<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996
FILE NO. 33-65195
811-
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 / /
AMENDMENT NO. 1 /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
---------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: As soon as practicable after
the effective date of the Registration Statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF SECURITIES BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------
Interest in Individual Flexible Premium
Deferred Variable Annuity Contracts Indefinite* Indefinite* N/A $500.00
- - ----------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------
</TABLE>
* Pursuant to Rule 24-f of the Investment Company Act of 1940, the Registrant
elects to register an indefinite amount of the Securities being offered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE> 2
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
[LOGO]
OPTIONS VIP
Prospectus For
Flexible Premium Deferred
Variable Annuity Contract
Issued by
Providentmutual Life and
Annuity Company of America
FORM PL538 6.96
<PAGE> 6
- - --------------------------------------------------------------------------------
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 ("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 (the "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 (the
"Funds"). The Funds available under the Contract are: Market Street Fund, Inc.;
The Alger American Fund; Neuberger & Berman Advisers Management Trust; TCI
Portfolios, Inc.; and Van Eck Worldwide Insurance Trust. 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 38 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 , 1996.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions........................................................................... 1
Table of Expenses..................................................................... 2
Summary............................................................................... 6
Condensed Financial Information....................................................... 8
The Company, Variable Account and Funds............................................... 9
Providentmutual Life and Annuity Company of America.............................. 9
The Providentmutual Variable Annuity Separate Account............................ 10
The Funds........................................................................ 10
The Market Street Fund, Inc. ............................................... 11
The Alger American Fund..................................................... 11
Neuberger & Berman Advisers Management Trust................................ 13
TCI Portfolios, Inc. ....................................................... 14
Van Eck Worldwide Insurance Trust........................................... 14
Resolving Material Conflicts................................................ 15
Addition, Deletion or Substitution of Investments........................... 16
Description of Annuity Contract....................................................... 16
Issuance of a Contract........................................................... 16
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............................................... 21
Proceeds on Maturity Date........................................................ 22
Payments......................................................................... 23
Modification..................................................................... 23
Reports to Contract Owners....................................................... 23
Contract Inquiries............................................................... 23
The Guaranteed Account................................................................ 23
Minimum Guaranteed and Current Interest Rates.................................... 24
Transfers from Guaranteed Account................................................ 24
Payment Deferral................................................................. 25
Charges and Deductions................................................................ 25
Surrender Charge (Contingent Deferred Sales Charge).............................. 25
Administrative Charges........................................................... 26
Transfer Processing Fee.......................................................... 26
Mortality and Expense Risk Charge................................................ 26
Other Charges Including Investment Advisory Fees of the Funds.................... 27
Premium Taxes.................................................................... 27
Other Taxes...................................................................... 27
Payment Options....................................................................... 27
Election of Options.............................................................. 28
Description of Options........................................................... 28
Yields and Total Returns.............................................................. 28
Federal Tax Status.................................................................... 30
Introduction..................................................................... 30
Tax Status of the Contract....................................................... 30
Taxation of Annuities............................................................ 31
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Transfers, Assignments or Exchanges of a Contract................................ 33
Withholding...................................................................... 33
Multiple Contracts............................................................... 33
Taxation of Qualified Plans...................................................... 33
Possible Charge for Providentmutual's Taxes...................................... 34
Other Tax Consequences........................................................... 35
Distribution of Contracts............................................................. 35
Legal Proceedings..................................................................... 35
Voting Rights......................................................................... 35
Financial Statements.................................................................. 36
Statements of Additional Information Table of Contents................................ 37
</TABLE>
ii
<PAGE> 9
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> 10
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)......... 7%
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>
SMALL
CAPITALIZATION
PORTFOLIO
---------------
<S> <C>
ALGER AMERICAN FUND(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.85%
Other Expenses
(after any expense
reimbursement)(4).................... 0.07%
------
Total Fund Expenses.................... 0.92%
</TABLE>
<TABLE>
<CAPTION>
HIGH EQUITY-
INCOME INCOME GROWTH OVERSEES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- ------------- ----------
<S> <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% 0.76%
Other Expenses
(after any expense
reimbursement)(3).................... 0.11% 0.09% 0.09% 0.15%
------ -------- ------ -----
Total Fund Annual Expenses............. 0.71% 0.61% 0.70% 0.91%
</TABLE>
2
<PAGE> 11
<TABLE>
<CAPTION>
ASSET INDEX INVESTMENT
MANAGER 500 GRADE BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- ------------- ----------
<S> <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% 0.45% 0.61%
Other Expenses
(after any expense
reimbursement)(3).................... 0.08% 0.28% 0.14% 0.11%
----- ----- -----
Total Fund Annual Expenses............. 0.79% 0.28% 0.59% 0.72%
</TABLE>
<TABLE>
<CAPTION>
LIMITED
BALANCED GROWTH MATURITY BOND
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- -------------
<S> <C> <C> <C>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.55% 0.54% 0.25%
Other Expenses
(after any expense
reimbursement)(3).................... 0.39% 0.35% 0.47%
------ -------- ------
Total Fund Annual Expenses............. 0.94% 0.89% 0.72%
</TABLE>
<TABLE>
<CAPTION>
GROWTH
PORTFOLIO
---------------
<S> <C>
TCI PORTFOLIOS, INC.
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 1.00%
Other Expenses
(after any expense
reimbursement)(3).................... 0.00%
------
Total Fund Annual Expenses............. 1.00%
</TABLE>
<TABLE>
<CAPTION>
GOLD AND WORLDWIDE
WORLDWIDE NATURAL EMERGING
BOND RESOURCES MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO
--------------- -------- -------------
<S> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 1.00% 1.00% 1.00%
Other Expenses
(after any expense
reimbursement)(4).................... 0.23% 0.21% 0.50%
------ -------- ------
Total Fund Annual Expenses............. 1.23% 1.21% 1.50%
</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
3
<PAGE> 12
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 25.
- - ---------------
(1) A surrender charge is deducted only if a withdrawal or surrender occurs
during the first seven Contract Years; no surrender charge is deducted
for a withdrawal or surrender in Contract Years eight and later. For
the first Contract Year, the maximum charge is 7% of the amount
withdrawn or surrendered. Thereafter, the surrender charge decreases by
1% each subsequent Contract Year until it is zero in Contract Year
eight. The maximum total surrender charge will not exceed 81/2% 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 25.)
(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 and
0.81% for the Fidelity Asset Manager 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 1994 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.
(4) The fee and expense information regarding the Funds was provided by
those Funds. The Alger American Fund, the Variable Insurance Products
Fund, the Variable Insurance Products Fund II, Neuberger & Berman
Advisers Management Trust, TCI Portfolios, Inc. and Van Eck Worldwide
Insurance Trust are not affiliated with Providentmutual. While
Providentmutual has no reason to doubt the accuracy of these figures
provided by these non-affiliated Funds, Providentmutual has not
independently verified such information.
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..................................... $77.83 $107.55 $137.84 $251.49
MS Money Market............................... 76.64 103.90 131.59 238.59
MS Bond....................................... 77.63 106.94 136.80 249.35
MS Managed.................................... 78.22 108.76 139.91 255.76
MS Aggressive Growth.......................... 79.31 112.10 145.59 267.40
MS International.............................. 83.05 123.56 165.03 306.64
Alger American Small Cap...................... 82.75 122.66 163.50 303.60
Fidelity High Income.......................... 80.68 116.33 152.79 282.03
Fidelity Equity Income........................ 79.70 113.31 147.66 271.60
Fidelity Growth............................... 80.59 116.03 152.28 281.00
Fidelity Asset Manager........................ 81.47 118.74 156.88 290.30
Fidelity Contrafund........................... 80.78 116.63 153.30 283.07
Fidelity Index 500............................ 76.45 103.29 130.55 236.42
Fidelity Investment Grade Bond................ 79.50 112.70 146.63 269.50
Fidelity Overseas............................. 82.86 122.36 163.00 302.58
Neuberger & Berman Balanced................... 82.95 123.26 164.52 305.63
</TABLE>
4
<PAGE> 13
<TABLE>
<CAPTION>
10
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS YEARS
---------------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
Neuberger & German Growth..................... $82.46 $121.76 $161.98 $300.55
Neuberger & Berman Ltd. Mat. Bond............. 80.78 116.63 153.30 283.07
Investors Research Growth..................... 83.54 125.06 167.56 311.69
Van Eck Worldwide Bond........................ 85.81 131.95 179.14 334.60
Van Eck Gold & Nat. Resources................. 85.61 131.35 178.14 332.63
Van Eck WW Emerging Markets 88.47 139.99 192.59 360.81
</TABLE>
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
Alger American Small Cap....................... 27.40 84.07 143.33 303.60
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
Fidelity Investment Grade Bond................. 23.94 73.70 126.10 269.50
Fidelity Overseas.............................. 27.29 83.75 142.81 302.58
Neuberger & Berman Balanced.................... 27.61 84.69 144.36 305.63
Neuberger & Berman Growth...................... 27.08 83.13 141.77 300.55
Neuberger & Berman Ltd. Mat. Bond.............. 25.30 77.79 132.91 283.07
Investors Research Growth...................... 28.24 86.57 147.47 311.69
Van Eck Worldwide Bond......................... 30.65 93.74 159.29 334.60
Van Eck Gold & Nat. Resources.................. 30.44 93.11 158.27 332.63
Van Eck WW Emerging Markets.................... 33.48 102.11 173.02 360.81
</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 $40 (maximum guaranteed charge) and that the Contract
Account Value per contract is $10,000, which translates the Administration Fee
into an assumed .40% 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.
5
<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 PML
Securities Company ("PML") or a broker/dealer having a selling agreement with
PML 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 16.)
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 minimum amount transferred each time is specified in the Contract
Schedule, or the entire amount in the Subaccount may be transferred, if less
than the specified amount. 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.
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 Contract and receive its Cash Surrender Value (Contract Account
Value less any applicable Surrender Charge). (See "Surrender," Page 20.)
6
<PAGE> 15
Death Benefit. If the Annuitant dies before the Maturity Date, the
Beneficiary will receive a death benefit. During the first seven 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 seventh Contract Year, the death benefit will be equal to
the greatest of:
1. the Contract Account Value as of the end of the seventh Contract Year
plus subsequent premiums paid and 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).
Death Benefit Rider. If so elected by the Owner according to the terms of
the Contract rider, during each Contract Year after the first Contract
Anniversary, through (and including) the Contract Anniversary immediately
following the Annuitant's 75th birthday, the death benefit will equal the
greater of:
1. the Contract Account Value on the date of receipt of due proof of
death; or
2. the multiplication of 1.05 and the sum of the guaranteed death
benefit as of the previous Contract anniversary plus the premiums
paid during the previous Contract Year, less any withdrawals
(including applicable Surrender Charges) made during the previous
Contract Year.
During each Contract Year after the Contract Anniversary immediately
following the Annuitant's 75th birthday, the death benefit will equal the
greater of:
1. the Contract Account Value on the date of receipt of due proof of
death; or
2. the guaranteed death benefit as of the immediately preceding Contract
Anniversary plus the premiums paid during the previous Contract Year,
less any withdrawals including applicable Surrender Charges.
A charge will be imposed for this rider.
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 21.)
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 7% 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 25.)
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 26.)
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 26.)
7
<PAGE> 16
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 26.)
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 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 27.)
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 27
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. Payment Options are fixed, which means that each option
has a fixed and guaranteed amount to be paid during the annuity period. 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 27.)
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 30.
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.
8
<PAGE> 17
The table below sets forth certain information regarding the Subaccounts as
of December 1995.
<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
Alger Small Cap............................. -- -- -- --
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
Fidelity Inv. Grade Bond.................... -- -- -- --
Fidelity Overseas........................... -- -- -- --
Neuberger Balance........................... -- -- -- --
Neuberger Growth............................ -- -- -- --
Neuberger Limited Maturity Bond............. -- -- -- --
TCI Growth.................................. -- -- -- --
Van Eck Global Bond......................... -- -- -- --
Van Eck Gold & Nat Res...................... -- -- -- --
Van Eck Worldwide Emerging Mkts. ........... -- -- -- --
</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.
9
<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 thirty-three Subaccounts twenty-two of
which are available under the Contracts: Growth; Money Market; Bond; Managed;
Aggressive Growth; International; Alger Small Cap; Fidelity High Income;
Fidelity Equity-Income; Fidelity Growth; Fidelity Asset Manager; Fidelity
Contrafund; Fidelity Index 500; Fidelity Overseas; Fidelity Investment Grade
Bond; Neuberger & Berman Growth; Neuberger & Berman Limited Maturity Bond;
Neuberger & Berman Balanced; TCI Growth; Van Eck Global Bond; Van Eck Gold;
Natural Resources; and Van Eck Worldwide Emerging Markets. 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 ten series-type
mutual funds six of which are available under the Contracts: Market Street Fund,
Inc.; Alger American Fund; Variable Insurance Products Fund; Variable Insurance
Products Fund II; Advisers Management Trust; TCI Portfolios, Inc. and Van Eck
Investment Trust (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
10
<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. 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. 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. 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
Money Market, Bond, Managed, and Aggressive Growth Portfolios are advised by
Sentinel Advisors Company; and the International Portfolio is 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.
THE ALGER AMERICAN FUND
The Alger American Small Capitalization Subaccount of the Variable Account
invests in shares of the Alger American Small Capitalization Portfolio of The
Alger American Fund ("Alger American"). (Alger American has other investment
portfolios that are not offered to the Variable Account or under the Policies.)
Shares of the Alger American Small Capitalization Portfolio are purchased and
redeemed by the Variable Account at net asset value without a sales charge. The
Variable Account purchases shares of Alger American
11
<PAGE> 20
Small Capitalization Portfolio from Alger American in accordance with a
participation agreement between Alger American and PMLIC. The termination
provisions of this participation agreement is described below.
Alger American Small Capitalization Portfolio seeks long-term capital
appreciation by focusing on small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding marketplace.
The investment adviser for the Alger American Small Capitalization
Portfolio is Fred Alger Management, Inc. ("Alger Management") which is
registered with the SEC as an investment advisor under the Investment Advisors
Act of 1940. As compensation for its services, Alger Management receives a fee
at the end of each month at an annual rate of .85% of the average net assets of
the Alger American Small Capitalization Portfolio.
A more extensive description of Alger American and the Alger American Small
Capitalization Portfolio, including the Portfolio's investment objectives and
policies, risks, expenses and other aspects of its operations are contained in
the Prospectus for Alger American which accompanies this Prospectus.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Equity-Income Subaccount, Fidelity Growth Subaccount, Fidelity
High Income Subaccount and Fidelity Overseas Subaccount of the Variable Account
invest in shares of the Equity-Income Portfolio, Growth Portfolio, High Income
Portfolio and Overseas Portfolio, respectively, of the VIP Fund. The Fidelity
Asset Manager Subaccount, Fidelity Contrafund Subaccount, Fidelity Index 500
Subaccount and Fidelity Investment Grade Bond Subaccount of the Variable Account
invest in shares of the Asset Manager Portfolio, Contrafund Portfolio, Index 500
Portfolio and Investment Grade Bond Portfolio, respectively, of the VIP Fund II.
(The VIP Fund and VIP Fund II have other investment Portfolios that are not
offered to the Variable Account or under the Policies.) Shares of these
Portfolios are purchased and redeemed by the Variable Account at net asset value
without a sales charge. The Variable Account purchases shares of the Portfolios
from the VIP Fund and the VIP Fund II in accordance with a participation
agreement between each Fund and PMLIC. The termination provisions of these
participation agreements are described below.
The investment objectives of the Portfolios of the VIP Fund and the VIP
Fund II in which the Subaccounts invest are set forth below. The investment
experience of each Subaccount depends upon the investment performance of the
corresponding Portfolio. There is no assurance that any Portfolio will achieve
its stated objective.
VIP Fund
Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
Growth Portfolio. This Portfolio seeks to achieve capital appreciation.
The Growth Portfolio normally purchases common stocks, although its investments
are not restricted to any one type of security. Capital appreciation may also be
found in other types of securities, including bonds and preferred stocks.
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.
Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
VIP Fund II
Asset Manager Portfolio. This Portfolio seeks to obtain high total return
with reduced risk over the long-term by allocating its assets among stocks,
bonds and short-term fixed-income instruments.
12
<PAGE> 21
Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in companies believed to be undervalued due to an overly pessimistic
appraisal by the public.
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 Index 500 Portfolio attempts to duplicate the composition
and total return of the Standard and Poor's 500 Composite Stock Price Index
while keeping transaction costs and other expenses low. The Portfolio is
designed as a long-term investment option.
Investment Grade Bond Portfolio. This Portfolio seeks as high a level of
current income as is consistent with the preservation of capital by investing in
a broad range of investment-grade fixed-income securities. The Portfolio will
maintain a dollar-weighted average portfolio maturity of ten years or less.
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.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The Neuberger & Berman Balanced Subaccount, Neuberger & Berman Growth
Subaccount and Neuberger & Berman Limited Maturity Bond Subaccount of the
Variable Account invest in shares of the Balanced Portfolio, Growth Portfolio
and Limited Maturity Bond Portfolio, respectively, of the Neuberger & Berman
Advisers Management Trust ("AMT"). (AMT has other investment portfolios that are
not offered to the Variable Account or under the Policies.) Shares of these
Portfolios are purchased and redeemed by the Variable Account at net asset value
without a sales charge. The Variable Account purchases shares of the Portfolios
from AMT in accordance with a participation agreement between AMT and PMLIC. The
termination provisions of these participation agreements are described below.
Each Portfolio of AMT invests all of its net investable assets in its
corresponding Series (each, a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. Each Series invests in
securities in accordance with an investment objective, policies and limitations
identical to those of its corresponding Portfolio. This "master/feeder fund"
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. For more
information regarding this structure, see the prospectus for AMT.
In that the investment objective of each Portfolio matches that of its
corresponding Series, the following describes the investment objective of each
Series underlying the Portfolio of AMT in which the Subaccounts will invest. The
investment experience of each Subaccount depends upon the investment performance
of its corresponding Portfolio. There is no assurance that any Portfolio will
achieve its stated objective.
Balanced Portfolio. The Series corresponding to this Portfolio seeks
long-term capital growth and reasonable current income without undue risk to
principal through investment of a portion of its assets in common stocks and a
portion of its assets in debt securities.
13
<PAGE> 22
Growth Portfolio. The Series corresponding to this Portfolio seeks capital
appreciation without regard to income through investments in common stocks of
companies that the investment adviser believes will have the maximum potential
for long-term capital appreciation.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity through investment in a diversified portfolio of fixed and
variable debt securities with a short to intermediate term.
The Investment Adviser for the Series of Managers Trust corresponding to
the Balanced, Growth and Limited Maturity Bond Portfolios of AMT is Neuberger &
Berman Management, Incorporated. The Investment Adviser retains Neuberger &
Berman, without cost to AMT, as sub-adviser to furnish it with investment
recommendations and research information.
TCI PORTFOLIOS, INC.
The TCI Growth Subaccount of the Variable Account invests in shares of the
TCI Growth Portfolio of the TCI Portfolios, Inc. ("TCI"). (TCI has other
investment portfolios that are not offered to the Variable Account or under the
Contracts.) Shares of the TCI Growth Portfolio are purchased and redeemed by the
Variable Account at net asset value without a sales charge. The Variable Account
purchases shares of TCI Growth Portfolio from TCI in accordance with a
participation agreement between TCI and Providentmutual. The termination
provisions of these participation agreements are described below.
TCI Growth Portfolio seeks capital growth by investing primarily in common
stocks that are considered by management to have better-than-average prospects
for appreciation. There is no assurance that TCI Growth Portfolio will achieve
its stated objective.
The investment adviser for the TCI Growth Portfolio is Investors Research
Corporation ("Investors Research"). As compensation for its services, Investors
Research receives a fee at the end of each month at an annual rate of 1% of the
average net assets of the TCI Growth Portfolio.
VAN ECK INVESTMENT TRUST
The Van Eck Global Bond Subaccount, the Van Eck Gold and Natural Resources
Subaccount and the Van Eck Worldwide Emerging Markets Subaccount of the Variable
Account invest in shares of the Van Eck Worldwide Bond Portfolio, the Van Eck
Gold and Natural Resources Portfolio and the Van Eck Worldwide Emerging Markets
Portfolio, respectively, of the Van Eck Worldwide Insurance Trust ("Van Eck
Trust"). Shares of the Van Eck Worldwide Bond Portfolio, the Gold and Natural
Resources Portfolio and Worldwide Emerging Markets Portfolio are purchased and
redeemed by the Variable Account at net asset value without a sales charge. The
Variable Account purchases shares of the Portfolio from Van Eck Trust in
accordance with a participation agreement between the Trust and Providentmutual.
The termination provisions of this participation agreement are described below.
The investment objectives of the Portfolios of Van Eck Trust are set forth
below. The investment experience of each Subaccount depends upon the investment
performance of its corresponding Portfolio. There is no assurance that these
Portfolios will achieve their stated objectives.
Van Eck Gold and Natural Resources Portfolio seeks long-term appreciation
by investing in equity and debt securities of companies engaged in the
exploration, development, production and distribution of gold and other natural
resources such as strategic and other metals, minerals, forest products, oil,
natural gas and coal. Current income is not an investment objective.
Van Eck Worldwide Bond Portfolio seeks high total return through a flexible
policy of investing globally, primarily in debt securities. Total return is
comprised of current income and capital appreciation. The Portfolio attempts to
achieve its investment objective by taking advantage of investment opportunities
in the United States as well as in other countries throughout the world where
opportunities may be more rewarding and may emphasize either component of total
return.
14
<PAGE> 23
Van Eck Worldwide Emerging Markets Portfolio seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
The investment adviser for the Van Eck Worldwide Bond Portfolio, the Gold
and Natural Resources Portfolio and the Worldwide Emerging Markets Portfolio is
Van Eck Associates Corporation ("Van Eck Associates"). Peregrine Asset
Management (Hong Kong) Limited ("PAM") serves as sub-investment adviser to the
Worldwide Emerging Markets Portfolio pursuant to a sub-investment advisory
agreement with Van Eck Associates. As compensation for its services, PAM is paid
a monthly fee at an annual rate of 0.50% of average daily net assets by Van Eck
Associates from the advisory fees it receives from Van Eck Trust with respect to
this Portfolio.
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,
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 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.
Providentmutual has entered into agreements with the investment advisers of
several of the Funds pursuant to which each such investment adviser will pay
Providentmutual a servicing fee based upon an annual percentage of the average
aggregate net assets invested by Providentmutual on behalf of the Variable
Account. These agreements reflect administrative services provided to the Funds
by Providentmutual. Payments of such amounts by an adviser will not increase the
fees paid by the Funds or their shareholders.
RESOLVING MATERIAL CONFLICTS
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. Alger, AMT, TCI and Van Eck Trust are used as investment
vehicles for variable life insurance policies issued by PMLIC and
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.
In addition, certain funds may sell shares to certain retirement plans
qualifying under Section 401 of the Code (including cash or deferred
arrangements under Section 401(k) of the Code). As a result, there is a
possibility that a material conflict may arise between the interests of Owners
of policies generally, or certain classes of Owners, and such retirement plans
or participants in such retirement plans.
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
15
<PAGE> 24
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.
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 PML Securities Company ("PML") or a
broker-dealer having a selling agreement with PML 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.
16
<PAGE> 25
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 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.
17
<PAGE> 26
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 $500. The Unit Value for a Subaccount is calculated
for each subsequent Valuation Period by multiplying the Unit 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.
18
<PAGE> 27
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 may, at
Providentmutual's discretion, 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 24).
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 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 a designated
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 designated 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 designated Subaccount each month. The amount required to be allocated
to the designated Subaccount can be made an initial or subsequent investment or
by transferring amounts into the designated Subaccount from the other
Subaccounts or from the Guaranteed Account (which may be subject to certain
restrictions) (See. "Transfers from Guaranteed Account," Page 24.)
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 designated 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 designated Subaccount will be processed
monthly until the number of designated transfers have been completed, or the
value of the designated Subaccount is completely depleted, or the Owner
instructs Providentmutual in writing to cancel the monthly transfers.
Providentmutual reserves the right to discontinue offering automatic
transfers upon 30 days' written notice to the Owner.
19
<PAGE> 28
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 25.)
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 31.)
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
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 25.)
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 25), 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.
20
<PAGE> 29
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 25.) 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
31.)
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;
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 seven 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 seventh Contract
Year, the death benefit is equal to the greatest of:
1. the Contract Account Value as of the end of the seventh Contract Year
plus subsequent premiums paid and 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).
21
<PAGE> 30
Death Benefit Rider. If so elected by the Owner according to the terms of
the Contract rider, during each Contract Year after the first Contract
Anniversary, through (and including) the Contract Anniversary immediately
following the Annuitant's 75th birthday, the death benefit will equal the
greater of:
1. the Contract Account Value on the date of receipt of due proof of
death; or
2. the multiplication of 1.05 and the sum of the guaranteed death
benefit as of the previous Contract anniversary plus the premiums
paid during the previous Contract Year, less any withdrawals
(including applicable Surrender Charges) made during the previous
Contract Year.
During each Contract year after the Contract Anniversary immediately
following the Annuitant's 75th birthday, the death benefit will equal the
greater of:
1. the Contract Account Value on the date of receipt of due proof of
death; or
2. the guaranteed death benefit as of the immediately preceding Contract
Anniversary plus the premiums paid during the previous Contract Year,
less any withdrawals including applicable Surrender Charges.
A charge will be imposed for this rider.
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.
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.
22
<PAGE> 31
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.
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.
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
23
<PAGE> 32
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. 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.
24
<PAGE> 33
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 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 and after 0
</TABLE>
No Surrender Charge is deducted if the withdrawal or surrender occurs after
seven 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.
Amounts Not Subject to Surrender Charge. During the first Contract Year,
the full amount of all withdrawals (and any surrender) will be subject to the
Surrender Charge. Starting in the second Contract
25
<PAGE> 34
Year, the Surrender Charge will be applied to the portion of the withdrawal or
surrender which is in excess of the percentage listed in the table below for the
applicable Contract Year:
<TABLE>
<CAPTION>
% OF CONTRACT
CONTRACT YEAR ACCOUNT VALUE
- - ------------------ ---------------------
<S> <C>
1 0%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
</TABLE>
Amounts up to the Contract Account Value percentage shown above are
available for withdrawal in the applicable Contract Year without the imposition
of a Surrender Charge. However, starting in Contract Year three, and in each
subsequent Contract Year listed above, the applicable percentage for each year
will be reduced by the total percentage withdrawn from the Contract Account
Value in prior years. There is no limit on the number of withdrawals occurring
in any Contract Year. If the Contract is surrendered, the applicable Surrender
Charge will be deducted from the Contract Account Value in determining the Cash
Surrender Value. For a partial withdrawal, any applicable Surrender Charge will
be deducted from the amount withdrawn, unless a request is made in advance that
the Surrender Charge be deducted from the remaining Contract Account Value.
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.
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. 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
26
<PAGE> 35
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.
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.
27
<PAGE> 36
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.
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
28
<PAGE> 37
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.
Providentmutual may, from time to time, also disclose yield, standard total
returns, and non-standard total returns for the Portfolios of the Funds,
including such disclosure for periods prior to the date the Variable Account
commenced operations.
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
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.
29
<PAGE> 38
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.
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
30
<PAGE> 39
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 distribution. The taxable portion of a
distribution (in the form of a single sum payment or an annuity) is taxable as
ordinary income.
31
<PAGE> 40
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;
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
32
<PAGE> 41
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 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
33
<PAGE> 42
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 for 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 circumstances
of each Owner or recipient of the distribution. A competent tax advisor should
be consulted for further information.
34
<PAGE> 43
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 (formerly PML Securities Company) ("1717") or broker/dealers.
1717 is a wholly owned indirect subsidiary of Provident Mutual Life Insurance
Company 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. Nonaffiliated broker-dealers
receive full commissions on Contracts sold by their registered representatives,
less a nominal charge by 1717 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 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.
35
<PAGE> 44
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.
36
<PAGE> 45
- - --------------------------------------------------------------------------------
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> 46
- - --------------------------------------------------------------------------------
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> 47
- - --------------------------------------------------------------------------------
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> 48
- - --------------------------------------------------------------------------------
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> 49
- - --------------------------------------------------------------------------------
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> 50
- - --------------------------------------------------------------------------------
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> 51
- - --------------------------------------------------------------------------------
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> 52
- - --------------------------------------------------------------------------------
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> 53
- - --------------------------------------------------------------------------------
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> 54
- - --------------------------------------------------------------------------------
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 1,606,825
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> 55
- - --------------------------------------------------------------------------------
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> 56
- - --------------------------------------------------------------------------------
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> 57
- - --------------------------------------------------------------------------------
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> 58
- - --------------------------------------------------------------------------------
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> 59
- - --------------------------------------------------------------------------------
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> 60
- - --------------------------------------------------------------------------------
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> 61
- - --------------------------------------------------------------------------------
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> 62
- - --------------------------------------------------------------------------------
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> 63
- - --------------------------------------------------------------------------------
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> 64
- - --------------------------------------------------------------------------------
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> 65
- - --------------------------------------------------------------------------------
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> 66
- - --------------------------------------------------------------------------------
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> 67
- - --------------------------------------------------------------------------------
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> 68
- - --------------------------------------------------------------------------------
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> 69
- - --------------------------------------------------------------------------------
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> 70
- - --------------------------------------------------------------------------------
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> 71
- - --------------------------------------------------------------------------------
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> 72
- - --------------------------------------------------------------------------------
Providentmutual 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> 73
- - --------------------------------------------------------------------------------
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> 74
- - --------------------------------------------------------------------------------
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> 75
- - --------------------------------------------------------------------------------
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> 76
- - --------------------------------------------------------------------------------
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> 77
- - --------------------------------------------------------------------------------
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> 78
- - --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company of America
Notes to Statutory Financial Statements -- 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> 79
- - --------------------------------------------------------------------------------
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> 80
- - --------------------------------------------------------------------------------
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> 81
- - --------------------------------------------------------------------------------
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> 82
- - --------------------------------------------------------------------------------
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> 83
- - --------------------------------------------------------------------------------
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> 84
- - --------------------------------------------------------------------------------
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> 85
- - --------------------------------------------------------------------------------
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> 86
- - --------------------------------------------------------------------------------
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> 87
- - --------------------------------------------------------------------------------
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> 88
- - --------------------------------------------------------------------------------
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> 89
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-6
Effect of the Administration Fee on Performance Data........................... S-7
Termination of Participation Agreements............................................. S-8
Safekeeping of Account Assets....................................................... S-9
State Regulation.................................................................... S-9
Records and Reports................................................................. S-9
Legal Matters....................................................................... S-10
Experts............................................................................. S-10
Other Information................................................................... S-10
Financial Statements................................................................ S-10
</TABLE>
37
<PAGE> 90
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 Alger American Fund, the
Variable Insurance Products Fund, the Variable Insurance Products Fund II,
Advisers Management Trust, TCI Portfolios, Inc. and Van Eck Worldwide Insurance
Trust. 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 , 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-6
Effect of the Administration Fee on Performance Data........................... S-7
TERMINATION OF PARTICIPATION AGREEMENTS............................................. S-8
SAFEKEEPING OF ACCOUNT ASSETS....................................................... S-9
STATE REGULATION (7)................................................................ S-9
RECORDS AND REPORTS................................................................. S-9
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> 91
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> 92
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> 93
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 X (((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> 94
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.
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 Neuberger & Berman Advisers Management Trust, TCI
Portfolios, Inc. and the Van Eck Worldwide Insurance Trust 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> 95
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>
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%
Alger American Small Cap....................... -- -- --
Fidelity High Income (September 19, 1985)...... 12.67% 16.79% 10.04%
Fidelity Equity-Income (October 9, 1986)....... 26.23% 19.16% 11.55%
Fidelity Growth (October 9, 1986).............. 26.48% 18.62% 13.03%
Fidelity Overseas.............................. -- -- --
Fidelity Bond.................................. -- -- --
Fidelity Asset Manager (September 6, 1989)..... 9.26% 10.72% 9.46%
Fidelity Contrafund (July 3, 1995)............. 30.85% -- --
Fidelity Index 500 (August 27, 1992)........... 28.19% -- 12.56%
Neuberger Growth............................... -- -- --
Neuberger Bond................................. -- -- --
Neuberger Balanced............................. -- -- --
TCI Growth..................................... -- -- --
Van Eck Worldwide Bond......................... -- -- --
Van Eck Gold & Nat. Res. ...................... -- -- --
Van Eck Worldwide Emerging Mkts. .............. -- -- --
</TABLE>
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
S-6
<PAGE> 96
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>
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%
Alger American Small Cap..................... -- -- --
Fidelity High Income (September 19, 1985).... 18.60% 17.03% 10.04%
Fidelity Equity-Income (October 9, 1986)..... 32.87% 19.40% 11.55%
Fidelity Growth (October 9, 1986)............ 33.14% 18.86% 13.03%
Fidelity Overseas............................ -- -- --
Fidelity Bond................................ -- -- --
Fidelity Asset Manager (September 6, 1989)... 15.01% 10.94% 9.46%
Fidelity Contrafund (July 3, 1995)........... 37.74% -- 37.74%
Fidelity Index 500 (August 27, 1992)......... 34.94% -- 13.59%
Neuberger Growth............................. -- -- --
Neuberger Bond............................... -- -- --
Neuberger Balanced........................... -- -- --
TCI Growth................................... -- -- --
Van Eck Worldwide Bond....................... -- -- --
Van Eck Gold & Nat Res. ..................... -- -- --
Van Eck Worldwide Emerging Mkts. ............ -- -- --
</TABLE>
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.
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
S-7
<PAGE> 97
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.
The Alger American Fund. The Agreement with The Alger American Fund
provides for termination: 1) by either party on 60 days written notice to the
other; 2) by Alger if the Policies cease to qualify as annuity contracts or life
insurance policies under the Code or the Policies are not registered, issued or
sold in accordance with applicable laws; 3) by any party in the event of a
material irreconcilable conflict; 4) by PMLIC in the event that formal
proceedings are initiated against Alger or the distributor by the SEC or another
regulator; 5) by PMLIC in the event the Portfolio or trust fails to meet the
diversification requirements; 6) by PMLIC if shares are not reasonably
available; 7) by PMLIC if shares of the Portfolio are not registered, issued or
sold in accordance with applicable laws or applicable law precludes the use of
such shares; 8) by PMLIC if Alger fails to qualify as a regulated investment
company under Subchapter M of the Code; or 9) by Alger's principal underwriter
if it determines that PMLIC has suffered a material adverse change in its
business, operation, financial condition or prospects.
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.
Neuberger & Berman Advisers Management Trust. This Agreement may be
terminated by either party on six months' written notice to the other.
TCI Portfolios, Inc. The agreement with TCI provides for termination 1) by
Providentmutual or TCI upon six months prior written notice or in the event that
formal proceedings are initiated against the other party by the SEC or another
regulator, 2) by Providentmutual or TCI in the event that shares of TCI subject
to the agreement are not registered, offered or sold in conformity with
applicable law, 3) by Providentmutual upon reasonable notice if shares of one of
the then available Portfolios of TCI are no longer available or upon sixty days
notice if Providentmutual should substitute shares of another fund or Fund for
those of TCI, 4) upon assignment of the agreement unless both parties agree to
the assignment in writing or upon
S-8
<PAGE> 98
termination of TCI's investment management agreement with Investor's Research
(unless a new management agreement is entered into by TCI with Investor's
Research), and 5) by TCI if Providentmutual breaches the agreement.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Trust
provides for termination 1) by Providentmutual or Van Eck Trust upon six months
prior written notice or in the event that formal proceedings are initiated
against the other party by the SEC or another regulator, 2) by Providentmutual
or Van Eck Trust in the event that shares of Van Eck Trust subject to the
agreement are not registered, offered or sold in conformity with applicable law,
3) by Providentmutual upon reasonable notice if shares of one of the then
available Portfolios of Van Eck Trust are no longer available or upon sixty days
notice if Providentmutual should substitute shares of another fund or Fund for
those of Van Eck Trust, 4) upon assignment of the agreement unless both parties
agree to the assignment in writing.
Should an agreement between Providentmutual and a Fund terminate, the
Subaccounts which invest in that Fund will not be able to purchase additional
shares of such Fund. In that event, Owners will no longer be able to allocate
cash values or net premiums to Subaccounts investing in Portfolios of such Fund.
Additionally, in certain circumstances, it is possible that a Fund or a
portion of a Fund may refuse to sell its shares to a Subaccount despite the fact
that the participation agreement between the Fund and Providentmutual has not
been terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to Providentmutual, Providentmutual will not be able to honor requests by
Owners to allocate cash values or net premiums to Subaccounts investing in
shares of that Fund or portfolio.
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 fradulent
acts of officers and employees.
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.
S-9
<PAGE> 99
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 on 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> 100
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 101
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 Providentmutual Life and Annuity
Company of America authorizing establishment of the Providentmutual
Variable Annuity Separate Account.1
(b) Resolution of the Board of Directors of Providentmutual Life and Annuity
Company of America authorizing additional Subaccounts of the
Providentmutual Variable Annuity Separate Account.5
(c) Resolution of the Board of Directors of Providentmutual Life and Annuity
Company of America authorizing additional Subaccounts of the
Providentmutual Variable Annuity Separate Account.6
(d) Resolution of the Board of Directors of Providentmutual Life and Annuity
Company of America authorizing additional Subaccounts of the
Providentmutual Variable Annuity Separate Account.7
(2) Not applicable.
(3) (a) Form of Underwriting Agreement among Providentmutual Life and Annuity
Company of America, PML Securities Company and the Providentmutual
Variable Annuity Separate Account.2
(b) Form of Selling Agreement between PML Securities Company and Sentinel
Financial Services Company.3
(4) (a) Form of Flexible Premium Deferred Variable Annuity Contract.7
(b) Qualified Plan Rider, IRA Rider, TSA Rider, Unisex Rider.1
(5) Form of Application for Flexible Premium Variable Annuity.
Suitability Statement.1
(6) (a) Charter of Providentmutual Life and Annuity Company of America.1
(b) By-Laws of Providentmutual Life and Annuity Company of America.1
(7) Not applicable.
(8) (a) Participation Agreement by and among Market Street Fund, Inc.,
Providentmutual Life and Annuity Company of America and the
Providentmutual Variable Annuity Separate Account.2
(b) Participation Agreement between Variable Insurance Products Fund,
Fidelity Distributors Corporation and Providentmutual Life and Annuity
Company of America;4
(c) Participation Agreement between Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Providentmutual Life and Annuity
Company of America;4
</TABLE>
C-1
<PAGE> 102
<TABLE>
<S> <C> <C> <C>
(d) Participation Agreement between Neuberger & Berman Advisers Management
Trust and Providentmutual Life and Annuity Company of America (to be
filed by amendment);
(e) Participation Agreement between TCI Portfolios, Inc. and Providentmutual
Life and Annuity Company of America (to be filed by amendment);
(f) Participation Agreement between Van Eck Worldwide Insurance Trust and
Providentmutual Life and Annuity Company of America (to be filed by
amendment);
(g) Service Agreement between Providentmutual Life and Annuity Company of
America and Provident Mutual Life Insurance Company of Philadelphia.2
(9) (a) Opinion of Counsel.7
(10) (a) Consent of Counsel.
(b) Consent of Counsel.
(c) Consent of Independent Accountants.
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data.7
</TABLE>
- - ---------------
1 Incorporated by reference to Registration Statement on Form N-4 (33-44180)
filed on November 25, 1991.
2 Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4 (33-44180) filed on March 17, 1992.
3 Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (33-44180) filed on May 6, 1993.
4 Incorporated by reference to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-4 (33-65512) filed on September 16, 1993.
5 Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (33-65512) filed on April 29, 1994.
6 Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4 (33-65512) filed on April 28, 1995.
7 Incorporated by reference to Registration Statement on Form n-4 (33-65195)
filed on December 20, 1995.
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.**..................................... President and Director
Robert W. Kloss**....................................... Director
</TABLE>
<TABLE>
<S> <C>
Gerald B. Beam**........................................ Director
Stanley R. Reber**...................................... Director
J. Kevin McCarthy**..................................... Director
John R. McClelland**.................................... Director
Charlene Parsons**...................................... Director
Edward R. Book.......................................... Director
David N. Ingram......................................... Director and Executive Vice
President
Joseph A. Alessi........................................ Director of Operations
Mary Lynn Finelli....................................... Financial Reporting Officer
</TABLE>
C-2
<PAGE> 103
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
- - -------------------------------------------------------- -----------------------------------
<S> <C>
Andrew J. Stack**....................................... Marketing Officer
Stephen L. White**...................................... Vice President-Actuary
Richard D. Pitts**...................................... Vice President-Actuary
Linda E. Senker**....................................... Legal Officer
Rosanne Gatta**......................................... Treasurer
Sarah C. Lange**........................................ Vice President-Investment Officer
Timothy P. Henry**...................................... Investment Officer
Edward Schmid**......................................... Investment Officer
Joseph T. Laudadio*..................................... Underwriting Officer
W. Price Loesche**...................................... Secretary
</TABLE>
- - ---------------
* Unless otherwise indicated, the principal business address is 300 Continental
Drive, Newark, DE 19713.
** Principal business address is 1050 Westlakes Drive, Berwyn, PA 19312.
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* by Provident Mutual
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
</TABLE>
C-3
<PAGE> 104
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
- - ------------------------------ ------------- ------------------------ ------------------------
<S> <C> <C> <C>
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
Sigma American Delaware Ownership of 80.2% Investment Management
Corporation* voting securities by PHC and Advisory Services
and 19.8% voting
securities by Provident
Mutual
Provident Mutual Delaware Ownership of all Investment Management
Management Co., Inc.* voting securities and Advisory Services
by Sigma American
Software Development Pennsylvania Ownership of 100% 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
No Contracts have been issued to date.
Item 28. Indemnification
The By-Laws of Providentmutual Life and Annuity Company of America provide,
in part in Article XII, as follows:
ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
Section 12.01. To the fullest extent permitted by law, the Company shall
indemnify any present, former, or future Director, officer,
or employee of the Company or any person who may serve or
has served at its request as officer or Director of another
corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including
attorneys' fees, necessarily incurred in connection with the
defense of any action, suit or other proceeding to which any
of them is made a party because of service as Director,
officer, or employee of the Company or such other
corporation, or in connection with any appeal therein, and
against any amounts paid by such Director, officer, or
employee in settlement of, or in satisfaction of a judgment
or fine in any such action, suit or proceeding, except
expenses incurred in defense of or amounts paid in
connection with any action, suit or other proceeding in
which such Director, officer or employee shall be adjudged
to be liable for negligence or misconduct in the performance
of his duty. A judgment entered in connection with a
compromise or dismissal or settlement of any such action,
suit or other proceeding shall not of itself be deemed an
adjudication of negligence or misconduct. The
indemnification herein provided shall not be exclusive of
any other rights to which the persons indemnified may be
entitled.
C-4
<PAGE> 105
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 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 (formerly PML Securities Company)
(1717) is the principal underwriter of the Contracts as defined in the
investment Company of 1940. 1717 is also principal underwriter for the Fund, for
the Providentmutual Variable Life Separate Account and for the PMLIC Variable
Life and Annuity Separate Accounts.
(b) The following information is furnished with respect to the officers and
directors of PML Securities Company:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH PML WITH REGISTRANT
- - ------------------------------------------ ------------------------- -----------------------
<S> <C> <C>
Stanley R. Reber**........................ Director Director
L. J. Rowell, Jr.**....................... Director Director
Gerald B. Beam**.......................... Director Director
J. Kevin McCarthy......................... Director Director
John R. McClelland**...................... Director Director
Robert W. Kloss**......................... Director
Charlene Parsons**........................ Director
Lance A. Reihl............................ President None
Anthony Mastrangelo....................... Financial Officer None
Linda E. Senker**......................... Legal Officer & Secretary Legal Officer
Rosanne Gatta**........................... Treasurer Treasurer
W. Price Loesche**........................ Assistant Secretary Assistant Secretary
</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
Providentmutual Life and Annuity Company of America at 300 Continental Drive,
Newark, DE 19713.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
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
C-5
<PAGE> 106
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.
Providentmutual 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-6
<PAGE> 107
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE
ACCOUNT AND PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA, CERTIFY THAT
THEY MEET ALL THE REQUIREMENTS FOR EFFECTIVENESS OF THIS REGISTRATION STATEMENT
PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933 AND HAVE CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN NEW CASTLE COUNTY, STATE OF DELAWARE ON THIS
DAY OF JUNE 14, 1996.
PROVIDENTMUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT (REGISTRANT)
<TABLE>
<S> <C>
Attest: /s/ LINDA E. SENKER By: /s/ L. J. ROWELL,
JR. L. J. ROWELL, JR.
President
</TABLE>
By: PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (DEPOSITOR)
<TABLE>
<S> <C>
Attest: /s/ LINDA E. SENKER By: /s/ L. J. ROWELL,
JR. L. J. ROWELL, JR.
President
</TABLE>
AS REQUESTED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- - ------------------------------------------- ------------------------------ --------------
<C> <S> <C>
President and Director June 14, 1996
/s/ L. J. ROWELL, JR. (Principal Executive
- - ------------------------------------------- Officer)
L. J. ROWELL, JR.
Actuarial Officer June 14, 1996
/s/ STEPHEN L. WHITE (Principal Financial
- - ------------------------------------------- Officer)
STEPHEN L. WHITE
/s/ MARY LYNN FINELLI Financial Reporting Officer June 14, 1996
- - ------------------------------------------- (Principal Accounting
MARY LYNN FINELLI Officer)
/s/ ROBERT W. KLOSS Director June 14, 1996
- - -------------------------------------------
ROBERT W. KLOSS
/s/ GERALD B. BEAM Director June 14, 1996
- - -------------------------------------------
GERALD B. BEAM
/s/ J. KEVIN MCCARTHY Director June 14, 1996
- - -------------------------------------------
J. KEVIN MCCARTHY
/s/ JOHN R. MCCLELLAND Director June 14, 1996
- - -------------------------------------------
JOHN R. MCCLELLAND
</TABLE>
C-7
<PAGE> 108
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- - ------------------------------------------- ------------------------------ --------------
<C> <S> <C>
/s/ CHARLENE PARSONS Director June 14, 1996
- - -------------------------------------------
CHARLENE PARSONS
/s/ STANLEY R. REBER Director June 14, 1996
- - -------------------------------------------
STANLEY R. REBER
/s/ EDWARD R. BOOK Director June 14, 1996
- - -------------------------------------------
EDWARD R. BOOK
/s/ DAVID N. INGRAM Director June 14, 1996
- - -------------------------------------------
DAVID N. INGRAM
</TABLE>
C-8
<PAGE> 1
[SUTHERLAND, ASBILL & BRENNAN letterhead]
June 14, 1996
Board of Directors
Providentmutual Life and Annuity
Company of America
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
the pre-effective amendment No. 1 to the Form N-4 registration statement filed
by Providentmutual Life and Annuity Company of America and Providentmutual
Variable Annuity Separate Account A for certain individual flexible premium
deferred annuity contracts (File No. 33-65195). 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.
Sincerely,
SUTHERLAND, ASBILL & BRENNAN
By: /s/ Stephen E. Roth
------------------------
Stephen E. Roth
<PAGE> 1
June 14, 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 Pre-Effective Amendment No. 1 on Form N-4
(File No. 33-65195) for the Providentmutual Variable Annuity Separate Account.
Sincerely,
Linda E. Senker
Legal Officer
LES/ja
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Pre-Effective Amendment No.
1 to the Registration Statement under the Securities Act of 1933, as amended,
filed on Form N-4 (File No. 33-65195) 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 ending 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".
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
June 14, 1996
