<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1997
FILE NO. 33-65195
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 1 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 9 [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
---------------------
M. DIANE KOKEN, LEGAL OFFICER & SECRETARY
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, L.L.P.
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, DC 20004
(202) 383-0158
---------------------
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
PURSUANT TO RULE 24F-2(A)(1) UNDER THE INVESTMENT COMPANY ACT OF 1940, THE
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS SHARES UNDER THE
SECURITIES ACT OF 1933. THE NOTICE REQUIRED BY SUCH RULE FOR THE REGISTRANT'S
MOST RECENT YEAR WAS FILED ON FEBRUARY 26, 1997.
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO RULE 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required By Form N-4.
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Definitions................................ Definitions
3. Synopsis................................... Table of Expenses; Summary
4. Condensed Financial Information;........... Condensed Financial Information; Yields and
Total Returns
5. General Description of Registrant,
Depositor and Portfolio Companies........ The Company, Variable Account and Funds
a. Depositor............................... The Company, Variable Account and Funds
--Providentmutual Life and Annuity
Company of America
b. Registrant.............................. The Company, Variable Account and Funds
--The Providentmutual Variable Annuity
Separate Account
c. Portfolio Company....................... The Company, Variable Account and Funds
d. Fund Prospectus......................... The Company, Variable Account and Funds
e. Voting Rights........................... The Company, Variable Account and Funds
--Voting Rights
f. Administrators.......................... N/A
6. Deductions and Expenses.................... Charges and Deductions
a. General................................. Charges and Deductions
b. Sales Load %............................ Charges and Deductions--Surrender Charge
c. Special Purchase Plan................... N/A
d. Commissions............................. Distribution of Contracts
e. Expenses--Registrant.................... Charges and Deductions
f. Fund Expenses........................... Charges and Deductions--Other Charges
Including Investment Advisory Fees of the
Funds
g. Organizational Expenses................. N/A
7. General Description of Variable Annuity
Contracts................................ Description of Annuity Contract
a. (i) Allocation of Premium Payments...... Premiums; Allocation of Premiums
(ii) Transfers....................... Description of Annuity Contract--Transfer
Privilege; Payments
(iii) Exchanges......................... Special Exchange Program
b. Changes................................. Description of Annuity
Contract--Modification
c. Inquiries............................... Description of Annuity Contract--Contract
Inquiries
8. Annuity Period............................. Payment Options
9. Death Benefit.............................. Description of Annuity Contract--Death
Benefit Before Maturity Date; Payments
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
------------------------------------------- -------------------------------------------
<C> <S> <C>
10. Purchases and Contract Value............... Description of Annuity Contract
a. Purchases............................... Description of Annuity Contract--Premiums
b. Valuation............................... Description of Annuity Contract--Variable
Account Value
c. Daily Calculation....................... Description of Annuity Contract--Variable
Account Value
d. Underwriter............................. Distribution of Contracts
11. Redemptions................................ Description of Annuity Contract
a. --By Owners............................. Description of Annuity
Contract--Withdrawals and Surrenders;
Payments
--By Annuitant.......................... Description of Annuity Contract--Proceeds
on Maturity Date; Payment Options
b. Texas ORP............................... N/A
c. Delay in Payment........................ Description of Annuity Contract--Payments
d. Lapse................................... Description of Annuity Contract--Contract
Termination
e. Free Look............................... Description of Annuity Contract--Free-Look
Period
12. Taxes...................................... Federal Tax Status
13. Legal Proceedings.......................... Legal Proceedings
14. Table of Contents of the Statement of
Additional Information................... Statement of Additional Information Table
of Contents
</TABLE>
PART B
<TABLE>
<CAPTION>
ITEM OF FORM N-4 STATEMENT OF ADDITIONAL INFORMATION CAPTION
------------------------------------------- -------------------------------------------
<C> <S> <C>
15. Cover Page................................. Cover Page
16. Table of Contents.......................... Statement of Additional Information Table
of Contents
17. General Information and History............ See Prospectus--The Company, Variable
Account and Funds
18. Services
a. Fees and Expenses of Registrant......... N/A
b. Management Contract..................... N/A
c. Custodian............................... Safekeeping of Account Assets
d. Independent Public Accountant........... Experts
e. Assets of Registration.................. Safekeeping of Account Assets
f. Affiliated Persons...................... N/A
g. Principal Underwriter................... See Prospectus--Distribution of Contracts
19. Purchase of Securities Being Offered....... See Prospectus--Distribution of Contracts
20. Underwriter................................ See Prospectus--Distribution of Contracts
21. Calculation of Performance Data............ Calculation of Yields and Total Returns
22. Annuity Payments........................... See Prospectus--Payment Options
23. Financial Statements....................... Financial Statements
</TABLE>
<PAGE> 4
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE> 5
- --------------------------------------------------------------------------------
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA,
A STOCK LIFE INSURANCE COMPANY
300 CONTINENTAL DRIVE, NEWARK, DELAWARE 19713
TELEPHONE: 1-800-688-5177
- --------------------------------------------------------------------------------
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 Guaranteed Account is not
offered in the states of Oregon and Washington). 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.; Alger American Fund; Neuberger & Berman Advisers Management Trust;
American Century Variable 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 MAY 1, 1997.
<PAGE> 6
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..................................................... 12
Variable Insurance Products Fund and Variable Insurance Products Fund II.... 12
Neuberger & Berman Advisers Management Trust................................ 13
American Century Variable 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............................................... 22
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
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.............................................................. 27
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
Transfers, Assignments or Exchanges of a Contract................................ 33
Withholding...................................................................... 33
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Multiple Contracts............................................................... 33
Taxation of Qualified Plans...................................................... 33
Restrictions and Qualified Contracts............................................. 34
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> 8
DEFINITIONS
ANNUITANT.................. The person whose life determines the annuity
benefits payable under the Contract and whose death
determines the death benefit.
BENEFICIARY................ The person to whom the proceeds payable on the death
of the Owner or the Annuitant will be paid.
CASH SURRENDER VALUE....... The Contract Account Value less any applicable
surrender charge and any applicable premium tax
charge.
CONTRACT ACCOUNT VALUE..... The sum of the Variable Account Value and the
Guaranteed Account Value.
CONTRACT YEARS, MONTHS, AND
ANNIVERSARIES..............
Are measured from the Contract Date.
GUARANTEED ACCOUNT......... This account is part of Providentmutual's General
Account and is not part of nor dependent upon the
investment performance of the Variable Account.
HOME OFFICE................ Providentmutual's office at 300 Continental Drive,
Newark, Delaware 19713.
MATURITY DATE.............. The date when the Contract Account Value will be
applied under a Payment Option, unless the Owner has
elected to receive a lump sum payment of the Cash
Surrender Value.
NET PREMIUM................ The premium paid less any premium tax levied for the
year the premium is paid.
NON-QUALIFIED CONTRACT..... A Contract that is not a "Qualified Contract."
OWNER...................... The person entitled to exercise all rights and
privileges provided in the Contract.
QUALIFIED CONTRACT......... A Contract that is issued in connection with plans
that qualify for special Federal income tax
treatment under sections 401, 403, or 408 of the
Internal Revenue Code of 1986, as amended.
SUBACCOUNT................. The Variable Account has Subaccounts; the assets of
each Subaccount are invested in a corresponding
Portfolio of a designated mutual fund.
VALUATION DAY.............. Each day on which valuation of the assets of a
Subaccount is required by applicable law.
VALUATION PERIOD........... The period that starts at the close of business on
one Valuation Day and ends at the close of business
on the next succeeding Valuation Day.
VARIABLE ACCOUNT........... Providentmutual Variable Annuity Separate Account
which is not part of Providentmutual's General
Account. The Variable Account has Subaccounts each
of which is invested in a corresponding Portfolio of
a designated mutual fund.
WRITTEN NOTICE............. A written request or notice in a form satisfactory
to Providentmutual which is signed by the Owner and
received at the Home Office.
1
<PAGE> 9
TABLE OF EXPENSES
The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
<TABLE>
<S> <C>
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)........... 0.33% 0.25% 0.35% 0.40% 0.47%
Other Expenses......................... 0.17% 0.19% 0.21% 0.20% 0.21%
------ -------- ------ ----- -----
Total Fund Annual Expenses............. 0.50% 0.44% 0.56% 0.60% 0.68%
</TABLE>
<TABLE>
<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......................... 0.30%
-----
Total Fund Annual Expenses............. 1.05%
</TABLE>
<TABLE>
<CAPTION>
SMALL
CAPITALIZATION
PORTFOLIO
---------------
<S> <C>
ALGER AMERICAN FUND ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 0.85%
Other Expenses......................... 0.03%
------
Total Fund Expenses.................... 0.88%
</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% 0.51% 0.60% 0.76%
Other Expenses
(after reimbursement)(3)............. 0.11% 0.05% 0.07% 0.16%
------ -------- ------ -----
Total Fund Annual Expenses
(after reimbursement)(3)............. 0.71% 0.56% 0.67% 0.92%
</TABLE>
2
<PAGE> 10
<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)........... 0.64% 0.28% 0.44% 0.61%
Other Expenses
(after reimbursement)(3)............. 0.09% 0.00% 0.14% 0.10%
----- ----- ----- ----
Total Fund Annual Expenses
(after reimbursement)(3)............. 0.73% 0.28% 0.58% 0.71%
</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% 0.53% 0.25%
Other Expenses......................... 0.54% 0.39% 0.53%
------ -------- ------
Total Fund Annual Expenses............. 1.09% 0.92% 0.78%
</TABLE>
<TABLE>
<CAPTION>
CAPITAL
APPRECIATION
PORTFOLIO
---------------
<S> <C>
AMERICAN CENTURY VARIABLE PORTFOLIOS,
INC.
ANNUAL EXPENSES(4)
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)........... 1.00%
Other Expenses......................... 0.00%
------
Total Fund Annual Expenses............. 1.00%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING
BOND ASSETS 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 reimbursement)(3)............. 0.16% 0.23% 0.50%
------ -------- ------
Total Fund Annual Expenses
(after reimbursement)(3)............. 1.16% 1.23% 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> 11
well as for the Funds for the 1996 calendar year. For a more complete
description of the various costs and expenses, see "Charges and Deductions,"
Page 24.
- ---------------
(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 8 1/2% of the
total gross premiums paid under the Contract. Subject to certain
restrictions, after the first Contract Year up to 10% of the Contract
Account Value as of the beginning of a Contract Year may be surrendered
or withdrawn without charge in such Contract Year. (See "Surrender
Charge," Page 24.)
(2) Asset-based administration charge.
(3) For certain portfolios, certain expenses were reimbursed during 1996.
It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1996 Other Expenses and Total Annual Expenses would
have been 0.07%, 0.58% respectively, for the Fidelity Equity Income
Portfolio, 0.09%, 0.69%, respectively, for the Fidelity Growth
Portfolio, 0.17%, 0.93%, respectively, for the Fidelity Overseas
Portfolio, 0.10%, 0.74%, respectively, for the Fidelity Asset Manager
Portfolio, 0.16%, 0.44%, respectively, for the Fidelity Index 500
Portfolio, 0.13%, 0.74%, respectively, for the Fidelity Contrafund
Portfolio, 0.17%, 1.17%, respectively, for the VanEck Worldwide Bond
Portfolio, 0.24%, 1.24%, respectively, for the VanEck Worldwide Hard
Assets Portfolio and 1.64%, 2.64%, respectively, for the VanEck
Worldwide Emerging Markets Portfolio. Similar expense reimbursement and
fee waiver arrangements were also in place for the other Portfolios and
it is anticipated that such arrangements will continue past the current
year. However, no expenses were reimbursed or fees waived during 1996
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, American Century Variable 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..................................... $84.62 $101.54 $133.08 $260.01
MS Money Market............................... 84.02 99.71 129.95 253.63
MS Bond....................................... 85.21 103.37 136.20 266.35
MS Managed.................................... 85.60 104.58 138.28 270.55
MS Aggressive Growth.......................... 86.39 107.02 142.42 278.92
MS International.............................. 90.04 118.22 161.39 316.72
Alger American Small Cap...................... 88.36 113.08 152.71 299.53
Fidelity High Income.......................... 86.68 107.93 143.97 282.03
Fidelity Equity Income........................ 85.21 103.37 136.20 266.35
Fidelity Growth............................... 86.31 106.77 142.00 278.08
Fidelity Overseas............................. 88.75 114.29 154.76 303.60
Fidelity Inv. Bond............................ 85.40 103.98 137.24 268.45
</TABLE>
4
<PAGE> 12
<TABLE>
<CAPTION>
10
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS YEARS
---------------------------------------------- ------ ------- ------- -------
<S> <C> <C> <C> <C>
Fidelity Asset Manager........................ $86.88 $108.54 $145.00 $284.11
Fidelity Index 500............................ 82.45 94.81 121.57 236.42
Fidelity Contrafund........................... 86.68 107.93 143.97 282.03
Neuberger Balance............................. 90.43 119.42 163.42 320.72
Neuberger Growth.............................. 88.75 114.29 154.76 303.60
Neuberger Lmt. Mat. Bond...................... 87.37 110.05 147.57 289.27
American Century V.P. Capital Appreciation.... 89.54 116.71 158.84 311.69
Van Eck Worldwide Bond........................ 91.12 121.53 166.97 327.69
Van Eck Worldwide Hard Assets................. 91.81 123.63 170.50 334.60
Van Eck Worldwide Emerging Mkts............... 94.47 131.72 184.05 360.81
</TABLE>
2. If the Contract is not surrendered or is annuitized 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..................................... $23.00 $ 70.86 $121.36 $260.01
MS Money Market............................... 22.37 68.97 118.18 253.63
MS Bond....................................... 23.62 72.76 124.52 266.35
MS Managed.................................... 24.04 74.02 126.62 270.55
MS Aggressive Growth.......................... 24.88 76.54 130.82 278.92
MS International.............................. 28.76 88.13 150.05 316.72
Alger American Small Cap...................... 26.98 82.81 141.25 299.53
Fidelity High Income.......................... 25.20 77.48 132.39 282.03
Fidelity Equity Income........................ 23.62 72.76 124.52 266.35
Fidelity Growth............................... 24.80 76.29 130.40 278.08
Fidelity Overseas............................. 27.40 84.07 143.33 303.60
Fidelity Inv. Bond............................ 23.83 73.39 125.57 268.45
Fidelity Asset Manager........................ 25.41 78.11 133.44 284.11
Fidelity Index 500............................ 20.69 63.90 109.69 236.42
Fidelity Contrafund........................... 25.20 77.48 132.39 282.03
Neuberger Balance............................. 29.18 89.38 152.11 320.72
Neuberger Growth.............................. 27.40 84.07 143.33 303.60
Neuberger Lmt. Mat. Bond...................... 25.93 79.68 136.05 289.27
American Century V.P. Capital Appreciation.... 28.24 86.57 147.47 311.69
Van Eck Worldwide Bond........................ 29.91 91.56 155.70 327.69
Van Eck Worldwide Hard Assets................. 30.65 93.74 159.29 334.60
Van Eck Worldwide Emerging Mkts............... 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 $30 (maximum guaranteed charge) and that the Contract
Account Value per contract is $10,000, which translates the Administration Fee
into an assumed .30% charge for purposes of the Examples based on a $1,000
investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE
ASSUMED AMOUNT.
5
<PAGE> 13
SUMMARY
THE CONTRACT
Issuance of a Contract. The Contract is an individual flexible premium
deferred variable annuity issued by Providentmutual. Contracts may be sold in
connection with retirement plans which may or may not qualify for special
Federal tax treatment under the Internal Revenue Code. In order to purchase a
Contract, application must be made to Providentmutual through a licensed
Providentmutual representative, who is also a registered representative of 1717
Capital Management Company ("1717") or a broker/dealer having a selling
agreement with 1717 or a broker/dealer having a selling agreement with such
broker/dealer. The minimum initial premium must be paid to Providentmutual.
Annuity payments are deferred unit the Maturity Date. (See "Issuance of a
Contract," Page 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. (The Guaranteed
Account is not offered in the states of Oregon and Washington.) 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 and Surrender," 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 "Withdrawals and Surrender,"
Page 20.)
6
<PAGE> 14
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).
If the Owner dies before the Maturity Date, the Contract Account Value (or
if the owner is also the Annuitant, the death benefit) must generally be
distributed to the Beneficiary within five years after the date of the Owner's
death. (See "Death Benefit Before Maturity Date," Page 22.)
CHARGES AND DEDUCTIONS
The following charges and deductions are made in connection with the
Contract:
Surrender Charge (Contingent Deferred Sales Charge). No charge for sales
expenses is deducted from premiums at the time premiums are paid. However, if a
Contract has not been in force for seven 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.)
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.
7
<PAGE> 15
(See "Other Charges Including Investment Advisory Fees of the Funds," Page 26
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.
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<PAGE> 16
The table below sets forth certain information regarding the Subaccounts as
of December 1996.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
UNITS UNITS UNITS UNITS
UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING
AS OF AS OF AS OF AS OF AS OF AS OF AS OF AS OF
SUBACCOUNT 12/31/96 12/31/96 12/31/95 12/31/95 12/31/94 12/31/94 12/31/93 12/31/93
- ----------------- ---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MS Growth........ 775.34 246.94 657.63 -- 511.45 -- 506.46 --
MS Money Market.. 554.47 1,704.79 534.58 -- 513.30 -- 501.47 --
MS Bond.......... 553.59 152.88 545.35 -- 459.55 -- 493.74 --
MS Managed....... 653.55 47.59 592.07 -- 482.84 -- 498.70 --
MS Aggressive
Growth......... 697.07 101.81 584.65 -- 522.44 -- 529.79 --
MS
International... 651.04 119.04 595.43 -- 528.22 -- 534.25 --
Alger American
Small Cap...... 494.76 923.47 -- -- -- -- -- --
Fidelity High
Income......... 679.15 325.05 604.03 -- 507.88 -- 523.11 --
Fidelity Equity
Income......... 801.08 447.36 710.92 -- 533.64 -- 505.43 --
Fidelity
Growth......... 743.89 595.00 657.74 -- 492.73 -- 499.75 --
Fidelity
Overseas....... 525.59 252.42 -- -- -- -- --
Fidelity Inv.
Bond........... 527.62 273.20 -- -- -- -- -- --
Fidelity Asset
Man............ 641.70 72.94 567.88 -- 492.38 -- 531.69 --
Fidelity Index
500............ 831.78 586.49 686.84 -- 507.68 -- 509.51 --
Fidelity
Contrafund..... 718.85 301.49 601.00 -- -- -- -- --
Neuberger
Balance........ 523.20 80.00 -- -- -- -- -- --
Neuberger
Growth......... 524.02 203.87 -- -- -- -- -- --
Neuberger Lmt.
Mat. Bond...... 519.12 145.08 -- -- -- -- -- --
American Century
VP Capital
Appreciation... 483.82 120.38 -- -- -- -- -- --
Van Eck Worldwide
Bond........... 524.46 173.60 -- -- -- -- -- --
Van Eck Worldwide
Hard Assets.... 522.85 31.36 -- -- -- -- -- --
Van Eck Worldwide
Emerging
Mkts. ......... 524.75 133.66 -- -- -- -- -- --
</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 originally
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, 1996, Providentmutual had total assets of
approximately $962 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 1996 had total assets of approximately
$7.1 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. This agreement may not
be modified or terminated prior to January 1, 1998, and then only under certain
circumstances. Other than this Support
9
<PAGE> 17
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. 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; American Century VP Capital Appreciation; Van Eck
Worldwide Bond; Van Eck Worldwide Hard Assets; 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 seven of which are available under the Contracts: Market Street
Fund, Inc.; Alger American Fund; Variable Insurance Products Fund; Variable
Insurance Products Fund II; Neuberger & Berman Advisers Management Trust;
American Century Variable Portfolios, Inc. and Van Eck Worldwide Insurance 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
10
<PAGE> 18
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 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, 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"). PIMC employs
The Boston Company Asset Management, Inc., to provide investment advisory
services in connection with the International Portfolio. Each of these advisers
is registered with the SEC as an investment adviser under the Investment
Advisers Act of 1940.
11
<PAGE> 19
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 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.
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.
12
<PAGE> 20
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.
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
Providentmutual. 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.
13
<PAGE> 21
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.
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.
AMERICAN CENTURY VARIABLE PORTFOLIOS, INC.
The American Century VP Capital Appreciation Subaccount of the Variable
Account invests in shares of the American Century VP Capital Appreciation
Portfolio of the American Century Variable Portfolios, Inc. ("American
Century"). (American Century has other investment portfolios that are not
offered to the Variable Account or under the Contracts.) Shares of the American
Century Growth Portfolio are purchased and redeemed by the Variable Account at
net asset value without a sales charge. The Variable Account purchases shares of
American Century Growth Portfolio from American Century in accordance with a
participation agreement between American Century and Providentmutual. The
termination provisions of these participation agreements are described below.
American Century VP Capital Appreciation 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
American Century VP Capital Appreciation Portfolio will achieve its stated
objective.
The investment adviser for the American Century VP Capital Appreciation
Portfolio is Investors Research Corporation ("Investors Research").
VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, the Van Eck Worldwide Hard Assets and the Van
Eck Worldwide Emerging Markets Subaccounts of the Variable Account invest in
shares of the Van Eck Worldwide Bond, the Van Eck Worldwide Hard Assets and the
Van Eck Worldwide Emerging Markets Portfolios, respectively, of the Van Eck
Worldwide Insurance Trust ("Van Eck Trust"). Shares of the Van Eck Worldwide
Bond Portfolio, the Worldwide Hard Assets 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 Van Eck 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 Worldwide Hard Assets Portfolio seeks long-term capital
appreciation by investing primarily in "Hard Assets Securities." Hard Assets
Securities include equity securities of Hard Asset Companies and securities,
including structured notes, whose value is linked to the price of a Hard Asset
commodity or a commodity index. Hard Asset Companies include companies that are
directly or indirectly engaged to a significant extent in the exploration,
development, production or distribution of one or more of the following
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(together, Hard Assets); (i) precious metals, (ii) ferrous and non-ferrous
metals, (iii) gas, petroleum, pretochemicals or other hydrocarbons, (iv) forest
products, (v) real estate and (vi) other basic non-agricultural commodities.
Income is a secondary consideration.
Van Eck Worldwide Bond Portfolio 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.
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, the Worldwide Hard
Assets and the Worldwide Emerging Markets Portfolios is Van Eck Associates
Corporation ("Van Eck Associates"). Peregrine Asset Management (Hong Kong)
Limited ("PAM") serves as sub-investment adviser to the Van Eck Worldwide
Emerging Markets Portfolio pursuant to a sub-investment advisory agreement with
Van Eck Associates.
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,
Inc., 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, American Century 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.
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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 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 1717 Capital Management Company ("1717") or
a broker-dealer having a selling agreement with 1717 or a broker/dealer having a
selling agreement with such broker/dealer. Contracts may be sold to or in
connection with retirement plans which to not qualify for special tax treatment
(Non-Qualified Plans) as well as retirement plans that qualify for special tax
treatment under the Internal Revenue Code (Qualified Plans).
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PREMIUMS
The minimum initial premium which Providentmutual will normally accept is
$2,000. Subsequent premium payments may be paid under the Contract at any time
during the Annuitant's lifetime and before the Maturity Date and must be for at
least $100 each for Non-Qualified Contracts and $50 each for Qualified
Contracts.
At the time of application, a Planned Periodic Premium schedule may be
selected based on a periodic billing mode of annual, semi-annual, or quarterly
payment. The Owner will receive a premium reminder notice at the specified
interval. The Owner may change the Planned Periodic Premium frequency and
amount. Also, under the Automatic Payment Plan, the Owner can select a monthly
payment schedule pursuant to which premium payments will be automatically
deducted from a bank account or other source rather than being "billed."
FREE-LOOK PERIOD
The Contract provides for an initial "free-look" period. The Owner has the
right to return the Contract within 10 days after such Owner receives the
Contract. When Providentmutual receives the returned Contract at its Home
Office, it will be canceled and Providentmutual will refund to the Owner an
amount equal to the greater of: (a) the premiums paid under the Contract; and
(b) the sum of (i) the Contract Account Value as of the earlier of the date the
returned Contract is received by Providentmutual at its Home Office or by the
Providentmutual representative through whom the Contract was purchased; plus
(ii) the amount of any charges deducted from the Variable Account except the
Mortality and Expense Risk Charge, Asset-Based Administration Charge and the
Funds' advisory fees and operating expenses. For contracts sold to residents of
certain states (i.e., Arizona, Minnesota and Pennsylvania), the amount returned
to the Owner will be equal to the sum of: (i) the difference between the
premiums paid, including any contract fees and charges, and the amounts, if any,
allocated to the Variable Account under the Contract; and (ii) the Variable
Account Value (or, in Pennsylvania, if there is no Variable Account Value, the
reserve for the Contract on the date the Contract is cancelled attributable to
the amounts allocated to the Variable Account.)
ALLOCATION OF PREMIUMS
If the application for a Contract is properly completed and is accompanied
by all the information necessary to process it, including payment of the initial
premium, the initial Net Premium (premium less deduction of any required premium
tax) will be allocated between the Money Market Subaccount and the Guaranteed
Account within two business days of receipt of such premium by Providentmutual
at its Home Office. If the application is not properly completed,
Providentmutual will retain the premium for up to five 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,
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Minnesota and Pennsylvania) the portion of the initial Net Premium for such
Contract which is to be allocated to the Variable Account will not automatically
be allocated to the Money Market Subaccount for the 15-day period but instead
will be credited to the chosen Subaccounts of the Variable Account within 2 or 5
business days of receipt of such premium.
The values of the Subaccounts of the Variable Account will vary with the
investment experience of the Subaccounts, and the Owner bears the entire
investment risk. Owners should periodically review their allocation schedule for
premiums in light of market conditions and the Owner's overall financial
objectives.
VARIABLE ACCOUNT VALUE
The Variable Account Value will reflect the investment experience of the
chosen Subaccounts of the Variable Account, any premiums paid, any withdrawals,
any surrenders, any transfers, and any charges assessed in connection with the
Contract. There is no guaranteed minimum Variable Account Value, and, because a
Contract's Variable Account Value on any future date depends upon a number of
variables, it cannot be predetermined.
Calculation of Variable Account Value. The Variable Account Value is
determined on each Valuation Date. The value will be the aggregate of the values
attributable to the Contract in each of the Subaccounts, determined for each
Subaccount by multiplying the Subaccount's Unit Value on the relevant Valuation
Date by the number of Subaccount units allocated to the Contract.
Determination of Number of Units. Any amounts allocated to the Subaccounts
will be converted into units of the Subaccount. The number of units to be
credited to the Contract is determined by dividing the dollar amount being
allocated to the Subaccount by the Unit Value for that Subaccount at the end of
the Valuation Period during which the amount was allocated. The number of units
in any Subaccount will be increased at the end of the Valuation Period by any
premiums allocated to the Subaccount during the current Valuation Period and by
any transfers to the Subaccount from another Subaccount or from the Guaranteed
Account during the current Valuation Period. The number of units in any
Subaccount will be decreased at the end of the Valuation Period by any amounts
transferred from the Subaccount to another Subaccount or the Guaranteed Account
during the current Valuation Period and any surrender charge upon a withdrawal
or surrender and the Annual Administration Fee assessed in connection with the
Contract during the current Valuation Period.
Determination of Unit Value. The Unit Value for each Subaccount's first
Valuation Period is set at $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
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6. the amount charged for administration for that Valuation Period;
and
(b) is the value of the assets in the Subaccount at the end of the
preceding Valuation Period, adjusted for allocations and transfers to and
withdrawals and transfers from the Subaccount occurring during that
preceding Valuation Period.
TRANSFER PRIVILEGE
Before the Maturity Date, an Owner may transfer all or a part of an amount
in the Subaccount(s) to another Subaccount(s) or to the Guaranteed Account, or
transfer a part of an amount in the Guaranteed Account to the Subaccount(s),
subject to these general restrictions and the additional restrictions below. The
minimum transfer amount must be the lesser of $500 or the entire amount in that
Subaccount or the Guaranteed Account. A transfer request that would reduce the
amount in a Subaccount or the Guaranteed Account below $500 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.
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of Variable Account Values
among the Subaccounts in order to achieve a particular percentage allocation of
Variable Account Values among such Subaccounts. Such percentage allocations must
be in whole numbers and must allocate amounts only among the Subaccounts. No
amounts will be transferred to the Guaranteed Account as a part of Automatic
Asset Rebalancing. The percentage allocation of your Contract Account Value for
rebalancing will be based on your premium allocation instructions in effect at
the time of rebalancing. Any allocation instructions that you give us that
differ from your then current allocation instructions will be treated as a
request to change such allocation instructions.
Once elected Automatic Asset Rebalancing begins on the first quarterly or
annual anniversary following election. You may change or terminate Automatic
Asset Rebalancing by written instruction to Provident Mutual, or by telephone if
you have previously authorized us to take telephone instructions. Automatic
Asset Rebalancing transfers do not count as one of the 12 free transfers
available during any Contract Year. Provident Mutual reserves the right to
suspend Automatic Asset Rebalancing at any time for any class of contracts for
any reason upon written notice to you.
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.
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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.
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.
Distributions will begin on the monthly or quarterly anniversary following the
receipt of the request. 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
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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 24.)
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 24), any
other withdrawal in a year when the Systematic Withdrawal Plan has been utilized
will be subject to the Surrender Charge. If an additional withdrawal is made
from a Contract participating in the plan, systematic withdrawals will
automatically terminate and may only be reinstated on or after the beginning of
the next Contract Year pursuant to a new request.
Systematic withdrawals may be discontinued by the Owner at any time upon
written request to Providentmutual. Providentmutual reserves the right to
discontinue offering systematic withdrawals upon 30 days' written notice to
Owners.
Surrender. At any time before the earlier of the death of the Annuitant or
the Maturity Date, the Owner may request a surrender of the Contract for its
Cash Surrender Value (Contract Account Value less any applicable Surrender
Charge). The proceeds paid to the Contract Owner will equal the amount of the
surrender less the Surrender Charge and any withholding or premium taxes. (See
"Surrender Charge," Page 24.) 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.)
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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).
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.
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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 quarterly, 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
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<PAGE> 31
the SEC under the Securities Act of 1933, and neither the Guaranteed Account nor
Providentmutual's General Account has been registered as an investment company
under the Investment Company Act of 1940. Therefore, neither Providentmutual's
General Account, the Guaranteed Account, nor any interests therein are generally
subject to regulation under the 1933 Act or the 1940 Act. The disclosures
relating to these accounts which are included in this Prospectus are for your
information and have not been reviewed by the SEC. However, such disclosures may
be subject to certain generally applicable provisions of Federal securities laws
relating to the accuracy and completeness of statements made in prospectuses.
The portion of the Contract Account Value allocated to the Guaranteed
Account will be credited with rates of interest, as described below. Since the
Guaranteed Account is part of Providentmutual's General Account, Providentmutual
assumes the risk of investment gain or loss on this amount. All assets in the
General Account are subject to Providentmutual's general liabilities from
business operations.
MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 3%. Providentmutual intends to credit the
Guaranteed Account Value with current rates in excess of the minimum guarantee
but is not obligated to do so. These current interest rates are influenced by,
but do not necessarily correspond to, prevailing general market interest rates.
Since Providentmutual, in its sole discretion, anticipates changing the current
interest rate from time to time, different allocations to and from the
Guaranteed Account Value will be credited with different current interest rates.
The interest rate to be credited to each amount allocated or transferred to the
Guaranteed Account will apply to the end of the calendar year in which such
amount is received or transferred. At the end of the calendar year,
Providentmutual will determine a new current interest rate on such amount and
accrued interest thereon (which may be a different current interest rate from
the current interest rate on new allocations to the Guaranteed Account on that
date). The rate declared on such amount and accrued interest thereon at the end
of each calendar year will be guaranteed for the following calendar year. Any
interest credited on the amounts in the Guaranteed Account in excess of the
minimum guaranteed rate of 3% per year will be determined in the sole discretion
of Providentmutual. The Owner assumes the risk that interest credited may not
exceed the guaranteed minimum rate.
Amounts deducted from the Guaranteed Account for the administration fee,
withdrawals, transfers to the Subaccounts, or other charges are currently, for
the purpose of crediting interest, accounted for on a last-in, first-out
("LIFO") method.
Providentmutual reserves the right to change the method of crediting
interest from time to time, provided that such changes do not have the effect of
reducing the guaranteed rate of interest below 3% per annum or shorten the
period for which the interest rate applies to less than a calendar year (except
for the year in which such amount is received or transferred).
Calculation of Guaranteed Account Value. The Guaranteed Account Value at
any time is equal to amounts allocated and transferred to it plus interest
credited to it, minus amounts deducted, transferred, or withdrawn from it.
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days prior to or following any Contract Anniversary, one transfer
is allowed from the Guaranteed Account to any or all of the Subaccounts. The
amount transferred from the Guaranteed Account may not exceed 25% of the
Guaranteed Account Value on the date of transfer, unless the balance after the
transfer is less than $500 in which case the entire amount will be transferred.
If the Written Notice of such transfer is received prior to the Contract
Anniversary, the transfer will be made as of the Contract Anniversary; if the
Written Notice is received after the Contract Anniversary, the transfer will be
made as of the date Providentmutual receives the Written Notice at its
Administrative Office.
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<PAGE> 32
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.
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
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<PAGE> 33
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
ACCOUNT VALUE
AT BEGINNING OF
CONTRACT YEAR CONTRACT YEAR
- ------------------ ---------------------
<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.) No Annual Administration Fee is payable
during the annuity period. Providentmutual reserves the right to increase this
fee up to $40.
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
reserves the right to increase this fee up to 0.25%.
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).
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<PAGE> 34
The mortality risk Providentmutual assumes is that Annuitants may live for
a longer period of time than estimated when the guarantees in the contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk Providentmutual assumes also includes a guarantee to pay a death benefit if
the Annuitant dies before the Maturity Date. The expense risk Providentmutual
assumes is the risk that the surrender charges, administration fees, and
transfer fees may be insufficient to cover actual future expenses.
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 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.
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
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<PAGE> 35
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 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.
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<PAGE> 36
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.
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.
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<PAGE> 37
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 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
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<PAGE> 38
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.
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.
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<PAGE> 39
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 (including Systematic Withdraws) 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
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.
32
<PAGE> 40
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
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.
33
<PAGE> 41
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.
SIMPLE Retirement Accounts. Beginning January 1, 1997, certain small
employers may establish Simple Retirement Accounts as provided by Section 408(p)
of the Code, under which employees may elect to defer up to $6,000 (as increased
for cost of living adjustments) as a percentage of compensation. The sponsoring
employer is required to make a matching contribution on behalf of contributing
employees. Distributions from a Simple Retirement Account are subject to the
same restrictions that apply to IRA distributions and are taxed as ordinary
income. Subject to certain exceptions, premature distributions prior to age
59 1/2 are subject to a 10% penalty tax, which is increased to 25% if the
distribution occurs within the first two years after the commencement of the
employee's participation in the plan. The failure of the Simple Retirement
Account to meet Code requirements may result in adverse tax consequences.
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. Code section 403(b)(11) restricts the
distribution under Code section 403(b) annuity contracts of: (1) elective
contributions made in years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on amounts held as of the
last year beginning before January 1, 1989. Distribution of those amounts may
only occur upon death of the employee, attainment of age 59 1/2, separation form
service, disability, or financial hardship. In addition, income attributable to
elective contributions may not be distribution in the case of hardship.
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.
34
<PAGE> 42
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.
DISTRIBUTION OF CONTRACTS
The Contracts will be offered to the public on a continuous basis, and
Providentmutual does not anticipate discontinuing the offering of the Contracts.
However, Providentmutual reserves the right to discontinue the offering.
Applications for Contracts are solicited by agents who are licensed by
applicable state insurance authorities to sell Providentmutual's variable
annuity contracts and who are also registered representatives of 1717 Capital
Management Company ("1717") 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.
35
<PAGE> 43
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.
FINANCIAL STATEMENTS
The audited statements of financial condition for Providentmutual as of
December 31, 1996 and 1995 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, 1996 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, 1996 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> 44
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-8
Termination of Participation Agreements............................................. S-8
Safekeeping of Account Assets....................................................... S-9
State Regulation.................................................................... S-9
Records and Reports................................................................. S-10
Legal Matters....................................................................... S-10
Experts............................................................................. S-10
Other Information................................................................... S-10
Financial Statements................................................................ S-10
</TABLE>
37
<PAGE> 45
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA,
A STOCK LIFE INSURANCE COMPANY
300 CONTINENTAL DRIVE
NEWARK, DELAWARE 19713
1-800-688-5177
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;
Neuberger & Berman Advisers Management Trust; American Century Variable
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 MAY 1, 1997
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-8
TERMINATION OF PARTICIPATION AGREEMENTS............................................. S-8
SAFEKEEPING OF ACCOUNT ASSETS....................................................... S-9
STATE REGULATION (7)................................................................ S-9
RECORDS AND REPORTS................................................................. S-10
LEGAL MATTERS (30).................................................................. S-10
EXPERTS............................................................................. S-10
OTHER INFORMATION................................................................... S-10
FINANCIAL STATEMENTS (31)........................................................... S-10
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the Prospectus.
<PAGE> 46
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> 47
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))(superior 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> 48
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)(superior 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> 49
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)(superior 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, American
Century Variable 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> 50
Such average annual total return information for the Subaccounts is as
follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/96
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/96 12/31/96 THAN 10 YEARS)
- ----------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET
Growth (December 12, 1985)................... 11.96% 11.06% 11.72%
Money Market (December 12, 1985)............. (1.54)% 2.18% 3.95%
Bond (December 12, 1985)..................... (3.65)% 4.55% 5.11%
Managed (December 12, 1985).................. 4.80% 9.37% 7.29%
Aggressive Growth (May 1, 1989).............. 13.22% 6.26% 11.86%
International (November 1, 1991)............. 3.81% 7.94% 7.25%
FIDELITY
High Income (September 19, 1985)............. 6.75% 13.01% 9.45%
Equity Income (October 9, 1986).............. 6.99% 15.99% 12.06%
Growth (October 9, 1986)..................... 7.38% 13.21% 13.47%
Overseas (January 28, 1987).................. 6.00% 7.24% 6.23%
Investment Grade Bond (December 5, 1988)..... (3.43)% 4.74% 6.47%
Asset Manager (September 6, 1989)............ 7.29% 9.33% 10.00%
Index 500 (August 27, 1992).................. 15.00% -- 14.91%
Contrafund (July 3, 1995).................... 13.58% -- 25.12%
NEUBERGER & BERMAN
Growth (September 10, 1984).................. 2.17% 7.92% 9.76%
Bond (September 10, 1984).................... (2.38)% 3.39% 4.99%
Balanced (February 28, 1989)................. 0.05% 6.12% 8.61%
AMERICAN CENTURY
Capital Appreciation (November 20, 1987)..... (10.48)% 4.28% 9.14%
VAN ECK
Worldwide Bond (September 1, 1989)........... (4.05)% 2.04% 4.99%
Worldwide Hard (September 1, 1989)........... 10.53% 12.60% 6.54%
Worldwide Emerging Markets (December 27,
1985)..................................... 18.79% -- 17.38%
ALGER
Small Cap (September 21, 1988)............... (2.48)% 9.10% 18.49%
</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> 51
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 12/31/96
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/96 12/31/96 THAN 10 YEARS
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET
Growth (December 12, 1985)................. 17.60% 11.24% 11.72%
Money Market (December 12, 1985)........... 3.42% 2.35% 3.95%
Bond (December 12, 1985)................... 1.21% 4.72% 5.11%
Managed (December 12, 1985)................ 10.08% 9.54% 7.29%
Aggressive Growth (May 1, 1989)............ 18.93% 6.43% 11.86%
International (November 1, 1991)........... 9.04% 8.11% 7.42%
FIDELITY
High Income (September 19, 1985)........... 12.13% 13.19% 9.45%
Equity Income (October 9, 1986)............ 12.38% 16.18% 12.06%
Growth (October 9, 1986)................... 12.80% 13.39% 13.47%
Overseas (January 28, 1987)................ 11.34% 7.41% 6.23%
Investment Grade Bond (December 5, 1988)... 1.44% 4.91% 6.47%
Asset Manager (September 6, 1989).......... 12.70% 9.51% 10.00%
Index 500 (August 27, 1992)................ 20.80% -- 15.31%
Contrafund (July 3, 1995).................. 19.31% -- 28.25%
NEUBERGER & BERMAN
Growth (September 10, 1984)................ 7.32% 8.09% 9.76%
Bond (September 10, 1984).................. 2.54% 3.56% 4.99%
Balanced (February 28, 1989)............... 5.09% 6.29% 8.61%
AMERICAN CENTURY
Capital Appreciation (November 20, 1987)... (5.96)% 4.45% 9.14%
VAN ECK
Worldwide Bond (September 1, 1989)......... 0.79% 2.20% 4.99%
Worldwide Hard Assets (September 1,
1989)................................... 16.10% 12.78% 6.54%
Worldwide Emerging Markets (December 27,
1985)................................... 24.78% -- 23.23%
ALGER
Small Cap (September 21, 1988)............. 2.44% 9.27% 18.49%
</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
S-7
<PAGE> 52
Where:
CTR = The Cumulative Total Return net of Subaccount recurring charges for
the period.
ERV = The ending redeemable value of the hypothetical investment at the end
of the period.
P = A hypothetical single payment of $1,000.
EFFECT OF THE ADMINISTRATION FEE ON PERFORMANCE DATA
The Contract provides for a $30 Annual Administration Fee to be deducted
annually at the end of each Contract Year, from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each such account
bears to the total Contract Account Value. For purposes of reflecting the
administration fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on the average contract value
in the Variable Account of all Contracts on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to the Variable Account contain varying provisions regarding termination. The
following summarizes those provisions:
Market Street Fund, Inc. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at Providentmutual's option if
shares of the Fund are not reasonably available to meet the requirements of the
Contracts; (3) at the option of the Fund or Providentmutual if certain
enforcement proceedings are instituted against the other; (4) upon vote of the
Owners of Contracts to substitute shares of another mutual fund; (5) at
Providentmutual's option if the Fund ceases to qualify as a regulated investment
company under the Code or fails to meet the diversification requirements
thereunder; (6) at the option of Providentmutual or the Fund upon a
determination that an irreconcilable material conflict exists between Owners of
variable insurance products of all the separate accounts or the interests of
participating insurance companies investing in the Fund; (7) at the option of
Providentmutual if it has withdrawn the Variable Account's investment in the
Fund; or (8) at the option of any party upon another party's material breach of
any provision of the agreement.
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 Providentmutual in the event that formal
proceedings are initiated against Alger or the distributor by the SEC or another
regulator; 5) by Providentmutual in the event the Portfolio or trust fails to
meet the diversification requirements; 6) by Providentmutual if shares are not
reasonably available; 7) by Providentmutual 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 Providentmutual 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 Providentmutual 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
S-8
<PAGE> 53
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.
American Century Variable Portfolios, Inc. The agreement with American
Century Variable Portfolios, Inc., ("American Century") provides for termination
1) by Providentmutual or American Century 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 American Century in the
event that shares of American Century 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 American Century are no longer available or upon sixty days notice
if Providentmutual should substitute shares of another fund or Fund for those of
American Century, 4) upon assignment of the agreement unless both parties agree
to the assignment in writing or upon termination of American Century's
investment management agreement with Investor's Research (unless a new
management agreement is entered into by American Century with Investor's
Research), and 5) by American Century if Providentmutual breaches the agreement.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Worldwide
Insurance Trust "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 Aetna Casualty and Surety Company to Provident
Mutual Life Insurance Company 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
S-9
<PAGE> 54
required approved by, insurance officials in each jurisdiction where the
Contracts are sold. Providentmutual is required to submit annual statements of
its operations, including financial statements, to the insurance departments of
the various jurisdictions in which it does business for the purposes of
determining solvency and compliance with local insurance laws and regulations.
RECORDS AND REPORTS
Providentmutual will maintain all records and accounts relating to the
Variable Account. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, reports containing such information as
may be required under the Act or by any other applicable law or regulation will
be sent to Contract Owners semi-annually at the last address known to the
Company.
LEGAL MATTERS
M. Diane Koken, Secretary and Legal Officer of Providentmutual, has
provided advice on certain matters relating to the laws of Delaware regarding
the Contacts and Providentmutual's issuance of the Contracts. Sutherland, Asbill
& Brennan, L.L.P., 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, 1996 and 1995 and the related statements of operations, capital and surplus,
and cash flows for each of the three years in the period ended December 31, 1996
and the audited statements of assets and liabilities of the Providentmutual
Variable Annuity Separate Account as of December 31, 1996 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, 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 Providentmutual Variable Annuity Separate Account
as of December 31, 1996 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 Providentmutual Variable Annuity Separate Account.
Providentmutual's statements of financial condition as of December 31, 1996
and 1995 and the related statements of operations, capital and surplus, and cash
flows for each of the three years in the period ended December 31, 1996, 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 Providentmutual Variable Annuity Separate
Account.
S-10
<PAGE> 55
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Providentmutual Variable Annuity Separate Account
Report of Independent Accountants................................................ F-2
Statements of Assets and Liabilities, December 31, 1996.......................... F-3
Statements of Operations for the Year Ended December 31, 1996.................... F-9
Statements of Changes in Net Assets for the Year Ended December 31, 1996......... F-15
Statements of Changes in Net Assets for the Year Ended December 31, 1995......... F-21
Notes to Financial Statements.................................................... F-25
Providentmutual Life and Annuity Company of America
Report of Independent Accountants................................................ F-40
Statements of Financial Condition as of December 31, 1996 and 1995............... F-41
Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994... F-42
Statements of Capital and Surplus for the Years Ended December 31, 1996, 1995,
and 1994........................................................................ F-43
Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994... F-44
Notes to Financial Statements.................................................... F-45
</TABLE>
F-1
<PAGE> 56
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Contractholders and
Board of Directors of
Providentmutual Life and Annuity
Company of America
We have audited the accompanying statements of assets and liabilities of the
Providentmutual Variable Annuity Separate Account (comprising thirty-three
Subaccounts) as of December 31, 1996, 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 Providentmutual 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 securities owned as of December 31, 1996 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, 1996, 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 10, 1997
F-2
<PAGE> 57
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<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................. $27,187,220
Money Market Portfolio........... $26,222,208
Bond Portfolio................... $5,229,293
Managed Portfolio................ $11,558,384
Aggressive Growth Portfolio...... $7,218,147
International Portfolio.......... $16,420,391
Dividends receivable............... 108,086
----------- ----------- ---------- ----------- ---------- -----------
Total Assets....................... 27,187,220 26,330,294 5,229,293 11,558,384 7,218,147 16,420,391
----------- ----------- ---------- ----------- ---------- -----------
LIABILITIES
Payable to Providentmutual Life and
Annuity Company of America....... 87,121
----------- ----------- ---------- ----------- ---------- -----------
NET ASSETS......................... $27,187,220 $26,243,173 $5,229,293 $11,558,384 $7,218,147 $16,420,391
=========== =========== ========== =========== ========== ===========
Held for the benefit of
contractholders.................. $27,158,986 $26,185,389 $5,198,096 $11,535,080 $7,165,045 $16,393,829
Attributable to Providentmutual
Life and Annuity Company
of America....................... 28,234 57,784 31,197 23,304 53,102 26,562
----------- ----------- ---------- ----------- ---------- -----------
$27,187,220 $26,243,173 $5,229,293 $11,558,384 $7,218,147 $16,420,391
=========== =========== ========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 58
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH OVERSEAS MANAGER INDEX 500
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............ $10,477,722
Equity-Income Portfolio.......... $49,735,738
Growth Portfolio................. $45,020,726
Overseas Portfolio............... $159,089
Investment in the Variable
Insurance Products Fund II, at
market value:
Asset Manager Portfolio.......... $21,122,323
Index 500 Portfolio.............. $23,271,511
----------- ----------- ----------- -------- ----------- -----------
NET ASSETS......................... $10,477,722 $49,735,738 $45,020,726 $159,089 $21,122,323 $23,271,511
=========== =========== =========== ======== =========== ===========
Held for the benefit of
contractholders.................. $10,447,940 $49,698,262 $44,967,947 $132,669 $21,099,939 $23,225,087
Attributable to Providentmutual
Life and Annuity Company of
America.......................... 29,782 37,476 52,779 26,420 22,384 46,424
----------- ----------- ----------- -------- ----------- -----------
$10,477,722 $49,735,738 $45,020,726 $159,089 $21,122,323 $23,271,511
=========== =========== =========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 59
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY QUEST FOR QUEST FOR QUEST FOR
FIDELITY INVESTMENT VALUE VALUE VALUE
CONTRAFUND GRADE BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products
Fund II, at market value:
Contrafund Portfolio.......................... $17,135,935
Investment Grade Bond......................... $170,704
Investment in the OCC Accumulation Trust, at
market value:
Equity Portfolio.............................. $10,821,995
Small Cap Portfolio........................... $10,778,200
Managed Portfolio............................. $38,321,624
----------- -------- ----------- ----------- -----------
NET ASSETS...................................... $17,135,935 $170,704 $10,821,995 $10,778,200 $38,321,624
=========== ======== =========== =========== ===========
Held for the benefit of contractholders......... $17,105,329 $144,146 $10,781,359 $10,739,385 $38,272,157
Attributable to Providentmutual Life and Annuity
Company of America............................ 30,606 26,558 40,636 38,815 49,467
----------- -------- ----------- ----------- -----------
$17,135,935 $170,704 $10,821,995 $10,778,200 $38,321,624
=========== ======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 60
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS DREYFUS
SCUDDER GROWTH SCUDDER ZERO GROWTH AND SOCIALLY
BOND AND INCOME INTERNATIONAL COUPON 2000 INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Scudder
Variable Life Investment Fund,
at market value:
Bond Portfolio................. $5,689,320
Growth and Income Portfolio.... $4,545,038
International Portfolio........ $ 5,588,436
Investment in the Dreyfus
Variable Investment Fund, at
market value:
Zero Coupon 2000 Portfolio..... $4,977,823
Growth and Income Portfolio.... $12,537,732
Socially Responsible
Portfolio.................... $1,781,138
---------- ---------- ----------- ---------- ----------- ----------
NET ASSETS....................... $5,689,320 $4,545,038 $ 5,588,436 $4,977,823 $12,537,732 $1,781,138
========== ========== =========== ========== =========== ==========
Held for the benefit of
contractholders................ $5,663,836 $4,507,993 $ 5,558,139 $4,951,581 $12,504,232 $1,744,157
Attributable to Providentmutual
Life and Annuity Company of
America........................ 25,484 37,045 30,297 26,242 33,500 36,981
---------- ---------- ----------- ---------- ----------- ----------
$5,689,320 $4,545,038 $ 5,588,436 $4,977,823 $12,537,732 $1,781,138
========== ========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 61
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
U.S. FEDERATED NEUBERGER NEUBERGER NEUBERGER
GOVERNMENT UTILITY & BERMAN & BERMAN & BERMAN LIMITED
BOND FUND FUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Insurance Management
Series, at market value:
U.S. Government Bond Fund Portfolio.... $ 1,982,702
Utility Fund Portfolio................. $2,779,751
Investment in the Neuberger & Berman
Advisers Management Trust,
at market value:
Balanced Portfolio..................... $ 68,187
Growth Portfolio....................... $133,223
Limited Maturity Bond Portfolio........ $101,452
---------- ---------- -------- -------- --------
NET ASSETS............................... $ 1,982,702 $2,779,751 $ 68,187 $133,223 $101,452
========== ========== ======== ======== ========
Held for the benefit of
contractholders........................ $ 1,953,894 $2,747,394 $ 41,858 $106,830 $ 75,315
Attributable to Providentmutual Life and
Annuity Company of America............. 28,808 32,357 26,329 26,393 26,137
---------- ---------- -------- -------- --------
$ 1,982,702 $2,779,751 $ 68,187 $133,223 $101,452
========== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 62
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in TCI Portfolios Inc., at
market value:
Growth Portfolio......................... $ 82,618
Investment in Van Eck Worldwide Insurance
Trust, at market value:
Worldwide Bond Portfolio................. $117,503
Gold and Natural Resources Portfolio..... $ 42,725
Emerging Markets Portfolio............... $ 96,572
Investment in the Alger American Fund, at
market value:
Small Capitalization Portfolio........... $481,856
-------- -------- -------- -------- --------
NET ASSETS................................. $ 82,618 $117,503 $ 42,725 $ 96,572 $481,856
======== ======== ======== ======== ========
Held for the benefit of contractholders.... $ 58,241 $ 91,044 $ 16,399 $ 70,137 $456,896
Attributable to Providentmutual Life and
Annuity Company of America............... 24,377 26,459 26,326 26,435 24,960
-------- -------- -------- -------- --------
$ 82,618 $117,503 $ 42,725 $ 96,572 $481,856
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 63
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<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.......................... $ 620,724 $1,086,440 $244,069 $ 353,488 $ 44,166 $ 141,071
EXPENSES
Mortality and expense risks........ 304,639 302,236 59,578 135,600 77,252 196,618
---------- ---------- -------- ---------- ---------- -----------
Net investment income (loss)....... 316,085 784,204 184,491 217,888 (33,086) (55,547)
---------- ---------- -------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested....................... 874,929 355,289 445,013 571,872
Net realized gain (loss) from
redemption of investment
shares........................... 192,088 (25,492) 66,471 50,717 76,242
---------- --------- -------- ---------- ---------- -----------
Net realized gain (loss) on
investments...................... 1,067,017 (25,492) 421,760 495,730 648,114
---------- --------- -------- ---------- ---------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year................ 2,512,707 151,805 925,879 404,334 880,428
End of year...................... 4,997,236 86,993 1,316,337 945,250 1,575,419
---------- --------- -------- ---------- ---------- -----------
Net unrealized appreciation
(depreciation) during the year... 2,484,529 (64,812) 390,458 540,916 694,991
---------- --------- -------- ---------- ---------- -----------
Net realized and unrealized gain
(loss) on investments............ 3,551,546 (90,304) 812,218 1,036,646 1,343,105
---------- --------- -------- ---------- ---------- -----------
Net increase in net assets
resulting from operations........ $3,867,631 $ 784,204 $ 94,187 $1,030,106 $1,003,560 $ 1,287,558
========== ========= ======== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 64
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................... $355,611 $ 46,007 $ 68,300 $ 602,090 $ 98,035
EXPENSES
Mortality and expense risks........ 100,684 551,938 497,719 $ 311 237,102 207,571
-------- ---------- ---------- ------ ---------- ----------
Net investment income (loss)....... 254,927 (505,931) (429,419) (311) 364,988 (109,536)
-------- ---------- ---------- ------ ---------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested....................... 69,576 1,318,874 1,724,590 496,460 252,092
Net realized gain (loss) from
redemption of investment
shares........................... 62,751 299,578 200,644 (160) 167,466 137,030
-------- ---------- ---------- ------ ---------- ----------
Net realized gain (loss) on
investments.................... 132,327 1,618,452 1,925,234 (160) 663,926 389,122
-------- ---------- ---------- ------ ---------- ----------
Net unrealized appreciation of
investments:
Beginning of year................ 347,898 3,993,663 3,957,135 1,710,729 1,006,112
End of year...................... 788,054 7,714,797 6,606,438 6,677 2,991,814 3,722,079
-------- ---------- ---------- ------ ---------- ----------
Net unrealized appreciation during
the year......................... 440,156 3,721,134 2,649,303 6,677 1,281,085 2,715,967
-------- ---------- ---------- ------ ---------- ----------
Net realized and unrealized gain on
investments...................... 572,483 5,339,586 4,574,537 6,517 1,945,011 3,105,089
-------- ---------- ---------- ------ ---------- ----------
Net increase in net assets
resulting from operations........ $827,410 $4,833,655 $4,145,118 $6,206 $2,309,999 $2,995,553
======== ========== ========== ====== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 65
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY QUEST FOR QUEST FOR QUEST FOR
FIDELITY INVESTMENT VALUE VALUE VALUE
CONTRAFUND GRADE BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 55,211 $ 85,374 $ 298,582
EXPENSES
Mortality and expense risks..................... $ 144,281 $ 408 110,153 116,949 399,274
---------- ------ ---------- ---------- ----------
Net investment loss............................. (144,281) (408) (54,942) (31,575) (100,692)
---------- ------ ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.......... 51,072 110,624 219,491 190,423
Net realized gain from redemption of investment
shares........................................ 62,881 457 136,613 95,440 307,388
---------- ------ ---------- ---------- ----------
Net realized gain on investments................ 113,953 457 247,237 314,931 497,811
---------- ------ ---------- ---------- ----------
Net unrealized appreciation of investments:
Beginning of year............................. 119,151 894,157 864,772 4,270,089
End of year................................... 2,216,487 4,399 2,228,445 1,970,184 9,403,779
---------- ------ ---------- ---------- ----------
Net unrealized appreciation during the year..... 2,097,336 4,399 1,334,288 1,105,412 5,133,690
---------- ------ ---------- ---------- ----------
Net realized and unrealized gain on
investments................................... 2,211,289 4,856 1,581,525 1,420,343 5,631,501
---------- ------ ---------- ---------- ----------
Net increase in net assets resulting from
operations.................................... $2,067,008 $4,448 $1,526,583 $1,388,768 $5,530,809
========== ====== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 66
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS
SCUDDER ZERO DREYFUS DREYFUS
SCUDDER GROWTH AND SCUDDER COUPON GROWTH SOCIALLY
BOND INCOME INTERNATIONAL 2000 AND INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.......................... $388,013 $ 58,658 $ 24,497 $ 232,082 $ 137,231 $ 3,783
EXPENSES
Mortality and expense risks........ 65,253 33,814 37,869 57,618 100,938 11,413
-------- ---------- ---------- ---------- ---------- --------
Net investment income (loss)....... 322,760 24,844 (13,372) 174,464 36,293 (7,630)
-------- ---------- ---------- ---------- ---------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested....................... 14,590 16,543 1,279,552 67,682
Net realized gain (loss) from
redemption of investment
shares........................... (10,942) 40,730 3,629 34,018 137,832 9,800
-------- ---------- ---------- ---------- ---------- --------
Net realized gain (loss) on
investments...................... (10,942) 55,320 3,629 50,561 1,417,384 77,482
-------- ---------- ---------- ---------- ---------- --------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year................ 230,343 42,447 11,601 145,722 77,046 4,236
End of year...................... 31,472 449,079 382,202 11,496 (407,725) 65,790
-------- ---------- ---------- ---------- ---------- --------
Net unrealized appreciation
(depreciation) during the year... (198,871) 406,632 370,601 (134,226) (484,771) 61,554
-------- ---------- ---------- ---------- ---------- --------
Net realized and unrealized gain
(loss) on investments............ (209,813) 461,952 374,230 (83,665) 932,613 139,036
-------- ---------- ---------- ---------- ---------- --------
Net increase in net assets
resulting from operations........ $112,947 $486,796 $360,858 $ 90,799 $ 968,906 $131,406
======== ========== ========== ========== ========== ========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 67
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED U.S. NEUBERGER NEUBERGER NEUBERGER
GOVERNMENT FEDERATED & BERMAN & BERMAN & BERMAN LIMITED
BOND FUND UTILITY FUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 74,392 $ 70,575
EXPENSES
Mortality and expense risks............. 17,819 25,451 $ 11 $ 257 $ 233
-------- -------- ------ ------ ------
Net investment income (loss)............ 56,573 45,124 (11) (257) (233)
-------- -------- ------ ------ ------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Realized gain distributions
reinvested............................ 3,324 5,731
Net realized gain from redemption of
investment shares..................... 1,477 18,287 27 2,039
-------- -------- ------ ------ ------
Net realized gain on investments........ 4,801 24,018 27 2,039
-------- -------- ------ ------ ------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year..................... 8,312 28,020
End of year........................... 6,635 190,839 1,338 7,212 463
-------- -------- ------ ------ ------
Net unrealized appreciation
(depreciation)
during the year....................... (1,677) 162,819 1,338 7,212 463
-------- -------- ------ ------ ------
Net realized and unrealized gain
on investments........................ 3,124 186,837 1,338 7,239 2,502
-------- -------- ------ ------ ------
Net increase in net assets
resulting from operations............. $ 59,697 $231,961 $1,327 $6,982 $2,269
======== ======== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 68
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends..................................
EXPENSES
Mortality and expense risks................ $ 104 $ 325 $ 19 $ 156 $1,037
-------- ------ ------ ------ ------
Net investment loss........................ (104) (325) (19) (156) (1,037)
-------- ------ ------ ------ ------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net realized gain from redemption of
investment shares........................ 2 2,082 57 1 10
-------- ------ ------ ------ ------
Net realized gain on investments........... 2 2,082 57 1 10
-------- ------ ------ ------ ------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year........................
End of year.............................. (1,957) 1,185 1,566 3,026 5,653
-------- ------ ------ ------ ------
Net unrealized appreciation (depreciation)
during the year.......................... (1,957) 1,185 1,566 3,026 5,653
-------- ------ ------ ------ ------
Net realized and unrealized gain (loss) on
investments.............................. (1,955) 3,267 1,623 3,027 5,663
-------- ------ ------ ------ ------
Net increase (decrease) in net assets
resulting from operations................ $ (2,059) $2,942 $1,604 $2,871 $4,626
======== ====== ====== ====== ======
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 69
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<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).... $ 316,085 $ 784,204 $ 184,491 $ 217,888 $ (33,086) $ (55,547)
Net realized gain (loss) on
investments................... 1,067,017 (25,492) 421,760 495,730 648,114
Net unrealized appreciation
(depreciation) of investments
during the year............... 2,484,529 (64,812) 390,458 540,916 694,991
----------- ------------- ---------- ----------- ---------- -----------
Net increase in net assets from
operations.................... 3,867,631 784,204 94,187 1,030,106 1,003,560 1,287,558
----------- ------------- ---------- ----------- ---------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums... 1,644,231 121,758,353 304,881 978,648 588,324 1,004,617
Administrative charges.......... (13,376) (5,026) (2,343) (6,006) (4,280) (9,958)
Surrenders and forfeitures...... (795,658) (1,435,990) (182,432) (719,819) (273,147) (652,687)
Transfers between investment
portfolios.................... 4,176,554 (111,307,382) 1,372,798 1,582,506 1,796,643 3,132,226
Net repayments (withdrawals) due
to policy loans............... (7,338) (34,207) 100 (552) (1,372)
Withdrawals due to death
benefits...................... (11,907) (58,579) (10,224) (3,236) (17,636) (29,540)
----------- ------------- ---------- ----------- ---------- -----------
Net increase in net assets
derived from contract
transactions.................. 4,992,506 8,917,169 1,482,780 1,832,093 2,089,352 3,443,286
----------- ------------- ---------- ----------- ---------- -----------
Capital Contribution from
Providentmutual Life and
Annuity Company of America.... 10,000
----------- ------------- ---------- ----------- ---------- -----------
Total increase in net assets.... 8,870,137 9,701,373 1,576,967 2,862,199 3,092,912 4,730,844
NET ASSETS
Beginning of year............. 18,317,083 16,541,800 3,652,326 8,696,185 4,125,235 11,689,547
----------- ------------- ---------- ----------- ---------- -----------
End of year................... $27,187,220 $ 26,243,173 $5,229,293 $11,558,384 $7,218,147 $16,420,391
=========== ============= ========== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 70
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)...... $ 254,927 $ (505,931) $ (429,419) $ (311) $ 364,988 $ (109,536)
Net realized gain (loss) on
investments..................... 132,327 1,618,452 1,925,234 (160) 663,926 389,122
Net unrealized appreciation of
investments during the year..... 440,156 3,721,134 2,649,303 6,677 1,281,085 2,715,967
----------- ----------- ----------- -------- ----------- -----------
Net increase in net assets from
operations...................... 827,410 4,833,655 4,145,118 6,206 2,309,999 2,995,553
----------- ----------- ----------- -------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums..... 1,340,627 4,044,472 3,701,064 23,248 1,313,614 2,421,951
Administrative charges............ (4,355) (21,830) (22,665) (11,966) (7,281)
Surrenders and forfeitures........ (288,950) (1,390,637) (1,509,084) (15) (828,163) (354,068)
Transfers between investment
portfolios...................... 4,325,677 15,191,804 15,851,318 104,650 1,876,550 10,995,467
Net repayments (withdrawals) due
to policy loans................. 85 (3,854) (5,133) (8,826) (282)
Withdrawals due to death
benefits........................ (9,539) (208,952) (26,054)
----------- ----------- ----------- -------- ----------- -----------
Net increase in net assets derived
from contract transactions...... 5,363,545 17,611,003 18,015,500 127,883 2,341,209 13,029,733
----------- ----------- ----------- -------- ----------- -----------
Capital Contribution from
Providentmutual Life and Annuity
Company of America.............. 25,000
----------- ----------- ----------- -------- ----------- -----------
Total increase in net assets...... 6,190,955 22,444,658 22,160,618 159,089 4,651,208 16,025,286
NET ASSETS
Beginning of year............... 4,286,767 27,291,080 22,860,108 -- 16,471,115 7,246,225
----------- ----------- ----------- -------- ----------- -----------
End of year..................... $10,477,722 $49,735,738 $45,020,726 $159,089 $21,122,323 $23,271,511
=========== =========== =========== ======== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 71
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY QUEST FOR QUEST FOR
FIDELITY INVESTMENT QUEST FOR VALUE VALUE
CONTRAFUND GRADE BOND VALUE EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................... $ (144,281) $ (408) $ (54,942) $ (31,575) $ (100,692)
Net realized gain on investments................ 113,953 457 247,237 314,931 497,811
Net unrealized appreciation of investments
during the year............................... 2,097,336 4,399 1,334,288 1,105,412 5,133,690
----------- -------- ----------- ----------- -----------
Net increase in net assets from operations...... 2,067,008 4,448 1,526,583 1,388,768 5,530,809
----------- -------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums................... 1,525,821 34,827 1,229,182 811,707 2,943,888
Administrative charges.......................... (5,051) (4,681) (6,037) (15,390)
Surrenders and forfeitures...................... (228,810) (25) (421,232) (485,083) (1,143,195)
Transfers between investment portfolios......... 9,242,839 106,454 3,356,209 2,518,729 11,176,788
Net repayments (withdrawals) due to policy
loans......................................... (288) (2,593) (773)
Withdrawals due to death benefits............... (9,938) (3,231) (16,253)
----------- -------- ----------- ----------- -----------
Net increase in net assets derived from contract
transactions.................................. 10,534,511 141,256 4,149,540 2,833,492 12,945,065
----------- -------- ----------- ----------- -----------
Capital Contribution from Providentmutual Life
and Annuity Company of America................ 25,000
----------- -------- ----------- ----------- -----------
Total increase in net assets.................... 12,601,519 170,704 5,676,123 4,222,260 18,475,874
NET ASSETS
Beginning of year............................. 4,534,416 -- 5,145,872 6,555,940 19,845,750
----------- -------- ----------- ----------- -----------
End of year................................... $17,135,935 $170,704 $10,821,995 $10,778,200 $38,321,624
=========== ======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 72
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS DREYFUS
SCUDDER GROWTH AND SCUDDER ZERO GROWTH SOCIALLY
BOND INCOME INTERNATIONAL COUPON 2000 AND INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)... $ 322,760 $ 24,844 $ (13,372) $ 174,464 $ 36,293 $ (7,630)
Net realized gain (loss)
on investments............... (10,942) 55,320 3,629 50,561 1,417,384 77,482
Net unrealized appreciation
(depreciation) of investments
during the year.............. (198,871) 406,632 370,601 (134,226) (484,771) 61,554
---------- ---------- ---------- ---------- ----------- ----------
Net increase in net assets
from operations.............. 112,947 486,796 360,858 90,799 968,906 131,406
---------- ---------- ---------- ---------- ----------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net
premiums..................... 323,646 442,431 682,287 432,012 1,384,695 440,029
Administrative charges......... (2,437) (841) (967) (1,938) (2,831) (362)
Surrenders and forfeitures..... (349,330) (80,116) (62,391) (379,163) (138,624) (18,392)
Transfers between investment
portfolios................... 2,013,802 3,090,019 3,965,920 2,005,547 7,996,700 1,069,773
Net repayments (withdrawals)
due to policy loans.......... (119) 69 26 (297) (205)
Withdrawals due to
death benefits............... (43,086) (1,695)
---------- ---------- ---------- ---------- ----------- ----------
Net increase in net assets
derived from contract
transactions................. 1,942,476 3,451,493 4,584,918 2,056,484 9,237,948 1,490,843
---------- ---------- ---------- ---------- ----------- ----------
Total increase in net assets... 2,055,423 3,938,289 4,945,776 2,147,283 10,206,854 1,622,249
NET ASSETS
Beginning of year............ 3,633,897 606,749 642,660 2,830,540 2,330,878 158,889
---------- ---------- ---------- ---------- ----------- ----------
End of year.................. $5,689,320 $4,545,038 $ 5,588,436 $4,977,823 $12,537,732 $1,781,138
========== ========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 73
- --------------------------------------------------------------------------------
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED U.S. FEDERATED NEUBERGER NEUBERGER NEUBERGER
GOVERNMENT UTILITY & BERMAN & BERMAN & BERMAN LIMITED
BOND FUND FUND BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........ $ 56,573 $ 45,124 $ (11) $ (257) $ (233)
Net realized gain on investments.... 4,801 24,018 27 2,039
Net unrealized appreciation
(depreciation) of investments
during the year................... (1,677) 162,819 1,338 7,212 463
---------- ---------- -------- -------- ---------
Net increase in net assets from
operations........................ 59,697 231,961 1,327 6,982 2,269
---------- ---------- -------- -------- ---------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums....... 102,926 333,893 13,916 34,685
Administrative charges.............. (422) (597)
Surrenders and forfeitures.......... (13,145) (11,974) (15)
Transfers between investment
portfolios........................ 1,336,413 1,641,638 41,860 87,340 39,498
Withdrawals due to death benefits... (62,597)
---------- ---------- -------- -------- ---------
Net increase in net assets derived
from contract transactions........ 1,425,772 1,900,365 41,859 101,240 74,181
---------- ---------- -------- -------- ---------
Capital Contribution from
Providentmutual Life and Annuity
Company of America................ 25,000 25,000 25,000
---------- ---------- -------- -------- ---------
Total increase in net assets........ 1,485,469 2,132,326 68,186 133,222 101,450
NET ASSETS
Beginning of year................. 497,233 647,427 -- -- --
---------- ---------- -------- -------- ---------
End of year....................... $1,982,702 $2,779,751 $ 68,187 $133,223 $ 101,452
========== ========== ======== ======== =========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 74
- --------------------------------------------------------------------------------
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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK GOLD VAN ECK ALGER AMERICAN
WORLDWIDE AND NATURAL EMERGING SMALL
TCI GROWTH BOND RESOURCES MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss........................ $ (104) $ (325) $ (19) $ (156) $ (1,037)
Net realized gain on investments........... 2 2,082 57 1 10
Net unrealized appreciation (depreciation)
of investments during the year........... (1,957) 1,185 1,566 3,026 5,653
-------- -------- -------- -------- --------
Net increase (decrease) in net assets from
operations............................... (2,059) 2,942 1,604 2,871 4,626
-------- -------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums.............. 23,812 34,622 (14) 119 43,293
Surrenders and forfeitures................. (10)
Transfers between investment portfolios.... 35,865 54,949 16,135 68,582 408,937
-------- -------- -------- -------- --------
Net increase in net assets derived from
contract transactions.................... 59,677 89,559 16,121 68,700 452,231
-------- -------- -------- -------- --------
Capital Contribution from Providentmutual
Life and Annuity Company of America...... 25,000 25,000 25,000 25,000 25,000
-------- -------- -------- -------- --------
Total increase in net assets............... 82,618 117,501 42,725 96,571 481,857
NET ASSETS
Beginning of year........................ -- -- -- -- --
-------- -------- -------- -------- --------
End of year.............................. $ 82,618 $117,503 $ 42,725 $ 96,572 $481,856
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 75
- --------------------------------------------------------------------------------
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
Contractholders' 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
transactions..................... 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-21
<PAGE> 76
- --------------------------------------------------------------------------------
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
Contractholders' 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-22
<PAGE> 77
- --------------------------------------------------------------------------------
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
Contractholders' 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-23
<PAGE> 78
- --------------------------------------------------------------------------------
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
Contractholders' 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-24
<PAGE> 79
- --------------------------------------------------------------------------------
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
thirty-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,
Fidelity Growth and Fidelity Overseas Subaccounts invest in the corresponding
portfolios of the Variable Insurance Products Fund; the Fidelity Asset Manager,
Fidelity Index 500, Fidelity Contrafund and Fidelity Investment Grade Bond
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 OCC 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
Neuberger & Berman Balanced, Neuberger & Berman Growth and Neuberger & Berman
Limited Maturity Bond Subaccounts invest in the corresponding portfolios of the
Neuberger & Berman Advisers Management Trust; the TCI Growth Subaccount invests
in the corresponding portfolio of the TCI Portfolios, Inc.; the Van Eck
Worldwide Bond, Van Eck Gold and Natural Resources and Van Eck Emerging Markets
Subaccounts invest in the corresponding portfolios of the Van Eck Worldwide
Insurance Trust; and the Alger American Small Capitalization Subaccount invests
in the corresponding portfolio of the Alger American Fund. See original contract
documents for availability of Subaccounts as investment options for a particular
variable annuity contract.
Net premiums from the Contracts are allocated to the Subaccounts in
accordance with contractholders 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.
F-25
<PAGE> 80
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. ORGANIZATION, CONTINUED
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of
Providentmutual's General Account.
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 and the reported amounts from operations and contract
transactions during the period. Actual results could differ from those
estimates.
F-26
<PAGE> 81
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1996, 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.................................. 1,502,056 $22,189,984 $27,187,220
Money Market Portfolio............................ 26,222,208 $26,222,208 $26,222,208
Bond Portfolio.................................... 490,093 $5,142,300 $5,229,293
Managed Portfolio................................. 787,356 $10,242,047 $11,558,384
Aggressive Growth Portfolio....................... 389,749 $6,272,897 $7,218,147
International Portfolio........................... 1,224,488 $14,844,972 $16,420,391
Variable Insurance Products Fund:
High Income Portfolio............................. 836,879 $9,689,668 $10,477,722
Equity-Income Portfolio........................... 2,364,990 $42,020,941 $49,735,738
Growth Portfolio.................................. 1,445,752 $38,414,288 $45,020,726
Overseas Portfolio................................ 8,444 $152,412 $159,089
Variable Insurance Products Fund II:
Asset Manager Portfolio........................... 1,247,627 $18,130,509 $21,122,323
Index 500 Portfolio............................... 261,096 $19,549,432 $23,271,511
Contrafund Portfolio.............................. 1,034,779 $14,919,448 $17,135,935
Investment Grade Bond Portfolio................... 13,946 $166,305 $170,704
OCC Accumulation Trust:
Equity Portfolio.................................. 359,893 $8,593,550 $10,821,995
Small Cap Portfolio............................... 476,700 $8,808,016 $10,778,200
Managed Portfolio................................. 1,058,316 $28,917,845 $38,321,624
Scudder Variable Life Investment Fund:
Bond Portfolio.................................... 845,367 $5,657,848 $5,689,320
Growth and Income Portfolio....................... 485,063 $4,095,959 $4,545,038
International Portfolio........................... 421,769 $5,206,234 $5,588,436
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio........................ 405,030 $4,966,327 $4,977,823
Growth and Income Portfolio....................... 641,316 $12,945,457 $12,537,732
Socially Responsible Portfolio.................... 88,658 $1,715,348 $1,781,138
</TABLE>
F-27
<PAGE> 82
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
SHARES COST MARKET VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance Management Series:
U.S. Government Bond Fund Portfolio............... 196,502 $1,976,067 $1,982,702
Utility Fund Portfolio............................ 235,373 $2,588,912 $2,779,751
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio................................ 4,283 $66,849 $68,187
Growth Portfolio.................................. 5,168 $126,011 $133,223
Limited Maturity Bond Portfolio................... 7,221 $100,989 $101,452
TCI Portfolios Inc.:
Growth Portfolio.................................. 8,068 $84,575 $82,618
Van Eck Worldwide Insurance Trust:
Worldwide Bond Portfolio.......................... 10,586 $116,318 $117,503
Gold & Natural Resources Portfolio................ 2,555 $41,159 $42,725
Emerging Markets Portfolio........................ 7,732 $93,546 $96,572
Alger American Fund:
Small Capitalization Portfolio.................... 11,778 $476,203 $481,856
</TABLE>
F-28
<PAGE> 83
- --------------------------------------------------------------------------------
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, 1996 and 1995, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO BOND PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................... 353,660 268,419 48,257,103 29,796,814 176,063 96,758
Shares received from reinvestment of:
Dividends.............................. 38,004 30,204 1,086,441 654,480 23,197 17,303
Capital gain distributions............. 56,193 69,274
---------- ---------- ----------- ----------- ---------- ----------
Total shares acquired.................... 447,857 367,897 49,343,544 30,451,294 199,260 114,061
Total shares redeemed.................... (65,428) (95,379) (38,849,836) (22,894,689) (41,198) (28,524)
---------- ---------- ----------- ----------- ---------- ----------
Net increase (decrease) in shares
owned.................................. 382,429 272,518 10,493,708 7,556,605 158,062 85,537
Shares owned, beginning of year.......... 1,119,627 847,109 15,728,500 8,171,895 332,031 246,494
---------- ---------- ----------- ----------- ---------- ----------
Shares owned, end of year................ 1,502,056 1,119,627 26,222,208 15,728,500 490,093 332,031
========== ========== =========== =========== ========== ==========
Cost of shares acquired.................. $7,269,012 $5,336,808 $49,343,544 $30,451,294 $2,101,906 $1,185,517
========== ========== =========== =========== ========== ==========
Cost of shares redeemed.................. $ 883,404 $1,279,444 $38,849,836 $22,894,689 $ 460,127 $ 321,695
========== ========== =========== =========== ========== ==========
</TABLE>
F-29
<PAGE> 84
- --------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO AGGRESSIVE INTERNATIONAL PORTFOLIO
GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 217,165 118,219 143,742 130,740 338,046 273,588
Shares received from reinvestment of:
Dividends............................... 25,583 27,097 2,905 11,412 4,702
Capital gain distributions.............. 26,337 710 29,259 1,436 46,267 22,215
---------- ---------- ----------- ----------- ---------- ----------
Total shares acquired..................... 269,085 146,026 175,906 132,176 395,725 300,505
Total shares redeemed..................... (94,568) (154,005) (23,509) (58,283) (80,224) (189,055)
---------- ---------- ----------- ----------- ---------- ----------
Net increase (decrease) in shares owned... 174,517 (7,979) 152,397 73,893 315,501 111,450
Shares owned, beginning of year........... 612,839 620,818 237,352 163,459 908,987 797,537
---------- ---------- ----------- ----------- ---------- ----------
Shares owned, end of year................. 787,356 612,839 389,749 237,352 1,224,488 908,987
========== ========== =========== =========== ========== ==========
Cost of shares acquired................... $3,730,420 $1,922,362 $2,907,441 $2,157,899 $4,989,324 $3,568,856
========== ========== =========== =========== ========== ==========
Cost of shares redeemed................... $1,258,679 $2,024,052 $ 355,445 $ 812,404 $ 953,471 $2,097,816
========== ========== =========== =========== ========== ==========
</TABLE>
F-30
<PAGE> 85
- --------------------------------------------------------------------------------
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 OVERSEAS
PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased............ 497,171 187,083 948,858 823,025 625,760 359,221 9,008
Shares received from
reinvestment of:
Dividends................. 31,527 15,229 2,439 23,321 2,459 2,491
Capital gain
distributions........... 6,168 69,930 30,181 62,080
---------- ---------- ----------- ----------- ----------- ---------- --------
Total shares acquired....... 534,866 202,312 1,021,227 876,527 690,299 361,712 9,008
Total shares redeemed....... (53,745) (40,679) (72,484) (22,121) (27,427) (17,914) (564)
---------- ---------- ----------- ----------- ----------- ---------- --------
Net increase in shares
owned..................... 481,121 161,633 948,743 854,406 662,872 343,798 8,444
Shares owned, beginning of
year...................... 355,758 194,125 1,416,247 561,841 782,880 439,082
---------- ---------- ----------- ----------- ----------- ---------- --------
Shares owned, end of year... 836,879 355,758 2,364,990 1,416,247 1,445,752 782,880 8,444
========== ========== =========== =========== =========== ========== ========
Cost of shares acquired..... $6,332,243 $2,282,206 $19,840,748 $15,096,748 $20,153,196 $9,941,272 $162,451
========== ========== =========== =========== =========== ========== ========
Cost of shares redeemed..... $ 581,561 $ 455,291 $ 1,117,224 $ 341,059 $ 641,881 $ 408,296 $10,039
========== ========== =========== =========== =========== ========== ========
</TABLE>
F-31
<PAGE> 86
- --------------------------------------------------------------------------------
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 PORTFOLIO INDEX 500 PORTFOLIO CONTRAFUND INVESTMENT
PORTFOLIO GRADE BOND
PORFTOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased.......... 278,005 171,595 166,250 67,760 724,270 325,895 14,613
Shares received from
reinvestment of:
Dividends............... 39,874 22,480 1,306 546 1,399
Capital gain
distributions......... 32,878 3,358 75 3,706 2,797
----------- ---------- ---------- ----------- ---------- ---------- --------
Total shares acquired..... 350,757 194,075 170,914 68,381 727,976 330,091 14,613
Total shares redeemed..... (146,266) (174,916) (5,528) (5,385) (22,255) (1,033) (667)
----------- ---------- ---------- ----------- ---------- ---------- --------
Net increase in shares
owned................... 204,491 19,159 165,386 62,996 705,721 329,058 13,946
Shares owned, beginning of
year.................... 1,043,136 1,023,977 95,710 32,714 329,058
----------- ---------- ---------- ----------- ---------- ---------- --------
Shares owned, end of
year.................... 1,247,627 1,043,136 261,096 95,710 1,034,779 329,058 13,946
=========== ========== ========== =========== ========== ========== ========
Cost of shares acquired... $5,494,521 $2,763,929 $13,621,230 $4,715,544 $10,770,383 $4,427,161 $173,988
=========== ========== ========== =========== ========== ========== ========
Cost of shares
redeemed................ $2,124,398 $2,679,014 $ 311,911 $ 306,702 $ 266,200 $ 11,896 $ 7,683
=========== ========== ========== =========== ========== ========== ========
</TABLE>
F-32
<PAGE> 87
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO SMALL CAP PORTFOLIO MANAGED PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................... 162,103 127,805 162,087 113,031 413,755 299,655
Shares received from reinvestment of:
Dividends.............................. 2,142 396 4,346 848 9,660 2,322
Capital gain distributions............. 4,293 11,176 755 6,160
---------- ---------- ---------- ---------- ----------- ----------
Total shares acquired.................... 168,538 128,201 177,609 114,634 429,575 301,977
Total shares redeemed.................... (14,069) (4,109) (30,188) (34,996) (29,711) (14,087)
---------- ---------- ---------- ---------- ----------- ----------
Net increase in shares owned............. 154,469 124,092 147,421 79,638 399,864 287,890
Shares owned, beginning of
year................................... 205,424 81,332 329,279 249,641 658,452 370,562
---------- ---------- ---------- ---------- ----------- ----------
Shares owned, end of year................ 359,893 205,424 476,700 329,279 1,058,316 658,452
========== ========== ========== ========== =========== ==========
Cost of shares acquired.................. $4,592,764 $2,859,457 $3,646,820 $2,055,414 $13,972,601 $8,052,533
========== ========== ========== ========== =========== ==========
Cost of shares redeemed.................. $ 250,929 $ 72,780 $ 529,972 $ 654,910 $ 630,417 $ 296,084
========== ========== ========== ========== =========== ==========
</TABLE>
F-33
<PAGE> 88
- --------------------------------------------------------------------------------
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 INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 367,411 197,271 420,073 76,730 367,511 54,443
Shares received from reinvestment of:
Dividends.................................. 58,022 26,798 6,977 483 2,055
Capital gain distributions................. 1,768
---------- ---------- ---------- -------- ---------- --------
Total shares acquired........................ 425,433 224,069 428,818 77,213 369,566 54,443
Total shares redeemed........................ (86,886) (39,303) (19,789) (1,179) (2,168) (72)
---------- ---------- ---------- -------- ---------- --------
Net increase in shares owned................. 338,547 184,766 409,029 76,034 367,398 54,371
Shares owned, beginning of year.............. 506,820 322,054 76,034 54,371
---------- ---------- ---------- -------- ---------- --------
Shares owned, end of year.................... 845,367 506,820 485,063 76,034 421,769 54,371
========== ========== ========== ======== ========== ========
Cost of shares acquired...................... $2,843,858 $1,525,757 $3,671,539 $572,319 $4,599,283 $631,861
========== ========== ========== ======== ========== ========
Cost of shares redeemed...................... $ 589,564 $ 284,131 $ 139,882 $ 8,017 $ 24,108 $ 802
========== ========== ========== ======== ========== ========
</TABLE>
F-34
<PAGE> 89
- --------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------------------------
ZERO COUPON GROWTH AND INCOME SOCIALLY RESPONSIBLE
2000 PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................... 228,907 101,556 477,085 123,226 81,633 8,954
Shares received from reinvestment of:
Dividends................................ 18,860 9,259 6,707 729 186 38
Capital gain distributions............... 1,345 65,140 4,743 3,323 192
---------- ---------- ----------- ---------- ---------- --------
Total shares acquired...................... 249,112 110,815 548,932 128,698 85,142 9,184
Total shares redeemed...................... (66,959) (17,149) (34,778) (1,536) (5,663) (5)
---------- ---------- ----------- ---------- ---------- --------
Net increase in shares owned............... 182,153 93,666 514,154 127,162 79,479 9,179
Shares owned, beginning of year............ 222,877 129,211 127,162 9,179
---------- ---------- ----------- ---------- ---------- --------
Shares owned, end of year.................. 405,030 222,877 641,316 127,162 88,658 9,179
========== ========== =========== ========== ========== ========
Cost of shares acquired.................... $3,073,171 $1,368,738 $11,274,699 $2,276,498 $1,653,499 $154,729
========== ========== =========== ========== ========== ========
Cost of shares redeemed.................... $ 791,662 $ 208,117 $ 583,074 $ 22,666 $ 92,804 $ 76
========== ========== =========== ========== ========== ========
</TABLE>
F-35
<PAGE> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INSURANCE MANAGEMENT SERIES
------------------------------------------------------------------------------------------------------------------
U.S.GOVERNMENT BOND UTILITY FUND PORTFOLIO
FUND PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased.............................................. 155,414 47,523 189,045 59,606
Shares received from reinvestment of:
Dividends................................................... 7,430 852 5,693 523
Capital gain distributions.................................. 332 525
---------- -------- ---------- --------
Total shares acquired......................................... 163,176 48,375 195,263 60,129
Total shares redeemed......................................... (14,996) (53) (18,587) (1,432)
---------- -------- ---------- --------
Net increase in shares owned.................................. 148,180 48,322 176,676 58,697
Shares owned, beginning of year............................... 48,322 58,697
---------- -------- ---------- --------
Shares owned, end of year..................................... 196,502 48,322 235,373 58,697
========== ======== ========== ========
Cost of shares acquired....................................... $1,637,184 $489,445 $2,157,050 $633,428
========== ======== ========== ========
Cost of shares redeemed....................................... $ 150,038 $ 524 $ 187,545 $ 14,021
========== ======== ========== ========
</TABLE>
F-36
<PAGE> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
- ------------------------------------------------------------------------------------------------------------------
BALANCED GROWTH LIMITED
PORTFOLIO PORTFOLIO MATURITY
BOND
PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------
1996 1996 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased.............................................................. 4,283 5,195 11,388
Shares received from reinvestment of:
Dividends...................................................................
Capital gain distributions..................................................
------- -------- --------
Total shares acquired......................................................... 4,283 5,195 11,388
Total shares redeemed......................................................... (27) (4,167)
------- -------- --------
Net increase in shares owned.................................................. 4,283 5,168 7,221
Shares owned, beginning of year...............................................
------- -------- --------
Shares owned, end of year..................................................... 4,283 5,168 7,221
======= ======== ========
Cost of shares acquired....................................................... $66,858 $126,671 $157,410
======= ======== ========
Cost of shares redeemed....................................................... $ 9 $ 660 $ 56,421
======= ======== ========
</TABLE>
F-37
<PAGE> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TCI VAN ECK WORLDWIDE ALGER
PORTFOLIOS, INC. INSURANCE TRUST AMERICAN
FUND
------------------------------------------------------------------------------------------------------------------
GROWTH WORLDWIDE GOLD & NATURAL EMERGING SMALL
PORTFOLIO BOND RESOURCES MARKETS CAPITALIZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------
1996 1996 1996 1996 1996
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased............................. 8,077 15,517 2,662 7,735 11,790
Shares received from reinvestment of:
Dividends
Capital gain distributions
------- -------- ------- ------- --------
Total shares acquired........................ 8,077 15,517 2,662 7,735 11,790
Total shares redeemed........................ (9) (4,931) (107) (3) (12)
------- -------- ------- ------- --------
Net increase in shares owned................. 8,068 10,586 2,555 7,732 11,778
Shares owned, beginning of year..............
------- -------- ------- ------- --------
Shares owned, end of year.................... 8,068 10,586 2,555 7,732 11,778
======= ======== ======= ======= ========
Cost of shares acquired...................... $ 84,678 $168,730 $ 42,864 $93,586 $476,692
======= ======== ======= ======= ========
Cost of shares redeemed...................... $ 103 $ 52,412 $ 1,705 $ 40 $ 489
======= ======== ======= ======= ========
</TABLE>
F-38
<PAGE> 93
- --------------------------------------------------------------------------------
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. Premiums adjusted for these deductions are
recorded as net premiums in the statement of changes in net assets. See original
policy documents for specific charges assessed.
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 for Market
Street VIP and Market Street VIP/2 contracts and seven full years for an Options
VIP contract, 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. For Options VIP contracts,
the 10% is cumulative if unused.
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 and Options VIP 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 contractholders and the first twelve transfers by Market Street VIP/2 and
Options VIP contractholders 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 the years ended December 31, 1996 or 1995.
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 and Options VIP 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-39
<PAGE> 94
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors of
Providentmutual Life and Annuity
Company of America
We have audited the accompanying statements of financial condition of
Providentmutual Life and Annuity Company of America as of December 31, 1996 and
1995, and the related statements of operations, capital and surplus, and cash
flows for each of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 120 (SFAS 120) and Financial
Accounting Standards Board Interpretation No. 40 (FIN 40) which required
implementation of several accounting pronouncements not previously adopted. The
effects of adopting SFAS 120 and FIN 40 were retroactively applied to the
Company's previously issued financial statements, consistent with the
implementation guidance of those standards.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1997
F-40
<PAGE> 95
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Financial Condition (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1996-$288,732; 1995-$278,771)...................... $294,294 $290,543
Held to maturity, at amortized cost (market: 1996-$80,638; 1995-$83,733)................ 79,526 81,421
Equity securities, at market (cost: 1996-$2,566; 1995-$2,602)............................... 1,582 1,631
Mortgage loans.............................................................................. 42,187 38,683
Real estate................................................................................. 3,146 3,221
Policy loans and premium notes.............................................................. 6,352 5,446
Other invested assets....................................................................... 276 434
Short-term investments...................................................................... 8,453 12,656
-------- --------
Total Investments........................................................................... 435,816 434,035
-------- --------
Cash........................................................................................ 472 --
Investment income due and accrued........................................................... 6,609 6,675
Deferred acquisition costs.................................................................. 62,520 39,407
Reinsurance recoverable..................................................................... 80,346 81,118
Deferred Federal income taxes............................................................... 673 661
Separate account assets..................................................................... 373,802 191,774
Other assets................................................................................ 1,981 2,731
-------- --------
Total Assets................................................................................ $962,219 $756,401
======== ========
LIABILITIES
Policy Liabilities:
Future policyholder benefits.............................................................. $511,447 $501,971
Other policy obligations.................................................................. 6,836 5,466
-------- --------
Total Policy Liabilities.................................................................. 518,283 507,437
-------- --------
Payable to parent........................................................................... 4,936 1,751
Federal income taxes payable................................................................ 4,737 5,665
Separate account liabilities................................................................ 372,005 190,493
Other liabilities........................................................................... 8,109 8,319
-------- --------
Total Liabilities........................................................................... 908,070 713,665
-------- --------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
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........................................................ 37,665 29,665
Unassigned surplus.......................................................................... 13,087 7,817
Net unrealized appreciation on securities................................................... 897 2,754
-------- --------
Total Capital and Surplus................................................................... 54,149 42,736
-------- --------
Total Liabilities, Capital and Surplus...................................................... $962,219 $756,401
======== ========
</TABLE>
See accompanying notes to financial statements
F-41
<PAGE> 96
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Operations (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums........................................................................... $ 13,173 $ 12,930 $ 9,772
Policy and contract charges........................................................ 6,068 2,467 1,062
Net investment income.............................................................. 32,213 32,112 29,453
Other income....................................................................... 2,994 3,715 2,042
Realized gains on investments...................................................... 112 730 381
------- ------- -------
Total Revenues..................................................................... 54,560 51,954 42,710
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits....................................................... 12,733 11,081 9,161
Change in future policyholder benefits............................................. 23,852 25,462 19,205
Commissions and operating expenses................................................. 8,564 9,684 8,604
Policyholder dividends............................................................. 541 353 198
------- ------- -------
Total Benefits and Expenses........................................................ 45,690 46,580 37,168
------- ------- -------
Income Before Income Taxes......................................................... 8,870 5,374 5,542
Income tax expense (benefit):
Current.......................................................................... 2,612 3,728 1,825
Deferred......................................................................... 988 (1,339) 333
------- ------- -------
Total Income Tax Expense........................................................... 3,600 2,389 2,158
------- ------- -------
Net Income......................................................................... $ 5,270 $ 2,985 $ 3,384
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-42
<PAGE> 97
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Capital and Surplus For the Years Ended December 31, 1996, 1995
and 1994 (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
CONTRIBUTED UNREALIZED
CAPITAL APPRECIATION TOTAL
COMMON IN EXCESS UNASSIGNED (DEPRECIATION) CAPITAL AND
STOCK OF PAR SURPLUS ON SECURITIES SURPLUS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994....................... $2,500 $29,665 $ 1,448 $ 2,702 $36,315
Net income..................................... -- -- 3,384 -- 3,384
Change in unrealized appreciation
(depreciation)............................... -- -- -- (5,022) (5,022)
------ ------- ------- -------- -------
Balance at December 31, 1994..................... 2,500 29,665 4,832 (2,320) 34,677
Net income..................................... -- -- 2,985 -- 2,985
Change in unrealized appreciation
(depreciation)............................... -- -- -- 5,074 5,074
------ ------- ------- -------- -------
Balance at December 31, 1995..................... 2,500 29,665 7,817 2,754 42,736
Net income..................................... -- -- 5,270 -- 5,270
Capital contribution from parent............... -- 8,000 -- -- 8,000
Change in unrealized appreciation
(depreciation)............................... -- -- -- (1,857) (1,857)
------ ------- ------- -------- -------
Balance at December 31, 1996..................... $2,500 $37,665 $ 13,087 $ 897 $54,149
====== ======= ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-43
<PAGE> 98
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Cash Flows (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................................. $ 5,270 $ 2,985 $ 3,384
Adjustments to reconcile net income to net cash provided by operating
activities:
Interest credited to variable universal life and investment products...... 19,684 16,780 12,947
Policy fees assessed on variable universal life and investment products... (6,068) (2,467) (1,062)
Amortization of deferred policy acquisition costs......................... 5,433 5,263 5,009
Capitalization of deferred policy acquisition costs....................... (25,182) (19,579) (16,988)
Deferred Federal income taxes............................................. 988 (1,339) 333
Depreciation and amortization expense..................................... 798 816 1,137
Realized gains on investments............................................. (112) (730) (381)
Change in investment income due and accrued............................... 66 845 (790)
Change in reinsurance recoverable......................................... 772 (21,413) (13,616)
Change in policy liabilities and other policyholders' funds of traditional
life products........................................................... (2,124) 30,526 19,916
Change in other liabilities............................................... (210) (1,993) 5,714
Change in current Federal income taxes payable............................ (928) 2,473 942
Other, net................................................................ 3,756 2,349 (1,866)
--------- --------- ---------
Net cash provided by operating activities............................. 2,143 14,516 14,679
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................................. 6,956 12,817 7,396
Equity securities......................................................... 200 46,114 159,540
Real estate............................................................... -- 940 1,273
Other invested assets..................................................... 158 -- 521
Proceeds from maturities of investments:
Held to maturity securities............................................... 17,323 16,030 20,298
Available for sale securities............................................. 21,467 20,422 21,754
Mortgage loans............................................................ 7,873 8,065 564
Purchases of investments:
Held to maturity securities............................................... (15,887) (16,418) (20,096)
Available for sale securities............................................. (38,542) (58,802) (39,656)
Equity securities......................................................... (157) (44,930) (159,817)
Mortgage loans............................................................ (11,342) (8,418) (7,516)
Real estate............................................................... (36) (213) (200)
Net withdrawals of separate account seed money.............................. (335) (650) (25)
Policy loans and premium notes, net......................................... (906) (989) (327)
Net sales (purchases) of short-term investments............................. 4,203 1,596 (2,725)
--------- --------- ---------
Net cash used in investing activities................................. (9,025) (24,436) (19,016)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..................... 185,984 124,336 113,735
Variable universal life and investment product withdrawals.................. (186,630) (114,416) (110,080)
Capital contribution from parent............................................ 8,000 -- --
--------- --------- ---------
Net cash provided by financing activities............................. 7,354 9,920 3,655
--------- --------- ---------
Net change in cash.................................................... 472 0 (682)
Cash, beginning of year....................................................... -- -- 682
--------- --------- ---------
Cash, end of year............................................................. $ 472 $ -- $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes.................................. $ 3,540 $ 1,438 $ 882
========= ========= =========
Foreclosure of mortgage loans............................................... $ -- $ 667 $ 810
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-44
<PAGE> 99
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to 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 16 states accounted for 77% of the Company's sales for the year ended
December 31, 1996. 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
As of January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises for Certain Long-Duration Participating Contracts", an
amendment to Financial Accounting Standards Board Interpretation 40 (FIN 40),
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises." The initial effect of applying this statement
has been reported retroactively through restatement of previously issued
financial statements presented herein for comparative purposes. SFAS 120
requires financial statements referred to as prepared in accordance with
generally accepted accounting principles (GAAP) to apply to all applicable
authoritative GAAP pronouncements. Prior to the adoption of SFAS 120, statutory
financial statements were permitted to be referred to as being prepared in
accordance with GAAP. The significant GAAP authoritative pronouncements
requiring initial application were as follows:
-- SFAS 60, "Accounting and Reporting by Insurance Enterprises,"
-- SFAS 97, "Accounting and Reporting by Insurance Enterprises for Certain
Long Duration Contracts and for Realized Gains and Losses from the Sale
of Investments,"
-- SFAS 109, "Accounting for Income Taxes,"
-- SFAS 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts,"
-- SFAS 114, "Accounting by Creditors for Impairment of a Loan,"
-- Statement of Position (SOP) 95-1, "Accounting for Certain Insurance
Activities of Mutual Life Insurance Enterprises,"
-- SFAS 115, "Accounting for Certain Investments in Debt and Equity
Securities" and
-- SFAS 121, "Accounting for Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed."
F-45
<PAGE> 100
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
The cumulative effective on capital and surplus of adopting the above
pronouncements primarily consists of the initial deferral of acquisition costs,
change in policy reserve valuation basis, the establishment of deferred taxes,
the elimination of statutory asset valuation and interest maintenance reserves
and the establishment of investment valuation allowances.
As a result of the change in accounting principles, net income as
previously reported, has been restated as follows (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------
<S> <C> <C>
Net income, as previously reported......................... $ 1,581 $ 726
Effect of changing to a different basis of accounting:
Deferred acquisition costs............................... 14,316 11,979
Net policyholder liabilities............................. (14,165) (10,085)
Deferred income taxes.................................... 1,339 (333)
Adjustment in valuation of investments................... 567 1,861
Other, net............................................... (653) (764)
-------- --------
Net income, as adjusted.................................... $ 2,985 $ 3,384
======== ========
</TABLE>
As a result of the change in accounting principles, capital and surplus, as
previously reported has been restated as follows (in thousands):
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1995 1994
------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year, as previously reported....... $ 29,382 $ 28,590
Add adjustment for the cumulative effect on prior years of
applying retroactively the new basis of accounting:
Deferred acquisition costs............................... 45,971 31,654
Net policyholder liabilities............................. (41,068) (26,903)
Deferred income taxes.................................... 2,144 805
Adjustment in valuation of investments................... 854 (465)
Asset valuation reserve.................................. 3,939 4,271
Other, net............................................... (4,225) (4,339)
-------- --------
Balance at beginning of year, as adjusted................ 36,997 33,613
Net income............................................... 2,985 3,384
Add adjustment for the cumulative effect on prior years
of applying accounting change-investment securities... (2,320) 2,702
Change in unrealized gains(losses) on investment
securities............................................ 5,074 (5,022)
-------- --------
Balance at end of year................................... $ 42,736 $ 34,677
======== ========
</TABLE>
F-46
<PAGE> 101
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Basis of Presentation -- continued
The Company prepares financial statements for filing with regulatory
authorities which are prepared in conformity with the accounting practices
prescribed or permitted by the Insurance Department of the State of Delaware
(SAP). Practices under SAP vary from GAAP primarily with respect to the initial
deferral of acquisition costs, change in policy reserve valuation basis, the
establishment of deferred taxes, the elimination of statutory asset valuation
and interest maintenance reserves and the establishment of investment valuation
allowances.
Amounts disclosed in the footnotes are denoted in thousands of dollars.
Statutory net income was $1,448, $1,581 and $726 for the years ended
December 31, 1996, 1995 and 1994, respectively. Statutory surplus was $39,530
and $30,637 as of December 31, 1996 and 1995, respectively.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the report values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
Invested Assets
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus net of Federal income taxes and related amortization of deferred
acquisition costs. Fixed maturity securities that the Company has the intent and
ability to hold to maturity are designated as "held to maturity" and are
reported at amortized cost.
Equity securities (common stocks, redeemable preferred stocks and
nonredeemable preferred stocks) are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in capital
and surplus, net of applicable Federal income taxes.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due
F-47
<PAGE> 102
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets -- continued
according to the contractual terms of the loan agreement. When a mortgage loan
has been determined to be impaired, a reserve is established for the difference
between the unpaid principal of the mortgage loan and its fair value. Fair value
is based on either the present value of expected future cash flows discounted at
the mortgage loan's effective interest rate or the fair value of the underlying
collateral. The reserve is charged to realized capital losses.
Policy loans and premium notes are reported at unpaid principal balances.
Foreclosed real estate is carried at lower of cost or fair value less
accumulated depreciation from the date of foreclosure. The straight-line method
of depreciation is used for real estate.
Other invested assets consist of limited partnerships carried at the lower
of cost or market value.
Cash includes demand deposits and cash on hand.
Short-term investments include money market funds, certificates of deposit
and short-term investments whose maturities at the time of acquisition were one
year or less. These investments are carried at amortized cost which approximates
market value.
Investment Valuation Reserves
Investment valuation reserves have been provided for impairments of
mortgage loans and totalled $1,274 and $1,309 at December 31, 1996 and 1995,
respectively. Changes in the reserves are reflected as realized capital gains
and losses.
Benefit Reserves and Policyholder Contract Deposits
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and
term insurance policies, limited-payment life insurance policies and
certain annuities with life contingencies. Most traditional life insurance
policies are participating: in addition to guaranteed benefits, they pay
dividends, as declared annually by the Company based on its experience.
Reserves on traditional life insurance products are calculated by using the
net level premium method. For participating traditional life insurance
policies, the assumptions are based on mortality rates consistent with the
cash values and investment rates consistent with the Company's dividend
practices. For most such policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality table at interest rates
ranging from 2.5% to 5.0%.
F-48
<PAGE> 103
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Benefit Reserves and Policyholder Contract Deposits -- continued
Variable Life and Investment-Type Products
Variable life products are all flexible premium variable universal life.
Investment-type products consist primarily of single premium and flexible
premium annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
Premiums, Charges and Benefits
Traditional Life Insurance
Premiums for individual life policies are recognized when due.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit reserve changes, and expenses (except those
deferred) are charged to income as incurred.
Variable Life and Investment-Type Products
Revenues for variable life and investment-type products consist of policy
charges for the cost of insurance, policy initiation, administration and
surrenders during the period. Expenses include interest credited to policy
account balances and benefit payments made in excess of policy account
balances. Many of these policies are variable life or variable annuity
policies, in which investment performance credited to the account balance
is based on the investment performance of separate accounts chosen by the
policyholder. For other account balances, credited interest rates ranged
from 3.80% to 8.40% in 1996.
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of
expected gross margins. Gross margins include margins from mortality,
investments and expenses, net of policyholder dividends. Expected gross
margins are redetermined regularly, based on actual experience and current
assumptions of mortality, persistency, expenses, and investment experience.
The average investment yield, before realized capital gains and losses, in
the calculation of expected gross margins was 8.46% for 1996.
F-49
<PAGE> 104
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Premiums, Charges and Benefits -- continued
Deferred Policy Acquisition Costs -- continued
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incident of expected gross
profits, including realized investment gains and losses, over the expected
life of the policies.
The costs deferred during 1996, 1995 and 1994 were $25,182, $19,579, and
$16,988, respectively. Amortization of deferred policy acquisition costs
was $5,433, $5,263, and $5,009 during 1996, 1995 and 1994, respectively.
Capital Gains and Losses
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold and do not include amounts
allocable to separate accounts. A realized capital loss is also recorded at the
time a decline in the value of an investment is determined to be other than
temporary.
Policyholder Dividends
As of December 31, 1996, approximately 60% of the Company's life insurance
premium in-force is written on a participating basis. Annually, the Board of
Directors declares the amount of dividends to be paid in the following calendar
year. Dividends are included in the accompanying financial statements as a
liability and as a charge to operations as earned by the policyholder.
Reinsurance
Premiums, benefits and expenses are recorded 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 annuity
contractholders and variable life insurance policyholders.
Premiums received and the accumulated value portion of benefits paid are
excluded from the amounts reported in the consolidated statements of operations.
Fees charged on policyholder and contractholder account values are reported as
revenues.
The contractholders/policyholders bear the investment risk on separate
account assets. Separate account assets are carried at fair values determined as
of the balance sheet date.
F-50
<PAGE> 105
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Federal Income Taxes
Deferred income tax assets and liabilities have been recorded for temporary
differences between the reported amounts of assets and liabilities in the
accompanying financial statements and those in the Company's income tax returns.
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1996 DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale...................... $294,294 $294,294 $290,543 $290,543
Held to maturity........................ $80,638 $79,526 $83,733 $81,421
Equity securities......................... $1,582 $1,582 $1,631 $1,631
Commercial mortgage loans................. $43,976 $42,187 $42,128 $38,683
LIABILITIES FOR INVESTMENT-TYPE INSURANCE
CONTRACTS
Supplementary contracts without life
contingencies........................... $5,736 $5,835 $4,711 $4,435
Individual annuities...................... $430,617 $457,778 $593,065 $610,285
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the holder. 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 fair 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 Value 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-51
<PAGE> 106
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to 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 are 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.
Policyholder Dividends and Coupon Accumulations
The policyholders' 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-52
<PAGE> 107
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturity securities and equity
securities as of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 567 $ 4 $ 13 $ 558
Obligations of states and political
subdivisions............................... 4,853 197 -- 5,050
Corporate securities......................... 246,887 5,907 1,103 251,691
Mortgage-backed securities................... 36,425 680 110 36,995
-------- ------ ------ --------
Subtotal -- fixed maturities............ 288,732 6,788 1,226 294,294
Equity securities............................ 2,566 355 1,339 1,582
-------- ------ ------ --------
Total.............................. $ 291,298 $7,143 $2,565 $ 295,876
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 4,821 $ 278 $ 27 $ 5,072
Corporate securities......................... 71,136 979 346 71,769
Mortgage-backed securities................... 3,569 228 -- 3,797
-------- ------ ------ --------
Total.............................. $ 79,526 $1,485 $ 373 $ 80,638
======== ====== ====== ========
</TABLE>
F-53
<PAGE> 108
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 396 $ 16 $-- $ 412
Obligations of states and political
subdivisions............................... 6,199 373 -- 6,572
Corporate securities......................... 236,108 11,594 1,332 246,370
Mortgage-backed securities................... 36,068 1,165 44 37,189
-------- ------ ------ --------
Subtotal -- fixed maturities............ 278,771 13,148 1,376 290,543
Equity securities............................ 2,602 190 1,161 1,631
-------- ------ ------ --------
Total.............................. $ 281,373 $ 13,338 $2,537 $ 292,174
======== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies................................... $ 5,414 $ 521 $ 8 $ 5,927
Corporate securities......................... 72,229 1,659 142 73,746
Mortgage-backed securities................... 3,778 284 2 4,060
-------- ------ ------ --------
Total.............................. $ 81,421 $2,464 $ 152 $ 83,733
======== ====== ====== ========
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1996, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
---------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less...................................... $ 13,067 $ 13,115
Due after one year through five years........................ 118,774 120,380
Due after five years through ten years....................... 98,363 101,205
Due after ten years.......................................... 58,528 59,594
-------- --------
Total.............................................. $ 288,732 $ 294,294
======== ========
</TABLE>
F-54
<PAGE> 109
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
----------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less....................................... $ 2,698 $ 2,710
Due after one year through five years......................... 23,498 23,681
Due after five years through ten years........................ 44,803 45,428
Due after ten years........................................... 8,527 8,819
-------- --------
Total............................................... $ 79,526 $ 80,638
======== ========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized gains (losses) on investments for the years ended December 31,
1996, 1995 and 1994 are summarized as follows:
<TABLE>
<S> <C> <C> <C>
------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------
Fixed maturities......................................... $ 71 $ 561 $1,244
Equity securities........................................ 6 253 (368)
Mortgage loans........................................... 35 (103) (104)
Real estate.............................................. -- 19 (391)
---- ----- -----
$112 $ 730 $ 381
==== ===== =====
</TABLE>
Net unrealized appreciation (depreciation) on available for sale securities
as of December 31, 1996 and 1995 is summarized as follows:
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
Net unrealized appreciation before adjustments for the
following:.................................................... $4,578 $10,801
Amortization of deferred policy acquisition costs............. (3,198) (6,564)
Deferred Federal income taxes................................. (483) (1,483)
------ ------
Net unrealized appreciation..................................... $ 897 $ 2,754
====== ======
</TABLE>
In late 1995, the Financial Accounting Standards Board issued "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities". This report permits a one-time reclassification of
securities from held to maturity to available for sale. In response to this
F-55
<PAGE> 110
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
report, the Company transferred fixed income securities with a combined
amortized cost of $34,784 from the held to maturity portfolio to the available
for sale portfolio. An additional transfer of fixed income securities with a
combined cost of $5,000 and an estimated fair value of $5,050 was made from the
available for sale portfolio to the held to maturity portfolio. The $50
difference between the amortized cost and the estimated fair value is being
amortized to realized capital gains/losses over the remaining lives of the
securities.
Net investment income, by type of investment, is as follows for the years
ending December 31, 1996, 1995 and 1994:
<TABLE>
<S> <C> <C> <C>
-------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------
Gross investment income:
Fixed maturities:
Available for sale................................ $21,379 $20,222 $16,981
Held to maturity.................................. 6,699 7,725 8,631
Equity securities................................... 87 211 370
Mortgage loans...................................... 3,750 3,592 3,529
Real estate......................................... 759 747 76
Policy loans and premium notes...................... 158 113 88
Short-term investments.............................. 363 521 11
Other, net.......................................... 27 35 113
------- ------- -------
33,222 33,166 30,487
Less: investment expenses........................... (1,009) (1,054) (1,034)
------- ------- -------
Net investment income............................... $32,213 $32,112 $29,453
======= ======= =======
</TABLE>
4. MORTGAGE LOANS
Impaired mortgage loans and the related reserves are as follows at December
31, 1996 and 1995:
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
Impaired mortgage loans.......................................... $3,878 $4,877
Reserves......................................................... (848) (929)
------ ------
Net impaired mortgage loans...................................... $3,030 $3,948
====== ======
</TABLE>
F-56
<PAGE> 111
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. MORTGAGE LOANS, CONTINUED
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1996 and 1995 is as follows:
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
Balance at January 1............................................. $1,309 $1,546
Losses charged, net of recoveries................................ (35) (17)
Releases due to foreclosures..................................... -- (220)
------ ------
Balance at December 31........................................... $1,274 $1,309
====== ======
</TABLE>
The average recorded investment in impaired loans was $4,378 and $4,893
during 1996 and 1995, respectively. Interest income recognized on impaired loans
during 1996, 1995 and 1994 was $405, $434 and $414, respectively. All interest
income on impaired mortgage loans was recognized on the cash basis.
5. REAL ESTATE
Foreclosed real estate totalled $3,146 and $3,221 as of December 31, 1996
and 1995, respectively. Depreciation expense was $112, $106 and $117 for the
years ended December 31, 1996, 1995 and 1994, respectively. Accumulated
depreciation for real estate totalled $353 and $244 at December 31, 1996 and
1995, respectively.
6. 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.
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate................... $3,105 $1,881 $1,940
Current year equity tax.............................. 800 625 550
True down of prior years' equity tax................. (305) -- (333)
Other................................................ -- (117) 1
------ ------ ------
Provision for Federal income tax from operations....... $3,600 $2,389 $2,158
====== ====== ======
</TABLE>
F-57
<PAGE> 112
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES, CONTINUED
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and income tax return purposes.
Components of the Company's net deferred income tax asset are as follows at
December 31, 1996 and 1995:
<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
DEFERRED TAX ASSET
Reserves....................................................... $21,679 $16,020
Invested assets................................................ 445 459
Policyholder dividends......................................... 115 84
Other.......................................................... (714) (52)
------- -------
Total deferred tax asset..................................... 21,525 16,511
------- -------
DEFERRED TAX LIABILITY
Deferred policy acquisition costs.............................. 19,249 12,069
Net unrealized gain on available for sale securities........... 1,603 3,781
------- -------
Total deferred tax liability................................. 20,852 15,850
------- -------
Net deferred tax asset......................................... $ 673 $ 661
======= =======
</TABLE>
The Company's Federal income tax returns have been audited through 1992.
All years through 1985 are closed. Years 1986 and 1987 have been audited and are
closed with the exception of two issues for which claims for refund have been
filed. Years 1988 through the present remain open. In the opinion of management,
adequate provision has been made for the possible effect of potential
assessments related to prior years' taxes.
7. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks with other insurance companies. The primary purpose
of ceded reinsurance is to limit losses from large exposures.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
F-58
<PAGE> 113
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE, CONTINUED
At December 31, 1996, there were $78,753 of individual fixed annuity
account values coinsured by the Company, or approximately 18.4% of total
individual fixed annuity account values outstanding.
The tables below highlight the amounts shown in the accompanying financial
statements which are net of reinsurance activity:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
ASSUMED
GROSS FROM OTHER NET
AMOUNT CEDED TO COMPANIES AMOUNT
OTHER
COMPANIES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996
Life insurance in force.................. $1,591,685 $1,282,667 $ 42,330 $351,348
========== ========== ======= ========
Premiums................................. $ 13,872 $ 801 $ 102 $ 13,173
========== ========== ======= ========
Future policyholder benefits............. $ 80,346 $ 4,332
========== =======
December 31, 1995:
Life insurance in force.................. $1,142,970 $ 923,876 $ 46,163 $265,257
========== ========== ======= ========
Premiums................................. $ 13,693 $ 916 $ 153 $ 12,930
========== ========== ======= ========
Future policyholder benefits............. $ 81,118 $ 4,518
========== =======
December 31, 1994:
Life insurance in force.................. $ 776,036 $ 471,735 $ 50,198 $354,499
========== ========== ======= ========
Premiums................................. $ 10,534 $ 888 $ 126 $ 9,772
========== ========== ======= ========
Future policyholder benefits............. $ 59,705 $ 4,866
========== =======
</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 deposits ceded were
$5,317 and $24,262 during 1996 and 1995, respectively. Reinsurance recoverables
were $77,801 and $78,551 at December 31, 1996 and 1995, respectively.
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. Pursuant to this agreement, the
Company has no reinsurance recoverables at December 31, 1996 and 1995. Deposits
ceded during 1996 and 1995 were $2,320 and $2,584, respectively.
F-59
<PAGE> 114
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE, CONTINUED
Approximately $1,007,498 and $733,258 of the Company's life insurance in
force is ceded to Provident Mutual under reinsurance agreements at December 31,
1996 and 1995, respectively. Premiums ceded were $436 and $559 during 1996 and
1995, respectively. Reinsurance recoverables at December 31, 1996 and 1995 were
$471 and $609, respectively.
8. RELATED PARTY TRANSACTIONS
Provident Mutual and its subsidiaries provide certain investment and
administrative services to the Company. Generally fees for these services are
based on an allocation of costs upon either the specific identification basis or
a proportional cost allocation basis which management believes to be reasonable.
These costs include direct salaries and related benefits including pension and
other post-retirement benefits as well as overhead costs. These costs were
$10,013 and $9,238 for 1996 and 1995, respectively.
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, 1996 and 1995
approximated $105,004 and $117,169, respectively.
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 interests in
mortgage loans, marketable securities lending and interest rate futures
contracts. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statements of
financial condition, but which are not deemed to be material.
At December 31, 1996, the Company had outstanding mortgage loan commitments
of approximately $53. The mortgage loan commitments, which expire through June
1997, were issued during 1996 at interest rates consistent with rates applicable
on December 31, 1996. 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. There was no
F-60
<PAGE> 115
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Financial Instruments With Off-Balance-Sheet Risk -- continued
hedge position activity for the year ended December 31, 1996. 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.
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, 1996.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1996 and 1995, approximately
$14,777 and $11,691, respectively, in debt security investments (4.0% and 3.3%,
respectively, of the total debt security portfolio) are considered "below
investment grade." Securities are classified as "below investment grade"
primarily by utilizing rating criteria established by independent bond rating
agencies.
Debt security investments with a carrying value at December 31, 1996 of
$1,645 were non-income producing for the year ended December 31, 1996.
The Company had debt security investments in the financial services
industry at both December 31, 1996 and 1995 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
133% of the original loan value at the time the loan is made.
At December 31, 1996 and 1995, 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 no loans in any state where principal balances in the
aggregate exceeded 20% of the Company's surplus.
F-61
<PAGE> 116
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
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 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 statements.
Guaranty fund assessments totalled $82, $343 and $293 in 1996, 1995 and 1994,
respectively. Of those amounts, $58, $285 and $162 in 1996, 1995 and 1994,
respectively, are creditable against future years' premium taxes.
F-62
<PAGE> 117
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.
(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.
(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
(d) Participation Agreement between Neuberger & Berman Advisers Management
Trust and Providentmutual Life and Annuity Company of America (to be
filed by amendment);
</TABLE>
C-1
<PAGE> 118
<TABLE>
<S> <C> <C> <C>
(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 M. Diane Koken, Esquire.
(10) (a) Consent of Sutherland, Asbill & Brennan, L.L.P.
(b) Consent of Scott V. Carney, FSA, MAAA
(c) Consent of Coopers & Lybrand L.L.P., Independent Accountants.
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data.
(14) Powers of Attorney
</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.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
- -------------------------------------------------------- -----------------------------------
<S> <C>
Robert W. Kloss**....................................... President and Director
Mary Lynn Finelli**..................................... Director
Stanley R. Reber**...................................... Director
J. Kevin McCarthy**..................................... Director
Alan F. Hinkle**........................................ Director and Vice President and
Actuary
Joan C. Turnbull........................................ Director and Vice President-
Insurance Operations
Edward R. Book.......................................... Director
Linda M. Springer....................................... Financial Reporting Officer
Andrew J. Stack**....................................... Marketing Officer
Stephen L. White**...................................... Vice President-Actuary
</TABLE>
C-2
<PAGE> 119
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
- -------------------------------------------------------- -----------------------------------
<S> <C>
Scott V. Carney......................................... Vice President-Actuary
M. Diane Koken.......................................... Legal Officer & Secretary
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**...................................... Assistant 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)
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
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.* New York Ownership of all Insurance Agency
voting securities
by PHC
Provestco, Inc.* Delaware Ownership of all Real Estate Investment
voting securities
by PHC
PNAM, Inc.* Delaware Ownership of all Holding Company
voting securities
by PHC
</TABLE>
C-3
<PAGE> 120
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
- ------------------------------ ------------- ------------------------ ------------------------
<S> <C> <C> <C>
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
As of December 31, 1996 there were a total of 176 individual flexible
premium deferred variable annuity contracts (File No. 33-65195) in force -- 63
non-qualified and 113 qualified.
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.
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
C-4
<PAGE> 121
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any such action, suit or proceeding) is asserted by
such director, officer, or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriter
(a) 1717 Capital Management Company (1717) 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 1717:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH 1717 WITH DEPOSITOR
- ------------------------------------------ ------------------------- -----------------------
<S> <C> <C>
Stanley R. Reber**........................ Director Director
Mary Lynn Finelli**....................... Director Director
Alan F. Hinkle............................ Director Director
J. Kevin McCarthy......................... Director Director
Joan C. Turnbull**........................ Director Director
Robert W. Kloss**......................... Director President and Director
Lance A. Reihl............................ President None
Anthony Mastrangelo....................... Financial Officer None
Adam Scaramella**......................... Legal Officer & Secretary None
Rosanne Gatta**........................... Treasurer Treasurer
William P. 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 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-5
<PAGE> 122
(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.
REPRESENTATION OF REASONABLENESS
Providentmutual Life and Annuity Company of America hereby represents that
the fees and charges deducted under the Contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Providentmutual Life and Annuity Company of
America.
C-6
<PAGE> 123
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 29TH
DAY OF APRIL, 1997.
PROVIDENTMUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT (REGISTRANT)
<TABLE>
<S> <C>
Attest: /s/ M. DIANE KOKEN By: /s/ ROBERT W. KLOSS
-------------------------------------- -----------------------------------------
ROBERT W. KLOSS
President
</TABLE>
By: PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (DEPOSITOR)
<TABLE>
<S> <C>
Attest: /s/ M. DIANE KOKEN By: /s/ ROBERT W. KLOSS
-------------------------------------- -----------------------------------------
ROBERT W. KLOSS
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>
/s/ ROBERT W. KLOSS President and Director April 29, 1997
- --------------------------------------------- (Principal Executive
ROBERT W. KLOSS Officer)
/s/ LINDA M. SPRINGER Financial Reporting April 29, 1997
- --------------------------------------------- Officer (Principal Financial
LINDA M. SPRINGER and Accounting Officer)
* Director April 29, 1997
- ---------------------------------------------
MARY LYNN FINELLI
* Director April 29, 1997
- ---------------------------------------------
ALAN F. HINKLE
* Director April 29, 1997
- ---------------------------------------------
J. KEVIN MCCARTHY
* Director April 29, 1997
- ---------------------------------------------
JOAN C. TURNBULL
</TABLE>
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<PAGE> 124
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- --------------------------------------------- ---------------------------- ---------------
<C> <S> <C>
* Director April 29, 1997
- ---------------------------------------------
STANLEY R. REBER
* Director April 29, 1997
- ---------------------------------------------
EDWARD R. BOOK
</TABLE>
*By: /s/ WILLIAM P. LOESCHE
-------------------------------
WILLIAM P. LOESCHE
Attorney-in-Fact
Pursuant to Power of Attorney
C-8
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<S> <C> <C>
9.(a) Consent of M. Diane Koken, Esquire
10.(a) Consent of Sutherland, Asbill & Brennan, L.L.P.
(b) Consent of Scott V. Carney, FSA, MAAA
(c) Consent of Coopers & Lybrand L.L.P., Independent Accountants
14. Powers of Attorney
</TABLE>
<PAGE> 1
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<S> <C> <C>
9.(a) Consent of M. Diane Koken, Esquire
10.(a) Consent of Sutherland, Asbill & Brennan, L.L.P.
(b) Consent of Scott V. Carney, FSA, MAAA
(c) Consent of Coopers & Lybrand L.L.P., Independent Accountants
14. Powers of Attorney
</TABLE>
<PAGE> 1
EXHIBIT 10(A)
[SUTHERLAND, ASBILL & BRENNAN letterhead]
April 28, 1997
Board of Directors
Providentmutual Life and Annuity
Company of America
300 Continental Drive
Newark, DE 19713
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
post-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 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, L.L.P.
By: /s/ Stephen E. Roth
--------------------------
Stephen E. Roth
<PAGE> 1
EXHIBIT 10(B)
[PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA LETTERHEAD]
April 28, 1997
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
Gentlemen:
I hereby consent to the use of my name in the Prospectus under the heading
"Experts" filed as part of the Post-Effective Amendment No. 1 on Form N-4 File
No. 33-65195) for the Providentmutual Variable Annuity Separate Account.
Very truly yours,
/s/ Scott V. Carney
Scott V. Carney, FSA, MAAA
Vice President & Actuary
SVC/LES/ja
<PAGE> 1
EXHIBIT 10(C)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-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 14, 1997 on our audits of the financial
statements of Providentmutual Life and Annuity Company of America as
of December 31, 1996 and 1995 and for each of the three years in the
period ending December 31, 1996.
2. Our report dated February 10, 1997 on our audits of the financial
statements of the Providentmutual Variable Annuity Separate Account
(comprising thirty-three subaccounts) as of December 31, 1996, 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
April 25, 1997
<PAGE> 1
Exhibit 99.14
POWER OF ATTORNEY
Know all men by these presents:
That I, J. Kevin McCarthy, a member of the Board of Directors of PROVIDENTMUTUAL
LIFE & ANNUITY COMPANY OF AMERICA, do hereby make constitute and appoint as my
true and lawful attorneys in fact, M. DIANE KOKEN and WILLIAM P. LOESCHE, or
either of them severally for me and in my name, place and stead to sign the
following registration statements and any and all amendments thereto on behalf
of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable
annuity contracts and variable life insurance policies for the
appropriate Separate Accounts.
Such appointment shall remain valid and in effect for so long as I shall be a
member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as either M. DIANE KOKEN and/or WILLIAM P. LOESCHE
shall be officers of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1997.
/s/ J. Kevin McCarthy
---------------------
J. Kevin McCarthy
Commonwealth of PENNSYLVANIA
:ss
County of CHESTER
On this 24th day of April, 1997, before me personally appeared J. Kevin
McCarthy, to me known and known to me to be the person mentioned and described
in and who executed the foregoing instrument and he duly acknowledged to me
that he executed the same.
/s/ JENNIFER J. AVILES
My commission expires: ----------------------
Notary Public
NOTARIAL SEAL
JENNIFER J. AVILES, Notary Public
City of Philadelphia, Phila. County
My Commission Expires July 24, 2000
<PAGE> 2
POWER OF ATTORNEY
Know all men by these presents:
That I, Mary Lynn Finelli, a member of the Board of Directors of PROVIDENTMUTUAL
LIFE & ANNUITY COMPANY OF AMERICA, do hereby make constitute and appoint as my
true and lawful attorneys in fact, M. DIANE KOKEN and WILLIAM P. LOESCHE, or
either of them severally for me and in my name, place and stead to sign the
following registration statements and any and all amendments thereto on behalf
of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable
annuity contracts and variable life insurance policies for the
appropriate Separate Accounts.
Such appointment shall remain valid and in effect for so long as I shall be a
member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as either M. DIANE KOKEN and/or WILLIAM P. LOESCHE
shall be officers of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1997.
/s/ Mary Lynn Finelli
---------------------
Mary Lynn Finelli
Commonwealth of PENNSYLVANIA
:ss
County of CHESTER
On this 24th day of April, 1997, before me personally appeared Mary Lynn
Finelli, to me known and known to me to be the person mentioned and described
in and who executed the foregoing instrument and she duly acknowledged to me
that she executed the same.
/s/ JENNIFER J. AVILES
My commission expires: ----------------------
Notary Public
NOTARIAL SEAL
JENNIFER J. AVILES, Notary Public
City of Philadelphia, Phila. County
My Commission Expires July 24, 2000
<PAGE> 3
POWER OF ATTORNEY
Know all men by these presents:
That I, Stanley R. Reber, a member of the Board of Directors of PROVIDENTMUTUAL
LIFE & ANNUITY COMPANY OF AMERICA, do hereby make constitute and appoint as my
true and lawful attorneys in fact, M. DIANE KOKEN and WILLIAM P. LOESCHE, or
either of them severally for me and in my name, place and stead to sign the
following registration statements and any and all amendments thereto on behalf
of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable
annuity contracts and variable life insurance policies for the
appropriate Separate Accounts.
Such appointment shall remain valid and in effect for so long as I shall be a
member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as either M. DIANE KOKEN and/or WILLIAM P. LOESCHE
shall be officers of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1997.
/s/ Stanley R. Reber
---------------------
Stanley R. Reber
Commonwealth of PENNSYLVANIA
:ss
County of CHESTER
On this 24th day of April, 1997, before me personally appeared Stanley R.
Reber, to me known and known to me to be the person mentioned and described
in and who executed the foregoing instrument and he duly acknowledged to me
that he executed the same.
/s/ JENNIFER J. AVILES
My commission expires: ----------------------
Notary Public
NOTARIAL SEAL
JENNIFER J. AVILES, Notary Public
City of Philadelphia, Phila. County
My Commission Expires July 24, 2000
<PAGE> 4
POWER OF ATTORNEY
Know all men by these presents:
That I, Alan F. Hinkle, a member of the Board of Directors of PROVIDENTMUTUAL
LIFE & ANNUITY COMPANY OF AMERICA, do hereby make constitute and appoint as my
true and lawful attorneys in fact, M. DIANE KOKEN and WILLIAM P. LOESCHE, or
either of them severally for me and in my name, place and stead to sign the
following registration statements and any and all amendments thereto on behalf
of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable
annuity contracts and variable life insurance policies for the
appropriate Separate Accounts.
Such appointment shall remain valid and in effect for so long as I shall be a
member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as either M. DIANE KOKEN and/or WILLIAM P. LOESCHE
shall be officers of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1997.
/s/ Alan F. Hinkle
---------------------
Alan F. Hinkle
Commonwealth of PENNSYLVANIA
:ss
County of CHESTER
On this 24th day of April, 1997, before me personally appeared Alan F. Hinkle,
to me known and known to me to be the person mentioned and described in and who
executed the foregoing instrument and he duly acknowledged to me that he
executed the same.
/s/ JENNIFER J. AVILES
My commission expires: ----------------------
Notary Public
NOTARIAL SEAL
JENNIFER J. AVILES, Notary Public
City of Philadelphia, Phila. County
My Commission Expires July 24, 2000
<PAGE> 5
POWER OF ATTORNEY
Know all men by these presents:
That I, Joan C. Turnbull, a member of the Board of Directors of PROVIDENTMUTUAL
LIFE & ANNUITY COMPANY OF AMERICA, do hereby make constitute and appoint as my
true and lawful attorneys in fact, M. DIANE KOKEN and WILLIAM P. LOESCHE, or
either of them severally for me and in my name, place and stead to sign the
following registration statements and any and all amendments thereto on behalf
of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable
annuity contracts and variable life insurance policies for the
appropriate Separate Accounts.
Such appointment shall remain valid and in effect for so long as I shall be a
member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as either M. DIANE KOKEN and/or WILLIAM P. LOESCHE
shall be officers of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1997.
/s/ Joan C. Turnbull
---------------------
Joan C. Turnbull
Commonwealth of PENNSYLVANIA
:ss
County of CHESTER
On this 24th day of April, 1997, before me personally appeared Joan C. Turnbull,
to me known and known to me to be the person mentioned and described in and who
executed the foregoing instrument and she duly acknowledged to me that she
executed the same.
/s/ JENNIFER J. AVILES
My commission expires: ----------------------
Notary Public
NOTARIAL SEAL
JENNIFER J. AVILES, Notary Public
City of Philadelphia, Phila. County
My Commission Expires July 24, 2000
<PAGE> 6
POWER OF ATTORNEY
Know all men by these presents:
That I, Robert W. Kloss, a member of the Board of Directors of PROVIDENTMUTUAL
LIFE & ANNUITY COMPANY OF AMERICA, do hereby make constitute and appoint as my
true and lawful attorneys in fact, M. DIANE KOKEN and WILLIAM P. LOESCHE, or
either of them severally for me and in my name, place and stead to sign the
following registration statements and any and all amendments thereto on behalf
of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable
annuity contracts and variable life insurance policies for the
appropriate Separate Accounts.
Such appointment shall remain valid and in effect for so long as I shall be a
member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as either M. DIANE KOKEN and/or WILLIAM P. LOESCHE
shall be officers of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1997.
/s/ Robert W. Kloss
---------------------
Robert W. Kloss
Commonwealth of PENNSYLVANIA
:ss
County of CHESTER
On this 24th day of April, 1997, before me personally appeared Robert W. Kloss,
to me known and known to me to be the person mentioned and described
in and who executed the foregoing instrument and he duly acknowledged to me
that he executed the same.
/s/ JENNIFER J. AVILES
My commission expires: ----------------------
Notary Public
NOTARIAL SEAL
JENNIFER J. AVILES, Notary Public
City of Philadelphia, Phila. County
My Commission Expires July 24, 2000
<PAGE> 7
POWER OF ATTORNEY
Know all men by these presents:
That I, Edward R. Book, a member of the Board of Directors of PROVIDENTMUTUAL
LIFE & ANNUITY COMPANY OF AMERICA, do hereby make constitute and appoint as my
true and lawful attorneys in fact, M. DIANE KOKEN and WILLIAM P. LOESCHE, or
either of them severally for me and in my name, place and stead to sign the
following registration statements and any and all amendments thereto on behalf
of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA and filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable
annuity contracts and variable life insurance policies for the
appropriate Separate Accounts.
Such appointment shall remain valid and in effect for so long as I shall be a
member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as either M. DIANE KOKEN and/or WILLIAM P. LOESCHE
shall be officers of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 24th day of April, 1997.
/s/ Edward R. Book
---------------------
Edward R. Book
Commonwealth of PENNSYLVANIA
:ss
County of CHESTER
On this 24th day of April, 1997, before me personally appeared Edward R. Book,
to me known and known to me to be the person mentioned and described in and who
executed the foregoing instrument and he duly acknowledged to me that he
executed the same.
/s/ JENNIFER J. AVILES
My commission expires: ----------------------
Notary Public
NOTARIAL SEAL
JENNIFER J. AVILES, Notary Public
City of Philadelphia, Phila. County
My Commission Expires July 24, 2000
