<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION FILE NO. 333-
811-4460
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
------------------------
PROVIDENT MUTUAL VARIABLE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE AGGRESSIVE GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE INTERNATIONAL SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE SEPARATE ACCOUNT
(EXACT NAME OF TRUST)
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
(NAME OF DEPOSITOR)
1050 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
(COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
JAMES G. POTTER, JR., ESQ.
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1050 WESTLAKES DRIVE
BERWYN, PENNSYLVANIA 19312
(NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE)
COPY TO:
DAVID S. GOLDSTEIN, ESQ.
SUTHERLAND ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004-2404
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
TITLE OF SECURITIES BEING OFFERED: Flexible Premium Adjustable Variable
Life Insurance Policies.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PROSPECTUS
FOR
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE
LIFE INSURANCE
ISSUED BY
PROVfirst AMERICA LIFE INSURANCE COMPANY
PROVfirst AMERICA LIFE INSURANCE COMPANY
<PAGE> 3
PROSPECTUS
FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE POLICY
ISSUED BY
PROVFIRST AMERICA LIFE INSURANCE COMPANY
SERVICE CENTER: 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19173
CORPORATE HEADQUARTERS: 1050 WESTLAKES DRIVE, BERWYN, PENNSYLVANIA 19312
TELEPHONE: (302) 452-4000
This Prospectus describes a flexible premium adjustable variable life
insurance policy (the "Policy") offered by Provfirst America Life Insurance
Company ("Provfirst Life"). The Policy has an insurance component and an
investment component. The primary purpose of the Policy is to provide insurance
coverage for the lifetime of the insured. The Policy gives the policyowner (the
"Owner") the right to vary the frequency and amount of premium payments, to
choose among investment alternatives with different investment objectives and to
increase or decrease the death benefit payable under the Policy.
After certain deductions are made, Net Premiums are allocated to one or
more of the Separate Accounts, or the Guaranteed Account, or both. The six
Separate Accounts presently available are: Provfirst Life Variable Growth
Separate Account, Provfirst Life Variable Money Market Separate Account,
Provfirst Life Variable Bond Separate Account, Provfirst Life Variable
Aggressive Growth Separate Account, Provfirst Life Variable International
Separate Account, and Provfirst Life Variable Separate Account. Provfirst Life
Variable Separate Account has twenty-two subaccounts (the "Subaccounts"), the
assets of which are used to purchase shares of a designated corresponding
investment Portfolio that is part of one of the following mutual fund companies:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
NEUBERGER BERMAN
THE MARKET STREET FUND, INC. ADVISERS MANAGEMENT TRUST
- --------------------------------------------------------------------------------------
<S> <C>
- Aggressive Growth Portfolio - Limited Maturity Bond Portfolio
- All-Pro Large Cap Growth Portfolio - Partners Portfolio
- All-Pro Large Cap Value Portfolio
- All-Pro Small Cap Growth Portfolio
- All-Pro Small Cap Value Portfolio
- Bond Portfolio
- Growth Portfolio
- International Portfolio
- Managed Portfolio
- Money Market Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
THE ALGER AMERICAN FUND PRODUCTS FUND
- --------------------------------------------------------------------------------------
<S> <C>
- Small Capitalization Portfolio - Equity-Income Portfolio
- Growth Portfolio
- High Income Portfolio
- Overseas Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
VARIABLE INSURANCE
VAN ECK WORLDWIDE INSURANCE TRUST PRODUCTS FUND II
- --------------------------------------------------------------------------------------
<S> <C>
- Worldwide Bond Portfolio - Asset Manager Portfolio
- Worldwide Emerging Markets Portfolio - Contrafund Portfolio
- Worldwide Hard Assets Portfolio - Index 500 Portfolio
- Worldwide Real Estate Portfolio
- --------------------------------------------------------------------------------------
</TABLE>
The Owner bears the entire investment risk for all amounts allocated to the
Separate Accounts; there is no guaranteed minimum value for the Separate
Accounts.
The accompanying prospectuses for the funds describe the investment
objectives and the attendant risks of the Portfolios. The Policy Account Value
will reflect monthly deductions and certain other fees and charges. Also, a
surrender charge may be imposed if, during the first 12 policy years or within
12 years after a Face Amount increase, the Policy lapses or if the Owner
decreases the Face Amount. Generally, during the first five policy years, the
Policy will remain in force as long as the Minimum Guarantee Premium is paid or
there is sufficient value in the Policy to pay certain monthly charges imposed
under the Policy. After the fifth Policy Year, the Policy will only remain in
force if there is sufficient value to pay the monthly deductions and other
charges under the Policy.
This Prospectus must be accompanied or preceded by current prospectuses for
the funds. Please read this Prospectus carefully and retain it for future
reference.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
February , 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF THE POLICY
The Policy................................................ 3
Purpose of the Policy..................................... 3
The Death Benefit......................................... 3
Flexibility to Adjust Amount of Death Benefit............. 4
Policy Account Value...................................... 4
Allocation of Net Premiums................................ 4
Transfers................................................. 5
Free-Look................................................. 5
Charges Assessed Under the Policy......................... 5
Loan Privilege............................................ 7
Partial Withdrawal of Net Cash Surrender Value............ 7
Surrender of the Policy................................... 7
Accelerated Death Benefit................................. 7
Tax Treatment............................................. 7
Illustrations............................................. 8
Table of Fund Fees and Expenses........................... 9
The Company, Separate Accounts and Funds.................... 11
Provfirst America Life Insurance Company.................. 11
The Separate Accounts..................................... 11
The Funds................................................. 12
Market Street Fund, Inc................................... 12
The Alger American Fund................................... 14
Variable Insurance Products Fund and Variable Insurance
Products Fund II....................................... 14
Neuberger Berman Advisers Management Trust................ 17
Van Eck Worldwide Insurance Trust......................... 17
Additional Information About the Funds and Portfolios..... 18
Detailed Description of Policy Provisions................... 20
Death Benefit............................................. 20
Ability to Adjust Face Amount............................. 22
Insurance Protection...................................... 23
Payment and Allocation of Premiums........................ 23
Special Policy Account Value Credit....................... 25
Policy Account Value...................................... 25
Policy Duration........................................... 26
Transfers of Policy Account Value......................... 27
Free-Look Privileges...................................... 28
Loan Privileges........................................... 29
Surrender Privilege....................................... 30
Partial Withdrawal Privilege.............................. 30
Accelerated Death Benefit................................. 32
Charges and Deductions...................................... 34
Premium Expense Charge.................................... 34
Surrender Charges......................................... 34
Monthly Deductions........................................ 36
Face Amount Increase Charge............................... 37
Partial Withdrawal Charge................................. 37
Transfer Charge........................................... 37
Mortality and Expense Risk Charge......................... 37
Other Charges............................................. 38
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Guaranteed Account...................................... 39
Minimum Guaranteed and Current Interest Rates............. 39
Transfers from Guaranteed Account......................... 40
Other Policy Provisions..................................... 41
Benefit Payable on Final Policy Date...................... 41
Payment of Policy Benefits................................ 41
The Policy................................................ 41
Ownership................................................. 42
Beneficiary............................................... 42
Change of Owner and Beneficiary........................... 42
Split Dollar Arrangements................................. 42
Assignments............................................... 42
Misstatement of Age and Sex............................... 43
Suicide................................................... 43
Contestability............................................ 43
Settlement Options........................................ 43
Supplementary Benefits...................................... 43
Federal Income Tax Considerations........................... 45
Introduction.............................................. 45
Tax Status of the Policy.................................. 45
Tax Treatment of Policy Benefits.......................... 45
Special Rules for Pension and Profit-Sharing Plans........ 47
Business Uses of the Policy............................... 47
Possible Tax Law Changes.................................. 47
Provfirst Life's Taxes.................................... 47
Policies Issued in Conjunction with Employee Benefit
Plans..................................................... 47
Legal Developments Regarding Unisex Actuarial Tables........ 48
Voting Rights............................................... 48
Changes to the Separate Accounts of Funds................... 49
Changes to Separate Account Operations.................... 49
Changes to Available Portfolios........................... 49
Termination of Participation Agreements................... 49
Officers and Directors of Provfirst Life.................... 51
Distribution of Policies.................................... 52
Policy Reports.............................................. 53
Preparing for Year 2000..................................... 53
State Regulation............................................ 54
Legal Proceedings........................................... 54
Experts..................................................... 54
Legal Matters............................................... 54
Definitions................................................. 55
Appendix A -- Illustration of Death Benefits, Policy Account
Values and Net Cash Surrender Values.......... A-1
Appendix B -- Long Term Market Trends....................... B-1
Financial Statements........................................ F-1
Appendix C -- Plan of Conversion............................ A-1
</TABLE>
<PAGE> 6
SUMMARY OF THE POLICY
The following summary of the Policy provisions should be read in
conjunction with the detailed information appearing elsewhere in this
Prospectus. Unless otherwise indicated, the description of the Policy in this
prospectus assumes that the Insured is alive, the Policy is in force and there
is no outstanding loan.
The Policy is not a deposit or obligation of any bank, and no bank endorses
or guarantees the Policy or Policy values. Neither the Federal Deposit Insurance
Corporation nor any federal agency insures or guarantees Policy values or your
investment in the Policy.
THE POLICY
The Flexible Premium Adjustable Variable Life Insurance Policy (the
"Policy") offered by this Prospectus is issued by Provfirst America Life
Insurance Company ("Provfirst Life"). The Policy is similar in many ways to a
fixed-benefit life insurance policy. As with a fixed-benefit life insurance
policy, the Owner of a Policy makes premium payments in return for insurance
coverage on the person insured. Also, like many fixed-benefit life insurance
policies, the Policy provides for accumulation of Net Premiums and a Net Cash
Surrender Value which is payable if the Policy is surrendered during the
Insured's lifetime. As with many fixed-benefit life insurance policies, the Net
Cash Surrender Value during the early Policy Years is likely to be substantially
lower than the aggregate premium payments made.
However, the Policy differs from a fixed-benefit life insurance policy in
several important respects. Unlike a fixed-benefit life insurance policy, under
the Policy, the Death Benefit may, and the Policy Account Value will, increase
or decrease to reflect the investment performance of any Separate Accounts or
Subaccounts to which Policy Account Value is allocated. Also, unless the entire
Policy Account Value is allocated to the Guaranteed Account, there is no
guaranteed minimum Net Cash Surrender Value. If Net Cash Surrender Value is
insufficient to pay charges due, then, after a grace period, the Policy will
Lapse without value. (See "Policy Duration".) However, Provfirst Life guarantees
that the Policy will remain in force during the first five Policy Years as long
as certain requirements related to the Minimum Guarantee Premium have been met.
(See "Policy Lapse.") If a Policy Lapses while loans are outstanding, certain
amounts may become subject to income tax and a 10% penalty tax. (See "Federal
Income Tax Considerations.")
The Policy is called "flexible premium" because there is no fixed schedule
for premium payments, even though the Owner may establish a schedule of Planned
Periodic Premiums. The Policy is described as "adjustable" because the Owner
may, within limits, increase or decrease the Face Amount and may change the
Death Benefit Option.
The most important features of the Policy, such as charges and deductions,
Death Benefits, and calculation of Policy values, are summarized on the
following pages.
PURPOSE OF THE POLICY
The Policy is designed to provide lifetime insurance benefits and long-term
investment of Policy Account Value. A prospective Owner should evaluate the
Policy along with other insurance coverage that he or she may have, as well as
their need for insurance and the Policy's long-term investment potential. It may
not be advantageous to replace existing insurance coverage with the Policy. In
particular, replacement should be carefully considered if the decision to
replace existing coverage is based solely on a comparison of Policy
illustrations.
THE DEATH BENEFIT
As long as the Policy remains in force, Provfirst Life will pay the
Insurance Proceeds to the Beneficiary upon receipt of due proof of the death of
the Insured. The Insurance Proceeds will consist of the Policy's Death Benefit,
plus any additional benefits provided by a supplementary benefit rider, less any
outstanding Policy loan and accrued interest, less any unpaid Monthly
Deductions.
3
<PAGE> 7
There are two Death Benefit Options available. Death Benefit Option A
provides Death Benefit equal to the greater of (a) the Face Amount and (b) the
specified percentage of the Policy Account Value. Death Benefit Option B
provides a Death Benefit equal to the greater of (a) the Face Amount plus the
Policy Account Value and (b) the specified percentage of the Policy Account
Value. (See "Death Benefit".)
FLEXIBILITY TO ADJUST AMOUNT OF DEATH BENEFIT
After the first Policy Year, the Owner has significant flexibility to
adjust the Death Benefit by changing the Death Benefit Option or by increasing
or decreasing the Face Amount of the Policy. (See "Death Benefit" and "Ability
to Adjust Face Amount".) The minimum amount of a requested increase in Face
Amount is $25,000 (or such lesser amount required in a particular state) and any
requested increase may require evidence of insurability. Any decrease in Face
Amount must be for at least $25,000 (or such lesser amount required in a
particular state) and cannot result in a Face Amount less than the Minimum Face
Amount available. Provfirst Life reserves the right to establish different
Minimum Face Amounts for Policies issued in the future.
Any change in Death Benefit Options or in the Face Amount may affect the
charges under the Policy. Any increase in the Face Amount will result in an
increase in the Monthly Deductions and any increase in Face Amount will also
increase the surrender charges which are imposed upon lapse or surrender of the
Policy or the pro-rata surrender charges imposed upon a decrease in Face Amount
within the relevant twelve-year period. For any decrease in Face Amount, that
part of the surrender charges attributable to the decrease will reduce the
Policy Account Value, and the surrender charges will be reduced by this amount.
A decrease in Face Amount may also affect cost of insurance charges. (See
"Monthly Deductions".)
To the extent that a requested decrease in Face Amount would result in
cumulative premiums exceeding the maximum premium limitations applicable under
the Internal Revenue Code of 1986 (the "Code") for life insurance, Provfirst
Life will not effect the decrease.
POLICY ACCOUNT VALUE
The Policy Account Value in the Separate Accounts or Subaccounts reflects
the investment performance of the chosen Separate Accounts or Subaccounts, any
Net Premiums allocated to those Separate Accounts or Subaccounts, any transfers
to or from those Separate Accounts or Subaccounts, any partial withdrawals from
those Separate Accounts or Subaccounts, any loans, any loan repayments, any loan
interest paid or credited and any charges assessed in connection with the
Policy. The Owner bears the entire investment risk for amounts allocated to the
Separate Accounts or Subaccounts.
The Guaranteed Account earns interest at rates Provfirst Life declares in
advance for specific periods. The rates are guaranteed to equal or exceed 4%.
The principal, after deductions, is also guaranteed. The value of the Guaranteed
Account will reflect any amounts allocated or transferred to it plus interest
credited to it, less amounts deducted, transferred or withdrawn from it. (See
"The Guaranteed Account".)
The Loan Account will reflect any amounts transferred from the Separate
Accounts, Subaccounts, and/or Guaranteed Account as collateral for Policy loans
plus interest of at least 4% credited to such amount. (See "Loan Privileges".)
ALLOCATION OF NET PREMIUMS
After deduction of the Premium Expense Charge, Net Premiums are allocated
to one or more of the Separate Accounts, Subaccounts and/or the Guaranteed
Account as selected by the Owner in the application or by subsequent written
notice. The Owner bears the entire risk of Policy Account Value in the Separate
Accounts and Subaccounts.
Each Separate Account (other than Provident Mutual Variable Separate
Account) uses its assets to purchase shares of a corresponding Portfolio of
Market Street Fund, Inc. Provident Mutual Variable
4
<PAGE> 8
Separate Account consists of twenty-two Subaccounts, the assets of which are
used to purchase shares of a designated corresponding mutual fund portfolio
(each, a "Portfolio") that is part of one of the following funds: The Market
Street Fund, Inc.; The Alger American Fund; Neuberger Berman Advisers Management
Trust; Van Eck Worldwide Insurance Trust; Variable Insurance Products Fund; and
Variable Insurance Products Fund II (the "Funds", each, a "Fund"). There is no
assurance that the investment objectives of a particular Portfolio will be met.
Where state law requires a return of premiums paid when a Policy is
returned under the Free-Look provision any portion of any Net Premiums received
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date Provfirst Life receives the Minimum Initial Premium,
which are to be allocated to the Separate Accounts will be allocated to the
Money Market Separate Account. At the end of the 15-day period, Policy Account
Value in the Money Market Separate Account is allocated to each of the chosen
Separate Accounts as indicated in the application. (See "Payment and Allocation
of Premiums".)
TRANSFERS
The Owner may make transfers of the amounts in the Separate Accounts,
Subaccounts and Guaranteed Account. Transfers between and among the Separate
Accounts (and/or Subaccounts) or into the Guaranteed Account are made as of the
date Provfirst Life receives the request. Provfirst Life requires a minimum
amount for each such transfer, usually $1,000. Transfers out of the Guaranteed
Account may only be made within 30 days of a Policy Anniversary and are limited
in amount. (See "Transfers of Policy Account Value".)
FREE-LOOK
The Policy provides for an initial Free-Look period. The Owner may cancel
the Policy before the later of: (a) 45 days after Part I of the Application for
the Policy is signed, and (b) 10 days after the Owner receives the Policy. Upon
returning the Policy to Provfirst Life or to an agent of Provfirst Life within
such time with a written request for cancellation, the Owner will receive a
refund equal to the sum of: (i) the Policy Account Value as of the date
Provfirst Life receives the returned Policy; (ii) the amount deducted for
premium taxes; (iii) any Monthly Deductions charged against the Policy Account
Value; and (iv) an amount reflecting other charges directly or indirectly
deducted under the Policy. Where state law requires, the refund will instead
equal the premiums paid. (See "Free-Look Privileges".)
A Free-Look privilege also applies after a requested increase in Face
Amount. (See "Free-Look For Increase in Face Amount".)
CHARGES ASSESSED UNDER THE POLICY
Premium Expense Charge. A Premium Charge will be deducted from each
premium payment. This charge consists of:
1. Premium Tax Charge for state and local premium taxes based on the
rate for the Insured's residence at the time the premium is paid. Provfirst
Life reserves the right to change the amount of the charge deducted from
future premiums if the Insured's residence changes or the applicable law is
changed;
2. Percent of Premium Charge equal to 1.5% of each premium payment.
Provfirst Life may increase this charge to a maximum of 3% of each premium
payment. (See "Premium Expense Charge" below.)
Monthly Deductions. On the Policy Date and on each Policy Processing Date
thereafter, the Policy Account Value is reduced by a Monthly Deduction equal to
the sum of the monthly Cost of Insurance Charge, Monthly Administrative Charge
and a charge for additional benefits added by rider and, on the first 12 Policy
Processing Days, the Initial Administrative Charge. The monthly Cost of
Insurance Charge is determined by multiplying the Net Amount at Risk by the
applicable cost of insurance rate(s) in the
5
<PAGE> 9
Policy. The Monthly Administrative Charge is currently $7.50; the maximum
permissible Monthly Administrative Charge is $12. (See "Monthly Administrative
Charge".) The Initial Administrative Charge is $5, deducted on the first 12
Policy Processing Days. (See "Initial Administrative Charge".)
Surrender Charge and Additional Surrender Charge. A Surrender Charge is
imposed if the Policy is surrendered or lapses at any time before the end of the
12th Policy Year. The Surrender Charge consists of a Deferred Administrative
Charge and a Deferred Sales Charge. A portion of this Surrender Charge will be
deducted if the Owner decreases the Initial Face Amount before the end of the
12th Policy Year. (See "Surrender Charges".) An Additional Surrender Charge
which consists of an Additional Deferred Sales Charge and an Additional Deferred
Administrative Charge, will be imposed if the Policy is surrendered or lapses at
any time within 12 years after the effective date of an increase in Face Amount.
(See "Surrender Charges".) A portion of an Additional Surrender Charge will be
deducted if the related increment of Face Amount is decreased within 12 years
after such increase took effect. (See "Surrender Charges".)
The Deferred Administrative Charge is equal to an amount per $1,000 of Face
Amount (shown below).
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR(S) OF FACE AMOUNT
- -------------- -----------------
<S> <C>
1-6.......................................... $4.90
7............................................ $4.20
8............................................ $3.50
9............................................ $2.80
10........................................... $2.10
11........................................... $1.40
12........................................... $0.70
13+.......................................... $ 0
</TABLE>
The Deferred Sales Charge is equal to 35% of all premiums paid to the date
of surrender, lapse or decrease. The Deferred Sales Charge and any Deferred
Additional Sales Charges, however, will not exceed the Maximum Deferred Sales
Charge and Maximum Deferred Additional Sales Charges, respectively. During
Policy Years one through six (or for six years following the effective date of
an increase in Face Amount), this maximum equals 70% of the Target Premium for
the Initial Face Amount (or 70% of the Target Premium for the increase, as the
case may be). The maximum declines to 60% of the relevant premium during the
seventh year, 50% during the eighth year, 40% during the ninth year, 30% during
the tenth year, 20% during the eleventh year, 10% during the twelfth year and 0%
during years thirteen and later. An Additional Deferred Administrative Charge is
associated with each increase in Face Amount. The Charge is the same as that for
the initial Face Amount except that the Charge grades down based on 12-month
periods (rather than Policy Years) beginning with the effective date of each
increase. The Additional Deferred Administrative Charge paid is the Charge as
described less amount of any such Charge previously paid at the time of a
decrease in Face Amount.
Face Amount Increase Charge. A charge, currently $100 plus $0.50 per
$1,000 Face Amount increase but not greater than $750, will be deducted from the
Policy Account Value on the effective date of an increase in Face Amount to
compensate Provfirst Life for administrative expenses in connection with the
increase. This charge may be increased in the future but in no event will it
exceed $100 plus $3.00 per $1,000 Face Amount increase. (See "Face Amount
Increase Charge" below.)
Transfer Charge. For each transfer of Policy Account Value between or
among the Separate Accounts (and/or Separate Accounts) and the Guaranteed
Account after the twelfth transfer in a Policy Year, Provfirst Life deducts $25
from the amount transferred to compensate it for administrative costs in
handling such transfers. (See "Transfer Charge" below.)
6
<PAGE> 10
Partial Withdrawal Charge. Provfirst Life deducts a $25 charge from Policy
Account Value with each partial withdrawal to compensate it for administrative
costs. (See "Partial Withdrawal Charge" below.)
Daily Charges Against the Separate Accounts. Provfirst Life imposes a
daily charge for its assumption of certain mortality and expense risks in
connection with the Policy at an annual rate which is currently 0.75% of the
average daily net assets of the Separate Accounts. This charge may be increased
in the future but it will not exceed an annual rate of 0.90%. (See "Mortality
and Expense Risk Charges".)
Shares of the Portfolios are purchased by the Separate Accounts and
Subaccounts at net value which reflects management fees and expenses deducted
from the assets of the Portfolios.
LOAN PRIVILEGE
The Owner may obtain Policy loans in a minimum amount of $500 (or such
lesser minimum as may be required in a particular state) but not exceeding, in
the aggregate, the Net Cash Surrender Value. Policy loans will bear interest at
a fixed rate of 6% per year, payable at the end of each Policy Year. If interest
is not paid when due, it will be added to the outstanding loan balance. Policy
loans may be repaid at any time and in any amount prior to the Final Policy
Date. Provfirst Life transfers Policy Account Value in an amount equal to the
loan to the Loan Account where it becomes collateral for the loan. The transfer
is made pro-rata from each Separate Account, Subaccount and the Guaranteed
Account or as specified by the Owner when applying for the loan. This collateral
in the Loan Account earns interest at an effective annual rate of at least 4%.
(See "Loan Privileges" below.)
Depending upon the investment performance of the Separate Accounts,
Subaccounts and the amounts borrowed, loans may cause a Policy to lapse. Lapse
of the Policy with outstanding loans may result in adverse tax consequences
including a 10% penalty tax. (See "Tax Treatment of Policy Benefits".)
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE
After the first Policy Year, the Owner may, subject to certain
restrictions, withdraw part of Net Cash Surrender Value. The minimum amount for
such withdrawal is $1,500. An expense charge of $25 will be deducted from the
Policy Account Value for each withdrawal. The withdrawal amount and expense
charge is allocated to the Separate Account, Subaccounts and the Guaranteed
Account based on the proportion that the value in each account bears to the
total unloaned Policy Account Value or allocated to such Separate Accounts and
Subaccounts as specified by the Owner. If Death Benefit Option A is in effect,
Provfirst Life will reduce the Face Amount by the amount of the withdrawal. (See
"Partial Withdrawal Privilege".)
SURRENDER OF THE POLICY
The Owner may at any time surrender the Policy and receive the entire Net
Cash Surrender Value. (See "Surrender Privilege".)
ACCELERATED DEATH BENEFIT
Under the Accelerated Death Benefit Rider, an Owner may receive, at his or
her request and upon approval by Provfirst Life, accelerated payment of part of
the Policy's Death Benefit if the Insured develops a Terminal Illness or is
permanently confined to a Nursing Care Facility (See "Accelerated Death Benefit"
below.)
TAX TREATMENT
Provfirst Life believes that a Policy issued on a standard premium class
basis generally should meet the definition of a life insurance contract in the
Code. There is insufficient guidance to determine whether or not a Policy issued
on an extra rating (i.e., substandard) basis would satisfy the Code definition
of a life insurance contract, particularly if the Owner pays the full amount of
premiums permitted under such a
7
<PAGE> 11
Policy. An Owner of a Policy issued on an extra rating basis may, however, adopt
certain self-imposed limitations on the amount of premiums paid for such a
Policy which should cause the Policy to meet the definition of a life insurance
contract. Any Owner contemplating the adoption of such limitations should
consult a tax adviser.
Assuming that a Policy qualifies as a life insurance contract for federal
income tax purposes, a Policyowner should not be deemed to be in constructive
receipt of Policy Account Value under a Policy until there is a distribution
from the Policy. Moreover, death benefits payable under a Policy should be
completely excludable from the gross income of the Beneficiary. As a result, the
Beneficiary generally should not be taxed on these proceeds. (See "Tax Status of
the Policy".)
Under certain circumstances, a Policy may be treated as a "Modified
Endowment Contract." If the Policy is a Modified Endowment Contract, then all
pre-death distributions, including Policy loans, will be treated first as a
distribution of taxable income and then as a return of basis or investment in
the Policy. In addition, prior to age 59 1/2 any such distributions generally
will be subject to a 10% penalty tax. (For further discussion of Modified
Endowment Contracts, See "Tax Treatment of Policy Benefits".)
If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of basis or investment in the contract and
then as disbursing taxable income. Moreover, loans will not be treated as
distributions. Finally, neither distributions nor loans from a Policy that is
not a Modified Endowment Contract are subject to the 10% penalty tax. (See
"Distributions from Policies Not Classified as Modified Endowment Contracts".)
ILLUSTRATIONS
Illustrations of Death Benefits, Policy Account Value and Net Cash
Surrender Value in this prospectus or used in connection with the purchase of a
Policy are based on hypothetical rates of return. These rates are not
guaranteed. They are illustrative only and should not be considered a
representation of past or future performance. Actual rates of return may be
higher or lower than those reflected in Policy illustrations, and therefore,
actual Policy values will be different from those illustrated.
8
<PAGE> 12
TABLE OF FUND FEES AND EXPENSES
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------- -------------- --------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ % % % % % %
Other Expenses..................... % % % % % %
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses......... % % % % % %
ALL-PRO ALL-PRO ALL-PRO ALL-PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
MARKET STREET FUND, INC. ANNUAL EXPENSES GROWTH VALUE GROWTH VALUE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ % % % %
Other Expenses..................... % % % %
---- ---- ---- ----
Total Fund Annual Expenses......... % % % %
THE ALGER AMERICAN FUND ANNUAL SMALL
EXPENSES(2) CAPITALIZATION
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO
------------------------------- ----
Management Fees (Investment Advisory
Fees)............................ %
Other Expenses..................... %
----
Total Fund Annual Expenses......... %
VARIABLE INSURANCE PRODUCTS FUND ("VIP HIGH EQUITY-
FUND") ANNUAL EXPENSES(2) INCOME INCOME GROWTH OVERSEAS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ % % % %
Other Expenses (after
reimbursement)(1)................ % % % %
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ % % % %
VARIABLE INSURANCE PRODUCTS FUND II ASSET GRADE
("VIP II FUND") ANNUAL EXPENSES(2) MANAGER BOND CONTRAFUND
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------- ---- ---- ----
Management Fees (Investment Advisory
Fees)............................ % % %
Other Expenses (after
reimbursement)(1)................ % % %
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ % % %
LIMITED
NEUBERGER BERMAN ADVISERS MATURITY
MANAGEMENT TRUST ANNUAL EXPENSES(2) BOND PARTNERS
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO
------------------------------- ---- ----
Management Fees (Investment Advisory
Fees)............................ % %
Other Expenses..................... % %
---- ----
Total Fund Annual Expenses......... % %
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
VAN ECK WORLDWIDE INSURANCE WORLDWIDE HARD EMERGING REAL
TRUST ANNUAL EXPENSES(2) BOND ASSETS MARKET ESTATE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Management Fees (Investment Advisory
Fees)............................ % % % %
Other Expenses (after
reimbursement)(1)................ % % % %
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(1)................ % % % %
</TABLE>
- ---------------
(1) For certain portfolios, certain expenses were reimbursed during 1998. It is
anticipated that expense reimbursement and fee waiver arrangements will
continue past the current year. Absent the expense reimbursement, the 1998
Other Expenses and Total Annual Expenses would have been %, %,
respectively, for the VIP Fund Equity-Income Portfolio, %, %,
respectively, for the VIP Fund Growth Portfolio, %, %,
respectively, for the VIP II Fund Overseas Portfolio, %, %,
respectively, for the VIP II Fund Asset Manager Portfolio, %, %,
respectively, for the VIP II Fund Index 500 Portfolio, %, %,
respectively, for the VIP II Fund Contrafund Portfolio, and %, %,
respectively, for the Van Eck Worldwide Hard Assets Portfolio. Similar
expense reimbursement and fee waiver arrangements were also in place for the
other Portfolios and it is anticipated that such arrangements will continue
past the current year. However, no expenses were reimbursed or fees waived
during 1998 for these Portfolios because the level of actual expenses and
fees never exceeded the thresholds at which the reimbursement and waiver
arrangements would have become operative.
(2) The fee and expense information regarding the Funds was provided by those
Funds. The Neuberger Berman Advisers Management Trust, the Alger American
Fund, the VIP Fund, the VIP II Fund, and the Van Eck WIT Fund are not
affiliated with Provfirst Life.
10
<PAGE> 14
THE COMPANY, SEPARATE ACCOUNTS AND FUNDS
PROVFIRST AMERICA LIFE INSURANCE COMPANY
Provfirst Life is a stock life insurance company that was originally
organized as a mutual life insurance company under Pennsylvania law in 1865.
Most recently it was known as Provident Mutual Life Insurance Company. As of
February 12, 1999, it changed its name to Provfirst America Life Insurance
Company in connection with its conversion into a stock life insurance company
that is indirectly controlled by a newly-created mutual holding company called
Provident Mutual Holding Company. More information about the conversion and the
new holding company structure is provided in Appendix C. Provfirst Life is
authorized to transact life insurance and annuity business in Pennsylvania and
in 50 other jurisdictions. On December 31, 1998, Provfirst Life had total assets
of approximately $ billion.
Provfirst Life is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such may include the IMSA logo and information
about IMSA membership in its advertisements. Companies that belong to IMSA
subscribe to a set of ethical standards covering the various aspects of sales
and service for individually sold life insurance and annuities.
THE SEPARATE ACCOUNTS
The Growth, Money Market and Bond Separate Accounts were established by
Provfirst Life as separate investment accounts on October 21, 1985 under the
provisions of the Pennsylvania Insurance Law; the Aggressive Growth Separate
Account was established on February 21, 1989, the International Separate Account
on July 15, 1991 and the Variable Separate Account on June 3, 1993. Each is a
separate investment account to which assets are allocated to support the
benefits payable under the Policies as well as other variable life insurance
policies Provfirst Life may issue.
The assets of each Separate Account are owned by Provfirst Life. However,
these assets are held separate from other assets and are not part of Provfirst
Life's General Account. The portion of a Separate Account's assets equal to the
reserves and other liabilities under the Policies (and other policies) supported
by Separate Account are not chargeable with liabilities arising out of any other
business that Provfirst Life may conduct. Provfirst Life may transfer to its
General Account any assets of a Separate Account that exceed the reserves and
Policy liabilities of that Separate Account (which will always be at least equal
to the aggregate Policy Account Value allocated to the Separate Account under
the Policies). The income, gains and losses, realized or unrealized, from the
assets allocated to a Separate Account are credited to or charged against that
Separate Account without regard to other income, gains or losses of Provfirst
Life. Provfirst Life may accumulate in a Separate Account the accrued charges
for mortality and expense risks and investment results attributable to assets
representing such charges.
The Separate Accounts are collectively registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940 (the "1940
Act") as a unit investment trust type of investment company. Such registration
does not involve any supervision of the management or investment practices or
policies of the Separate Accounts by the SEC. Each Separate Account meets the
definition of a "Separate Account" under Federal securities laws.
The Growth, Money Market, Bond, Aggressive Growth and International
Separate Accounts each invest exclusively in a corresponding Portfolio of Market
Street Fund, Inc. while the Variable Separate Account has twenty-two Subaccounts
that each invest exclusively in other Portfolios of Market Street Fund, Inc. or
in Portfolios of one of the other Funds.
THE FUNDS
The Portfolios are each part of one of nine series-type mutual fund
companies (each, a "Fund"): Market Street Fund, Inc.; Neuberger Berman Advisers
Management Trust; The Alger American Fund; Van Eck Investment Trust; Variable
Insurance Products Fund; and Variable Insurance Products Fund II. Each of the
Funds are registered with the SEC under the 1940 Act as an open-end management
11
<PAGE> 15
investment company. The SEC does not, however, supervise the management or the
investment practices and policies of the Funds or their Portfolios. The assets
of each Portfolio are separate from the assets of other portfolios of that Fund
and each Portfolio has separate investment objectives and policies. Some of the
Funds may, in the future, create additional Portfolios. The investment
experience of each Separate Account or Subaccount depends on the investment
performance of its corresponding Portfolio.
Certain Separate Accounts and Subaccounts invest in portfolios that have
similar investment objectives and/or policies; therefore before choosing
Separate Accounts or Subaccounts, carefully read the individual prospectuses for
the Funds along with this prospectus.
MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Aggressive Growth and International
Separate Accounts and five Subaccounts of the Variable Separate Account invest
exclusively in shares of the Market Street Fund, Inc. ("MS Fund"). the MS Fund.
The investment objectives of MS Fund's Portfolios are set forth below.
The Growth Portfolio. The Growth Portfolio seeks intermediate and
long-term growth of capital by investing in common stocks of companies believed
to offer above-average growth potential over both the intermediate and the
long-term. Current income is a secondary consideration.
The Money Market Portfolio. The Money Market Portfolio seeks to provide
maximum current income consistent with capital preservation and liquidity by
investing in high-quality money market instruments.
The Bond Portfolio. The Bond Portfolio seeks to generate a high level of
current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
The Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks to
achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.
The International Portfolio. The International Portfolio seeks long-term
growth of capital principally through investments in a diversified portfolio of
marketable equity securities of established foreign issuer companies.
All Pro Large Cap Growth Portfolio. The All Pro Large Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in equity securities of companies among the 750
largest by market capitalization at the time of purchase, which the Advisers
believe show potential for growth in future earnings.
All Pro Small Cap Growth Portfolio. The All Pro Small Cap Growth Portfolio
seeks to achieve long-term capital appreciation. The Portfolio pursues its
objective by investing primarily in equity securities of companies that rank
between 751 and 1,750 in size measured by market capitalization at the time of
purchase, which the Advisers believe show potential for growth in future
earnings.
All Pro Large Cap Value Portfolio. The All Pro Large Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio attempts to
achieve this objective by investing primarily in undervalued equity securities
of companies among the 750 largest by market capitalizations at the time of
purchase that the Advisers believe offer above-average potential for growth in
future earnings.
All Pro Small Cap Value Portfolio. The All Pro Small Cap Value Portfolio
seeks to provide long-term capital appreciation. The Portfolio pursues this
objective by investing primarily in undervalued equity securities of companies
that rank between 751 and 1,750 in size measured by market capitalization at the
time of purchase, which the Advisers believe offer above-average potential for
growth in future earnings.
With respect to the Growth, Money Market, Bond, and Aggressive Growth
Portfolios, the Fund is advised by Sentinel Advisors Company (SAC), which is
registered with the SEC as an investment adviser
12
<PAGE> 16
under the Investment Advisers Act of 1940. As compensation for its services, SAC
receives monthly compensation as follows:
Growth Portfolio -- 0.50% of the first $20 million of the average
daily net assets of the Growth Portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio, and 0.30% of the average
daily net assets in excess of $40 million.
Money Market Portfolio -- 0.25% of the average daily net assets of the
portfolio.
Bond Portfolio -- 0.35% of the first $100 million of the average daily
net assets of the portfolio and 0.30% of the average daily net assets in
excess of $100 million.
Aggressive Growth Portfolio -- 0.50% of the first $20 million of the
average daily net assets of the portfolio, 0.40% of the next $20 million of
the average daily net assets of the portfolio and 0.30% of the average
daily net assets in excess of $40 million.
With respect to the International Portfolio, MS Fund is advised by
Providentmutual Investment Management Company ("PIMC") which receives monthly
compensation at an effective annual rate of 0.75% of the first $500 million of
the average daily net assets of the portfolio and 0.60% of the average daily net
assets in excess of $500 million. PIMC has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment subadvisory services
in connection with the Portfolio. As compensation for the investment advisory
services rendered, PIMC pays The Boston Company a monthly fee at an effective
rate of 0.375% of the first $500 million of the average daily net assets of the
portfolio and 0.30% of the average daily net assets in excess of $500 million.
PIMC serves as investment adviser for the All Pro Portfolios. As
compensation for its services, PIMC receives .70% of the daily net assets of the
All Pro Large Cap Growth and All Pro Large Cap Value Portfolios, and .90% of the
daily net assets of the All Pro Small Cap Growth and All Pro Small Cap Value
Portfolios. PIMC uses a "manager of managers" approach for the All Pro
Portfolios under which PIMC allocates each Portfolio's assets among one or more
"specialist" investment sub-advisers. Additionally, PIMC has retained Wilshire
Associates Incorporated ("Wilshire") to assist it in identifying potential
sub-advisers and performing the quantitative analysis necessary to assess such
sub-advisers' styles and performance. As compensation for these services, PIMC
pays Wilshire from its investment advisory fees, .05% of the average daily net
assets of the All Pro Portfolios.
All Pro Large Cap Growth. As of the date of this prospectus, the assets of
the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc. ("CKM"); in part by Geewax, Terker & Co. ("Geewax");
and in part by Oak Associates, Ltd. ("Oak"); pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: CKM -- .35%; Geewax -- .30%; Oak -- .35%.
All Pro Small Cap Growth. As of the date of this prospectus, the assets of
the All Pro Small Cap Growth Portfolio are managed in part by Standish, Ayer &
Wood ("SAW"), and in part by Husic Capital Management ("Husic"), pursuant to
separate investment sub-advisory agreements. As compensation for their services,
PIMC pays from its investment advisory fees the following percentages of the
daily net assets of the Portfolio: SAW -- .50%; Husic -- .50%.
All Pro Large Cap Value. As of the date of this prospectus, the assets of
the All Pro Large Cap Value Portfolio are managed in part by Equinox Capital
Management, Inc. ("Equinox"); in part by Harris Associates, Inc. ("Harris"); and
in part by Mellon Equity Associates ("Mellon"), pursuant to separate investment
sub-advisory agreements. As compensation for their services PIMC pays from its
investment advisory fees the following percentages of the daily net assets of
the Portfolio: Equinox -- .30% of the first $50 million of assets and .25% of
the remaining assets; Harris -- .65% of the first $50 million of assets, .60% of
the next $50 million of assets and .55% of the remaining assets; Mellon -- .30%.
All Pro Small Cap Value. As of the date of this prospectus, the assets of
the All Pro Small Cap Value Portfolio are managed in part by 1838 Investment
Advisors ("1838") and in part by Denver
13
<PAGE> 17
Investment Advisors ("DIA"), pursuant to separate investment sub-advisory
agreements. As compensation for their services, PIMC pays from its investment
advisory fees the following percentages of the daily net assets of the
Portfolio: 1838 -- .55%; DIA -- .75% of the first $25 million of assets and .65%
on the remaining assets.
In addition to the fee for the investment advisory services, MS Fund pays
its own expenses generally, including brokerage costs, administrative costs,
custodial costs, and legal, accounting and printing costs. However, Provfirst
Life has entered into an agreement with the Fund whereby it will reimburse the
Fund for all ordinary operating expenses, excluding advisory fees in excess of
an annual rate of 0.40% of the average daily net assets of each portfolio except
the International Portfolio, and 0.75% for the International Portfolio. It is
anticipated that this agreement will continue; if it is terminated, Fund
expenses may increase.
A more complete description of MS Fund, including the investment
objectives, policies and risks of each Portfolio, is contained in the prospectus
for the MS Fund, which accompanies this Prospectus.
THE ALGER AMERICAN FUND
The Alger American Small Capitalization Subaccount invests exclusively in
shares of the corresponding Portfolio of The Alger American Fund ("Alger
American").
Alger American Small Capitalization Portfolio. This Portfolio seeks
long-term capital appreciation by focusing on small, fast-growing companies that
offer innovative products, services or technologies to a rapidly expanding
marketplace.
The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management"), which is
registered with the SEC as an Investment Adviser under the Investment Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more complete description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives,
policies and risks, is contained in the prospectus for Alger American which
accompanies this Prospectus.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
Eight Subaccounts invest exclusively in shares of Portfolios of the
Variable Insurance Products Fund (the "VIP Fund") or of the Variable Insurance
Products Fund II (the "VIP II Fund"). The investment objectives of the
Portfolios of the VIP Fund and the VIP II Fund in which these Subaccounts invest
are set forth below.
VIP Fund
VIP Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
VIP Growth Portfolio. This Portfolio seeks to achieve capital
appreciation. The VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
VIP High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
14
<PAGE> 18
VIP Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The VIP Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
VIP II Fund
VIP II Asset Manager Portfolio. This Portfolio seeks to obtain high total
return with reduced risk over the long-term by allocating its assets among
stocks, bonds and short-term money market instruments.
VIP II Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in securities of companies where value is not fully recognized by the
public.
VIP II Index 500 Portfolio. This Portfolio seeks to provide investment
results that correspond to the total return (i.e., the combination of capital
changes and income) of a broad range of common stocks publicly traded in the
United States. In seeking this objective, the VIP II Index 500 Portfolio
attempts to duplicate the composition and total return of the Standard and
Poor's 500 Composite Stock Price Index while keeping transaction costs and other
expenses low. The Portfolio is designed as a long-term investment option.
The VIP Equity-Income, VIP Growth, VIP High Income, and VIP Overseas
Portfolios of the VIP Fund and the VIP II Asset Manager, VIP II Contrafund, and
VIP II Index 500 Portfolios of the VIP II Fund are managed by Fidelity
Management & Research Company ("FMR"). For managing its investments and business
affairs, each Portfolio pays FMR a monthly fee.
For the VIP Equity-Income, VIP Growth, VIP Overseas VIP II Contrafund and
VIP II Asset Manager Portfolios, the annual fee rate is the sum of two
components:
1. A group fee rate based on the monthly average net assets of all
the mutual funds advised by FMR. This rate cannot rise above 0.52% and it
drops (to as low as a marginal rate of 0.30% when average group assets
exceed $174 billion) as total assets in all these funds rise.
2. An individual fund fee rate of 0.20% for the VIP Equity-Income
Portfolio, 0.30% for the VIP Contrafund, VIP Growth and VIP II Asset
Manager Portfolios and 0.45% for the VIP Overseas Portfolio.
One-twelfth of the combined annual fee rate is applied to each Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
The VIP II Index 500 Portfolio pays FMR a monthly management fee at the
annual rate of 0.28% of the Portfolio's average net assets. One-twelfth of this
annual fee rate is applied to the net assets averaged over the most recent
month, giving a dollar amount which is the fee for that month.
For the VIP High Income Portfolio, the annual fee rate is the sum of two
components:
1. A group fee rate based on the monthly average net assets of all
the mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops (to as low as a marginal rate of 0.14%) as total assets in all these
funds rise.
2. An individual Portfolio fee rate of 0.45%.
One twelfth of the combined annual fee rate is applied to the Portfolio's
net assets averaged over the most recent month, giving a dollar amount which is
the fee for that month.
On behalf of the VIP II Asset Manager Portfolio and the VIP II Contrafund
Portfolio, FMR has entered into sub-advisory agreements with Fidelity Management
& Research (U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far
East) Inc. ("FMR Far East"), pursuant to which these entities provide research
and investment recommendations with respect to companies based outside the
United States. FMR (U.K.) primarily focuses on companies based in Europe while
FMR Far East focuses primarily on companies based in Asia and the Pacific Basin.
Under the sub-advisory agreements,
15
<PAGE> 19
FMR and not the Portfolios pay FMR (U.K.) and FMR Far East fees equal to 100%
and 105%, respectively, of each sub-advisor's costs incurred in connection with
its sub-advisory agreement.
On behalf of the VIP Overseas Portfolio, FMR has entered into sub-advisory
agreements with FMR (U.K.), FMR Far East, and Fidelity International Investment
Advisors ("FIIA"). FIIA, in turn, has entered into a sub-advisory agreement with
its wholly owned subsidiary Fidelity International Investment Advisors (U.K.)
Limited (FIIAL U.K.). Under the sub-advisory agreements, FMR may receive
investment advice and research services with respect to companies based outside
the U.S. and may grant them investment management authority as well as the
authority to buy and sell securities if FMR believes it would be beneficial to
the Portfolio.
Currently, FMR (U.K.), FMR Far East, FIIA and FIIAL U.K. each focus on
investment opportunities in countries other than the U.S., including countries
in Europe, Asia and the Pacific Basin.
Under the sub-advisory agreements FMR pays the fees of FMR (U.K.), FMR Far
East, and FIIA. FIIA, in turn, pays the fees of FIIAL U.K.
For providing investment advice and research services the sub-advisors are
compensated as follows:
- FMR pays FMR (U.K.) and FMR Far East fees equal to 110% and 105%,
respectively, of FMR (U.K.)'s and FMR Far East's costs incurred in
connection with providing investment advice and research services.
- FMR pays FIIA 30% of its monthly management fee with respect to the
average market value of investments held by the Portfolio for which FIIA
has provided FMR with investment advice.
- FIIA pays FIIAL U.K. a fee equal to 110% of FIIAL U.K.'s costs incurred
in connection with providing investment advice and research services.
For providing investment management services, the sub-advisors are
compensated according to the following formulas:
- FMR pays FMR (U.K.), FMR Far East, and FIIA 50% of its monthly management
fee with respect to the Portfolio's average net assets managed by the
sub-advisor on a discretionary basis.
- FIIA pays FIIAL U.K. 110% of FIIAL U.K.'s costs incurred in connection
with providing investment management.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
The fees for pricing and bookkeeping services are based on each Portfolio's
average net assets but must fall within a range of $45,000 to $750,000. The fees
for securities lending services are based on the number and duration of
individual securities loans.
FMR may, from time to time, agree to reimburse a Portfolio for management
fees and other expenses above a specified percentage of average net assets.
Reimbursement arrangements, which may be terminated at any time without notice,
will increase a Portfolio's yield. If FMR discontinues a reimbursement
arrangement, each Portfolio's expenses will go up and its yield will be reduced.
FMR retains the right to be repaid by a Portfolio for expense reimbursements if
expenses fall below the limit prior to the end of a fiscal year. Repayment by a
Portfolio will lower its yield. FMR has voluntarily agreed to reimburse the
management fees and all other expenses (excluding taxes, interest and
extraordinary expenses) in excess of 1.50% of the average net assets of the VIP
Equity-Income and VIP Growth
16
<PAGE> 20
Portfolios, 1.25% of the average net assets of the VIP II Asset Manager
Portfolio and 0.28% of the average net assets of the VIP II Index 500 Portfolio.
A more complete description of the VIP Fund and the VIP II Fund, including
the investment of objectives, policies and risks of its Portfolios, is contained
in the prospectuses for the VIP Fund and VIP II Fund which accompany this
Prospectus.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
The Neuberger Berman Limited Maturity Bond and Partners Subaccounts invest
exclusively in shares of corresponding Portfolios of the Neuberger & Berman
Advisers Management Trust ("AMT").
Each Portfolio of AMT invests all of its net investable assets in its
corresponding Series (each, a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. Each Series invests in
securities in accordance with an investment objective, policies and limitations
identical to those of its corresponding Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information regarding this structure, see the prospectus for AMT.
In that the investment objective of each Portfolio matches that of its
corresponding Series, the following describes the investment objective of each
Series underlying the Portfolio of AMT in which the Separate Accounts will
invest. The investment objectives of the Portfolios of AMT in which the Separate
Accounts will invest are set forth below. The investment experience of each
Subaccount depends upon the investment performance of its corresponding
Portfolio and Series. There is no assurance that any Portfolio (or the
corresponding series) will achieve its stated objective.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
Partners Portfolio. The Series corresponding to this Portfolio seeks
capital growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger & Berman
Management Incorporated ("N&B Management"). As compensation for its services, N
& B Management receives a monthly fee from AMT at the following percentages of
daily net assets of the corresponding Portfolio: Limited Maturity Bond
Portfolio -- 0.25% of first $500 million, 0.225% of next $500 million, 0.20% of
next $500 million, 0.175% of next $500 million and 0.15% of over $2 billion;
Partners Portfolio -- 0.55% of first $250 million, 0.525% of next $250 million,
0.50% of next $250 million, 0.475 of next $250 million, 0.45% of next $500
million, and 0.425% of over $1.5 billion.
A more complete description of AMT, including the investment objectives,
policies and risks of the available Portfolios, is contained in the prospectuses
for the Limited Maturity Bond and Partners Portfolios of AMT, which accompany
this Prospectus.
VAN ECK WORLDWIDE INSURANCE TRUST
Four Subaccounts invest exclusively in shares of corresponding Portfolios
of Van Eck Worldwide Insurance ("Van Eck Trust"). The investment objectives of
the Portfolios of Van Eck Trust are set forth below.
Van Eck Worldwide Hard Assets Portfolio. This Portfolio seeks long-term
capital appreciation by investing globally, primarily in "Hard Assets
Securities". Hard Assets Securities include equity securities of Hard Asset
Companies and securities, including structured notes, whose value is linked to
the price of a Hard Asset commodity or a commodity index. Hard Asset Companies
include companies that are directly or indirectly engaged to a significant
extent in the exploration, development, production or distribution of one or
more of the following (together, Hard Assets); (i) precious metals, (ii) ferrous
and non-ferrous
17
<PAGE> 21
metals, (iii) gas, petroleum, petrochemicals or other hydrocarbons, (iv) forest
products, (v) real estate and (vi) other basic non-agricultural commodities.
Income is a secondary consideration.
Van Eck Worldwide Bond Portfolio. This Portfolio seeks high total return
through a flexible policy of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Portfolio. This Portfolio seeks
long-term capital appreciation by investing primarily in equity securities in
emerging markets around the world.
Van Eck Worldwide Real Estate Portfolio. This Portfolio seeks to maximize
total return by investing primarily in equity securities of domestic and foreign
companies which are principally engaged in the real estate industry or which own
significant real estate assets.
The investment adviser for the Van Eck Worldwide Hard Assets, Van Eck
Worldwide Bond and Van Eck Worldwide Real Estate Portfolios is Van Eck
Associates Corporation ("Van Eck Associates"). The investment adviser for the
Van Eck Worldwide Emerging Markets Portfolio is Van Eck Global Asset Management
(Asia) Limited, a wholly-owned investment adviser subsidiary of Van Eck
Associates. As compensation for its services to the Worldwide Hard Assets and
Worldwide Bond Portfolios, Van Eck Associates receives a monthly fee at an
annual rate of 1.0% of the first $500 million of the average daily net assets of
the Portfolios, 0.90% of the next $250 million of the daily net assets of the
Portfolios, and 0.70% of the average daily net assets of the Portfolios in
excess of $750 million. As compensation for its services to the Worldwide
Emerging Markets and Van Eck Worldwide Real Estate Portfolios, Van Eck
Associates or its affiliate receives a monthly fee at an annual rate of 1.00% of
the Portfolio's average daily net assets.
A more complete description of Van Eck Trust, including the investment
objectives, policies and risks of the available Portfolios, is contained in the
Prospectus for the Trust which accompanies this Prospectus.
ADDITIONAL INFORMATION ABOUT THE FUNDS AND PORTFOLIOS
NO ONE CAN ASSURE THAT ANY PORTFOLIO WILL ACHIEVE ITS STATED OBJECTIVES AND
POLICIES.
More detailed information concerning the investment objectives, policies
and restrictions of the Portfolios, the expenses of the Portfolios, the risks
attendant to investing in the Portfolios and other aspects of the Funds'
operations can be found in the current prospectus for each Fund that accompanies
this prospectus and the current Statement of Additional Information for the
Funds. The Funds' prospectuses should be read carefully before any decision is
made concerning the allocation of Net Premium Payments or transfers of Policy
Account Value among the Separate Accounts or Subaccounts.
Not all of the Portfolios described in the prospectuses for the Funds are
available with the Policy. Moreover, Provfirst Life cannot guarantee that each
Portfolio will always be available for the Policies, but in the unlikely event
that a Portfolio is not available, Provfirst Life will take reasonable steps to
secure the availability of a comparable portfolio. Shares of each Fund are
purchased and redeemed at net asset value, without a sales charge.
Provfirst Life has entered into agreements with the investment advisers of
several of the Funds pursuant to which each such investment adviser will pay
Provfirst Life a servicing fee based upon an annual percentage of the average
aggregate net assets invested by Provfirst Life on behalf of the Separate
Accounts. These agreements reflect administrative services provided to the Funds
by Provfirst Life. Payments of such amounts by an adviser will not increase the
fees paid by the Portfolios or their shareholders.
Shares of the Funds are sold to separate accounts of insurance companies
that are not affiliated with Provfirst Life or each other, a practice known as
"shared funding." They are also sold to separate accounts to serve as the
underlying investment for both variable annuity contracts and variable life
insurance policies, a practice known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners,
whose Policy Account Values are allocated to the Separate Accounts or
Subaccounts, and of owners of other contracts or policies whose values are
allocated to one or more other separate accounts investing in any one of the
Portfolios. Shares of some of the Funds may also
18
<PAGE> 22
be sold directly to certain pension and retirement plans qualifying under
Section 401 of the Code. As a result, there is a possibility that a material
conflict may arise between the interests of Owners or owners of other policies
or contracts (including policies issued by other companies), and such retirement
plans or participants in such retirement plans. In the event of any such
material conflicts, Provfirst Life will consider what action may be appropriate,
including removing the Portfolio as in investment option under the Policies or
replacing the Portfolio with another Portfolio. There are certain risks
associated with mixed and shared funding and with the sale of shares to
qualified pension and retirement plans, as disclosed in each Fund's prospectus.
19
<PAGE> 23
DETAILED DESCRIPTION OF POLICY PROVISIONS
DEATH BENEFIT
General. As long as the Policy remains in force, the Insurance Proceeds of
the Policy will, upon due proof of the Insured's death (and fulfillment of
certain other requirements), be paid to the Beneficiary in accordance with the
designated Death Benefit Option. The Insurance Proceeds will be determined as of
the date of the Insured's death and will be equal to:
1. the Death Benefit;
2. plus any additional benefits due under a supplementary benefit
rider attached to the Policy;
3. less any loan and accrued loan interest on the Policy;
4. less any overdue deductions if the death of the Insured occurs
during the Grace Period.
The Insurance Proceeds may be paid in cash or under one of the Settlement
Options set forth in the Policy.
Death Benefit Options. The Policy provides two Death Benefit Options:
Option A and Option B. The Owner designates the Death Benefit Option in the
application and may change it as described in "Change in Death Benefit Option."
Under either Option, the duration of the Death Benefit coverage depends upon the
Policy's Net Cash Surrender Value. (See "Policy Duration.")
Option A. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy and (b) the Policy Account Value on the Valuation Date on
or next following the Insured's date of death multiplied by the specified
percentage shown in the table below:
<TABLE>
<CAPTION>
ATTAINED AGE PERCENTAGE ATTAINED AGE PERCENTAGE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
40 and under 250% 60 130%
45 215% 65 120%
50 185% 70 115%
55 150% 75 through 90 105%
95 through 99 100%
</TABLE>
For Attained Ages not shown, the percentages will decrease by a ratable portion
for each full year.
Illustration of Option A -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no Policy loan outstanding.
Under Option A, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000. The specified percentage for an Insured under
Attained Age 40 on the Policy Anniversary prior to the date of death is 250%.
Because the Death Benefit must be equal to or be greater than 2.50 times the
Policy Account Value, any time the Policy Account Value exceeds $80,000 the
Death Benefit will exceed the Face Amount. Each additional dollar added to the
Policy Account Value will increase the Death Benefit by $2.50. Thus, a 35 year
old Insured with a Policy Account Value of $150,000 will have a Death Benefit of
$375,000 (2.50 x $150,000); a Policy Account Value of $300,000 will yield a
Death Benefit of $750,000 (2.50 x $300,000); a Policy Account Value of $400,000
will yield a Death Benefit of $1,000,000 (2.50 x $400,000).
Similarly, any time the Policy Account Value exceeds $80,000, each dollar
taken out of the Policy Account Value will reduce the Death Benefit by $2.50. If
at any time, however, the Policy Account Value multiplied by the specified
percentage is less than the Face Amount, the Death Benefit will be the Face
Amount of the Policy.
Option B. The Death Benefit is equal to the greater of: (a) the Face
Amount of the Policy plus the Policy Account Value and (b) the Policy Account
Value multiplied by the specified percentage shown in
20
<PAGE> 24
the table above. (The Policy Account Value in each case is determined on the
Valuation Day on or next following the Insured's date of death.)
Illustration of Option B -- For purposes of this illustration, assume that
the Insured is under Attained Age 40 and there is no outstanding Policy loan.
Under Option B, a Policy with a Face Amount of $200,000 will generally pay
a Death Benefit of $200,000 plus the Policy Account Value. Thus, for example, a
Policy with a $50,000 Policy Account Value will have a Death Benefit of $250,000
($200,000 plus $50,000); and a Policy Account Value of $100,000 will yield a
Death Benefit of $300,000. Since the specified percentage is 250%, the Death
Benefit will be at least 2.50 times the Policy Account Value. As a result, if
the Policy Account Value exceeds $133,333, the Death Benefit will be greater
than the Face Amount plus the Policy Account Value. Each additional dollar added
to the Policy Account Value above $133,333 will increase the Death Benefit by
$2.50. An Insured with a Policy Account Value of $150,000 will therefore have a
Death Benefit of $375,000 (2.50 x $150,000); a Policy Account Value of $300,000
will yield a Death Benefit of $750,000 (2.50 x $300,000); and a Policy Account
Value of $500,000 will yield a Death Benefit of $1,250,000 (2.50 x $500,000).
Similarly, any time the Policy Account Value exceeds $133,333, each dollar taken
out of the Policy Account Value will reduce the Death Benefit by $2.50. If at
any time, however, the Policy Account Value multiplied by the applicable
percentage is less than the Face Amount plus the Policy Account Value, the Death
Benefit will be the Face Amount plus the Policy Account Value.
Which Death Benefit Option to Choose. If an Owner prefers to have premium
payments and favorable investment performance reflected partly in the form of an
increasing Death Benefit, the Owner should choose Option B. If an Owner is
satisfied with the amount of the Insured's existing insurance coverage and
prefers to have premium payments and favorable investment performance reflected
to the maximum extent in the Policy Account Value, the Owner should choose
Option A.
Change in Death Benefit Option. After the first Policy Year or 12 months
after a Face Amount increase, at any time while the Policy is in force, the
Owner may change the Death Benefit Option in effect by sending Provfirst Life a
completed application for change. No charges will be imposed to make a change in
the Death Benefit Option. The effective date of any such change will be the
Policy Processing Day on or next following the date Provfirst Life receives the
completed application for change.
If the Death Benefit Option is changed from Option A to Option B, on the
effective date of the change, the Death Benefit will not change and the Face
Amount and any applicable rider coverage amounts, respectively, will be
decreased by the Policy Account Value on that date. However, this change may not
be made if it would reduce the Face Amount or applicable rider coverage amount
to less than the Minimum Face Amount or minimum amount in which the applicable
rider could be issued.
If the Death Benefit Option is changed from Option B to Option A, on the
effective date of the change, the Death Benefit will not change and the Face
Amount will be increased by the Policy Account Value on that date.
A change in the Death Benefit Option may affect the Net Amount at Risk over
time which, in turn, would affect the monthly Cost of Insurance Charge. Changing
from Option A to Option B will generally result in a Net Amount at Risk that
remains level. Such a change will result in a relative increase in the cost of
insurance charges over time because the Net Amount at Risk will, unless the
Death Benefit is based on the applicable percentage of Policy Account Value,
remain level rather than decreasing as the Policy Account Value increases.
Unless the Death Benefit is based on the applicable percentage of Policy Account
Value, changing from Option B to Option A will, if the Policy Account Value
increases, decrease the Net Amount at Risk over time, thereby reducing the cost
of insurance charge.
The effects of these Death Benefit Option changes on the Face Amount, Death
Benefit and Net Amount at Risk can be illustrated as follows. Assume that a
contract under Option A has a Face Amount of $500,000 and a Policy Account Value
of $100,000 and, therefore, a Death Benefit of $500,000 and a Net Amount at Risk
of $400,000 ($500,000 - $100,000). If the Death Benefit Option is changed from
Option A to Option B, the Face Amount will decrease from $500,000 to $400,000
and the Death Benefit
21
<PAGE> 25
and Net Amount at Risk would remain the same. Assume that a contract under
Option B has a Face Amount of $500,000 and a Policy Account Value of $50,000
and, therefore, the Death Benefit is $550,000 ($500,000 - $50,000) and a Net
Amount at Risk of $500,00 ($550,000 - $50,000). If the Death Benefit Option is
changed from Option B to Option A, the Face Amount will increase to $550,000,
and the Death Benefit and Net Amount at Risk would remain the same.
If a change in the Death Benefit Option would result in cumulative premiums
exceeding the maximum premium limitations under the Internal Revenue Code for
life insurance, Provfirst Life will not effect the change.
A change in the Death Benefit Option may have Federal income tax
consequences. (See "Tax Treatment of Policy Benefits.")
How the Death Benefit May Vary. The amount of the Death Benefit may vary
with the Policy Account Value. The Death Benefit under Option A will vary with
the Policy Account Value whenever the specified percentage of Policy Account
Value exceeds the Face Amount of the Policy. The Death Benefit under Option B
will always vary with the Policy Account Value because the Death Benefit equals
the greater of (a) the Face Amount plus the Policy Account Value and (b) the
Policy Account Value multiplied by the specified percentage.
ABILITY TO ADJUST FACE AMOUNT
Subject to certain limitations, an Owner may generally, at any time after
the first Policy Year, increase or decrease the Policy's Face Amount by
submitting a written application to Provfirst Life. The effective date of the
increase or decrease will be the Policy Processing Day on or next following
Provfirst Life's approval of the request. An increase or decrease in Face Amount
may have tax consequences. (See "Tax Treatment of Policy Benefits.") The effect
of changes in Face Amount on Policy charges, as well as other considerations,
are described below.
Increase. A request for an increase in Face Amount may not be for less
than $25,000 (or such lesser amount required in a particular state). The Owner
may not increase the Face Amount after the Insured's Attained Age 75 or if the
Face Amount was increased during the prior 12-month period. To obtain the
increase, the Owner must submit an application for the increase and provide
evidence satisfactory to Provfirst Life of the Insured's insurability.
On the effective date of an increase, and taking the increase into account,
the Net Cash Surrender Value must be equal to the Monthly Deductions then due
and the expense charge for the increase in Face Amount. If the Net Cash
Surrender Value is not sufficient, the increase will not take effect until the
Owner makes a sufficient additional premium payment to increase the Net Cash
Surrender Value.
An increase in the Face Amount will generally affect the total Net Amount
at Risk which will increase the monthly Cost of Insurance Charges. An increase
in Face Amount will increase the amount of any Additional Surrender Charge. A
Face Amount increase expense charge will also be deducted. (See "Face Amount
Increase Charge.") In addition, different cost of insurance rates may apply to
the increase in insurance coverage. (See "Monthly Deductions.")
After increasing the Face Amount, the Owner will have the right: (a) during
the Free-Look Period following the effective date of the increase, to have the
increase canceled and receive a credit or refund equal to the cost of insurance
charge and the increase charge deducted for the increase; and (b) during the
first 24 months following the increase, to exchange the increase in Face Amount
for a fixed benefit permanent life insurance policy issued by Provfirst Life.
(See "Transfers of Policy Account Value.")
Decrease. The amount of a Face Amount decrease must be for at least
$25,000 (or such lesser amount required in a particular state). The Face Amount
after any decrease may not be less than the Minimum Face Amount. A decrease in
Face Amount will not be permitted if the Face Amount was increased during the
prior 12-month period. To the extent a decrease in the Face Amount could result
in
22
<PAGE> 26
cumulative premiums exceeding the maximum premium limitations applicable for
life insurance under the Code, Provfirst Life will not effect the decrease.
A decrease in the Face Amount generally will decrease the total Net Amount
at Risk which will decrease an Owner's monthly insurance charges. A decrease in
the Face Amount may result in the imposition of a surrender charge as of the
Policy Processing Day on which the decrease becomes effective. (See "Surrender
Charges.")
Any surrender charge applicable to a decrease will be deducted from the
Policy Account Value and the remaining surrender charge will be reduced by the
amount deducted. The surrender charge will be deducted from the Separate
Accounts and Subaccounts and the Guaranteed Account based on the proportion that
the value in such account bears to the total unloaned Policy Account Value.
For purposes of determining the cost of insurance charge and surrender
charges, any decrease in the Face Amount will reduce the Face Amount in the
following order: (a) the Face Amount provided by the most recent increase; (b)
the next most recent increases, successively; and (c) the Initial Face Amount.
INSURANCE PROTECTION
An Owner may increase or decrease the insurance protection provided by the
Policy (i.e., the Net Amount at Risk) in one of several ways, as insurance needs
change. These ways include increasing or decreasing the Face Amount, changing
the level of premium payments, and by making a partial withdrawal of Net Cash
Surrender Value. The consequences of each are summarized below.
A decrease in Face Amount will decrease the insurance protection. It will
not reduce the Policy Account Value, except for the deduction of any surrender
charge applicable to the decrease. The Monthly Deductions will generally be
correspondingly lower following the decrease.
An increase in Face Amount will generally increase the amount of insurance
protection, depending on the Policy Account Value and specified percentage. If
the insurance protection is increased, Monthly Deductions will increase as well.
Under Death Benefit Option A, until the specified percentage of Policy
Account Value exceeds the Face Amount, then (a) if the Owner increases the
premium payments from the current level, the amount of insurance protection will
generally be reduced, and (b) if the Owner reduced the premium payments from the
current level, the amount of insurance protection will generally be increased.
Under Death Benefit Option B, until the specified percentage of Policy
Account Value exceeds the Face Amount plus the Policy Account Value, the level
of premium payments will not affect the amount of insurance protection.
(However, both the Policy Account Value and Death Benefit will be increased if
premium payments are increased and reduced if premium payments are reduced.)
Under either Death Benefit Option, if the Death Benefit is the specified
percentage of Policy Account Value, then (a) if the Owner increases premium
payments from the current level, the amount of insurance protection will
increase and (b) if the Owner reduces the premium payments from the current
level, the amount of insurance protection will decrease.
A partial withdrawal of Net Cash Surrender Value will reduce the Death
Benefit. If Death Benefit Option A is in effect, the withdrawal will decrease
the Policy's Face Amount by the amount withdrawn plus the partial withdrawal
expense charge. If Death Benefit Option B is in effect, it will not reduce the
amount of insurance protection unless the Death Benefit is based on the
specified percentage of Policy Account Value. In this event, however, the
decrease in the Death Benefit will be greater than the amount of a withdrawal.
PAYMENT AND ALLOCATION OF PREMIUMS
Issuance of a Policy. In order to purchase a Policy, an individual must
make application to Provfirst Life through a licensed Provfirst Life agent who
is also a registered representative of 1717 Capital Management Company ("1717")
or a broker/dealer having a Selling Agreement with 1717 or a broker/
23
<PAGE> 27
dealer having a Selling Agreement with such a broker/dealer. If Provfirst Life
accepts the application, a Policy will be issued in consideration of payment of
the Minimum Initial Premium set forth in the Policy. The Minimum Face Amount of
a Policy under Provfirst Life's rules is $50,000 for all Premium Classes except
preferred. For the preferred Premium Class, the Minimum Face Amount is $100,000.
Provfirst Life reserves the right to revise its rules from time to time to
specify a different Minimum Face Amount for subsequently issued policies. A
Policy will be issued only with respect to Insureds who have an Issue Age of 85
or less and who provide Provfirst Life with satisfactory evidence of
insurability. Acceptance is subject to Provfirst Life's underwriting rules.
Provfirst Life reserves the right to reject an application for any reason
permitted by law. (See "Distribution of Policies.")
At the time the application for a Policy is signed, an applicant can,
subject to Provfirst Life's underwriting rules, obtain temporary insurance
protection, pending issuance of the Policy, by answering "no" to the Health
Questions of the Temporary Agreement and submitting payment of the Minimum
Initial Premium with the Application. The Minimum Initial Premium will equal the
Minimum Annual Premium multiplied by the following factor:
<TABLE>
<CAPTION>
PREMIUM BILLING MODE
SELECTED AT ISSUE FACTOR
- -------------------- ------
<S> <C>
Annual............................................. 1.000
Semi-annual........................................ 0.500
Quarterly.......................................... 0.250
Monthly............................................ 0.167
</TABLE>
The amount of coverage under the agreement is the lesser of the Face Amount
applied for or $500,000. Coverage under the agreement will end on the earliest
of: (a) the 90th day from the date of the agreement; (b) the date that insurance
takes effect under the Policy; (c) the date a policy, other than as applied for,
is offered to the Applicant; or (d) five days from the date Provfirst Life mails
a notice of termination of coverage.
Amount and Timing of Premiums. The Minimum Initial Premium is due on or
before the date the Policy is delivered. No insurance will take effect until the
Minimum Initial Premium is paid while the health and other conditions of the
Insured stay the same as described in the application. Prior to the Final Policy
Date and while the Policy is in force, an Owner may make additional premium
payments at any time and in any amount, subject to the limitation set forth
below. Each premium payment must be for at least $20. Provfirst Life may
increase this minimum amount upon 90 days written notice to Owners of such
increase, but the minimum amount will never exceed $500. Subject to certain
limitations described below, an Owner has considerable flexibility in
determining the amount and frequency of premium payments.
At the time of application, each Owner will select a Planned Periodic
Premium schedule, based on a periodic billing mode of annual, semi-annual, or
quarterly payment. The Owner is entitled to receive a premium reminder notice
from Provfirst Life at the specified interval. The Owner may change the Planned
Periodic Premium frequency and amount. Also, under the Automatic Payment Plan,
the Owner can select a monthly payment schedule pursuant to which premium
payments will be automatically deducted from a bank account or other source,
rather than being "billed".
Any payments made while there is an outstanding Policy loan are considered
loan repayments, unless Provfirst Life is notified in writing that the amount is
to be applied as a premium payment. The Owner is not required to pay the Planned
Periodic Premiums in accordance with the specified schedule. The Owner has the
flexibility to alter the amount and frequency of premium payments. However,
payment of the Planned Periodic Premiums does not guarantee that the Policy will
remain in force. Instead, the duration of the Policy depends upon the Policy's
Net Cash Surrender Value. Thus, even if Planned Periodic Premiums are paid, the
Policy may lapse whenever the Net Cash Surrender Value is insufficient to pay
the Monthly Deductions and any other charges and if a Grace Period expires
without an adequate payment by the Owner.
24
<PAGE> 28
Premium Limitations. The Code provides for exclusion of the Death Benefit
from a Beneficiary's gross income if total premium payments do not exceed
certain stated limits. In no event can the total of all premiums paid under a
Policy exceed such limits. Provfirst Life has established procedures to monitor
whether aggregate premiums paid under a Policy exceed those limits. If a premium
is paid which would result in total premiums exceeding such limits, Provfirst
Life will only accept that portion of the premium which would make total
premiums equal the maximum amount which may be paid under the Policy. The excess
will be refunded. If total premiums do exceed the maximum premium limitations
established by the Code, however, the excess of a Policy's Death Benefit over
the Policy's Cash Surrender Value should still be excludable from gross income.
The maximum premium limitations set forth in the Code depend in part upon
the amount of the Death Benefit at any time. As a result, any Policy changes
which affect the amount of the Death Benefit may affect whether cumulative
premiums paid under the Policy exceed the maximum premium limitations. To the
extent that any such change would result in cumulative premiums exceeding the
maximum premium limitations, Provfirst Life will not effect such change. (See
"Federal Income Tax Considerations.") Provfirst Life reserves the right to
require satisfactory evidence of insurability before accepting a premium payment
that would increase the Net Amount At Risk.
Allocation of Net Premiums. The Owner indicates in the application how Net
Premiums should be allocated among the Separate Accounts, the Subaccounts and/or
the Guaranteed Account. The percentages of each Net Premium that may be
allocated to any account must be in whole numbers and the sum of the allocation
percentages must be 100%. Provfirst Life allocates the Net Premiums as of the
date it receives such premium at its Service Center.
Where state law requires a refund of premiums paid when a policy is
returned under the Free-Look provisions, any premiums received by Provfirst Life
before the expiration of a 15-day period beginning on the later of the Policy
Issue Date or the date Provfirst Life receives the Minimum Initial Premium,
which are to be allocated to the Separate Accounts or Subaccounts are allocated
to the Money Market Separate Account. At the end of the 15-day period, Policy
Account Value in the Money Market Separate Account is allocated among the
Separate Accounts and Subaccounts based on the proportion that the allocation
percentage for such Separate Account or Subaccount bears to the sum of the
Separate Account or Subaccounts premium allocation percentages. All other Net
Premiums are allocated based on the allocation percentages then in effect. The
allocation schedules may be changed at any time by providing Provfirst Life with
written notice.
The values of the Separate Accounts and Subaccounts will vary with their
investment experience and the Owner bears the entire investment risk. Owners
should periodically review their allocation schedule in light of market
conditions and the Owner's overall financial objectives.
SPECIAL POLICY ACCOUNT VALUE CREDIT
On each Policy Processing Day after the Policy has been in force for at
least 15 years or when the Policy Account Value less the value in the Loan
Account equals or exceeds $100,000, an additional credit is added to the Policy
Account Value in the Separate Accounts and Subaccounts. The credit is a result
of a reduction in the mortality and expense risk charge and is equal to 0.03%
multiplied by the Policy Account Value in the Separate Accounts and Subaccounts.
POLICY ACCOUNT VALUE
The Policy Account Value is the total amount of value held under the Policy
at any time. It is equal to the sum of the Policy's values in the Separate
Accounts, the Subaccounts, the Guaranteed Account and the Loan Account. The
Policy Account Value minus any applicable Surrender Charge or Additional
Surrender Charge is the Cash Surrender Value.
The Policy Account Value and Cash Surrender Value will reflect the
investment performance of the chosen Separate Accounts and Subaccounts, the
crediting of interest for the Guaranteed Account and the
25
<PAGE> 29
Loan Account, any Net Premiums paid, the Special Policy Account Value Credit,
any transfers, any partial withdrawals, any loans, any loan repayments, any loan
interest paid, and any charges assessed in connection with the Policy.
Calculation of Policy Account Value. The Policy Account Value is
determined first on the Policy Date and thereafter at the close of each
Valuation Day. On the Policy Date, the Policy Account Value equals the Net
Premiums received less any Monthly Deductions on the Policy Date. On each
Valuation Day after the Policy Date, the Policy Account Value is:
1. Policy Account Value in each Separate Account or Subaccount,
determined by multiplying the number of units of the Separate Account or
Subaccount by the Separate Account or Subaccount's Unit Value on that date;
2. Policy Account Value in the Guaranteed Account; plus
3. Policy Account Value in the Loan Account.
Determination of Number of Units. Allocated Net Premiums, the Special
Policy Account Value Credit or Policy Account Value transferred to a Separate
Account or Subaccount are used to purchase units of that Separate Account or
Subaccount; units are redeemed when amounts are deducted, transferred or
withdrawn. The number of units of a Separate Account or Subaccount at any time
equals the number of units purchased minus the number of units redeemed up to
such time. For each Separate Account or Subaccount, the number of units
purchased or redeemed in connection with a particular transaction is determined
by dividing the dollar amount by the unit value.
Determination of Unit Value. The unit value of a Separate Account or
Subaccount on any Valuation Day is equal to the unit value on the immediately
preceding Valuation Day multiplied by the Net Investment Factor for that
Separate Account or Subaccount on that Valuation Day.
Net Investment Factor. The Net Investment Factor for each Separate Account
or Subaccount measures the investment performance of that Separate Account or
Subaccount. The factor increases to reflect investment income and capital gains,
realized and unrealized, for the shares of the underlying Portfolio. The factor
decreases to reflect any capital losses, realized or unrealized, for the shares
of the underlying Portfolio as well as the asset charge for mortality and
expense risks.
POLICY DURATION
Policy Lapse. The Policy will remain in force as long as the Net Cash
Surrender Value of the Policy is sufficient to pay the Monthly Deductions and
other charges under the Policy. When the Net Cash Surrender Value is
insufficient to pay the charges and the Grace Period expires without an adequate
premium payment by the Owner, the Policy will lapse and terminate without value.
Notwithstanding the foregoing, during the first five Policy Years the Policy
will not lapse if the Minimum Guarantee Premium has been paid. A Guaranteed
Minimum Death Benefit rider may be purchased with the Policy that guarantees the
Policy will not lapse if certain conditions are met. (See "Supplementary
Benefits.")
The Policy provides for a 61-day Grace Period that is measured from the
date on which notice is sent by Provfirst Life indicating that the Grace Period
has begun. Thus, the Policy does not lapse, and the insurance coverage
continues, until the expiration of this Grace Period. To prevent lapse, the
Owner must, during the Grace Period, make a premium payment equal to three
Monthly Deductions. The notice sent by Provfirst Life will specify the payment
required to keep the Policy in force.
Reinstatement. A Policy that lapses may be reinstated at any time within
three years (or longer period required in a particular state) after the
expiration of the Grace Period and before the Final Policy Date by submitting
evidence of the Insured's insurability satisfactory to Provfirst Life and
payment of an amount sufficient to keep the Policy in force for at least three
months following the date that the reinstatement application is approved. Upon
reinstatement, the Policy Account Value is based upon the premium paid to
reinstate the Policy. A reinstated Policy has the same Policy Date as it had
prior to the lapse.
26
<PAGE> 30
TRANSFERS OF POLICY ACCOUNT VALUE
Transfers. The Owner may transfer the Policy Account Value between and
among the Separate Accounts or Subaccounts and the Guaranteed Account by making
a written transfer request to Provfirst Life. The amount transferred must be at
least $1,000, unless the total value in an account is less than $1,000, in which
case the entire amount may be transferred.
After 12 transfers have been made in any Policy Year, a $25 transfer charge
will be deducted from each transfer during the remainder of such Policy Year.
All transfers included in a single written request are treated as one transfer.
Transfers are made as of the date Provfirst Life receives a written request at
its Service Center. Transfers resulting from Policy loans, the exercise of
exchange privileges, and the reallocation from the Money Market Separate Account
following the 15-day period after the Issue Date, are not subject to a transfer
charge and do not count as one of the 12 "free" transfers in any Policy Year.
Under present law, transfers are not taxable transactions.
Special Transfer Right. During the first two years following the Issue
Date, the Owner may, on one occasion, transfer the entire Policy Account Value
in the Separate Accounts or Subaccounts to the Guaranteed Account without a
transfer charge and without such transfer counting toward the twelve transfers
permitted without charge during a Policy Year.
Conversion Privilege for Increase in Face Amount. During the first two
years following an increase in Face Amount, the Owner may, on one occasion,
without evidence of insurability, exchange the amount of the increase in Face
Amount for a fixed-benefit permanent life insurance policy. Such an exchange
may, however, have federal income tax consequences. (See "Tax Treatment of
Policy Benefits.") Premiums under this new policy will be based on the Sex,
Attained Age and Premium Class of the Insured on the effective date of the
increase in the Face Amount of the Policy. The new policy will have the same
Face Amount and Issue Date as the amount and effective date of the increase.
Provfirst Life will refund the monthly deductions for the increase made on each
Policy Processing Day between the effective date of the increase to the date of
conversion and the expense charge for such increase.
Transfer Right for Change in Investment Policy of a Separate Account or
Subaccount. If the investment policy of a Separate Account or Subaccount is
materially changed, the Owner may transfer the portion of the Policy Account
Value in such Separate Account or Subaccount to another Separate Account or
Subaccount or to the Guaranteed Account without a transfer charge and without
having such transfer count toward the twelve transfers permitted without charge
during a Policy Year.
Telephone Transfers. Transfers will be made upon instructions given by
telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to Provfirst Life. Provfirst
Life reserves the right to suspend telephone transfer privileges at any time for
any class of policies, for any reason. Provfirst Life will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine
and if it follows such procedures it will not be liable for any losses due to
authorized or fraudulent instructions. Provfirst Life, however, may be liable
for such losses if it does not follow those reasonable procedures. The
procedures Provfirst Life will follow for telephone transfers include requiring
some form of personal identification prior to acting on instructions received by
telephone, providing written confirmation of the transaction and making a
tape-recording of the instructions given by telephone.
Automatic Policy Account Value Rebalancing. Automatic Asset Rebalancing is
a feature which, if elected, authorizes periodic transfers of Policy Account
Values among the Separate Accounts or Subaccounts in order to maintain the
allocation of such values in percentages that match the then current premium
allocation percentages. Election of this feature may be made in the application
or at any time after the policy is issued by properly completing the election
form and returning it to Provfirst Life. The election may be revoked at any
time. Rebalancing may be done quarterly or annually. Rebalancing terminates when
the total value in the Separate Accounts is less than $1,000. Provfirst Life
reserves the right to suspend Automatic Asset Rebalancing at any time, for any
class of Policies, for any reason.
27
<PAGE> 31
Dollar-Cost Averaging. Dollar Cost Averaging is a program which, if
elected, enables the Owner to systematically and automatically transfer, on a
monthly basis, specified dollar amounts from any selected Separate Account or
Subaccount to any other Separate Account or Subaccounts or the Guaranteed
Account. Transfers may not come from the Guaranteed Account. By allocating on a
regularly scheduled basis as opposed to allocating the total amount at one
particular time, an Owner may be less susceptible to the impact of short term
market fluctuations. Provfirst Life, however, makes no guarantee that Dollar
Cost Averaging will result in a profit or protect against loss.
Dollar-Cost Averaging may be elected for a period of 6, 12, 18, 24, 30 or
36 months. To qualify for Dollar Cost Averaging, the following minimum amount of
Policy Account Value must be allocated to a Separate Account or Subaccount: 6
months -- $3,000; 12 months -- $6,000; 18 months -- $9,000; 24
months -- $12,000; 30 months -- $15,000; 36 months -- $18,000. At least $500
must be transferred from the Separate Account or Subaccount each month. The
amount required to be allocated to the Separate Account or Subaccount can be
made from an initial or subsequent investment or by transferring amounts into
the Separate Account or Subaccount from the other Separate Accounts or
Subaccounts or from the Guaranteed Account (See "Transfers from Guaranteed
Account."). Each monthly transfer is split among the Separate Accounts or
Subaccounts or the Guaranteed Account based upon the percentages elected. Dollar
Cost Averaging may not be elected if Automatic Asset Rebalancing has been
elected or if a policy loan is outstanding.
Dollar-Cost Averaging may be elected in the application or by completing an
election form and returning it to Provfirst Life by the beginning of the month.
When an election form is received, Dollar Cost Averaging will commence on the
first Policy Processing Day after the later of (a) the Policy Date; (b) the
15-day period when premiums are allocated to the Money Market Separate Account
in certain states; and (c) when the Separate Account or Subaccount value equals
or exceeds the greater of the minimum amount stated above and the amount of the
first monthly transfer.
Once Dollar-Cost Averaging transfers have commenced, they occur monthly on
the Policy Processing Day until the specified number of transfers has been
completed, or (a) a policy loan is requested, (b) the policy goes into the grace
period, or (c) there is insufficient value in the Separate Account or Subaccount
to make the transfer. The Owner may instruct Provfirst Life in writing to cancel
Dollar-Cost Averaging transfers at any time.
Transfers made under the Dollar Cost Averaging program do not count toward
the twelve transfers permitted each Policy Year without imposing the Transfer
Charge. Provfirst Life reserves the right to discontinue offering automatic
transfers upon 30 days' written notice to the Owner. Written notice will be sent
to the Owner confirming each transfer and when the Dollar Cost Averaging program
is terminated. The Owner and agent are responsible for reviewing the
confirmation to verify that the transfers are being made as requested.
FREE-LOOK PRIVILEGES
Free-Look for Policy. The Policy provides for an initial Free-Look Period.
The Owner may cancel the Policy until the latest of: (a) 45 days after Part I of
the application for the Policy is signed, and (b) 10 days after the Owner
receives the Policy. Upon giving written notice of cancellation and returning
the Policy to Provfirst Life's Service Center, to one of Provfirst Life's other
offices, or to the Provfirst Life representative from whom it was purchased, the
Owner will receive a refund equal to the sum of: (i) the Policy Account Value as
of the date the returned Policy is received by Provfirst Life at its Service
Center or the Provfirst Life representative through whom the Policy was
purchased; (ii) any Premium Expense Charges deducted from premiums paid; (iii)
any Monthly Deductions charged against the accounts; and (iv) any mortality and
expense risk charges deducted from the value of the net assets of the Separate
Accounts. A refund of all premiums paid is made for Policy's delivered in states
that require such a refund.
Free-Look for Increase in Face Amount. Any requested increase in Face
Amount is also subject to a Free-Look privilege. The Owner may cancel a
requested increase in Face Amount until the latest of:
28
<PAGE> 32
(a) 45 days after the application for the increase is signed, and (b) 10 days
after the Owner receives the new Policy Schedule pages reflecting the increase.
Upon requesting cancellation of the increase, an amount equal to all cost of
insurance charges attributable to the increase plus the Face Amount Increase
Charge will be credited to the accounts in the same proportion as they were
deducted, unless the Owner requests a refund of such amount.
LOAN PRIVILEGES
General. The Owner may at any time after the Issue Date borrow money from
Provfirst Life using the Policy Account Value as the security for the loan. The
Owner may obtain Policy loans in a minimum amount of $500 (or such lesser
minimum required in a particular state) but not exceeding the Policy's Net Cash
Surrender Value on the date of the loan. While the Insured is living, the Owner
may repay all or a portion of a loan and accrued interest.
Interest Rate Charged. Interest is charged on Policy loans at an effective
annual rate of 6%. Interest is due at the end of each Policy Year. If interest
is not paid when due, it is added to the loan balance and bear interest at the
same rate. Unpaid interest is allocated based on the Owner's written
instructions. If there are no written instructions or the Policy Account Value
in the specified Separate Accounts or Subaccounts is insufficient to allow the
collateral for the unpaid interest to be transferred, the interest is allocated
based on the proportion that the Guaranteed Account Value and the Value of the
Separate Accounts or Subaccounts under a Policy bear to the total unloaned
Policy Account Value.
Allocation of Loans and Collateral. Provfirst Life will allocate the
amount of a Policy loan among the Separate Accounts or Subaccounts and/or the
Guaranteed Account based upon the proportion that the value of the Separate
Accounts or Subaccounts and/or the Guaranteed Account Value bear to the total
unloaned Policy Account Value at the time the loan is made or to the Separate
Accounts or Subaccounts based on the percentages you specify at the time the
loan is made.
The collateral for a Policy loan is the loan amount plus accrued interest
to the next Policy Anniversary, less interest at an effective annual rate of 4%
which is earned to such Policy Anniversary. Provfirst Life will deduct the
collateral for the loan from each account based on the allocation described in
the preceding paragraph and transfer this amount to the Loan Account. The
collateral is recalculated: (a) when loan interest is repaid or added to loaned
amount; (b) when a new loan is made; and (c) when a loan repayment is made. A
transfer to or from the Loan Account will be made to reflect any recalculation
of collateral. At any time, the amount of the outstanding loan under a Policy
equals the sum of all loans (including due and unpaid interest added to the loan
balance) minus any loan repayments.
Interest Credited to Loan Account. As long as the Policy is in force,
Provfirst Life credits the amount in the Loan Account with interest at effective
annual rates it determines, but not less than 4% or such higher minimum rate
required under state law. The rate will apply to the calendar year which follows
the date of determination. Loan interest credited is transferred to the
accounts: (a) when loan interest is paid added to the loaned amount; (b) when a
loan repayment is made; and (c) when a new loan is made. Provfirst Life
currently credits 4% interest annually to the amount in the Loan Account until
the policy's 10th anniversary or until Attained Age 60, whichever is later, and
5.75% annually thereafter. The tax consequences of a Policy loan after the later
of a Policy's 10th anniversary or Attained Age 60 are less clear. Owners should
consult a tax adviser with respect to such consequences.
Effect of Policy Loan. Policy loans, whether or not repaid, will have a
permanent effect on the Policy Account Value, the Cash Surrender Value, and Net
Cash Surrender Value and may permanently affect the Death Benefit under the
Policy. The effect on the Policy Account Value and Death Benefit could be
favorable or unfavorable, depending on whether the investment performance of the
Separate Accounts or Subaccounts and the interest credited to the Guaranteed
Account is less than or greater than the interest being credited on the assets
in the Loan Account while the loan is outstanding. Compared to a Policy under
which no loan is made, values under a Policy will be lower when the credited
interest rate is less than the investment experience of assets held in the
Separate Accounts or Subaccounts and interest
29
<PAGE> 33
credited to the Guaranteed Account. The longer a loan is outstanding, the
greater the effect of a Policy loan is likely to be. The Death Proceeds will be
reduced by the amount of any outstanding Policy loan.
Loan Repayments. An Owner may repay all or part of a Policy loan at any
time while the Insured is alive and the Policy is in force. Unless prohibited by
a particular state, Provfirst Life will assume that any payments made while
there is an outstanding loan is a loan repayment, unless it receives written
instructions that the payment is a premium payment. Repayments up to the amount
of the outstanding loan is allocated to the accounts based on the amount of the
outstanding loan allocated to each account as of the date of repayment; any
repayment in excess of the amount of the outstanding loan will be allocated to
the accounts based on the amount of interest due on the portion of the
outstanding loan allocated to each account. For this purpose, the amount of the
interest due is determined as of the next Policy Anniversary. Failure to repay a
loan or to pay loan interest will not cause the Policy to lapse unless the Net
Cash Surrender Value on the Policy Processing Day is less than the monthly
deduction due. (See "Policy Duration.")
Tax Considerations. Any loans taken from a Modified Endowment Contract
will be treated as a taxable distribution. In addition, with certain exceptions,
a 10% additional income tax penalty will be imposed on the portion of any loan
that is included in income. (See "Distributions from Policies Classified as
Modified Endowment Contracts.") Depending upon the investment performance of the
Separate Accounts and the amounts borrowed, loans may cause the Policy to lapse.
If the Policy is not a Modified Endowment Contract, lapse of the Policy with
outstanding loans may result in adverse tax consequences. (See "Distributions
from Policies Not Classified as Modified Endowment Contracts.")
SURRENDER PRIVILEGE
At any time before the earlier of the death of the Insured and the Final
Policy Date, the Owner may surrender the Policy for its Net Cash Surrender
Value. The Net Cash Surrender Value is determined by Provfirst Life as of the
date it receives, at its Service Center, a surrender request signed by the
Owner. Coverage under the Policy will end on the day the Owner mails or
otherwise sends the written surrender request to Provfirst Life at its Service
Center. A surrender may have adverse federal income tax consequences. (See "Tax
Treatment of Policy Benefits.")
PARTIAL WITHDRAWAL PRIVILEGE
After the first Policy Year, at any time before the earlier of the death of
the Insured and the Final Policy Date, the Owner may withdraw a portion of the
Policy's Net Cash Surrender Value. The minimum amount which may be withdrawn is
$1,500. A withdrawal charge will be deducted from the Policy Account Value. A
partial withdrawal will not result in the imposition of surrender charges.
The withdrawn amount and withdrawal charge will be allocated based on the
proportion that the Policy Account Value in the Separate Accounts or any
Subaccount and the Guaranteed Account Value bear to the total unloaned Policy
Account Value, or are allocated to such Separate Accounts or Subaccounts as the
Owner specifies at the time of the withdrawal.
The effect of a partial withdrawal on the Death Benefit and Face Amount
will vary depending upon the Death Benefit Option in effect and whether the
Death Benefit is based on the applicable percentage of Policy Account Value.
(See "Death Benefit Options.")
Option A. The effect of a partial withdrawal on the Face Amount and Death
Benefit under Option A can be described as follows:
If the Death Benefit equals the Face Amount, a partial withdrawal will
reduce the Face Amount and the Death Benefit by the amount of the partial
withdrawal.
For the purposes of this illustration (and the following illustrations
of partial withdrawals), assume that the Attained Age of the Insured is
under 40 and there is no indebtedness. The applicable percentage is 250%
for an Insured with an Attained Age under 40.
30
<PAGE> 34
Under Option A, a contract with a Face Amount of $300,000 and a Policy
Account Value of $30,000 will have a Death Benefit of $300,000. Assume that
the policyowner takes a partial withdrawal of $10,000. The partial
withdrawal will reduce the Policy Account Value to $19,975
($30,000 - $10,000 - $25) and the Death Benefit and Face Amount to $290,000
($300,000 - $10,000).
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, the Face Amount
will be reduced by an amount equal to the amount of the partial withdrawal.
The Death Benefit will be reduced to equal the greater of (a) the Face
Amount after the partial withdrawal, and (b) the applicable percentage of
the Policy Account Value after deducting the amount of the partial
withdrawal and expense charge.
Under Option A, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000. Assume
that the policyowner takes a partial withdrawal of $49,975. The partial
withdrawal will reduce the Policy Account Value to $250,000
($300,000 - $49,975 - $25) and the Face Amount to $250,025
($300,000 - $49,975). The Death Benefit is the greater of (a) the Face
Amount of $250,025 and (b) the applicable percentage of the Policy Account
Value $625,000 ($250,000 x 2.5). Therefore, the Death Benefit will be
$625,000.
Any decrease in Face Amount due to a partial withdrawal will first
reduce the most recent increase in Face Amount, then the most recent
increases, successively, and lastly, the Initial Face Amount.
Option B. The Face Amount will never be decreased by a partial withdrawal.
A partial withdrawal will, however, always decrease the Death Benefit.
If the Death Benefit equals the Face Amount plus the Policy Account
Value, a partial withdrawal will reduce the Policy Account Value by the
amount of the partial withdrawal and expense charge and thus the Death
Benefit will also be reduced by the amount of the partial withdrawal and
the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $90,000 will have a Death Benefit of $390,000 ($300,000 +
$90,000). Assume the policyowner takes a partial withdrawal of $20,000. The
partial withdrawal will reduce the Policy Account Value to $69,975
($90,000 - $20,000 - $25) and the Death Benefit to $369,975 ($300,000 +
$69,975). The Face Amount is unchanged.
If the Death Benefit immediately prior to the partial withdrawal is
based on the applicable percentage of Policy Account Value, The Death
Benefit will be reduced to equal the greater of (a) the Face Amount plus
the Policy Account Value after deducting the partial withdrawal and expense
charge and (b) the applicable percentage of Policy Account Value after
deducting the amount of the partial withdrawal and the expense charge.
Under Option B, a policy with a Face Amount of $300,000 and a Policy
Account Value of $300,000 will have a Death Benefit of $750,000 ($300,000 x
2.5). Assume the policyowner takes a partial withdrawal of $149,975. The
partial withdrawal will reduce the Policy Account Value to $150,000
($300,000 - $149,975 - $25) and the Death Benefit to the greater of (a) the
Face Amount plus the Policy Account Value $450,000 ($300,000 + $150,000)
and (b) the Death Benefit based on the applicable percentage of the Policy
Account Value $375,000 ($150,000 x 2.5). Therefore, the Death Benefit will
be $450,000. The Face Amount is unchanged.
Because a partial withdrawal can affect the Face Amount and the Death
Benefit as described above, a partial withdrawal may also affect the Net Amount
at Risk which is used to calculate the cost of insurance charge under the
Policy. (See "Cost of Insurance.") A request for partial withdrawal may not be
allowed if, or to the extent that such withdrawal would reduce the Face Amount
below the Minimum Face Amount for the Policy. Also, if a partial withdrawal
would result in cumulative premiums exceeding the maximum premium limitations
applicable under the Code for life insurance, Provfirst Life will not allow such
partial withdrawal.
31
<PAGE> 35
A partial withdrawal of Net Cash Surrender Value may have federal income
tax consequences. (See "Tax Treatment of Policy Benefits.")
ACCELERATED DEATH BENEFIT
Applicants residing in states that have approved the Accelerated Death
Benefit rider (the "ADB rider") may elect to add it to their Policy at issue,
subject to Provfirst Life receiving satisfactory additional evidence of
insurability. The ADB rider is not yet available in all states and the terms
under which it is available may vary from state-to-state. There is no assurance
that the ADB rider will be approved in all states or that it will be approved
under the terms described herein.
The ADB rider permits the Owner to receive, at his or her request and upon
approval by Provfirst Life, an accelerated payment of part of the Policy's Death
Benefit when one of the following two events occurs:
1. Terminal Illness. The Insured develops a non-correctable medical
condition which is expected to result in his or her death within 12 months;
or
2. Permanent Confinement to a Nursing Care Facility. The Insured has
been confined to a Nursing Care Facility for 180 days and is expected to
remain in such a facility for the remainder of his or her life.
There is no charge for adding the ADB rider to a Policy. However, an
administrative charge, currently $100 and not to exceed $250, will be deducted
from the accelerated death benefit at the time it is paid.
Tax Consequences of the ADB Rider. The federal income tax consequences
associated with adding the ADB rider or receiving the accelerated death benefit
are uncertain. Accordingly, Owners should consult a tax adviser before adding
the ADB rider to a Policy or requesting an accelerated death benefit.
Amount of the Accelerated Death Benefit. The ADB rider provides for a
minimum accelerated death benefit payment of $10,000 and a maximum benefit
payment equal to 75% of the Eligible Death Benefit less 25% of any outstanding
policy loans and accrued interest. The ADB rider also restricts the total of the
accelerated death benefits paid from all life insurance policies issued to an
Owner by Provfirst Life and its subsidiaries to $250,000. This $250,000 maximum
may be increased, as provided in the ADB rider, to reflect inflation. The term
Eligible Death Benefit under the ADB rider means:
The Insurance Proceeds payable under a Policy if the Insured died at the
time a claim for an accelerated death benefit is approved by Provfirst Life,
minus:
1. any Premium Refund payable at death if the Insured died at such
time; and
2. any insurance payable under the terms of any other rider attached
to a Policy.
An Owner may request only one accelerated death benefit payment (except to
pay premiums and policy loan interest) and there are no restrictions on the
Owner's use of the benefit. An Owner may elect to receive the accelerated death
benefit payment in a lump sum or in 12 or 24 equal monthly installments. If
installments are elected and the Insured dies before all of the payments have
been made, the present value (at the time of the Insured's death) of the
remaining payments and the remaining Insurance Proceeds at Death under the
Policy will be paid to the Beneficiary in a lump sum.
Conditions for Receipt of the Accelerated Death Benefit. In order to
receive an accelerated death benefit payment, a Policy must be in force other
than as Extended Term Insurance and an Owner must submit due proof of
eligibility and a completed claim form to Provfirst Life at its Home Office. Due
proof of eligibility means a written certification (described more fully in the
ADB rider) in a form acceptable to Provfirst Life, from a treating physician
stating that the Insured has a Terminal Illness or is expected to be permanently
confined in a Nursing Care Facility.
Provfirst Life may request additional medical information from an Owner's
physician and/or may require an independent physical examination (at its
expense) before approving the claim for payment of the accelerated death
benefit. Provfirst Life will not approve a claim for an accelerated death
benefit payment if a Policy is assigned in whole or in part, if the Terminal
Illness or Permanent Confinement is
32
<PAGE> 36
the result of intentionally self-inflicted injury or if the Owner is required to
elect it in order to meet the claims of creditors or to obtain a government
benefit.
Operation of the ADB Rider. The ADB rider provides that the accelerated
death benefit be made in the form of a policy loan up to the amount of the
maximum loan available under a Policy at the time the claim is approved.
Therefore, a request for an accelerated death benefit payment in an amount less
than or equal to the maximum loan available at that time will result in a policy
loan being made in the amount of the requested benefit. This policy loan
operates as would any loan under the Policy.
To the extent that the amount of a requested accelerated death benefit
payment exceeds the maximum available loan amount, the benefit will be advanced
to the Owner and a lien will be placed on the Death Benefit payable under the
Policy (the "death benefit lien") in the amount of this advance. Under the ADB
rider, interest will accrue daily, at a rate determined as described in the ADB
rider, on the amount of this advance and upon the death of the Insured the
amount of the advance and accrued interest thereon will be subtracted from the
amount of Insurance Proceeds at Death.
Effect on Existing Policy. The Insurance Proceeds at Death otherwise
payable under a Policy at the time of an Insured's death will be reduced by the
amount of any death benefit lien and accrued interest thereon. If the Owner
makes a request for a surrender, a policy loan or a withdrawal, the Policy's Net
Cash Surrender Value and Loan Value will be reduced by the amount of any
outstanding death benefit lien plus accrued interest. Therefore, depending upon
the size of the death benefit lien, this may result in the Net Cash Surrender
Value and the Loan Value being reduced to zero.
Premiums and policy loan interest must be paid when due. However, if
requested with the accelerated death benefit claim, future premiums and policy
loan interest may be paid through additional accelerated death benefits. If
future premiums and policy loan interest are to be paid through additional
accelerated death benefits, Periodic Planned Premiums and policy loan interest
will be paid in this manner automatically.
In addition to lapse under the applicable provisions of the Policy, a
Policy will also terminate on any Policy Anniversary when the death benefit lien
exceeds the Insurance Proceeds at Death.
33
<PAGE> 37
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate
Provfirst Life for (a) providing the insurance benefits set forth in the Policy;
(b) administering the Policy; (c) assuming certain risks in connection with the
Policy; and (d) incurring expenses in distributing the Policy. In the event that
there are any profits from fees and charges deducted under the Policy, including
but not limited to mortality and expense risk charges, such profits could be
used to finance the distribution of the contracts.
PREMIUM EXPENSE CHARGE
Prior to allocation of Net Premiums, premiums paid are reduced by a Premium
Expense Charge which consists of:
Premium Tax Charge. Various states and some of their subdivisions impose a
tax on premiums received by insurance companies. Premium taxes vary from state
to state but range from % to %. A deduction of a percentage of the premium
will be made from each premium payment. The applicable percentage will be based
on the rate for the Insured's residence. No Premium tax charge is deducted in
jurisdictions that impose no premium tax.
Percent of Premium Charge. A percent of premium charge not to exceed 3% is
deducted from each premium payment to partially compensate Provfirst Life for
the cost of selling the Policy. Currently, Provfirst Life deducts 1.5% percent
from each premium payment.
SURRENDER CHARGES
A Surrender Charge, which consists of a Deferred Administrative Charge and
a Deferred Sales Charge, is imposed if the Policy is surrendered or lapses at
any time before the end of the 12th Policy Year. A portion of this Surrender
Charge will be deducted if the Owner decreases the Initial Face Amount before
the end of the 12th Policy Year. An Additional Surrender Charge, which is an
Additional Deferred Administrative Charge and an Additional Deferred Sales
Charge, is imposed if the Policy is surrendered or lapses at any time within 12
years after the effective date of an increase in Face Amount. A portion of an
Additional Surrender Charge also is deducted if the related increment of Face
Amount is decreased within 12 years after such increase took effect.
These surrender charges are designed partially to compensate Provfirst Life
for the cost of administering, issuing and selling the Policy, including agent
sales commissions, the cost of printing the prospectuses and sales literature,
any advertising costs, medical exams, review of applications for insurance,
processing of the applications, establishing policy records and Policy issue.
Provfirst Life does not expect the surrender charges to cover all of these
costs. To the extent that they do not, Provfirst Life will cover the short-fall
from its general account assets, which may include profits from the mortality
and expense risk charge.
Deferred Administrative Charge. The Deferred Administrative Charge is as
follows:
<TABLE>
<CAPTION>
CHARGE PER $1,000
POLICY YEAR FACE AMOUNT
- ----------- -----------------
<S> <C>
1-6.................................. $4.90
7.................................... 4.20
8.................................... 3.50
9.................................... 2.80
10................................... 2.10
11................................... 1.40
12................................... 0.70
13................................... 0
</TABLE>
The actual Deferred Administrative Charge is the charge described above
less the amount of any Deferred Administrative Charge previously paid at the
time of a decrease in Face Amount.
34
<PAGE> 38
Deferred Sales Charge. The Deferred Sales Charge will not exceed the
Maximum Deferred Sales Charge specified in the Policy. During Policy Years 1
through 6, this maximum equals 70% of the Target Premium for the Initial Face
Amount. It equals 60% of that premium during Policy Year 7, 50% during Policy
Year 8, 40% during Policy Year 9, 30% during Policy Year 10, 20% during Policy
Year 11, 10% during Policy year 12, and 0% during Policy Years 13 and later. The
Deferred Sales Charge actually imposed will equal the lesser of this maximum and
an amount equal to 35% of all premiums actually paid to the date of surrender or
lapse, less any Deferred Sales Charge previously paid at the time of a prior
decrease in Face Amount.
Additional Deferred Administrative Charge. An Additional Deferred
Administrative Charge is associated with each increase in Face Amount. The
Charge is the same as that for the initial Face Amount except that the Charge
grades down based on 12-month periods beginning with the effective date of each
increase. The Additional Deferred Administrative Charge paid is the Charge as
described less the amount of any such Charge previously paid at the time of a
decrease in Face Amount.
Additional Deferred Sales Charge. An Additional Deferred Sales Charge is
associated with each increase in Face Amount. Each Additional Deferred Sales
Charge is calculated in a manner similar to the Deferred Sales Charge associated
with the Initial Face Amount. The Maximum Additional Deferred Sales Charge for
an increase in Face Amount is 70% of the Target Premium for that increase. This
maximum remains level for six years following the effective date of an increase.
It equals 60% of that premium during the seventh year, and declines in the same
manner as the Deferred Sales Charge such that it is 10% during Policy Year 12
and to 0% by the beginning of the 13th year after the effective date of the
increase. The Additional Deferred Sales Charge actually deducted is the lesser
of this maximum and 35% of premiums received for that increase, less any
Additional Deferred Sales Charge for such increase previously paid at the time
of a decrease in Face Amount.
Allocation of Policy Account Value and Subsequent Premium Payments. A
special method is used to allocate a portion of the existing Policy Account
Value to an increase in Face Amount and to allocate subsequent premium payments
between the Initial Face Amount and the increase. The Policy Account Value is
allocated according to the ratio between the Guideline Annual Premium for the
Initial Face Amount and the Guideline Annual Premium for the total Face Amount
on the effective date of the increase before any deductions are made. For
example, if the Guideline Annual Premium is equal to $4,500 before an increase
and is equal to $6,000 after an increase, the Policy Account Value on the
effective date of the increase would be allocated 75% ($4,500/$6,000) to the
Initial Face Amount and 25% to the increase. Premium payments made on or after
the effective date of the increase are allocated between the Initial Face Amount
and the increase using the same ratio as is used to allocate the Policy Account
Value. In the event there is more than one increase in Face Amount, Guideline
Annual Premiums for each increment of Face Amount are used to allocate Policy
Account Values and premium payments among the various increments of Face
Amounts.
Surrender Charge Upon Decrease in Face Amount. A surrender charge may be
deducted on a decrease in Face Amount. In the event of a decrease, the surrender
charge deducted is a fraction of the charge that would apply to a full surrender
of the Policy. If there have been no increases in Face Amount, the fraction will
be determined by dividing the amount of the decrease by the current Face Amount
and multiplying the result by the Surrender Charge. If more than one Surrender
Charge is in effect (i.e., pursuant to one or more increases in Face Amount),
the surrender charge will be applied in the following order: (1) the most recent
increase followed by (2) the next most recent increases, successively, and (3)
the Initial Face Amount. Where a decrease causes a partial reduction in an
increase or in the Initial Face Amount, a proportionate share of the Surrender
Charge for that increase or for the Initial Face Amount will be deducted.
Allocation of Surrender Charges. The Surrender Charge and any Additional
Surrender Charge will be deducted from the Policy Account Value. For surrender
charges resulting from Face Amount decreases, that part of any such surrender
charge will reduce the Policy Account Value and will be allocated among
35
<PAGE> 39
the accounts based on the proportion that the value in each of the Separate
Accounts, Subaccounts, and the Guaranteed Account Value bear to the total
unloaned Policy Account Value.
MONTHLY DEDUCTIONS
Charges will be deducted from the Policy Account Value on the Policy Date
and on each Policy Processing Day to compensate Provfirst Life for
administrative expenses and for the insurance coverage provided by the Policy.
The Monthly Deduction consists of four components -- (a) the cost of insurance,
(b) monthly administrative charges, (c) initial administrative charges, and (d)
the cost of any additional benefits provided by rider. Because portions of the
Monthly Deduction, such as the cost of insurance, can vary from month to month,
the Monthly Deduction may vary in amount from month to month. The Monthly
Deduction is deducted from the Separate Accounts, Subaccounts and the Guaranteed
Account in accordance with the allocation percentages for Monthly Deductions
chosen by the Owner at the time of application, or as later changed by Provfirst
Life pursuant to the Owner's written request. If Provfirst Life cannot make a
monthly deduction on the basis of the allocation schedule then in effect,
Provfirst Life makes the deduction based on the proportion that the Owner's
Guaranteed Account Value and the value in the Owner's Separate Accounts and
Subaccounts bear to the total unloaned Policy Account Value.
Cost of Insurance. Because the cost of insurance depends upon several
variables, the cost for each Policy Month can vary. Provfirst Life will
determine the monthly Cost of Insurance Charge by multiplying the applicable
cost of insurance rate or rates by the Net Amount at Risk for each Policy Month.
The Net Amount at Risk on any Policy Processing Day is the amount by which
the Death Benefit exceeds the Policy Account Value. The Net Amount at Risk is
determined separately for the Initial Face Amount and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount,
the Policy Account Value is first considered part of the Initial Face Amount. If
the Policy Account Value exceeds the Initial Face Amount, it is considered as
part of any increases in Face Amount in the order such increases took effect.
A cost of insurance is also determined separately for the Initial Face
Amount and any increases in Face Amount. In calculating the cost of insurance
charge, the rate for the Premium Class on the Policy Date is applied to the Net
Amount at Risk for the Initial Face Amount. For each increase in Face Amount,
the rate for the Premium Class applicable to the increase is used. If, however,
the Death Benefit is calculated as the Policy Account Value times the specified
percentage, the rate for the Premium Class for the Initial Face Amount will be
used for the amount of the Death Benefit in excess of the total Face Amount.
Any change in the Net Amount at Risk will affect the total cost of
insurance charges paid by the Owner.
Cost of Insurance Rate. The cost of insurance rate is based on the
Attained Age, Sex, Premium Class of the Insured and Duration. The actual monthly
cost on insurance rates will be based on Provfirst Life's expectations as to
future mortality and expense experience. They will not, however, be greater than
the guaranteed maximum cost of insurance rates set forth in the Policy. These
guaranteed maximum rates are based on the Insured's Attained Age, Sex, Premium
Class, and the 1980 Commissioners Standard Ordinary Smoker and Nonsmoker
Mortality Table. For Policies issued in states which require "unisex" policies
(currently Montana) or in conjunction with employee benefit plans, the maximum
cost of insurance charge depends only on the Insured's Age, Premium Class and
the 1980 Commissioners Standard Ordinary Mortality Table NB and SB. Any change
in the cost of insurance rates will apply to all persons of the same Attained,
Age, Sex, and Premium Class and Duration.
Premium Class. The Premium Class of the Insured will affect the cost of
insurance rates. Provfirst Life currently places Insureds into standard classes
and classes with extra ratings, which reflect higher morality risks. In an
otherwise identical Policy, an Insured in the standard class will have a lower
cost of insurance than an Insured in a class with extra ratings. The standard
Premium Class is divided into three categories: smoker, nonsmoker and preferred.
The preferred Premium Class is only available if the Face
36
<PAGE> 40
Amount equals or exceeds $100,000. Nonsmoking insureds will generally incur
lower cost of insurance rates than Insureds who are classified as smokers in the
same Premium Class. Preferred Insureds will generally incur lower cost of
insurance rates than Insureds who are classified as nonsmokers.
Since the nonsmoker designation is not available for Insureds under
Attained Age 21, shortly before an Insured attains age 21, Provfirst Life will
notify the Insured about possible classification as a nonsmoker and will send
the Insured an Application for Change in Premium Class. If the Insured does not
qualify as a nonsmoker or does not return the application, cost of insurance
rates will remain as shown in the Policy. However, if the insured returns the
application and qualifies as a nonsmoker, the cost of insurance rates will be
changed to reflect the nonsmoker classification.
Initial Administrative Charge. An Initial Administrative Charge of $5 is
deducted from Policy Account Value on the Policy Date and on each of the next
eleven Policy Processing Days.
Monthly Administrative Charges. A Monthly Administrative Charge (presently
$7.50) is deducted from the Policy Account Value on the Policy Date and each
Policy Processing Day as part of the Monthly Deduction. This charge may be
increased, but in no event will it be greater than $12 per month. This charge is
intended to reimburse Provfirst Life for ordinary administrative expenses
expected to be incurred, including record keeping, processing claims and certain
Policy changes, preparing and mailing reports, and overhead costs.
Additional Benefit Charges. The Monthly Deduction will include charges for
any additional benefits added to the Policy. The monthly charges will be
specified in the applicable rider.
FACE AMOUNT INCREASE CHARGE
If the Face Amount is increased, an increase charge will be deducted from
the Policy Account Value on the effective date of such increase. This charge,
equal to $100 plus $0.50 per $1,000 of Face Amount increase, but not greater
than $750.00, will be deducted from the accounts based on the allocation
schedule for Monthly Deductions in effect at such time. This charge may be
increased, but in no event will it be greater than $100 plus $3.00 per $1,000
Face Amount increase. This charge is intended to reimburse Provfirst Life for
administrative expenses in connection with the Face Amount increase, including
medical exams, review of the application for the increase, underwriting
decisions and processing of the application, and changing Policy records and the
Policy.
PARTIAL WITHDRAWAL CHARGE
A charge of $25 will be deducted from the Policy Account Value for each
partial withdrawal of Net Cash Surrender Value. This charge is intended to
compensate Provfirst Life for the administrative costs in effecting the
requested payment and in making all calculations which may be required by reason
of the partial withdrawal.
TRANSFER CHARGE
After 12 transfers have been made in any Policy Year, a transfer charge of
$25 will be deducted for each transfer during the remainder of such Policy Year
to compensate Provfirst Life for the costs of processing such transfers.
The transfer charge will be deducted from the amount being transferred. The
transfer charge will not apply to transfers resulting from Policy loans, the
exercise of special transfer rights and the initial reallocation of account
values from the Money Market Separate Account to other Separate Accounts or
Subaccounts. These transfers will not count against the 12 free transfers in any
Policy Year.
MORTALITY AND EXPENSE RISK CHARGE
A daily charge will be deducted from the value of the net assets of the
Separate Accounts and Subaccounts to compensate Provfirst Life for mortality and
expense risks assumed in connection with the
37
<PAGE> 41
Policy. This charge will be deducted at an annual rate of 0.75% (or a daily rate
of .002055%) of the average daily net assets of each Separate Account or
Subaccount. This charge may be increased, but in no event will it be greater
than an annual rate of 0.90% of the average daily net assets of each Separate
Account or Subaccount. The mortality risk assumed by Provfirst Life is that
Insureds may live for a shorter time than projected and, therefore, greater
death benefits than expected will be paid in relation to the amount of premiums
received. The expense risk assumed is that expenses incurred in issuing and
administering the Policies will exceed the administrative charges provided in
the Policy. (See "Special Policy Account Value Credit")
If the mortality and expense risk charge proves insufficient, Provfirst
Life will provide for all death benefits and expenses and any loss will be borne
by Provfirst Life. Conversely, Provfirst Life will realize a gain from this
charge to the extent all money collected from this charge is not needed to
provide for benefits and expenses under the Policies.
OTHER CHARGES
The Separate Accounts purchase shares of the Funds at net asset value. The
net asset value of those shares reflect management fees and expenses already
deducted from the assets of the Fund's Portfolios. The fees and expenses for the
Funds and their Portfolios are described briefly in connection with a general
description of each Fund. More detailed information is contained in the Funds
Prospectuses which are attached to or accompany this Prospectus.
38
<PAGE> 42
THE GUARANTEED ACCOUNT
An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Policy Account Value to the Guaranteed Account, which is part of
Provfirst Life's General Account and pays interest at declared rates guaranteed
for each calendar year (subject to a minimum guaranteed interest rate of 4%).
The principal, after deductions, is also guaranteed. Provfirst Life's General
Account supports its insurance and annuity obligations. The Guaranteed Account
has not, and is not required to be, registered with the SEC under the Securities
Act of 1933, and neither the Guaranteed Account nor Provfirst Life's General
Account has been registered as an investment company under the Investment
Company Act of 1940. Therefore, neither Provfirst Life's General Account, the
Guaranteed Account, nor any interest therein are generally subject to regulation
under the 1933 Act or the 1940 Act. The disclosures relating to these accounts
which are included in this Prospectus are for prospective Owners' information
and have not been reviewed by the SEC. However, such disclosures may be subject
to certain general applicable provisions of the Federal securities laws relating
to the accuracy and completeness of statements made in prospectuses.
The portion of the Policy Account Value allocated to the Guaranteed Account
will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of Provfirst Life's General Account, Provfirst Life
assumes the risk of investment gain or loss on this amount. All assets in the
General Account are subject to Provfirst Life's general liabilities from
business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 4%. Provfirst Life will credit the Guaranteed
Account Value with current rates in excess of the minimum guarantee but is not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Since
Provfirst Life, in its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the
Guaranteed Account will be credited with different current interest rates. The
interest rate to be credited to each amount allocated or transferred to the
Guaranteed Account will apply to the end of the calendar year in which such
amount is received or transferred. At the end of the calendar year, Provfirst
Life reserves the right to declare a new current interest rate on such amount
and accrued interest thereon (which may be a different current interest rate
than the current interest rate on new allocations to the Guaranteed Account on
that date). The rate declared on such amount and accrued interest thereon at the
end of each calendar year will be guaranteed for the following calendar year.
Any interest credited on the amounts in the Guaranteed Account in excess of the
minimum guaranteed rate of 4% per year will be determined in the sole discretion
of Provfirst Life. The Owner assumes the risk that interest credited may not
exceed the guaranteed minimum rate.
Amounts deducted from the Guaranteed Account for partial withdrawals,
Policy loans, transfers to the Separate Accounts or Subaccounts, Monthly
Deductions or other changes are currently, for the purpose of crediting
interest, accounted for on a last in, first out ("LIFO") method.
Provfirst Life reserves the right to change the method of crediting
interest from time to time, provided that such changes do not have the effect of
reducing the guaranteed rate of interest below 4% per annum or shorten the
period for which the interest rate applies to less than a calendar year (except
for the year in which such amount is received or transferred).
Calculation of Guaranteed Account Value. The Guaranteed Account Value at
any time is equal to amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred or withdrawn from it.
Interest will be credited to the Guaranteed Account on each Policy
Processing Day as follows: for amounts in the account for the entire Policy
Month, from the beginning to the end of the month; for amounts allocated to the
account during the prior Policy Month, from the date the Net Premium or loan
repayment is allocated to the end of the month; for amounts transferred to the
account during the Policy
39
<PAGE> 43
Month, from the date of transfer to the end of the month; and for amounts
deducted or withdrawn from the account during the prior Policy Month, from the
beginning of the month to the date of deduction or withdrawal.
Surrenders and partial withdrawals from the Guaranteed Account may be
delayed for up to six months. (See "Payment of Policy Benefits.")
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days prior to or following any Policy Anniversary, one transfer
is allowed from the Guaranteed Account to any or all of the Separate Accounts or
Subaccounts. The amount transferred from the Guaranteed Account may not exceed
25% of the value of such account if the value of such account exceeds $1,000 or,
if less, then the entire Guaranteed Account Value may be transferred on the
applicable Policy Anniversary. If the written request for such transfer is
received prior to the Policy Anniversary, the transfer will be made as of the
Policy Anniversary; if the written request is received after the Policy
Anniversary, the transfer will be made as of the date Provfirst Life receives
the written request at its Service Center.
40
<PAGE> 44
OTHER POLICY PROVISIONS
BENEFIT PAYABLE ON FINAL POLICY DATE
If the Insured is living on the Final Policy Date (at Insured's Attained
Age 100), Provfirst Life will pay the Owner the Policy Account Value less any
outstanding Policy loan and accrued interest and any unpaid Monthly Deductions.
Insurance coverage under the Policy will then end. Payment will generally be
made within seven days of the Final Policy Date.
PAYMENT OF POLICY BENEFITS
Insurance Proceeds under a Policy will ordinarily be paid to the
Beneficiary within seven days after Provfirst Life receives proof of the
Insured's death at its Service Center and all other requirements are satisfied.
Insurance proceeds will be paid in a single sum unless an alternative settlement
option has been selected.
If Insurance Proceeds are payable in a single sum, interest at the annual
rate of 3% or any higher rate declared by Provfirst Life or required by law is
paid on the Insurance Proceeds from the date of death until payment is made.
Any amounts payable as a result of surrender, partial withdrawal, or Policy
loan will ordinarily be paid within seven days of receipt of written request at
Provfirst Life's Service Center in a form satisfactory to Provfirst Life.
Generally, the amount of a payment from the Separate Accounts or
Subaccounts will be determined as of the date of receipt by Provfirst Life of
all required documents. However, Provfirst Life may defer the determination or
payment of such amounts if the date for determining such amounts falls within
any period during which: (1) the disposal or valuation of a Separate Account's
assets is not reasonably practicable because the New York Stock Exchange is
closed or conditions are such that, under the SEC's rules and regulations,
trading is restricted or an emergency is deemed to exist; or (2) the SEC by
order permits postponement of such actions for the protection of Provfirst Life
policyholders. As to amounts allocated to the Guaranteed Account, Provfirst Life
may defer payment of any withdrawal or surrender of Net Cash Surrender Value and
the making of a loan for up to six months after Provfirst Life receives a
written request at its Service Center. Provfirst Life will allow interest, at a
rate of 3% a year, on any payment Provfirst Life defers for 30 days or more as
described above.
The Owner may decide the form in which proceeds will be paid. During the
Insured's lifetime, the Owner may arrange for the Insurance Proceeds to be paid
in a lump sum or under a Settlement Option. These choices are also available
upon surrender of the Policy for its Net Cash Surrender Value and for payment of
the Policy Account Value on the Final Policy Date. If no election is made,
payment will be made in a lump sum. The Beneficiary may also arrange for payment
of the Insurance Proceeds in a lump sum or under a Settlement Option. If the
Beneficiary is changed, any prior arrangements with respect to the Payment
Option will be canceled.
THE POLICY
The Policy and the application(s) attached thereto are the entire contract.
Only statements made in the applications can be used to void the Policy or deny
a claim. Provfirst Life assumes that all statements in an application are made
to the best of the knowledge and belief of the person(s) who made them, and, in
the absence of fraud, those statements are considered representations and not
warranties. Provfirst Life relies on those statements when it issues or changes
a Policy. Only the President or a Vice President of Provfirst Life can agree to
change or waive any provisions of the Policy and only in writing. As a result of
differences in applicable state laws, certain provisions of the Policy may vary
from state to state.
41
<PAGE> 45
OWNERSHIP
The Owner is the Insured unless a different Owner is named in the
application or thereafter changed. While the Insured is living, the Owner is
entitled to exercise any of the rights stated in the Policy or otherwise granted
by Provfirst Life. If the Insured and Owner are not the same, and the Owner dies
before the Insured, these rights will vest in the estate of the Owner, unless
otherwise provided.
BENEFICIARY
The Beneficiary is designated in the application for the Policy, unless
thereafter changed by the Owner during the Insured's lifetime by written notice
to Provfirst Life. Any Insurance Proceeds for which there is not a designated
Beneficiary surviving at the Insured's death are payable in a single sum to the
Insured's executors or administrators.
CHANGE OF OWNER OR BENEFICIARY
As long as the Policy is in force, the Owner or Beneficiary may be changed
by written request in a form acceptable to Provfirst Life. If two or more
persons are named as Beneficiaries, those surviving the Insured will share the
Insurance Proceeds equally, unless otherwise stated. The change will take effect
as of the date it is signed, whether or not the Insured is living when the
request is received by Provfirst Life. Provfirst Life will not be responsible
for any payment made or action taken before it receives the written request. A
change in the Policy's ownership may have federal income tax consequences. (see
"Tax Treatment of Policy Benefits.")
SPLIT DOLLAR ARRANGEMENTS
The Owner or Owners may enter into a Split Dollar Arrangement between each
other or another person or persons whereby the payment of premiums and the right
to receive the benefits under the Policy (i.e., Net Cash Surrender Value or
Policy Proceeds) are split between the parties. There are different ways of
allocating such rights.
For example, an employer and employee might agree that under a Policy on
the life of the employee, the employer will pay the premiums and will have the
right to receive the Net Cash Surrender Value. The employee may designate the
Beneficiary to receive any Death Proceeds in excess of the Net Cash Surrender
Value. If the employee dies while such an arrangement is in effect, the employer
would receive from the Death Proceeds the amount which he would have been
entitled to receive upon surrender of the policy and the employee's Beneficiary
would receive the balance of the proceeds.
No transfer of Policy rights pursuant to a Split Dollar Arrangement will be
binding on Provfirst Life unless in writing and received by Provfirst Life.
The parties who elect to enter into a Split Dollar Arrangement should
consult their own tax advisers regarding the tax consequences of such an
arrangement.
PROTECTION OF PROCEEDS
Beneficiaries generally may not pledge or otherwise encumber or alienate
payments under this Policy before they are due.
ASSIGNMENTS
The Owner may assign any and all rights under the Policy. No assignment
binds Provfirst Life unless in writing and received by Provfirst Life at its
Service Center. Provfirst Life assumes no responsibility for determining whether
an assignment is valid and the extent of the assignee's interest. All
assignments will be subject to any Policy loan. The interest of any Beneficiary
or other person will be subordinate to any assignment. A Beneficiary may not
commute, encumber, or alienate Policy benefits, and to the extent permitted by
applicable law, such benefits are not subject to any legal process for the
payment of any
42
<PAGE> 46
claim against the payee. To the extent permitted by applicable laws, no right or
benefit under the Policy will be subject to claims of creditors, except as may
be provided by assignment.
MISSTATEMENT OF AGE AND SEX
If the Insured's age or sex has been misstated in the application, the
Death Benefit and any benefits provided by riders will be such as the most
recent Monthly Deductions would have provided at the correct age and sex. No
adjustment will be made to the Policy Account Value.
SUICIDE
In the event of the Insured's suicide within two years from the Issue Date
of the Policy (except where state law requires a shorter period) Provfirst
Life's liability is limited to the payment to the Beneficiary of a sum equal to
the premiums paid less any Policy loan and accrued interest and any partial
withdrawals.
If the Insured commits suicide within two years (or shorter period required
by state law) from the effective date of any Policy change which increases the
Death Benefit, the amount which Provfirst Life will pay with respect to the
increase will be the Monthly Deductions for the cost of insurance attributable
to such increase and the expense charge for the increase.
CONTESTABILITY
Provfirst Life has the right to contest the validity of a Policy based on
material misstatements made in the application for the Policy or a change.
However, Provfirst Life will not contest the Policy (or any change) after it (or
the change) has been in force during the Insured's lifetime for two years.
SETTLEMENT OPTIONS
In lieu of a single sum payment on death or surrender, an election may be
made to apply the proceeds under any one of the fixed-benefit Settlement Options
provided in the Policy. A guaranteed interest rate of 3% per year applies to all
Options. Additional interest may be declared each year by Provfirst Life in its
sole discretion. The options are briefly described below. Please refer to the
Policy for more details.
Proceeds at Interest Option. Left on deposit to accumulate with Provfirst
Life with interest payable at 12, 6, 3, or 1 month intervals, as elected at a
rate of at least 3% per year.
installments of a Specified Amount Option. Payable in equal instalments of
the amount elected with Provfirst Life's consent at 12, 6, 3, or 1 month
intervals, as elected until proceeds applied under the Option and interest on
the unpaid balance at 3% per year and any additional interest are exhausted.
installments for a Specified Period Option. Payable in the number of equal
monthly instalments set forth in the election. Payments may be increased by
additional interest which would increase the instalments certain. The guaranteed
interest rate is 3% per year.
Life Income Option. Payable in equal monthly instalments during the
payee's life. Payments will be made either with or without a guaranteed minimum
number. If there is to be a minimum number of payments, they will be for either
120 or 240 months or until the proceeds applied under the Option are exhausted,
as elected.
Joint and Survivor Life Income. Payable in equal monthly instalments, with
a number of instalments certain, during the joint lives of the payee and one
other person and during the life of the survivor. The minimum number of payments
will be for either 120 or 240 months, as elected.
SUPPLEMENTARY BENEFITS
In addition to the ADB rider, the following riders offer other
supplementary benefits. Most are subject to various age and underwriting
requirements and, unless otherwise indicated, must be purchased when the Policy
is issued. The cost of each rider is included in the monthly deduction.
Disability Waiver Benefit. A Disability Waiver Benefit rider provides that
in the event of the Insured's total disability before Attained Age 60 and
continuing for at least six months, Provfirst Life will
43
<PAGE> 47
apply a premium payment to the Policy on each Policy Processing Day during the
first five Policy Years (the amount of the payment will be based on the Minimum
Annual Premium). Provfirst Life will also waive all monthly deductions after the
commencement of and during the continuance of such total disability after the
first five Policy Years.
Disability Waiver of Premium Benefit. A Policy may include the Disability
Waiver of Premium Benefit rider that provides that, in the event of the
Insured's total disability before Attained Age 60 and continuing for at least
180 days, Provfirst Life will apply a premium payment to the Policy on each
Policy Processing Day prior to Insured's Attained Age 65 and while the Insured
remains totally disabled.
At the time of application, a monthly benefit amount is selected by the
Owner. This amount is generally intended to reflect the amount of the premiums
expected to be paid monthly. In the event of Insured's total disability the
amount of the premium payment applied on each Policy Processing Day will be the
lesser of: (a) the monthly benefit amount; or (b) the monthly average of the
premium payments less partial withdrawals for the Policy since its Policy Date.
An Owner cannot elect this rider and another disability waiver benefit rider
with the same Policy.
Change of Insured. A Change of Insured rider permits the Owner to change
the Insured, subject to certain conditions and evidence of insurability. The
Monthly Deduction for the cost of insurance is adjusted to that for the New
Insured as of the effective date of the change.
Children's Term Rider. A Children's Term Insurance rider provides level
term insurance on each insured child until the earlier of age 25 of the child or
the Policy Anniversary nearest the Insured's 65th birthday. When the term
insurance expires on the life of an insured child, it may be converted without
evidence of insurability to a whole life policy providing a level face amount of
insurance and a level premium. The new policy may be up to five times the amount
of the term insurance.
The rider is issued to provide between $5,000 and $15,000 of term insurance
on each insured child. Each insured child under a rider will have the same
amount of insurance. This rider must be selected at the time of application for
the Policy or an increase in Face Amount.
Other Insured Convertible Term Life Insurance. An Other Insured
Convertible Term Life Insurance rider provides additional term insurance on an
insured other than the Insured, on whom the Insured has an insurable interest.
This rider will terminate at the earlier of attained age 100 (80 in New York) of
the Other Insured or at the termination or maturity of the Policy. If the Policy
is extended by the Final Policy Date Extension rider, the Convertible Term Life
Insurance rider will terminate on the original maturity date.
Guaranteed Minimum Death Benefit. A Guaranteed Minimum Death Benefit rider
provides a guarantee that if the cumulative premiums paid less partial
withdrawals and outstanding loans exceed the cumulative minimum premiums to
date, the Policy will not lapse prior to the end of the Death Benefit Guarantee
Period shown on page 3 of the Policy Schedule. If the rider is added, the
Monthly Deduction will be increased by $0.01 per every $1,000 of Face Amount in
force under the Policy. The rider and the additional Monthly Deduction will
terminate: (1) upon written request; (2) upon surrender or other termination of
the Policy; or (3) at the expiration of the Death Benefit Guarantee Period. The
Guaranteed Minimum Death Benefit rider and the Convertible Term Life Insurance
rider may not be issued on the same Policy.
Final Policy Date Extension. A Final Policy Date Extension rider extends
the Final Policy Date of a Policy 20 years from the original Final Policy Date.
It may only be added on or after the anniversary nearest the younger insured's
90th birthday. There is no charge for adding this rider. The death benefit after
the original Final Policy Date will be the Policy Account Value. All other
riders attached and in effect on the original Final Policy Date will terminate
on the original Final Policy Date.
The tax consequences of (1) adding a Final Policy Date Extension rider to
the Policy, and (2) the Policy continuing in force after the Insured's 100th
birthday are uncertain. Prospective Owners and Owners considering the addition
of a Final Policy Date Extension to a Policy should consult their own legal or
other advisors as to such consequences.
44
<PAGE> 48
FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The following summary provides a general description of the Federal income
tax considerations associated with the Policy and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisors should be consulted for more
complete information. This discussion is based upon Provfirst Life's
understanding of the present Federal income tax laws. No representation is made
as to the likelihood of continuation of the present Federal income tax laws or
as to how they may be interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for Federal income tax
purposes and to receive the tax treatment normally accorded life insurance
contracts under Federal tax law, a Policy must satisfy certain requirements
which are set forth in the Internal Revenue Code. Guidance as to how these
requirements should be applied is limited. Nevertheless, Provfirst Life believes
that Policies issued on a standard premium class basis should satisfy the
applicable requirements. There is less guidance, however, with respect to
Policies issued on a substandard basis, and it is not clear whether such
Policies will in all cases satisfy the applicable requirements, particularly if
the Owner pays the full amount of premiums permitted under the Policy. If it is
subsequently determined that a Policy does not satisfy the applicable
requirements, we may take appropriate steps to bring the Policy into compliance
with such requirements and we reserve the right to restrict Policy transactions
in order to do so.
In certain circumstances, owners of variable life insurance contracts have
been considered for Federal income tax purposes to be the owners of the assets
of the separate account supporting their contracts due to their ability to
exercise investment control over those assets. Where this is the case, the
contract owners have been currently taxed on income and gains attributable to
the separate account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility of an Owner to allocate
premium payments and the Policy Account Value and the narrow investment
objective of certain Portfolios, have not been explicitly addressed in published
rulings. While Provfirst Life believes that the Policies do not give Owners
investment control over Separate Account assets, Provfirst Life reserves the
right to modify the Policies as necessary to prevent an Owner from being treated
as the owner of the Separate Account assets supporting the Policy.
In addition, the Code requires that the investments of the Separate
Accounts be "adequately diversified" in order for the Policies to be treated as
life insurance contracts for Federal income tax purposes. It is intended that
the Separate Accounts, through the Portfolios, will satisfy these
diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
In General. Provfirst Life believes that the death benefit under a Policy
should be excludible from the gross income of the beneficiary.
Federal, state and local transfer, estate, inheritance, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Owner or beneficiary. A tax adviser should be consulted on
these consequences.
Generally, the Owner will not be deemed to be in constructive receipt of
the Policy Account Value until there is a distribution. When distributions from
a Policy occur, or when loans are taken out from or secured by a Policy, the tax
consequences depend on whether the Policy is classified as a "Modified Endowment
Contract."
45
<PAGE> 49
Modified Endowment Contracts. Under the Internal Revenue Code, certain
life insurance contracts are classified as "Modified Endowment Contracts," with
less favorable tax treatment than other life insurance contracts. Due to the
flexibility of the Policies as to premiums and benefits, the individual
circumstances of each Policy will determine whether it is classified as a
Modified Endowment Contract. The rules are too complex to be summarized here,
but generally depend on the amount of premiums paid during the first seven
Policy years or seven years following a material change to the Policy. Certain
changes in a Policy after it is issued could also cause it to be classified as a
Modified Endowment Contract. A current or prospective Owner should consult with
a competent adviser to determine whether a Policy transaction will cause the
Policy to be classified as a Modified Endowment Contract.
Distributions Other Than Death Benefits from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts are subject to
the following tax rules:
- All distributions other than death benefits from a Modified Endowment
Contract, including distributions upon surrender and withdrawals, are
treated first as distributions of gain taxable as ordinary income and as
tax-free recovery of the Owner's investment in the Policy only after all
gain has been distributed.
- Loans taken from or secured by a Policy classified as a Modified
Endowment Contract are treated as distributions and taxed in same manner
as surrenders and withdrawals.
- A 10 percent additional income tax is imposed on the amount subject to
tax except where the distribution or loan is made when the Owner has
attained age 59 1/2 or is disabled, or where the distribution is part of
a series of substantially equal periodic payments for the life (or life
expectancy) of the Owner or the joint lives (or joint life expectancies)
of the Owner and the Owner's beneficiary or designated beneficiary.
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts. Distributions other than death benefits from a Policy that
is not classified as a Modified Endowment Contract are generally treated first
as a recovery of the Owner's investment in the Policy and only after the
recovery of all investment in the Policy as taxable income. However, certain
distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy
benefits are reduced during the first 15 Policy years may be treated in whole or
in part as ordinary income subject to tax.
Loans from or secured by a Policy that is not a Modified Endowment Contract
are generally not treated as distributions. However, the tax consequences
associated with Policy loans after the later of the Policy's 10th anniversary or
Attained Age 60 is less clear and a tax adviser should be consulted about such
loans.
Finally, neither distributions from nor loans from or secured by a Policy
that is not a Modified Endowment Contract are subject to the 10 percent
additional income tax.
Investment in the Policy. The Owner's investment in the Policy is
generally the aggregate premium payments. When a distribution is taken from the
Policy, the Owner's investment in the Policy is reduced by the amount of the
distribution that is tax-free.
Policy Loans. In general, interest on a Policy loan will not be
deductible. Before taking out a Policy loan, an Owner should consult a tax
adviser as to the tax consequences.
Multiple Policies. All Modified Endowment Contracts that are issued by
Provfirst Life (or its affiliates) to the same Owner during any calendar year
are treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Owner's income when a taxable distribution occurs.
Accelerated Death Benefit Rider. The Federal income tax consequences
associated with the Accelerated Death Benefit rider are uncertain. Owners should
consult a qualified tax adviser about the
46
<PAGE> 50
consequences of requesting payment under this rider. (See p. for more
information regarding the Rider.)
SPECIAL RULES FOR PENSION AND PROFIT-SHARING PLANS
If a Policy is purchased by a pension or profit-sharing plan, or similar
deferred compensation arrangement, the Federal, state and estate tax
consequences could differ. A competent tax adviser should be consulted in
connection with such a purchase.
The amounts of life insurance that may be purchased on behalf of a
participant in a pension or profit-sharing plan are limited. The current cost of
insurance for the net amount at risk is treated as a "current fringe benefit"
and must be included annually in the plan participant's gross income. Provfirst
Life reports this cost (generally referred to as the "P.S. 58" cost) to the
participant annually. If the plan participant dies while covered by the plan and
the Policy proceeds are paid to the participant's beneficiary, then the excess
of the death benefit over the Policy Account Value is not taxable. However, the
cash value will generally be taxable to the extent it exceeds the participant's
cost basis in the Policy. Policies owned under these types of plans may be
subject to restrictions under the Employee Retirement Income Security Act of
1974 ("ERISA"). You should consult a qualified adviser regarding ERISA.
Department of Labor ("DOL") regulations impose requirements for participant
loans under retirement plans covered by ERISA. Plan loans must also satisfy tax
requirements to be treated as nontaxable. Plan loan requirements and provisions
may differ from Policy loan provisions. Failure of plan loans to comply with the
requirements and provisions of the DOL regulations and of tax law may result in
adverse tax consequences and/or adverse consequences under ERISA. Plan
fiduciaries and participants should consult a qualified adviser before
requesting a loan under a Policy held in connection with a retirement plan.
BUSINESS USES OF THE POLICY
Businesses can use the Policy in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, tax exempt and nonexempt welfare benefit
plans, retiree medical benefit plans and others. The tax consequences of such
plans may vary depending on the particular facts and circumstances. If an Owner
is purchasing the Policy for any arrangement the value of which depends in part
on its tax consequences, he or she should consult a qualified tax adviser. In
recent years, moreover, Congress has adopted new rules relating to life
insurance owned by businesses. Any business contemplating the purchase of a new
Policy or a change in an existing Policy should consult a tax adviser.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Policy could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Policy.
PROVFIRST LIFE'S TAXES
Under current Federal income tax law, Provfirst Life is not taxed on the
Separate Accounts' operations. Thus, currently Provfirst Life does not deduct
charges from the Separate Accounts for its Federal income taxes. Provfirst Life
reserves the right to charge the Separate Accounts for any future Federal income
taxes that it may incur.
Under current laws in several states, Provfirst Life may incur state and
local taxes (in addition to premium taxes). These taxes are not now significant
and we are not currently charging for them. If they increase, Provfirst Life may
deduct charges for such taxes.
POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS
Policies may be acquired in conjunction with employee benefit plans ("EBS
Policies"), including the funding of qualified pension plans meeting the
requirements of Section 401 of the Code. For EBS Policies, the maximum mortality
rates used to determine the monthly Cost of Insurance Charge are based on the
47
<PAGE> 51
Commissioners' 1980 Standard Ordinary Mortality Tables NB and SB. Under these
Tables, mortality rates are the same for male and female Insureds of a
particular Attained Age and Premium Class. (See "Monthly Deductions.")
Illustrations reflecting the premiums and charges for EBS Policies will be
provided upon request to purchasers of such Policies. There is no provision for
misstatement of sex in the EBS Policies. Also, the rates used to determine the
amount payable under a particular Settlement Option will be the same for male
and female Insureds. (See "Settlement Options.")
LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES
In 1983, the United States Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under an employee's
deferred compensation plan could not, under Title VII of the Civil Rights Act of
1964, vary between men and women on the basis of sex. In that case, the Court
applied its decision only to benefits derived from contributions made on or
after August 1, 1983. Subsequent decisions of lower federal courts indicate that
in other factual circumstances the Title VII prohibition of sex-distinct
benefits may apply at an earlier date. In addition, legislative, regulatory, or
decisional authority of some states may prohibit use of sex-distinct mortality
tables under certain circumstances. The Policies offered by this Prospectus
(other than Policies issued in states which require "unisex" policies (currently
Montana) and EBS Policies are based upon actuarial tables which distinguish
between men and women and, thus, the Policy provides different benefits to men
and women of the same age. Accordingly, employers and employee organizations
should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before
purchasing the Policy and in determining whether an EBS Policy is appropriate.
VOTING RIGHTS
All of the assets held in the Growth, Money Market, Bond, Aggressive
Growth, and International Separate Accounts and the Subaccounts of the Variable
Account will be invested in shares of corresponding portfolios of the Funds. The
Funds do not hold routine annual shareholders' meetings. Shareholders' meetings
will be called whenever each Fund believes that it is necessary to vote to elect
the Board of Directors of the Fund and to vote upon certain other matters that
are required by the 1940 Act to be approved or ratified by the shareholders of a
mutual fund. Provfirst Life is the legal owner of Fund shares and as such has
the right to vote upon any matter that may be voted upon at a shareholders'
meeting. However, in accordance with its view of present applicable law,
Provfirst Life will vote the shares of the Funds at meetings of the shareholders
of the appropriate Fund or Portfolio in accordance with instructions received
from Owners. Fund shares held in each Separate Account or Subaccount for which
no timely instructions from policyowners are received will be voted by Provfirst
Life in the same proportion as those shares in that Separate Account or
Subaccount for which instructions are received.
Each Owner having a voting interest will be sent proxy material and a form
for giving voting instructions. Owners may vote, by proxy or in person, only as
to the Portfolios that correspond to the Separate Accounts or Subaccounts in
which their Policy values are allocated. The number of shares held in each
Separate Account or Subaccount attributable to a Policy for which the Owner may
provide voting instructions will be determined by dividing the Policy's value in
that account by the net asset value of one share of the corresponding Portfolio
as of the record date for the shareholder meeting. Fractional shares will be
counted. For each share of a Portfolio for which Owners have no interest,
Provfirst Life will cast votes, for or against any matter, in the same
proportion as Owners vote.
If required by state insurance officials, Provfirst Life may disregard
voting instructions if such instructions would require shares to be voted so as
to cause a change in the investment objectives or policies of one or more of the
Portfolios, or to approve or disapprove an investment policy or investment
adviser of one or more of the Portfolios. In addition, Provfirst Life may
disregard voting instructions in favor of changes initiated by an Owner or the
Fund's Board of Directors provided that Provfirst Life's disapproval of the
change is reasonable and is based on a good faith determination that the change
would be contrary to state law or otherwise inappropriate, considering the
portfolio's objectives and purposes, and the effect the change would have on
Provfirst Life. If Provfirst Life does disregard voting instructions, it will
advise Owners of that action and its reasons for such action in the next
semi-annual report to Owners.
48
<PAGE> 52
CHANGES TO THE SEPARATE ACCOUNTS OR FUNDS
CHANGES TO SEPARATE ACCOUNT OPERATIONS
The voting rights described in this Prospectus are created under applicable
Federal securities laws and regulations. If these laws or regulations change to
eliminate the necessity to solicit voting instructions from Owners or restrict
such voting rights, Provfirst Life reserves the right to proceed in accordance
with any such changed laws or regulations.
Provfirst Life also reserves the right, subject to compliance with
applicable law, including approval of Owners, if so required: (1) to transfer
assets supporting the Policies from one Subaccount to another or from the
Variable Account to another Separate Account, (2) to create additional separate
accounts, (3) to create additional Subaccounts, or combine or remove Subaccounts
from the Variable Account or to create other separate accounts, or to combine
any two or more Separate Accounts or Subaccounts, (4) to operate one or more of
the Separate Accounts or Subaccounts as a management investment company under
the 1940 Act, or in any other form permitted by law; (5) to deregister the unit
investment trust under the 1940 Act; and (6) to modify the provisions of the
Policies to comply with applicable laws.
CHANGES TO AVAILABLE PORTFOLIOS
It is possible that Provfirst Life may determine that one or more of the
Portfolios may become unsuitable for investment by the corresponding Separate
Account or Subaccount because of a change in investment policy, or a change in
the tax laws, or because the shares or units are no longer available for
investment or for any other reasonable cause. In that event, Provfirst Life may
seek to substitute the shares of another Portfolio or of a Portfolio of a Fund
not currently available under the Policies. If required by law, the approval of
the SEC and possibly one or more state insurance departments would be obtained.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between it and Provfirst Life. The
termination provisions of those agreements vary. Should an agreement between
Provfirst Life and a Fund terminate, the Variable Account will not be able to
purchase additional shares of that Fund. In that event, Owners would no longer
be able to allocate Policy Account Value or Net Premium Payments to Subaccounts
investing in Portfolios of that Fund. Additionally, in certain circumstances, it
is possible that a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement between the Fund and Provfirst
Life has not been terminated. In such an event, Provfirst Life will not be able
to honor requests of Owners to allocate their Policy Account Value or Net
Premium Payments to Subaccounts investing in shares of Portfolios of that Fund.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to Subaccounts of the Variable Account contain varying provisions regarding
termination. The following summarizes those provisions:
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to
the other; 2) by Alger if the Policies cease to qualify as annuity
contracts or life insurance policies under the Code or the Policies are not
registered, issued or sold in accordance with applicable laws; 3) by any
party in the event of a material irreconcilable conflict; 4) by Provfirst
Life in the event that formal proceedings are initiated against Alger or
the distributor by the SEC or another regulator; 5) by Provfirst Life in
the event the Portfolio or trust fails to meet the diversification
requirements; 6) by Provfirst Life if shares are not reasonably available;
7) by Provfirst Life if shares of the Portfolio are not registered, issued
or sold in accordance with applicable laws or applicable law precludes the
use of such shares; 8) by Provfirst Life if Alger fails to qualify as a
regulated investment company under Subchapter M of the Code; or
49
<PAGE> 53
9) by Alger's principal underwriter if it determines that Provfirst Life
has suffered a material adverse change in its business, operation,
financial condition or prospects.
Variable Insurance Products Fund and Variable Insurance Products Fund
II. The Agreements provide for termination 1) upon six months' advance
notice by either party, 2) at Provfirst Life's option if shares of the Fund
are not reasonably available to meet requirements of the policies, 3) at
Provfirst Life's option if shares of the Fund are not registered, issued,
or sold in accordance with applicable laws, if the Fund ceases to qualify
as a regulated investment company under the Code or for a Portfolio of the
Fund in the event such Portfolio fails to meet diversification requirements
under the Code, 4) at the option of the Fund or its principal underwriter
if it determines that Provfirst Life has suffered material adverse changes
in its business or financial condition or is subject to material adverse
publicity, 5) at the option of Provfirst Life if the Fund has suffered
material adverse changes in its business or financial condition or is a
subject of material adverse publicity, or 6) at the option of the Fund or
its principal underwriter if Provfirst Life decides to make another mutual
fund available as a funding vehicle for its policies.
Neuberger Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by Provfirst Life, Van Eck Trust or Van Eck
Trust's Distributor upon six months prior written notice or in the event
that formal proceedings are initiated against the other party by the SEC or
another regulator, 2) by Provfirst Life or Van Eck Trust in the event that
shares of Van Eck Trust subject to the agreement are not registered,
offered or sold in conformity with applicable law or such law precludes the
use of Trust shares, 3) by Provfirst Life upon reasonable notice if shares
of one of the then available Portfolios of Van Eck Trust are not longer
available or upon sixty days notice if Provfirst Life should substitute
shares of another fund or Fund for those of Van Eck Trust, 4) by Provfirst
Life if a Portfolio fails to meet the diversification and other
requirements of the Internal Revenue Code, or Provfirst Life reasonably
believes it may fail to do so, 5) upon assignment of the agreement unless
both parties agree to the assignment in writing.
50
<PAGE> 54
OFFICERS AND DIRECTORS OF PROVFIRST LIFE
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Robert W. Kloss
President, Chief Executive
Officer and Director................. 1996 to present -- President and Chief Executive Officer
of Provfirst Life; 1994 to 1996 -- President and Chief
Operating Officer of Provfirst Life; 1986 to
1994 -- President and Chief Executive Officer of Covenant
Life Insurance Company.
Edward R. Book
Director............................. 1996 to present -- President of USA National Tourism
16 Meredith Road Organization, Inc.; 1995-1996 -- Past-President and
Wynnewood, PA 19096 Consultant of Travel Industry Association of America; 1989
to 1994 -- President of Travel Industry Association of
America.
Dorothy M. Brown
Director............................. 1992 to present -- Acting President of the Pennsylvania
16 Meredith Road Academy of the Fine Arts.
Wynnewood, PA 19096
Robert J. Casale
Director............................. 1988 to present -- Group President/Brokerage Information
2 Journal Square Services Group of Automatic Data Processing Inc.
Jersey City, NJ 07306
Nicholas DeBenedictus
Director............................. 1993 to present -- Chairman, President and Chief Executive
Philadelphia Suburban Corp. Officer of Philadelphia Suburban Corporation.
762 Lancaster Avenue
Bryn Mawr, PA 19010
Philip C. Herr, II
Director............................. 1961 to present -- Partner of Herr, Potts & Herr.
Herr, Potts & Herr
100 Matsonford Road
Suite 446
Radnor, PA 19087
J. Richard Jones
Director............................. 1981 to present -- President and Chief Executive Officer
100 North 20th Street of Jackson- Cross Company.
Philadelphia, PA 19103
John P. Neafsey
Director............................. 1993 to present -- President of JN Associates.
13 Valley Road
So. Norwalk, CT 06854
Charles L. Orr
Director............................. 1993 to present -- President and Chief Executive Officer
Shaklee Corporation of Shaklee Corporation; 1990 to 1993 -- President of
Shaklee Terraces Shaklee U.S., Inc.
444 Market Street
San Francisco, CA 94111
Donald A. Scott
Director............................. 1964 to present--Senior Partner of Morgan, Lewis and
200 One Logan Square Bockius.
Philadelphia, PA 19103
John J. F. Sherrerd
Director............................. 1969 to present -- Partner of Miller, Anderson & Sherrerd.
One Tower Bridge
West Conshohocken, PA 19428
</TABLE>
51
<PAGE> 55
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION
NAME AND POSITION* DURING THE PAST FIVE YEARS
------------------ --------------------------
<S> <C>
Harold A. Sorgenti
Director............................. 1995 to present -- Partner at Sorgenti, Investment
Mellon Center, Suite 3905 Partners; 1991 to 1995 -- Partner of The Freedom Group
1735 Market Street Partnership.
Philadelphia, PA 19103
Alan F. Hinkle
Director, Executive Vice
President and Chief Actuary.......... 1996 to present -- Executive Vice President and Chief
Actuary of Provfirst Life; 1974-1996 -- Vice President and
Individual Actuary.
James G. Potter, Jr.
Executive Vice President,
General Counsel and Secretary........ 1997 to present -- Executive Vice President, General
Counsel & Secretary of Provfirst America Life Insurance
Company; 1989 to 1997 -- Chief Legal Officer of Prudential
Banks.
Joan C. Tucker
Executive Vice President,
Insurance Operations................. 1996 to present -- Executive Vice President, Insurance
Operations at Provfirst Life; 1996 -- Senior Vice
President, Insurance Operations of Provfirst Life;
1993-1996 -- Vice President Individual Insurance
Operations at Provfirst Life.
Mary Lynn Finelli
Executive Vice President
and Chief Financial Controller
Officer.............................. 1996 to present -- Executive Vice President and Chief
Financial Officer of Provfirst Life; 1986 to 1996 -- Vice
President and Controller of Provfirst Life.
Craig L. Snyder
Vice President, Mortgage Loans
and Real Estate...................... 1979 to present -- Vice President Mortgage Loans and Real
Estate at Provfirst Life.
Linda M. Springer
Vice President and Controller........ 1996 to present -- Vice President and controller of
Provfirst Life; 1995 to 1996 -- Assistant Vice President
and Actuary of Provfirst Life.
Rosanne Gatta
Vice President and Treasurer......... 1994 to present -- Vice President and Treasurer of
Provfirst Life; 1985 to 1994 -- Assistant Vice President
and Treasurer of Provfirst Life.
</TABLE>
- ---------------
* Unless otherwise indicated, the address is 1050 Westlakes Drive, Berwyn,
Pennsylvania 19312.
A Fidelity Bond in the amount of $10 million covering Provfirst Life's
officers and employees has been issued by Aetna Casualty and Surety Company.
DISTRIBUTION OF POLICIES
Applications for the Policies are solicited by agents who are licensed by
state insurance authorities to sell Provfirst Life's variable life insurance
policies, and who are also registered representatives of 1717 Capital Management
Company ("1717") or registered representatives of broker/dealers who have
Selling Agreements with 1717 or registered representatives of broker/dealers who
have Selling Agreements with such broker/dealers. 1717, whose address is
Christiana Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850, is a
registered broker/dealer under the Securities Exchange Act of 1934 (the "1934
Act") and a member of the National Association of Securities Dealers, Inc. (the
"NASD"). 1717 was organized under the Laws of on , 19 ,
and is an indirect wholly-owned subsidiary of Provfirst Life. 1717 acts as the
principal underwriter of the Policies (as well as other variable life policies)
pursuant to an Underwriting Agreement to which the Accounts, 1717 and Provfirst
Life are
52
<PAGE> 56
parties. 1717 retains no compensation as principal underwriter of the Policies.
1717 is also the principal underwriter of variable annuity contracts issued by
Provfirst Life and variable life and annuity contracts issued by Provfirst Life.
The insurance underwriting and the determination of a proposed Insured's
Premium Class and whether to accept or reject an application for a Policy is
done by Provfirst Life. Provfirst Life will refund any premiums paid if a Policy
ultimately is not issued or will refund the applicable amount if the Policy is
returned under the Free-Look provision.
Agents are compensated for sales of the Policies on a commission and
service fee basis and with other forms of compensation. During the first Policy
Year, agent commissions will not be more than 50% of the premiums paid up to a
target amount (used only to determine commission payments) and 2% of the
premiums paid in excess of that amount. Agent commissions will not be more than
5% of premiums paid for Policy Years 2 through 10 and for years 11 and later, 2%
of the premiums paid. However, for each premium received within 10 years
following an increase in Face Amount, agent commissions on the premium paid up
to the target amount for the increase in each year will be calculated using the
commission rates for the corresponding Policy Year. Agents may also receive
annual renewal compensation of up to 0.25% of the unloaned Policy Account Value,
depending upon the circumstances. The annual renewal compensation will be
computed on the Policy Anniversary beginning at the end of the second Policy
Year. Agents may also receive expense allowances or bonuses. The agent may be
required to return the first year commission less the deferred sales charge
imposed if a Policy is not continued through the first Policy Year.
POLICY REPORTS
At least once each Policy Year a statement will be sent to the Owner
describing the status of the Policy, including setting forth the Face Amount,
the current Death Benefit, any Policy loans and accrued interest, the current
Policy Account Value, the Guaranteed Account Value, the Loan Account Value, the
value in each Separate Account, premiums paid since the last report, charges
deducted since the last report, any partial withdrawals since the last report,
and the current Net Cash Surrender Value. At the present time, Provfirst Life
plans to send these Policy Statements on a quarterly basis. In addition, a
statement will be sent to an Owner showing the status of the Policy following
the transfer of amounts from one Separate Account or Subaccount of a Separate
Account to another (excluding automatic rebalancing of Policy Account Value),
the taking a loan, a repayment of a loan, a partial withdrawal and the payment
of any premiums (excluding those paid by bank draft or otherwise under the
Automatic Payment Plan). An Owner may request that a similar report be prepared
at other times. Provfirst Life may charge a reasonable fee for such requested
reports and may limit the scope and frequency of such requested reports.
An Owner will be sent a semi-annual report containing the financial
statements of each Portfolio in which he or she is invested.
PREPARING FOR YEAR 2000
Like all financial services providers, Provfirst Life and its affiliates
utilize systems that may be affected by Year 2000 transition issues and they
rely on service providers, including banks, custodians, administrators, and
investment managers that also may be affected. Provfirst Life and its affiliates
have developed, and are in the process of implementing, a Year 2000 transition
plan, and are confirming that its service providers are also so engaged. The
resources that are being devoted to this effort are substantial. It is difficult
to predict with precision whether the amount of resources ultimately devoted, or
the outcome of these efforts, will have any negative impact on Provfirst Life.
However, as of the date of this prospectus, it is not anticipated that Owners
will experience negative effects on their investment, or on the services
provided in connection therewith, as a result of Year 2000 transition
implementation. Provfirst Life currently anticipate that their systems will be
Year 2000 compliant on or about January 1, 1999 but there
53
<PAGE> 57
can be no assurance that Provfirst Life will be successful, or that interaction
with other service providers will not impair Provfirst Life's services at that
time.
STATE REGULATION
Provfirst Life is subject to regulation and supervision by the Insurance
Department of the State of Pennsylvania which periodically examines its affairs.
It is also subject to the insurance laws and regulations of all jurisdictions
where it is authorized to do business. A copy of the Policy form has been filed
with, and where required approved by, insurance officials in each jurisdiction
where the Policies are sold. Provfirst Life is required to submit annual
statements of its operations, including financial statements, to the insurance
departments of the various jurisdictions in which it does business for the
purposes of determining solvency and compliance with local insurance laws and
regulations.
LEGAL PROCEEDINGS
Provfirst Life and its subsidiaries, like other life insurance companies,
are involved in lawsuits, including class action lawsuits. In some class action
and other lawsuits involving insurers, substantial damages have been sought
and/or material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Provfirst Life believes that as
of the date of this Prospectus there are no pending or threatened lawsuits that
are reasonably likely to have a material adverse impact on the Separate Account
or Provfirst Life.
EXPERTS
The Financial Statements listed on Page F-1, have been included in this
Prospectus, in reliance on the reports of PriceWaterhouseCoopers, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
Actuarial matters included in the Prospectus have been examined by Scott V.
Carney, FSA, MAAA, Vice President and Actuary of Provfirst Life, as stated in
his opinion filed as an exhibit to the Registration Statement.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP, of Washington, D.C. has provided advice
relating to certain aspects of federal securities law applicable to the issue
and sale of the Policies. James G. Potter, Jr., Esq., General Counsel of
Provfirst America Life Insurance Company, has provided advice on certain matters
relating to the laws of Pennsylvania regarding the Policies and Provfirst Life's
issuance of the Policies.
54
<PAGE> 58
DEFINITIONS
ADDITIONAL SURRENDER CHARGE... The separately determined deferred
administrative charge and deferred sales charge
deducted from the Policy Account Value upon
surrender or lapse of the Policy within 12
years of the effective date of an increase in
Face Amount. A pro-rata Additional Surrender
Charge will be deducted for a reduction in Face
Amount within 12 years of the effective date of
a Face Amount increase. The Maximum Additional
Surrender Charge will be shown in the Policy
Schedule Pages reflecting the Face Amount
increase.
ATTAINED AGE.................. The Issue Age of the Insured plus the number of
full Policy Years since the Policy Date.
BENEFICIARY................... The person(s) or entity(ies) designated to
receive all or some of the Insurance Proceeds
when the Insured dies. The Beneficiary is
designated in the application or if
subsequently changed, as shown in the latest
change filed with Provfirst Life. If no
Beneficiary survives and unless otherwise
provided, the Insured's estate will be the
Beneficiary.
CASH SURRENDER VALUE.......... The Policy Account Value minus any applicable
Surrender Charge or Additional Surrender
Charge.
DEATH BENEFIT................. Under Option A, the greater of the Face Amount
or a percentage of the Policy Account Value on
the date of death; under Option B, the greater
of the Face Amount plus the Policy Account
Value on the date of death, or a percentage of
the Policy Account Value on the date of death.
DURATION...................... The number of full years the insurance has been
in force -- for the Initial Face Amount,
measured from the Policy Date; for any increase
in Face Amount, measured from the effective
date of such increase.
FACE AMOUNT................... The Initial Face Amount plus any increases in
Face Amount and minus any decreases in Face
Amount.
FINAL POLICY DATE............. The Policy Anniversary nearest Insured's
Attained Age 100 at which time the Policy
Account Value, if any, (less any outstanding
Policy loan and accrued interest) will be paid
to the Owner if the Insured is living. The
Policy will end on the Final Policy Date.
GRACE PERIOD.................. The 61-day period allowed for payment of a
premium following the date Provfirst Life mails
notice of the amount required to keep the
Policy in force.
GUIDELINE ANNUAL PREMIUM...... The "guideline annual premium" as defined in
applicable regulations under the 1940 Act. It
is approximately equal to the amount of premium
that would be required on an annual basis to
keep the Policy in force if the Policy had a
mandatory fixed premium schedule assuming
(among other things) a 5% net investment
return.
INITIAL FACE AMOUNT........... The Face Amount of the Policy on the Issue
Date. The Face Amount may be increased or
decreased after issue.
55
<PAGE> 59
INSURANCE PROCEEDS............ The net amount to be paid to the Beneficiary
when the Insured dies.
INSURED....................... The person upon whose life the Policy is
issued.
ISSUE AGE..................... The age of the Insured at his or her birthday
nearest the Policy Date. The Issue Age is
stated in the Policy.
LOAN ACCOUNT.................. The account to which the collateral for the
amount of any Policy loan is transferred from
the Separate Accounts, Subaccounts and/or the
Guaranteed Account.
MINIMUM ANNUAL PREMIUM........ The annual amount which is used to determine
the Minimum Guarantee Premium. This amount is
stated in each Policy.
MINIMUM FACE AMOUNT........... The Minimum Face Amount is $50,000 for all
Premium Classes except preferred. For the
preferred Premium Class, the Minimum Face
Amount is $100,000.
MINIMUM GUARANTEE PREMIUM..... The Minimum Annual Premium multiplied by the
number of months since the Policy Date
(including the current month) divided by 12.
MINIMUM INITIAL PREMIUM....... Equal to the Minimum Annual Premium multiplied
by the following factor for the specified
premium mode at issue: Annual -- 1.0;
Semi-annual -- 0.5; Quarterly -- 0.25;
Monthly -- 0.167.
MONTHLY DEDUCTIONS............ The amount deducted from the Policy Account
Value on each Policy Processing Day. It
includes the Monthly Administrative Charge, the
initial Administrative Charge, the Monthly Cost
of Insurance Charge, and the monthly cost of
any benefits provided by riders.
NET AMOUNT AT RISK............ The amount by which the Death Benefit exceeds
the Policy Account Value.
NET CASH SURRENDER VALUE...... The Cash Surrender Value minus any outstanding
Policy loans and accrued interest.
NET PREMIUMS.................. The remainder of a premium after the deduction
of the Premium Expense Charge.
OWNER......................... The person(s) or entity(ies) entitled to
exercise the rights granted in the Policy.
PLANNED PERIODIC PREMIUM...... The premium amount which the Owner plans to pay
at the frequency selected. The Owner is
entitled to receive a reminder notice and
change the amount of the Planned Periodic
Premium. The Owner is not required to pay the
Planned Periodic Premium.
POLICY ACCOUNT VALUE.......... The sum of the Policy's values in the Separate
Accounts, the Guaranteed Account, and the Loan
Account.
POLICY ANNIVERSARY............ The same day and month as the Policy Date in
each later year.
POLICY DATE................... The date set forth in the Policy that is used
to determine Policy Years and Policy Processing
Days. The Policy Date is generally the same as
the Issue Date but may be another date mutually
agreed upon by Provfirst Life and the proposed
Insured.
56
<PAGE> 60
POLICY ISSUE DATE............. The date on which the Policy is issued. It is
used to measure suicide and contestable
periods.
POLICY PROCESSING DAY......... The day in each calendar month which is the
same day of the month as the Policy Date. The
first Policy Processing Day is the Policy Date.
POLICY YEAR................... A year that starts on the Policy Date or on a
Policy Anniversary.
PREMIUM CLASS................. The classification of the Insured for cost of
insurance purposes. The classes are: standard;
nonsmoker; with extra rating, nonsmoker with
extra rating, and preferred.
PREMIUM EXPENSE CHARGE........ The amount deducted from a premium payment
which consists of the Premium Tax Charge and
the Percent of Premium Charge.
SPECIAL POLICY ACCOUNT VALUE
CREDIT........................ An amount that is added to the Policy Value in
the Separate Accounts or Subaccounts on any
Policy processing day after the Policy has been
in force for at least 15 years or when the
Policy Account Value equals or exceeds
$100,000.
SUBACCOUNT.................... A division of the Provident Mutual Variable
Separate Account. The assets of each Subaccount
are invested exclusively in a corresponding
Portfolio that is part of one of the Funds.
SURRENDER CHARGE.............. The amount deducted from the Policy Account
Value upon lapse or surrender of the Policy
during the first 12 Policy Years. A pro-rata
Surrender Charge will be deducted upon a
decrease in the Initial Face Amount during the
first 12 Policy Years. The Maximum Surrender
Charge is shown in the Policy. The Surrender
Charge is determined separately from the
Additional Surrender Charge.
TARGET PREMIUM................ An amount of premium payments, computed
separately for each increment of Face Amount,
used to compute Surrender Charges and
Additional Surrender Charges.
VALUATION DAY................. Each day that the New York Stock Exchange is
open for business and any other day on which
there is a sufficient degree of trading with
respect to a Separate Account's portfolio of
securities to materially affect the value of
that Separate Account.
VALUATION PERIOD.............. The time between two successive Valuation Days.
Each Valuation Period includes a Valuation Day
and any non-Valuation Day or consecutive
non-Valuation Days immediately preceding it.
57
<PAGE> 61
APPENDIX A
ILLUSTRATION OF DEATH BENEFITS, POLICY ACCOUNT VALUES
AND NET CASH SURRENDER VALUES
The following tables illustrate how the Death Benefits, Policy Account
Values and Net Cash Surrender Values of a Policy may change with the investment
experience of the Separate Accounts and Subaccounts. The tables show how the
Death Benefits, Policy Account Values and Net Cash Surrender Values of a Policy
issued to an Insured of a given age and sex would vary over time if the
investment return on the assets held in each Portfolio were a uniform, gross,
annual rate of 0%, 6% and 12%.
The tables on pages A-3 to A-8 illustrate a Policy issued to a male
Insured, Age 40 in the Preferred Premium Class with a Face Amount of $100,000
and a Planned Periodic Premium of $1,000 paid at the beginning of each Policy
Year. The Death Benefits, Policy Account Values and Net Cash Surrender Values
would be lower if the Insured was in a nonsmoker or smoker class or a class with
extra ratings since the cost of insurance charges would increase. Also, the
values would be different from those shown if the gross annual investment
returns averaged 0%, 6% and 12% over a period of years, but fluctuated above and
below those averages for individual Policy Years.
The second column of the tables show the amount to which the premiums would
accumulate if an amount equal to those premiums were invested to earn interest,
after taxes, at 5% compounded annually. The columns shown under the heading
"Guaranteed" assume that throughout the life of the policy, the monthly charge
for cost of insurance is based on the maximum level permitted under the Policy
(based on the 1980 CSO Smoker/Nonsmoker Table), a Premium Expense Charge of 5%,
maximum monthly administrative fee of $12 and a daily charge for mortality and
expense risks equivalent to an annual rate of 0.90% with the additional
Subaccount credit of 0.03% per month after the Policy is in force for 15 years
or the sum of the values in the Subaccount and Guaranteed Account equal or
exceed $100,000; the columns under the heading "Current" assume that throughout
the life of the policy, the monthly charge for cost of insurance is based on the
current cost of insurance rate, a Premium Expense Charge of 3.5%, current
monthly administrative fee of $7.50 and a daily charge for mortality and expense
risks equivalent to an annual rate of 0.75% with the additional Subaccount
credit of 0.03% per month after the Policy is in force for 15 years or the sum
of the values in the Subaccount and Guaranteed Account equal or exceed $100,000.
The amounts shown in all tables reflect an averaging of certain other asset
charges described below that may be assessed under the Policy, depending upon
how premiums are allocated. The total of the asset charges reflected in the
Current and Guaranteed illustrations, including the Mortality and Expense Risk
Charge listed above, is 1.58% and 1.73%, respectively. This total charge is
based on an assumption that an Owner allocates the Policy values equally among
each available Separate Account and Subaccount.
These asset charges reflect an investment advisory fee of 0.67% which
represents an average of the fees incurred by the Portfolios during the most
recent fiscal year and expenses of 0.16% which is based on an average of the
actual expenses incurred by the Portfolios during the most recent fiscal year.
For all of the Portfolios, the annual expenses used in the illustrations are net
of certain reimbursements that may or may not continue. In the event that
reimbursements do not continue for any Portfolio that is receiving them, the
Portfolio's actual expenses would increase and this would likely increase the
average expense figure on which the illustrations are based. See "Table of Fund
Fees and Expenses" for more information about such reimbursements.
Currently there is an expense reimbursement agreement between Provfirst
Life and MS Fund pursuant to which Provfirst Life reimburses MS Fund expenses,
excluding investment advisory fees, in excess of 0.40% for all Portfolios except
the International Portfolio and 0.75% for the International Portfolio. There was
no reimbursement in 1997. The Fund expenses, excluding advisory fees, during
1997 were 0.11% for the Growth Portfolio, 0.14% for the Money Market Portfolio,
0.22% for the Bond Portfolio, 0.17% for the Managed Portfolio, 0.18% for the
Aggressive Growth Portfolio and 0.27% for the
A-1
<PAGE> 62
International Portfolio. It is anticipated that this agreement will continue
past the current year. If it does not continue, Fund expenses may increase.
Absent reimbursements, the investment advisory fees and other expenses
during the most recent fiscal year for the portfolios were:
VIP Fund Equity Income Portfolio 0.58%, VIP Fund Growth Portfolio
0.69%, VIP Fund Overseas Portfolio 0.91%, VIP Fund II Asset Manager
Portfolio 0.65%, VIP Fund II Index 500 Portfolio 0.40%, VIP Fund II
Contrafund Portfolio 0.71% and Van Eck Worldwide Hard Assets Portfolio
1.18%.
The tables also reflect the fact that no charges for federal or state
income taxes are currently made against the Separate Accounts and Subaccounts.
If such a charge is made in the future, it would take a higher gross annual rate
of return to produce the same Policy values.
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if premiums are paid and allocated as
indicated, no amounts are allocated to the Guaranteed Account, and no Policy
loans are made. The tables are also based on the assumption that the Owner has
not requested an increase or decrease in the Face Amount, that no partial
withdrawals have been made and no transfers have been made in any Policy Year.
Upon request, PLACA will provide a comparable illustration of future
benefits under the Policy based upon the proposed Insured's Age and Premium
Class, the Death Benefit Option, Face Amount, Planned Periodic Premiums and
riders requested. Provfirst Life reserves the right to charge a reasonable fee
for this service to persons who request more than one policy illustration during
a Policy year.
A-2
<PAGE> 63
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0% (NET RATE OF %)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 358 0 100,000 621 0 100,000
2 2,153 900 0 100,000 1,275 85 100,000
3 3,310 1,417 52 100,000 1,903 538 100,000
4 4,526 1,907 542 100,000 2,501 1,136 100,000
5 5,802 2,368 1,003 100,000 3,070 1,705 100,000
6 7,142 2,800 1,435 100,000 3,606 2,241 100,000
7 8,549 3,199 2,029 100,000 4,117 2,947 100,000
8 10,027 3,565 2,590 100,000 4,600 3,625 100,000
9 11,578 3,897 3,117 100,000 5,056 4,276 100,000
10 13,207 4,191 3,606 100,000 5,481 4,896 100,000
11 14,917 4,446 4,056 100,000 5,878 5,488 100,000
12 16,713 4,657 4,462 100,000 6,239 6,044 100,000
13 18,599 4,817 4,817 100,000 6,564 6,564 100,000
14 20,579 4,922 4,922 100,000 6,848 6,848 100,000
15 22,657 4,964 4,964 100,000 7,086 7,086 100,000
16 24,840 4,956 4,956 100,000 7,419 7,419 100,000
17 27,132 4,871 4,871 100,000 7,718 7,718 100,000
18 29,539 4,706 4,706 100,000 7,984 7,984 100,000
19 32,066 4,454 4,454 100,000 8,217 8,217 100,000
20 34,719 4,103 4,103 100,000 8,414 8,414 100,000
25 50,113 344 344 100,000 8,787 8,787 100,000
30 69,761 0 0 0 7,568 7,568 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SEPARATE ACCOUNTS OR SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE
SEPARATE ACCOUNTS OR SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12%, BUT VARIED ABOVE OR BELOW THAT
AVERAGE FOR PARTICULAR SUBACCOUNTS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-3
<PAGE> 64
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0% (NET RATE OF %)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 356 0 100,356 620 0 100,620
2 2,153 896 0 100,896 1,271 81 101,271
3 3,310 1,409 44 101,409 1,894 529 101,894
4 4,526 1,892 527 101,892 2,486 1,121 102,486
5 5,802 2,346 981 102,346 3,047 1,682 103,047
6 7,142 2,768 1,403 102,768 3,572 2,207 103,572
7 8,549 3,155 1,985 103,155 4,070 2,900 104,070
8 10,027 3,507 2,532 103,507 4,538 3,563 104,538
9 11,578 3,822 3,042 103,822 4,976 4,196 104,976
10 13,207 4,097 3,512 104,097 5,381 4,796 105,381
11 14,917 4,331 3,941 104,331 5,754 5,364 105,754
12 16,713 4,517 4,322 104,517 6,090 5,895 106,090
13 18,599 4,649 4,649 104,649 6,384 6,384 106,384
14 20,579 4,723 4,723 104,723 6,634 6,634 106,634
15 22,657 4,730 4,730 104,730 6,835 6,835 106,835
16 24,840 4,683 4,683 104,683 7,133 7,133 107,133
17 27,132 4,556 4,556 104,556 7,394 7,394 107,394
18 29,539 4,345 4,345 104,345 7,618 7,618 107,618
19 32,066 4,045 4,045 104,045 7,805 7,805 107,805
20 34,719 3,645 3,645 103,645 7,953 7,953 107,953
25 50,113 0 0 0 8,015 8,015 108,015
30 69,761 0 0 0 6,366 6,366 106,366
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SEPARATE ACCOUNTS OR SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE
SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR
SEPARATE ACCOUNTS OR SUBACCOUNTS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-4
<PAGE> 65
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6% (NET RATE OF %)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 395 0 100,000 668 0 100,000
2 2,153 1,004 0 100,000 1,408 218 100,000
3 3,310 1,622 257 100,000 2,165 800 100,000
4 4,526 2,247 882 100,000 2,934 1,569 100,000
5 5,802 2,879 1,514 100,000 3,717 2,352 100,000
6 7,142 3,514 2,149 100,000 4,510 3,145 100,000
7 8,549 4,151 2,981 100,000 5,321 4,151 100,000
8 10,027 4,790 3,815 100,000 6,148 5,173 100,000
9 11,578 5,427 4,647 100,000 6,992 6,212 100,000
10 13,207 6,060 5,475 100,000 7,851 7,266 100,000
11 14,917 6,688 6,298 100,000 8,726 8,336 100,000
12 16,713 7,302 7,107 100,000 9,613 9,418 100,000
13 18,599 7,898 7,898 100,000 10,509 10,509 100,000
14 20,579 8,469 8,469 100,000 11,413 11,413 100,000
15 22,657 9,006 9,006 100,000 12,319 12,319 100,000
16 24,840 9,538 9,538 100,000 13,385 13,385 100,000
17 27,132 10,023 10,023 100,000 14,476 14,476 100,000
18 29,539 10,456 10,456 100,000 15,596 15,596 100,000
19 32,066 10,828 10,828 100,000 16,745 16,745 100,000
20 34,719 11,125 11,125 100,000 17,924 17,924 100,000
25 50,113 10,859 10,859 100,000 24,267 24,267 100,000
30 69,761 5,008 5,008 100,000 31,133 31,133 100,000
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SEPARATE ACCOUNTS OR SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE
SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR
SEPARATE ACCOUNTS OR SUBACCOUNTS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-5
<PAGE> 66
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6% (NET RATE OF %)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 394 0 100,394 666 0 100,666
2 2,153 1,000 0 101,000 1,404 214 101,404
3 3,310 1,613 248 101,613 2,155 790 102,155
4 4,526 2,230 865 102,230 2,916 1,551 102,916
5 5,802 2,851 1,486 102,851 3,688 2,323 103,688
6 7,142 3,473 2,108 103,473 4,466 3,101 104,466
7 8,549 4,093 2,923 104,093 5,258 4,088 105,258
8 10,027 4,709 3,734 104,709 6,061 5,086 106,061
9 11,578 5,319 4,539 105,319 6,876 6,096 106,876
10 13,207 5,919 5,334 105,919 7,699 7,114 107,699
11 14,917 6,506 6,116 106,506 8,531 8,141 108,531
12 16,713 7,072 6,877 107,072 9,367 9,172 109,367
13 18,599 7,610 7,610 107,610 10,201 10,201 110,201
14 20,579 8,112 8,112 108,112 11,031 11,031 111,031
15 22,657 8,568 8,568 108,568 11,850 11,850 111,850
16 24,840 9,001 9,001 109,001 12,828 12,828 112,828
17 27,132 9,371 9,371 109,371 13,817 13,817 113,817
18 29,539 9,670 9,670 109,670 14,817 14,817 114,817
19 32,066 9,888 9,888 109,888 15,830 15,830 115,830
20 34,719 10,007 10,007 110,007 16,852 16,852 116,852
25 50,113 8,440 8,440 108,440 22,004 22,004 122,004
30 69,761 681 681 100,681 26,536 26,536 126,536
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SEPARATE ACCOUNTS OR SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE
SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR
SEPARATE ACCOUNTS OR SUBACCOUNTS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-6
<PAGE> 67
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION A ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12% (NET RATE OF %)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 433 0 100,000 714 0 100,000
2 2,153 1,113 0 100,000 1,547 357 100,000
3 3,310 1,845 481 100,000 2,449 1,084 100,000
4 4,526 2,632 1,267 100,000 3,423 2,058 100,000
5 5,802 3,478 2,113 100,000 4,477 3,112 100,000
6 7,142 4,388 3,023 100,000 5,616 4,251 100,000
7 8,549 5,365 4,195 100,000 6,855 5,685 100,000
8 10,027 6,416 5,441 100,000 8,204 7,229 100,000
9 11,578 7,547 6,767 100,000 9,674 8,894 100,000
10 13,207 8,763 8,178 100,000 11,276 10,691 100,000
11 14,917 10,072 9,682 100,000 13,024 12,634 100,000
12 16,713 11,479 11,284 100,000 14,930 14,735 100,000
13 18,599 12,989 12,989 100,000 17,008 17,008 100,000
14 20,579 14,608 14,608 100,000 19,275 19,275 100,000
15 22,657 16,344 16,344 100,000 21,748 21,748 100,000
16 24,840 18,271 18,271 100,000 24,640 24,640 100,000
17 27,132 20,347 20,347 100,000 27,827 27,827 100,000
18 29,539 22,588 22,588 100,000 31,347 31,347 100,000
19 32,066 25,013 25,013 100,000 35,238 35,238 100,000
20 34,719 27,638 27,638 100,000 39,543 39,543 100,000
25 50,113 44,584 44,584 100,000 69,224 69,224 100,000
30 69,761 71,720 71,720 100,000 119,317 119,317 138,408
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SEPARATE ACCOUNTS OR SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE
SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR
SEPARATE ACCOUNTS OR SUBACCOUNTS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-7
<PAGE> 68
PROVIDENT MUTUAL -- FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
<TABLE>
<S> <C>
$100,000 FACE AMOUNT MALE INSURED ISSUE AGE 40 PREFERRED
DEATH BENEFIT OPTION B ANNUAL PREMIUM $1,000
</TABLE>
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 12% (NET RATE OF %)
<TABLE>
<CAPTION>
GUARANTEED* CURRENT**
PREMIUMS ----------------------------- -----------------------------
END OF ACCUMULATED POLICY NET CASH POLICY NET CASH
POLICY AT 5% INT. ACCOUNT SURRENDER DEATH ACCOUNT SURRENDER DEATH
YEAR PER YEAR VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------ ----------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1,050 431 0 100,431 713 0 100,713
2 2,153 1,108 0 101,108 1,542 352 101,542
3 3,310 1,834 469 101,834 2,438 1,073 102,438
4 4,526 2,612 1,247 102,612 3,402 2,037 103,402
5 5,802 3,445 2,080 103,445 4,441 3,076 104,441
6 7,142 4,335 2,970 104,335 5,560 4,195 105,560
7 8,549 5,287 4,117 105,287 6,772 5,602 106,772
8 10,027 6,304 5,329 106,304 8,084 7,109 108,084
9 11,578 7,391 6,611 107,391 9,507 8,727 109,507
10 13,207 8,550 7,965 108,550 11,047 10,462 111,047
11 14,917 9,787 9,397 109,787 12,718 12,328 112,718
12 16,713 11,102 10,907 111,102 14,526 14,331 114,526
13 18,599 12,495 12,495 112,495 16,481 16,481 116,481
14 20,579 13,969 13,969 113,969 18,594 18,594 118,594
15 22,657 15,521 15,521 115,521 20,874 20,874 120,874
16 24,840 17,216 17,216 117,216 23,552 23,552 123,552
17 27,132 19,002 19,002 119,002 26,478 26,478 126,478
18 29,539 20,885 20,885 120,885 29,680 29,680 129,680
19 32,066 22,865 22,865 122,865 33,185 33,185 133,185
20 34,719 24,943 24,943 124,943 37,024 37,024 137,024
25 50,113 36,579 36,579 136,579 62,466 62,466 162,466
30 69,761 49,052 49,052 149,052 102,393 102,393 202,393
</TABLE>
- ---------------
* These values reflect investment results using guaranteed cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
** These values reflect investment results using current cost of insurance
rates, mortality and expense risk, premium expense and administrative
charges.
The death benefit may, and the policy account values and net cash surrender
values will differ if premiums are paid in different amounts or frequencies.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RESULTS ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RESULTS. ACTUAL INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN. THE
DEATH BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY
WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN
APPLICABLE TO THE POLICY AVERAGED 0%, 6% OR 12% OVER A PERIOD OF YEARS, BUT ALSO
FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. THE DEATH
BENEFIT, POLICY ACCOUNT VALUE AND NET CASH SURRENDER VALUE FOR A POLICY WOULD
ALSO BE DIFFERENT FROM THOSE SHOWN, DEPENDING ON THE INVESTMENT ALLOCATIONS MADE
TO THE SEPARATE ACCOUNTS OR SUBACCOUNTS AND THE DIFFERENT RATES OF RETURN OF THE
SUBACCOUNTS IF THE ACTUAL RATES OF INVESTMENT RETURN APPLICABLE TO THE POLICY
AVERAGED 0%, 6% OR 12%, BUT VARIED ABOVE OR BELOW THAT AVERAGE FOR PARTICULAR
SEPARATE ACCOUNTS OR SUBACCOUNTS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME.
A-8
<PAGE> 69
APPENDIX B
LONG TERM MARKET TRENDS
The information below is a record of the compound annual returns of common
stocks, high-grade corporate bonds and 30-day U.S. Treasury bills over 20 year
holding periods.* The compound annual returns assume the reinvestment of
dividends, capital gains and interest. This is an historical record and is not
intended as a projection of future performance. Charges associated with a
variable life policy are not reflected.
The data indicates that, historically, the investment performance of common
stocks over long periods of time has been positive and has generally been
superior to that of long-term, high-grade debt securities. Common stocks have,
however, been subject to more dramatic market adjustments over short periods of
time. To the extent that cash value is allocated to separate accounts which
invest in common stocks, these trends indicate the potential advantages of
holding a variable life insurance policy for a long period of time.
The following chart illustrates the compound annual returns of the S&P 500
Composite Stock Price Index for each of the 20-year periods shown. These returns
are compared to the compound annual returns of high-grade corporate bonds and
U.S. Treasury bills for the same periods. (The 20-year periods selected for the
chart begin in 1938 and have ending periods at five year intervals.)
Compound Annual Returns Graph
- ---------------
* Sources: Common stock returns-Standard & Poor's 500 Composite Stock Price
Index. Corporate bond returns -- Salomon Brothers Long Term High Grade
Corporate Bond Index, and U.S. Treasury Bill returns -- C.R.S.P. U.S.
Government Bond File through 1976 and The Wall Street Journal thereafter. All
data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield, Stocks, Bonds, Bills
and Inflation (SBBI),
B-1
<PAGE> 70
1982, updated in Stocks, Bonds, Bills and Inflation 1998 Yearbook(TM),
Ibbotson Associates, Inc., Chicago. All rights reserved.
Over the 53 20-year time periods beginning in 1926 and ending in 1997 (i.e.
1926-1945, 1927-1946, and so on through 1978-1997):
-- The compound annual return of common stocks was superior to that of
high-grade, long-term corporate bonds in 50 of the 53 periods.
-- The compound annual return of common stocks surpassed that of U.S.
Treasury bills in each of the 53 periods.
-- Common stock compound annual returns exceeded the average annual rate of
inflation in each of the 53 periods.
Over the 43 30-year time periods beginning in 1926 and ending in 1997, the
compound annual return of common stocks was superior to that of high-grade,
long-term corporate bonds, U.S. Treasury bills and inflation in all 43 periods.
From 1926 through 1997 the compound annual return for common stocks was
11.0%, compared to 5.7% for high-grade, long-term corporate bonds, 5.2% for
Long-Term Government Bonds, 3.8% for U.S. Treasury bills and 3.1% for the
Consumer Price Index.
------------------------
SUMMARY TABLE: HISTORIC S&P 500 COMPOSITE STOCK INDEX RESULTS FOR
SPECIFIC HOLDING PERIODS
The following chart categorizes the historical results of the Standard &
Poor's 500 Composite Stock Index, with dividends reinvested, over one-year,
five-year, ten-year and twenty-year periods beginning in 1926 and ending in
1997.
The chart shows that historically, the longer that a portfolio matching the
S&P 500 Composite Stock Index was held, the less likely was the chance of a
loss. Conversely, the shorter the holding period of such a portfolio, the more
likely was the chance of a loss. The chart also shows that shorter term results
tend to be more extreme than longer term results.
THE CHART IS NOT A PROJECTION OR REPRESENTATION OF FUTURE STOCK MARKET
RESULTS. IT CANNOT BE TAKEN AS REPRESENTATIVE OF THE PERFORMANCE OF ANY ONE
SEPARATE ACCOUNT. Rather it shows the historic performance of a broad index of
stocks over arbitrarily selected time periods.
PERCENT OF HOLDING PERIODS WITH THE FOLLOWING RETURNS:
<TABLE>
<CAPTION>
GREATER
THAN
HOLDING NEGATIVE 0.5.00% 5.01-10.00% 10.01-15.00% 15.01-20.00% 20.00%
PERIOD RETURN RETURN RETURN RETURN RETURN RETURN
------ -------- ------- ----------- ------------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year 27.8% 4.2% 11.1% 6.9% 11.1% 38.9%
5 years 10.3% 14.7% 14.7% 32.4% 17.6% 10.3%
10 years 3.2% 11.1% 34.9% 22.2% 27.0% 1.6%
20 years 0.0% 5.8% 32.1% 54.7% 7.5% 0.0%
</TABLE>
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
B-2
<PAGE> 71
TREASURY BILLS ADJUSTED FOR INFLATION
The data below show the annual rate of return over 20-year holding periods
of U.S. Treasury Bills after adjusting for inflation as measured by the Urban
Consumer Price Index. This annual rate, as adjusted, is also called the real
interest rate and is represented as the real interest rate in the chart below.
U.S. Treasury Bills are considered to be one of the safest kinds of investments,
as they are backed by the U.S. government. However, the highest
inflation-adjusted return of U.S. Treasury Bills over the historic 20-year
periods presented below has been modest.
Treasury Bills Adjusted for Inflation graph
Selected 20-year periods ending on year shown above.
- ---------------
Source: All basic data from: (C)Ibbotson, Roger G., and Rex A. Sinquefield,
Stocks, Bonds, Bills and Inflation (SBBI), 1982, updated in Stocks, Bonds, Bills
and Inflation 1998 Yearbook(TM), Ibbotson Associates, Inc., Chicago. All rights
reserved.
---------------------------
THE "DOLLAR COST AVERAGING" INVESTMENT METHOD
As the Compound Annual Returns graph indicates, the investment performance
of many common stocks has generally been positive over certain relatively long
periods. Common stocks have, however, also been subject to market declines,
often dramatic ones, and general volatility of prices over shorter time periods.
The price fluctuations of common stocks has historically been greater than that
of high-grade debt securities.
The relative volatility of common stock prices as compared with prices of
high-grade debt instruments offers both advantages and disadvantages to
investors. Unfortunately, many investors who otherwise might be interested in
common stocks see only the disadvantages and not the advantages of stock price
fluctuation. The primary disadvantage, of course, is that price declines can be
prolonged and substantial, and when this occurs, investors cannot liquidate
their investments without realizing losses. Price declines, however, also offer
investors important opportunities.
B-3
<PAGE> 72
Opportunity arises from the fact that investors can purchase more common
stock for the same amount of money than they would before prices declined.
Investors may take advantage of this if they remain willing to continue
investing in both rising and falling markets. The dollar cost averaging method
of investing demonstrates this.
In this method of investing:
- Relatively constant dollar amounts are invested at regular intervals
(monthly, quarterly, or annually).
- Stock market fluctuations, especially the savings on purchases from price
declines, are exploited for the investor's benefit.
HOW DOLLAR COST AVERAGING WORKS
<TABLE>
<CAPTION>
INVESTMENTS AT COMMON STOCK SHARES
REGULAR INTERVALS MARKET PRICE PURCHASED
- ----------------- ------------ ---------
<S> <C> <C>
$150 $20 7.5
150 15 10.0
150 10 15.0
150 5 30.0
150 10 15.0
150 15 10.0
---- ---------
$900 87.5
</TABLE>
<TABLE>
<S> <C>
Total Value of 87.5 shares @ 15/share $1,312.50
Less Investment made (900.00)
---------
Gain/Profit $ 412.50
</TABLE>
Though the market price has not returned to the initial high of $20 per
share, dollar cost averaging has permitted the investor to purchase more shares
at a savings and thus realize a significant gain. Obviously, the dollar cost
averaging method only works if the investor continues to invest relatively
constant amounts over a long period of time.
This plan of investing does not assure a profit or protect against a loss
in declining markets; it does allow investors to take advantage of market
fluctuations. Since the success of this strategy is dependent on systematic
investing, purchasers should consider their ability to sustain their payments
through all periods of marketing fluctuations.
How does the dollar cost averaging method relate to a variable life
insurance policy? A policyowner may invest his or her net premiums in a separate
account, and, although a Policy's value in the separate accounts is affected by
several factors other than investment experience (e.g., cash value charges and
charges against the separate account), the dollar cost averaging method can be
generally applied to the Policy to the extent that the policyowner pays premiums
on a regular basis and he or she allocates net premiums to separate accounts
which invest in common stocks in relatively constant amounts.
B-4
<PAGE> 73
APPENDIX C
PLAN OF CONVERSION
As of February 12, 1999 ("the Effective Date"), a Plan of Conversion (the
"Plan") became effective pursuant to which Provident Mutual Life Insurance
Company, a Pennsylvania mutual life insurance corporation ("Provident Mutual"),
reorganized and continued its corporate existence (the "Conversion") as
Provfirst America Life Insurance Company, a Pennsylvania stock life insurance
corporation ("Provfirst Life"). The Plan, as amended, was adopted by Provident
Mutual's board of directors on October 13, 1998. The Plan was approved by the
Pennsylvania Deputy Insurance Commissioner by a Decision and Order dated
November 6, 1998 ("Order"). The Provident Mutual policyholders entitled to vote
on the Plan duly adopted the Plan at a special meeting held on February 9, 1999.
Provfirst Life is currently conducting business in all jurisdictions under
the name "Provfirst Life America Insurance Company," except in those
jurisdictions in which regulators have not yet approved use of this name. In
those jurisdictions, Provfirst Life will continue to do business using the name
"Provident Mutual Life Insurance Company" until it receives approval to use the
new name.
Pursuant to the Plan, Provident Mutual also formed Provident Mutual Holding
Company, a Pennsylvania nonstock corporation, and Provfirst America Corporation,
a Pennsylvania business corporation. All the shares of voting stock of Provfirst
Life were issued to the Provfirst America Corporation, and all the shares of
voting stock of Provfirst America Corporation were issued to Provident Mutual
Holding Company, except for approximately 1% of the shares of voting stock of
Provfirst America Corporation, which were issued to an employee stock ownership
plan formed by Provfirst Life. Pursuant to the Order and as set forth in the
Plan, Provident Mutual Holding Company will at all times, directly or
indirectly, control Provfirst Life through the ownership of at least a majority
of the voting authority of Provfirst America Corporation, which will hold,
directly or indirectly, all the outstanding voting stock of Provfirst Life. The
directors and executive officers of Provfirst Life serving immediately prior to
the Effective Date remained as the directors and executive officers of each of
Provident Mutual Holding Company, Provfirst America Corporation and
ProvfirstLife after the Effective Date.
The terms and provisions of the life insurance policies and annuity
contracts of Provident Mutual, including the Policies, that were in force on the
Effective Date were not changed by the Conversion and continued, after the
Effective Date, as policies or contracts of Provfirst Life. Likewise, each
separate account of Provident Mutual continues, after the Effective Date, as a
separate account of Provfirst Life. The Conversion did not in any way change the
operations of any separate account supporting a Policy and did not result in any
material disruption of the services provided to Owners. The names of the
separate accounts are being changed by replacing the words "Provident Mutual"
with "Provfirst Life" in each name. Use of new separate account names in each
jurisdiction will generally begin concurrently with the use of Provfirst Life's
new name. Nevertheless, some jurisdictions require separate approval of the new
separate account names, and in those jurisdictions, Provfirst Life will not use
the new names until it receives such approval.
The Conversion did not result in any material changes in existing offices,
management, or distribution systems, except for changes occurring in the
ordinary course of business. Provfirst Life's business is now conducted in the
form of a stock insurance corporation rather than a mutual insurance
corporation. The Conversion does not, in any way, increase premium payments or
reduce policy benefits, values, guarantees or other policy obligations to
policyholders.
Prior to the Conversion, Provident Mutual policyholders had (1) contract
rights under their insurance policies and annuity contracts, and (2) certain
membership rights in Provident Mutual. The principal contract right of
policyholders was the right to receive the type and amount of benefits then
specified in their policies or contracts in accordance with their terms and
conditions, including the right to receive policy dividends when, if, and as
declared by the board of directors of Provident Mutual in accordance with the
terms and conditions of such policies. The membership rights of policyholders
included the right to vote at annual or special meetings of Provident Mutual,
and certain rights as provided by law in any
C-1
<PAGE> 74
remaining surplus of Provident Mutual in the event of the insolvency, winding-up
or liquidation of Provident Mutual, after the discharge of all other
liabilities.
On and after the Effective Date, the contract rights and the membership
rights of policyholders of Provident Mutual policies were separated. The
contract rights remained with Provfirst Life and the membership rights in
Provident Mutual were extinguished. Each policyholder then received membership
rights in Provident Mutual Holding Company. Each future policyholder of
Provfirst Life will become a member of Provident Mutual Holding Company, and
each member will remain a member of Provident Mutual Holding Company as long as
the policy or policies conferring such membership remain in force.
C-2
<PAGE> 75
PART II
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Article VIII of PALIC's By-Laws provides, in part:
To the fullest extent permitted by law, the Company shall indemnify
any present, former or future Director, officer, or employee of the Company
or any person who may serve or has served at its request as officer or
Director of another corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including attorney's fees,
necessarily incurred in connection with the defense of any action, suit or
other proceeding to which any of them is made a party because of service as
Director, officer or employee of the Company or such other corporation, or
in connection with any appeal therein, and against any amounts paid by such
Director, officer or employee in settlement of, or in satisfaction of a
judgement or fine in, any such action or proceeding, except expenses
incurred in defense of or amounts paid in connection with any action, suit
or other proceeding in which such Director, officer or employee shall be
adjudged to be liable for negligence or misconduct in the performance of
his duty.
Insofar as indemnification or liability arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that any claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the registrant
in the successful defense of any action, suit, or proceeding) is asserted by
such director, officer, or controlling person in connection with securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
REASONABLENESS REPRESENTATION
Provfirst America Life Insurance Company hereby represents that the fees
and charges deducted under the Policy, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by Provfirst America Life Insurance Company.
II-1
<PAGE> 76
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of pages.
The undertaking to file report.
Rule 484 undertaking.
Reasonableness Representation.
The following exhibits:
<TABLE>
<S> <C>
1.A.1.a. Resolution adopted by the Board of Directors of Provident
Mutual Life Insurance Company authorizing establishment of
the Provident Mutual Variable Growth Separate Account,
Provident Mutual Variable Money Market Separate Account,
Provident Mutual Variable Bond Separate Account, Provident
Mutual Variable Managed Separate Account, and Provident
Mutual Variable Zero Coupon Bond Separate Account(1)
1.A.1.b. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Aggressive Growth Separate Account(1)
1.A.1.c. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable International Separate Account(1)
1.A.1.d. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company establishing the Provident Mutual
Variable Separate Account(1)
1.A.1.e. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(1)
1.A.1.f. Resolution of the Board of Directors of Provident Mutual
Life Insurance Company Approving Creation of additional
Subaccounts of Provident Mutual Variable Separate Account(1)
1.A.2. None
1.A.3.a.i. Form of Underwriting Agreement among Provident Mutual Life
Insurance Company, PML Securities, Inc. and Provident Mutual
Variable Separate Account(1)
1.A.3.b.i. Personal Producing General Agent's Agreement and
Supplement(2)
1.A.3.b.ii. Personal Producing Agent's Agreement and Supplement(2)
1.A.3.b.iii. Producing General Agent's Agreement and Supplement(2)
1.A.3.c.i. Personal Producing General Agent's Commission Schedule (to
be filed by amendment)
1.A.3.c.ii. Personal Producing Agent's Commission Schedule (to be filed
by amendment)
1.A.3.c.iii. Producing General Agent's Commission Schedule (to be filed
by amendment)
1.A.3.c.iv. Form of Selling Agreement between PML Securities, Inc. and
Broker/Dealers
1.A.4. Inapplicable(2)
1.A.5. Individual Flexible Premium Adjustable Variable Life
Insurance Policy (Form VL101)
1.A.5.b. Convertible Term Life Rider (Form C308)(2)
1.A.5.i. Not Applicable
1.A.5.j. Guaranteed Minimum Death Benefit Rider (Form ) (to be
filed by amendment)
1.A.5.a. Children's Term Rider (Form C306)(2)
1.A.5.c. Extension of Final Policy Date Rider (Form C822)(2)
1.A.5.d. Qualify as Section 403(b) Rider (C827)(2)
1.A.5.h. Accelerated Death Benefit Rider (C/D904)(1)
</TABLE>
II-2
<PAGE> 77
<TABLE>
<S> <C>
1.A.5.e. Change of Insured Rider (Form C901)(2)
1.A.5.f. Disability Waiver Benefit Rider (Form C902) (to be filed by
amendment)
1.A.5.g. Disability Waiver of Premium Benefit Rider (Form C903)(2)
1.A.6.a. Charter of Provident Mutual Life Insurance Company(1)
1.A.6.b. By-Laws of Provident Mutual Life Insurance Company(1)
1.A.7. Inapplicable
1.A.8. Inapplicable
1.A.9. Inapplicable
1.A.10. Form of Application (1)
1.A.10.a. Supplemental Application for Flexible Premium (to be filed
by amendment)
1.A.10.b. Initial Allocation Selection (1)
2. See Exhibits 1.A.
3. Opinion and consent of James G. Potter, Jr., Esquire (to be
filed by amendment)
4. Inapplicable
5. Inapplicable
6. Consent of Scott V. Carney, FSA, MAAA (to be filed by
amendment)
7.A. Consent of Sutherland Asbill & Brennan LLP (to be filed by
amendment)
7.B. Consent of PriceWaterhouseCoopers (to be filed by amendment)
8. Description of Provident Mutual Life Insurance Company's
Issuance, Transfer and Redemption Procedures for Policies(1)
9. Powers of Attorney(1)
10.A. Participation Agreement among Market Street Fund, Inc.,
Provident Mutual Life Insurance Company and PML Securities,
Inc.(1)
10.B. Participation Agreement among Variable Insurance Products
Fund, Fidelity Corporation and Provident Mutual Life
Insurance Company(1)
10.C. Participation Agreement among Variable Insurance Products
Fund II, Fidelity Corporation and Provident Mutual Life
Insurance Company(1)
10.D. Participation Agreement among Neuberger & Berman Advisers
Managers Trust and Provident Mutual Life Insurance
Company(1)
10.E. Participation Agreement between Van Eck Investment Trust and
Provident Mutual Life Insurance Company(3)
10.F. Participation Agreement among The Alger American Fund,
Provident Mutual Life Insurance Company and Fred Alger and
Company Incorporated(1)
27. Inapplicable
</TABLE>
- ---------------
(1) Incorporated herein by reference to corresponding exhibits to post-effective
amendment number 18 to the Form S-6 registration statement (File No.
33-2625) for Provident Mutual Variable Growth Separate Account, et al.,
filed on May 1, 1998.
(2) Incorporated herein by reference to corresponding exhibits to post-effective
amendment number 11 to the Form S-6 registration statement (File No.
33-42133) for Provident Mutual Variable Growth Separate Account, et al.
filed on May 1, 1998.
(3) Incorporated herein by reference to exhibit 8(f) to post-effective amendment
number 5 to the Form N-4 registration statement (File No. 33-65512) for
Providentmutual Variable Annuity Separate Account filed on May 1, 1998.
II-3
<PAGE> 78
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Provident Mutual Growth Variable Separate
Account, Provident Mutual Variable Money Market Separate Account, Provident
Mutual Variable Bond Separate Account, Provident Mutual Variable Managed
Separate Account, Provident Mutual Variable Zero Coupon Bond Separate Account,
Provident Mutual Variable Aggressive Growth Separate Account, Provident Mutual
Variable International Separate Account and Provident Mutual Variable Separate
Account have duly caused this Registration Statement to be signed on their
behalf by the undersigned, thereunto duly authorized, and their seal to be
hereunto affixed and attested, all in Chester County, State of Pennsylvania on
this fourth day of February, 1999.
PROVIDENT MUTUAL VARIABLE
GROWTH SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE
MONEY MARKET SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE BOND
SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE
MANAGED SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE ZERO
COUPON BOND SEPARATE ACCOUNT
PROVIDENT MUTUAL VARIABLE
AGGRESSIVE GROWTH SEPARATE
ACCOUNT
PROVIDENT MUTUAL VARIABLE
INTERNATIONAL SEPARATE
ACCOUNT
PROVIDENT MUTUAL VARIABLE
SEPARATE ACCOUNT (Registrant)
By: PROVIDENT MUTUAL LIFE
INSURANCE COMPANY (Depositor)
<TABLE>
<S> <C>
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- ----------------------------------------- ------------------------------------------
Robert W. Kloss
President and Chief Executive Officer
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY (Depositor)
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
- ----------------------------------------- ------------------------------------------
Robert W. Kloss
President and Chief Executive Officer
</TABLE>
As required by the securities act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ ROBERT W. KLOSS President, Chief Executive Officer and Director
- --------------------------------------------------- (Principal Executive Officer)
Robert W. Kloss
/s/ EDWARD R. BOOK Director
- ---------------------------------------------------
Edward R. Book
</TABLE>
<PAGE> 79
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ DOROTHY M. BROWN Director
- ---------------------------------------------------
Dorothy M. Brown
/s/ ROBERT J. CASALE Director
- ---------------------------------------------------
Robert J. Casale
/s/ NICHOLAS DEBENEDICTUS Director
- ---------------------------------------------------
Nicholas DeBenedictus
/s/ PHILIP C. HERR, II Director
- ---------------------------------------------------
Philip C. Herr, II
/s/ J. RICHARD JONES Director
- ---------------------------------------------------
J. Richard Jones
/s/ JOHN P. NEAFSEY Director
- ---------------------------------------------------
John P. Neafsey
/s/ CHARLES L. ORR Director
- ---------------------------------------------------
Charles L. Orr
/s/ DONALD A. SCOTT Director
- ---------------------------------------------------
Donald A. Scott
/s/ JOHN J. F. SHERRERD Director
- ---------------------------------------------------
John J. F. Sherrerd
/s/ HAROLD A. SORGENTI Director
- ---------------------------------------------------
Harold A. Sorgenti
/s/ ALAN F. HINKLE Director
- ---------------------------------------------------
Alan F. Hinkle
/s/ MARY LYNN FINELLI Director
- ---------------------------------------------------
Mary Lynn Finelli
/s/ LINDA M. SPRINGER Financial Reporting Officer (Principal
- --------------------------------------------------- Financial and Accounting Officer)
Linda M. Springer
*By: /s/ JAMES G. POTTER, JR.
---------------------------------------------
James G. Potter, Jr.
Attorney-In-Fact
Pursuant To Power Of Attorney
</TABLE>
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<S> <C>
1.A.5. Flexible Premium Adjustable Variable Life Insurance Policy
(Form VL101)
</TABLE>
<PAGE> 1
Exhibit 1.A.5.
DOCID=Form VL101
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
<TABLE>
<S> <C>
INSURED JOHN DOE
POLICY NUMBER 9,000,000
ISSUE DATE 01/01/1999
FACE AMOUNT $50,000
ISSUE AGE AND SEX 35, MALE
DEATH BENEFIT OPTION A
POLICY DATE 01/01/1999
</TABLE>
Provident Mutual Life Insurance Company agrees:
To pay the Beneficiary of this Policy the Insurance Proceeds upon receiving due
proof of the Insured's death; To provide you (the Policy Owner) with the other
rights and benefits of this Policy. These agreements are subject to the
provisions of this Policy.
The amount of the Death Benefit or the duration of the insurance coverage, or
both, may be variable or fixed, as described in the Death Benefit Provisions.
The portion of the Policy Account Value that is in a Separate Account may
increase or decrease, depending upon the unit value of such Separate Account,
which in turn depends upon the investment experience of the corresponding
portfolio of a designated investment company. There is no guaranteed minimum for
the portion of your Policy Account Value in the Separate Accounts.
The portion of the Policy Account Value that is in the Guaranteed Account and
the Loan Account will accumulate, after deductions, at rates of interest we
determine. Such rates will not be less than 4% a year.
Please read this Policy with care. A guide to its provisions is on the last
page. A description is on page 2. Any additional benefit riders and a copy of
the Application are included in this Policy before the last page.
This is a legal contract between the Owner and Provident Mutual Life Insurance
Company.
RIGHT TO EXAMINE POLICY. You may examine this Policy and if for any reason you
are not satisfied with it, you may cancel it by returning the Policy to us with
a written request no later than: (a) 10 days after you receive it; (b) or 45
days after Part I of the Application was signed. All you have to do is take this
Policy or mail it to our Service Center at 300 Continental Drive, Newark, DE
19713-4399; P.O. Box 15750, Wilmington, DE 19850-5750; or to one of our offices
or to the representative who sold it to you. If you do this, we will refund an
amount equal to: (a) the difference between the premiums you paid (including any
fees and charges) and the sum of the amounts allocated to the Guaranteed Account
and the Separate Accounts; plus (b) the value of the amounts allocated to the
Guaranteed Account including any interest accumulated to the date you return the
Policy to us; plus (c) the value of the amounts allocated to the Separate
Accounts including the net investment experience of such Separate Accounts to
the date you return the Policy to us; plus (d) any fees or charges imposed on
the amounts allocated to the Guaranteed Account or the Separate Accounts.
Attest
<PAGE> 2
Registrar President
* Flexible Premium Adjustable Variable Life Insurance Policy * Insurance
Proceeds payable upon death before Final Policy Date * Policy Account Value
payable on Final Policy Date * Adjustable Death Benefit * Values provided by
this Policy are based on declared interest rates of the Guaranteed and Loan
Accounts and on the investment experience of the Separate Accounts *
Non-participating *
For Inquiries, Information and Resolution of Complaints, Call: 1-800-688-5177
POLICY DESCRIPTION
This is a flexible premium adjustable variable life insurance policy.
Net premiums are allocated at your direction to one or more of the Separate
Accounts and/or the Guaranteed Account.
The Separate Accounts invest in securities and other investments whose value is
subject to market fluctuation and investment risk. There is no guarantee of
principal or investment return.
The Guaranteed Account earns interest at rates we declare in advance. The rates
are guaranteed to equal or exceed 4%. The principal, after deductions, is also
guaranteed.
The duration of life insurance coverage depends on the Net Cash Surrender Value
except that during the first five Policy Years, your Policy will remain in force
if the sum of the premiums paid less loans and partial withdrawals equals or
exceeds the Minimum Guarantee Premium.
If Death Benefit Option A has been selected, the Death Benefit is the Face
Amount of this Policy and the amount of the Death Benefit is fixed, except where
it is a percentage of the Policy Account Value. If Death Benefit Option B has
been selected, the Death Benefit is the Face Amount of this Policy plus the
Policy Account Value. The amount of the Death Benefit under Option B is
variable. Under either Option, the Death Benefit will not be less than a
percentage of the Policy Account Value.
To compute the Insurance Proceeds payable upon the Insured's death, we start
with the Death Benefit and adjust this amount if there is a loan.
We make monthly deductions from the Policy Account Value to cover the cost of
benefits provided under this Policy, including the cost of any benefits provided
by rider. We will allocate such deductions to the Separate Accounts and the
Guaranteed Account in accordance with your instructions.
<PAGE> 3
If you surrender this Policy for its Net Cash Surrender Value or reduce the Face
Amount of insurance during the first 12 Policy Years or within 12 years after
the effective date of an increase in the Face Amount, we will deduct any
applicable Surrender Charges from the Policy Account Value.
We will pay the proceeds under this Policy in one sum unless a Payment Option is
in force. If you elect a Payment Option it will apply to payment of the Net Cash
Surrender Value if you surrender this Policy or to the Insurance Proceeds paid
to the Beneficiary when the Insured dies. If a Payment Option is not in force
when the Insured dies, the Beneficiary will be able to elect a Payment Option
for the Insurance Proceeds.
If this Policy lapses, coverage will end. If such occurs, you may be able to
reinstate this Policy within three full years with full benefits.
As Policy Owner, you have these rights in this Policy, among others, subject to
the terms, conditions, and limits in this Policy:
* You may make premium payments at any time and of any amount.
* You may change the allocation of premiums and deductions among your investment
options.
* You may increase or decrease the Face Amount of insurance.
* You may change the Death Benefit Option.
* You may transfer amounts among your investment options.
* You may borrow on this Policy.
* You may make a partial withdrawal of the Net Cash Surrender Value.
* You may surrender this Policy for its Net Cash Surrender Value.
* You may change the Beneficiary of the Insurance Proceeds of this Policy.
* You may assign this Policy and change the Owner.
This is only a summary of what the Policy provides. You should read the entire
Policy carefully as its terms govern your rights and our obligations.
POLICY SCHEDULE
<TABLE>
<S> <C>
INSURED JOHN DOE
POLICY NUMBER 9,000,000
ISSUE DATE 01/01/1999
FACE AMOUNT $50,000
ISSUE AGE AND SEX 35, MALE
DEATH BENEFIT OPTION A
POLICY DATE 01/01/1999
POLICY ISSUED DATE
PREMIUM CLASS NON-SMOKER
FINAL POLICY DATE 01/01/1999
</TABLE>
BENEFITS
Flexible premium variable life insurance
Initial Face Amount $50,000
This Policy provides life insurance coverage on the Insured until the final
policy date, provided the Net Cash Surrender Value is sufficient to cover the
deductions for the cost to that date of the benefits of this Policy and of any
<PAGE> 4
riders. You may have to pay more than the premiums shown below to keep this
Policy and coverage in force to that date, and to keep any additional riders in
force.
MINIMUM INITIAL PREMIUM -
PLANNED PERIODIC PREMIUM -
MINIMUM ANNUAL PREMIUM -
MINIMUM FACE AMOUNT - $50,000
MINIMUM PAYMENT - $20.00
PARTIAL WITHDRAWAL - MINIMUM AMOUNT $1,500.00
TRANSFERS - MINIMUM AMOUNT $1,000.00
POLICY LOAN - FIXED 5% POLICY LOAN INTEREST RATE
MINIMUM LOAN AMOUNT $500.00
POLICY SCHEDULE
(Continued)
POLICY NUMBER: 9,000,000
EXPENSE CHARGES
PREMIUM EXPENSE CHARGE
CONSISTS OF THE FOLLOWING:
A Premium Tax Charge of 2% will be deducted from each premium payment for
state and local premium taxes. We reserve the right to change this percentage if
the applicable law changes or the insured's residence changes.
A percent of premium charge not exceeding 3% will be deducted from each premium
payment.
INITIAL ADMINISTRATIVE CHARGE:
$5.00 deducted monthly from the Policy Account Value on the first 12 policy
processing days.
MONTHLY ADMINISTRATIVE CHARGE:
$7.50 deducted monthly from the Policy Account Value. We reserve the right to
increase this charge, but it will not be greater than $12.00 a month.
FOR PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE:
$25.00 deducted from the Policy Account Value whenever you make a partial
withdrawal.
FOR AN INCREASE IN FACE AMOUNT
$100.00 plus $.50 per $1,000 of increase in face amount, but not greater than
$750.00, deducted from the Policy Account Value. We reserve the right to
increase this charge, but it will not be greater than $100.00 plus $3.00 per
$1,000.
<PAGE> 5
FOR TRANSFERS
After the first four transfers of amounts among your investment options during a
Policy Year, we will charge $25.00 for each additional transfer during that
Policy Year.
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
SURRENDER CHARGES
If this Policy is surrendered or lapses during the first 12 Policy Years, we
will deduct a Surrender Charge from the Policy Account Value in determining its
Net Cash Surrender Value. The Surrender Charge consists of Deferred
Administrative Charge and the Deferred Sales Charge.
The Deferred Administrative Charge at any time during the policy year is the
amount shown in the table below for that year, less the amount of any pro rata
Deferred Administrative Charge previously paid under this Policy.
The Deferred Sales Charge at any time during the Policy Year is equal to (A)
minus (B) where: (A) is the lesser of: (1) the maximum charge shown in the table
below for that year; or (2) an amount equal to 35% of all premium payments paid
to such time; and (B) is the amount of any pro rata Deferred Sales Charge
previously paid under this Policy.
If the Face Amount of this Policy is decreased at any time during the first 12
Policy Years, a pro rata share of the Surrender Charge will be deducted.
If the Face Amount of this Policy is increased at any time, and within 12 years
of the effective date of such increase you decrease the Face Amount or surrender
this Policy, a Deferred Administrative Charge and Deferred Additional Sales
Charge will be deducted.
POLICY SCHEDULE
(Continued)
POLICY NUMBER 9,000,000
Guaranteed monthly cost of insurance rates per 1,000 of net amount at risk.
DEFINITIONS
Attained Age. The Issue Age of the Insured plus the number of full years since
the Policy Date.
Cash Surrender Value. The Policy Account Value minus any applicable Surrender
Charges.
Insurance Proceeds. The net amount to be paid to the Beneficiary when the
Insured dies. (See Amount of Insurance Proceeds provision.)
<PAGE> 6
Insured. The person named as the Insured on the first page. He or she need not
be the Owner.
Loan Account. The account to which we transfer the amount of any policy loan
from the Separate Accounts and Guaranteed Account.
Minimum Guarantee Premium. The Minimum Annual Premium multiplied by the number
of months since the Policy Date, including the current month, divided by 12.
Net Cash Surrender Value. The Policy Account Value minus any applicable
Surrender Charges, minus any outstanding policy loans and accrued interest.
Net Premium. The remainder of a premium after deduction of the Premium Expense
Charge.
Policy Account Value. The sum of this Policy's values in the Separate Accounts,
the Guaranteed Account and the Loan Account.
Policy Anniversary. The same day and month as the Policy Date in each later
year.
Policy Processing Day. The day in each calendar month which is the same day of
the month as the Policy Date. The first Policy Processing Day is the Policy
Date.
Policy Year. A year that starts on the Policy Date or on a Policy Anniversary.
We, Our, Us and Company. Provident Mutual Life Insurance Company, a Pennsylvania
Corporation.
You and Your. The Owner of this Policy.
GENERAL PROVISIONS
THE CONTRACT. This Policy is issued in consideration of payment of the Minimum
Initial Premium shown in the Policy Schedule. This Policy and the initial
Application, a copy of which is attached, and all subsequent Applications to
change the Policy and all additional Policy Schedule pages added to this Policy,
form the whole contract. We assume that all statements in the applications were
made to the best of the knowledge and belief of the person(s) who made them; in
the absence of fraud, they are assumed to be representations and not warranties.
We relied on those statements when we issued or changed this Policy. We will not
use any statement, unless made in the Applications, to void this Policy or to
deny a claim.
POLICY MODIFICATIONS. Only the President or a Vice President of the Company may
agree to modify this Policy, and then only in writing.
SUICIDE EXCLUSION. If the Insured, whether sane or insane, dies by suicide
within two years from the Policy Issue Date, our payment will be limited to the
sum of premiums paid, minus any loan and loan interest and any partial
withdrawals of Net Cash Surrender Value. If the Insured, whether sane or insane,
dies by suicide within two years of the Effective Date of a policy change which
increases the Death Benefit, our payment with respect to such increase will be
limited to the sum of the monthly deductions for the cost of insurance
attributable to such increase and the expense charge for the increase in Face
Amount deducted from the Policy Account Value.
<PAGE> 7
MISSTATEMENT OF AGE OR SEX. If the Insured's stated age or sex is not correct,
the Death Benefit and any benefits provided by riders to this Policy shall be
those which would be purchased by the most recent deduction for the cost of
insurance and the cost of any benefits provided by such riders, at the correct
age and sex. There is no adjustment to the Policy Account Value at that time.
INCONTESTABILITY. We have the right to contest the validity of this Policy based
on material misstatements made in the initial Application for this Policy. We
also have a right to contest the validity of any policy change based on material
misstatements made in any Application for that change. However, we will not
contest this Policy after it has been in force during the Insured's lifetime for
two years from the Policy Issue Date, except for nonpayment of the Minimum
Initial Premium. We will not contest any policy change that requires evidence of
insurability, or any reinstatement of this Policy, after such change or
reinstatement has been in effect for two years during the Insured's lifetime.
See any supplementary benefit riders for modifications that apply to them.
PERIODIC REPORT. At least once a year we will send you a report for this Policy.
It will show: (1) the current Death Benefit; (2) the current Policy Account
Value; (3) the Guaranteed Account Value; (4) the Loan Account Value; (5) the
value in each Separate Account; (6) premiums paid since the last report; (7)
charges deducted since the last report; (8) any partial withdrawals of Net Cash
Surrender Value since the last report; (9) any policy loans and accrued
interest; (10) the current Net Cash Surrender Value; (11) any other information
that may be required when and where this Policy is delivered.
You may ask for a similar report at some other time. We have the right to make a
reasonable charge for the reports that you ask for, and to limit the scope and
frequency of such reports.
PAYMENTS. We will usually pay any amounts payable as a result of surrender,
partial withdrawal or policy loan within 7 days after we receive your written
request at our Service Center in a form satisfactory to us. We will usually pay
the Insurance Proceeds within 7 days after we receive proof of the Insured's
death at our Service Center and all other requirements deemed necessary are met.
However, payment may be postponed if we are not able to sell securities or
determine the value of the assets of the Separate Accounts because:
* the New York Stock Exchange is closed;
* the Securities and Exchange Commission (SEC) requires trading to be restricted
or declares an emergency; or
* the SEC by order permits us to defer payments for the protection of Policy
Owners.
As to amounts allocated to the Guaranteed Account, we may defer payment of any
withdrawal or surrender of Net Cash Surrender Value and the making of a loan for
up to six months after we receive your written request at our Service Center.
We will allow interest, at a rate of 3% a year, on any payment we defer for 30
days or more under this provision.
POLICY CHANGES - TAX CONSIDERATIONS. In order to receive the tax treatment
accorded to life insurance under federal tax laws, this Policy must qualify and
continue to qualify as life insurance under the Internal Revenue Code. We
reserve the right to decline to accept a premium payment, to decline to change
<PAGE> 8
the Death Benefit Option, or to decline a partial withdrawal which would cause
this Policy to fail to qualify as life insurance under the applicable tax law,
as interpreted by us. We also reserve the right to make changes in this Policy
or to riders or to make distributions from this Policy to the extent we deem
such to be necessary for this Policy to continue to qualify as life insurance.
Such changes will apply uniformly to all affected policies. You will receive
advance written notification of such changes.
CHANGES IN POLICY COST FACTORS. Changes in credited interest rates, cost of
insurance charges, Percent of Premium Charge, mortality and expense risk
charges, and Monthly Administrative Charges will be by class and will be based
upon changes in future expectations for such factors as:
* investment earnings;
* mortality;
* persistency;
* expenses; and
* taxes.
Any change will be determined in accordance with the procedures and standards on
file, if required, with the insurance supervisory official of the state in which
this Policy is delivered.
POLICY ILLUSTRATIONS. Upon request, we will provide an illustration of the
future benefits under this Policy. We reserve the right to charge a reasonable
fee for this service if you request more than one policy illustration during a
Policy Year.
POLICY OWNER AND BENEFICIARY PROVISIONS
OWNERSHIP. Unless otherwise stated in the Application or later changed, the
Owner of this Policy is the Insured. While the Insured is living, the Owner
alone is entitled to exercise any right and privilege granted by this Policy or
by us. If the Insured is living on the Final Policy Date shown in the Policy
Schedule and while this Policy is in force, we will pay you, the Owner, the
Policy Account Value on that date, less any outstanding policy loan and accrued
loan interest. This Policy will then end. If you are not the Insured and you die
while the Insured is still living, all rights will vest in your estate, unless
otherwise provided.
BENEFICIARY. The Beneficiary is entitled to the Insurance Proceeds under this
Policy. The Beneficiary is as stated in the Application, unless later changed.
when a Beneficiary is designated, any relationship shown is to the Insured,
unless otherwise stated. If two or more persons are named, those surviving the
Insured will share the Insurance Proceeds equally, unless otherwise stated. If
none of the persons named survives the Insured, we will pay the Insurance
Proceeds in one sum to the Insured's estate.
PROTECTION OF PROCEEDS. No Beneficiary may commute, encumber or alienate any
payments under this Policy before they are due. No payments shall be subject to
the debts, contract or engagements of any Beneficiary nor to any judicial
process to levy upon or attach the same for payment of such debts.
CHANGES. While the Insured is living, you may change the Owner or Beneficiary by
written notice in a form satisfactory to us. The change will take effect on the
date you sign the notice, except that it will not apply to any payment or other
action we take before we receive the notice at our Service Center. If you
<PAGE> 9
change the Beneficiary, any previous arrangement you made under the Payment
Options provision is cancelled.
ASSIGNMENT. You may assign this Policy but we will not be bound by any
assignment unless it is in writing and we have received it at our Service enter.
Your rights and those of any other person referred to in this Policy will be
subject to the assignment. We assume no responsibility for the validity of any
assignments.
CREDITOR CLAIMS. To the extent permitted by applicable laws, no right or benefit
under this Policy shall be subject to claims of creditors, except as may be
provided by an Assignment.
DEATH BENEFIT PROVISIONS
If the Insured dies while this Policy is in force, we will pay the Insurance
Proceeds to the Beneficiary when we receive: (1) proof that the Insured died
before the Final Policy Date; and (2) all other requirements deemed necessary to
make payment.
DEATH BENEFIT. The Death Benefit will be determined under either Option A or
Option B below, whichever you have chosen and is in effect at such time.
Under either Option, the duration of insurance coverage depends upon your Net
Cash Surrender Value.
Option A. Under Option A, the Death Benefit is the greater of the Face Amount
of insurance, or a percentage of the Policy Account Value on the date of death
(see Table of Percentages, below). Under this Option, the amount of the Death
Benefit is fixed, unless it is determined by such a percentage.
Option B. Under Option B, the Death Benefit is the greater of the Face Amount of
insurance plus the Policy Account Value on the date of death, or a percentage of
the Policy Account Value on the date of death (see Table of Percentages, below).
Under this Option, the amount of the Death Benefit is variable.
Table of Percentages. The following table is used in determining the Death
Benefit under Option A and Option B above. For Attained Ages not shown, the
applicable percentages shall decrease by a ratable portion for each full year.
<TABLE>
<CAPTION>
Attained Age Percentage
<S> <C>
0 through 40 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 through 90 105%
95 through 99 100%
</TABLE>
AMOUNT OF INSURANCE PROCEEDS. The Insurance Proceeds will be determined as of
the date of the Insured's death and will be equal to:
* the Death Benefit described above;
* plus any additional benefits due under a supplementary benefit rider attached
to this Policy;
<PAGE> 10
* less any loan and accrued loan interest on this Policy;
* less any overdue deductions if the death of the Insured occurs during the
Grace Period.
PAYMENT OF INSURANCE PROCEEDS. We will pay the Insurance Proceeds to the
Beneficiary in a lump sum, unless a Payment Option has been selected. If the
proceeds are payable in a lump sum, we will add interest to the amount of such
proceeds for the period from the date of death to the date of payment. The
amount of interest will be computed at the yearly rate of 3% or any higher rate
declared by us or required by law.
CHANGING THE FACE AMOUNT OF INSURANCE OR DEATH BENEFIT OPTION. During the first
Policy Year, the Death Benefit Option and the Face Amount of insurance will be
as selected at the time of application, as shown in the Policy Schedule.
After the first Policy Year while this Policy is in force, you may change the
Death Benefit Option or the Face Amount, except in the 12-month period following
a Face Amount increase. Any change will be effective as of the Policy processing
Day that coincides with or next follows the date we approve your written
request, provided we have received the premium required for the change. You may
request a change by completing an application for change. A copy of such
application will be attached to new Policy Schedule pages which will be issued
when the change is approved. The application for change and new Policy Schedule
pages will become a part of this Policy. We may require you to return this
Policy to make a change.
Face Amount Increase. You may request a Face Amount increase subject to the
following:
* you must provide evidence satisfactory to us of the Insured's insurability;
* the Insured's Attained Age must be 75 years or less;
* you may not have increased the Face Amount in the prior 12-month period;
* the Face Amount increase must be for at least $25,000.
We will deduct the expense charge for an increase in Face Amount shown in the
Policy Schedule from the Policy Account Value as of the effective date of the
increase. The deduction will be made in accordance with the allocation schedule
for monthly deductions in effect at such time.
You may cancel an increase in Face Amount and receive a refund by giving us
written notice no later than: (a) 10 days after you receive the new Policy
Schedule pages reflecting the increase; or (b) 45 days after you signed the
application for the increase. The amount of the refund will be equal to the
monthly deductions for such increase plus the expense charge for the increase in
Face Amount shown in the Policy Schedule. If you cancel the increase but do not
request a refund, we will add the refund to the Policy Account Value. This
amount will be allocated in the same proportion as it was deducted. Any premium
payment made after the increase will not be refunded.
Conversion Privilege for Increase. You have the right once during the first two
years following the Effective Date of an increase in Face Amount to convert the
increase in Face Amount and receive a life insurance policy that provides for
fixed benefits. No evidence of insurability will be required. The new policy
will have the same Face Amount and Issue Date as the amount and Effective Date
of the increase. Premiums for the new policy will be based on our rates in
effect for the same Attained Age, Sex, and Premium Class of the Insured as of
the Effective Date of the increase. A refund will be made equal to the monthly
<PAGE> 11
deductions for such increase plus the expense charge for the increase shown in
the Policy Schedule.
Face Amount Decrease. You may request a Face Amount decrease provided:
* the Face Amount of the Policy after the decrease is not less than the minimum
amount shown in the Policy Schedule;
* the amount of the decrease is for at least $25,000;
* you may not have increased the Face Amount in the prior 12-month period;
* if the decrease is made during the first 12 Policy Years, or within 12 years
following the effective date of a Face Amount increase, we will deduct a pro
rata share of any applicable Surrender Charges from the Policy Account Value.
a decrease in the Face Amount will reduce this Policy's Face Amount in the
following order:
* the Face Amount attributable to the most recent Face Amount increase;
* the Face Amount attributable to the next most recent Face Amount increases,
successively;
* the Initial Face Amount.
Change From Death Benefit Option A to Option B. If you request a change from
Option A to Option B, we will decrease the Face Amount by the Policy Account
Value as of the date of change. We reserve the right to decline to make such a
change if it would reduce the Face Amount below the minimum amount for which we
would then issue this Policy under our rules.
Change From Death Benefit Option B to Option A. If you request a change from
Option B to Option A, we will increase the Face Amount by the Policy Account
Value on the date of change.
The decreases and increases in Face Amount described above in connection with
changes in the Death Benefit Option are made so the Death Benefit remains the
same on the date of change. We do not require evidence of insurability, nor do
we deduct a Surrender Charge or the Expense Charge to increase the Face Amount
for such changes.
Tax considerations. We reserve the right to refuse to make a policy change if
such would cause this Policy to fail to qualify as life insurance under
applicable laws, as interpreted by us.
PREMIUM PAYMENT PROVISIONS
The Minimum Initial Premium shown in the Policy Schedule is due on or before the
date the Policy is delivered. No insurance will take effect until the Minimum
Initial Premium is paid, while the health and other conditions of the Insured
stay the same as described in the Application for this Policy. Prior to the
Final Policy Date and while this Policy is in force you may make additional
premium payments at any time and in any amount (subject to certain limits
described below). We intend to send premium reminder notices to you for the
Planned Periodic Premium shown in the Policy Schedule, unless at the time of
application or later you request in writing that such notices not be sent. You
do not need to pay the Planned Periodic Premiums and may change their frequency
and amount subject to the limits described below. (However, see Grace Period.)
LIMITS FOR PREMIUM PAYMENTS. Each premium payment after the initial one must be
for at least the Minimum Payment amount shown in the Policy Schedule. We may
increase this minimum amount upon 90 days written notice to you of such
increase. This minimum amount will not exceed $500.
<PAGE> 12
We reserve the right not to accept any portion of premium payments during a
Policy Year if we determine that such portion would cause this Policy to fail to
qualify as life insurance under applicable tax laws, as interpreted by us.
We reserve the right to limit the amount of any premium payment if it increases
the Death Benefit more than it increases the Policy Account Value unless you
provide evidence of the Insured's insurability satisfactory to us.
GRACE PERIOD. During the first five Policy Years, the duration of the insurance
coverage under this Policy depends, in part, upon whether the Net Cash Surrender
Value is sufficient to cover the monthly deductions. If the Net Cash Surrender
Value is not sufficient, we will determine if the Minimum Guarantee Premium has
been paid. If the Net Cash Surrender Value is not sufficient and the sum of the
premiums paid less any loans and partial withdrawals does not equal or exceed
the Minimum Guarantee Premium, the Grace Period described below will begin.
After the first five Policy Years, the duration of the insurance coverage under
this Policy depends solely upon whether the Net Cash Surrender Value is
sufficient to cover the monthly deductions.
If the Net Cash Surrender Value at the beginning of any policy month is less
than the deductions for that month (and during the first five Policy Years, the
Minimum Guarantee Premium has not been paid), we will send written notice to you
and any assignee of record stating that a Grace Period of 61 days has begun,
starting on the date we mail such notice. The notice will indicate an amount
equal to three monthly deductions. If we do not receive payment of such amount
before the end of the Grace Period, we will withdraw the Policy Account Value
including any applicable Surrender Charge and send you and any assignee of
record written notice that the Policy has lapsed without value.
If the Insured dies during the Grace Period, we will pay the Insurance Proceeds.
REINSTATEMENT. If this Policy has lapsed without value, you may reinstate it
while the Insured is alive if you:
* apply for reinstatement within three years after the end of the Grace Period;
* provide evidence of the Insured's insurability satisfactory to us; and
* make a premium payment of an amount sufficient to keep the Policy in force for
at least three months after the date of reinstatement.
The Effective Date of the reinstated Policy will be the Policy Processing Day,
which coincides with or next follows the date we approve the reinstatement
application.
PREMIUM EXPENSE CHARGE
The Premium Expense Charge consists of the following:
* Premium Tax Charge; and
* Percent of Premium Charge.
The Premium Expense Charge will be deducted from any premiums paid and the
amount remaining will be the Net Premium. The amounts of these charges are shown
in the Policy Schedule.
THE SEPARATE ACCOUNTS
<PAGE> 13
Separate Accounts will be used to support the operation of this Policy and to
support other variable life insurance policies. We will not allocate assets to
the Separate Accounts to support the operation of any contracts or policies that
are not variable life insurance.
The term "Separate Account" as used in this Policy includes any subaccount of a
Separate Account.
We own the assets in the Separate Accounts. However, these assets are not part
of our General Account. Income, gains and losses, whether or not realized, from
assets allocated to a Separate Account will be credited to or charged against
the account without regard to our other income, gains or losses.
The Separate Accounts will invest in shares or units of their respective
portfolios or series. The Separate Accounts are collectively treated as a unit
investment trust under federal securities laws. They are registered with the
Securities and Exchange Commission (SEC) according to the Investment Company Act
of 1940 (1940 Act).
The Separate Accounts are subject to the laws of the Commonwealth of
Pennsylvania which regulate the operations of insurance companies incorporated
in Pennsylvania. The investment policies of the Separate Accounts will not be
changed without the approval of the Pennsylvania Commissioner of Insurance. The
approval process has been filed with the insurance supervisory official of the
state in which this Policy is delivered.
We have the right, subject to compliance with applicable laws, to make additions
to, deletions from, or substitutions for, the shares or units of an investment
company that are held by the Separate Account or that the Separate Accounts may
purchase. We reserve the right to eliminate the shares or units of an eligible
portfolio or series, and to substitute shares or units of another portfolio or
series, or another fund, if the shares or units of the portfolio or series are
no longer available for investments, or if in our judgement further investment
in the portfolio or series should become inappropriate in view of the purposes
of the Separate Account. In the event of any substitution or change, we may,
subject to your written approval and by appropriate endorsement, make such
changes in this and other policies as may be necessary or appropriate to reflect
the substitution or change.
We also reserve the right to transfer assets of a Separate Account, which we
determine to be associated with the class of policies to which this Policy
belongs, to another Separate Account. If this type of transfer is made, the
Separate Account specified in this Policy shall then refer to the Separate
Account to which the assets were transferred.
The Policy Owner will share only in the income, gains, and losses of the
particular Separate Accounts to which your Net Premium payments have been
allocated or to which portions of the Policy Account Value have been
transferred.
That portion of the assets of the Separate Accounts which equals the reserves or
other policy liabilities of the policies which are supported by the Separate
Accounts will not be charged with liabilities arising from any other business we
conduct. We have the right to transfer to our General Account any assets of the
Separate Accounts which are in excess of such reserves and other policy
liabilities.
<PAGE> 14
When permitted by law, we also reserve the right:
* to create additional Separate Accounts; to create subaccounts from, or combine
or remove subaccounts from, Separate Accounts; or to combine any two or more
Separate Accounts;
* to operate any one or more of the Separate Accounts as a management investment
company under the 1940 Act or in any other form permitted by law;
* to deregister the unit investment trusts under the 1940 Act;
* to modify the provisions of this Policy to comply with applicable laws;
* to restrict or eliminate any voting rights of policyholders or other persons
who have voting rights as to the Separate Accounts.
We will value the assets of the Separate Accounts on each business day.
If you object to a material change in the investment policy of a Separate
Account in which you have at such time a portion of the Policy Account Value,
you may transfer such portion of the Policy Account Value, upon written request,
from that Separate Account, without charge, to another Separate Account or to
the Guaranteed Account. You may then change your premium and deduction
allocation percentages.
POLICY ACCOUNT VALUE: ALLOCATIONS AND TRANSFERS
The Policy Account Value for this Policy is based on the policy values in the
Separate Accounts, Guaranteed Account, and the Loan Account to which you have:
allocated Net Premiums; transferred account values; and allocated monthly
deductions. Each allocation percentage must be a whole number.
ALLOCATION OF NET PREMIUMS. Net Premiums will be allocated to the Separate
Accounts and the Guaranteed Account on the date we receive such premium payment.
The allocation will be based on the premium allocation percentages then in
effect. The percentage chosen by you at the time of application will apply until
you notify us in writing of a new allocation schedule for premium payments.
ALLOCATION FOR MONTHLY DEDUCTIONS. Monthly Deductions will be allocated to the
Separate Accounts and Guaranteed Account based on the allocation percentages
chosen by you at the time of application or as later changed by written request
to us. If we cannot make a monthly deduction on the basis of the allocation
schedule then in effect, we will make such deduction and future deductions based
on the proportion that your Guaranteed Account Value and the value in your
Separate Accounts bear to the total unloaned Policy Account Value.
TRANSFERS. We will allow you to make twelve transfers in a Policy Year without
charge. We will make a charge for additional transfers in such Policy Year. The
maximum charge is shown in the Policy Schedule. The transfer charge will be
deducted from the amount being transferred.
Transfers From Separate Accounts. You may ask us to transfer all or part of the
amount in one of the Separate Accounts to another Separate Account or to the
Guaranteed Account. The minimum amount for such transfer is the lesser of the
amount shown in the Policy Schedule or the entire value of the Separate Account.
The transfer will be made as of the date we receive your written request at our
Service Center.
Transfers From Guaranteed Account. Within 30 days prior to or following any
Policy Anniversary you may ask us to make one transfer for up to 25% of your
Guaranteed Account Value to any of the Separate Accounts. The minimum amount
<PAGE> 15
for such transfer is the lesser of the amount shown in the Policy Schedule or
your Guaranteed Account Value on such Policy Anniversary. The date of transfer
will be as of the Policy Anniversary if your written request is received prior
to the Policy Anniversary; if your written request is received after the Policy
Anniversary, the transfer will be made as of the date we receive your request at
our Service Center.
Special Transfer Right. During the first two years following the Policy Issue
Date, you may request one transfer of the entire Policy Account Value in the
Separate Accounts to the Guaranteed Account. This request will not count towards
the twelve free transfers in a Policy Year and is not subject to a transfer
charge.
CALCULATION OF VALUES
BASIS OF CALCULATION. Minimum cash surrender values and maximum cost of
insurance rates are based on the Commissioners 1980 Standard Ordinary Smoker and
Nonsmoker Mortality Table for the sex and premium class of the Insured. Cash
surrender values are at least equal to those required by law. Reserves are
computed by the Commissioners Reserve Valuation Method. A detailed statement of
how we calculate the values for this Policy has been filed with the insurance
supervisory official of the state in which this Policy is delivered.
CALCULATION OF VALUE OF SEPARATE ACCOUNTS. The Policy Account Value in a
Separate Account at any time is equal to the number of units this Policy then
has in that Separate Account multiplied by the Separate Account's unit value at
that time.
Amounts allocated, transferred, or added to a Separate Account are used to
purchase units of that Separate Account; units are redeemed when amounts are
deducted, transferred or withdrawn. The number of units in a Separate Account at
any time is equal to the number of units purchased minus the number of units
redeemed up to such time.
The unit value of a Separate Account on any Valuation Day is equal to the unit
value for that Separate Account on the immediately preceding Valuation Day
multiplied by the Net Investment Factor for that Separate Account on that
Valuation Day.
VALUATION DAY AND PERIOD. Assets are valued at the close of a Valuation Day. A
Valuation Day is each day that the New York Stock Exchange is open for business
and any other day in which there is a sufficient degree of trading of the
Separate Account's portfolio of securities to materially affect the value of a
Separate Account.
A Valuation Period is the time between two successive Valuation Days. Each
Valuation Period includes a Valuation Day and any non-Valuation Day or
consecutive non-Valuation Days immediately preceding it.
NET INVESTMENT FACTOR. Each Separate Account has its own Net Investment Factor.
The Net Investment Factor of the Separate Account for a Valuation Period is (a)
divided by (b) minus (c), where:
(a) is:
(1) the value of the assets in the Separate Account for the preceding Valuation
Period; plus
<PAGE> 16
(2) the investment income and capital gains, realized or unrealized, credited to
those assets during the Valuation Period for which the Net Investment Factor is
being determined; minus
(3) the capital losses, realized or unrealized, charged against those assets
during the Valuation Period; minus
(4) any amount charged against the Separate Account for taxes, or any amount we
set aside during the Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Separate Account; and
(b) is the value of the assets in the preceding Valuation Period; and
(c) is a charge no greater than 0.90% per year (0.002465753% for each day in the
Valuation Period) for mortality and expense risks.
We will value the assets in the Separate Accounts at their fair market value in
accordance with accepted accounting practices and applicable laws and
regulations.
ADDITIONAL SEPARATE ACCOUNTS CREDIT. On each Policy Processing Day, an
additional credit may be added to each Separate Account after the Policy has
been in force for at least 15 years or when the values in the Separate Account
and Guaranteed Account equals or exceeds $100,000. The credit will be equal to
0.03% multiplied by the value in each Separate Account. The additional credit is
a result of a reduction in the mortality and expense risk charge.
CALCULATION OF GUARANTEED ACCOUNT VALUE. The Guaranteed Account Value at any
time is equal to the amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred and withdrawn from it.
Amounts deducted, transferred, or withdrawn will be on a last in, first out
basis.
We will credit the Guaranteed Account Value with interest at effective annual
rates we determine. These rates will not be less than 4%. For the amount in the
Guaranteed Account at the beginning of a calendar year, we will determine such
interest rates in advance of each calendar year. Such rates will apply to the
calendar year which follows the date of determination. For amounts allocated or
transferred to the Guaranteed Account during a calendar year, we will determine
such interest rates in advance of the date such amount is received or
transferred. Such rates will apply to the end of the calendar year in which the
payment is received or the transfer is made.
Interest will be credited on each Policy Processing Day as follows:
For amounts in the Guaranteed Account for the entire prior policy month, from
the beginning to the end of such policy month;
For amounts allocated to the Guaranteed Account during the prior policy month,
from the date we allocate a Net Premium to the Guaranteed Account or receive a
loan repayment to the end of the policy month;
For amounts transferred to the Guaranteed Account during the prior policy month,
from the date of transfer to the end of the policy month;
For amounts deducted or withdrawn from the Guaranteed Account during the prior
policy month, from the beginning of the prior policy month to the date of
deduction or withdrawal.
MONTHLY DEDUCTIONS. On each Policy Processing Day, beginning on the Policy Date,
we will deduct the following charges from the Policy Account Value:
<PAGE> 17
1. The Monthly Administrative Charge shown in the Policy Schedule;
2. On the first 12 Policy Processing Days, the Initial Administrative Charge
shown in the Policy Schedule;
3. The monthly cost of any benefits provided by rider to this Policy, in
accordance with such rider;
4. The monthly cost of insurance charge, as described below, and in accordance
with provisions in any rider attached to this Policy.
The monthly cost of insurance charge is: (a) multiplied by the result of (b)
minus (c):
a. is the current monthly cost of insurance rate per $1000 divided by 1000;
b. and the result of (b) minus (c) is the net amount at risk where:
c. is your current Death Benefit; and
d. is your Policy Account Value (after other deductions but before cost of
insurance).
The cost of insurance rates are based on the Insured's Attained Age, Sex,
Premium Class and duration. For the Initial Face Amount, we will use the Premium
Class as of the Policy Issue Date. For each Face Amount increase, we will use
the Premium Class and duration applicable to the increase. Current cost of
insurance rates will be determined by the Company based on our expectations as
to future mortality costs and expenses. However, these rates will never exceed
those shown in the Table of Guaranteed Maximum Cost of Insurance Rates Per $1000
of Net Amount At Risk shown in the Policy Schedule. If Death Benefit Option A is
in effect and there have been Face Amount increases, the Policy Account Value
will first be considered as part of the Initial Face Amount. If the Policy
Account Value exceeds the Initial Face Amount, it will be considered as a part
of the increases in Face Amount in the order of such increases.
OTHER DEDUCTIONS. We also make the following other deductions from the Policy
Account Value as they occur:
1. Charge for partial withdrawal of Net Cash Surrender Value;
2. Surrender charges if during the first 12 Policy Years or within 12 years of
the effective date of an increase in Face Amount, you surrender this policy for
its Net Cash Surrender Value, reduce the Face Amount of insurance, or this
policy lapses at the end of a Grace Period;
3. Charge to increase the Face Amount of insurance;
4. Charge for certain transfers of the Policy Account Value.
SURRENDERS AND WITHDRAWALS
SURRENDER FOR NET CASH SURRENDER VALUE. You may surrender this Policy for its
Net Cash Surrender Value at any time while the Insured is living. The Net Cash
Surrender Value of this Policy at any time is equal to the Policy Account Value
on such date less any Surrender Charge and any Additional Surrender Charge, less
any outstanding policy loan and accrued interest. We will determine the Net Cash
Surrender Value on the date we receive your signed written surrender request at
our Service Center. Coverage under this Policy will end on the date you send the
surrender request to us.
SURRENDER CHARGE. If you surrender this Policy for its Net Cash Surrender Value
during the first 12 Policy Years, or if this Policy lapses during the first 12
Policy Years, we will deduct a Surrender Charge from the Policy Account Value.
This Surrender Charge has two parts: the Deferred Administrative Charge and the
<PAGE> 18
Deferred Sales Charge. The amounts of such charges are shown in the Policy
Schedule.
If you request a reduction in the Initial Face Amount during any of the first 12
Policy Years, we will deduct a pro rata Surrender Charge from the Policy Account
Value as of the effective date of such reduction. The amount of such pro rata
Surrender Charge will be the Surrender Charge multiplied by the amount of the
reduction in the Initial Face Amount divided by the Initial Face Amount as of
the effective date of such reduction.
We will allocate the pro rata Surrender Charge based on the proportion that your
Guaranteed Account Value and the value in your Separate Accounts bear to the
total unloaned Policy Account Value.
ADDITIONAL SURRENDER CHARGE. If you surrender this Policy for its Net Cash
Surrender Value within 12 years of the effective date of an increase in Face
Amount or if this policy lapses within 12 years of the effective date of an
increase in Face Amount, we will deduct an Additional Surrender Charge from the
Policy Account Value. The Additional Surrender Charge has two parts: the
Deferred Additional Administrative Charge and the Deferred Additional Sales
Charge. The amount of such charge or charges will be shown in the Policy
Schedule pages issued when you increase the Face Amount.
If you request a reduction in Face Amount within 12 years of the effective date
of a Face Amount increase, we will deduct a pro rata Additional Surrender Charge
from the Policy Account Value as of the effective date of such reduction. The
amount of such pro rata Additional Surrender Charge will be the Additional
Surrender Charge applicable to the Face Amount increase multiplied by the amount
of reduction in the Face Amount increase divided by the amount of the Face
Amount increase as of the effective date of such reduction.
We will allocate the pro rata Additional Surrender Charge based on the
proportion that your Guaranteed Account Value and the value in your Separate
Accounts bear to the total unloaned Policy Account Value.
PARTIAL WITHDRAWAL OF NET CASH SURRENDER VALUE. After the first Policy Year, you
may make a written request for a partial withdrawal of the Net Cash Surrender
Value, subject to the restrictions below and the minimum amount shown in the
Policy Schedule. As of the date we receive your request at our Service Center,
we will reduce the Policy Account Value by the amount withdrawn plus the expense
charge for a partial withdrawal shown in the Policy Schedule. If Death Benefit
Option A is in effect, we will reduce the Face Amount by such amount.
We will allocate the withdrawal and expense charge based on the proportion that
your Guaranteed Account Value and the value in your Separate Accounts bear to
the total unloaned Policy Account Value or to the specified Separate Accounts
based on the percentages you specify at the time of your withdrawal.
We reserve the right to decline your withdrawal request if: the Face Amount
would be reduced below the minimum amount for which we would then issue this
Policy under our rules; or we determine that the withdrawal would cause this
Policy to fail to qualify as life insurance under applicable tax laws, as
interpreted by us.
If we approve your request, we will issue revised Policy Schedule pages
reflecting the changes, if any. The revised pages will become a part of this
Policy. We may require you to return the Policy to make the change.
<PAGE> 19
POLICY LOAN PROVISIONS
You may borrow from this Policy while it has a loan value. This Policy will be
the only security for the loan. Any policy loan must be for at least the minimum
amount shown in the Policy Schedule. The maximum amount which may be borrowed is
the Net Cash Surrender Value. We will allocate the loan based on the proportion
that your Guaranteed Account Value and the value of your Separate Accounts bear
to the total unloaned Policy Account Value or to the specified Separate Accounts
based on the percentages you specify at the time of your loan.
The collateral for the loan will be the loan amount plus accrued interest to the
next Policy Anniversary less interest at 4% per annum which will be earned to
such Policy Anniversary. The collateral for the loan will be deducted from each
account and transferred to the Loan Account. The collateral for any existing
loan will be recalculated: (1) when loan interest is paid or treated as part of
the loaned amount; (2) when a loan repayment is made; and (3) when a new loan is
made.
EFFECT OF LOANS. A policy loan will have a permanent effect on your benefits
under this Policy, even if it is repaid. The loan amount which is transferred to
the Loan Account will be maintained separately.
INTEREST RATE CHARGED ON LOANS. We will charge interest on loans at the fixed
yearly rate of 6%. Loan interest is due at the end of each Policy Year. If you
do not pay the interest when it is due, we will add it to the outstanding loan.
The unpaid interest will then be treated as part of the loaned amount and bear
interest at the policy loan interest rate. We will allocate the unpaid interest
based on the percentages you specified for your last loan. If the value in the
specified Separate Accounts is insufficient to allow the collateral for the
unpaid interest to be deducted or no percentages were specified by you, then we
will allocate the unpaid interest based on the proportion that your Guaranteed
Account Value and the value of your Separate Accounts bear to the total unloaned
Policy Account Value.
LOAN INTEREST CREDITED. We will credit the Loan Account with interest at an
effective annual rate we determine. This rate will not be less than 4%. We will
determine such rate in advance of each calendar year. This rate will apply to
the calendar year which follows the date of determination. Loan interest
credited will be transferred to each of your accounts: (1) when loan interest is
paid or treated as part of the loaned amount; (2) when a loan repayment is made;
and (3) when a new loan is made.
LOAN REPAYMENTS. You may repay all or part of a policy loan at any time while
the Insured is alive and this Policy is in force. We will assume that any
payments made while there is an outstanding loan on this Policy is a loan
repayment, unless you tell us, in writing, that such is a premium payment.
Repayments will first be allocated to the accounts based on the allocation of
the outstanding loan from each account as of the date of repayment. Any
repayment in excess of the amount of the outstanding loan will be allocated
based on the amount of accrued interest for the outstanding loan.
Failure to repay a loan or pay loan interest will not cause this Policy to lapse
unless the Net Cash Surrender Value on the Policy Processing Day is less than
the monthly deduction due. In that event, the Grace Period provision will apply.
<PAGE> 20
PAYMENT OPTIONS
Payments under these Options will not be affected by the investment experience
of any Separate Account after proceeds are applied under such Options.
Instead of being paid in one sum, the proceeds of this Policy may be paid under
one of the Options below.
OPTION 1 - PROCEEDS AT INTEREST. We will pay interest on the proceeds at 12, 6,
3 or 1 month intervals, as elected. The interest per interval for each $1,000 of
proceeds is shown in the table below:
<TABLE>
<CAPTION>
Interval in Months Amount of Interest
<S> <C>
12 $30.00
6 14.89
3 7.42
1 2.47
</TABLE>
OPTION 2 - INSTALLMENTS OF A SPECIFIED AMOUNT. We will pay the proceeds in equal
installments of the amount elected with our consent at 12, 6, 3, or 1 month
intervals. We will add interest on the balance of proceeds to such balance each
year. We will pay installments until the proceeds and interest are exhausted.
The last installment will be for the balance only of the proceeds and interest.
OPTION 3 - INSTALLMENTS FOR A SPECIFIED PERIOD. We will pay the proceeds in the
number of equal monthly installments certain set forth in the election. We will
base the amount of each installment on the Option 3 table. If so elected, the
installments may be paid at 12, 6 or 3 month intervals. The amount of each
installment in such case will be the product of the monthly installment and the
factor shown in the table below:
<TABLE>
<CAPTION>
Factor Applied to
Intervals in Months Monthly Installments
<S> <C>
12 11.839
6 5.963
3 2.993
</TABLE>
OPTION 4 - LIFE INCOME. We will use the proceeds to provide equal monthly
installments during the payee's life. We will pay the installments, as elected,
either without installments certain or with installments certain for 120 months,
for 240 months, or until the proceeds are refunded.
"Until the proceeds are refunded" means until the sum of the installments paid
by us equals the amount of proceeds settled under this Option. We will base the
amount of each installment on the Option 4 table.
OPTION 5 - JOINT AND SURVIVOR LIFE INCOME. We will use the proceeds to provide
equal monthly installments, with a number of installments certain, during the
joint lives of the payee and one other person and during the life of the
survivor.
We will pay the installments certain for either 120 or 240 months, as elected.
We will base the amount of each installment on the Option 5 table.
<PAGE> 21
DATE OF FIRST PAYMENT. We will make the first payment under Option 1 at the end
of the first payment interval. We will make the first payment under Option 2, 3,
4 or 5 on the date on which the Option takes effect.
INTEREST. The interest rate underlying all of the above Options is 3% per year.
Additional interest may be declared each year by us. Such additional interest
will:
1. increase the interest payment under Option 1;
2. be added to the proceeds under Option 2; or
3. increase the installments certain under Option 3, 4 or 5.
WITHDRAWAL OR COMMUTATION. If expressly provided in the election of the Option
but not otherwise, the payee will have the right to:
1. withdraw all or part of the balance of the proceeds under Option 1 or 2; or
2. take in one sum the commuted value of any balance of the installments certain
under Option 3, 4, or 5.
Partial withdrawals will be subject to our published minimum amount limits in
effect at the time the Option is elected. Such commuted value will be based on
compound interest at a yearly rate of 3%. Under Option 4 or 5, no installments
other than installments certain may be commuted.
We may defer payment of the amount withdrawn or commuted for a period not
exceeding 6 months.
SETTLEMENT AT DEATH OF PAYEE. After the death of the payee (the survivor in the
case of Option 5), we will make payment as directed in the election of the
Option. Such direction is subject to our approval.
The amount subject to such payment will be:
1. any balance of proceeds, with accrued interest, under Option 1 or 2; or
2. the value of any remaining installments certain under Option 3, 4 or 5.
Form SO-1980
SO-1980(Pg 18)
SO-1980(Pg 19)
ENDORSEMENTS
A GUIDE TO THE PROVISIONS OF THIS POLICY
Page
Allocations and Transfers
Policy Loan Provisions
Calculation of Values
<PAGE> 22
Policy Owner & Beneficiary Provisions
Death Benefit Provisions
Policy Schedule & Specifications
Definitions
Premium Expense Charge
General Provisions
Premium Payment Provisions
Payment Options
The Separate Account
Policy Description
Surrenders and Withdrawals
Flexible Premium Adjustable Variable Life Insurance Policy.
Insurance Proceeds payable upon death before Final Policy Date.
Policy Account Value payable on Final Policy Date.
Adjustable Death Benefit.
Values provided by this Policy are based on declared interest rates of the
Guaranteed and Loan Accounts and on the investment experience of the Separate
Accounts.
Non-participating
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
1050 Westlakes Drive, Berwyn, PA
