PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
485BPOS, 1996-05-01
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<PAGE>   1
 
   
     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON May 1, 1996
    
 
   
                                                               FILE NO. 33-65512
    
                                                                       811-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
                                    FORM N-4
                          REGISTRATION STATEMENT UNDER
                           THE SECURITIES ACT OF 1933                        / /
                          PRE-EFFECTIVE AMENDMENT NO.                        / /
                         POST-EFFECTIVE AMENDMENT NO. 3                      /X/
 
                                     AND/OR
 
                          REGISTRATION STATEMENT UNDER
   
                       THE INVESTMENT COMPANY ACT OF 1940                    / /
    
   
                                AMENDMENT NO. 8                              /X/
    
 
                            PROVIDENTMUTUAL VARIABLE
                            ANNUITY SEPARATE ACCOUNT
                           (EXACT NAME OF REGISTRANT)
 
                        PROVIDENTMUTUAL LIFE AND ANNUITY
                               COMPANY OF AMERICA
                              (NAME OF DEPOSITOR)
 
                             300 CONTINENTAL DRIVE
                                NEWARK, DE 19713
              (ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
 
       DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 454-5260
 
                             ---------------------
 
                         LINDA E. SENKER, LEGAL OFFICER
                            PROVIDENTMUTUAL LIFE AND
   
                           ANNUITY COMPANY OF AMERICA
    
   
                              1050 WESTLAKES DRIVE
    
   
                                BERWYN, PA 19312
    
                    (NAME AND ADDRESS OF AGENT FOR SERVICE)
   
                                    COPY TO:
    
                             STEPHEN E. ROTH, ESQ.
                          SUTHERLAND, ASBILL & BRENNAN
                         1275 PENNSYLVANIA AVENUE, N.W.
                              WASHINGTON, DC 20004
                                 (202) 383-0158
 
   
                             ---------------------
    
 
     It is proposed that this filing will become effective (check appropriate
box)
 
         / / immediately upon filing pursuant to paragraph (b)
 
   
         /X/ on May 1, 1996 pursuant to paragraph (b)
    
 
         / / 60 days after filing pursuant to paragraph (a)
 
         / / on (date) pursuant to paragraph (a) of rule 485
 
   
     PURSUANT TO RULE 24F-2(A)(1) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S
MOST RECENT YEAR WAS FILED ON FEBRUARY 27, 1996.
    
 
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>   2
 
                             CROSS REFERENCE SHEET
 
                              PURSUANT TO RULE 495
 
     Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required By Form N-4.
 
                                     PART A
 
<TABLE>
<CAPTION>
                   ITEM OF FORM N-4                            PROSPECTUS CAPTION
      -------------------------------------------  -------------------------------------------
<C>   <S>                                          <C>
  1.  Cover Page.................................  Cover Page
  2.  Definitions................................  Definitions
  3.  Synopsis...................................  Table of Expenses; Summary
  4.  Condensed Financial Information............  Condensed Financial Information; Yields and
                                                     Total Returns
  5.  General Description of Registrant,
        Depositor and Portfolio Companies........  The Company, Variable Account and Funds
      a. Depositor...............................  The Company, Variable Account and Funds
                                                     --Providentmutual Life and Annuity
                                                     Company of America
      b. Registrant..............................  The Company, Variable Account and Funds
                                                     --The Providentmutual Variable Annuity
                                                     Separate Account
      c. Portfolio Company.......................  The Company, Variable Account and Funds
      d. Fund Prospectus.........................  The Company, Variable Account and Funds
      e. Voting Rights...........................  The Company, Variable Account and Funds
                                                     --Voting Rights
      f. Administrators..........................  N/A
  6.  Deductions and Expenses....................  Charges and Deductions
      a. General.................................  Charges and Deductions
      b. Sales Load %............................  Charges and Deductions--Surrender Charge
      c. Special Purchase Plan...................  N/A
      d. Commissions.............................  Distribution of Contracts
      e. Expenses--Registrant....................  Charges and Deductions
      f. Fund Expenses...........................  Charges and Deductions--Other Charges
                                                     Including Investment Advisory Fees of the
                                                     Funds
      g. Organizational Expenses.................  N/A
  7.  General Description of Variable Annuity
        Contracts................................  Description of Annuity Contract
      a.  (i) Allocation of Premium Payments.....  Premiums; Allocation of Premiums
      (ii) Transfers.............................  Description of Annuity Contract--Transfer
                                                     Privilege; Payments
      (iii) Exchanges............................  Special Exchange Program
      b. Changes.................................  Description of Annuity Contract
                                                     --Modification
      c. Inquiries...............................  Description of Annuity Contract--Contract
                                                     Inquiries
  8.  Annuity Period.............................  Payment Options
  9.  Death Benefit..............................  Description of Annuity Contract--Death
                                                   Benefit Before Maturity Date; Payments
</TABLE>
<PAGE>   3
 
<TABLE>
<CAPTION>
                   ITEM OF FORM N-4                            PROSPECTUS CAPTION
      -------------------------------------------  -------------------------------------------
<C>   <S>                                          <C>
 10.  Purchases and Contract Value...............  Description of Annuity Contract
      a. Purchases...............................  Description of Annuity Contract--Premiums
      b. Valuation...............................  Description of Annuity Contract--Variable
                                                     Account Value
      c. Daily Calculation.......................  Description of Annuity Contract--Variable
                                                     Account Value
      d. Underwriter.............................  Distribution of Contracts
 11.  Redemptions................................  Description of Annuity Contract
      a. --By Owners.............................  Description of Annuity Contract--
                                                     Withdrawals and Surrenders; Payments
      --By Annuitant.............................  Description of Annuity Contract--Proceeds
                                                   on Maturity Date; Payment Options
      b. Texas ORP...............................  N/A
      c. Delay in Payment........................  Description of Annuity Contract--Payments
      d. Lapse...................................  Description of Annuity Contract--Contract
                                                     Termination
      e. Free Look...............................  Description of Annuity Contract--Free-Look
                                                     Period
 12.  Taxes......................................  Federal Tax Status
 13.  Legal Proceedings..........................  Legal Proceedings
 14.  Table of Contents of the Statement of
        Additional Information...................  Statement of Additional Information Table
                                                   of Contents
</TABLE>
 
                                     PART B
 
<TABLE>
<CAPTION>
                   ITEM OF FORM N-4                STATEMENT OF ADDITIONAL INFORMATION CAPTION
      -------------------------------------------  -------------------------------------------
<C>   <S>                                          <C>
 15.  Cover Page.................................  Cover Page
 16.  Table of Contents..........................  Statement of Additional Information Table
                                                   of Contents
 17.  General Information and History............  See Prospectus--The Company, Variable
                                                     Account and Funds
 18.  Services
      a. Fees and Expenses of Registrant.........  N/A
      b. Management Contract.....................  N/A
      c. Custodian...............................  Safekeeping of Account Assets
      d. Independent Public Accountant...........  Experts
      e. Assets of Registration..................  Safekeeping of Account Assets
      f. Affiliated Persons......................  N/A
      g. Principal Underwriter...................  See Prospectus--Distribution of Contracts
 19.  Purchase of Securities Being Offered.......  See Prospectus--Distribution of Contracts
 20.  Underwriter................................  See Prospectus--Distribution of Contracts
 21.  Calculation of Performance Data............  Calculation of Yields and Total Returns
 22.  Annuity Payments...........................  See Prospectus--Payment Options
 23.  Financial Statements.......................  Financial Statements
</TABLE>
<PAGE>   4
 
   
                                     PART A
    
 
   
                  INFORMATION REQUIRED TO BE IN THE PROSPECTUS
    
<PAGE>   5
 
- --------------------------------------------------------------------------------
 
         INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
                                   ISSUED BY
              PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA,
                         A STOCK LIFE INSURANCE COMPANY
                 300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19713
                           TELEPHONE: 1-800-654-7796
 
- --------------------------------------------------------------------------------
 
     This Prospectus describes the individual flexible premium deferred variable
annuity contract (the "Contract") being offered by Providentmutual Life and
Annuity Company of America ("Providentmutual"), a stock life insurance company
domiciled in Delaware which is a wholly-owned subsidiary of Provident Mutual
Life Insurance Company of Philadelphia ("PMLIC"). The Contract may be sold to or
in connection with retirement plans which may or may not qualify for special
Federal tax treatment under the Internal Revenue Code.
 
   
     Net Premiums and Contract Values will be allocated, as designated by the
Owner, to one or more of the Subaccounts of the Providentmutual Variable Annuity
Separate Account ("Variable Account"), or the Guaranteed Account (which is part
of Providentmutual's General Account and pays interest at declared rates
guaranteed to equal or exceed 3%), or both. The assets of each Subaccount will
be invested solely in a corresponding Portfolio of a designated mutual fund
("Funds"). The accompanying Prospectuses for the Funds describe the Portfolios
of such Funds. The Contract Account Value prior to the Maturity Date, except for
amounts in the Guaranteed Account, will vary according to the investment
performance of the Portfolios of the Funds in which the selected Subaccounts are
invested. The Owner bears the entire investment risk of amounts allocated to the
Variable Account.
    
 
   
     This Prospectus sets forth basic information about the Contract and the
Variable Account that a prospective investor ought to know before investing.
Additional information about the Contract and the Variable Account is contained
in the Statement of Additional Information, which has been filed with the
Securities and Exchange Commission. The Statement of Additional Information is
dated the same as this Prospectus and is incorporated herein by reference. The
Table of Contents for the Statement of Additional Information is on Page 37 of
this Prospectus. You may obtain a copy of the Statement of Additional
Information free of charge by writing to or calling Providentmutual at the
address of phone number shown above.
    
                                ---------------
 
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. THIS
PROSPECTUS MUST BE ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE FUNDS.
                                ---------------
   
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
 EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
  AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
      ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
                        CONTRARY IS A CRIMINAL OFFENSE.
                                ---------------
    
   
                  THE DATE OF THIS PROSPECTUS IS MAY 1, 1996.
    
<PAGE>   6
 
                               TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
Definitions...........................................................................    1
Table of Expenses.....................................................................    2
Summary...............................................................................    7
Condensed Financial Information.......................................................    9
The Company, Variable Account and Funds...............................................   10
     Providentmutual Life and Annuity Company of America..............................   10
     The Providentmutual Variable Annuity Separate Account............................   11
     The Funds........................................................................   11
          The Market Street Fund, Inc. ...............................................   12
          The Variable Insurance Products Fund and Variable Insurance Products Fund
         II...........................................................................   12
          The Scudder Variable Life Investment Fund...................................   13
          The OCC Accumulation Trust..................................................   14
          The Dreyfus Variable Investment Fund........................................   14
          The Insurance Management Series.............................................   15
          Resolving Material Conflicts................................................   16
          Addition, Deletion or Substitution of Investments...........................   16
Description of Annuity Contract.......................................................   17
     Issuance of a Contract...........................................................   17
     Premiums.........................................................................   17
     Free-Look Period.................................................................   17
     Allocation of Premiums...........................................................   17
     Variable Account Value...........................................................   18
     Transfer Privilege...............................................................   19
     Withdrawals and Surrender........................................................   20
     Death Benefit Before Maturity Date...............................................   22
     Proceeds on Maturity Date........................................................   22
     Payments.........................................................................   23
     Special Exchange Program.........................................................   23
     Modification.....................................................................   24
     Reports to Contract Owners.......................................................   24
     Contract Inquiries...............................................................   24
The Guaranteed Account................................................................   25
     Minimum Guaranteed and Current Interest Rates....................................   25
     Transfers from Guaranteed Account................................................   25
     Payment Deferral.................................................................   26
Charges and Deductions................................................................   26
     Surrender Charge (Contingent Deferred Sales Charge)..............................   26
     Administrative Charges...........................................................   27
     Transfer Processing Fee..........................................................   27
     Mortality and Expense Risk Charge................................................   27
     Other Charges Including Investment Advisory Fees of the Funds....................   28
     Premium Taxes....................................................................   28
     Other Taxes......................................................................   28
Payment Options.......................................................................   28
     Election of Options..............................................................   28
     Description of Options...........................................................   29
Yields and Total Returns..............................................................   29
Federal Tax Status....................................................................   31
     Introduction.....................................................................   31
     Tax Status of the Contract.......................................................   31
</TABLE>
    
<PAGE>   7
 
   
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        ----
<S>                                                                                     <C>
     Taxation of Annuities............................................................   32
     Transfers, Assignments or Exchanges of a Contract................................   34
     Withholding......................................................................   34
     Multiple Contracts...............................................................   34
     Taxation of Qualified Plans......................................................   34
     Possible Charge for Providentmutual's Taxes......................................   35
     Other Tax Consequences...........................................................   35
Distribution of Contracts.............................................................   36
Legal Proceedings.....................................................................   36
Voting Rights.........................................................................   36
Financial Statements..................................................................   37
Statement of Additional Information Table of Contents.................................   38
</TABLE>
    
<PAGE>   8
 
                                  DEFINITIONS
 
ANNUITANT.................. The person whose life determines the annuity
                            benefits payable under the Contract and whose death
                            determines the death benefit.
 
BENEFICIARY................ The person to whom the proceeds payable on the death
                            of the Owner or the Annuitant will be paid.
 
CASH SURRENDER VALUE....... The Contract Account Value less any applicable
                            surrender charge and any applicable Premium Tax
                            Charge.
 
CONTRACT ACCOUNT VALUE..... The sum of the Variable Account Value and the
                            Guaranteed Account Value.
 
CONTRACT YEARS, MONTHS, AND
ANNIVERSARIES..............
                            Are measured from the Contract Date.
 
GUARANTEED ACCOUNT......... This account is part of Providentmutual's General
                            Account and is not part of nor dependent upon the
                            investment performance of the Variable Account.
 
HOME OFFICE................ Providentmutual's office at 300 Continental Drive,
                            Newark, Delaware 19713.
 
MATURITY DATE.............. The date when the Contract Account Value will be
                            applied under a Payment Option, unless the Owner has
                            elected to receive a lump sum payment of the Cash
                            Surrender Value.
 
NET PREMIUM................ The premium paid less any premium tax levied for the
                            year the premium is paid.
 
NON-QUALIFIED CONTRACT..... A Contract that is not a "Qualified Contract."
 
OWNER...................... The person entitled to exercise all rights and
                            privileges provided in the Contract.
 
QUALIFIED CONTRACT......... A Contract that is issued in connection with plans
                            that qualify for special Federal income tax
                            treatment under sections 401, 403, or 408 of the
                            Internal Revenue Code of 1986, as amended.
 
SUBACCOUNT................. The Variable Account has Subaccounts; the assets of
                            each Subaccount are invested in a corresponding
                            Portfolio of a designated mutual fund.
 
VALUATION DAY.............. Each day on which valuation of the assets of a
                            Subaccount is required by applicable law.
 
VALUATION PERIOD........... The period that starts at the close of business on
                            one Valuation Day and ends at the close of business
                            on the next succeeding Valuation Day.
 
VARIABLE ACCOUNT........... Providentmutual Variable Annuity Separate Account
                            which is not part of Providentmutual's General
                            Account. The Variable Account has Subaccounts each
                            of which is invested in a corresponding Portfolio of
                            a designated mutual fund.
 
WRITTEN NOTICE............. A written request or notice in a form satisfactory
                            to Providentmutual which is signed by the Owner and
                            received at the Home Office.
 
                                        1
<PAGE>   9
 
                               TABLE OF EXPENSES
 
     The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
 
   
<TABLE>
<S>                                      <C>    <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Premiums.........  none
Maximum Contingent Deferred Sales
  Charge (as a percentage of amount
  surrendered or withdrawn)(1).........     6%
Transfer Processing Fee................     No fee for first twelve transfers in Contract Year;
                                           $25 fee for each transfer thereafter during Contract
                                                                                          Year.
ANNUAL ADMINISTRATION FEE..............                                   $30 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
  (as a percentage of Variable Account
  Value)
Mortality and Expense Risk Charges.....  1.25%
Account Fees and Expenses(2)...........   .15%
                                         ----
Total Variable Account
  Annual Expenses......................  1.40%
</TABLE>
    
   
<TABLE>
<CAPTION>
                                                                MONEY                                       AGGRESSIVE
                                               GROWTH           MARKET          BOND           MANAGED        GROWTH
                                              PORTFOLIO        PORTFOLIO      PORTFOLIO       PORTFOLIO     PORTFOLIO
                                           ---------------     --------     -------------     ---------     ----------
<S>                                        <C>                 <C>          <C>               <C>           <C>
MARKET STREET FUND ANNUAL EXPENSES
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........          0.35%            0.25%          0.35%           0.40%         0.50%
Other Expenses
  (after any expense
  reimbursement)(3)....................          0.27%            0.25%          0.25%           0.26%         0.27%
                                               ------          --------        ------         ---------       -----
Total Fund Annual Expenses.............          0.62%            0.50%          0.60%           0.66%         0.77%
 
<CAPTION>
 
                                         INTERNATIONAL
                                           PORTFOLIO
                                         -------------
<S>                                        <C>
MARKET STREET FUND ANNUAL EXPENSES
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........       0.75%
Other Expenses
  (after any expense
  reimbursement)(3)....................       0.40%
                                             -----
Total Fund Annual Expenses.............       1.15%
</TABLE>
    
   
<TABLE>
<CAPTION>
                                                HIGH           EQUITY-
                                               INCOME           INCOME         GROWTH
                                              PORTFOLIO        PORTFOLIO      PORTFOLIO
                                           ---------------     --------     -------------
<S>                                        <C>                 <C>          <C>               <C>           <C>
VARIABLE INSURANCE PRODUCTS FUND
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........          0.60%            0.52%          0.61%
Other Expenses
  (after any expense
  reimbursement)(3)....................          0.11%            0.09%          0.07%
                                               ------          --------        ------
Total Fund Annual Expenses.............          0.71%            0.61%          0.70%
 
<CAPTION>
<S>                                        <C>
VARIABLE INSURANCE PRODUCTS FUND
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........
Other Expenses
  (after any expense
  reimbursement)(3)....................
Total Fund Annual Expenses.............
</TABLE>
    
 
                                        2
<PAGE>   10
   
<TABLE>
<CAPTION>
                                                ASSET           INDEX
                                               MANAGER           500         CONTRAFUND
                                              PORTFOLIO        PORTFOLIO      PORTFOLIO
                                           ---------------     --------     -------------
<S>                                        <C>                 <C>          <C>               <C>           <C>
VARIABLE INSURANCE PRODUCTS FUND II
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........          0.71%            0.00%          0.61%
Other Expenses
  (after any expense
  reimbursement)(3)....................          0.08%            0.28%          0.11%
                                                -----            -----          -----
Total Fund Annual Expenses.............          0.79%            0.28%          0.72%
 
<CAPTION>
<S>                                        <C>
VARIABLE INSURANCE PRODUCTS FUND II
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........
Other Expenses
  (after any expense
  reimbursement)(3)....................
Total Fund Annual Expenses.............
</TABLE>
    
   
<TABLE>
<CAPTION>
                                                               GROWTH &
                                                BOND            INCOME      INTERNATIONAL
                                              PORTFOLIO        PORTFOLIO      PORTFOLIO
                                           ---------------     --------     -------------
<S>                                        <C>                 <C>          <C>               <C>           <C>
SCUDDER VARIABLE LIFE INVESTMENT FUND
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........         0.475%           0.475%         0.875%
Other Expenses
  (after any expense
  reimbursement)(3)....................         0.085%           0.275%         0.205%
                                               ------          --------        ------
Total Fund Annual Expenses.............          0.56%            0.75%         1.080%
 
<CAPTION>
<S>                                        <C>
SCUDDER VARIABLE LIFE INVESTMENT FUND
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........
Other Expenses
  (after any expense
  reimbursement)(3)....................
Total Fund Annual Expenses.............
</TABLE>
    
   
<TABLE>
<CAPTION>
                                                                SMALL
                                               EQUITY            CAP           MANAGED
                                              PORTFOLIO        PORTFOLIO      PORTFOLIO
                                           ---------------     --------     -------------
<S>                                        <C>                 <C>          <C>               <C>           <C>
OCC ACCUMULATION TRUST
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........          0.80%            0.80%          0.80%
Other Expenses
  (after any expense
  reimbursement)(3A)...................          0.20%            0.20%          0.14%
                                               ------          --------        ------
Total Fund Annual Expenses.............          1.00%            1.00%          0.94%
 
<CAPTION>
<S>                                        <C>
OCC ACCUMULATION TRUST
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........
Other Expenses
  (after any expense
  reimbursement)(3A)...................
Total Fund Annual Expenses.............
</TABLE>
    
   
<TABLE>
<CAPTION>
                                             ZERO COUPON       GROWTH &       SOCIALLY
                                                2000            INCOME       RESPONSIBLE
                                              PORTFOLIO        PORTFOLIO      PORTFOLIO
                                           ---------------     --------     -------------
<S>                                        <C>                 <C>          <C>               <C>           <C>
DREYFUS VARIABLE INVESTMENT FUND
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........          0.45%            0.75%          0.75%
Other Expenses
  (after any expense
  reimbursement)(4)....................          0.23%            0.17%          0.52%
                                               ------          --------        ------
Total Fund Annual Expenses.............          0.68%            0.92%          1.27%
 
<CAPTION>
<S>                                        <C>
DREYFUS VARIABLE INVESTMENT FUND
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........
Other Expenses
  (after any expense
  reimbursement)(4)....................
Total Fund Annual Expenses.............
</TABLE>
    
 
                                        3
<PAGE>   11
   
<TABLE>
<CAPTION>
                                           U.S. GOVERNMENT
                                              BOND FUND        UTILITY
                                              PORTFOLIO        PORTFOLIO
                                           ---------------     --------
<S>                                        <C>                 <C>          <C>               <C>           <C>
INSURANCE MANAGEMENT SERIES
  ANNUAL EXPENSES(4)
  (as a percentage of average net
  assets)
Management Fees
  (Investment Advisory Fees)...........          0.60%            0.75%
Other Expenses
  (after any expense
  reimbursement)(3)....................          0.20%            0.10%
                                               ------          --------
Total Fund Annual Expenses.............          0.80%            0.85%
 
</TABLE>
    
 
     Premium taxes may be applicable, depending on various states' laws.
 
   
     The above tables are intended to assist the Owner in understanding the
costs and expenses that will be borne by the Contract Owner, directly or
indirectly. The tables reflect expenses of the Variable Account as well as for
the Funds for the 1995 calendar year. For a more complete description of the
various costs and expenses, see "Charges and Deductions," Page 26.
    
- ---------------
   
 (1) A surrender charge is deducted only if a withdrawal or surrender occurs
     during the first six Contract Years; no surrender charge is deducted for a
     withdrawal or surrender in Contract Years seven and later. For the first
     Contract Year, the maximum charge is 6% of the amount withdrawn or
     surrendered. Thereafter, the surrender charge decreases by 1% each
     subsequent Contract Year until it is zero in Contract Year seven. The
     maximum total surrender charge will not exceed 8 1/2% of the total gross
     premiums paid under the Contract. Subject to certain restrictions, after
     the first Contract Year up to 10% of the Contract Account Value as of the
     beginning of a Contract Year may be surrendered or withdrawn without charge
     in such Contract Year. (See "Surrender Charge," Page 26.)
    
 (2) Asset-based administration charge.
   
 (3) For certain Portfolios, certain expenses were reimbursed and advisory fees
     waived during 1995. It is anticipated that such expense reimbursement and
     fee waiver arrangements will continue past the current year. Absent the
     expense reimbursement, the 1995 total annual expenses would have been 0.47%
     for the Fidelity Index 500 Portfolio; 0.81% for the Fidelity Asset Manager
     Portfolio; 0.71% for the Dreyfus Zero Coupon 2000 Portfolio; 0.95% for the
     Dreyfus Growth and Income Portfolio; 1.33% for the Dreyfus Socially
     Responsible Portfolio; 5.61% for the Insurance Management U.S. Government
     Bond Fund Portfolio and 3.09% for the Insurance Management Utility
     Portfolio. Similar expense reimbursements 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 1995 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.
    
   
(3A) The annual expenses of the OCC Accumulation Trust Equity, Managed and Small
     Cap Portfolios as of December 31, 1995 have been restated to reflect new
     management fee and expense limitation arrangements in effect as of May 1,
     1996. Effective May 1, 1996, the expenses of the Portfolios of the OCC
     Accumulation Trust are contractually limited by OpCap Advisors so that
     their respective annualized operating expenses do not exceed 1.25% of their
     respective average daily net assets. Furthermore, through April 30, 1997,
     the annualized operating expenses of the OCC Accumulation Trust Equity,
     Managed, and Small Cap Portfolios will be voluntarily limited by OpCap
     Advisors so that annualized operating expenses of these Portfolios do not
     exceed 1.00% of their respective average daily net assets. Without such
     voluntary expense limitations, and taking into account the revised
     contractual provisions effective May 1, 1996 concerning management fees and
     expense limitations, the Management Fees, Other Expenses and Total
     Portfolio Annual Expenses incurred for the fiscal year ended December 31,
     1995 would have been: .80%, .45% and 1.25%, respectively, for the Equity
     Portfolio; .80%, .14% and .94%, respectively, for the Managed Portfolio;
     and .80%, .39% and 1.19%, respectively, for the Small Cap Portfolio.
    
 
                                        4
<PAGE>   12
 
   
 (4) The fee and expense information regarding the Funds was provided by those
     Funds. The Variable Insurance Products Fund, the Variable Insurance
     Products Fund II, the Scudder Variable Life Investment Fund, the OCC
     Accumulation Trust, the Dreyfus Variable Investment Fund and the Insurance
     Management Series are not affiliated with Providentmutual. While
     Providentmutual has no reason to doubt the accuracy of these figures
     provided by these non-affiliated Funds, Providentmutual does not represent
     that they are true and complete, and disclaims all responsibility for these
     figures.
    
 
EXAMPLES
 
     An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
 
     1. If the Contract is surrendered at the end of the applicable time period:
 
   
<TABLE>
<CAPTION>
                                                                                      10
                         SUBACCOUNT                    1 YEAR   3 YEARS   5 YEARS    YEARS
       ----------------------------------------------  ------   -------   -------   -------
       <S>                                             <C>      <C>       <C>       <C>
       MS Growth.....................................  $68.55   $ 97.74   $127.48   $251.49
       MS Money Market...............................   67.35     94.06    121.17    238.59
       MS Bond.......................................   68.35     97.13    126.43    249.35
       MS Managed....................................   68.95     98.97    129.58    255.76
       MS Aggressive Growth..........................   70.04    102.34    135.32    267.40
       MS International..............................   73.83    113.92    154.95    306.64
       Fidelity High Income..........................   71.44    106.62    142.59    282.03
       Fidelity Equity-Income........................   70.44    103.56    137.40    271.60
       Fidelity Growth...............................   71.34    106.31    142.07    281.00
       Fidelity Asset Manager........................   72.23    109.06    146.73    290.30
       Fidelity Contrafund...........................   71.54    106.92    143.11    283.07
       Fidelity Index 500............................   67.15     93.44    120.12    236.42
       Quest Equity..................................   71.54    106.92    143.11    283.07
       Quest Small Cap...............................   71.74    107.53    144.14    285.14
       Quest Managed.................................   70.94    105.09    140.00    276.83
       Scudder Bond..................................   69.94    102.03    134.80    266.35
       Scudder Growth & Inc. ........................   71.84    107.84    144.66    286.18
       Scudder International.........................   75.12    117.86    161.60    319.72
       Dreyfus Growth & Inc. ........................   73.53    113.01    153.42    303.60
       Dreyfus Socially Resp. .......................   77.01    123.60    171.24    338.53
       Drey. Zero Coupon 2000........................   71.14    105.70    141.04    278.92
       Federated Gov't Bond..........................   72.33    109.36    147.24    291.33
       Federated Utility.............................   72.83    110.88    149.82    296.46
</TABLE>
    
 
                                        5
<PAGE>   13
 
     2. If the Contract is not surrendered or is annuitized at the end of the
applicable time period:
 
   
<TABLE>
<CAPTION>
                                                                   3                  10
                         SUBACCOUNT                     1 YEAR   YEARS    5 YEARS    YEARS
       -----------------------------------------------  ------   ------   -------   -------
       <S>                                              <C>      <C>      <C>       <C>
       MS Growth......................................  $22.16   $68.34   $117.12   $251.49
       MS Money Market................................   20.90    64.54    110.75    238.59
       MS Bond........................................   21.95    67.70    116.07    249.35
       MS Managed.....................................   22.58    69.60    119.24    255.76
       MS Aggressive Growth...........................   23.73    73.07    125.04    267.40
       MS International...............................   27.71    85.01    144.88    306.64
       Fidelity High Income...........................   25.20    77.48    132.39    282.03
       Fidelity Equity-Income.........................   24.15    74.33    127.15    271.60
       Fidelity Growth................................   25.09    77.17    131.87    281.00
       Fidelity Asset Manager.........................   26.04    79.99    136.57    290.30
       Fidelity Contrafund............................   25.30    77.79    132.91    283.07
       Fidelity Index 500.............................   20.69    63.90    109.69    236.42
       Quest Equity...................................   25.30    77.79    132.91    283.07
       Quest Small Cap................................   25.51    78.42    133.96    285.14
       Quest Managed..................................   24.67    75.91    129.77    276.83
       Scudder Bond...................................   23.62    72.76    124.52    266.35
       Scudder Growth & Inc. .........................   25.62    78.74    134.48    286.18
       Scudder International..........................   29.08    89.07    151.59    319.72
       Dreyfus Growth & Inc. .........................   27.40    84.07    143.33    303.60
       Dreyfus Socially Resp. ........................   31.07    94.98    161.33    338.53
       Drey. Zero Coupon 2000.........................   24.88    76.54    130.82    278.92
       Federated Gov't Bond...........................   26.14    80.31    137.09    291.33
       Federated Utility..............................   26.66    81.87    139.69    296.46
</TABLE>
    
 
     The Examples provided above assume that no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $30 and that the Contract Account Value per contract is
$10,000, which translates the Administration Fee into an assumed .30% charge for
purposes of the Examples based on a $1,000 investment.
 
     THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE
ASSUMED AMOUNT.
 
                                        6
<PAGE>   14
 
                                    SUMMARY
 
THE CONTRACT
 
   
     Issuance of a Contract.  The Contract is an individual flexible premium
deferred variable annuity issued by Providentmutual. Contracts may be sold in
connection with retirement plans which may or may not qualify for special
Federal tax treatment under the Internal Revenue Code. In order to purchase a
Contract, application must be made to Providentmutual through a licensed
Providentmutual representative, who is also a registered representative of 1717
Capital Management Company ("1717") (formerly PML Securities Company) or a
broker/dealer having a selling agreement with 1717 or a broker/dealer having a
selling agreement with such broker/dealer. The minimum initial premium must be
paid to Providentmutual. Annuity payments are deferred unit the Maturity Date.
(See "Issuance of a Contract," Page 17.)
    
 
     Free-Look Period.  The Owner has the right to return the Contract within 10
days after such Owner receives the Contract. The returned Contract will be
treated as if it were never issued. Providentmutual will return to the Owner an
amount equal to the greater of the premiums paid or the Contract Account Value
plus charges deducted, except the Mortality and Expense Risk Charge, Asset-Based
Administration Charge and the Funds' advisory fees and operating expenses. For
Contracts sold to residents of certain states (i.e., Arizona, Minnesota and
Pennsylvania), the amount returned to the Owner will be equal to the sum of: (i)
the difference between the premiums paid, including any contract fees and
charges and the amounts, if any, allocated to the Variable Account under the
Contract; and (ii) the Variable Account Value on the date of termination. (See
"Free-Look Period," Page 17.)
 
     Premiums.  The minimum amount which Providentmutual will normally accept as
an initial premium is $2,000. Subsequent premiums of not less than $100 each for
Non-Qualified Contracts and $50 each for Qualified Contracts may be paid under
the Contract. A Planned Periodic Premium schedule may also be selected. (See
"Premiums," Page 17.)
 
     Allocation of Net Premiums.  Net Premiums under a Contract will be
allocated, as designated by the Owner, to one or more of the Subaccounts of the
Variable Account or to the Guaranteed Account or to both. Except for Contracts
sold to residents of states where the amount returned under the free-look
provision reflects investment performance, the portion of the initial Net
Premium which is to be allocated to the Variable Account will be allocated to
the Money Market Subaccount for a 15-day period. At the end of that period, the
amount in the Money Market Subaccount will be allocated to the chosen
Subaccounts. The assets of each Subaccount will be invested solely in a
corresponding Portfolio of a designated Fund. The Contract Account Value, except
for amounts in the Guaranteed Account, will vary according to the investment
performance of the Portfolios of the Fund in which the chosen Subaccounts are
invested. Interest will be credited to amounts in the Guaranteed Account at a
guaranteed minimum rate of 3% per year, or a higher current interest rate
declared by Providentmutual. (See "Allocation of Premiums," Page 17.)
 
     Transfers.  On or before the Maturity Date, the Owner may request a
transfer of all or part of the amount in a Subaccount or the Guaranteed Account
to another Subaccount or the Guaranteed Account subject to certain restrictions.
 
     The total amount transferred each time must be at least $500 or the entire
amount in the Subaccount, if less. Only one transfer out of the Guaranteed
Account is allowed each Contract Year and must be made within 30 days of the
Contract Anniversary and is limited in amount. After twelve transfers during a
Contract Year, a Transfer Processing Fee of $25 will be assessed for each
additional transfer during such Contract Year. (See "Transfer Privilege," Page
19.)
 
     Withdrawals.  At any time before the earlier of the death of the Annuitant
or the Maturity Date, the Owner may withdraw part of the Cash Surrender Value
(Contract Account Value less any applicable Surrender Charge), subject to
certain limitations. (See "Withdrawals," Page 20.)
 
     Surrender.  Upon Written Notice received at the Home Office on or before
the earlier of the death of the Annuitant or the Maturity Date, the Owner may
surrender the full Contract value and receive its Cash
 
                                        7
<PAGE>   15
 
   
Surrender Value (Contract Account Value less any applicable Surrender Charge).
(See "Surrender," Page 21.)
    
 
     Death Benefit.  If the Annuitant dies before the Maturity Date, the
Beneficiary will receive a death benefit. During the first six Contract years,
the death benefit will be equal to the greater of: the premiums paid less any
withdrawn amounts (including applicable surrender charges) or the Contract
Account Value on the date of receipt of due proof of the Annuitant's death.
After the end of the sixth Contract Year, the death benefit will be equal to the
greatest of:
 
        1. the Contract Account Value as of the end of the sixth Contract Year
           less subsequent amounts withdrawn; or
 
   
        2. the Contract Account Value on the date of receipt due proof of the
           Annuitant's death; or
    
 
   
        3. the premiums paid less any withdrawn amounts (including applicable
           Surrender Charges).
    
 
If the Owner dies before the Maturity Date, the Contract Account Value (or if
the owner is also the Annuitant, the death benefit) must generally be
distributed to the Beneficiary within five years after the date of the Owner's
death. (See "Death Benefit Before Maturity Date," Page 22.)
 
CHARGES AND DEDUCTIONS
 
     The following charges and deductions are made in connection with the
Contract:
 
     Surrender Charge (Contingent Deferred Sales Charge).  No charge for sales
expenses is deducted from premiums at the time premiums are paid. However, if a
Contract has not been in force for six full Contract Years, upon surrender or
for certain withdrawals a surrender charge is deducted from the amount of the
surrender or withdrawal.
 
     For the first Contract Year, the charge is 6% of the amount withdrawn or
surrendered. Thereafter, the Surrender Charge decreases by 1% each subsequent
Contract Year. In no event will the total Surrender Charge on any one Contract
exceed 8 1/2% of the total gross premiums paid under the Contract. (See
"Surrender Charge," Page 26.)
 
   
     Subject to certain restrictions, after the first Contract Year up to 10% of
the Contract Account Value as of the beginning of a Contract Year may be
surrendered or withdrawn during such Contract Year free of the Surrender Charge.
(See "Amounts Not Subject to Surrender Charge," Page 26.)
    
 
     Annual Administration Fee.  On each Contract Anniversary prior to and
including the Maturity Date, and on the Maturity Date if it is not a Contract
Anniversary, Providentmutual deducts an Annual Administration Fee of $30 from
the Contract Account Value. The charge is also deducted upon surrender if the
surrender occurs on other than the Contract Anniversary. (See "Annual
Administration Fee," Page 27.)
 
     Transfer Processing Fee.  The first twelve transfers of amounts in the
Subaccounts and the Guaranteed Account each Contract year are free. A $25
transfer charge will be assessed for each additional transfer during such
Contract Year. (See "Transfer Processing Fee," Page 27.)
 
     Mortality and Expense Risk Charge.  Providentmutual deducts a daily
mortality and expense risk charge to compensate it for assuming certain
mortality and expense risks. On or prior to the Maturity Date, the charge is
deducted from the assets of the Variable Account at an annual rate of 1.25%
(approximately 0.70% for mortality risk and 0.55% for expense risks). (See
"Mortality and Expense Risk Charge," Page 27.)
 
     Asset-Based Administration Charge.  Providentmutual deducts a daily
administration charge to compensate it for certain expense it incurs in
administration of the Contract. On or prior to the Maturity Date, the charge is
deducted from the assets of the Variable Account at an annual rate of 0.15%.
(See "Asset-Based Administration Charge," Page 27.)
 
     Premium Taxes.  If state or other premium taxes are applicable to a
Contract, they will be deducted, depending upon when such taxes are paid to the
taxing authority, either: (i) from premiums as they are
 
                                        8
<PAGE>   16
 
received; or (ii) from the Contract Account Value upon a withdrawal from or
surrender of the Contract or upon application of the Contract Account Value to a
Payment Option. (See "Premium Taxes," Page 28.)
 
     Investment Advisory Fees and Other Expenses of the Funds.  Because the
Variable Account purchases shares of the Funds, the net assets of each
Subaccount of the Variable Account will reflect the investment advisory fee
incurred by the corresponding Portfolio of the Funds. For each Portfolio, an
investment advisor is paid a daily fee by the Funds for its investment advisory
services. The advisory fees are based on the average daily net assets of the
Portfolio, and, as a result, the amount of the advisory fee will depend upon the
Portfolio and the assets of such Portfolio. Each Portfolio of the Fund in which
the Variable Account invests is also responsible for its own expenses.
Presently, certain fees and expenses of the Funds are waived and reimbursed.
(See "Other Charges Including Investment Advisory Fees of the Funds," Page 28
and the Funds' Prospectuses.)
 
ANNUITY PROVISIONS
 
     Maturity Date.  On the Maturity Date, the Contract Account Value (less
applicable Premium Tax) will be applied under a Payment Option, unless the Owner
chooses to receive the Cash Surrender Value in a lump sum.
 
   
     Payment Options.  Payments under these options do not depend upon the
Variable Account's performance. The Payment Options are: Life Annuity; Life
Annuity with 10 Years Guaranteed; and Alternate Income Option. (See "Payment
Options," Page 28.)
    
 
FEDERAL TAX STATUS
 
   
     Generally, a distribution (including a surrender, withdrawal or death
benefit payment) may result in adverse Federal income tax consequences. In
certain circumstances, a 10% penalty tax may apply. For a further discussion of
the Federal income status of Variable Annuity Contracts, see "Federal Tax
Status," Page 31.
    
 
                        CONDENSED FINANCIAL INFORMATION
 
     The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes and other financial information included
in the Statement of Additional Information. See "Financial Statements," Page 36,
concerning financial statements contained in the Statement of Additional
Information.
 
   
     The table below sets forth certain information regarding the Subaccounts as
of December 31, 1995.
    
 
                                        9
<PAGE>   17
 
   
<TABLE>
<CAPTION>
                                          UNIT VALUE      NUMBER OF UNITS    UNIT VALUE      NUMBER OF UNITS
                                            AS OF        OUTSTANDING AS OF     AS OF        OUTSTANDING AS OF
               SUBACCOUNT                  12/31/95          12/31/95         12/31/94          12/31/94
- ----------------------------------------  ----------     -----------------   ----------     -----------------
<S>                                       <C>            <C>                 <C>            <C>
Growth..................................    657.63           18,875.42         511.45           12,476.41
Money Market............................    534.58           30,689.17         513.30           16,531.43
Bond....................................    545.35            4,938.33         459.55            3,487.30
Managed.................................    592.07            9,803.13         482.84            8,582.76
Aggressive Growth.......................    584.65            6,154.75         522.44            2,846.86
International...........................    595.43           17,907.81         528.22           15,548.80
Fidelity High Income....................    604.03            7,048.75         507.88            4,060.78
Fidelity Equity-Income..................    710.92           38,336.60         533.64           16,111.04
Fidelity Growth.........................    657.74           34,695.62         492.73           19,272.81
Fidelity Asset Manager..................    567.88           28,966.21         492.38           28,637.01
Fidelity Contrafund.....................    601.00            7,495.00             --                  --
Fidelity Index 500......................    686.84           10,498.25         507.68            3,571.24
Scudder Bond............................    705.50            7,248.38         468.40            4,419.73
Quest Equity............................    572.66           11,392.30         515.26            2,813.10
Quest Small Cap.........................    724.69           27,336.42         503.97            8,553.37
Quest Managed...........................    545.82            6,615.25         504.88           15,233.99
Scudder Growth & Income.................    589.44              978.99             --                  --
Scudder International...................    526.65            1,170.05             --                  --
Dreyfus Growth & Income.................    648.54            3,543.50             --                  --
Dreyfus Socially Responsible............    607.04              211.32             --                  --
Dreyfus Zero Coupon 2000................    544.02            5,157.10         467.73            3,101.11
Federated Government Bond...............    529.49              888.69             --                  --
Federated Utility.......................    574.58            1,076.36             --                  --
</TABLE>
    
 
                    THE COMPANY, VARIABLE ACCOUNT AND FUNDS
 
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
 
   
     The Contracts are issued by Providentmutual Life and Annuity Company of
America ("Providentmutual") which is a stock life insurance company incorporated
under the name of Washington Square Life Insurance Company in the Commonwealth
of Pennsylvania in 1958. The name of the Company was changed from Washington
Square to Providentmutual in 1991 and the Company was redomiciled as a Delaware
insurance company in December, 1992. Providentmutual is currently licensed to
transact life insurance business in 48 states and the District of Columbia. As
of December 31, 1995, Providentmutual had total assets of approximately $625
million.
    
 
   
     Providentmutual is a wholly-owned subsidiary of Provident Mutual Life
Insurance Company ("PMLIC"). PMLIC was chartered by the Commonwealth of
Pennsylvania in 1865 and at the end of 1995 had total assets of approximately
$4.9 billion. PMLIC and Providentmutual entered into a Support Agreement on
April 5, 1993 pursuant to which PMLIC agreed to ensure that Providentmutual's
capital and surplus will be maintained at certain levels and that
Providentmutual will maintain cash or cash equivalents in an amount sufficient
for the payment of benefits and other contractual claims under contracts issued
by PLACA. This agreement may not be modified or terminated prior to January 1,
1998, and then only under certain circumstances. Other than this Support
Agreement, PMLIC is under no obligation to invest money in Providentmutual nor
is it in any way a guarantor of Providentmutual's contractual obligations or
obligations under the Contract.
    
 
     Providentmutual is subject to regulation by the Insurance Department of the
State of Delaware as well as by the insurance departments of all other states
and jurisdictions in which it does business. Providentmutual submits annual
statements on its operations and finances to insurance officials in such states
and jurisdictions.
 
                                       10
<PAGE>   18
 
The forms for the Contract described in this Prospectus are filed with and
(where required) approved by insurance officials in each state and jurisdiction
in which Contracts are sold.
 
THE PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
 
     The Providentmutual Variable Annuity Separate Account is a separate
investment account of Providentmutual, established by the Board of Directors of
Providentmutual on May 9, 1991, under Pennsylvania law. Because Providentmutual
later redomesticated as a Delaware Insurance Company, the Variable Account is
now subject to regulation by the Delaware Insurance Department. Providentmutual
has caused the Variable Account to be registered with the Securities and
Exchange Commission (the "SEC") as a unit investment trust under the investment
Company Act of 1940 (the "1940 Act"). Such registration does not involve
supervision by the SEC of the management or investment policies or practices of
the Variable Account.
 
     The assets of the Variable Account are owned by Providentmutual. However,
these assets are held separate from other assets and are not part of
Providentmutual's General Account. The portion of the assets of the Variable
Account equal to the reserves or other contract liabilities of the Variable
Account will not be charged with liabilities that arise from any other business
Providentmutual conducts. Providentmutual may transfer to its General Account
any assets of the Variable Account which exceed the reserves and the Contract
liabilities of the Variable Account (which will always be at least equal to the
aggregate Contract value allocated to the Variable Account under the Contracts).
 
     The income, gains or losses, whether or not realized, from the assets of
each Subaccount of the Variable Account are credited to or charged against that
Subaccount without regard to any other income, gains or losses. Providentmutual
may accumulate in the Variable Account the charge for expense and expense risks,
mortality gains and losses and investment results applicable to those assets
that are in excess of the net assets supporting the Contracts.
 
   
     The Variable Account currently has twenty-three Subaccounts: Growth; Money
Market; Bond; Managed; Aggressive Growth; International; Fidelity High Income;
Fidelity Equity-Income; Fidelity Growth; Fidelity Asset Manager; Fidelity Index
500; Fidelity Contrafund; Scudder Bond; Scudder Growth and Income; Scudder
International; Quest for Value Equity; Quest for Value Small Cap; Quest for
Value Managed; Dreyfus Growth and Income; Dreyfus Socially Responsible; Dreyfus
Zero Coupon 2000; Federated U.S. Government Bond; and Federated Utility. The
assets of each Subaccount are invested exclusively in shares of a corresponding
Portfolio of a designated Fund.
    
 
THE FUNDS
 
     The Variable Account currently invests in portfolios of seven series-type
mutual funds: Market Street Fund, Inc.; Variable Insurance Products Fund;
Variable Insurance Products Fund II; Scudder Variable Life Investment Fund;
Quest for Value Accumulation Trust; Dreyfus Variable Investment Fund; and
Insurance Management Series (collectively, the "Funds"). Each of these Funds are
registered with the SEC under the 1940 Act as an open-end diversified investment
company. The SEC does not, however, supervise the management or the investment
practices and policies of the Funds.
 
     The assets of each Fund portfolio are separate from other portfolios of
that Fund and each portfolio has separate investment objective and policies. As
a result, each portfolio operates as a separate investment portfolio and the
investment performance of one portfolio has no effect on the investment
performance of any other portfolio. Some of the Funds may, in the future, create
additional portfolios. The investment experience of each of the Subaccounts of
the Variable Account depends on the investment performance of its corresponding
portfolio.
 
     Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and
Providentmutual. The termination provisions of those agreements vary. A summary
of these termination provisions may be found in the Statement of Additional
Information. Should an agreement between Providentmutual and a Fund terminate,
the Variable Account will not be able to purchase
 
                                       11
<PAGE>   19
 
additional shares of that Fund. In that event, Owners will no longer be able to
allocate Account Values or premium payments to Subaccounts investing in
portfolios of that Fund.
 
     Additionally, in certain circumstances, it is possible that a Fund or a
portfolio of a Fund may refuse to sell its shares to the Variable Account
despite the fact that the participation agreement between the Fund and
Providentmutual has not been terminated. Should a Fund or a portfolio of a Fund
decide not to sell its shares to Providentmutual, Providentmutual will not be
able to honor requests of Owners to allocate their Account Values or premium
payments to Subaccounts investing in shares of that Fund or portfolio.
 
     Certain Subaccounts invest in portfolios that have similar investment
objectives and/or policies; therefore before choosing Subaccounts, carefully
read the individual prospectuses for the Funds along with this prospectus.
 
THE MARKET STREET FUND, INC.
 
     The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Subaccounts invest in shares of The Market Street Fund, Inc. The
Fund currently issues six "series" or classes of shares, each of which
represents an interest in a separate Portfolio within the Fund: the Growth
Portfolio, the Money Market Portfolio, the Bond Portfolio, the Managed
Portfolio, the Aggressive Growth Portfolio and the International Portfolio.
Shares of each Portfolio currently are purchased and redeemed by the
corresponding Subaccount.
 
     The investment objectives of the Portfolios are set forth below.
 
   
     The Growth Portfolio.  This 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 Managed Portfolio.  The Managed Portfolio seeks to realize as high a
level of long-term total rate of return as is consistent with prudent investment
risk by investing in stocks, bonds, money market instruments or a combination
thereof.
    
 
   
     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 non-United States companies.
    
 
     The Growth Portfolio is advised by Newbold's Asset Management, Inc.; the
Bond, Managed, and Aggressive Growth Portfolios are advised by Sentinel Advisors
Company; and the Money Market and International Portfolios are advised by
Providentmutual Investment Management Company ("PIMC"). Each of these advisers
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940. PIMC employs The Boston Company Asset Management, Inc. to
provide investment advisory services in connection with the International
Portfolio.
 
VARIABLE INSURANCE PRODUCTS AND VARIABLE INSURANCE PRODUCTS FUND II
 
   
     The Fidelity High Income Subaccount, the Fidelity Equity-Income Subaccount
and the Fidelity Growth Subaccount invest in shares of their corresponding
portfolios of the Variable Insurance Products Fund ("VIP Fund"); the Fidelity
Asset Manager Subaccount, Fidelity Contrafund Subaccount and the Fidelity Index
500 Subaccount invest in shares of their corresponding portfolios of the
Variable Insurance Products Fund II ("VIP Fund II"). The VIP Fund and the VIP
Fund II each offer insurance companies a selection of investment vehicles for
variable annuity contracts and variable life insurance policies. The VIP Fund
issues six
    
 
                                       12
<PAGE>   20
 
"series" or classes of shares, each of which represents an interest in a
separate portfolio within the VIP Fund. Three of these series are available for
investment under the Contracts: High Income Portfolio; Equity-Income Portfolio;
and Growth Portfolio. The VIP Fund II issues four "series", three of which are
available for investment under the Contracts: Asset Manager Portfolio,
Contrafund Portfolio and Index 500 Portfolio.
 
     The investment objectives of the pertinent Portfolios of the Funds are set
forth below.
 
   
     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.
    
 
   
     Equity-Income Portfolio.  This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the 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.
    
 
   
     Growth Portfolio.  This Portfolio seeks to achieve capital appreciation.
The 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.
    
 
   
     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 fixed-income instruments.
    
 
   
     Contrafund Portfolio.  This Portfolio seeks to achieve capital
appreciation. It invests primarily in equity securities of companies that are
undervalued or out-of-favor.
    
 
   
     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 common stocks publicly traded in the United States. In seeking
this objective, the 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 Portfolios of the VIP Fund and VIP Fund II are managed by Fidelity
Management & Research Company ("FMR"). On behalf of the Asset Manager 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.
 
     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.
 
SCUDDER VARIABLE LIFE INVESTMENT FUND
 
   
     The Scudder Bond Subaccount, the Scudder Growth and Income Subaccount and
the Scudder International Subaccount invest in shares of their corresponding
portfolios of the Scudder Variable Life Investment Fund ("Scudder Fund"). The
Scudder Fund is designed to provide an investment vehicle for variable annuity
contracts and variable life insurance policies. Therefore, shares of the Scudder
Fund are sold only to insurance company separate accounts including the
Providentmutual Variable Annuity Separate Account.
    
 
                                       13
<PAGE>   21
 
     The Scudder Fund currently consists of six Portfolios. Only the Bond
Portfolio, Growth and Income Portfolio and International Portfolio are available
under the variable annuity Contracts offered by Providentmutual. Their
investment objectives are as follows:
 
   
     Bond Portfolio.  This Portfolio pursues a policy of investing for a high
level of income consistent with a high quality portfolio of securities. It
primarily invests in U.S. Government, corporate, and other notes and bonds.
    
 
   
     Growth and Income Portfolio.  This Portfolio seeks long-term growth of
capital, current income and growth of income. It primarily invests in common
stocks, preferred stocks and securities convertible into common stocks.
    
 
   
     International Portfolio.  This Portfolio seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity investments.
The Portfolio invests in companies, wherever organized, which do business
primarily outside the United States.
    
 
     Scudder, Stevens & Clark, Inc., an investment adviser registered with the
SEC under the Investment Advisers Act of 1940, as amended, manages daily
investments and business affairs of the Scudder Fund, subject to policies
established by the Trustees of the Scudder Fund.
 
   
OCC ACCUMULATION TRUST
    
 
   
     The Quest for Value Equity Subaccount, the Quest for Value Small Cap
Subaccount and the Quest for Value Managed Subaccount invest only in shares of
their corresponding portfolios of the OCC Accumulation Trust ("OCC Trust").
Shares of the OCC Trust are sold only to separate accounts of life insurance
companies established to fund variable annuity contracts.
    
 
     The Quest for Value Trust currently has five Portfolios, three of which are
available for investment under the Contracts. The investment objectives of the
Portfolios available with the variable annuity Contracts issued by
Providentmutual are described below.
 
   
     Equity Portfolio.  Long term capital appreciation through investment in a
diversified portfolio of primarily equity securities selected on the basis of a
value-oriented approach to investing.
    
 
   
     Small Cap Portfolio.  Capital appreciation through investment in a
diversified portfolio of primarily equity securities of companies with market
capitalizations of under $1 billion.
    
 
   
     Managed Portfolio.  Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds, and cash equivalents, the
percentages of which will vary over time based on the investment manager's
assessments of relative investment values.
    
 
   
     The OCC Trust receives investment advice with respect to each of its
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital which is a
subsidiary of Oppenheimer Financial Corp and which is registered as an
investment adviser under the Investment Advisers Act of 1940.
    
 
DREYFUS VARIABLE INVESTMENT FUND
 
   
     The Dreyfus Growth and Income Subaccount, the Dreyfus Socially Responsible
Subaccount and the Dreyfus Zero Coupon 2000 Subaccount invest in shares of their
corresponding portfolios of the Dreyfus Variable Investment Fund ("Dreyfus
Fund"). The Dreyfus Fund is intended to be a funding vehicle for variable
annuity contracts and variable life insurance policies offered by the separate
accounts of various life insurance companies.
    
 
                                       14
<PAGE>   22
 
     The Dreyfus Fund currently consists of eight Portfolios. Only the Growth
and Income Portfolio, Socially Responsible Portfolio and Zero Coupon 2000
Portfolio are available with the variable annuity Contracts offered by
Providentmutual. Their investment objectives are as follows:
 
   
     Growth and Income Portfolio.  This Portfolio seeks long-term capital
growth, current income and growth of income, consistent with reasonable
investment risk. The Portfolio invests in equity and debt securities and money
market instruments of domestic and foreign issuers.
    
 
   
     Socially Responsible Portfolio.  This Portfolio seeks to provide capital
growth through equity investments in companies that, in the opinion of the
Portfolio's management, not only meet traditional investment standards but which
also show evidence that they conduct their business in a manner that contributes
to the quality of life in America.
    
 
   
     Zero Coupon 2000 Portfolio.  The Zero Coupon 2000 Portfolio's goal is to
provide as high an investment return as is consistent with the preservation of
capital. This Portfolio invests primarily in debt obligations of the U.S.
Treasury that have been stripped of their unmatured interest coupons, interest
coupons that have been stripped from debt obligations issued by the U.S.
Treasury, receipts and certificates for such stripped debt obligations, and
stripped coupons and zero coupon securities issued by domestic corporations.
This Portfolio will consist primarily of portfolio securities which will mature
on or about December 31, 2000.
    
 
     The Dreyfus Corporation ("Dreyfus") serves as investment adviser to the
Dreyfus Fund. Dreyfus supervises and assists in the overall management of the
Dreyfus Fund's affairs under an Investment Advisory Agreement with the Dreyfus
Fund, subject to the overall authority of the Board of Directors of the Dreyfus
Fund.
 
INSURANCE MANAGEMENT SERIES
 
   
     The Federated U.S. Government Bond Fund Subaccount and the Federated
Utility Subaccount invest in shares of their corresponding portfolios of the
Insurance Management Series. The Insurance Management Series is intended to be a
funding vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts of various life insurance companies.
    
 
   
     The Insurance Management Series currently consists of two Portfolios. Only
the U.S. Government Bond Fund Portfolio and Utility Fund Portfolio are available
with the Variable Annuity Contract offered by Providentmutual. Their investment
objectives are as follows:
    
 
   
     U.S. Government Bond Fund Portfolio.  This Portfolio seeks to provide
current income. It invests primarily in securities which are guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities.
    
 
   
     Utility Fund Portfolio.  This Portfolio seeks to achieve high current
income and moderate capital appreciation. It invests primarily in equity and
debt securities of utility companies.
    
 
     THERE IS NO ASSURANCE THAT THE STATED OBJECTIVES AND POLICIES OF ANY OF THE
FUNDS WILL BE ACHIEVED.
 
     More detailed information concerning the investment objectives, policies
and restrictions pertaining to the Funds and the expenses, investment advisory
services and charges and the risks attendant to investing in the Portfolios and
other aspects of their operations can be found in the current Prospectus for
each Fund which accompany this prospectus and the current Statement of
Additional Information for each Fund. The Fund prospectuses should be read
carefully before any decision is made concerning the allocation of premium
payments or transfers among the Subaccounts.
 
     You should note that, except for the Portfolios of the Market Street Fund
and the Bond Portfolio of the Scudder Fund, not all of the Portfolios described
in the Prospectuses for the Funds are available with the Contract. Moreover,
Providentmutual cannot guarantee that each Fund will always be available for its
variable annuity contracts, but in the unlikely event that a Fund is not
available, Providentmutual will do everything
 
                                       15
<PAGE>   23
 
reasonably practicable to secure the availability of a comparable fund. Shares
of each Portfolio are purchased and redeemed at net asset value, without a sales
charge.
 
RESOLVING MATERIAL CONFLICTS
 
   
     Certain Funds available with the Contract may sell Shares to retirement
plans qualifying under Section 401 of the Code (including cash or deferred
arrangements under Section 401(k) of the Code) ("Retirement Plans"). As a
result, there is a possibility that a material conflict may arise between the
interests of Owners of Contracts, generally, or certain classes of Owners, and
such Retirement Plans or participants in such Retirement Plans.
    
 
   
     In addition, the Market Street Fund presently serves as an investment
medium for variable life policies and variable annuity contracts issued by PMLIC
and Providentmutual. At some later date that Fund may serve as an investment
medium for other variable life policies and variable annuity contracts issued by
PMLIC and may be made available as an investment medium for variable contracts
issued by other insurance companies, including affiliated and unaffiliated
companies of PMLIC.
    
 
   
     The VIP Fund and VIP Fund II are also used as investment vehicles for
variable life insurance policies and variable annuity contracts issued by PMLIC
and Providentmutual. The Scudder Fund, OCC Trust, Dreyfus Fund and Insurance
Management Series are used as investment vehicles for variable annuity contracts
issued by Providentmutual. In addition, the Funds, other than Market Street
Fund, are used by registered separate accounts of insurance companies, other
than PMLIC or its affiliates, offering variable annuity contracts and variable
life insurance policies.
    
 
   
     Providentmutual currently does not foresee any disadvantages to Owners
resulting from the Funds selling shares to fund products other than
Providentmutual contracts or to Retirement Plans. However, there is a
possibility that a material conflict may arise between Owners whose policy
values are allocated to the Variable Account and the owners of variable life
insurance policies and variable annuity contracts issued by such other companies
whose values are allocated to one or more other separate accounts investing in
any one of the Funds. In the event of a material conflict, Providentmutual will
take any necessary steps, including removing the Variable Account from that
Fund, to resolve the matter. The Board of Directors of each Fund will monitor
events in order to identify any material conflicts that possibly may arise and
determine what action, if any, should be taken in response to those events or
conflicts. See each individual Fund prospectus for more information.
    
 
     A full description of the Portfolios of the Funds, their investment
objectives and policies, their risks, expenses, and all other aspects of their
operation is contained in the accompanying Prospectuses for the Funds, which
should be read carefully together with this Prospectus before investing.
 
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
 
     Providentmutual reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Variable Account or that the Variable Account may purchase. If the shares of
a Portfolio of the Fund are no longer available for investment or if in
Providentmutual's judgment further investment in any Portfolio should become
inappropriate in view of the purposes of the Variable Account, Providentmutual
may redeem the shares, if any, of that Portfolio and substitute shares of
another registered open-end management company. Providentmutual will not
substitute any shares attributable to a Contract's interest in a Subaccount of
the Variable Account without notice and prior approval of the SEC and state
insurance authorities, to the extent required by the 1940 Act or other
applicable law.
 
     Providentmutual also reserves the right to establish additional Subaccounts
of the Variable Account, each of which would invest in shares corresponding to a
new Portfolio of the Fund or in shares of another investment company having a
specified investment objective. Subject to applicable law and any required SEC
approval, Providentmutual may, in its sole discretion, establish new Subaccounts
or eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Contract Owners on a basis to be determined by Providentmutual.
 
                                       16
<PAGE>   24
 
     If any of these substitutions or charges are made, Providentmutual may by
appropriate endorsement change the Contract to reflect the substitution or
change. If Providentmutual deems it to be in the best interest of Contract
Owners and Annuitants, and subject to any approvals that may be required under
applicable law, the Variable Account may be operated as a management company
under the 1940 Act, it may be deregistered under that Act if registration is no
longer required, or it may be combined with other Providentmutual separate
accounts.
 
                        DESCRIPTION OF ANNUITY CONTRACT
 
ISSUANCE OF A CONTRACT
 
   
     In order to purchase a Contract, application must be made to
Providentmutual through a licensed representative of Providentmutual, who is
also a registered representative of 1717 Capital Management Company ("1717")
(formerly PML Securities Company) or a broker-dealer having a selling agreement
with 1717 or a broker/dealer having a selling agreement with such broker/dealer.
Contracts may be sold to or in connection with retirement plans which to not
qualify for special tax treatment (Non-Qualified Plans) as well as retirement
plans that qualify for special tax treatment under the Internal Revenue Code
(Qualified Plans).
    
 
PREMIUMS
 
     The minimum initial premium which Providentmutual will normally accept is
$2,000. Subsequent premium payments may be paid under the Contract at any time
during the Annuitant's lifetime and before the Maturity Date and must be for at
least $100 each for Non-Qualified Contracts and $50 each for Qualified
Contracts.
 
     At the time of application, a Planned Periodic Premium schedule may be
selected based on a periodic billing mode of annual, semi-annual, or quarterly
payment. The Owner will receive a premium reminder notice 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."
 
FREE-LOOK PERIOD
 
   
     The Contract provides for an initial "free-look" period. The Owner has the
right to return the Contract within 10 days after such Owner receives the
Contract. When Providentmutual receives the returned Contract at its Home
Office, it will be canceled and Providentmutual will refund to the Owner an
amount equal to the greater of: (a) the premiums paid under the Contract; and
(b) the sum of (i) the Contract Account Value as of the earlier of the date the
returned Contract is received by Providentmutual at its Home Office or by the
Providentmutual representative through whom the Contract was purchased; plus
(ii) the amount of any charges deducted from the Variable Account except the
Mortality and Expense Risk Charge, Asset-Based Administration Charge and the
Funds' advisory fees and operating expenses. For contracts sold to residents of
certain states (i.e., Arizona, Minnesota and Pennsylvania), the amount returned
to the Owner will be equal to the sum of: (i) the difference between the
premiums paid, including any contract fees and charges, and the amounts, if any,
allocated to the Variable Account under the Contract; and (ii) the Variable
Account Value (or, in Pennsylvania, if there is no Variable Account Value, the
reserve for the Contract on the date the Contract is cancelled attributable to
the amounts allocated to the Variable Account.)
    
 
ALLOCATION OF PREMIUMS
 
     If the application for a Contract is properly completed and is accompanied
by all the information necessary to process it, including payment of the initial
premium, the initial Net Premium (premium less deduction of any required premium
tax) will be allocated between the Money Market Subaccount and the Guaranteed
Account within two business days of receipt of such premium by Providentmutual
at its Home Office. If the application is not properly completed,
Providentmutual will retain the premium for up to five
 
                                       17
<PAGE>   25
 
business days while it attempts to complete the application. If the application
is not complete at the end of the 5-day period, Providentmutual will inform the
applicant of the reason for the delay and the initial premium will be returned
immediately, unless the applicant specifically consents to Providentmutual
retaining the premium until the application is complete. Once the application is
complete, the initial Net Premium will be allocated within two business days.
 
     At the time of application, the Owner selects how the initial Net Premium
is to be allocated among the Subaccounts and the Guaranteed Account. When, as
described above, Net Premium is allocated, the portion of the initial Net
Premium which is to be allocated to the Subaccounts of the Variable Account will
be allocated to the Money Market Subaccount for a 15-day period. After the
expiration of such 15-day period, the amount in the Money Market Subaccount will
be allocated to the chosen Subaccounts based on the proportion that the
allocation percentage for such Subaccount bears to the sum of the Subaccount
allocation percentages. Any subsequent Net Premiums will be allocated at the end
of the Valuation Period in which the subsequent premium is received by
Providentmutual in the same manner, unless the allocation percentages are
changed. Premiums will be allocated in accordance with the allocation schedule
in effect at the time the premium payment is received.
 
     For contracts sold to residents of states where the amount of the premium
returned during the "Free-Look Period" as described above reflects the
investment performance of the Variable Account, (i.e., Arizona, Minnesota and
Pennsylvania) the portion of the initial Net Premium for such Contract which is
to be allocated to the Variable Account will not automatically be allocated to
the Money Market Subaccount for the 15-day period but instead will be credited
to the chosen Subaccounts of the Variable Account within 2 or 5 business days of
receipt of such premium.
 
     The values of the Subaccounts of the Variable Account will vary with the
investment experience of the Subaccounts, and the Owner bears the entire
investment risk. Owners should periodically review their allocation schedule for
premiums in light of market conditions and the Owner's overall financial
objectives.
 
VARIABLE ACCOUNT VALUE
 
     The Variable Account Value will reflect the investment experience of the
chosen Subaccounts of the Variable Account, any premiums paid, any withdrawals,
any surrenders, any transfers, and any charges assessed in connection with the
Contract. There is no guaranteed minimum Variable Account Value, and, because a
Contract's Variable Account Value on any future date depends upon a number of
variables, it cannot be predetermined.
 
   
     Calculation of Variable Account Value.  The Variable Account Value is
determined on each Valuation Date. The value will be the aggregate of the values
attributable to the Contract in each of the Subaccounts, determined for each
Subaccount by multiplying the Subaccount's Unit Value on the relevant Valuation
Date by the number of Subaccount units allocated to the Contract.
    
 
   
     Determination of Number of Units.  Any amounts allocated to the Subaccounts
will be converted into units of the Subaccount. The number of units to be
credited to the Contract is determined by dividing the dollar amount being
allocated to the Subaccount by the Unit Value for that Subaccount at the end of
the Valuation Period during which the amount was allocated. The number of units
in any Subaccount will be increased at the end of the Valuation Period by any
premiums allocated to the Subaccount during the current Valuation Period and by
any transfers to the Subaccount from another Subaccount or from the Guaranteed
Account during the current Valuation Period. The number of units in any
Subaccount will be decreased at the end of the Valuation Period by any amounts
transferred from the Subaccount to another Subaccount or the Guaranteed Account
during the current Valuation Period and any surrender charge upon a withdrawal
or surrender and the Annual Administration Fee assessed in connection with the
Contract during the current Valuation Period.
    
 
   
     Determination of Unit Value.  The Unit Value for each Subaccount's first
Valuation Period is set at $50. The Unit Value for a Subaccount is calculated
for each subsequent Valuation Period by multiplying the Unit
    
 
                                       18
<PAGE>   26
 
Value at the end of the immediately preceding Valuation Period by the Net
Investment Factor for the Valuation Period for which the value is being
determined.
 
   
     Net Investment Factor.  The Net Investment Factor is an index that measures
the investment performance of a Subaccount from one Valuation Period to the
next. Each Subaccount has its own Net Investment Factor, which may be greater or
less than one. The Net Investment Factor for each Subaccount for a Valuation
Period equals 1 plus the fraction obtained by dividing (a) by (b) where:
    
 
   
          (a) is the net result of:
    
 
             1. the investment income, dividends, and capital gains, realized or
                unrealized, credited during the current Valuation Period; plus
 
             2. any amount credited or released from reserves for taxes
                attributable to the operation of the Subaccount; minus
 
             3. the capital losses, realized or unrealized, charged during the
                current Valuation Period; minus
 
             4. any amount charged for taxes or any amount set aside during the
                Valuation Period as a reserve for taxes attributable to the
                operation or maintenance of the Subaccount; minus
 
             5. the amount charged for mortality and expense risk for that
                Valuation Period; minus
 
   
             6. the amount charged for administration for that Valuation Period;
                and
    
 
   
          (b) is the value of the assets in the Subaccount at the end of the
     preceding Valuation Period, adjusted for allocations and transfers to and
     withdrawals and transfers from the Subaccount occurring during that
     preceding Valuation Period.
    
 
TRANSFER PRIVILEGE
 
     Before the Maturity Date, an Owner may transfer all or a part of an amount
in the Subaccount(s) to another Subaccount(s) or to the Guaranteed Account, or
transfer a part of an amount in the Guaranteed Account to the Subaccount(s),
subject to these general restrictions and the additional restrictions below. The
minimum transfer amount must be the lesser of $500 or the entire amount in that
Subaccount or the Guaranteed Account. A transfer request that would reduce the
amount in a Subaccount or the Guaranteed Account below $500 will be treated as a
transfer request for the entire amount in that Subaccount or the Guaranteed
Account.
 
     The transfer will be made on the day Written Notice requesting such
transfer is received by Providentmutual. There is no limit on the number of
transfers which can be made between Subaccounts or to the Guaranteed Account.
However, only one transfer may be made from the Guaranteed Account each Contract
Year (See "Transfers from Guaranteed Account," Page 25). The first twelve
transfers during each Contract Year are free. Any unused free transfers do not
carry over to the next Contract Year. A $25 Transfer Processing Fee will be
assessed for the thirteenth and subsequent transfers during a Contract Year. For
the purpose of assessing the fee, each written request is considered to be one
transfer, regardless of the number of Subaccounts or the Guaranteed Account
affected by the transfer. The processing fee will be deducted from the amount
being transferred.
 
   
     Telephone Transfers.  Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to Providentmutual.
Providentmutual reserves the right to suspend telephone transfer privileges at
any time, for any class of Contracts, for any reason.
    
 
     Providentmutual 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 unauthorized or
fraudulent instructions. Providentmutual, however, may be liable for such losses
if it does not follow those reasonable procedures. The procedures
Providentmutual will follow for telephone transfers include requiring
 
                                       19
<PAGE>   27
 
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.
 
   
     Dollar Cost Averaging.  Dollar Cost Averaging is a program which, if
elected, enables the Owner of a Contract to systematically and automatically
transfer, on a monthly basis, specified dollar amounts from the Money Market
Subaccount to the Contract's other Subaccounts. 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 market fluctuations.
Providentmutual, 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 from 6 to 36 months. To
qualify for Dollar Cost Averaging, the following minimum amount must be
allocated to the Money Market Subaccount: 6 months -- $3,000; 12
months -- $6,000; 24 months -- $12,000; 36 months -- $18,000. At least $500 must
be transferred from the Money Market Subaccount each month. The amount required
to be allocated to the Money Market Subaccount can be made an initial or
subsequent investment or by transferring amounts into the Money Market
Subaccount from the other Subaccounts or from the Guaranteed Account (which may
be subject to certain restrictions). (See "Transfers from Guaranteed Account,"
Page 25.)
    
 
   
     Election into this program may occur at the time of application by
completing the authorization on the application or at any time after the
Contract is issued by properly completing the election form and returning it to
the Company by the beginning of the month and ensuring that the required minimum
amount is in the Money Market Subaccount, Dollar Cost Averaging transfers may
not commence until the later of (a) 30 days after the Contract Date and (b) five
days after the end of the free look period.
    
 
     Once elected, transfers from the Money Market Subaccount will be processed
monthly until the number of designated transfers have been completed, or the
value of the Money Market Subaccount is completely depleted, or the Owner
instructs Providentmutual in writing to cancel the monthly transfers.
 
     Transfers made under the Dollar Cost Averaging program will not count
toward the twelve transfers permitted each Contract Year without imposing the
Transfer Charge. Providentmutual reserves the right to discontinue offering
automatic transfers upon 30 days' written notice to the Owner.
 
WITHDRAWALS AND SURRENDER
 
   
     Withdrawals.  At any time before the earlier of the death of the Annuitant
or the Maturity Date, an Owner may withdraw part of the Cash Surrender Value.
The minimum amount which may be withdrawn is $500; the maximum amount is that
which would leave a cash surrender value of less than $2,000. A withdrawal
request which would reduce the amount in a Subaccount or in the Guaranteed
Account below $500 will be treated as a request for full withdrawal of the
amount in that Subaccount or the Guaranteed Account. Providentmutual will
withdraw the amount requested from the Contract Account Value on the day Written
Notice for the withdrawal is received at its Home Office. Any applicable
Surrender Charge will be deducted from the remaining Contract Account Value.
(See "Surrender Charge," Page 26.)
    
 
     The Owner may specify the amount to be withdrawn from certain Subaccounts
or the Guaranteed Account for the withdrawal. If the Owner does not so specify
or the amount in the designated Subaccounts or Guaranteed Account is inadequate
to comply with the request, the withdrawal will be made from each Subaccount and
the Guaranteed Account based on the proportion that the value is such account
bears to the Contract Account Value immediately prior to the withdrawal.
 
     A withdrawal may have adverse Federal income tax consequences. (See
"Taxation of Annuities," Page 32.)
 
   
     Systematic Withdrawals.  The Systematic Withdrawal Plan enables the Owner
of a Contract to pre-authorize a periodic exercise of the withdrawal right
described in the Contract. The Owner may elect the plan at the time of
application by completing the authorization on the application form and making a
minimum initial premium payment of $15,000 or by properly completing the
election form after a Contract is issued if it has a Contract Account Value of
$15,000. Certain Federal income tax consequences may apply to systematic
    
 
                                       20
<PAGE>   28
 
withdrawals from the Contract and the Owner should, therefore, consult with his
or her tax advisor before requesting any Systematic Withdrawal Plan.
 
     Contract Owners entering into the plan instruct Providentmutual to withdraw
a level dollar amount from the Contract on a monthly or quarterly basis. The
minimum, distribution requested must be for at least $100 monthly or at least
$300 quarterly. The maximum amount which can be withdrawn under the plan each
year is 10% of the Contract Account Value as of the beginning of the Contract
Year in which the plan is elected or 10% of the initial premium paid if elected
at the time of application. Providentmutual will notify the Owner of the total
amount to be withdrawn in a subsequent Contract Year will exceed 10% of the
Contract Account Value as of the beginning of such Contract Year. Unless the
Owner instructs Providentmutual to reduce the withdrawal amount for that year so
that it does not exceed the 10% limit, Providentmutual will continue to process
withdrawals for the designated amount. Once the amount of the withdrawals
exceeds the 10% limit, Providentmutual will deduct the applicable Surrender
Charge from the remaining payments made during that Contract Year. (See
"Surrender Charge," Page 26.)
 
     Providentmutual will pay the Owner the amount requested each month or
quarter and cancel units equal to the amount withdrawn from the Subaccounts and
the Guaranteed Account based on the proportion that the value in such Subaccount
or Guaranteed Account bears to the Contract Account Value immediately prior to
the withdrawal. In the event that the amount to be withdrawn exceeds the
Subaccount's Value, Providentmutual will process the withdrawal for the amount
available and will contact the Owner for further instructions.
 
     Each payment under the Systematic Withdrawal Plan of less than 10% of the
Contract Account Value as of the beginning of such Contact Year is not subject
to a Surrender Charge. However, notwithstanding the rules ordinarily governing
the imposition of a Surrender Charge (See "Surrender Charge," Page 26), any
other withdrawal in a year when the Systematic Withdrawal Plan has been utilized
will be subject to the Surrender Charge. If an additional withdrawal is made
from a Contract participating in the plan, systematic withdrawals will
automatically terminate and may only be reinstated on or after the beginning of
the next Contract Year pursuant to a new request.
 
     Systematic withdrawals may be discontinued by the Owner at any time upon
written request to Providentmutual. Providentmutual reserves the right to
discontinue offering systematic withdrawals upon 30 days' written notice to
Owners.
 
   
     Surrender.  At any time before the earlier of the death of the Annuitant or
the Maturity Date, the Owner may request a surrender of the Contract for its
Cash Surrender Value (Contract Account Value less any applicable Surrender
Charge). The proceeds paid to the Contract Owner will equal the amount of the
surrender less the Surrender Charge and any withholding or premium taxes. (See
"Surrender Charge," Page 26.) The Cash Surrender Value will be determined on the
date Written Notice of Surrender and the Contract are received at
Providentmutual's Home Office. The Cash Surrender Value will be paid in a lump
sum unless the Owner requests payment under a Payment Option. A surrender may
have adverse Federal income tax consequences. (See "Taxation of Annuities." Page
32.)
    
 
   
     Restrictions on Distributions from Certain Contracts.  There are certain
restrictions on surrenders of and withdrawals from Contracts used as funding
vehicles for Internal Revenue Code 403(b) retirement plans. Section 403(b)(11)
of the Internal Revenue Code of 1986, as amended, restricts the distribution
under Section 403(b) annuity contracts of: (i) elective contributions made in
years beginning after December 31, 1988; (ii) earnings on those contributions;
and (iii) earnings in such years on amounts held as of the last year beginning
before January 1, 1989. Distributions of those amounts may only occur upon the
death of the employee, attainment of age 59 1/2, separation from service,
disability, or financial hardship. In addition, income attributable to elective
contributions may not be distributed in the case of hardship.
    
 
   
     Contract Termination.  Providentmutual may end this Contract and pay the
Cash Surrender Value to the Owner if, before the Maturity Date, all of these
events simultaneously exist;
    
 
   
     1. no premiums have been paid for at least two years;
    
 
                                       21
<PAGE>   29
 
   
     2. the Contract Account Value is less than $2,000; and
    
 
   
     3. the total premiums paid, less any partial withdrawals, is less than
$2,000.
    
 
     Providentmutual will mail the Owner a notice of its intention to end the
Contract at least six months in advance. The Contract will automatically
terminate on the date specified in the notice, unless Providentmutual receives
an additional premium payment before the termination date specified in the
notice. This additional premium payment must be for at least the required
minimum amount. (Termination of the Contract under this provision is not
permitted in New Jersey.)
 
DEATH BENEFIT BEFORE MATURITY DATE
 
   
     Death of Annuitant.  If the Annuitant dies before the Maturity Date,
Providentmutual will pay the death benefit under the Contract to the
Beneficiary. During the first six Contract Years, the death benefit is equal to
the greater of: the premiums paid, less any withdrawals (including applicable
surrender charges); or the Contract Account Value on the date Providentmutual
receives due proof of Annuitant's death. After the end of the sixth Contract
Year, the death benefit is equal to the greatest of:
    
 
          1. the Contract Account Value as of the end of the sixth Contract Year
             less subsequent amounts withdrawn; or
 
          2. the Contract Account Value on the date Providentmutual receives due
             proof of the Annuitant's death; or
 
          3. the premiums paid, less any withdrawals (including applicable
             Surrender Charges).
 
There is no death benefit payable if the Annuitant dies after the Maturity Date.
The proceeds will be paid to the Beneficiary in a lump sum unless the Owner or
Beneficiary elects a Payment Option. If the Annuitant is the Owner, the proceeds
must be distributed in accordance with the rules set forth below in "Death of
Owner" for the death of an Owner before the Maturity Date.
 
   
     Death of Owner.  If an Owner dies before the Maturity Date, Federal tax law
requires (for a Non-Qualified Contract) that the Contract Account Value (or if
the Owner is the Annuitant, the proceeds payable upon the Annuitant's death) be
distributed to the Beneficiary within five years after the date of the Owner's
death. If an Owner dies on or after the Maturity Date, any remaining payments
must be distributed at least as rapidly as under the Payment Option in effect on
the date of such Owner's death.
    
 
     These distribution requirements will be considered satisfied as to any
portion of the proceeds payable to or for the benefit of a designated
Beneficiary, and which is distributed over the life (or a period not exceeding
the life expectancy) of that Beneficiary, provided that such distributions begin
within one year of the Owner's death. However, if the Owner's spouse is the
designated Beneficiary, the Contract may be continued with such surviving spouse
as the new Owner. If the Contract has joint owners, the surviving joint owner
will be the designated Beneficiary. Joint owners must be husband and wife as of
the Contract Date.
 
     If the Owner is not an individual, the Annuitant, as determined in
accordance with Section 72(s) of the Internal Revenue Code, will be treated as
Owner for purposes of these distribution requirements, and any changes in the
Annuitant will be treated as the death of the Owner.
 
     Other rules may apply to a Qualified Contract.
 
PROCEEDS ON MATURITY DATE
 
     The maturity Date is selected by the Owner, subject to Providentmutual's
approval and state law.
 
     On the Maturity Date, the proceeds will be applied under the Life Annuity
with Ten Year Certain Payment Option, unless the Owner chooses to have the
proceeds paid under another Payment Option or in a lump sum. If a Payment Option
is elected, the amount which will be applied is the Contract Account Value; if a
lump sum payment is chosen, the amount paid will be the Cash Surrender Value on
the Maturity Date.
 
                                       22
<PAGE>   30
 
     The Maturity Date may be changed subject to these limitations: the Owner's
Written Notice must be received at the Home Office at least 30 days before the
current Maturity Date; the requested Maturity Date must be a date that is at
least 30 days after receipt of the Written Notice; and the requested Maturity
Date must be not later than the first day of the month after the Annuitant's
90th birthday, or any earlier date required by law.
 
PAYMENTS
 
     Any withdrawal, Cash Surrender Value, or death benefit will usually be paid
within seven days of receipt of written request or receipt and filing of due
proof of death. However, payments may be postponed if:
 
     1. the New York Stock Exchange is closed, other than customary weekend and
        holiday closings, or trading on the exchange is restricted as determined
        by the SEC; or
 
     2. the SEC permits by an order the postponement for the protection of
        policyowners; or
 
     3. the SEC determines that an emergency exists that would make the disposal
        of securities held in the Variable Account or the determination of the
        value of the Variable Account's net assets not reasonably practicable.
 
     If a recent check or draft has been submitted, Providentmutual has the
right to defer payment until such check or draft has been honored.
 
     Providentmutual has the right to defer payment of any withdrawal, cash
surrender, or transfer from the Guaranteed Account for up to six months from the
date of receipt of Written Notice for a withdrawal, surrender, or transfer. If
payment is not made within 30 days after receipt of documentation necessary to
complete the transaction, or such shorter period required by a particular
jurisdiction, interest will be added to the amount paid from the date of receipt
of documentation at 3% or such higher rate required for a particular state.
 
SPECIAL EXCHANGE PROGRAM
 
     The owner of a variable annuity contract issued by Providentmutual between
June 1, 1993 and the date the Contract becomes available in the applicable state
(the "Other Variable Annuity Contract"), may exchange the Other Variable Annuity
Contract for the Contract described in this prospectus under the terms described
below.
 
     1. The application for the new Contract must be received by Providentmutual
        at its Home Office within 60 days of the date the Contract becomes
        available in the applicable state.
 
     2. The "Contract Date" for the new Contact will be the "Issue Date" of the
        Other Variable Annuity Contract.
 
     3. The exchange will be made without imposition of the surrender charge
        applicable to the Other Variable Annuity Contract. The contract account
        value for the Other Variable Annuity Contract will become the Contract
        Account Value for the new Contact and will be applied to the Contract as
        is (i.e., without reallocations or changes until after the Contract has
        been issued).
 
     4. The Surrender Charge period for the Contract will begin on its Contract
        Date (the Issue Date of the Other Variable Annuity Contract).
 
     5. The amount of the premium subject to the Surrender Charge will be the
        premium(s) paid for the Other Variable Annuity Contract.
 
     6. No additional premium tax will be deducted at the time the Contract is
        issued. After the issuance of the Contract, the amount of the premium
        tax due will be based upon the premium(s) paid under the Other Variable
        Annuity Contract.
 
                                       23
<PAGE>   31
 
     7. The Annual Administration Fee will not be deducted upon surrender of the
        Other Variable Annuity Contract but on the Contract Anniversary (the
        yearly anniversary of the Issue Date of the Other Variable Annuity
        Contract).
 
     8. Any other charges under the Contract will only be deducted beginning
        from the date the Contract is issued.
 
   
     Summary Comparison of the Contract to the Other Variable Annuity
Contract.  The Mortality and Expense Risk Charge for the Contract is 1.25% while
the Charge for Other Variable Annuity Contract is currently 1.20%, subject to a
maximum of 1.25%. In addition, the Contract includes an Asset-based
Administration Charge of 0.15%. However, the Contract also includes additional
investment options and other features not available with the Other Variable
Annuity Contract. The Contract has 16 Subaccounts available for investment while
the Other Variable Annuity Contract has six. The Contract has Dollar Cost
Averaging and Systematic Withdrawals as added features. Twelve transfers under
the Contract may be made in each Contract Year without the imposition of a
Transfer Charge compared to four under the Other Variable Annuity Contract.
Finally, in addition to the death benefit paid upon the Annuitant's death
provided in the Other Variable Annuity Contract, the Contract provides a change
in the death benefit if the Annuitant dies after the sixth Contract Year (See
"Death Benefit Before Maturity Date," Page 22.).
    
 
   
     Tax Considerations.  Providentmutual believes that an exchange of an Other
Variable Annuity Contract for a Contract generally should be treated as a
nontaxable exchange of annuity contracts within the meaning of Section 1035 of
the Internal Revenue Code of 1986, as amended. The Contract received in the
exchange will, however, generally be treated as a newly issued annuity contract
as of the date of the exchange. Accordingly, Other Variable Annuity Contract
owners should consult counsel or other competent tax advisors before effecting
an exchange to determine whether there are any tax consequences resulting from
the Contract being treated as issued on the date of the exchange (e.g., loss of
grandfathering or aggregation with other annuity contracts issued during the
same calendar year as the exchange).
    
 
MODIFICATION
 
     Upon notice to the Owner, Providentmutual may modify the Contract, but only
if such modification:
 
     1. is necessary to make the Contract or the Variable Account comply with
        any law or regulation issued by a governmental agency to which
        Providentmutual is subject; or
 
     2. is necessary to assure continued qualification of the Contract under the
        Internal Revenue Code or other Federal or state laws relating to
        retirement annuities or variable annuity contracts; or
 
     3. is necessary to reflect a change in the operation of the Variable
        Account; or
 
   
     4. provides additional Variable Account and/or fixed accumulation options.
    
 
     In the event of any such modifications, Providentmutual will make
appropriate endorsement to the Contract.
 
REPORTS TO CONTRACT OWNERS
 
     At least annually, Providentmutual will mail to each Contract Owner, at
such Owner's last known address of record, a report containing the Contract
Account Value and Cash Surrender Value of the Contract and any further
information required by and applicable law or regulation. The information will
be as of a date not more than two months prior to the date of mailing.
 
CONTRACT INQUIRIES
 
     Inquiries regarding a Contract may be made by writing to Providentmutual at
its Home Office, 300 Continental Drive, Newark, Delaware 19713.
 
                                       24
<PAGE>   32
 
                             THE GUARANTEED ACCOUNT
 
     An Owner may allocate some or all of the Net Premiums and transfer some or
all of the Contract Account Value to the Guaranteed Account, which is part of
Providentmutual's General Account and pays interest at declared rates guaranteed
for each calendar year (subject to a minimum guaranteed interest rate of 3%).
The principal, after deductions, is also guaranteed. Providentmutual'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 Providentmutual's General
Account has been registered as an investment company under the Investment
Company Act of 1940. Therefore, neither Providentmutual's General Account, the
Guaranteed Account, nor any interests 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 your information and have
not been reviewed by the SEC. However, such disclosures may be subject to
certain generally applicable provisions of Federal securities laws relating to
the accuracy and completeness of statements made in prospectuses.
 
     The portion of the Contract Account Value allocated to the Guaranteed
Account will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of Providentmutual's General Account, Providentmutual
assumes the risk of investment gain or loss on this amount. All assets in the
General Account are subject to Providentmutual'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 3%. Providentmutual intends to 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 Providentmutual, in its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the
Guaranteed Account Value 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,
Providentmutual will determine a new current interest rate on such amount and
accrued interest thereon (which may be a different current interest rate from
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 3% per year will be determined in the sole discretion
of Providentmutual. The Owner assumes the risk that interest credited may not
exceed the guaranteed minimum rate.
 
     Amounts deducted from the Guaranteed Account for the administration fee,
withdrawals, transfers to the Subaccounts, or other charges are currently, for
the purpose of crediting interest, accounted for on a last in, first out
("LIFO") method.
 
     Providentmutual 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 3% 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.
    
 
TRANSFERS FROM GUARANTEED ACCOUNT
 
     Within 30 days prior to or following any contract Anniversary, one transfer
is allowed from the Guaranteed Account to any or all of the Subaccounts. The
amount transferred from the Guaranteed Account may not exceed 25% of the
guaranteed Account Value on the date of transfer, unless the balance after the
 
                                       25
<PAGE>   33
 
transfer is less than $500 in which case the entire amount will be transferred.
If the written request for such transfer is received prior to the Contract
Anniversary, the transfer will be made as of the Contract Anniversary; if the
written request is received after the Contract Anniversary, the transfer will be
made as of the date Providentmutual receives the written request at its Home
Office.
 
PAYMENT DEFERRAL
 
     Providentmutual has the right to defer payment of any withdrawal, cash
surrender, or transfer from the Guaranteed Account for up to six months from the
date of receipt of the Written Notice for withdrawal, surrender, or transfer.
 
                             CHARGES AND DEDUCTIONS
 
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
 
   
     General.  No charge for sales expense is deducted from premiums at the time
premiums are paid. However, within certain time limits described below, a
Surrender Charge (contingent deferred sales charge) is deducted from the
Contract Account Value if a withdrawal is made or a Contract is surrendered
before annuity payments begin. In the event surrender charges are not sufficient
to cover sales expenses, the loss will be borne by Providentmutual; conversely,
if the amount of such charges proves more than enough, the excess will be
retained by Providentmutual. Providentmutual does not currently believe that the
surrender charges imposed will cover the expected costs of distributing the
Contracts. Any shortfall will be made up from Providentmutual's general assets
which may include amounts derived from the Mortality and Expense Risk Charge.
    
 
     Charges for Withdrawals or Surrender.  If a withdrawal is made or a
Contract is surrendered, the applicable Surrender Charge will be as follows:
 
<TABLE>
<CAPTION>
                      CHARGES AS PERCENTAGE
 CONTRACT YEAR IN              OF
      WHICH                  AMOUNT
  WITHDRAWAL OR           WITHDRAWN OR
 SURRENDER OCCURS          SURRENDERED
- ------------------    ---------------------
<S>                   <C>
        1                      6%
        2                       5
        3                       4
        4                       3
        5                       2
        6                       1
   7 and after                  0
</TABLE>
 
     No Surrender Charge is deducted if the withdrawal or surrender occurs after
six full Contract Years. In addition, no Surrender Charge is deducted on the
Maturity Date if the Contract proceeds are applied under a Payment Option.
 
     In no event will the total Surrender Charges assessed under a Contract
exceed 8 1/2% of the total gross premiums paid under that contract.
 
     If the Contract is being surrendered, the Surrender Charge is deducted from
the Contract Account Value in determining the Cash Surrender Value. For a
withdrawal, the Surrender Charge is deducted from the Contract Account Value
remaining after the amount requested is withdrawn.
 
                                       26
<PAGE>   34
 
     Amounts Not Subject to Surrender Charge.  Subject to certain restrictions,
up to 10% of the Contract Account Value as of the beginning of a Contract Year
may be withdrawn or surrendered in that Contract Year without a Surrender
Charge. Specifically, after the first Contract Year, the otherwise applicable
Surrender Charge will not be applied to the first and second withdrawals during
a Contract Year to the extent that the amount withdrawn is not in excess of 10%
of the Contract Account Value as of the beginning of such Contract Year. During
the first Contract Year, the full amount of all withdrawals (and any surrender)
will be subject to the Surrender Charge.
 
     After the first Contract Year, any amounts withdrawn in excess of 10% or
subsequent to the second withdrawal in a Contract Year will be assessed a
Surrender Charge. This right is not cumulative from Contract Year to Contract
Year. If the Contract is surrendered and there have been no prior withdrawals
during such Contract Year, no Surrender Charge will apply to the amount of the
surrender up to 10% of the Contract Account Value as of the beginning of that
Contract Year. If a surrender is made during a Contract Year in which one or
more withdrawals have been made, the Contract Owner may surrender free of charge
an amount equal to 10% of the Contract Account Value as of the beginning of the
Contract Year less the total amount previously withdrawn during such Contract
Year without imposition of the Surrender Charge. In the event that a surrender
is made in excess of the amount which may be surrendered free of charge, only
the excess amount will be subject to the Surrender Charge.
 
ADMINISTRATIVE CHARGES
 
     Annual Administration Fee.  On each Contract Anniversary prior to and
including the Maturity Date, and upon surrender of the Contract or on the
Maturity Date (other than on a Contract Anniversary), Providentmutual deducts
from the Contract Account Value an Annual Administration Fee of $30 to reimburse
it for administrative expenses relating to the Contract. The charge will be
deducted from each Subaccount and the Guaranteed Account based on the proportion
that the value in each such account bears to the total Contract Account Value.
(In some states such as Washington and South Carolina, the charge can only be
deducted from the Guaranteed Account to the extent of premiums allocated to such
account during the Contract Year plus the amount of interest in excess of the
guaranteed minimum which is credited to the account for the Contract Year. The
portion of the charge which is allocable to the Guaranteed Account but cannot be
deducted from such account due to this limitation will be deducted
proportionally from the Subaccounts.) Providentmutual does not expect to make a
profit on this fee. No Annual Administration Fee is payable during the annuity
period.
 
     Asset-Based Administration Charge.  To compensate Providentmutual for costs
associated with administration of the Contracts, prior to the Maturity Date
Providentmutual deducts a daily asset-based administration charge from the
assets of the Variable Account equal to an annual rate of .15%. Providentmutual
does not expect to make a profit from this charge.
 
     The Contracts are administered by PMLIC pursuant to a Service Agreement
between Providentmutual and PMLIC. Under the agreement, PMLIC also maintains
records of transactions relating to the Contracts and provides other services.
 
TRANSFER PROCESSING FEE
 
     The first twelve transfers during each Contract Year are free. A $25
Transfer Processing Fee will be assessed for each additional transfer during
such Contract Year. For the purpose of assessing the fee, each Written Notice of
transfer is considered to be one transfer, regardless of the number of
Subaccounts or accounts affected by the transfer. The processing fee will be
deducted from the amount being transferred. Providentmutual does not expect a
profit from this fee.
 
MORTALITY AND EXPENSE RISK CHARGE
 
     To compensate Providentmutual for assuming mortality and expense risks,
prior to the Maturity Date Providentmutual deducts a daily Mortality and Expense
Risk Charge from the assets of the Variable Account.
 
                                       27
<PAGE>   35
 
Providentmutual will impose a charge in an amount that is equal to an annual
rate of 1.25% (daily rate of .00342466%) (approximately 0.70% for mortality risk
and 0.55% for expense risk).
 
     The mortality risk Providentmutual assumes is that Annuitants may live for
a longer period of time than estimated when the guarantees in the contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk Providentmutual assumes also includes a guarantee to pay a death benefit if
the Annuitant dies before the Maturity Date. The expense risk Providentmutual
assumes is the risk that the surrender charges, administration fees, and
transfer fees may be insufficient to cover actual future expenses.
 
     If the Mortality and Expense Risk Charge is insufficient to cover the
actual cost of the mortality and expense risks undertaken by Providentmutual,
Providentmutual will bear the loss. Conversely, if the charge proves more than
sufficient, the excess will be profit to Providentmutual and will be available
for any proper corporate purpose including, among other things, payment of sales
expenses.
 
OTHER CHARGES INCLUDING INVESTMENT ADVISORY FEES OF THE FUNDS
 
     Because the Variable Account purchases shares of the Funds, the net assets
of each Subaccount of the Variable Account will reflect the investment advisory
fees and operating expense incurred by the Funds. For each Portfolio, an
investment advisor is paid a daily fee by the Funds for its investment advisory
services. Each advisory fee is a percentage of a Portfolio's average daily net
assets, and thus the actual fee paid depends on the Portfolio and the assets of
such Portfolio. Each Portfolio of the Funds is also responsible for its
operating expenses. See the accompanying current Prospectuses for the Funds for
further details.
 
PREMIUM TAXES
 
     Various states and other governmental entities levy a premium tax,
currently ranging up to 3.5%, on annuity contracts issued by insurance
companies. Premium tax rates are subject to change from time to time by
legislative and other governmental action. In addition, other governmental units
within a state may levy such taxes.
 
     The timing of tax levies varies from one taxing authority to another. If
premium taxes are applicable to a Contract, they will be deducted, depending on
when such taxes are paid to the taxing authority, either (a) from premiums as
they are received, or (b) from the Contract proceeds upon (i) a withdrawal from
or surrender of the Contract or (ii) application of the proceeds to a Payment
Option.
 
OTHER TAXES
 
     Currently, no charge will be made against the Variable Account for Federal
income taxes. Providentmutual may, however, make such a charge in the future if
income or gains within the Variable Account will result in any Federal income
tax liability to Providentmutual. Charges for other taxes attributable to the
Variable Account, if any, may also be made.
 
                                PAYMENT OPTIONS
 
     The Contract ends on the Maturity Date, at which time the Contract Account
Value will be applied under a Payment Option, unless the Owner elects to receive
the Cash Surrender Value in a single sum. If an election of a Payment Option has
not been filed at Providentmutual's Home Office on the Maturity Date, the
proceeds will be paid as a life annuity with payments for ten years guaranteed.
Prior to the Maturity Date, the Owner can have the Cash Surrender Value applied
under a Payment Option, or a Beneficiary can have the death benefit applied
under a Payment Option. Any premium tax applicable will be deducted from the
Cash Surrender Value or the Contract Account Value at the time payments
commence. The Contract must be surrendered so that the applicable amount can be
paid in a lump sum or a supplemental contract for the applicable Payment Option
can be issued.
 
                                       28
<PAGE>   36
 
     The Payment Options available are described below. The term "Payee" means a
person who is entitled to receive payment under that option. The Payment Options
are fixed, which means that each option has a fixed and guaranteed amount to be
paid during the annuity period that is not in any way dependent upon the
investment experience of the Variable Account.
 
ELECTION OF OPTIONS
 
     An option may be elected, revoked, or changed at any time before the
Maturity Date while the Annuitant is living. If the Payee is other than the
Owner, the election of a Payment Option requires the consent of Providentmutual.
If an election is not in effect at the Annuitant's death or if payment is to be
made in one sum under an existing election, the Beneficiary may elect one of the
options after the death of the Annuitant.
 
     An election of option and any revocation or change must be made by Written
Notice. It must be filed with the Home Office.
 
     An option may not be elected if any periodic payment under the election
would be less than $50. Subject to this condition, payments may be made
annually, semi-annually, quarterly, or monthly and are made at the beginning of
such period.
 
DESCRIPTION OF OPTIONS
 
     Option A -- Life Annuity Option.  To have the proceeds paid in equal
amounts each month during the Payee's lifetime with payments ceasing with the
last payment prior to the death of the Payee. No amounts are payable after the
Payee dies. Therefore, if the Payee dies immediately following the date of the
first payment, the Payee will receive one monthly payment only.
 
     Option B -- Life Annuity Option with 10 Years Guaranteed.  To have the
proceeds paid in equal amounts each month during the Payee's lifetime with the
guarantee that payments will be made for a period of not less than ten years.
Under this option, if any Beneficiary dies while receiving payment, the present
value of the current dollar amount on the date of death of any remaining
guaranteed payments will be paid in one sum to the executors or administrators
of the Beneficiary unless otherwise provided in writing. Calculation of such
present value shall be at 3% which is the rate of interest assumed in computing
the amount of annuity payments.
 
     The amount of each payment will be determined from the Tables in the
Contract which apply to the particular option using the Payee's age and sex. If
the Contract is sold in a group or employer-sponsored arrangement, the amount of
the payments will be based on the Payee's age, only. Age will be determined from
the nearest birthday at the due date of the first payment.
 
     Alternate Income Option.  In lieu of one of the above options, the Contract
Account Value, Cash Surrender Value or death benefit, as applicable, may be
settled under an Alternate Income Option based on Providentmutual's single
premium immediate annuity rates in effect at the time of settlement. Such rates
will be adjusted to a due basis. The first payment will be made immediately (at
the beginning of the first month, rather than at the end of the month) which
will result in receiving one additional payment. The income will be increased by
4%. In no case will the income be less than that which would be payable if the
amount were used to purchase a single premium immediate annuity adjusted to a
due basis.
 
                            YIELDS AND TOTAL RETURNS
 
     From time to time, Providentmutual may advertise or include in sales
literature yields, effective yields, and total returns for the Subaccounts.
These figures are based on historical earnings and do not indicate or project
future performance. Each Subaccount may, from time to time, advertise or include
in sales literature performance relative to certain performance rankings and
indices compiled by independent organizations. More detailed information as to
the calculation of performance information, as well as comparisons with
unmanaged market indices, appears in the Statement of Additional Information.
 
                                       29
<PAGE>   37
 
     Effective yields and total returns for the Subaccounts are based on the
investment performance of the corresponding Portfolio of the Funds. The Funds'
performance in part reflects the Funds' expenses. See the Prospectuses for the
Funds.
 
     The yield of the Money Market Subaccount refers to the annualized income
generated by an investment in the Subaccount over a specified seven-day period.
The yield is calculated by assuming that the income generated for that seven-day
period is generated each seven-day period over a 52-week period and is shown as
a percentage of the investment. The effective yield is calculated similarly but,
when annualized, the income earned by an investment in the Subaccount is assumed
to be reinvested. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
 
     The yield of a Subaccount (except the Money Market Subaccount) refers to
the annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30-day or one-month period is
generated each period over a 12-month period and is shown as a percentage of the
investment.
 
     The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time including, but not limited to, a period measured from the date the
Subaccount commenced operations. When a Subaccount has been in operation for
one, five, and ten years, respectively, the total return for these periods will
be provided. For periods prior to the date the Variable Account commenced
operations, performance information for Contracts funded by the Subaccounts will
be calculated based on the performance of the Funds' Portfolios and the
assumption that the Subaccounts were in existence for the same periods as those
indicated for the Funds' Portfolios, with the level of Contract charges that
were in effect at the inception of the Subaccounts for the Contracts.
 
     The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the Subaccount from the beginning date of the measuring
period to the end of that period. This standardized version of average annual
total return reflects all historical investment results, less all charges and
deductions applied against the Subaccount (including any surrender charge that
would apply if an Owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium taxes).
 
     In addition to the standard version described above, total return
performance information computed on two different non-standard bases may be used
in advertisements. Average total return information may be presented, computed
on the same basis as described above, except deductions will not include the
Surrender Charge. In addition, Providentmutual may from time to time disclose
average annual total return in non-standard formats and cumulative total return
for Contracts funded by the Subaccounts.
 
   
     Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
    
 
     In advertising and sales literature, the performance of each Subaccount may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the Subaccounts. Lipper Analytical Services, Inc. ("Lipper") and the
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
 
     Lipper's rankings include variable life insurance issuers as well as
variable annuity issuers. VARDS rankings compare only variable annuity issuers.
The performance analyses prepared by Lipper and VARDS each rank such issuers on
the basis of total return, assuming reinvestment of distributions, but do not
take sales charges, redemption fees, or certain expense deductions at the
separate account level into consideration. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
 
                                       30
<PAGE>   38
 
performance. This type of ranking provides data as to which funds provide the
highest total return within various categories of funds defined by the degree of
risk inherent in their investment objectives.
 
     Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
 
     Providentmutual may also report other information including the effect of
tax-deferred compounding on a Subaccount's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts. All income and
capital gains derived from Subaccount investments are reinvested and can lead to
substantial long-term accumulation of assets, provided that the underlying
Portfolio's investment experience is positive.
 
                               FEDERAL TAX STATUS
 
     THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
 
INTRODUCTION
 
     This discussion is not intended to address the tax consequences resulting
from all of the situations in which a person may be entitled to or may receive a
distribution under the annuity contract issued by Providentmutual. Any person
concerned about these tax implications should consult a competent tax advisor
before initiating any transaction. This discussion is based upon
Providentmutual's understanding of the present Federal income tax laws, as they
are currently interpreted by the Internal Revenue Service. No representation is
made as to the likelihood of the continuation of the present Federal income tax
laws or of the current interpretation by the Internal Revenue Service, Moreover,
no attempt has been made to consider any applicable state or other tax laws.
 
     The Contract may be purchased on a non-qualified basis ("Non-Qualified
Contract") or purchased and used in connection with plans qualifying for
favorable tax treatment ("Qualified Contract"). The Qualified Contract is
designed for use by individuals whose premium payments are comprised solely of
proceeds from and/or contributions under retirement plans which are intended to
qualify as plans entitled to special income tax treatment under Sections 401(a),
403(b), or 408 of the Internal Revenue Code of 1986, as amended (the "Code").
The ultimate effect of Federal income taxes on the amounts held under a
Contract, or annuity payments, and on the economic benefit to the Owner, the
Annuitant, or the Beneficiary depends on the type of retirement plan, on the tax
and employment status of the individual concerned, and on Providentmutual's tax
status. In addition, certain requirements must be satisfied in purchasing a
Qualified Contract with proceeds from a tax-qualified plan and receiving
distributions from a Qualified Contract in order to continue receiving favorable
tax treatment. Therefore, purchasers of Qualified Contracts should seek
competent legal and tax advice regarding the suitability of a Contract for their
situation, the applicable requirements, and the tax treatment of the rights and
benefits of a Contract. The following discussion assumes that Qualified
Contracts are purchased with proceeds from and/or contributions under retirement
plans that qualify for the intended special Federal income tax treatment.
 
TAX STATUS OF THE CONTRACT
 
     Diversification Requirements.  Section 817(h) of the Code provides that
separate account investments underlying a contract must be "adequately
diversified" in accordance with Treasury regulations in order for the contract
to qualify as an annuity contract under Section 72 of the Code. The Variable
Account, through each Portfolio of the Funds, intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various Subaccounts may be
invested. Although Providentmutual does not have control over the Funds in which
the Variable Account invests, we believe that each Portfolio in which the
Variable Account owns shares will meet the diversification requirements and that
therefore the Contract will be treated as an annuity contact under the Code.
 
                                       31
<PAGE>   39
 
     In certain circumstances, owners of variable annuity contracts may be
considered the owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
annuity contract owner's gross income. Several years ago, the IRS stated in
published rulings that a variable contract owner will be considered the owner of
separate account assets if the contract owner possesses incidents of ownership
in those assets, such as the ability to exercise investment control over the
assets. More recently, the Treasury Department announced, in connection with the
issuance of regulations concerning investment diversification, that those
regulations "do not provide guidance concerning the circumstances in which
investor control of the investments of a segregated asset account may cause the
investor, rather that the insurance company, to be treated as the owner of the
assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
owners of the underlying assets."
 
     The ownership rights under the contract are similar to, but different in
certain resects from, those described by the Service in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the Owner of the Contract has the choice of one or more Subaccounts in
which to allocate premiums and Contract values, and may be able to transfer
among Subaccounts more frequently than in such rulings. These differences could
result in the Owner's being treated as the owner of the assets of the Variable
Account. In addition, Providentmutual does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Providentmutual therefore reserves the right to
modify the Contract as necessary to attempt to prevent the Owner from being
considered the owner of the assets of the Variable Account.
 
     Required Distributions.  In addition to the requirements of Section 817(h)
of the Code, in order to be treated as an annuity contract for Federal income
tax purposes, Section 72(s) of the Code requires any Non-Qualified Contract to
provide that; (a) if any Owner dies on or after the Maturity Date but prior to
the time the entire interest in the Contract has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death; and (b)
if any Owner dies prior to the annuity commencement date, the entire interest in
the Contract will be distributed within five years after the date of the Owner's
death. These requirements will be considered satisfied as to any portion of the
Owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such Beneficiary or over
a period not extending beyond the life expectancy of that Beneficiary, provided
that such distributions begin within one year of that Owner's death. The Owner's
"designated beneficiary" is the person designated by such owner as a Beneficiary
and to whom ownership of the Policy passes by reason of death and must be a
natural person. However, if the owner's "designated beneficiary" is the
surviving spouse of the Owner, the contract may be continued with the surviving
spouse as the new Owner.
 
     The Non-Qualified Contract contain provisions which are intended to comply
with the requirements of Section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Providentmutual intends to
review such provisions and modify them if necessary to assure that they comply
with the requirements of Code Section 72(s) when clarified by regulation or
otherwise.
 
     Other rules may apply to Qualified Contracts.
 
     The following discussion assumes that the Contracts will qualify as annuity
contracts for Federal income tax purposes.
 
TAXATION OF ANNUITIES
 
     In General.  Section 72 of the Code governs taxation of annuities in
general. Providentmutual believes that an Owner who is a natural person
generally is not taxed on increases in the value of a Contract until
distribution occurs by withdrawing all or part of the Contract Account Value
(e.g., partial withdrawals and complete surrenders) or as annuity payments under
the Payment Option elected. For this purpose, the assignment, pledge, or
agreement to assign or pledge any portion of the Contract Account Value (and in
the case of a Qualified Contract, any portion of an interest in the qualified
plan) generally will be treated as a
 
                                       32
<PAGE>   40
 
distribution. The taxable portion of a distribution (in the form of a single sum
payment or an annuity) is taxable as ordinary income.
 
     The Owner of any annuity contract who is not a natural person generally
must include in income any increase in the excess of the Contract Account Value
over the "investment in the contract" during the taxable year. There are some
exceptions to this rule, and a prospective Owner that is not a natural person
may wish to discuss these with a competent tax advisor.
 
     The following discussion generally applies to Contracts owned by natural
persons.
 
     Withdrawals.  In the case of a withdrawal from a Qualified Contract, under
Section 72(e) of the Code a ratable portion of the amount received is taxable,
generally based on the ratio of the "investment in the contract" to the
participant's total accrued benefit or balance under the retirement plan. The
"investment in the contract" generally equals the portion, if any, of any
premium payments paid by or on behalf of any individual under a Contract which
was not excluded from the individual's gross income. For Contracts issued in
connection with qualified plans, the "investment in the contract" can be zero.
Special tax rules may be available for certain distributions from Qualified
Contracts.
 
     In the case of a withdrawal from a Non-Qualified Contract before the
Maturity Date, under Code Section 72(e) amounts received are generally first
treated as taxable income to the extent that the accumulation value immediately
before the withdrawal exceeds the "investment in the contract" at that time. Any
additional amount withdrawn is not taxable.
 
     In the case of a full surrender under a Qualified or Non-Qualified
Contract, the amount received generally will be taxable only to the extent it
exceeds the "investment in the contract."
 
     Annuity Payments.  Although tax consequences may vary depending on the
Payment Option elected under an annuity contract, under Code Section 72(b),
generally (prior to recovery of the investment in the contract) gross income
does not include that part of the amount received as an annuity under an annuity
contract that bears the same ratio to such amount as the investment in the
contract bears to the expected return at the annuity starting date. Stated
differently, prior to recovery of the investment in the contract, in general,
there is no tax on the amount of each payment which represents the same ratio
that the "investment in the contract" bears to the total expected value of the
annuity payments for the term of payments; however, the remainder of each income
payment is taxable. After the "investment in the contact" is recovered, the full
amount of any additional annuity payments is taxable.
 
   
     Taxation of Death Benefit Proceeds.  Amounts may be distributed from a
Contract because of the death of the Owner or an Annuitant. Generally, such
amounts are includible in the income of the recipient as follows: (i) if
distributed in a lump sum, they are taxed in the same manner as a full surrender
of the contract; or (ii) if distributed under a Payment Option, they are taxed
in the same way as annuity payments. For these purposes, the investment in the
contract is not affected by the owner's or annuitant's death. That is, the
investment in the contract remains the amount of any purchase payments paid
which were not excluded from gross income.
    
 
     Penalty Tax on Certain Withdrawals.  In the case of a distribution pursuant
to a Non-Qualified Contract, there may be imposed a Federal penalty tax equal to
10% of the amount treated as taxable income. In general, however, there is no
penalty on distributions:
 
     1. made on or after the taxpayer reaches age 59 1/2.
 
     2. made on or after the death of the holder (or if the holder is not an
        individual, the death of the primary annuitant);
 
     3. attributable to the taxpayer's becoming disabled;
 
     4. a part of a series of substantially equal periodic payments (not less
        frequently than annually) for the life (or life expectancy) of the
        taxpayer or the joint lives (or joint life expectancies) of the taxpayer
        and his or her designated beneficiary;
 
                                       33
<PAGE>   41
 
     5. made under an annuity contract that is purchased with a single premium
        when the annuity starting date is no later than a year from purchase of
        the annuity and substantially equal periodic payments are made, not less
        frequently than annually, during the annuity period; and
 
     6. made under certain annuities issued in connection with structured
        settlement agreements.
 
     Other tax penalties may apply to certain distributions under a Qualified
Contract, as well as to certain contributions, loans, and other circumstances.
 
     Possible Tax Changes.  In recent years, legislation has been proposed that
would have adversely modified the federal taxation of certain annuities. For
example, one such proposal would have changed the tax treatment of non-qualified
annuities that did not have "substantial life contingencies" by taxing income as
it is credited to the annuity. Although as of the date of this prospectus
Congress is not considering any legislation regarding the taxation of annuities,
there is always the possibility that the tax treatment of annuities could change
by legislation or other means (such as IRS regulations, revenue rulings, and
judicial decisions). Moreover, it is also possible that any legislative change
could be retroactive (that is, effective prior to the date of such change).
 
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
 
     A transfer of ownership of a Contract, the designation of an Annuitant,
Payee or other Beneficiary who is not also the Owner, the selection of certain
Maturity Dates or the exchange of a Contract may result in certain tax
consequences to the Owner that are not discussed herein. An Owner contemplating
any such transfer, assignment, or exchange of a Contract should contact a
competent tax advisor with respect to the potential effects of such a
transaction.
 
WITHHOLDING
 
     Pension and annuity distributions generally are subject to withholding for
the recipient's Federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, distribution from certain qualified
plans are generally subject to mandatory withholding.
 
MULTIPLE CONTRACTS
 
     All non-qualified deferred annuity contracts entered into after October 21,
1988 that are issued by Providentmutual (or its affiliates) to the same Owner
during any calendar year are treated as one annuity Contract for purposes of
determining the amount includible in gross income under Code Section 72(e). This
rule could affect the time when income is taxable and the amount that might be
subject to the 10% penalty tax described above. In addition, the Treasury
Department has specific authority to issue regulations that prevent the
avoidance of Section 72(e) through the serial purchase of annuity contracts or
otherwise. There may also be other situations in which the Treasury may conclude
that it would be appropriate to aggregate two or more annuity contracts
purchased by the same Owner. Accordingly, a Contract Owner should consult a
competent tax advisor before purchasing more than one annuity contract.
 
TAXATION OF QUALIFIED PLANS
 
   
     The Contracts are designed for use with several types of qualified plans.
The tax rules applicable to participants in these qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances. Therefore, no attempt is
made to provide more than general information about the use of the Contracts
with the various types of qualified retirement plans. Contract Owners, the
Annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement
    
 
                                       34
<PAGE>   42
 
plans may be subject to the terms and conditions of the plans themselves,
regardless of the terms and conditions of the Contract, but Providentmutual
shall not be bound by the terms and conditions of such plans to the extent such
terms contradict the Contract, unless Providentmutual consents. Some retirement
plans are subject to distribution and other requirements that are not
incorporated into our Contract administration procedures. Owners, participants
and beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Contracts comply with
applicable law. Brief descriptions follow of the various types of qualified
retirement plans in connection with a Contract. Providentmutual will amend the
Contract as necessary to confirm it to the requirements of the Code.
 
     Corporate Pension and Profit Sharing Plans.  Section 401(a) of the Code
permits corporate employers to establish various types of retirement plans for
employees. These retirement plans may permit the purchase of the Contracts to
accumulate retirement savings under the plans. Adverse tax or other legal
consequences to the plan, to the participant or to both may result if this
Contract is assigned or transferred to any individual as a means to provide
benefit payments, unless the plan complies with all legal requirements
applicable to such benefits prior to transfer of the Contract. Corporate
employers intending to use the Contract with such plans should seek competent
advice.
 
   
     Individual Retirement Annuities.  Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on
the amount that may be contributed, the persons who may be eligible, and on the
time when distributions may commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" on a tax-deferred basis
into an IRA. Sales of the Contract for use with IRAs may be subject to special
requirements of the Internal Revenue Service. The Internal Revenue Service has
not reviewed the Contract for qualification as an IRA, and has not addressed in
a ruling of general applicability whether a death benefit provision such as the
provision in the Contract comports with IRA qualification requirements.
    
 
     Tax Sheltered Annuities.  Section 403(b) of the Code allows employees of
certain Section 501(c)(3) organizations and public schools to exclude from their
gross income the premiums paid, within certain limits, on a Contract that will
provide an annuity for the employee's retirement. These payments may be subject
to FICA (social security) tax.
 
   
RESTRICTIONS UNDER QUALIFIED CONTRACTS
    
 
   
     Other restrictions with respect to the election, commencement, or
distribution of benefits may apply under Qualified Contracts or under the terms
of the plans in respect of which Qualified Contracts are issued.
    
 
POSSIBLE CHARGE FOR PROVIDENTMUTUAL'S TAXES
 
     At the present time, the Company makes no charge to the Subaccounts for any
Federal, state, or local taxes that the Company incurs which may be attributable
to such Subaccounts or to the Contracts. The Company, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be properly
attributable to the Subaccounts or to the Contracts.
 
     If any tax charges are made in the future, they will be accumulated daily
and transferred from the applicable Subaccount to Providentmutual's General
Account. Any investment earnings on tax charges accumulated in a Subaccount will
be retained by Providentmutual.
 
OTHER TAX CONSEQUENCES
 
     As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
Federal income tax consequences discussed herein reflect Providentmutual's
understanding of current law and the law may change. Federal estate and state
and local estate, inheritance, and other tax consequences of ownership or
receipt of distributions under a Contract depend on the individual
 
                                       35
<PAGE>   43
 
circumstances of each Owner or recipient of the distribution. A competent tax
advisor should be consulted for further information.
 
                           DISTRIBUTION OF CONTRACTS
 
   
     The Contracts will be offered to the public on a continuous basis, and
Providentmutual does not anticipate discontinuing the offering of the Contracts.
However, Providentmutual reserves the right to discontinue the offering.
Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell Providentmutual's variable
annuity contracts and who are also registered representatives of 1717 Capital
Management Company ("1717") (formerly PML Securities Company) or broker/dealers.
1717 is a wholly owned indirect subsidiary of Provident Mutual Life Insurance
Company of Philadelphia and is registered with the SEC under the Securities
Exchange Act of 1934 as a broker-dealer and is a member of the National
Association of Securities Dealers, Inc.
    
 
   
     1717 acts as the Principal Underwriter, as defined in the Investment
Company Act of 1940, of the Contracts for the Variable Account pursuant to an
Underwriting Agreement between Providentmutual and 1717. 1717 is not obligated
to sell any specific number of Contracts. 1717's principal business address is
Christiana Executive Campus, P.O. Box 15626, Wilmington, Delaware 19850. The
Contracts may also be sold through other broker-dealers registered under the
Securities Exchange Act of 1934 whose representatives are authorized by
applicable law to sell variable annuity contracts. 1717 has entered into a
Selling Agreement with Sentinel Financial Services Company (SFSC), a registered
broker-dealer affiliated with 1717. Under the terms of the Selling Agreement,
SFSC will be national distributor of the Contracts. Registered Representatives
of SFSC will solicit applications and SFSC will also enter into selling
agreements with other broker-dealers with respect to distribution of the
Contracts. 1717 and SFSC receive the full commissions on Contracts sold by their
registered representatives. Nonaffiliated broker-dealers receive full
commissions on Contracts sold by their registered representatives, less a
nominal charge by 1717 or SFSC for expenses incurred. The commissions paid are
no greater than 6% of premiums.
    
 
                               LEGAL PROCEEDINGS
 
     There are at present no legal proceedings to which the Variable Account is
a party or the assets of the Variable Account are subject. Providentmutual is
not involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
 
                                 VOTING RIGHTS
 
     In accordance with its view of present applicable law, Providentmutual will
vote the Portfolio shares held in the Variable Account at special shareholder
meetings of the Funds in accordance with instructions received from persons
having voting interests in the corresponding Subaccounts. If, however, the
Investment Company Act of 1940 or any regulation thereunder should be amended,
or if the present interpretation thereof should change, or Providentmutual
determines that it is allowed to vote the Portfolio shares in its own right, it
may elect to do so.
 
     The number of votes which are available to an Owner will be calculated
separately for each Subaccount of the Variable Account, and may include
fractional votes. The number of votes attributable to a Subaccount will be
determined by applying an Owner's percentage interest, if any, in a particular
Subaccount to the total number of votes attributable to that Subaccount. An
Owner holds a voting interest in each Subaccount to which the Variable Account
Value is allocated. The Owner only has voting interest prior to the Maturity
Date.
 
     The number of votes of a Portfolio which are available to the Contract
Owner will be determined as of the date coincident with the date established by
that Portfolio for determining shareholders eligible to vote at the relevant
meeting of each Fund. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the Funds.
 
     Fund shares as to which no timely instructions are received and shares held
by Providentmutual in a Subaccount as to which an Owner has no beneficial
interest will be voted in proportion to the voting
 
                                       36
<PAGE>   44
 
instructions which are received with respect to all Contracts participating in
that Subaccount. Voting instructions to abstain on any item to be voted upon
will be applied on a pro rata basis to reduce the votes eligible to be cast.
 
                              FINANCIAL STATEMENTS
 
   
     The audited statements of financial condition for Providentmutual as of
December 31, 1995 and 1994 and the related statements of operations, changes in
capital and surplus and cash flows for each of the three years in the period
ended December 31, 1995 as well as the Report of Independent Accountants are
contained in the Statement of Additional Information. The audited statements of
assets and liabilities for the Variable Account as of December 31, 1995 and the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended are
included in the Statement of Additional Information for the Variable Account.
    
 
                                       37
<PAGE>   45
 
             STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
 
   
<TABLE>
<CAPTION>
                                                                                        PAGE
                                                                                        -----
<S>                                                                                     <C>
Additional Contract Provisions......................................................      S-2
     The Contract...................................................................      S-2
     Incontestability...............................................................      S-2
     Misstatement of Age or Sex.....................................................      S-2
     Non-Participation..............................................................      S-2
Calculation of Yields and Total Returns.............................................      S-2
     Money Market Subaccount Yields.................................................      S-2
     Other Subaccount Yields........................................................      S-3
     Average Annual Total Returns...................................................      S-4
     Other Total Returns............................................................      S-7
     Effect of the Administration Fee on Performance Data...........................      S-8
Termination of Participation Agreements.............................................      S-8
Safekeeping of Account Assets.......................................................      S-9
State Regulation....................................................................     S-10
Records and Reports.................................................................     S-10
Legal Matters.......................................................................     S-10
Experts.............................................................................     S-10
Other Information...................................................................     S-10
Financial Statements................................................................     S-10
</TABLE>
    
 
                                       38
<PAGE>   46
 
              PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA,
                         A STOCK LIFE INSURANCE COMPANY
                             300 CONTINENTAL DRIVE
                             NEWARK, DELAWARE 19713
                                 1-800-654-7796
 
                      STATEMENT OF ADDITIONAL INFORMATION
                       VARIABLE ANNUITY SEPARATE ACCOUNT
         INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
 
   
     This Statement of Additional Information contains information in addition
to the information described in the Prospectus for the flexible premium deferred
variable annuity contract (the "Contract") offered by Providentmutual Life and
Annuity Company of America. This Statement of Additional Information is not a
Prospectus, and it should be read only in conjunction with the Prospectuses for
the Contract and The Market Street Fund, Inc., the Variable Insurance Products
Fund, the Variable Insurance Products Fund II, the Scudder Variable Life
Investment Fund, the OCC Accumulation Trust, the Dreyfus Variable Investment
Fund and the Insurance Management Series. The Prospectus is dated the same as
this Statement of Additional Information. You may obtain a copy of the
Prospectus by writing or calling us at our address or phone number shown above.
    
 
   
      THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 1996
    
 
                      STATEMENT OF ADDITIONAL INFORMATION
 
                               TABLE OF CONTENTS*
 
   
<TABLE>
  <S>                                                                                   <C>
  ADDITIONAL CONTRACT PROVISIONS (12-20)..............................................    S-2
       The Contract...................................................................    S-2
       Incontestability...............................................................    S-2
       Misstatement of Age or Sex.....................................................    S-2
       Non-Participation..............................................................    S-2
  CALCULATION OF YIELDS AND TOTAL RETURNS (24-26).....................................    S-2
       Money Market Subaccount Yields.................................................    S-2
       Other Subaccount Yields........................................................    S-3
       Average Annual Total Returns...................................................    S-4
       Other Total Returns............................................................    S-7
       Effect of the Administration Fee on Performance Data...........................    S-8
  TERMINATION OF PARTICIPATION AGREEMENTS.............................................    S-8
  SAFEKEEPING OF ACCOUNT ASSETS.......................................................    S-9
  STATE REGULATION (7)................................................................   S-10
  RECORDS AND REPORTS.................................................................   S-10
  LEGAL MATTERS (30)..................................................................   S-10
  EXPERTS.............................................................................   S-10
  OTHER INFORMATION...................................................................   S-10
  FINANCIAL STATEMENTS (31)...........................................................   S-10
</TABLE>
    
 
- ---------------
 
* Numbers in parentheses refer to corresponding pages of the Prospectus.
<PAGE>   47
 
                         ADDITIONAL CONTRACT PROVISIONS
 
THE CONTRACT
 
     The entire contract is made up of the policy and the application. The
statements made in the application are deemed representations and not
warranties. Providentmutual cannot use any statement in defense of a claim or to
void the Contract unless it is contained in the application and a copy of the
application is attached to the Contract at issue.
 
INCONTESTABILITY
 
     Providentmutual will not contest the Contract after it has been in force
during the Annuitant's lifetime for two years from the Issue Date of the
Contract.
 
MISSTATEMENT OF AGE OR SEX
 
     If the age or sex of the annuitant has been misstated, the amount which
will be paid is that which the proceeds would have purchased at the correct age
and sex.
 
     If an overpayment is made because of an error in age or sex, the
overpayment plus interest at 3% compounded annually will be a debt against the
Contract. If the debt is not repaid, future payments will be reduced
accordingly.
 
     If an underpayment is made because of an error in age or sex, any annuity
payments will be recalculated at the correct age and sex and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
 
NON-PARTICIPATION
 
     The Contract is not eligible for dividends and will not participate in
Providentmutual's divisible surplus.
 
                    CALCULATION OF YIELDS AND TOTAL RETURNS
 
     From time to time, Providentmutual may disclose yields, total returns, and
other performance data pertaining to the Contracts for a Subaccount. Such
performance data will be computed, or accompanied by performance data computed,
in accordance with the standards defined by the Securities and Exchange
Commission.
 
     Because of the charges and deductions imposed under a Contract, the yield
for the Subaccounts will be lower than the yield for their respective
Portfolios. The calculations of yields, total returns, and other performance
data do not reflect the effect of any premium tax that may be applicable to a
particular Contract. Premium taxes currently range from 0% to 3.5% of premium
based on the state in which the Contract is sold.
 
MONEY MARKET SUBACCOUNT YIELDS
 
     From time to time, advertisements and sales literature may quote the
current annualized yield of the Money Market Subaccount for a seven-day period
in a manner which does not take into consideration any realized or unrealized
gains or losses on shares of the Money Market Portfolio or on its portfolio
securities.
 
     This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation) at the end of the seven-day period in the value
of a hypothetical account under a Contract having a balance of 1 unit of the
Money Market Subaccount at the beginning of the period, dividing such net change
in account value by the value of the hypothetical account at the beginning of
the period to determine the base period return, and annualizing this quotient on
a 365-day basis. The net change in account value reflects: 1) net income from
the Portfolio attributable to the hypothetical account; and 2) charges and
deductions imposed under the Contract which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
 
                                       S-2
<PAGE>   48
 
hypothetical account for: 1) the Annual Administration Fee; 2) Asset-Based
Administration Charge; and 3) the Mortality and Expense Risk Charge. For
purposes of calculating current yields for a Contract, an average per unit
administration fee is used based on the $30 administration fee deducted at the
end of each Contract Year. Current Yield will be calculated according to the
following formula:
 
     Current Yield = ((NCS - ES)/UV) X (365/7)
 
     Where:
 
     NCS = the net change in the value of the Portfolio (exclusive of realized
           gains or losses on the sale of securities and unrealized appreciation
           and depreciation) for the seven-day period attributable to a
           hypothetical account having a balance of 1 Subaccount unit.
 
     ES   = per unit expenses attributable to the hypothetical account for the
            seven-day period.
 
     UV  = The unit value on the first day of the seven-day period.
 
     The effective yield of the Money Market Subaccount determined on a
compounded basis for the same seven-day period may also be quoted.
 
     The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
 
   
     Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
    
 
     Where:
 
     NCS = the net change in the value of the Portfolio (exclusive of realized
           gains or losses on the sale of securities and unrealized appreciation
           and depreciation) for the seven-day period attributable to a
           hypothetical account having a balance of 1 Subaccount unit.
 
     ES   = per unit expenses attributable to the hypothetical account for the
            seven-day period.
 
     UV  = The unit value on the first day of the seven-day period.
 
     Because of the charges and deductions imposed under the contract, the yield
for the Money Market Subaccount will be lower than the yield for the Money
Market Portfolio.
 
     The current and effective yields on amounts held in the Money Market
Subaccount normally will fluctuate on a daily basis. THEREFORE, THE DISCLOSED
YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The Money Market Subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market Portfolio, the types of quality of
portfolio securities held by the Money Market Portfolio and the Money Market
Portfolio's operating expenses. Yields on amounts held in the Money Market
Subaccount may also be presented for periods other than a seven-day period.
 
OTHER SUBACCOUNT YIELDS
 
     From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the Money Market
Subaccount) for a Contract for 30-day or one-month periods. The annualized yield
of a Subaccount refers to income generated by the Subaccount over a specific
30-day or one-month period. Because the yield is annualized, the yield generated
by a Subaccount during a 30-day or one-month period is assumed to be generated
each period over a 12-month period.
 
     The yield is computed by: 1) dividing the net investment income of the
Portfolio attributable to the Subaccount units less Subaccount expenses for the
period; by 2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by 2. Expenses attributable to the Subaccount include the Annual Administration
Fee, the Asset-Based Administration Charge and the Mortality and Expense Risk
charge. The yield calculation assumes an administration fee of $30 per year per
Contract deducted at the end of each Contract Year. For purposes of calculating
the 30-day or one-month
 
                                       S-3
<PAGE>   49
 
yield, an average administration fee per dollar of Contract value in the
Variable Account is used to determine the amount of the charge attributable to
the Subaccount for the 30-day or one-month period. The 30-day or one-month yield
is calculated according to the following formula:
 
   
     Yield = 2 (((NI - ES)/(U X UV)) + 1)(6-1)
    
 
     Where:
 
     NI   = net income of the Portfolio for the 30-day or one-month period
            attributable to the Subaccount's units.
 
     ES   = expenses of the Subaccount for the 30-day or one-month period.
 
     U    = the average number of units outstanding.
 
     UV  = the unit value at the close (highest) of the last day in the 30-day
           or one-month period.
 
     Because of the charges and deductions imposed under the Contracts, the
yield for the Subaccount will be lower than the yield for the corresponding Fund
Portfolio.
 
     The yield on the amounts held in the Subaccounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Subaccount's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio and its operating expenses.
 
     Yield calculations do not take into account the Surrender Charge under the
Contract equal to 1% to 6% of premiums paid during the six years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
amounts surrendered or withdrawn under the contract. A Surrender Charge will not
be imposed on the first or second withdrawal in any Contract Year on an amount
up to 10% of the Contract Account Value as of the beginning of such year.
 
AVERAGE ANNUAL TOTAL RETURNS
 
     From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.
 
     Until a Subaccount has been in operation for 10 years, Providentmutual will
always include quotes of average annual total return for the period measured
from the date the Contracts were first offered for sale. When a Subaccount has
been in operation for 1, 5, and 10 years, respectively, the average annual total
return for these periods will be provided. Average annual total returns for
other periods of time may, from time to time, also be disclosed.
 
     Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month-end practicable, considering the type
and media of the communication and will be stated in the communication.
 
     Average annual total returns will be calculated using Subaccount unit
values which Providentmutual calculates on each Valuation Day based on the
performance of the Subaccount's underlying Portfolio, the deductions for the
Mortality and Expense Risk Charge, the Asset-Based Administration Charge, and
the Annual Administration Fee. The calculation assumes that the administration
fee is $30 per year per contract deducted at the end of each Contract Year. For
purposes of calculating average annual total return, an average per dollar
administration fee attributable to the hypothetical account for the period is
used. The calculation also assumes surrender of the Contract at the end of the
period for the return quotation. Total returns will
 
                                       S-4
<PAGE>   50
 
therefore reflect a deduction of the Surrender Charge for any period less than
seven years. The total return will then be calculated according to the following
formula:
 
     TR  = ((ERV/P)1/N) - 1
 
     Where:
 
     TR  = the average annual total return net of Subaccount recurring charges.
 
     ERV = the ending redeemable value (net of any applicable surrender charge)
           of the hypothetical account at the end of the period.
 
     P    = a hypothetical initial payment of $1,000.
 
     N    = the number of years in the period.
 
     From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Subaccounts will be
calculated based on the performance of the Portfolios and the assumption that
the Subaccounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect. In
addition, sales literature or advertisements may quote average annual total
return for the Growth, Money Market, Bond, Managed, Aggressive Growth, and
International Subaccounts for the period before the Contracts were registered
under the 1933 Act (from the inception of these Subaccounts (April 14, 1992) to
December 31, 1992), with the level of Contract charges currently in effect.
 
   
     The Funds have provided the total return information for the Portfolios,
including the Portfolio total return information used to calculate the total
returns of the Subaccounts for periods prior to the Subaccounts' inception of
the Subaccounts. The Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Scudder Variable Life Investment Fund, the OCC
Accumulation Trust, the Dreyfus Variable Investment Fund and The Insurance
Management Series are not affiliated with Providentmutual. While Providentmutual
has no reason to doubt the accuracy of these figures provided by these
non-affiliated Funds, Providentmutual does not represent that they are true and
complete, and disclaims all responsibility for these figures.
    
 
                                       S-5
<PAGE>   51
 
     Such average annual total return information for the Subaccounts is as
follows:
 
   
<TABLE>
<CAPTION>
                                                                                       FOR THE 10-YEAR PERIOD
                                                                                           ENDED 12/31/95
                                                 FOR THE 1-YEAR     FOR THE 5-YEAR          (OR DATE OF
                                                  PERIOD ENDED       PERIOD ENDED        INCEPTION IF LESS
 SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION)      12/31/95           12/31/95            THAN 10 YEARS)
- -----------------------------------------------  --------------     --------------     ----------------------
<S>                                              <C>                <C>                <C>
MARKET STREET
  Growth (December 12, 1985)...................       21.83%            10.75%                 10.94%
  Money Market (December 12, 1985).............       -1.35%             2.22%                  4.02%
  Bond (December 12, 1985).....................       12.43%             6.63%                  6.53%
  Managed (December 12, 1985)..................       16.17%            10.89%                  7.20%
  Aggressive Growth (May 1, 1989)..............        6.01%            11.80%                 10.71%
  International (November 1, 1991).............        6.78%                                    6.43%
FIDELITY
  High Income (September 19, 1985).............       12.67%            16.79%                 10.04%
  Equity-Income (October 9, 1986)..............       26.23%            19.16%                 11.55%
  Growth (October 9, 1986).....................       26.48%            18.62%                 13.03%
  Asset Manager (September 6, 1989)............        9.26%            10.72%                  9.46%
  Index 500 (August 27, 1992)..................       28.19%                --                 12.56%
  Contrafund (July 3, 1995)....................       30.85%                --                 30.85%
QUEST FOR VALUE
  Equity (August 1, 1988)......................       29.75%                --                 14.54%
  Small Cap (August 1, 1988)...................        7.64%                --                  3.72%
  Managed (August 1, 1988).....................       36.01%                --                 16.36%
SCUDDER
  Bond (July 16, 1985).........................       10.39%             7.73%                  7.31%
  Growth & Inc.(May 2, 1994)...................       23.11%                --                 15.88%
  International (May 1, 1987)..................        3.80%             8.39%                  7.63%
DREYFUS
  Zero 2000 Bond (August 31, 1990).............       10.19%             9.17%                  9.81%
  Growth & Inc.(May 2, 1994)...................       51.34%                --                 26.55%
  Socially Resp. (October 7, 1993).............       25.75%                --                 14.66%
FEDERATED
  Bond (March 29, 1994)........................        1.61%                --                  1.61%
  Utility (April 14, 1994).....................       16.03%                --                  9.02%
</TABLE>
    
 
                                       S-6
<PAGE>   52
 
OTHER TOTAL RETURNS
 
     From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered or withdrawn. Such information
is as follows:
 
   
<TABLE>
<CAPTION>
                                                                                     FOR THE 10-YEAR PERIOD
                                                                                         ENDED 12/31/95
                                               FOR THE 1-YEAR     FOR THE 5-YEAR          (OR DATE OF
                                                PERIOD ENDED       PERIOD ENDED        INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION)     12/31/95           12/31/95            THAN 10 YEARS
- ---------------------------------------------  --------------     --------------     ----------------------
<S>                                            <C>                <C>                <C>
MARKET STREET
  Growth (December 12, 1985).................      28.24%             10.97%                 10.94%
  Money Market (December 12, 1985)...........       3.84%              2.43%                  4.02%
  Bond (December 12, 1985)...................      18.34%              6.84%                  6.53%
  Managed (December 12, 1985)................      22.29%             11.11%                  7.20%
  Aggressive Growth (May 1, 1989)............      11.59%             12.02%                 10.71%
  International (November 1, 1991)...........      12.40%                 --                  6.95%
FIDELITY
  High Income (September 19, 1985)...........      18.60%             17.03%                 10.04%
  Equity-Income (October 9, 1986)............      32.87%             19.40%                 11.55%
  Growth (October 9, 1986)...................      33.14%             18.86%                 13.03%
  Asset Manager (September 6, 1989)..........      15.01%             10.94%                  9.46%
  Index 500 (August 27, 1992)................      34.94%                 --                 13.59%
  Contrafund (July 3, 1995)..................      37.74%                 --                 37.74%
QUEST FOR VALUE
  Equity (August 1, 1988)....................      36.57%                 --                 16.72%
  Small Cap (August 1, 1988).................      13.31%                 --                  5.68%
  Managed (August 1, 1988)...................      43.17%                 --                 18.57%
SCUDDER
  Bond (July 16, 1985).......................      16.20%              7.95%                  7.31%
  Growth & Inc. (May 2, 1994)................      29.59%                 --                 19.52%
  International (May 1, 1987)................       9.27%              8.60%                  7.63%
DREYFUS
  Zero 2000 Bond (August 31, 1990)...........      15.99%              9.39%                 10.01%
  Growth & Inc. (May 2, 1994)................      59.30%                 --                 30.52%
  Socially Resp. (October 7, 1993)...........      32.36%                 --                 16.77%
FEDERATED
  Bond (March 29, 1994)                             6.96%                 --                  4.63%
  Utility (April 14, 1994)...................      22.14%                 --                 12.34%
</TABLE>
    
 
                                       S-7
<PAGE>   53
 
     Providentmutual may disclose Cumulative Total Returns in conjunction with
the standard formats described above. The Cumulative Total Returns will be
calculated using the following formula:
 
     CTR = (ERV/P) - 1
 
     Where:
 
     CTR = The Cumulative Total Return net of Subaccount recurring charges for
           the period.
 
   
     ERV = The ending redeemable value of the hypothetical investment at the end
           of the period.
    
 
     P    = A hypothetical single payment of $1,000.
 
EFFECT OF THE ADMINISTRATION FEE ON PERFORMANCE DATA
 
     The Contract provides for a $30 Annual Administration Fee to be deducted
annually at the end of each Contract Year, from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each such account
bears to the total Contract Account Value. For purposes of reflecting the
administration fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on the average contract value
in the Variable Account of all Contracts on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
 
                    TERMINATION OF PARTICIPATION AGREEMENTS
 
     The participation agreements pursuant to which the Funds sell their shares
to the Variable Account contain varying provisions regarding termination. The
following summarizes those provisions:
 
     Market Street Fund, Inc.  This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at Providentmutual's option if
shares of the Fund are not reasonably available to meet the requirements of the
Contracts; (3) at the option of the Fund or Providentmutual if certain
enforcement proceedings are instituted against the other; (4) upon vote of the
Owners of Contracts to substitute shares of another mutual fund; (5) at
Providentmutual's option if the Fund ceases to qualify as a regulated investment
company under the Code or fails to meet the diversification requirements
thereunder; (6) at the option of Providentmutual or the Fund upon a
determination that an irreconcilable material conflict exists between Owners of
variable insurance products of all the separate accounts or the interests of
participating insurance companies investing in the Fund; (7) at the option of
Providentmutual if it has withdrawn the Variable Account's investment in the
Fund; or (8) at the option of any party upon another party's material breach of
any provision of the agreement.
 
     Variable Insurance Products Fund and Variable Insurance Products Fund
II.  These agreements provide for termination: (1) on six months' advance notice
by any party; (2) at Providentmutual's option if shares of the Fund are not
reasonably available to meet the requirements of the Contracts; (3) at
Providentmutual'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 fails to meet the diversification
requirements thereunder; (4) at the option of the Fund or its principal
underwriter if it determines that Providentmutual has suffered material adverse
changes in its business or financial conditions or is the subject to material
adverse publicity; (5) at the option of Providentmutual if the Fund has suffered
material adverse changes in its business or financial condition or is the
subject of material adverse publicity; or (6) at the option of the Fund or its
principal underwriter if Providentmutual decides to make another mutual fund
available as a funding vehicle for its Contracts.
 
     Scudder Variable Life Investment Fund.  This agreement provides for
termination: (1) one hundred twenty days after the renegotiation date if the
Fund and Providentmutual fail within sixty days after such renegotiation date to
agree to continue or amend the agreement; (2) at the option of Providentmutual
or the Fund if no shares of the Fund are owned by Providentmutual, the Variable
Account, an affiliated insurance company or a separate account of such
affiliated insurance company; (3) upon determination that an
 
                                       S-8
<PAGE>   54
 
irreconcilable conflict exists between the interests of owners of the Contracts
and variable insurance products of all separate accounts or the interests of
participating insurance companies investing in the Fund.
 
   
     OCC Accumulation Trust.  This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at Providentmutual's option if
shares of the Fund are not reasonably available to meet the requirements of the
Contracts; (3) at the option of the Fund or Providentmutual if certain
enforcement proceedings are instituted against the other; (4) upon vote of the
Owners of Contracts to substitute shares of another mutual fund; (5) at
Providentmutual's option if the Fund ceases to qualify as a regulated investment
company under the Code or fails to meet the diversification requirements
thereunder; (6) at the option of Providentmutual or the Fund upon a
determination that an irreconcilable material conflict exists between Owners of
variable insurance products of all the separate accounts or the interests of
participating insurance companies investing in the Fund; (7) at the option of
Providentmutual if it has withdrawn the Variable Account's investment in the
Fund; (8) at the option of any party upon another party's material breach of any
provision of the agreement; or (9) at Providentmutual's option if it determines
that the Fund or its principal underwriter has suffered a material adverse
change in its business, operations or financial condition or is the subject of
material adverse publicity.
    
 
     Dreyfus Variable Investment Fund.  This agreement provides for termination:
(a) on 180 days' notice by Providentmutual or the Fund; (b) at Providentmutual's
option if shares of the Fund are not reasonably available to meet the
requirements of the Contracts; (c) at the option of Providentmutual or the Fund
if certain enforcement proceedings are instituted against the other; (d) at the
option of the Fund if it determines that Providentmutual has suffered a material
adverse change in its business or financial condition or is the subject of
material adverse publicity; (e) upon termination of the Investment Advisory
Agreement between the Fund and Dreyfus; (f) in the event the Fund's shares are
not registered, issued or sold in accordance with applicable laws; (g) at the
option of the Fund upon a determination that it is no longer advisable and in
the interests of shareholders to continue the agreement; (h) at the option of
the Fund if the Contracts cease to qualify as annuity contracts under the Code;
(i) at the option of either party upon another's breach of any material
provision of the agreement; (j) at the option of the Fund, if the Contracts are
not registered, issued or sold in accordance with applicable law; (k) upon
assignment of the agreement.
 
     Insurance Management Series.  This agreement provides for termination: (a)
on 180 days' notice by Providentmutual or the Fund; (b) at Providentmutual's
option if shares of the Portfolios are not reasonably available to meet the
requirements of the Contracts; (c) at the option of Providentmutual or the Fund
if certain enforcement proceedings are instituted against the other; (d) upon
the vote of Owners having an interest in a subaccount investing in a Fund
Portfolio to substitute shares of another investment company for corresponding
shares of the Portfolio of the Fund; (e) in the event the Fund's shares are not
registered, issued or sold in accordance with applicable law; (f) at the option
of Providentmutual or the Fund upon a determination that an irreconcilable
conflict exists between Owners of variable insurance products of all separate
accounts and the interests of participating insurance companies investing in the
Fund; and (g) at the option of Providentmutual if the Fund or a Portfolio ceases
to qualify as a regulated investment company under the Code or fails to meet the
diversification requirements thereunder.
 
                         SAFEKEEPING OF ACCOUNT ASSETS
 
     Providentmutual holds the title to the assets of the Variable Account. The
assets are kept physically segregated and held separate and apart from the
Company's General Account assets and from the assets in any other separate
account.
 
     Records are maintained of all purchases and redemptions of Portfolio shares
held by each of the Subaccounts.
 
   
     The officers and employees of Providentmutual are covered by an insurance
company blanket bond issued by National Union Fire Insurance Company of
Pittsburgh, PA to Provident Mutual Life Insurance Company of Philadelphia in the
amount of ten million dollars. The bond insurers against dishonest and
fraudulent acts of officers and employees.
    
 
                                       S-9
<PAGE>   55
 
                                STATE REGULATION
 
     Providentmutual is subject to regulation and supervision by the Insurance
Department of the State of Delaware 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 Contract form has been filed
with, and where required approved by, insurance officials in each jurisdiction
where the Contracts are sold. Providentmutual 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.
 
                              RECORDS AND REPORTS
 
     Providentmutual will maintain all records and accounts relating to the
Variable Account. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, reports containing such information as
may be required under the Act or by any other applicable law or regulation will
be sent to Contract Owners semi-annually at the last address known to the
Company.
 
                                 LEGAL MATTERS
 
     All matters relating to Delaware law pertaining to the Contracts, including
the validity of the Contracts and Providentmutual's authority to issue the
Contracts, have been passed upon by Linda E. Senker, Legal Officer of
Providentmutual. Sutherland, Asbill & Brennan of Washington, D.C. has provided
advice on certain matters relating to the Federal securities laws.
 
                                    EXPERTS
 
   
     The statements of financial condition for Providentmutual as of December
31, 1995 and 1994 and the related statements of operations, changes in capital
and surplus and cash flows for each of the three years in the period ended
December 31, 1995 and the audited statements of assets and liabilities of the
Variable Account as of December 31, 1995 and the related statements of
operations for the year then ended and changes in net assets for each of the two
years in the period then ended, which are included in this Statement of
Additional Information and in the registration statement have been audited by
Coopers & Lybrand L.L.P. as set forth in their report included herein, and are
included herein in reliance upon such report and upon the authority of such firm
as experts in accounting and auditing.
    
 
                               OTHER INFORMATION
 
     A registration statement has been filed with the SEC under the Securities
Act of 1933 as amended, with respect to the Contracts discussed in this
Statement of Additional Information. Not all the information set forth in the
registration statement, amendments and exhibits thereto has been included in
this Statement of Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the Contracts and other
legal instruments are intended to be summaries. For a complete statement of the
terms of these documents, reference should be made to the instruments filed with
the SEC at 450 Fifth Street, N.W., Washington, DC 20549.
 
                              FINANCIAL STATEMENTS
 
   
     This Statement of Additional Information contains the audited statements of
assets and liabilities of the Variable Account as of December 31, 1995 and the
related statements of operations for the year then ended and the statements of
changes in net assets for each of the two years in the period then ended.
Coopers & Lybrand L.L.P. serves as independent accountants for the Variable
Account.
    
 
   
     Providentmutual's statements of financial condition as of December 31, 1995
and 1994 and the related statements of operations, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1995, which are included in this Statement of Additional Information, should
be considered only as bearing Providentmutual's ability to meet its obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
    
 
                                      S-10
<PAGE>   56
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Report of Independent Accountants
 
- --------------------------------------------------------------------------------
 
To the Contractowners and
  Board of Directors of
The Providentmutual Life and Annuity
  Company of America
Newark, Delaware
 
   
We have audited the accompanying statements of assets and liabilities of the
Providentmutual Variable Annuity Separate Account (comprising the twenty-three
subaccounts) as of December 31, 1995, and the related statements of operations
for the year then ended and the statements of changes in net assets for each of
the two years in the period then ended. These financial statements are the
responsibility of the management of the Variable Annuity Separate Account. Our
responsibility is to express an opinion on these financial statements based on
our audits.
    
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of shares owned as of December 31, 1995 by correspondence with the
transfer agents. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Providentmutual Variable
Annuity Separate Account as of December 31, 1995, and the results of its
operations for the year then ended and the changes in its net assets for each of
the two years in the period then ended in conformity with generally accepted
accounting principles.
 
   
                                            COOPERS & LYBRAND L.L.P.
    
 
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1996
 
                                       F-2
<PAGE>   57
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1995
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                      MONEY                                AGGRESSIVE
                                       GROWTH        MARKET         BOND       MANAGED       GROWTH     INTERNATIONAL
                                     SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT   SUBACCOUNT    SUBACCOUNT
<S>                                  <C>           <C>           <C>          <C>          <C>          <C>
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Investment in the Market Street
  Fund, Inc., at market value:
  Growth Portfolio.................  $18,317,083
  Money Market Portfolio...........                $15,728,500
  Bond Portfolio...................                              $3,652,326
  Managed Portfolio................                                           $8,696,185
  Aggressive Growth Portfolio......                                                        $4,125,235
  International Portfolio..........                                                                      $11,689,547

Dividends receivable...............                     71,645

Receivable from Providentmutual
  Life and Annuity Company of
  America..........................                    741,655
                                     -----------   -----------   ----------   ----------   ----------    -----------
NET ASSETS.........................  $18,317,083   $16,541,800   $3,652,326   $8,696,185   $4,125,235    $11,689,547
                                     ===========   ===========   ==========   ==========   ==========    ===========
Held for the benefit of
  contractowners...................  $18,299,551   $16,484,721   $3,618,471   $8,669,543   $4,084,387    $11,667,066

Attributable to Providentmutual
  Life and Annuity Company of
  America..........................       17,532        57,079       33,855       26,642       40,848         22,481
                                     -----------   -----------   ----------   ----------   ----------    -----------
                                     $18,317,083   $16,541,800   $3,652,326   $8,696,185   $4,125,235    $11,689,547
                                     ===========   ===========   ==========   ==========   ==========    ===========
</TABLE>
    
 
See accompanying notes to financial statements
 
                                       F-3
<PAGE>   58
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Statements of Assets and Liabilities, December 31, 1995
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                       FIDELITY     FIDELITY                    FIDELITY
                                         HIGH        EQUITY-      FIDELITY        ASSET      FIDELITY     FIDELITY
                                        INCOME       INCOME        GROWTH        MANAGER    INDEX 500    CONTRAFUND
                                      SUBACCOUNT   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S>                                   <C>          <C>           <C>           <C>          <C>          <C>
ASSETS
Investment in the Variable Insurance
  Products Fund, at market value:
  High Income Portfolio.............  $4,286,884
  Equity-Income Portfolio...........               $27,291,080
  Growth Portfolio..................                             $22,860,108

Investment in the Variable Insurance
  Products Fund II, at market value:
  Asset Manager Portfolio...........                                           $16,471,115
  Index 500 Portfolio...............                                                        $7,246,225
  Contrafund Portfolio..............                                                                     $4,534,416

LIABILITIES
Payable to Providentmutual Life and
  Annuity Company of America........         117
                                      ----------   -----------   -----------   -----------  ----------   ----------
NET ASSETS..........................  $4,286,767   $27,291,080   $22,860,108   $16,471,115  $7,246,225   $4,534,416
                                      ==========   ===========   ===========   ===========  ==========   ==========
Held for the benefit of
  contractowners....................  $4,257,687   $27,254,308   $22,820,739   $16,449,431  $7,210,610   $4,504,512

Attributable to Providentmutual Life
  and Annuity Company of America....      29,080        36,772        39,369        21,684      35,615       29,904
                                      ----------   -----------   -----------   -----------  ----------   ----------
                                      $4,286,767   $27,291,080   $22,860,108   $16,471,115  $7,246,225   $4,534,416
                                      ==========   ===========   ===========   ===========  ==========   ==========
</TABLE>
    
 
   
See accompanying notes to financial statements
    
 
                                       F-4
<PAGE>   59
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Statements of Assets and Liabilities, December 31, 1995
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                   QUEST FOR     QUEST FOR                  SCUDDER
                                     QUEST FOR       VALUE         VALUE       SCUDDER     GROWTH AND      SCUDDER
                                    VALUE EQUITY   SMALL CAP      MANAGED        BOND        INCOME     INTERNATIONAL
                                     SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT
 ------------------------------------------------------------------------------------------------------------------
<S>                                 <C>            <C>          <C>           <C>          <C>          <C>
ASSETS
Investment in the Quest for
  Value Accumulation Trust,
  at market value:
  Equity Portfolio................   $5,145,872
  Small Cap Portfolio.............                 $6,555,940
  Managed Portfolio...............                              $19,845,750

Investment in the Scudder
  Variable Life Investment Fund,
  at market value:
  Bond Portfolio..................                                            $3,633,897
  Growth and Income Portfolio.....                                                          $606,749
  International Portfolio.........                                                                        $ 642,660
                                     ----------    ----------   -----------   ----------    --------      ---------
NET ASSETS........................   $5,145,872    $6,555,940   $19,845,750   $3,633,897    $606,749      $ 642,660
                                     ==========    ==========   ===========   ==========    ========      =========
Held for the benefit of
  contractowners..................   $5,113,718    $6,523,901   $19,810,344   $3,610,737    $577,060      $ 616,201

Attributable to Providentmutual
  Life and Annuity Company
  of America......................       32,154        32,039        35,406       23,160      29,689         26,459
                                     ----------    ----------   -----------   ----------    --------      ---------
                                     $5,145,872    $6,555,940   $19,845,750   $3,633,897    $606,749      $ 642,660
                                     ==========    ==========   ===========   ==========    ========      =========
</TABLE>
    
 
   
See accompanying notes to financial statements
    
 
                                       F-5
<PAGE>   60
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Statements of Assets and Liabilities, December 31, 1995
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                DREYFUS      DREYFUS       DREYFUS     FEDERATED U.S.   FEDERATED
                                                 ZERO         GROWTH      SOCIALLY       GOVERNMENT      UTILITY
                                              COUPON 2000   AND INCOME   RESPONSIBLE     BOND FUND         FUND
                                              SUBACCOUNT    SUBACCOUNT   SUBACCOUNT      SUBACCOUNT     SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>           <C>              <C>
ASSETS
Investment in the Dreyfus Variable
  Investment Fund, at market value:
  Zero Coupon 2000 Portfolio................  $2,830,540
  Growth and Income Portfolio...............                $2,330,878
  Socially Responsible Portfolio............                              $ 158,889

Investment in the Insurance Management
  Series, at market value:
  U.S. Government Bond Fund Portfolio.......                                              $497,233
  Utility Fund Portfolio....................                                                             $647,427
                                              ----------    ----------    ---------       --------       --------
NET ASSETS..................................  $2,830,540    $2,330,878    $ 158,889       $497,233       $647,427
                                              ==========    ==========    =========       ========       ========
Held for the benefit of contractowners......  $2,805,585    $2,298,083    $ 128,283       $470,554       $618,452

Attributable to Providentmutual Life and
  Annuity Company of America................      24,955        32,795       30,606         26,679         28,975
                                              ----------     ---------    ---------       --------       --------
                                              $2,830,540    $2,330,878    $ 158,889       $497,233       $647,427
                                              ==========    ==========    =========       ========       ========
</TABLE>
    
 
   
See accompanying notes to financial statements
    
 
                                       F-6
<PAGE>   61
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Statements of Operations for the Year Ended December 31, 1995
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                        MONEY                             AGGRESSIVE
                                            GROWTH      MARKET       BOND      MANAGED      GROWTH    INTERNATIONAL
                                          SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT   SUBACCOUNT
<S>                                       <C>         <C>         <C>         <C>         <C>         <C>
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................ $  436,349   $616,035    $176,248   $ 342,667                 $   52,422

EXPENSES
Mortality and expense risks..............    201,850    156,430      39,216     104,117    $ 42,088        147,808
                                          ----------   --------    --------   ----------   --------     ----------
Net investment income (loss).............    234,499    459,605     137,032     238,550     (42,088)       (95,386)
                                          ----------   --------    --------   ----------   --------     ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS
Realized gain distributions reinvested...    897,093                              8,362      21,585        247,697
Net realized gain (loss) from redemption
  of investment shares...................    102,499                (27,838)    (38,500 )   125,013        203,928
                                          ----------   --------    --------   ----------   --------     ----------
Net realized gain (loss) on
  investments............................    999,592                (27,838)    (30,138 )   146,598        451,625
                                          ----------   --------    --------   ----------   --------     ----------
Net unrealized appreciation
  (depreciation) of investments:
  Beginning of year......................    112,519               (238,307)   (459,432 )   150,041        (62,723)
  End of year............................  2,512,707                151,805     925,879     404,334        880,428
                                          ----------   --------    --------   ----------   --------     ----------
Net unrealized appreciation during the
  year...................................  2,400,188                390,112   1,385,311     254,293        943,151
                                          ----------   --------    --------   ----------   --------     ----------
Net realized and unrealized gain
  on investments.........................  3,399,780                362,274   1,355,173     400,891      1,394,776
                                          ----------   --------    --------   ----------   --------     ----------
Net increase in net assets resulting
  from operations........................ $3,634,279   $459,605    $499,306   $1,593,723   $358,803     $1,299,390
                                          ==========   ========    ========   ==========   ========     ==========
</TABLE>
    
 
   
See accompanying notes to financial statements
    
 
                                       F-7
<PAGE>   62
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Statements of Operations for the Year Ended December 31, 1995
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                           FIDELITY    FIDELITY                FIDELITY
                                             HIGH      EQUITY-     FIDELITY     ASSET      FIDELITY    FIDELITY
                                            INCOME      INCOME      GROWTH     MANAGER    INDEX 500   CONTRAFUND
                                          SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT
<S>                                       <C>         <C>         <C>         <C>         <C>         <C>
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends................................  $154,423   $  412,365   $  54,337  $  304,376  $   31,471   $ 19,078

EXPENSES
Mortality and expense risks..............    42,103      232,426     215,771     215,085      50,589     18,342
                                           --------   ----------  ----------  ----------  ----------   --------
Net investment income (loss).............   112,320      179,939    (161,434)     89,291     (19,118)       736
                                           --------   ----------  ----------  ----------  ----------   --------
NET REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS
Realized gain distributions reinvested...                456,039                               4,307     38,156
Net realized gain (loss) from redemption
  of investment shares...................     6,210       31,348      51,803    (124,800)     21,821      2,083
                                           --------   ----------  ----------  ----------  ----------   --------
Net realized gain (loss) on
  investments............................     6,210      487,387      51,803    (124,800)     26,128     40,239
                                           --------   ----------  ----------  ----------  ----------   --------
Net unrealized appreciation
  (depreciation)
  of investments:
  Beginning of year......................   (23,285)      82,529     153,689    (554,822)      7,897
  End of year............................   347,898    3,993,663   3,957,135   1,710,729   1,006,112    119,151
                                           --------   ----------  ----------  ----------  ----------   --------
Net unrealized appreciation during the
  year...................................   371,183    3,911,134   3,803,446   2,265,551     998,215    119,151
                                           --------   ----------  ----------  ----------  ----------   --------
Net realized and unrealized gain
  on investments.........................   377,393    4,398,521   3,855,249   2,140,751   1,024,343    159,390
                                           --------   ----------  ----------  ----------  ----------   --------
Net increase in net assets resulting
  from operations........................  $489,713   $4,578,460  $3,693,815  $2,230,042  $1,005,225   $160,126
                                           ========   ==========  ==========  ==========  ==========   ========
</TABLE>
    
 
   
See accompanying notes to financial statements
    
 
                                       F-8
<PAGE>   63
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Statements of Operations for the Year Ended December 31, 1995
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                       QUEST FOR   QUEST FOR                SCUDDER
                                          QUEST FOR      VALUE       VALUE      SCUDDER    GROWTH AND     SCUDDER
                                         VALUE EQUITY  SMALL CAP    MANAGED       BOND       INCOME    INTERNATIONAL
                                          SUBACCOUNT   SUBACCOUNT  SUBACCOUNT  SUBACCOUNT  SUBACCOUNT   SUBACCOUNT
<S>                                      <C>           <C>         <C>         <C>         <C>         <C>
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends...............................   $  7,702     $ 14,437   $   52,799   $180,342     $ 3,554

EXPENSES
Mortality and expense risks.............     43,353       76,883      188,055     39,486       2,098      $ 1,784
                                           --------     --------   ----------   --------     -------      -------
Net investment income (loss)............    (35,651)     (62,446)    (135,256)   140,856       1,456       (1,784)
                                           --------     --------   ----------   --------     -------      -------
NET REALIZED AND UNREALIZED GAIN (LOSS)
  ON INVESTMENTS
Realized gain distributions
  reinvested............................                  12,843
Net realized gain (loss) from redemption
  of investment shares..................     19,183       (9,059)      54,199    (15,119)        798           45
                                           --------     --------   ----------   --------     -------      -------
Net realized gain (loss) on
  investments...........................     19,183        3,784       54,199    (15,119)        798           45
                                           --------     --------   ----------   --------     -------      -------
Net unrealized appreciation
  (depreciation) of investments:
  Beginning of year.....................      8,700       48,091     (100,411)   (75,019)
  End of year...........................    894,157      864,772    4,270,089    230,343      42,447       11,601
                                           --------     --------   ----------   --------     -------      -------
Net unrealized appreciation during the
  year..................................    885,457      816,681    4,370,500    305,362      42,447       11,601
                                           --------     --------   ----------   --------     -------      -------
Net realized and unrealized gain
  on investments........................    904,640      820,465    4,424,699    290,243      43,245       11,646
                                           --------     --------   ----------   --------     -------      -------
Net increase in net assets resulting
  from operations.......................   $868,989     $758,019   $4,289,443   $431,099     $44,701      $ 9,862
                                           ========     ========   ==========   ========     =======      =======
</TABLE>
    
 
   
See accompanying notes to financial statements
    
 
                                       F-9
<PAGE>   64
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Statements of Operations for the Year Ended December 31, 1995
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                    DREYFUS     DREYFUS      DREYFUS    FEDERATED U.S.  FEDERATED
                                                     ZERO        GROWTH     SOCIALLY      GOVERNMENT     UTILITY
                                                  COUPON 2000  AND INCOME  RESPONSIBLE    BOND FUND        FUND
                                                  SUBACCOUNT   SUBACCOUNT  SUBACCOUNT     SUBACCOUNT    SUBACCOUNT
<S>                                               <C>          <C>         <C>          <C>             <C>
- ------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends........................................   $113,607    $ 12,875      $  647        $ 8,623       $ 5,520

EXPENSES
Mortality and expense risks......................     27,562       7,002         224          1,574         1,311
                                                    --------    --------      ------        -------       -------
Net investment income............................     86,045       5,873         423          7,049         4,209
                                                    --------    --------      ------        -------       -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain distributions reinvested...........                 84,569       3,313
Net realized gain from redemption of
  investment shares..............................      1,665       4,971          13              6           992
                                                    --------    --------      ------        -------       -------
Net realized gain on investments.................      1,665      89,540       3,326              6           992
                                                    --------    --------      ------        -------       -------
Net unrealized appreciation (depreciation)
  of investments:
  Beginning of year..............................    (52,484)
  End of year....................................    145,722      77,046       4,236          8,312        28,020
                                                    --------    --------      ------        -------       -------
Net unrealized appreciation during the year......    198,206      77,046       4,236          8,312        28,020
                                                    --------    --------      ------        -------       -------
Net realized and unrealized gain on
  investments....................................    199,871     166,586       7,562          8,318        29,012
                                                    --------    --------      ------        -------       -------
Net increase in net assets resulting from
  operations.....................................   $285,916    $172,459      $7,985        $15,367       $33,221
                                                    ========    ========      ======        =======       =======
</TABLE>
    
 
   
See accompanying notes to financial statements
    
 
                                      F-10
<PAGE>   65
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Statements of Changes in Net Assets for the Year Ended December 31, 1995
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                      MONEY                                 AGGRESSIVE
                                       GROWTH        MARKET         BOND        MANAGED       GROWTH      INTERNATIONAL
                                     SUBACCOUNT    SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT     SUBACCOUNT
<S>                                  <C>           <C>           <C>          <C>           <C>           <C>
- -----------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss).....    $   234,499   $   459,605   $  137,032   $  238,550    $  (42,088)   $   (95,386)
Net realized gain (loss) on
  investments....................        999,592                    (27,838)     (30,138)      146,598        451,625
Net unrealized appreciation of
  investments during the year....      2,400,188                    390,112    1,385,311       254,293        943,151
                                     -----------   -----------   ----------   ----------    ----------    -----------
Net increase in net assets from
  operations.....................      3,634,279       459,605      499,306    1,593,723       358,803      1,299,390
                                     -----------   -----------   ----------   ----------    ----------    -----------
FROM VARIABLE ANNUITY CONTRACT
  TRANSACTIONS
Contractowners' net premiums.....        953,645    65,561,488      157,108      339,295       262,786        640,816
Administrative charges...........        (10,145)       (2,373)      (1,700)      (5,532)       (2,305)        (8,640)
Surrenders and forfeitures.......     (1,296,295)   (1,039,340)    (190,643)  (1,027,726)     (565,323)    (1,088,835)
Transfers between investment
  portfolios.....................      3,174,767   (57,083,385)     790,632      381,860     1,555,000       ,606,825
Net withdrawals due to policy
  loans..........................                                      (769)                                   (5,334)
Withdrawals due to death
  benefits.......................         (4,699)      (18,292)                                 (9,173)       (30,031)
                                     -----------   -----------   ----------   ----------    ----------    -----------
Net increase (decrease) in net
  assets derived from contract
  transaction....................      2,817,273     7,418,098      754,628     (312,103)    1,240,985      1,114,801
                                     -----------   -----------   ----------   ----------    ----------    -----------
Total increase in net assets.....      6,451,552     7,877,703    1,253,934    1,281,620     1,599,788      2,414,191

NET ASSETS
  Beginning of year..............     11,865,531     8,664,097    2,398,392    7,414,565     2,525,447      9,275,356
                                     -----------   -----------   ----------   ----------    ----------    -----------
  End of year....................    $18,317,083   $16,541,800   $3,652,326   $8,696,185    $4,125,235    $11,689,547
                                     ===========   ===========   ==========   ==========    ==========    ===========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-11
<PAGE>   66
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Statements of Changes in Net Assets for the Year Ended December 31, 1995
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                      FIDELITY     FIDELITY                    FIDELITY
                                        HIGH        EQUITY-      FIDELITY        ASSET       FIDELITY      FIDELITY
                                       INCOME       INCOME        GROWTH        MANAGER     INDEX 500     CONTRAFUND
                                     SUBACCOUNT   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT    SUBACCOUNT
<S>                                  <C>          <C>           <C>           <C>           <C>          <C>
- --------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss).....    $  112,320   $   179,939   $  (161,434)  $    89,291   $  (19,118)   $      736
Net realized gain (loss) on
  investments....................         6,210       487,387        51,803      (124,800)      26,128        40,239
Net unrealized appreciation of
  investments during the year....       371,183     3,911,134     3,803,446     2,265,551      998,215       119,151
                                     ----------   -----------   -----------   -----------   ----------    ----------
Net increase in net assets from
  operations.....................       489,713     4,578,460     3,693,815     2,230,042    1,005,225       160,126
                                     ----------   -----------   -----------   -----------   ----------    ----------
FROM VARIABLE ANNUITY CONTRACT
  TRANSACTIONS
Contractowners' net premiums.....       232,990     1,594,997     1,239,011       689,229      406,801       219,643
Administrative charges...........        (2,346)       (8,687)      (10,417)      (12,588)      (1,879)         (340)
Surrenders and forfeitures.......      (136,512)     (356,912)     (386,091)     (592,328)     (70,510)      (25,262)
Transfers between investment
  portfolios.....................     1,619,408    12,881,483     8,803,899        39,546    4,067,420     4,156,007
Net withdrawals due to policy
  loans..........................          (644)       (5,335)       (3,795)       (3,435) 
Withdrawals due to death
  benefits.......................        (4,628)      (17,183)                                                  (758)
                                     ----------   -----------   -----------   -----------   ----------    ----------
Net increase in net assets
  derived from contract
  transactions...................     1,708,268    14,088,363     9,642,607       120,424    4,401,832     4,349,290
                                     ----------   -----------   -----------   -----------   ----------    ----------
Capital contribution from
  Providentmutual Life and
  Annuity Company of America.....                                                                             25,000
                                     ----------   -----------   -----------   -----------   ----------    ----------
Total increase in net assets.....     2,197,981    18,666,823    13,336,422     2,350,466    5,407,057     4,534,416

NET ASSETS
  Beginning of year..............     2,088,786     8,624,257     9,523,686    14,120,649    1,839,168            --
                                     ----------   -----------   -----------   -----------   ----------    ----------
  End of year....................    $4,286,767   $27,291,080   $22,860,108   $16,471,115   $7,246,225    $4,534,416
                                     ==========   ===========   ===========   ===========   ==========    ==========
</TABLE>
    
 
See accompanying notes to financial statements
 
                                      F-12
<PAGE>   67
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Statements of Changes in Net Assets for the Year Ended December 31, 1995
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                   QUEST FOR     QUEST FOR                  SCUDDER
                                     QUEST FOR       VALUE         VALUE       SCUDDER     GROWTH AND      SCUDDER
                                    VALUE EQUITY   SMALL CAP      MANAGED        BOND        INCOME     INTERNATIONAL
                                     SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT
<S>                                 <C>            <C>          <C>           <C>          <C>          <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss)....     $  (35,651)   $  (62,446)  $  (135,256)  $  140,856    $  1,456    $ (1,784)
Net realized gain (loss) on
  investments...................         19,183         3,784        54,199      (15,119)        798          45
Net unrealized appreciation of
  investments during the year...        885,457       816,681     4,370,500      305,362      42,447      11,601
                                    -----------    ----------   -----------   ----------    --------    --------
Net increase in net assets from
  operations....................        868,989       758,019     4,289,443      431,099      44,701       9,862
                                    -----------    ----------   -----------   ----------    --------    --------
FROM VARIABLE ANNUITY CONTRACT
  TRANSACTIONS
Contractowners' net premiums....        328,977       439,205     1,015,081      216,251      13,972      72,957
Administrative charges..........         (1,880)       (4,333)       (7,330)      (1,590)                    (61)
Surrenders and forfeitures......        (54,781)      (64,224)     (410,385)    (144,826)       (322)       (245)
Transfers between investment
  portfolios....................      2,535,610     1,100,943     7,262,283    1,053,971     523,398     535,392
Net withdrawals due to policy
  loans.........................                       (3,247)                                              (245)
Withdrawals due to death
  benefits......................         (4,781)       (9,178)      (22,143)     (10,845) 
                                    -----------    ----------   -----------   ----------    --------    --------
Net increase in net assets
  derived from contract
  transactions..................      2,803,145     1,459,166     7,837,506    1,112,961     537,048     607,798
                                    -----------    ----------   -----------   ----------    --------    --------
Capital contribution from
  Providentmutual Life and
  Annuity Company of America....                                                              25,000      25,000
                                    -----------    ----------   -----------   ----------    --------    --------
Total increase in net assets....      3,672,134     2,217,185    12,126,949    1,544,060     606,749     642,660

NET ASSETS
  Beginning of year.............      1,473,738     4,338,755     7,718,801    2,089,837          --          --
                                    -----------    ----------   -----------   ----------    --------    --------
  End of year...................     $5,145,872    $6,555,940   $19,845,750   $3,633,897    $606,749    $642,660
                                    ===========    ==========   ===========   ==========    ========    ========
</TABLE>
    
 
See accompanying notes to financial statements
 
                                      F-13
<PAGE>   68
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Statements of Changes in Net Assets for the Year Ended December 31, 1995
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                               DREYFUS       DREYFUS       DREYFUS     FEDERATED U.S.   FEDERATED
                                                ZERO         GROWTH       SOCIALLY       GOVERNMENT      UTILITY
                                             COUPON 2000   AND INCOME    RESPONSIBLE     BOND FUND         FUND
                                             SUBACCOUNT    SUBACCOUNT    SUBACCOUNT      SUBACCOUNT     SUBACCOUNT
<S>                                          <C>           <C>           <C>           <C>              <C>
- ------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income....................    $   86,045    $    5,873     $     423       $  7,049       $  4,209
Net realized gain on investments.........         1,665        89,540         3,326              6            992
Net unrealized appreciation of
  investments during the year............       198,206        77,046         4,236          8,312         28,020
                                             ----------    ----------      --------       --------       --------
Net increase in net assets from
  operations.............................       285,916       172,459         7,985         15,367         33,221
                                             ----------    ----------      --------       --------       --------
FROM VARIABLE ANNUITY CONTRACT
  TRANSACTIONS
Contractowners' net premiums.............       170,585       163,570         7,753         20,253         33,329
Administrative charges...................        (1,261)          (74)          (2)            (1)            (9)
Surrenders and forfeitures...............       (66,422)       (4,640)         (94)          (185)        (4,421)
Transfers between investment
  portfolios.............................       990,810     1,974,563       118,247        436,799        560,307
Net withdrawals due to policy loans......          (507)
Withdrawals due to death benefits........       (20,294)
                                             ----------    ----------      --------       --------       --------
Net increase in net assets derived from
  contract transactions..................     1,072,911     2,133,419       125,904        456,866        589,206
                                             ----------    ----------      --------       --------       --------
Capital contribution from Providentmutual
  Life and Annuity Company of America....                      25,000        25,000         25,000         25,000
                                             ----------    ----------      --------       --------       --------
Total increase in net assets.............     1,358,827     2,330,878       158,889        497,233        647,427

NET ASSETS
  Beginning of year......................     1,471,713            --            --             --             --
                                             ----------    ----------      --------       --------       --------
  End of year............................    $2,830,540    $2,330,878     $ 158,889       $497,233       $647,427
                                             ==========    ==========      ========       ========       ========
</TABLE>
    
 
See accompanying notes to financial statements
 
                                      F-14
<PAGE>   69
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Statements of Changes in Net Assets for the Year Ended December 31, 1994
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                    MONEY                                  AGGRESSIVE
                                     GROWTH         MARKET         BOND        MANAGED       GROWTH     INTERNATIONAL
                                   SUBACCOUNT     SUBACCOUNT    SUBACCOUNT   SUBACCOUNT    SUBACCOUNT    SUBACCOUNT
<S>                                <C>           <C>            <C>          <C>           <C>          <C>
- --------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss)...    $   154,192   $    172,475   $  107,596   $  175,174    $  (22,713)   $   (78,374)
Net realized gain (loss) on
  investments..................        104,514                     (51,154)     221,959        39,836        189,762
Net unrealized appreciation
  (depreciation) of investments
  during the year..............       (178,022)                   (242,168)    (572,726)        7,408       (343,622)
                                   -----------   ------------   ----------   ----------    ----------    -----------
Net increase (decrease) in net
  assets from operations.......         80,684        172,475     (185,726)    (175,593)       24,531       (232,234)
                                   -----------   ------------   ----------   ----------    ----------    -----------
FROM VARIABLE ANNUITY CONTRACT
  TRANSACTIONS
Contractowners' net premiums...        950,298     61,506,723      108,515      690,509       112,753      1,000,279
Administrative charges.........         (7,654)          (399)      (1,302)      (4,106)         (774)        (2,183)
Surrenders and forfeitures.....     (1,116,198)      (152,783)    (513,775)  (1,579,434)      (98,187)      (284,793)
Transfers between investment
  portfolios...................      3,361,071    (55,591,051)     399,488    2,068,730     1,111,613      5,816,697
                                   -----------   ------------   ----------   ----------    ----------    -----------
Net increase (decrease) in net
  assets derived from contract
  transactions.................      3,187,517      5,762,490       (7,074)   1,175,699     1,125,405      6,530,000
                                   -----------   ------------   ----------   ----------    ----------    -----------
Capital contribution from
  Providentmutual Life and
  Annuity Company of America...                        25,000
                                   -----------   ------------   ----------   ----------    ----------    -----------
Total increase (decrease) in
  net assets...................      3,268,201      5,959,965     (192,800)   1,000,106     1,149,936      6,297,766

NET ASSETS
  Beginning of year............      8,597,330      2,704,132    2,591,192    6,414,459     1,375,511      2,977,590
                                   -----------   ------------   ----------   ----------    ----------    -----------
  End of year..................    $11,865,531   $  8,664,097   $2,398,392   $7,414,565    $2,525,447    $ 9,275,356
                                   ===========   ============   ==========   ==========    ==========    ===========
</TABLE>
    
 
See accompanying notes to financial statements
 
                                      F-15
<PAGE>   70
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Statements of Changes in Net Assets for the Year Ended December 31, 1994
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                   FIDELITY     FIDELITY                  FIDELITY
                                                     HIGH       EQUITY-      FIDELITY       ASSET       FIDELITY
                                                    INCOME       INCOME       GROWTH       MANAGER     INDEX 500
                                                  SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT    SUBACCOUNT
<S>                                               <C>          <C>          <C>          <C>           <C>
- -----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss)..................    $      349   $   62,525   $  (67,556)  $   (68,253)  $  (14,372) 
Net realized gain (loss) on investments.......       (24,989)      84,536       86,635        44,229       (1,125)
Net unrealized appreciation (depreciation) of
  investments during the year.................       (25,594)      73,460      129,314      (602,400)      16,289
                                                  ----------   ----------   ----------   -----------   ----------
Net increase (decrease) in net assets from
  operations..................................       (50,234)     220,521      148,393      (626,424)         792
                                                  ----------   ----------   ----------   -----------   ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractowners' net premiums..................       217,172      594,883      847,954     1,952,672      146,290
Administrative charges........................          (256)      (1,368)      (1,475)      (1,686)         (204)
Surrenders and forfeitures....................       (26,600)     (55,071)     (97,038)    (156,818)       (5,377)
Transfers between investment portfolios.......     1,765,987    6,487,901    7,416,445    11,433,386    1,254,887
                                                  ----------   ----------   ----------   -----------   ----------
Net increase in net assets derived from
  contract transactions.......................     1,956,303    7,026,345    8,165,886    13,227,554    1,395,596
                                                  ----------   ----------   ----------   -----------   ----------
Total increase in net assets..................     1,906,069    7,246,866    8,314,279    12,601,130    1,396,388

NET ASSETS
  Beginning of year...........................       182,717    1,377,391    1,209,407     1,519,519      442,780
                                                  ----------   ----------   ----------   -----------   ----------
  End of year.................................    $2,088,786   $8,624,257   $9,523,686   $14,120,649   $1,839,168
                                                  ==========   ==========   ==========   ===========   ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-16
<PAGE>   71
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Statements of Changes in Net Assets for the Year Ended December 31, 1994
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                 QUEST FOR    QUEST FOR    QUEST FOR                   DREYFUS
                                                   VALUE        VALUE        VALUE       SCUDDER        ZERO
                                                   EQUITY     SMALL CAP     MANAGED        BOND      COUPON 2000
                                                 SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT   SUBACCOUNT
<S>                                              <C>          <C>          <C>          <C>          <C>
- ----------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment income (loss).................    $   (6,657)  $  (29,379)   $ (17,324)  $   58,315   $   43,539
Net realized gain (loss) on investments......         5,604       33,082       57,394      (40,878)     (10,173)
Net unrealized appreciation (depreciation) of
  investments during the year................         6,414       29,366     (111,070)     (76,198)     (50,715)
                                                 ----------   ----------   ----------   ----------   ----------
Net increase (decrease) in net assets from
  operations.................................         5,361       33,069      (71,000)     (58,761)     (17,349)
                                                 ----------   ----------   ----------   ----------   ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractowners' net premiums.................        85,686      643,248      878,308      152,413       75,645
Administrative charges.......................          (212)        (490)        (920)        (271)         (92)
Surrenders and forfeitures...................       (33,165)     (40,245)    (162,889)     (34,397)     (52,359)
Transfers between investment portfolios......     1,232,916    3,242,270    5,691,114    1,643,002    1,384,642
                                                 ----------   ----------   ----------   ----------   ----------
Net increase in net assets derived from
  contract transactions......................     1,285,225    3,844,783    6,405,613    1,760,747    1,407,836
                                                 ----------   ----------   ----------   ----------   ----------
Total increase in net assets.................     1,290,586    3,877,852    6,334,613    1,701,986    1,390,487

NET ASSETS
  Beginning of year..........................       183,152      460,903    1,384,188      387,851       81,226
                                                 ----------   ----------   ----------   ----------   ----------
  End of year................................    $1,473,738   $4,338,755   $7,718,801   $2,089,837   $1,471,713
                                                 ==========   ==========   ==========   ==========   ==========
</TABLE>
 
See accompanying notes to financial statements
 
                                      F-17
<PAGE>   72
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements
 
- --------------------------------------------------------------------------------
 
1. ORGANIZATION
 
     The Providentmutual Variable Annuity Separate Account (Separate Account)
was established by Providentmutual Life and Annuity Company of America
(Providentmutual) under the provisions of Pennsylvania law and commenced
operations on April 14, 1992. In December 1992, Providentmutual redomesticated
to the State of Delaware. Providentmutual is a wholly-owned subsidiary of
Provident Mutual Life Insurance Company (Provident Mutual). The Separate Account
is an investment account to which net proceeds from individual flexible premium
deferred variable annuity contracts (the Contracts) are allocated until maturity
or termination of the Contracts.
 
     The Contracts are distributed through career agents, brokers and personal
producing general agents.
 
   
     Providentmutual has structured the Separate Account as a unit investment
trust registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
twenty-three Subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth and International Subaccounts invest in the corresponding portfolios of
the Market Street Fund, Inc.; the Fidelity High Income, Fidelity Equity-Income
and Fidelity Growth Subaccounts invest in the corresponding portfolios of the
Variable Insurance Products Fund; the Fidelity Asset Manager, Fidelity Index 500
and Fidelity Contrafund Subaccounts invest in the corresponding portfolios of
the Variable Insurance Products Fund II; the Quest for Value Equity, Quest for
Value Small Cap and Quest for Value Managed Subaccounts invest in the
corresponding portfolios of the Quest for Value Accumulation Trust; the Scudder
Bond, Scudder Growth and Income and Scudder International Subaccounts invest in
the corresponding portfolios of the Scudder Variable Life Investment Fund; the
Dreyfus Zero Coupon 2000, Dreyfus Growth and Income and Dreyfus Socially
Responsible Subaccounts invest in the corresponding portfolios of the Dreyfus
Variable Investment Fund; and the Federated U.S. Government Bond Fund and
Federated Utility Fund Subaccounts invest in the corresponding portfolios of the
Insurance Management Series.
    
 
     The Growth, Money Market, Bond, Managed, Aggressive Growth and
International Subaccounts are available to owners of a Market Street VIP
contract. All twenty-three Subaccounts are available to owners of a Market
Street VIP/2 contract.
 
     Net premiums from the Contracts are allocated to the Subaccounts in
accordance with contractowner instructions and are recorded as variable annuity
contract transactions in the statements of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts (Note 4).
The Separate Account's assets are the property of Providentmutual.
 
     Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of
Providentmutual's General Account.
 
                                      F-18
<PAGE>   73
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
   
Notes to Financial Statements -- continued
    
 
- --------------------------------------------------------------------------------
 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
   
     The following is a summary of the significant accounting policies followed
by the Separate Account in the financial statements.
    
 
   
 Investment Valuation:
    
 
   
     Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
    
 
   
 Realized Gains and Losses:
    
 
   
     Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
    
 
   
 Federal Income Taxes:
    
 
   
     The operation of the Separate Account is included in the Federal income tax
return of Providentmutual. Under the provisions of the Contracts,
Providentmutual has the right to charge the Separate Account for Federal income
tax attributable to the Separate Account. No charge is currently being made
against the Separate Account for such tax.
    
 
   
 Estimates:
    
 
   
     The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities as of December 31, 1995 and the reported amounts from
operations and contract transactions during 1995 and 1994. Actual results could
differ from those estimates.
    
 
                                      F-19
<PAGE>   74
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS
 
     At December 31, 1995, the investments of the respective Subaccounts are as
follows:
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                        SHARES         COST      MARKET VALUE
<S>                                                   <C>          <C>           <C>
- ----------------------------------------------------------------------------------------------
Market Street Fund, Inc.:
  Growth Portfolio..................................    1,119,627   $15,804,376    $18,317,083
  Money Market Portfolio............................   15,728,500   $15,728,500    $15,728,500
  Bond Portfolio....................................      332,031    $3,500,521     $3,652,326
  Managed Portfolio.................................      612,839    $7,770,306     $8,696,185
  Aggressive Growth Portfolio.......................      237,352    $3,720,901     $4,125,235
  International Portfolio...........................      908,987   $10,809,119    $11,689,547

Variable Insurance Products Fund:
  High Income Portfolio.............................      355,758    $3,938,986     $4,286,884
  Equity-Income Portfolio...........................    1,416,247   $23,297,417    $27,291,080
  Growth Portfolio..................................      782,880   $18,902,973    $22,860,108

Variable Insurance Products Fund II:
  Asset Manager Portfolio...........................    1,043,136   $14,760,386    $16,471,115
  Index 500 Portfolio...............................       95,710    $6,240,113     $7,246,225
  Contrafund Portfolio..............................      329,058    $4,415,265     $4,534,416

Quest for Value Accumulation Trust:
  Equity Portfolio..................................      205,424    $4,251,715     $5,145,872
  Small Cap Portfolio...............................      329,279    $5,691,168     $6,555,940
  Managed Portfolio.................................      658,452   $15,575,661    $19,845,750

Scudder Variable Life Investment Fund:
  Bond Portfolio....................................      506,820    $3,403,554     $3,633,897
  Growth and Income Portfolio.......................       76,034      $564,302       $606,749
  International Portfolio...........................       54,371      $631,059       $642,660

Dreyfus Variable Investment Fund:
  Zero Coupon 2000 Portfolio........................      222,877    $2,684,818     $2,830,540
  Growth and Income Portfolio.......................      127,162    $2,253,832     $2,330,878
  Socially Responsible Portfolio....................        9,179      $154,653       $158,889

Insurance Management Series:
  U.S. Government Bond Fund Portfolio...............       48,322      $488,921       $497,233
  Utility Fund Portfolio............................       58,697      $619,407       $647,427
</TABLE>
    
 
                                      F-20
<PAGE>   75
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
     During the years ended December 31, 1995 and 1994, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                                    MARKET STREET FUND, INC.
   ------------------------------------------------------------------------------------------------------------------
                                            GROWTH PORTFOLIO         MONEY MARKET PORTFOLIO          BOND PORTFOLIO
   ------------------------------------------------------------------------------------------------------------------
                                            1995         1994          1995           1994          1995         1994
   ------------------------------------------------------------------------------------------------------------------
<S>                                      <C>          <C>          <C>            <C>            <C>          <C>
Shares purchased.......................     268,419      370,793     29,796,814     29,801,536       96,758      156,476
Shares received from reinvestment of:
  Dividends............................      30,204       20,428        654,480        234,870       17,303       13,841
  Capital gain distributions...........      69,274          442                                                   5,834
                                         ----------   ----------    -----------    -----------   ----------   ----------
Total shares acquired..................     367,897      391,663     30,451,294     30,036,406      114,061      176,151
Total shares redeemed..................     (95,379)    (153,858)   (22,894,689)   (24,718,510)     (28,524)    (160,807)
                                         ----------   ----------    -----------    -----------   ----------   ----------
Net increase in shares owned...........     272,518      237,805      7,556,605      5,317,896       85,537       15,344
Shares owned, beginning of year........     847,109      609,304      8,171,895      2,853,999      246,494      231,150
                                         ----------   ----------    -----------    -----------   ----------   ----------
Shares owned, end of year..............   1,119,627      847,109     15,728,500      8,171,895      332,031      246,494
                                         ==========   ==========    ===========    ===========   ==========   ==========
Cost of shares acquired................  $5,336,808   $5,508,938   $ 30,451,294   $ 30,036,406   $1,185,517   $1,847,891
                                         ==========   ==========    ===========    ===========   ==========   ==========
Cost of shares redeemed................  $1,279,444   $2,056,482   $ 22,894,689   $ 24,718,510   $  321,695   $1,798,523
                                         ==========   ==========    ===========    ===========   ==========   ==========
</TABLE>
    
 
                                      F-21
<PAGE>   76
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                                     MARKET STREET FUND, INC.
  ------------------------------------------------------------------------------------------------------------------
                                                                            AGGRESSIVE
                                               MANAGED PORTFOLIO         GROWTH PORTFOLIO       INTERNATIONAL PORTFOLIO
  ------------------------------------------------------------------------------------------------------------------
                                               1995         1994         1995         1994         1995         1994
  ------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>          <C>          <C>          <C>
Shares purchased..........................     118,219      287,930      130,740       92,185      273,588      589,320
Shares received from reinvestment of:
  Dividends...............................      27,097       21,641                                  4,702          732
  Capital gain distributions..............         710       23,232        1,436                    22,215        5,115
                                            ----------   ----------   ----------   ----------   ----------   ----------
Total shares acquired.....................     146,026      332,803      132,176       92,185      300,505      595,167
Total shares redeemed.....................    (154,005)    (194,923)     (58,283)     (17,757)    (189,055)     (48,481)
                                            ----------   ----------   ----------   ----------   ----------   ----------
Net increase (decrease) in shares owned...      (7,979)     137,880       73,893       74,428      111,450      546,686
Shares owned, beginning of year...........     620,818      482,938      163,459       89,031      797,537      250,851
                                            ----------   ----------   ----------   ----------   ----------   ----------
Shares owned, end of year.................     612,839      620,818      237,352      163,459      908,987      797,537
                                            ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares acquired...................  $1,922,362   $4,068,809   $2,157,899   $1,372,674   $3,568,856   $7,082,837
                                            ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares redeemed...................  $2,024,052   $2,492,109   $  812,404   $  230,160   $2,097,816   $  441,457
                                            ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>
    
 
                                      F-22
<PAGE>   77
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                                 VARIABLE INSURANCE PRODUCTS FUND
  ------------------------------------------------------------------------------------------------------------------
                                            HIGH INCOME PORTFOLIO    EQUITY-INCOME PORTFOLIO       GROWTH PORTFOLIO
  ------------------------------------------------------------------------------------------------------------------
                                              1995         1994         1995          1994         1995         1994
  ------------------------------------------------------------------------------------------------------------------
<S>                                        <C>          <C>          <C>           <C>          <C>          <C>
Shares purchased.........................     187,083      217,168       823,025      477,743      359,221      402,049
Shares received from reinvestment of:
  Dividends..............................      15,229        1,617        23,321        8,523        2,491          560
  Capital gain distributions.............                      820        30,181        6,248                     5,924
                                           ----------   ----------   -----------   ----------   ----------   ----------
Total shares acquired....................     202,312      219,605       876,527      492,514      361,712      408,533
Total shares redeemed....................     (40,679)     (40,719)      (22,121)     (15,145)     (17,914)     (21,139)
                                           ----------   ----------   -----------   ----------   ----------   ----------
Net increase in shares owned.............     161,633      178,886       854,406      477,369      343,798      387,394
Shares owned, beginning of year..........     194,125       15,239       561,841       84,472      439,082       51,688
                                           ----------   ----------   -----------   ----------   ----------   ----------
Shares owned, end of year................     355,758      194,125     1,416,247      561,841      782,880      439,082
                                           ==========   ==========   ===========   ==========   ==========   ==========
Cost of shares acquired..................  $2,282,206   $2,409,851   $15,096,748   $7,479,372   $9,941,272   $8,681,966
                                           ==========   ==========   ===========   ==========   ==========   ==========
Cost of shares redeemed..................  $  455,291   $  478,188   $   341,059   $  232,826   $  408,296   $  480,561
                                           ==========   ==========   ===========   ==========   ==========   ==========
</TABLE>
    
 
                                      F-23
<PAGE>   78
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                                     VARIABLE INSURANCE PRODUCTS FUND II
  ------------------------------------------------------------------------------------------------------------------
                                                            ASSET MANAGER                                    FIDELITY
                                                              PORTFOLIO             INDEX 500 PORTFOLIO     CONTRAFUND
  ------------------------------------------------------------------------------------------------------------------
                                                          1995         1994          1995         1994         1995
  ------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>          <C>           <C>          <C>          <C>
Shares purchased.....................................     171,595       985,825       67,760       26,379      325,895
Shares received from reinvestment of:
  Dividends..........................................      22,480         3,952          546                     1,399
  Capital gain distributions.........................                     5,522           75           17        2,797
                                                       ----------    ----------   -----------  ----------   ----------
Total shares acquired................................     194,075       995,299       68,381       26,396      330,091
Total shares redeemed................................    (174,916)      (68,539)      (5,385)      (1,240)      (1,033)
                                                       ----------    ----------   -----------  ----------   ----------
Net increase in shares owned.........................      19,159       926,760       62,996       25,156      329,058
Shares owned, beginning of year......................   1,023,977        97,217       32,714        7,558
                                                       ----------    ----------   -----------  ----------   ----------
Shares owned, end of year............................   1,043,136     1,023,977       95,710       32,714      329,058
                                                       ==========   ===========   ===========  ==========   ==========
Cost of shares acquired..............................  $2,763,929   $14,238,676   $4,715,544   $1,471,998   $4,427,161
                                                       ==========   ===========   ===========  ==========   ==========
Cost of shares redeemed..............................  $2,679,014   $ 1,014,715   $  306,702   $   70,388   $   11,896
                                                       ==========   ===========   ===========  ==========   ==========
</TABLE>
    
 
                                      F-24
<PAGE>   79
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                                QUEST FOR VALUE ACCUMULATION TRUST
  ------------------------------------------------------------------------------------------------------------------
                                               EQUITY PORTFOLIO         SMALL CAP PORTFOLIO        MANAGED PORTFOLIO
  ------------------------------------------------------------------------------------------------------------------
                                               1995         1994         1995         1994         1995         1994
  ------------------------------------------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>          <C>          <C>          <C>
Shares purchased..........................     127,805       75,561      113,031      259,427      299,655      320,433
Shares received from reinvestment of:
  Dividends...............................         396          167          848          321        2,322        2,156
  Capital gain distributions..............                      293          755          704                     2,893
                                            ----------   ----------   ----------   ----------   ----------   ----------
Total shares acquired.....................     128,201       76,021      114,634      260,452      301,977      325,482
Total shares redeemed.....................      (4,109)      (4,892)     (34,996)     (35,424)     (14,087)     (18,100)
                                            ----------   ----------   ----------   ----------   ----------   ----------
Net increase in shares owned..............     124,092       71,129       79,638      225,028      287,890      307,382
Shares owned, beginning of year...........      81,332       10,203      249,641       24,613      370,562       63,180
                                            ----------   ----------   ----------   ----------   ----------   ----------
Shares owned, end of year.................     205,424       81,332      329,279      249,641      658,452      370,562
                                            ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares acquired...................  $2,859,457   $1,370,853   $2,055,414   $4,492,516   $8,052,533   $6,865,377
                                            ==========   ==========   ==========   ==========   ==========   ==========
Cost of shares redeemed...................  $   72,780   $   86,681   $  654,910   $  641,429   $  296,084   $  384,405
                                            ==========   ==========   ==========   ==========   ==========   ==========
</TABLE>
    
 
                                      F-25
<PAGE>   80
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
   
- --------------------------------------------------------------------------------
    
 
   
<TABLE>
<CAPTION>
                                                                        SCUDDER VARIABLE LIFE INVESTMENT FUND
 ------------------------------------------------------------------------------------------------------------------
                                                                     BOND PORTFOLIO        GROWTH AND   INTERNATIONAL
                                                                                             INCOME       PORTFOLIO
                                                                                           PORTFOLIO
 ------------------------------------------------------------------------------------------------------------------
                                                                    1995         1994         1995          1995
 ------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>          <C>           <C>           <C>
Shares purchased...............................................     197,271      342,254      76,730         54,443
Shares received from reinvestment of:
  Dividends....................................................      26,798       11,593         483
  Capital gain distributions...................................                    2,696
                                                                 ----------   ----------    --------       --------
Total shares acquired..........................................     224,069      356,543      77,213         54,443
Total shares redeemed..........................................     (39,303)     (84,737)     (1,179)           (72)
                                                                 ----------   ----------    --------       --------
Net increase in shares owned...................................     184,766      271,806      76,034         54,371
Shares owned, beginning of year................................     322,054       50,248
                                                                 ----------   ----------    --------       --------
Shares owned, end of year......................................     506,820      322,054      76,034         54,371
                                                                 ==========   ==========    ========       ========
Cost of shares acquired........................................  $1,525,757   $2,416,976    $572,319       $631,861
                                                                 ==========   ==========    ========       ========
Cost of shares redeemed........................................  $  284,131   $  626,712    $  8,017       $    802
                                                                 ==========   ==========    ========       ========
</TABLE>
    
 
                                      F-26
<PAGE>   81
 
- --------------------------------------------------------------------------------
   
The Providentmutual Variable Annuity Separate Account
    
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. INVESTMENTS, CONTINUED
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                           DREYFUS VARIABLE INVESTMENT FUND             INSURANCE MANAGEMENT SERIES
 ------------------------------------------------------------------------------------------------------------------
                                                            GROWTH AND
                                        ZERO COUPON           INCOME      SOCIALLY     U.S. GOVERNMENT      UTILITY
                                      2000 PORTFOLIO        PORTFOLIO    RESPONSIBLE      BOND FUND           FUND
                                                                          PORTFOLIO       PORTFOLIO         PORTFOLIO
 --------------------------------------------------------------------------------------------------------------------
                                     1995         1994         1995         1995            1995              1995
 --------------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>           <C>                  <C>
Shares purchased................     101,556      126,529      123,226        8,954          47,523           59,606
Shares received from
  reinvestment of:
  Dividends.....................       9,259        4,746          729           38             852              523
  Capital gain distributions....                                 4,743          192
                                  ----------   ----------   -----------  ----------      ----------         --------
Total shares acquired...........     110,815      131,275      128,698        9,184          48,375           60,129
Total shares redeemed...........     (17,149)      (8,521)      (1,536)          (5)            (53)          (1,432)
                                  ----------   ----------   -----------  ----------      ----------         --------
Net increase in shares owned....      93,666      122,754      127,162        9,179          48,322           58,697
Shares owned, beginning of
  year..........................     129,211        6,457
                                  ----------   ----------   -----------  ----------      ----------         --------
Shares owned, end of year.......     222,877      129,211      127,162        9,179          48,322           58,697
                                  ==========   ==========   ===========  ==========      ==========         ========
Cost of shares acquired.........  $1,368,738   $1,550,373   $2,276,498    $ 154,729       $ 489,445         $633,428
                                  ==========   ==========   ===========  ==========      ==========         ========
Cost of shares redeemed.........  $  208,117   $  109,171   $   22,666    $      76       $     524         $ 14,021
                                  ==========   ==========   ===========  ==========      ==========         ========
</TABLE>
    
 
                                      F-27
<PAGE>   82
 
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
   
of Providentmutual Life and Annuity Company of America
    
Notes to Financial Statements -- concluded
 
- --------------------------------------------------------------------------------
 
4. RELATED PARTY TRANSACTIONS
 
     Certain deductions are made from the Subaccounts and/or the premiums by
Providentmutual. The deductions may include (1) surrender charges, (2)
administration fees, (3) transfer processing fees, (4) mortality and expense
risk charges and (5) premium taxes.
 
     There are no sales expenses deducted from premiums at the time the premiums
are paid. If a contract has not been in force for six full years, upon surrender
or for certain withdrawals, a surrender charge is deducted from the proceeds.
However, subject to certain restrictions, up to 10% of the contract account
value as of the beginning of a contract year may be surrendered or withdrawn
free of surrender charges.
 
     An annual administrative fee of $30 is deducted from the contract account
value on each contract anniversary date beginning one year from the issue date
of the contract. In addition, to compensate for costs associated with
administration of the Market Street VIP/2 contracts, Providentmutual deducts a
daily asset-based administration charge from the assets of the Separate Account
equal to an annual rate of .15%. This daily asset-based administration charge is
reported in the mortality and expense risk charges in the statements of
operations.
 
     During any given contract year, the first four transfers by Market Street
VIP contractowners and the first twelve transfers by Market Street VIP/2
contractowners of amounts in the Subaccounts are free of charge. A fee of $25 is
assessed for each additional transfer. No transfer fees were incurred during
1995 or 1994.
 
     The Separate Account is charged a daily mortality and expense risk charge
at an annual rate of 1.20% for the Market Street VIP contracts and 1.25% for the
Market Street VIP/2 contracts. Providentmutual reserves the right to increase
this charge for the Market Street VIP contracts, but in no event will it be
greater than 1.25%.
 
     State premium taxes, when applicable, will be deducted depending upon when
such taxes are paid to the taxing authority. The premium taxes are deducted
either from premiums as they are received or from the proceeds upon withdrawal
from or surrender of the contract or upon application of the proceeds to a
payment option.
 
                                      F-28
<PAGE>   83
 
- --------------------------------------------------------------------------------
   
Provident Mutual Life and Annuity Company of America
    
   
Report of Independent Accountants
    
 
- --------------------------------------------------------------------------------
 
To the Shareholder and Board of Directors
  Providentmutual Life and Annuity Company of America
 
We have audited the accompanying statements of financial condition of
Providentmutual Life and Annuity Company of America (a wholly-owned stock life
insurance subsidiary of Provident Mutual Life Insurance Company) as of December
31, 1995 and 1994, and the related statements of operations, changes in capital
and surplus and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Providentmutual Life and
Annuity Company of America as of December 31, 1995 and 1994, and the results of
its operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with accounting principles prescribed or
permitted by the Insurance Department of the State of Delaware, which are
considered generally accepted accounting principles for wholly-owned stock life
insurance subsidiaries of mutual life insurance companies.
 
   
                                          COOPERS & LYBRAND L.L.P.
    
 
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 6, 1996
 
                                      F-29

<PAGE>   84
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
   
Statements of Financial Condition
    
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                        ---------------------
                                                                          1995         1994
- ---------------------------------------------------------------------------------------------
                                                                           (IN THOUSANDS)
<S>                                                                     <C>          <C>
ADMITTED ASSETS
  Bonds..............................................................   $359,778     $335,502
  Preferred stocks...................................................        970          970
  Common stocks......................................................        661        1,400
  Policy loans.......................................................      5,446        4,457
  Mortgage loans.....................................................     38,917       39,317
  Real estate........................................................      3,221        3,367
  Other long-term investments........................................        434          434
  Cash and short-term investments....................................     12,555       13,457
                                                                        --------     --------
       Total cash and invested assets................................    421,982      398,904
  Premiums due and deferred..........................................      2,408        1,484
  Investment income due and accrued..................................      6,675        7,520
  Due from parent....................................................         --          720
  Other assets.......................................................      1,929          644
  Separate account assets............................................    191,774       95,433
                                                                        --------     --------
       Total admitted assets.........................................   $624,768     $504,705
                                                                        ========     ========
LIABILITIES
  Aggregate policy and claim reserves................................   $379,545     $360,461
  Other policyowner obligations......................................      5,466        3,717
  Payable to parent..................................................      1,751           --
  Other liabilities..................................................     12,937       11,867
  Asset valuation reserve............................................      3,939        4,271
  Separate account liabilities.......................................    190,493       95,007
                                                                        --------     --------
       Total liabilities.............................................    594,131      475,323
                                                                        --------     --------
CAPITAL AND SURPLUS
  Common stock, $10 par value;
     authorized 500,000 shares; issued
     and outstanding 250,000 shares..................................      2,500        2,500
  Contributed capital in excess of par...............................     29,665       29,665
  Unassigned deficit.................................................     (1,528)      (2,783)
                                                                        --------     --------
       Total capital and surplus.....................................     30,637       29,382
                                                                        --------     --------
       Total liabilities, capital and surplus........................   $624,768     $504,705
                                                                        ========     ========
</TABLE>
 
See accompanying notes to financial statements.
 
                                      F-30

<PAGE>   85
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
   
Statements of Operations
    
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                          ----------------------------------
                                                            1995         1994         1993
<S>                                                       <C>          <C>          <C>
- --------------------------------------------------------------------------------------------
                                                                    (IN THOUSANDS)
INCOME
  Premium income......................................    $137,923     $124,383     $ 82,402
  Net investment income...............................      32,299       29,591       30,835
  Other income, net...................................       3,509        2,099          982
  Commissions and reserve adjustments
     on reinsurance ceded.............................       8,459        6,810        2,759
                                                          --------     --------     --------
       Total income...................................     182,190      162,883      116,978
                                                          --------     --------     --------
BENEFITS AND EXPENSES
  Life, accident and health, and other policy
     benefits.........................................      63,047       59,385       69,322
  Increase in aggregate policy reserves...............      25,408       17,365       11,779
  Transfers to separate account, net..................      62,452       59,856       21,155
                                                          --------     --------     --------
       Total benefits.................................     150,907      136,606      102,256
  Commissions.........................................      14,702       13,004        4,641
  General insurance expenses..........................       9,894        8,225        5,903
  Insurance taxes, licenses and fees..................         752          585          358
  Federal income tax expense..........................       3,591        2,085          822
                                                          --------     --------     --------
       Total benefits and expenses....................     179,846      160,505      113,980
                                                          --------     --------     --------
       Net income before dividends to policyowners
          and realized capital losses.................       2,344        2,378        2,998
  Dividends to policyowners...........................         443          294          106
                                                          --------     --------     --------
       Net income before realized capital losses......       1,901        2,084        2,892
  Realized capital losses, net of tax.................        (320)      (1,358)      (2,318)
                                                          --------     --------     --------
       Net income.....................................    $  1,581     $    726     $    574
                                                          ========     ========     ========
</TABLE>
 
See accompanying notes to financial statements.
 
                                      F-31
<PAGE>   86
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
   
Statements of Changes in Capital and Surplus
    
 
- --------------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          FOR THE YEARS ENDED
                                                                    DECEMBER 31, 1995, 1994 AND 1993
- ---------------------------------------------------------------------------------------------------------------
                                                           COMMON               CONTRIBUTED              TOTAL
                                                            STOCK                 CAPITAL               CAPITAL
                                                         OUTSTANDING    PAR      IN EXCESS    SURPLUS     AND
                                                           SHARES      VALUE      OF PAR      (DEFICIT) SURPLUS
<S>                                                      <C>           <C>      <C>           <C>       <C>
- ---------------------------------------------------------------------------------------------------------------
                                                                                                 (IN THOUSANDS)
Balance, January 1, 1993...............................    250,000     $2,500     $21,665     $(3,611)  $20,554
Net income.............................................                                           574       574
Net unrealized gain on investments.....................                                         1,095     1,095
Capital contribution...................................                             8,000                 8,000
Other changes, net of increase in nonadmitted assets...                                            58        58
Increase in asset valuation reserve....................                                        (1,691)   (1,691)
                                                           -------      -----      ------     -------   -------
Balance, December 31, 1993.............................    250,000      2,500      29,665      (3,575)   28,590
Net income.............................................                                           726       726
Net unrealized gain on investments.....................                                         1,599     1,599
Other changes, net of increase in nonadmitted assets...                                          (134)     (134)
Increase in asset valuation reserve....................                                        (1,399)   (1,399)
                                                           -------      -----      ------     -------   -------
Balance, December 31, 1994.............................    250,000      2,500      29,665      (2,783)   29,382
Net income.............................................                                         1,581     1,581
Net unrealized loss on investments.....................                                          (933)     (933)
Other changes, net of increase in nonadmitted assets...                                           275       275
Decrease in asset valuation reserve....................                                           332       332
                                                           -------      -----      ------     -------   -------
Balance, December 31, 1995.............................    250,000     $2,500     $29,665     $(1,528)  $30,637
                                                           =======      =====      ======     =======   =======
</TABLE>
 
See accompanying notes to financial statements.
 
                                      F-32
<PAGE>   87
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
   
Statements of Cash Flows
    
 
- --------------------------------------------------------------------------------
 
   
<TABLE>
<CAPTION>
                                                           FOR THE YEARS ENDED DECEMBER 31,
                                                          ----------------------------------
                                                            1995         1994         1993
<S>                                                       <C>          <C>          <C>
- --------------------------------------------------------------------------------------------
                                                                              (IN THOUSANDS)
CASH PROVIDED
  Net cash provided by operations:
     Premiums and annuity considerations..............    $140,390     $125,316     $ 85,283
     Allowances and reserve adjustments received on
       reinsurance....................................       8,535        6,734          140
     Investment income received, net of expenses......      33,882       29,806       30,364
     Other income received............................          44          134          625
     Life, accident and health claims paid............        (745)        (651)        (437)
     Surrender benefits paid..........................     (52,574)     (50,523)     (62,725)
     Other benefits paid to policyowners..............      (9,610)      (8,206)      (6,190)
     Commissions, insurance expenses and other taxes
       paid...........................................     (25,073)     (20,480)     (10,701)
     Funds transferred to separate accounts, net......     (66,763)     (63,382)     (22,901)
     Dividends paid to policyowners...................        (259)        (105)         (25)
     Federal income taxes (paid) recovered............      (1,679)        (293)         519
     Net decrease in policy loans and premium notes...        (989)        (327)        (129)
                                                            ------      -------      -------
       Net cash provided by operations................      25,159       18,023       13,823
                                                            ------      -------      -------
  Investments sold, matured or repaid:
     Bonds............................................      49,616       49,448       67,847
     Stocks...........................................       2,746          220          258
     Mortgage loans...................................       8,066        1,374        7,370
     Real estate and other invested assets............         940        1,793        2,769
                                                            ------      -------      -------
       Total investments sold, matured or repaid......      61,368       52,835       78,244
                                                            ------      -------      -------
  Other cash provided.................................         241           --        8,104
                                                            ------      -------      -------
       Total cash provided............................      86,768       70,858      100,171
                                                            ------      -------      -------
CASH APPLIED
  Cost of investments acquired:
     Bonds............................................      75,566       59,752      128,094
     Stocks...........................................       1,562          497            9
     Mortgage loans...................................       8,418        7,515        3,855
     Real estate......................................         214        1,010          218
                                                            ------      -------      -------
       Total investments acquired.....................      85,760       68,774      132,176
                                                            ------      -------      -------
  Other cash applied..................................       1,910          836          522
                                                            ------      -------      -------
       Total cash applied.............................      87,670       69,610      132,698
                                                            ------      -------      -------
       Net change in cash and short-term
          investments.................................        (902)       1,248      (32,527)
Cash and short-term investments:
  Beginning of year...................................      13,457       12,209       44,736
                                                            ------      -------      -------
  End of year.........................................    $ 12,555     $ 13,457     $ 12,209
                                                          ========      =======      =======
</TABLE>
    
 
See accompanying notes to financial statements.
 
                                       F-33

<PAGE>   88
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements
 
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
   Organization
 
     Providentmutual Life and Annuity Company of America (the Company) is a
stock life insurance company and a wholly-owned subsidiary of Provident Mutual
Life Insurance Company (Provident Mutual).
 
     The Company sells life and annuity products principally through a personal
producing general agency (PPGA) and brokerage sales force. The Company is
licensed to operate in 48 states, which are responsible for product regulation.
Sales in 9 states accounted for 65% of the Company's sales for the year ended
December 31, 1995. For many of the life and annuity products, the insurance
departments of the states in which the Company conducts business must approve
products and policy forms in advance of sales. In addition, benefits are
determined by statutes and regulations in each of these states.
 
   Basis of Presentation
 
     The Company's financial statements have been prepared on the basis of
accounting principles prescribed or permitted by the National Association of
Insurance Commissioners (NAIC) and the Insurance Department of the State of
Delaware. These financial statements vary from those filed for statutory
purposes only as to presentation. All amounts are presented in thousands of
dollars. Certain prior year amounts have been reclassified to conform with the
current year presentation.
 
     The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities as of December 31, 1995 and 1994 and the reported amounts
of revenues and expenses during 1995, 1994 and 1993. Actual results could differ
from those estimates.
 
     In January 1995, the Financial Accounting Standard Board (FASB) issued
Statement of Financial Accounting Standards No. 120, "Accounting and Reporting
by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts" (SFAS 120). SFAS 120 extends the
requirements of FASB Statements No. 60, "Accounting and Reporting by Insurance
Enterprises", No. 97, "Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale
of Investments", and No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," to mutual life insurance companies.
The American Institute of Certified Public Accountants has established
accounting for certain participating life insurance contracts of mutual life
insurance enterprises in its Statement of Position 95-1, "Accounting for Certain
Insurance Activities of Mutual Life Insurance Enterprises" (SOP 95-1). SFAS 120
is effective for financial statements issued for fiscal years beginning after
December 15, 1995 and will be applied retroactively to the earliest year
presented when adopted.
 
     SFAS 120 also amends FASB Interpretation No. 40, "Applicability of
Generally Accepted Accounting Principles to Mutual Life Insurance and Other
Enterprises" (Interpretation No. 40), to defer the effective date of the general
provisions of that Interpretation to fiscal years beginning after December 15,
1995, so
 
                                      F-34
<PAGE>   89
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
 
   
   Basis of Presentation, continued
    
that Interpretation No. 40, SFAS 120, and SOP 95-1 are concurrently effective.
When the Company prepares financial statements in conformity with Interpretation
No. 40, the accounting treatment for certain items, such as policy reserves, new
business acquisition costs, asset valuation reserves and income taxes will be
different than for financial statements issued in conformity with statutory
accounting principles. In addition, the Company believes surplus presented in
accordance with Interpretation No. 40 will be greater than surplus presented in
accordance with statutory accounting principles.
 
   Invested Assets
 
     Bonds are stated at amortized cost, except bonds in default, which are
stated at market value as prescribed by the NAIC. Private placements are stated
as prescribed by the NAIC or at amortized cost.
 
     Common stocks are carried at market value. The cost of common stocks was
$752 and $1,682 at December 31, 1995 and 1994, respectively. Preferred stocks
are carried at cost if designated "in good standing", otherwise at market value
as prescribed by the NAIC.
 
     Short-term investments include those investments whose maturities at the
time of acquisition were one year or less. These investments are carried at
amortized cost which approximates market value.
 
     Mortgage loans and policy loans are stated primarily at unpaid principal
balances.
 
     Foreclosed real estate is carried at lower of cost or market value and is
held for sale. Foreclosed real estate is depreciated using the straight-line
method. Accumulated depreciation for real estate totalled $244 and $197 at
December 31, 1995 and 1994, respectively.
 
     Other invested assets consist of limited partnerships carried on the cost
basis.
 
   
   Investment Valuation Reserves
    
 
     The asset valuation reserve (AVR) is designed to mitigate the effect of
valuation and credit-related losses on surplus. The interest maintenance reserve
(IMR) is designed to reduce fluctuations in surplus resulting from market
interest rate movements. The AVR covers all invested asset classes with risk of
loss, including bonds, common stocks, mortgage loans and real estate. The IMR
captures realized gains on the sale of all types of fixed income securities
which resulted from changes in the overall level of interest rates. These gains
are amortized into income over the remaining life of each investment sold.
 
     Separate investment valuation reserves in addition to the AVR have been
provided for impairments of mortgage loans and totalled $1,075 and $1,328 at
December 31, 1995 and 1994, respectively. Changes in the reserves are reflected
as charges or credits to surplus in unrealized capital gains and losses.
 
                                      F-35
<PAGE>   90
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
 
   Policy Reserves
 
     Reserves for traditional life insurance policies are computed principally
on the net level premium method and the Commissioners' Reserve Valuation Method
using the 1958 and 1980 Commissioners' Standard Ordinary (CSO) mortality tables
with assumed interest rates ranging from 2.5% to 6%.
 
     Reserves for deferred annuities are computed principally on the
Commissioners' Annuity Reserve Valuation Method (CARVM) using the 1971 and 1983
Individual Annuity Mortality (IAM) Tables with assumed interest rates ranging
from 5.5% to 8.5%. Reserves for variable annuities are computed principally on
the CARVM using the 1983 IAM mortality table with assumed interest rates ranging
from 5.5% to 6.25%. Reserves for immediate annuities and supplementary contracts
with life contingencies are based principally on the 1971 and 1983 IAM mortality
tables at assumed interest rates ranging from 6.5% to 11.25%.
 
     Reserves for deposit funds are based upon the accumulated balance values,
including accrued interest.
 
   Premium and Expense Recognition
 
     Life and health premiums are recognized as income when due. Annuity fund
deposits are recognized as income when received. Policy acquisition costs, such
as commissions and other marketing and policy issuance expenses incurred in
connection with acquiring new business, are charged to operations as incurred.
Revenues from supplementary contracts with and without life contingencies are
classified as other income in the statements of operations.
 
   
   Capital Gains and Losses
    
 
     Realized capital gains and losses from sales of investments, net of related
Federal income taxes, resulting from changes in interest rates are included in
the IMR and are amortized into operating income over the remaining lives of the
investments sold. Credit-related realized gains and losses are recorded as
capital gains and losses in the statements of operations. Capital gains and
losses are recognized on a specific identification basis.
 
     Unrealized gains and losses on investments are reflected as a change in
surplus and represent the difference between cost and market values as
prescribed by the NAIC.
 
   Policyowner Dividends
 
     A portion of the Company's life insurance business is written on the
participating basis. Annually, the Board of Directors declares the amount of
dividends to be paid in the following calendar year. Declared dividends are
included in the accompanying financial statements as a liability and as a charge
to operations.
 
                                      F-36
<PAGE>   91
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
 
   Reinsurance
 
     Premiums, benefits and expenses are reported net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
 
   Separate Accounts
 
     Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of variable annuity
contractowners and variable life insurance policyowners. Separate account assets
are carried at market values determined as of the balance sheet date.
 
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     The following table presents the fair values and statement values of the
Company's financial instruments at December 31, 1995 and 1994:
 
<TABLE>
<CAPTION>
                                                     DECEMBER 31, 1995      DECEMBER 31, 1994
                                                    --------------------   --------------------
                                                      FAIR     STATEMENT     FAIR     STATEMENT
                                                     VALUE       VALUE      VALUE       VALUE
                                                    --------   ---------   --------   ---------
                                                       (IN THOUSANDS)      (IN THOUSANDS)
<S>                                                 <C>        <C>         <C>        <C>
ASSETS
Bonds.............................................  $374,276    $359,778   $323,344    $335,502
Common stock......................................      $661        $661     $1,400      $1,400
Redeemable preferred stocks.......................    $1,104        $970     $1,020        $970
Commercial mortgage loans.........................   $42,128     $38,917    $39,416     $39,317
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
  CONTRACTS
Supplementary contracts
  without life contingencies......................    $4,701      $4,399     $2,913      $2,951
Individual annuities..............................  $516,240    $518,697   $393,360    $396,667
</TABLE>
 
     The underlying investment risk of the Company's variable annuity and
variable life contracts is assumed by the owner. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at market value.
 
     Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Values of
Financial Instruments". However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts. The estimated fair value of all assets
without a corresponding revaluation of all liabilities associated with insurance
contracts can be misinterpreted.
 
                                      F-37
<PAGE>   92
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
   
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
    
     The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
 
   Investment Securities
 
     Bonds, common stocks and preferred stocks are valued based upon quoted
market prices, where available. If quoted market prices are not available, as in
the case of private placements, fair values are based on quoted market prices of
comparable instruments. (See Note 3).
 
   Mortgage Loans
 
     Mortgage loans were valued using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. For mortgage loans classified as nonperforming, the
fair value was set equal to the lesser of the unpaid principal balance or the
market value of the underlying property.
 
   Policy Loans
 
     Policy loans are issued with either fixed or variable interest rates,
depending upon the terms of the policies. For those loans with fixed interest
rates, the interest rates range from 5% to 8%. For loans with variable interest
rates, the interest rates are primarily adjusted quarterly based upon changes in
a corporate bond index. Future cash flows of policy loans are uncertain and
difficult to predict. As a result, management deems it impractical to calculate
the fair value of policy loans.
 
   Individual Annuities and Supplementary Contracts
 
     The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
 
   Policyowner Dividends and Coupon Accumulations
 
     The policyowners' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied towards the payment of premiums, or left
on deposit with the Company at interest. Management deems it impractical to
calculate the fair value of these liabilities due to valuation difficulties
involving the uncertainties of final settlement.
 
                                      F-38
<PAGE>   93
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
3. DEBT SECURITIES AND REDEEMABLE PREFERRED STOCKS
 
     The statement value and estimated fair value of investments in debt
securities and redeemable preferred stocks as of December 31, 1995 and 1994 are
as follows:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1995
                                               -----------------------------------------------------
                                                               GROSS          GROSS        ESTIMATED
                                               STATEMENT     UNREALIZED     UNREALIZED       FAIR
                                                 VALUE         GAINS          LOSSES         VALUE
                                               ---------     ----------     ----------     ---------
<S>                                            <C>           <C>            <C>            <C>
U.S. Treasury securities and obligations of
  U.S. government corporations and
  agencies.................................    $   5,811      $    536       $      8      $   6,339
Obligations of states and political
  subdivisions.............................        6,198           374             --          6,572
Corporate securities including mortgage-
  backed securities........................      347,769        14,782          1,186        361,365
                                                --------       -------        -------       --------
       Subtotal -- bonds...................      359,778        15,692          1,194        374,276
Redeemable preferred stocks................          970           134             --          1,104
                                                --------       -------        -------       --------
       Total...............................    $ 360,748      $ 15,826       $  1,194      $ 375,380
                                                ========       =======        =======       ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 1994
                                               -----------------------------------------------------
                                                               GROSS          GROSS        ESTIMATED
                                               STATEMENT     UNREALIZED     UNREALIZED       FAIR
                                                 VALUE         GAINS          LOSSES         VALUE
                                               ---------     ----------     ----------     ---------
<S>                                            <C>           <C>            <C>            <C>
U.S. Treasury securities and obligations of
  U.S. government corporations and
  agencies.................................    $  11,704      $     29       $    204      $  11,529
Obligations of states and political
  subdivisions.............................        5,575            85             40          5,620
Debt securities issued by foreign
  governments..............................        1,014            --             38            976
Corporate securities including mortgage-
  backed securities........................      317,209         1,205         13,195        305,219
                                               ---------     ----------     ----------     ---------
       Subtotal -- bonds...................      335,502         1,319         13,477        323,344
Redeemable preferred stocks................          970            50             --          1,020
                                               ---------     ----------     ----------     ---------
       Total...............................    $ 336,472      $  1,369       $ 13,477      $ 324,364
                                               =========      ========       ========      =========
</TABLE>
 
                                      F-39
<PAGE>   94
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
   
3. DEBT SECURITIES AND REDEEMABLE PREFERRED STOCKS, CONTINUED
    
     The statement value and estimated fair value of debt securities and
redeemable preferred stocks at December 31, 1995, by contractual maturity, are
as follows:
 
<TABLE>
<CAPTION>
                                                                       STATEMENT     ESTIMATED
                                                                         VALUE       FAIR VALUE
                                                                       ---------     ----------
<S>                                                                    <C>           <C>
Due in one year or less............................................    $  14,947      $  15,116
Due after one year through five years..............................      158,693        162,689
Due after five years through ten years.............................      126,110        133,786
Due after ten years................................................       60,028         62,685
                                                                        --------       --------
       Subtotal -- bonds...........................................      359,778        374,276
Redeemable preferred stocks........................................          970          1,104
                                                                        --------       --------
       Total.......................................................    $ 360,748      $ 375,380
                                                                        ========       ========
</TABLE>
 
     Expected maturities may differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
final maturity.
 
     Proceeds from sales and maturities of investments in debt securities during
1995, 1994 and 1993 were $49,616, $49,448 and $67,847, respectively. Gross gains
of $550, $299 and $1,511 and gross losses of $8, $795 and $39 were realized on
those sales in 1995, 1994 and 1993, respectively.
 
4. RESERVES
 
     The withdrawal characteristics of the Company's annuity actuarial reserves
and deposit liabilities as of December 31, 1995 are as follows:
 
<TABLE>
<S>                                                                                <C>
Reserves
Subject to discretionary withdrawal--with adjustment:
  --with market value adjustment...............................................    $178,311
  --at book value less surrender charges.......................................      82,525
                                                                                   --------
       Subtotal................................................................     260,836
Subject to discretionary withdrawal--without adjustment:
  --at book value (minimal or no charge or adjustment).........................     321,552
Not subject to discretionary withdrawal provision..............................      34,212
                                                                                   --------
Total annuity actuarial reserves and deposit liabilities (gross)...............     616,600
                                                                                   --------
  Less: reinsurance............................................................      78,551
                                                                                   --------
Total annuity actuarial reserves and deposit liabilities (net).................    $538,049
                                                                                   ========
</TABLE>
 
                                      F-40
<PAGE>   95
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
   
4. RESERVES, CONTINUED
    
     The amounts above are included in the statement of financial condition as
aggregate policy and claim reserves totalling $359,738 and separate account
liabilities totalling $178,311.
 
5. ACQUISITION
 
     On December 18, 1992, the Company entered into an agreement (the Agreement)
with an unaffiliated life insurance company (third party) which provided for the
acquisition of certain single premium deferred annuity contracts (the Policies)
in 1992 and 1993. On December 31, 1992, the Company entered a coinsurance
reinsurance agreement for specified Policies under the terms of the Agreement.
The third party transferred net cash to the Company totalling $51,547
representing the accumulated values of the Policies totalling $54,033 less
consideration paid by the Company of approximately $2,486.
 
     On January 31, 1993, the Company entered a second coinsurance agreement for
specified Policies under the terms of the Agreement. On February 1, 1993, the
third party transferred cash to the Company totalling $48,687 representing the
accumulated values of the Policies on January 31, 1993. Consideration is paid by
the Company on a monthly basis as defined in the Agreement for the life of the
policies in force. Under the terms of the Agreement, the Company assumed all
obligations and liabilities under the Policies through an assumption reinsurance
agreement as state approvals were obtained.
 
                                      F-41
<PAGE>   96
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
   
6. REINSURANCE
    
 
     The Company has assumed and ceded reinsurance on certain life, health and
annuity contracts under various agreements. The table below highlights the
amounts shown in the accompanying financial statements which are net of
reinsurance activity:
 
<TABLE>
<CAPTION>
                                                               CEDED TO     ASSUMED
                                                    GROSS        OTHER     FROM OTHER     NET
                                                    AMOUNT     COMPANIES   COMPANIES     AMOUNT
                                                  ----------   ---------   ----------   --------
<S>                                               <C>          <C>         <C>          <C>
DECEMBER 31, 1995
Life insurance in force.........................  $1,142,970   $923,876     $ 46,163    $265,257
                                                  ==========   ========      =======    ========
Premiums........................................  $  165,585   $ 27,815     $    153    $137,923
                                                  ==========   ========      =======    ========
Reserves........................................  $  456,145   $ 81,118     $  4,518    $379,545
                                                  ==========   ========      =======    ========
DECEMBER 31, 1994
Life insurance in force.........................  $  776,036   $471,735     $ 50,198    $354,499
                                                  ==========   ========      =======    ========
Premiums........................................  $  144,408   $ 20,151     $    126    $124,383
                                                  ==========   ========      =======    ========
Reserves........................................  $  415,301   $ 59,705     $  4,865    $360,461
                                                  ==========   ========      =======    ========
DECEMBER 31, 1993
Life insurance in force.........................  $  486,215   $209,795     $ 53,947    $330,367
                                                  ==========   ========      =======    ========
Premiums........................................  $   88,878   $  4,041     $    184    $ 85,021
                                                  ==========   ========      =======    ========
Reserves........................................  $  388,399   $ 44,804     $  5,207    $348,802
                                                  ==========   ========      =======    ========
</TABLE>
 
     The Company has a reinsurance contract with a third party to cede 65
percent (75 percent prior to July 1, 1992) of the premiums and reserves related
to its single premium deferred annuity (SPDA) product. Total premiums ceded and
reserve credits taken related to this treaty were $24,262 and $78,551,
respectively, at December 31, 1995, $16,572 and $57,631, respectively, at
December 31, 1994, and $3,965 and $44,320, respectively, at December 31, 1993.
 
     A coinsurance agreement exists between Provident Mutual and the Company
with respect to annuities. Prior to 1992, the agreement covered SPDA's issued
after 1984. The agreement was amended in 1992 to include single premium
immediate annuities and supplementary contracts. The Company retains full
statutory minimum reserves on all policies and supplementary contracts covered.
Pursuant to this agreement, the Company has taken no reserve credits at December
31, 1995, 1994 and 1993.
 
     Approximately $733,258, $235,712 and $133,489 of the Company's life
insurance in force is ceded to Provident Mutual under reinsurance agreements at
December 31, 1995, 1994 and 1993, respectively.
 
     The Company remains contingently liable with respect to ceded insurance
should any reinsurer be unable to meet its contractual obligations.
 
                                      F-42
<PAGE>   97
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
7. FEDERAL INCOME TAXES
 
     The Company files a consolidated Federal income tax return with Provident
Mutual. The tax liability is accrued on a separate company basis which includes
an allocation of an equity tax by Provident Mutual to the Company. In accordance
with statutory accounting practices, deferred taxes are not provided for timing
differences between pretax accounting income and taxable income.
 
The Federal income tax expense includes an equity tax expense with the following
components:
 
<TABLE>
<CAPTION>
                                                                  1995       1994       1993
                                                                 ------     ------     ------
<S>                                                              <C>        <C>        <C>
Current year equity tax......................................    $  625     $  550     $  420
True down of prior years' equity tax.........................        --       (333)      (371)
                                                                 ------     ------     ------
                                                                 $  625     $  217     $   49
                                                                 ======     ======     ======
</TABLE>
 
     The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
 
<TABLE>
<CAPTION>
                                                                  1995       1994       1993
                                                                 ------     ------     ------
<S>                                                              <C>        <C>        <C>
Federal income tax at statutory rate.........................    $1,922     $1,460     $1,300
  Equity tax expense.........................................       625        217         49
  Difference between tax and statutory reserves..............       666        354         (9)
  Bad debt deduction.........................................      (118)       (69)      (594)
  Other......................................................       496        123         76
                                                                 ------     ------     ------
Federal income tax expense...................................    $3,591     $2,085     $  822
                                                                 ======     ======     ======
</TABLE>
 
     Under current tax law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyowners designated "Policyholder Surplus" (the Account). The Tax Reform Act
of 1984 eliminated further additions to the Account as of December 31, 1983. The
aggregate accumulation at December 31, 1983 was $2,037. The Company has no
present plans to make any distributions which would subject the Account to
current taxation.
 
8. RELATED PARTY TRANSACTIONS
 
     Provident Mutual and its subsidiaries provided certain investment and
administrative services to the Company. In 1995, 1994 and 1993, PLACA paid
$9,238, $7,174 and $5,475, respectively, to Provident Mutual for these services.
 
     The contractual obligations under the Company's SPDA contracts in force and
issued before September 1, 1988 are guaranteed by Provident Mutual. Total SPDA
contracts affected by this guarantee in force at December 31, 1995 and 1994
approximated $117,169 and $134,097, respectively.
 
                                      F-43
<PAGE>   98
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
9. COMMITMENTS AND CONTINGENCIES
 
   Financial Instruments With Off-Balance-Sheet Risk
 
     The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its borrowers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include investment commitments related to its interest in
mortgage loans, marketable securities lending and interest rate futures
contracts. Those instruments involve, to varying degrees, elements of credit and
interest risk in excess of the amount recognized in the statements of financial
condition but which are not deemed to be material.
 
     At December 31, 1995, the Company had outstanding mortgage loan commitments
of approximately $2,586 expiring through April 1996. These commitments were
issued in late 1995 at interest rates consistent with rates applicable on
December 31, 1995. As a result, the fair value of these commitments approximates
the face amount.
 
     It is the Company's policy to use derivatives (exchange-traded or
over-the-counter financial instruments whose value is based upon or derived from
a specific underlying index or commodity) for the purpose of reducing exposure
to interest rate fluctuations, and not for income generation or speculative
purposes. Derivative options utilized by the Company are long and short
positions on United States Treasury notes and bond futures and certain interest
rate swaps.
 
     Derivative products are used for hedging existing bonds (including cash
reserves) against adverse price or interest rate movements and for fixing
liability costs at the time of product sales. During 1995, the Company closed
out hedge positions consisting of 20 treasury futures contracts with a dollar
value of $2,000. The approximate net gains generated from the hedge positions
were $22 for the year ended December 31, 1995. The Company had no hedging
activity during 1994 and 1993.
 
     Periodically the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must first provide
cash collateral prior to or at the inception of the loan. There were no
securities lending positions at December 31, 1995.
 
   Investment Portfolio Credit Risk
 
     Bonds
 
     The Company's bond investment portfolio is predominately comprised of
     investment grade securities. At December 31, 1995 and 1994 approximately
     $8,856 and $11,320, respectively, in debt security investments (2.5% and
     3.2%, respectively, of the total debt security portfolio) are considered
     "below investment grade". Securities are classified as "below investment
     grade" by utilizing rating criteria established by the NAIC. These criteria
     are not necessarily equivalent to the rating criteria employed by
     independent bond rating agencies.
 
                                      F-44
<PAGE>   99
 
- --------------------------------------------------------------------------------
   
Providentmutual Life and Annuity Company of America
    
Notes to Statutory Financial Statements -- continued
 
- --------------------------------------------------------------------------------
 
   
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
    
   
   Investment Portfolio Credit Risk, continued
    
   
     Bonds, continued
    
     The Company had debt security investments in the financial services
     industry at December 31, 1995 and in the utilities and financial services
     industries at December 31, 1994 that exceeded 5% of total assets.
 
   
     Mortgage Loans
    
 
     The Company originates mortgage loans either directly or through mortgage
     correspondents and brokers throughout the country. Loans are primarily
     related to underlying real property investments in office and apartment
     buildings and retail/commercial and industrial facilities. Mortgage loans
     are collateralized by the related properties and such collateral generally
     approximates a minimum of 133% of the original loan value at the time the
     loan is made.
 
     At December 31, 1995 and 1994, there were no delinquent mortgage loans
     (i.e., loans where payments on principal and/or interest are over 90 days
     past due).
 
     The Company had loans outstanding in Pennsylvania where principal balances
     in the aggregate exceeded 20% of the Company's surplus.
 
   Litigation and Unasserted Claims
 
     The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business and which, in the
opinion of management and legal counsel, will not have a material effect on the
Company's financial position.
 
     Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial position of
the Company. Guaranty fund assessments totalled $343, $293 and $144 in 1995,
1994 and 1993, respectively. Of those amounts, $285, $162 and $52 in 1995, 1994
and 1993, respectively, are creditable against future years' premium taxes.
 
                                      F-45


<PAGE>   100
 
                                     PART C
 
                               OTHER INFORMATION
 
Item 24.  Financial Statements and Exhibits
 
   
<TABLE>
     <S>   <C>    <C>   <C>
     (a)   Financial Statements
           All required financial statements are included in Part A and Part B of this
           Registration Statement.
     (b)   Exhibits
           (1)    (a)   Resolution of the Board of Directors of Provident Mutual Life Insurance
                        Company of Philadelphia authorizing establishment of the Provident Mutual
                        Variable Annuity Separate Account.1
                  (b)   Resolution of the Executive Committee of the Board of Directors of
                        Provident Mutual Life Insurance Company of Philadelphia authorizing
                        establishment of additional Subaccounts of the Provident Mutual Variable
                        Annuity Separate Account.5
           (2)    Not applicable.
           (3)    (a)   Form of Underwriting Agreement among Provident Mutual Life Insurance
                        Company of Philadelphia, PML Securities Company and the Provident Mutual
                        Variable Annuity Separate Account.1
                  (b)   Form of Selling Agreement between PML Securities Company and Equity
                        Services, Inc.2
           (4)    (a)   Flexible Premium Deferred Variable Annuity Contract (Forms PM512N (Non-
                        Qualified) and PM512Q (Qualified)).5
                  (b)   Qualified Plan Rider, IRA Rider, TSA Rider, Unisex Rider.1
           (5)    Form of Application
                  (a)   Application for Flexible Premium Deferred Variable Annuity (Form PMA10
                        9.93).
                  (b)   Suitability Statement.1
           (6)    (a)   Charter of Provident Mutual Life Insurance Company of Philadelphia.1
                  (b)   By-Laws of Provident Mutual Life Insurance Company of Philadelphia.1
           (7)    Not applicable.
           (8)    (a)   Participation Agreement by and among Market Street Fund, Inc., Provident
                        Mutual Life Insurance Company of Philadelphia and PML Securities
                        Company.1
                  (b)   Participation Agreement among Variable Insurance Products, Fidelity
                        Distributors Corporation and Provident Mutual Life Insurance Company of
                        Philadelphia.5
                  (c)   Participation Agreement among Variable Insurance Products Fund II,
                        Fidelity Distributors Corporation and Provident Mutual Life Insurance
                        Company of Philadelphia.5
                  (d)   Participation Agreement among Scudder Variable Life Investment Fund,
                        Provident Mutual Life Insurance Company of Philadelphia and
                        Providentmutual Life and Annuity Company of America.2
                  (e)   Reimbursement Agreement among Scudder, Stevens & Clark, Inc. and
                        Provident Mutual Life Insurance Company of Philadelphia and
                        Providentmutual Life and Annuity Company of America.2
</TABLE>
    
 
                                       C-1
<PAGE>   101
 
   
<TABLE>
     <S>   <C>    <C>   <C>
                  (f)   Participating Contract and Policy Agreement between Scudder Investor
                        Services, Inc. and PML Securities Company.3
                  (g)   Fund Participation Agreement between Provident Mutual Life Insurance
                        Company of Philadelphia and Dreyfus Variable Investment Fund.5
                  (h)   Participation Agreement by and among Quest for Value Accumulation Trust,
                        Provident Mutual Life Insurance Company of Philadelphia and Quest for
                        Value Distributors.5
                  (i)   Service Agreement between Providentmutual Life and Annuity Company of
                        America and Provident Mutual Life Insurance Company of Philadelphia.4
           (9)    Opinion and Consent of Counsel.4
           (10)   (a)   Consent of Counsel.
                  (b)   Consent of Counsel.
                  (b)   Consent of Independent Accountants.
                  (d)   Consent of Actuary.
           (11)   No financial statements will be omitted from Item 23.
           (12)   Not applicable.
           (13)   Schedule for computation of performance data.5
           (14)   Powers of Attorney.1
</TABLE>
    
 
- ---------------
 
1 Incorporated by reference to the Registration Statement by Provident Mutual
  Life Insurance Company of Philadelphia on Form N-4 (33-62588) filed on May 12,
  1993.
2 Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration
  Statement by Providentmutual Life and Annuity Company of America on Form N-4
  (33-65512) filed on September 16, 1993.
3 Incorporated by reference to the Registration Statement by Providentmutual
  Life and Annuity Company of America on Form N-4 (33-65512) filed on July 2,
  1993.
4 Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration
  Statement by Providentmutual Life and Annuity Company of America on Form N-4
  (33-44180) filed on March 17, 1992.
5 Incorporated by reference to the Registration Statement by Provident Mutual
  Life Insurance Company of Philadelphia on Form N-4 (33-70926) filed on April
  29, 1994.
 
Item 25.  Directors and Officers of the Depositor
 
<TABLE>
<CAPTION>
          NAME AND PRINCIPAL BUSINESS ADDRESS*              POSITION AND OFFICES WITH DEPOSITOR
- --------------------------------------------------------    -----------------------------------
<S>                                                         <C>
L. J. Rowell, Jr........................................    Chairman and CEO
Robert W. Kloss.........................................    President and COO
Dr. Dorothy M. Brown....................................    Director
  16 Meredith Road
  Wynnewood, PA 19096
Robert J. Casale........................................    Director
  Brokerage Ins. Svcs. Group
  2 Journal Square
  Jersey City, NJ 07306
Nicholas DeBenedictus...................................    Director
  Philadelphia Suburban Corp.
  762 Lancaster Avenue
  Bryn Mawr, PA 19010
</TABLE>
 
                                       C-2
<PAGE>   102
 
<TABLE>
<CAPTION>
          NAME AND PRINCIPAL BUSINESS ADDRESS*              POSITION AND OFFICES WITH DEPOSITOR
- --------------------------------------------------------    -----------------------------------
<S>                                                         <C>
</TABLE>
 
   
<TABLE>
<S>                                                         <C>
Dr. Claire M. Fagin.....................................    Director
  School of Nursing
  Nursing Education Bldg., Suite 304
  University of Pennsylvania
  Philadelphia, PA 19104
Philip C. Herr III......................................    Director
  Herr, Potts & Herr
  100 Matsonford Rd., Suite 446
  Radnor, PA 19087
J. Richard Jones........................................    Director
  Jackson Cross Co.
  100 North 20th Street
  Philadelphia, PA 19103
John A. Miller..........................................    Director
  1946 Montgomery Avenue
  Villanova, PA 19085
John P. Neafsey.........................................    Director
  765 Hollow Tree Ridge Road
  Darien, CT 06820
Charles L. Orr..........................................    Director
  Shaklee Corporation
  Shaklee Terrace
  444 Market Street
  San Francisco, CA 94111
William A. Pollard......................................    Director
  26 Main Street
  Essex, CT 06426
Donald A. Scott.........................................    Director
  2000 One Logan Square
  Philadelphia, PA 19103
John J. F. Sherrerd.....................................    Director
  One Tower Bridge
  West Conshohocken, PA 19428
Harold A. Sorgenti......................................    Director
  Mellon Center, Suite 3905
  1735 Market Street
  Philadelphia, PA 19103
William R. Wilson.......................................    Director
  Oaklands Business Parks, Inc.
  600 West Lincoln Highway
  Exton, PA 19341
Gerald B. Beam..........................................    Executive Vice President--
                                                            Individual Insurance Operations
Stanley R. Reber........................................    Executive Vice President--
                                                            and Chief Investment Officer
</TABLE>
    
 
                                       C-3
<PAGE>   103
 
<TABLE>
<CAPTION>
          NAME AND PRINCIPAL BUSINESS ADDRESS*              POSITION AND OFFICES WITH DEPOSITOR
- --------------------------------------------------------    -----------------------------------
<S>                                                         <C>
</TABLE>
 
   
<TABLE>
<S>                                                         <C>
John R. McClelland......................................    Executive Vice President
                                                            and Chief Financial Officer
Charlene Parsons........................................    Executive Vice President--Corporate
Mary Lynn Finelli.......................................    Vice President and Controller
Rosanne Gatta...........................................    Assistant Vice President and
                                                            Treasurer
William P. Loesche......................................    Counsel and Secretary
</TABLE>
    
 
- ---------------
 
   
* The principal business address for each officer and director is 1050 Westlakes
  Drive, Berwyn, PA 19312, unless otherwise indicated.
    
 
Item 26.  Persons Controlled by or Under Common Control With the Depositor or
Registrant
 
<TABLE>
<CAPTION>
                                                    PERCENT OF VOTING
             NAME               JURISDICTION         SECURITIES OWNED           PRINCIPAL BUSINESS
- ------------------------------  -------------    ------------------------    ------------------------
<S>                             <C>              <C>                         <C>
Provident Mutual                Pennsylvania     Mutual Company              Life & Health Insurance
  Life Insurance Company*
  (Provident Mutual)
</TABLE>
 
   
<TABLE>
<S>                             <C>              <C>                         <C>
Providentmutual Life and        Delaware         Ownership of all            Life & Health Insurance
  Annuity Company                                voting securities
  of America*
Provident Mutual International  Delaware         Ownership of all            Life & Health Insurance
  Life Insurance Company                         voting securities
                                                 by Provident Mutual
Providentmutual                 Pennsylvania     Ownership of all            Holding Company
  Holding Company (PHC)*                         voting securities
                                                 by Provident Mutual
1717 Capital Management         Pennsylvania     Ownership of all            Broker/Dealer
  Company*                                       voting securities by PHC
  (formerly, PML Securities
  Company)
Providentmutual Investment      Pennsylvania     Ownership of all            Investment Adviser
  Management Company*                            voting securities
                                                 by PHC
Washington Square               Pennsylvania     Ownership of all            Administrative Services
  Administrative Services,                       voting securities
  Inc.                                           by PHC
Institutional Concepts, Inc.*   Pennsylvania     Ownership of all            Insurance Agency
                                                 voting securities
                                                 by PHC
Provestco, Inc.*                Delaware         Ownership of all            Real Estate Investment
                                                 voting securities
                                                 by PHC
PNAM, Inc.*                     Delaware         Ownership of all            Holding Company
                                                 voting securities
                                                 by PHC
</TABLE>
    
 
                                       C-4
<PAGE>   104
 
<TABLE>
<CAPTION>
                                                    PERCENT OF VOTING
             NAME               JURISDICTION         SECURITIES OWNED           PRINCIPAL BUSINESS
- ------------------------------  -------------    ------------------------    ------------------------
<S>                             <C>              <C>                         <C>
</TABLE>
 
   
<TABLE>
<S>                             <C>              <C>                         <C>
Sigma American                  Delaware         Ownership of 80.2%          Investment Management
  Corporation*                                   voting securities by PHC    and Advisory Services
                                                 and 19.8% by Provident
                                                 Mutual
Provident Mutual                Delaware         Ownership of all            Investment Management
  Management Co., Inc.*                          voting securities           and Advisory Services
                                                 by Sigma American
                                                 Corporation
Software Development            Pennsylvania     Ownership of all            Development and
  Corporation*                                   voting securities           Marketing of Computer
                                                 by PHC                      Software
Market Street Fund, Inc.**      Maryland                                     Mutual Fund
</TABLE>
    
 
- ---------------
 
   
 * File Consolidated Financial Statements.
    
** File Separate Financial Statements.
 
Item 27.  Number of Policyowners
 
     As of December 31, 1995 there were a total of 4,950 individual flexible
premium deferred variable annuity contracts (File No. 33-70926) in
force -- 2,052 non-qualified and 2,898 qualified.
 
Item 28.  Indemnification
 
     The By-Laws of Provident Mutual Life Insurance Company provide, in part in
Article VIII, as follows:
 
                                  ARTICLE VIII
 
           INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
 
     Section 1. 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 have
                served at its request as a Director, officer, employee, member,
                fiduciary, trustee, or agent of another corporation,
                partnership, joint venture, trust or other enterprise or
                association, against the reasonable expenses, including
                attorney's fees, actually incurred in connection with the
                defense of any threatened, pending or completed action, suit or
                other proceeding whether civil, criminal, administrative or
                investigative to which any of them is made a party because of
                service as Director, officer, or employee of the Company or such
                other corporation, partnership, joint venture, trust or other
                enterprise or association, 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 judgment,
                penalty, damage, settlement amount, excise tax assessed with
                respect to an employee benefit plan or fine in any such action,
                suit or other proceeding, including one by or in the right of
                the Company, a class of members or otherwise; except expenses
                incurred in defense of or amount paid in connection with any
                action, suit or other proceeding in which such Director,
                officer, or employee shall be adjudged to be liable for willful
                misconduct, or recklessness in the performance of his or her
                duty. The termination of any such action, suit or other
                proceeding by judgment, order, settlement, conviction or upon a
                plea of nolo contendere shall not itself be deemed an
                adjudication of willful misconduct or recklessness.
 
     Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such
 
                                       C-5
<PAGE>   105
 
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a 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 such action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the 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.
 
Item 29.  Principal Underwriter
 
   
     (a) 1717 Capital Management Company ("1717") (formerly PML Securities
Company) is the principal underwriter of the Contracts as defined in the
investment Company of 1940. 1717 is also principal underwriter for the Fund and
the variable life separate accounts of Provident Mutual and the Providentmutual
Variable Annuity Separate Account.
    
 
     (b) The following information is furnished with respect to the officers and
directors of 1717:
 
   
<TABLE>
<CAPTION>
  NAME AND PRINCIPAL       POSITIONS AND OFFICES              POSITIONS AND OFFICES
   BUSINESS ADDRESS*             WITH PML                        WITH REGISTRANT
- -----------------------  -------------------------  ------------------------------------------
<S>                      <C>                        <C>
L.J. Rowell, Jr.**.....  Director                   Chairman and CEO
Robert W. Kloss**......  Director                   President and COO
Gerald B. Beam**.......  Director                   Executive Vice President -- Individual
                                                    Insurance Operations
John R. McClelland**...  Director                   Executive Vice President and
                                                    Chief Financial Officer
Charlene Parsons**.....  Director                   Executive Vice President -- Corporate
Stanley R. Reber**.....  Director                   Executive Vice President and
                                                    Chief Investment Officer
Lance A. Reihl.........  President                  None
Louis A. Aviola, Jr....  Vice President & Manager   None
                         of Operations
Mary Lynn Finelli**....  Financial Reporting        Vice President & Controller
                         Officer
Anthony
  Mastrangelo**........  Financial Officer          None
Linda E. Senker**......  Legal Officer              Senior Associate General Counsel
Rosanne Gatta**........  Treasurer                  Assistant Vice President and Treasurer
W. Price Loesche**.....  Assistant Secretary        Counsel and Secretary
Anthony Giampetro**....  Assistant Treasurer        Assistant Treasurer
</TABLE>
    
 
- ---------------
 * Unless otherwise indicated, principal business address is Christiana
   Executive Campus, P.O. Box 15626, Wilmington, DE 19850.
** Principal business address is 1050 Westlakes Drive, Berwyn, PA 19312.
 
   Item 30.  Location of Accounts and Records
 
     All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Provident Mutual Life Insurance Company at 300 Continental Drive, Newark, DE
19713 or at 1050 Westlakes Drive, Berwyn, PA 19312.
 
Item 31.  Management Services
 
     All management contracts are discussed in Part A or Part B.
 
                                       C-6
<PAGE>   106
 
Item 32.  Undertakings
 
     (a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payments under the variable annuity contracts may
be accepted.
 
     (b) Registrant hereby undertakes to include either (1) as part of any
application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information; and
 
     (c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
 
     (d) Reliance on No-Action Letter Regarding Section 403(b) Retirement Plan.
Provident Mutual and the Variable Account rely on a no-action letter issued by
the Division of Investment Management to the American Council of Life Insurance
on November 28, 1988 and represent that the conditions enumerated therein have
been or will be complied with.
 
                                       C-7
<PAGE>   107
 
                                   SIGNATURES
 
   
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AND THE
INVESTMENT COMPANY ACT OF 1940 THE REGISTRANT, PROVIDENT MUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT CERTIFIES THAT IT MEETS ALL THE REQUIREMENTS FOR EFFECTIVENESS
OF THIS POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES
ACT OF 1933 AND, HAS CAUSED THIS POST-EFFECTIVE AMENDMENT TO REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF, IN THE CITY OF PHILADELPHIA, COMMONWEALTH
OF PENNSYLVANIA ON THIS  DAY OF APRIL, 1996.
    
 
                                            PROVIDENT MUTUAL VARIABLE ANNUITY
                                              SEPARATE ACCOUNT (REGISTRANT)
 
<TABLE>
<S>                                             <C>
Attest:           /s/  LINDA E.                 By:             /s/  L. J. ROWELL,
  SENKER                                        JR. L. J. ROWELL, JR.
                                                    Chairman and CEO
</TABLE>
 
                                            By: PROVIDENT MUTUAL LIFE INSURANCE
                                                COMPANY (DEPOSITOR)
 
<TABLE>
<S>                                             <C>
Attest:           /s/  LINDA E.                 By:             /s/  L. J. ROWELL,
  SENKER                                        JR. L. J. ROWELL, JR.
                                                    Chairman and CEO
</TABLE>
 
     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATE INDICATED.
 
<TABLE>
<CAPTION>
                SIGNATURES                                 TITLE                      DATE
- -------------------------------------------    ------------------------------    ---------------
<C>                                            <S>                               <C>
                  /s/  L. J. ROWELL,           Chairman of the Board and         April   , 1996
                     JR.                         Chief Executive Officer
- -------------------------------------------      (Principal Executive
             L. J. ROWELL, JR.                   Officer)
              /s/  JOHN R. MCCLELLAND          Executive Vice President and      April   , 1996
- -------------------------------------------      Chief Financial Officer
            JOHN R. MCCLELLAND                   (Principal Financial
                                                 Officer)
               /s/  MARY LYNN FINELLI          Vice President and Controller     April   , 1996
- -------------------------------------------      (Principal Accounting
             MARY LYNN FINELLI                   Officer)
             DOROTHY M. BROWN*                 Director                          April   , 1996
             ROBERT J. CASALE*                 Director                          April   , 1996
           NICOLAS DEBENEDICTUS*               Director                          April   , 1996
</TABLE>
 
                                       C-8
<PAGE>   108
 
<TABLE>
<CAPTION>
                SIGNATURES                                 TITLE                      DATE
- -------------------------------------------    ------------------------------    ---------------
<C>                                            <S>                               <C>
             CLAIRE M. FAGIN*                  Director                          April   , 1996
              PHILIP C. HERR*                  Director                          April   , 1996
             J. RICHARD JONES*                 Director                          April   , 1996
             ROBERT W. KLOSS*                  Director                          April   , 1996
              JOHN A. MILLER*                  Director                          April   , 1996
             JOHN P. NEAFSEY*                  Director                          April   , 1996
              CHARLES L. ORR*                  Director                          April   , 1996
            WILLIAM A. POLLARD                 Director                          april   , 1996
             DONALD A. SCOTT*                  Director                          April   , 1996
           JOHN J. F. SHERRERD*                Director                          April   , 1996
            HAROLD A. SORGENTI*                Director                          April   , 1996
            WILLIAM R. WILSON*                 Director                          April   , 1996
</TABLE>
 
*By:        /s/  LINDA E. SENKER
 
     -------------------------------------
                LINDA E. SENKER
               Attorney-in-fact,
         Pursuant to Power of Attorney
 
                                       C-9

<PAGE>   1
                                                                   EXHIBIT 10(a)


                   [SUTHERLAND, ASBILL & BRENNAN LETTERHEAD]


                                           April 29, 1996



Provident Mutual Life Insurance
  Company of Philadelphia
Provident Mutual Variable Annuity
  Separate Account
1600 Market Street
Philadelphia, Pennsylvania  19103

Gentlemen:

        We hereby consent to the reference of our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 3 to the Registration Statement on Form N-4 filed
by Provident Mutual Life Insurance Company of Philadelphia and Provident Mutual
Variable Annuity Separate Account for certain individual flexible premium
deferred annuity contracts (File No. 33-70926). In giving this consent, we do
not admit that we are in the category of persons whose consent is required
under Section 7 of the Securities Act of 1933.

                                           Very truly yours,

                                           SUTHERLAND, ASBILL & BRENNAN



                                           By: /s/
                                               ---------------------------------
                                               Stephen E. Roth


<PAGE>   1
                                                        EXHIBIT 10(b)



                                                    April 19, 1996



Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713



Gentlemen:

I hereby consent to the use of my name in the Prospectus under the heading
"Legal Matters" filed as part of the Post-Effective Amendment No. 3 on Form N-4
(File No. 33-65512) for the Providentmutual Variable Annuity Separate Account.

                                                    Sincerely,



                                                    Linda E. Senker
                                                    Legal Officer

LES/ja

<PAGE>   1
                                                        EXHIBIT 10(c)




                       CONSENT OF INDEPENDENT ACCOUNTANTS


     We hereby consent to the inclusion, in this Post-Effective Amendment No. 3
to the Registration Statement under the Securities Act of 1933, as amended,
filed on Form N-4 (File No. 33-65512) for the Providentmutual Variable Annuity
Separate Account, of the following reports:

1.  Our report dated February 6, 1996 on our audits of the financial statements
of Providentmutual Life and Annuity Company of America as of December 31, 1995
and 1994 and for each of the three years in the period ended December 31,
1995.

2.   Our report dated February 14, 1996 on our audits of the financial
statements of the Providentmutual Variable Annuity Separate Account (comprising
the twenty-three Subaccounts) as of December 31, 1995, and the related
statements of operations for the year then ended and the statements of changes
in net assets for each of the two years in the period then ended.

     We also consent to the reference to our Firm under the caption "Experts".



/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
April 24, 1996

<PAGE>   1
                                                        EXHIBIT 10(d)


                                                    April 19, 1996



Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713



Gentlemen:

I hereby consent to the use of my name in the Prospectus under the heading
"Experts" filed as part of the Post-Effective Amendment No. 3 on Form N-4 (File
No. 33-65512) for the Providentmutual Variable Annuity Separate Account.

                                                    Sincerely,



                                                    Scott V. Carney, FSA, MAAA
                                                    Actuary

SVC/LES/ja






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