at
Fund's election, to withdraw the Account's investment in Fund and terminate this
Agreement; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested trustees. Any such withdrawal
and termination must take place within six (6) months after Fund gives written
notice to Company that this provision is being implemented. Until the end of
the foregoing six (6) month period Fund shall, to the extent permitted by law
and any exemptive relief previously granted to Fund, continue to accept and
implement orders by Company for the purchase (and redemption) of shares of Fund.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will Fund be required to establish a new funding medium for the Contracts. The
Company shall not be required by Section 7.3 to establish a new funding medium
for the Contracts if an offer to do so has been declined by vote of a
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<PAGE>
majority of Owners affected by the material irreconcilable conflict. In the
event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then Company will withdraw the
Account's investment in Fund and terminate this Agreement within six (6) months
after the Board informs Company in writing of the foregoing determination,
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined by a
majority of the disinterested trustees.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then (a) the Fund and/or the
Company or other Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and
(b) Sections 2.2, 2.3, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
7.8 Company shall at least annually submit to the Board such reports,
materials or data as Board may reasonably
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request so that Board may fully carry out the duties imposed on it as delineated
in the Exemptive Order, and said reports, materials and data shall be submitted
more frequently if deemed appropriate by the Board.
8. Term and Termination
8.1 The initial term of this Agreement shall be from November 15, 1996
through November 14, 1999. Unless terminated upon thirty (30) days' prior
written notice to the other Parties, this Agreement shall thereafter
automatically renew from year to year, provided that any Party may terminate
this Agreement without cause following the initial term upon six (6) months'
advance written notice to the other.
8.2 Notwithstanding any other provision of this Agreement, Adviser or Fund
may terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to Company, unless Company has cured such cause within thirty
(30) days of receiving such notice, for any material breach by Company of any
representation, warranty, covenant or obligation hereunder.
8.3 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to Adviser and Fund unless Adviser or Fund has cured such cause
within thirty (30) days of receiving such notice, for any material breach by
Adviser or Fund of any representation, warranty, covenant or obligation
hereunder.
33
<PAGE>
8.4 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio based upon the Company's good faith determination
that shares of such Portfolio are not reasonably available to meet the
requirements of the Contracts.
8.5 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
securities law or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by Company.
8.6 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio in the event that such Portfolio ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if Company reasonably and in good faith
believes that Fund may fail to so qualify.
8.7 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Section 3.7.
34
<PAGE>
8.8 Notwithstanding any other provision of this Agreement, Fund or Adviser
may terminate this Agreement upon receipt of either's written notice by Company,
if either one or both shall determine, in their sole judgment exercised in good
faith, that Company has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity, or if formal proceedings against
Company have been instituted by the NASD, SEC or any state securities or
insurance department or any other regulatory body regarding Company's duties
under this Agreement or related to the sale of the Contracts, the administration
of the Contracts, the operation of the Account or the purchase of Fund shares;
provided, however, that Fund determines in its sole judgment exercised in good
faith, that any such administrative proceedings will have a material adverse
effect upon the ability of Company to perform its obligations under this
Agreement.
8.9 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser,
if Company shall determine, in its sole judgment exercised in good faith, that
either Fund or Adviser has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity, or if formal proceedings against
Fund or Adviser have been instituted by the NASD, SEC or any
35
<PAGE>
state securities or insurance department or any other regulatory body; provided,
however, that Company determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a material adverse effect
upon the ability of Fund or Adviser to perform its obligations under this
Agreement.
8.10 Notwithstanding any other provision of this Agreement, Fund or Adviser
may terminate this Agreement upon receipt of either's written notice by Company
in the event that any of the Contracts are not registered, issued, sold or
administered in accordance with applicable state and/or federal law ("Non-
Complying Contracts").
8.11 Notwithstanding the termination of this Agreement, Fund shall continue
to make Fund shares available to the extent necessary to permit Owners under all
Contracts in effect on the effective date of such termination ("Existing
Contracts") to reallocate investments in the Portfolios (as in effect on such
date, redeem investments in the Portfolios) and/or invest in the Portfolios upon
the making of additional purchase payments under the Existing Contracts.
Existing Contracts shall not include Non-Complying Contracts, if any. In the
event that Fund terminates this Agreement, Fund shall promptly notify Company
whether Fund is electing to make Fund shares available after termination for
Non-Complying Contracts (or a class thereof). The Parties agree that this
Section 8.11 shall not apply to any terminations under
36
<PAGE>
Article 7 and the effect of such Article 7 terminations shall be governed by
Article 7 of this Agreement.
9. Notices
Any notice shall be deemed sufficiently given when sent by registered or
certified mail to the other Parties at the address of such Party set forth below
or at such other address as such Party may from time to time specify in writing
to the other Party.
If to Fund:
Montgomery Funds III
600 Montgomery Street
San Francisco, California 94111
Attention: John Story, Executive Vice President
If to Adviser:
Montgomery Asset Management, L.P.
600 Montgomery Street
San Francisco, California 94111
Attention: John Story, Executive Vice President
If to Company:
Michael Lane
Providian Corporation
400 West Market Street
Louisville, Kentucky 40202
With a copy to:
Marketing Director
First Providian Life and Health Insurance Company
520 Columbia Drive
Johnson City, New York 13790
37
<PAGE>
10. Miscellaneous
10.1 The captions in this Agreement are included for convenience of
reference only and in no way affect the construction or effect of any provisions
hereof.
10.2 If any portion of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 Each Party shall cooperate with each other Party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance and securities regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement.
10.5 Each Party hereto grants to the other the right to audit its records
relating to the terms and conditions of this Agreement upon reasonable notice
during reasonable business hours in order to confirm compliance with this
Agreement.
10.6 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the Parties hereto are entitled to under state and
federal laws.
38
<PAGE>
10.7 Subject to the requirements of legal process and regulatory
authority, Fund and Adviser shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by Company hereto and, except as permitted by this
Agreement, shall not disclose, disseminate or utilize such names and addresses
and other confidential information without the express written consent of
Company until such time as it may come into the public domain.
10.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any Party without the prior written consent of all Parties
hereto.
10.9 In any dispute arising hereunder, each Party waives its right to
demand a trial by jury and hereby consents to a bench trial of all such
disputes.
10.10 The terms of this Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of Kentucky; provided,
however, that all performances rendered hereunder shall be subject to compliance
with all applicable state and federal laws and regulations.
10.11 Sections 1, 2, 3, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 6,
7.4, 7.5 8, 9 and 11 hereof shall survive termination of this Agreement.
10.12 Company is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of Fund and agrees that the
obligations assumed by
39
<PAGE>
Fund with respect to any single Portfolio pursuant to this Agreement shall be
limited in any case to assets of such Portfolio and Fund and that Company shall
not seek satisfaction of any such obligation from other Portfolios of Fund, the
shareholders of Fund or Adviser, the trustees, officers, employees or agents of
Fund or Adviser, or any of them.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date first set forth above.
Company:
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY
By: /s/ Gregory J. Garvin
----------------------------
Gregory J. Garvin
Fund:
MONTGOMERY FUNDS III
By: /s/ John Story
----------------------------
John Story
Fund Adviser:
MONTGOMERY ASSET MANAGEMENT, L.P.
By: /s/ John Story
----------------------------
John Story
40
<PAGE>
SCHEDULE 1.1
Montgomery Growth Portfolio
Montgomery Emerging Markets Portfolio
<PAGE>
EXHIBIT 9(a)
[LETTERHEAD FOR PROVIDIAN]
July 24, 1997
First Providian Life and Health Insurance Company
Administrative Offices
520 Columbia Drive
Johnson City, New York 13790
RE: First Providian Life and Health Insurance Company Separate Account C--
Opinion and Consent
To Whom It May Concern:
This opinion and consent is furnished in connection with the filing of
Post-Effective Amendment No. 2 (the "Amendment") to the Registration Statement
on Form N-4, File No. 33-94204 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act"), of First Providian Life and
Health Insurance Company Separate Account C ("Separate Account C"). Separate
Account C receives and invests premiums allocated to it under a flexible premium
multi-funded annuity contract (the "Annuity Contract"). The Annuity Contract is
offered in the manner described in the prospectus contained in the Registration
Statement (the "Prospectus").
In my capacity as legal adviser to First Providian Life and Health
Insurance Company, I hereby confirm the establishment of Separate Account C
pursuant to a resolution adopted by the Board of Directors of First Providian
Life and Health Insurance Company for a separate account for assets applicable
to the Annuity Contract, pursuant to the provisions of Section 46 of the New
York 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. First Providian Life and Health Insurance Company is a corporation duly
organized and validly existing under the laws of the State of New York.
2. Separate Account C is an account established and maintained by First
Providian Life and Health Insurance Company pursuant to the laws of the
State of New York, under which income, capital gains and capital losses
incurred on the assets of Separate Account C are credited to or charged
against the assets of Separate Account C, without regard to the income,
capital gains or capital losses arising out of any other business which
First Providian Life and Health Insurance Company may conduct.
<PAGE>
3. Assets allocated to Separate Account C will be owned by First Providian
Life and Health Insurance Company. The assets in Separate Account C
attributable to the Annuity Contract generally are not chargeable with
liabilities arising out of any other business which First Providian Life
and Health Insurance Company may conduct. The assets of Separate Account C
are available to cover the general liabilities of First Providian Life and
Health Insurance Company only to the extent that the assets of Separate
Account C exceed the liabilities arising under the Annuity Contracts.
4. The Annuity Contracts have been duly authorized by First 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 First 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 First Providian Life and
Health Insurance Company other than those provided in the Annuity Contract.
I hereby consent to the use of this opinion as an exhibit to the Amendment
and to the reference to my name under the heading "Legal Matters" in the
Prospectus.
Very truly yours,
/s/ Kimberly A. Scouller
Kimberly A. Scouller
Assistant General Counsel
<PAGE>
Exhibit 9(b)
July 28, 1997
First Providian Life and Health
Insurance Company
20 Moores Road
Frazer, Pennsylvania 19355
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Prospectus contained in Post-Effective Amendment No. 2 to the
Registration Statement (File No. 33-94204) filed on the date hereof by First
Providian Life and Health Insurance Company and First Providian Life and Health
Insurance Company Separate Account C with the Securities and Exchange Commission
under the Securities Act of 1933.
Very truly yours,
JORDEN BURT BERENSON
& JOHNSON LLP
By: /s/ Jorden Burt Berenson & Johnson LLP
--------------------------------------
<PAGE>
Exhibit No. (10)
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Auditors" and to the
use of our report dated April 25, 1997, with respect to the statutory-basis
financial statements of First Providian Life and Health Insurance Company in
Post-Effective Amendment No. 2 to the Registration Statement (Form N-4 No.
33-94204) and related Prospectuses of First Providian Life and Health Insurance
Company Separate Account C - Advisor's Edge, First Providian Life and Health
Insurance Company Separate Account C - Dimensional Variable Annuity, and First
Providian Life and Health Insurance Company Separate Account C - P6A Retirement
Annuity.
/s/Ernst & Young LLP
Louisville, Kentucky
July 23, 1997
