<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
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. 2 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 10 [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
---------------------
ADAM SCARAMELLA, ESQ.
COUNSEL
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
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, 1998 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
Title of Securities Being Registered: Interests in Flexible
Individual Flexible Premium Deferred Variable Annuity contracts.
================================================================================
<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.......................... Administrative Charges
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..................... See Prospectus--Administrative Charges
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; Variable Insurance Products Fund; Variable Insurance
Products Fund II; Neuberger & Berman Advisers Management Trust; 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. Shares of certain Portfolios of the Funds may
not be available for sale in all states. In addition, the prospectuses of the
Funds, which must accompany this Prospectus, may contain Portfolios not
currently available in connection with the Contracts.
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 40 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 or 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, 1998.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Definitions................................................. 1
Table of Expenses........................................... 2
Summary..................................................... 8
Condensed Financial Information............................. 10
The Company, Variable Account and Funds..................... 11
Providentmutual Life and Annuity Company of America.... 11
The Providentmutual Variable Annuity Separate
Account............................................... 12
The Funds.............................................. 12
The Market Street Fund, Inc. ..................... 13
The Alger American Fund........................... 14
Variable Insurance Products Fund and Variable
Insurance Products Fund II......................... 14
Neuberger & Berman Advisers Management Trust...... 16
Van Eck Worldwide Insurance Trust................. 16
Resolving Material Conflicts................................ 18
Addition, Deletion or Substitution of Investments........... 18
Description of Annuity Contract............................. 18
Issuance of a Contract................................. 19
Premiums............................................... 19
Free-Look Period....................................... 19
Allocation of Premiums................................. 19
Variable Account Value................................. 20
Transfer Privilege..................................... 21
Dollar Cost Averaging.................................. 22
Withdrawals and Surrender.............................. 22
Death Benefit Before Maturity Date..................... 24
Proceeds on Maturity Date.............................. 25
Payments............................................... 25
Modification........................................... 26
Reports to Contract Owners............................. 26
Contract Inquiries..................................... 26
The Guaranteed Account...................................... 26
Minimum Guaranteed and Current Interest Rates.......... 26
Transfers from Guaranteed Account...................... 27
Payment Deferral....................................... 27
Charges and Deductions...................................... 27
Surrender Charge (Contingent Deferred Sales Charge).... 27
Administrative Charges................................. 28
Mortality and Expense Risk Charge...................... 29
Other Charges Including Investment Advisory Fees of the
Funds................................................. 29
Premium Taxes.......................................... 29
Other Taxes............................................ 30
Payment Options............................................. 30
Election of Options.................................... 30
Description of Options................................. 30
Yields and Total Returns.................................... 31
Federal Tax Status.......................................... 32
Introduction........................................... 32
Tax Status of the Contract............................. 33
Taxation of Annuities.................................. 34
</TABLE>
i
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Transfers, Assignments or Exchanges of a Contract...... 35
Withholding............................................ 35
Multiple Contracts..................................... 36
Taxation of Qualified Plans............................ 36
Restrictions and Qualified Contracts................... 37
Possible Charge for Providentmutual's Taxes............ 38
Other Tax Consequences................................. 38
Distribution of Contracts................................... 38
Preparing for Year 2000..................................... 38
Legal Proceedings........................................... 39
Voting Rights............................................... 39
Financial Statements........................................ 39
Statements of Additional Information Table of Contents...... 40
</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 408A of the
Internal Revenue Code of 1986, as amended.
SUBACCOUNT................. The Variable Account has Subaccounts; the assets of
each Subaccount are invested in a corresponding
Portfolio of a designated mutual fund.
VALUATION DAY.............. Each day on which valuation of the assets of a
Subaccount is required by applicable law.
VALUATION PERIOD........... The period that starts at the close of business on
one Valuation Day and ends at the close of business
on the next succeeding Valuation Day.
VARIABLE ACCOUNT........... Providentmutual Variable Annuity Separate Account
which is not part of Providentmutual's General
Account. The Variable Account has Subaccounts each
of which is invested in a corresponding Portfolio of
a designated mutual fund.
WRITTEN NOTICE............. A written request or notice in a form satisfactory
to Providentmutual which is signed by the Owner and
received at the Home Office.
1
<PAGE> 9
TABLE OF EXPENSES
The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
<TABLE>
<S> <C> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Premiums............... none
Maximum Contingent Deferred Sales Charge (as
a percentage of amount surrendered or
withdrawn)(1).............................. 7%
ANNUAL ADMINISTRATION FEE.................... $30 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a % of Variable Account Value)
Mortality and Expense Risk Charges........... 1.25%
Account Fees and Expenses(2)................. 0.15%
----
Total Variable Account Annual Expenses....... 1.40%
</TABLE>
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.32% 0.25% 0.35% 0.41% 0.45% 0.75%
Other Expenses............................... 0.11% 0.14% 0.22% 0.17% 0.18% 0.27%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses................... 0.43% 0.39% 0.57% 0.58% 0.63% 1.02%
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE CAP LARGE CAP SMALL CAP SMALL CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- ---------- ----------
<S> <C> <C> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.70% 0.70% 0.90% 0.90%
Other Expenses............................... 0.40% 0.40% 0.40% 0.40%
---- ---- ---- ----
Total Fund Annual Expenses................... 1.10% 1.10% 1.30% 1.30%
</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............................... 0.04%
----
Total Fund Annual Expenses................... 0.89%
</TABLE>
2
<PAGE> 10
<TABLE>
<CAPTION>
HIGH EQUITY
INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND ("VIP FUND")
ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)........................... 0.59% 0.49% 0.60% 0.74%
Other Expenses
(after reimbursement)(3)............................. 0.12% 0.08% 0.07% 0.16%
----- ----- ----- -----
Total Fund Annual Expenses
(after reimbursement)(3)............................. 0.71% 0.57% 0.67% 0.90%
</TABLE>
<TABLE>
<CAPTION>
ASSET INDEX INVESTMENT
MANAGER 500 GRADE BOND CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II FUND")
ANNUAL EXPENSES(4)
(as a percentage of average net assets )
Management Fees
(Investment Advisory Fees)........................... 0.55% 0.28% 0.44% 0.59%
Other Expenses
(after reimbursement)(3)............................. 0.09% 0.00% 0.14% 0.09%
----- ----- ----- -----
Total Fund Annual Expenses
(after reimbursement)(3)............................. 0.64% 0.28% 0.58% 0.68%
</TABLE>
<TABLE>
<CAPTION>
LIMITED
MATURITY
BOND PARTNERS
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)........................... 0.65% 0.80%
Other Expenses......................................... 0.12% 0.06%
----- -----
Total Fund Annual Expenses............................. 0.77% 0.86%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <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% 1.00%
Other Expenses
(after reimbursement)(3)............................ 0.12% 0.17% 0.00% 0.17%
----- ----- ----- -----
Total Fund Annual Expenses
(after reimbursement)(3)............................ 1.12% 1.17% 1.00% 1.17%
</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 27.
- ---------------
(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 27.)
(2) Asset-based administration charge.
(3) For certain portfolios, certain expenses were reimbursed during 1997.
It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the 1997 Other Expenses and Total Annual Expenses would
have been 0.09%, 0.58%, respectively, for the VIP Fund Equity Income
Portfolio, 0.09%, 0.69%, respectively, for the VIP Fund Growth
Portfolio, 0.17%, 0.91%, respectively, for the VIP Fund Overseas
Portfolio, 0.10%, 0.65%, respectively, for the VIP II Fund Asset
Manager Portfolio, 0.13%, 0.40%, respectively, for the VIP II Fund
Index 500 Portfolio, 0.11%, 0.71%, respectively, for the VIP II Fund
Contrafund Portfolio, and 0.18%, 1.18%, respectively, for the Van Eck
Hard Assets Portfolio. Similar expense reimbursement and fee waiver
arrangements were also in place for the other Portfolios and it is
anticipated that such arrangements will continue past the current year.
However, no expenses were reimbursed or fees waived during 1997 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 VIP Fund, the VIP II Fund,
Neuberger & Berman Advisers Management Trust, 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.
4
<PAGE> 12
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>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
MS Growth..................................... $83.02 $ 96.60 $124.63 $242.72
MS Money Market............................... 82.65 95.43 122.63 238.60
MS Bond....................................... 84.34 100.68 131.61 257.02
MS Managed.................................... 84.43 100.97 132.11 258.03
MS Aggressive Growth.......................... 84.90 102.42 134.59 263.08
MS International.............................. 88.57 113.72 153.79 301.67
MS All Pro Large Cap Growth................... 89.32 116.03 157.69 309.41
MS All Pro Large Cap Value.................... 89.32 116.03 157.69 309.41
MS All Pro Small Cap Growth................... 91.20 121.78 167.38 328.49
MS All Pro Small Cap Value.................... 91.20 121.78 167.38 328.49
Alger American Small Cap...................... 87.35 109.96 147.42 288.97
Fidelity High Income.......................... 85.65 104.75 138.56 271.12
Fidelity Equity Income........................ 84.34 100.68 131.61 257.02
Fidelity Growth............................... 85.28 103.59 136.58 267.11
Fidelity Overseas............................. 87.44 110.25 147.91 289.95
Fidelity Investment Grade Bond................ 84.43 100.97 132.11 258.03
Fidelity Asset Manager........................ 85.00 102.71 135.09 264.09
Fidelity Index 500............................ 81.61 92.21 117.11 227.19
Fidelity Contrafund........................... 85.37 103.88 137.07 268.11
Neuberger Limited Maturity Bond............... 86.22 106.49 141.52 277.10
Neuberger Partners............................ 87.06 109.10 145.95 286.02
Van Eck Worldwide Bond........................ 89.51 116.60 158.66 311.34
Van Eck Wordwide Hard Assets.................. 89.98 118.04 161.09 316.13
Van Eck Worldwide Emerging Mkts............... 88.38 113.14 152.81 299.73
Van Eck Worldwide Real Estate................. 89.98 118.04 161.09 316.13
</TABLE>
5
<PAGE> 13
2. If the Contract is not surrendered or is annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
MS Growth..................................... $21.30 $ 65.75 $112.79 $242.72
MS Money Market............................... 20.90 64.54 110.76 238.60
MS Bond....................................... 22.70 69.98 119.87 257.02
MS Managed.................................... 22.80 70.28 120.37 258.03
MS Aggressive Growth.......................... 23.30 71.78 122.89 263.08
MS International.............................. 27.20 83.47 142.34 301.67
MS All Pro Large Cap Growth................... 28.00 85.86 146.30 309.41
MS All Pro Large Cap Value.................... 28.00 85.86 146.30 309.41
MS All Pro Small Cap Growth................... 30.00 91.81 156.12 328.49
MS All Pro Small Cap Value.................... 30.00 91.81 156.12 328.49
Alger American Small Cap...................... 25.90 79.59 135.89 288.97
Fidelity High Income.......................... 24.10 74.19 126.91 271.12
Fidelity Equity Income........................ 22.70 69.98 119.87 257.02
Fidelity Growth............................... 23.70 72.99 124.90 267.11
Fidelity Overseas............................. 26.00 79.89 136.39 289.95
Fidelity Investment Grade Bond................ 22.80 70.28 120.37 258.03
Fidelity Asset Manager........................ 23.40 72.08 123.39 264.09
Fidelity Index 500............................ 19.80 61.21 105.16 227.19
Fidelity Contrafund........................... 23.80 73.29 125.40 268.11
Neuberger Limited Maturity Bond............... 24.70 75.99 129.91 277.10
Neuberger Partners............................ 25.60 78.69 134.40 286.02
Van Eck Worldwide Bond........................ 28.20 86.46 147.28 311.34
Van Eck Wordwide Hard Assets.................. 28.70 87.95 149.74 316.13
Van Eck Worldwide Emerging Mkts............... 27.00 82.88 141.35 299.73
Van Eck Worldwide Real Estate................. 28.70 87.95 149.74 316.13
</TABLE>
The Examples provided above assume that no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $30 and that the Contract Account Value per contract is
$10,000, which translates the Administration Fee into an assumed .30% charge for
purposes of the Examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE
ASSUMED AMOUNT.
6
<PAGE> 14
2. If the Contract is not surrendered or is annuitized at the end of the
applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
MS Growth..................................... $21.30 $ 65.75 $112.79 $242.72
MS Money Market............................... 20.90 64.54 110.76 238.60
MS Bond....................................... 22.70 69.98 119.87 257.02
MS Managed.................................... 22.80 70.28 120.37 258.03
MS Aggressive Growth.......................... 23.30 71.78 122.89 263.08
MS International.............................. 27.20 83.47 142.34 301.67
All Pro Large Cap Growth...................... 28.00 85.86 146.30 309.41
All Pro Large Cap Value....................... 28.00 85.86 146.30 309.41
All Pro Small Cap Growth...................... 30.00 91.81 156.12 328.49
All Pro Small Cap Value....................... 30.00 91.81 156.12 328.49
Alger American Small Cap...................... 25.90 79.59 135.89 288.97
Fidelity High Income.......................... 24.10 74.19 126.91 271.12
Fidelity Equity Income........................ 22.70 69.98 119.87 257.02
Fidelity Growth............................... 23.70 72.99 124.90 267.11
Fidelity Overseas............................. 26.00 79.89 136.39 289.95
Fidelity Investment Grade Bond................ 22.80 70.28 120.37 258.03
Fidelity Asset Manager........................ 23.40 72.08 123.39 264.09
Fidelity Index 500............................ 19.80 61.21 105.16 227.19
Fidelity Contrafund........................... 23.80 73.29 125.40 268.11
Neuberger Limited Maturity Bond............... 24.70 75.99 129.91 277.10
Neuberger Partners............................ 25.60 78.69 134.40 286.02
Van Eck Worldwide Bond........................ 28.20 86.46 147.28 311.34
Van Eck Wordwide Hard Assets.................. 28.70 87.95 149.74 316.13
Van Eck Worldwide Emerging Mkts............... 27.00 82.88 141.35 299.73
Van Eck Worldwide Real Estate................. 28.70 87.95 149.74 316.13
</TABLE>
The Examples provided above assume that no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $30 and that the Contract Account Value per contract is
$10,000, which translates the Administration Fee into an assumed .30% charge for
purposes of the Examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE
ASSUMED AMOUNT.
7
<PAGE> 15
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 19.)
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 19.)
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 19.)
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 19.)
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 22.)
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 22.)
8
<PAGE> 16
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).
Step-Up Rider. Contract Owner may elect the Step-up Rider, which provides
a guaranteed minimum death benefit equal to the Contract Account Value as of the
six year contract anniversary and is reset every six years to the Contract
Account Value on the next six year contract anniversary, if greater. This reset
continues until the six year contract anniversary on or before the annuitant's
85th birthday. Premiums paid between the six year contract anniversaries are
also included in the death benefit proceeds. A reduction in the guaranteed
minimum death benefit for any withdrawal will be based on the proportion of the
withdrawal to the Contract Account Value. At no time will the death benefit
proceeds be less than either the Contract Account Value on the date
Providentmutual receives due proof of the Annuitant's death or the sum of
premiums paid, less any withdrawals, including applicable Surrender Charges.
Rising Floor Rider. Contract Owner may elect the Rising Floor Rider, which
provides guaranteed minimum death benefit equal to the sum of premiums paid less
reductions for withdrawals accumulating at 4 1/2% interest until the contract
anniversary prior to the annuitant's 75th birthday. Thereafter, premiums are
added and reductions for withdrawals are deducted from the guaranteed death
benefit. A reduction in the guaranteed minimum death benefit for any withdrawal
will be based on the proportion of the withdrawal to the Contract Account Value.
At no time will the death benefit proceeds be less than the Contract Account
Value.
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 24.)
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 27.)
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 28.)
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 29.)
9
<PAGE> 17
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 29.)
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 29.)
Investment Advisory Fees and Other Expenses of the Funds. Because the
Variable Account purchases shares of the Funds, the net assets of each
Subaccount of the Variable Account will reflect the investment advisory fee
incurred by the corresponding Portfolio of the Funds. For each Portfolio, an
investment advisor is paid a daily fee by the Funds for its investment advisory
services. The advisory fees are based on the average daily net assets of the
Portfolio, and, as a result, the amount of the advisory fee will depend upon the
Portfolio and the assets of such Portfolio. Each Portfolio of the Fund in which
the Variable Account invests is also responsible for its own expenses.
Presently, certain fees and expenses of the Funds are waived and reimbursed.
(See "Other Charges Including Investment Advisory Fees of the Funds," Page 29
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 30.)
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 penalty tax may apply. For a further discussion of the
Federal income status of Variable Annuity Contracts, see "Federal Tax Status,"
Page 32.
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 39,
concerning financial statements contained in the Statement of Additional
Information. The All Pro Subaccounts and Neuberger Partners Subaccount are not
included because they were not available under the contract prior to May 1,
1998.
10
<PAGE> 18
The table below sets forth certain information regarding the Subaccounts as
of December 1997.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
UNITS UNITS
UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING UNIT VALUE
AS OF AS OF AS OF AS OF AS OF
SUBACCOUNT 12/31/97 12/31/97 12/31/96* 12/31/96 7/3/96*
---------- ---------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
MS Growth................................................... 950.55 2,124.49.. 775.34 246.94 717.46
MS Money Market............................................. 575.95 5,777.26 554.47 1,704.79 544.63
MS Bond..................................................... 597.74 1,893.50 553.59 152.88 533.36
MS Managed.................................................. 781.27 433.37 653.55 47.59 615.63
MS Aggressive Growth........................................ 833.15 742.80 697.07 101.81 648.87
MS International............................................ 704.02 1,385.01 651.04 119.04 630.16
Alger American Small Cap.................................... 543.46 4,070.28 494.76 923.47 500.00
Fidelity High Income........................................ 788.02 1,502.95 679.15 325.05 645.09
Fidelity Equity Income...................................... 1,011.99 4,172.63 801.08 447.36 747.97
Fidelity Growth............................................. 905.80 3,577.67 743.89 595.00 718.05
Fidelity Overseas........................................... 578.18 3,290.77 525.59 252.42 500.00
Fidelity Inv. Bond.......................................... 567.43 1,805.08 527.62 273.20 500.00
Fidelity Asset Man.......................................... 763.46 1,946.06 641.70 72.94 596.55
Fidelity Index 500.......................................... 1,088.42 5,534.74 831.78 586.49 753.09
Fidelity Contrafund......................................... 879.99 3,621.20 718.85 301.49 649.11
Neuberger Balanced**........................................ 616.29 1,120.17 523.20 80.00 --
Neuberger Growth**.......................................... 666.62 1,352.05 524.02 203.87 --
Neuberger Lmt. Mat. Bond.................................... 546.41 1,745.29 519.12 145.08 --
American Century VP Capital Appreciation**.................. 461.54 298.38 483.82 120.38 --
Van Eck Worldwide Bond...................................... 529.51 1,692.67 524.46 173.60 500.00
Van Eck Worldwide Hard Assets............................... 506.92 258.25 522.85 31.36 500.00
Van Eck Worldwide Emerging Mkts. ........................... 457.77 1,984.51 524.75 133.66 500.00
</TABLE>
- ---------------
* Date contract was first available.
**Effective May 1, 1998 this Portfolio is not available for new business.
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, 1997, Providentmutual had total assets of
approximately $1.2 billion.
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 1997 had total assets of approximately
$7.92 billion. On December 31, 1997, Providentmutual and PMLIC entered into a
Support Agreement whereby PMLIC agrees to ensure that Providentmutual's total
adjusted capital will remain at the level of 200% of the company action level
for risk-based capital at the end of each calendar quarter during the term of
the agreement, agreeing to contribute to Providentmutual an amount of capital
sufficient to attain such level of total adjusted capital. RBC requirements are
used to monitor sufficient capitalization of insurance companies based upon the
types and mixtures of risk inherent in such companies' operations.
Further, PMLIC agrees to cause Providentmutual to maintain cash or cash
equivalents from time to time as may be necessary during the term of the
agreement in an amount sufficient for the payment of benefits and other
contractual claims pursuant to policies and other contracts issued by
Providentmutual. This agreement will remain in effect provided Providentmutual
is, and remains, a subsidiary of PMLIC. Prior to any material modification or
termination of the agreement, a determination must be made that such
modification or termination will not have an adverse impact on the policyholders
of Providentmutual. Such determination
11
<PAGE> 19
shall be based on the ability of Providentmutual at the time of such
determination to maintain its own financial stability according to the standards
contained in the agreement. Other than this Support Agreement, PMLIC is under no
obligation to invest money in Providentmutual nor is it in any way a guarantor
of Providentmutual's contractual obligations or obligations under the Contract.
Providentmutual is subject to regulation by the Insurance Department of the
State of Delaware as well as by the insurance departments of all other states
and jurisdictions in which it does business. Providentmutual submits annual
statements on its operations and finances to insurance officials in such states
and jurisdictions. 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.
Providentmutual is a member of the Insurance Marketplace Standards
Association ("IMSA"), and as such may include the IMSA logo and information
about IMSA membership in its advertisements. Companies that belong to IMSA
subscribe to a set of ethical standards covering the various aspects of sales
and service for individually sold life insurance and annuities.
THE 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-six Subaccounts twenty-five of
which are available under the Contracts: Growth; Money Market; Bond; Managed;
Aggressive Growth; International; All Pro Large Cap Growth; All Pro Large Cap
Value; All Pro Small Cap Growth; All Pro Small Cap Value; 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 Limited Maturity Bond; Neuberger &
Berman Partners; Van Eck Worldwide Bond; Van Eck Worldwide Hard Assets; Van Eck
Worldwide Emerging Markets and Van Eck Worldwide Real Estate. 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 nine series-type
mutual funds six of which are available under the Contracts: Market Street Fund,
Inc.; Alger American Fund; Variable Insurance Products Fund; Variable Insurance
Products Fund II; Neuberger & Berman Advisers Management Trust; and Van Eck
Worldwide Insurance Trust (collectively, the "Funds"). Each of these Funds is
registered with the SEC under
12
<PAGE> 20
the 1940 Act as an open-end diversified investment company. The SEC does not,
however, supervise the management or the investment practices and policies of
the Funds.
The assets of each Fund portfolio are separate from other portfolios of
that Fund and each portfolio has separate investment objective and policies. As
a result, each portfolio operates as a separate investment portfolio and the
investment performance of one portfolio has no effect on the investment
performance of any other portfolio. Some of the Funds may, in the future, create
additional portfolios. The investment experience of each of the Subaccounts of
the Variable Account depends on the investment performance of its corresponding
portfolio.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and
Providentmutual. The termination provisions of those agreements vary. A summary
of these termination provisions may be found in the Statement of Additional
Information. Should an agreement between Providentmutual and a Fund terminate,
the Variable Account will not be able to purchase 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, International
All Pro Large Cap Growth, All Pro Small Cap Growth, All Pro Large Cap Value and
All Pro Small Cap Value 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,
Money Market, Bond, Managed, Aggressive Growth, International All Pro Large Cap
Growth, All Pro Small Cap Growth, All Pro Large Cap Value and All Pro Small Cap
Value Portfolios. Shares of each Portfolio currently are purchased and redeemed
by the corresponding Subaccount. Shares of the All Pro Portfolios may not be
currently available for sale in all states. If they are not yet available in
your state, you may not allocate premiums to them until such time as they are
available.
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.
13
<PAGE> 21
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.
All Pro Large Cap Growth Portfolio seeks to achieve long-term capital
appreciation. The Portfolio pursues its objective by investing primarily in
common stock and other equity securities of companies among the 750 largest by
market capitalization at the time of purchase, which the Advisers believe show
potential for growth in future earnings.
All Pro Small Cap Growth Portfolio seeks to achieve long-term capital
appreciation. The Portfolio pursues its objective by investing primarily in
common stock and other equity securities of companies that rank between 751 and
1,750 in size measured by market capitalization at the time of purchase, which
the Advisers believe show potential for growth in future earnings.
All Pro Large Cap Value Portfolio seeks to provide long-term capital
appreciation. The Portfolio attempts to achieve this objective by investing
primarily in undervalued common stock and other equity securities of companies
among the 750 largest by market capitalizations at the time of purchase that the
Advisers believe offer above-average potential for growth in future earnings.
All Pro Small Cap Value Portfolio seeks to provide long-term capital
appreciation. The Portfolio pursues this objective by investing primarily in
undervalued common stock and other equity securities of companies that rank
between 751 and 1,750 in size measured by market capitalization at the time of
purchase, which the Advisers believe offer above-average potential for growth in
future earnings.
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. PIMC serves as
investment adviser for the All Pro Portfolios. PIMC uses a "manager of managers"
approach for the All Pro Portfolios under which PIMC allocates each Portfolio's
assets among one or more "specialist" investment sub-advisers. As of the date of
this prospectus, the assets of the All Pro Small Cap Growth Portfolio are
managed in part by Standish, Ayer & Wood and in part by Husic Capital
Management, pursuant to separate investment sub-advisory agreements. The assets
of the All Pro Large Cap Growth Portfolio are managed in part by Cohen,
Klingenstein & Marks, Inc.; in part by Geewax, Terker & Co.; and in part by Oak
Associates, Ltd.; pursuant to separate investment sub-advisory agreements. The
assets of the All Pro Small Cap Value Portfolio are managed in part by 1838
Investment Advisors and in part by Denver Investment Advisors, pursuant to an
investment sub-advisory agreement. The assets of the All Pro Large Cap Value
Portfolio are managed in part by Equinox Capital Management, Inc.; in part by
Harris Associates, Inc.; and in part by Mellon Equity Associates, pursuant to
separate investment sub-advisory agreements. Each of these advisers is
registered with the SEC as an investment adviser under the Investment Advisers
Act of 1940.
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.
The Investment Adviser for the Portfolio is Fred Alger Management, Inc.
14
<PAGE> 22
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 VIP Equity-Income Portfolio, VIP Growth Portfolio, VIP
High Income Portfolio and VIP 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 VIP II Asset Manager Portfolio, VIP II
Contrafund Portfolio, VIP II Index 500 Portfolio and VIP II Investment Grade
Bond Portfolio, respectively, of the VIP II Fund. (The VIP Fund and VIP II Fund
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 II Fund
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 II
Fund 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
VIP Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the VIP Equity-Income Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to achieve a yield which exceeds the
composite yield of the securities comprising the Standard and Poor's 500
Composite Stock Price Index.
VIP Growth Portfolio. This Portfolio seeks to achieve capital
appreciation. The VIP Growth Portfolio normally purchases common stocks,
although its investments are not restricted to any one type of security. Capital
appreciation may also be found in other types of securities, including bonds and
preferred stocks.
VIP High Income Portfolio. This Portfolio seeks to obtain a high level of
current income by investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of capital.
VIP Overseas Portfolio. This Portfolio seeks long term growth of capital
primarily through investments in foreign securities. The Overseas Portfolio
provides a means for diversification by participating in companies and economies
outside of the United States.
VIP II Fund
VIP II Asset Manager Portfolio. This Portfolio seeks to obtain high total
return with reduced risk over the long-term by allocating its assets among
stocks, bonds and short-term money market instruments.
VIP II Contrafund Portfolio. This Portfolio seeks capital appreciation by
investing in securities of companies where value is not fully recognized by the
public.
VIP II Index 500 Portfolio. This Portfolio seeks to provide investment
results that correspond to the total return (i.e., the combination of capital
changes and income) of a broad range of common stocks publicly traded in the
United States. In seeking this objective, the VIP II Index 500 Portfolio
attempts to duplicate the composition and total return of the Standard and
Poor's 500 Composite Stock Price Index while keeping transaction costs and other
expenses low. The Portfolio is designed as a long-term investment option.
VIP II 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 II Fund 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
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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 Limited Maturity Bond Subaccount and Neuberger &
Berman Partners Subaccount of the Variable Account invest in shares of the
Limited Maturity Bond Portfolio and Partners 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. Shares of the Neuberger & Berman Partners Portfolio may not
be currently available for sale in all states. If they are not yet available in
your state, you may not allocate premiums to them until such time as they are
available. 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.
Limited Maturity Bond Portfolio. The Series corresponding to this
Portfolio seeks the highest current income consistent with low risk to principal
and liquidity and secondarily, total return, through investment in short to
intermediate term debt securities, primarily investment grade.
Partners Portfolio. The Series corresponding to this Portfolio seeks
capital growth through investment in common stocks and other equity securities
of medium to large capitalization established companies.
The Investment Adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger & Berman
Management, Incorporated. The Investment Adviser retains Neuberger & Berman,
without cost to AMT, as sub-adviser to furnish it with investment
recommendations and research information.
VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck
Worldwide Emerging Markets and Van Eck Worldwide Real Estate Subaccounts of the
Variable Account invest in shares of the Van Eck Worldwide Bond, Van Eck
Worldwide Hard Assets, Van Eck Worldwide Emerging Markets, and Van Eck Worldwide
Real Estate Portfolios, respectively, of the Van Eck Worldwide Insurance Trust
("Van
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Eck Trust"). Shares of the Van Eck Worldwide Bond, Worldwide Hard Assets,
Worldwide Emerging Markets, and Van Eck Worldwide Real Estate Portfolios 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. Shares of the Van Eck Worldwide Real Estate Portfolio may
not be currently available for sale in all states. If they are not yet available
in your state, you may not allocate premiums to them until such time as they are
available. 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 globally, primarily in "Hard Assets Securities." Hard
Assets Securities include equity securities of Hard Asset Companies and
securities, including structured notes, whose value is linked to the price of a
Hard Asset commodity or a commodity index. Hard Asset Companies include
companies that are directly or indirectly engaged to a significant extent in the
exploration, development, production or distribution of one or more of the
following (together, Hard Assets); (i) precious metals, (ii) ferrous and
non-ferrous 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.
Van Eck Worldwide Real Estate Portfolio seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies which
are principally engaged in the real estate industry or which own significant
real estate assets.
The investment adviser for the Van Eck Worldwide Bond, the Worldwide Hard
Assets and Worldwide Real Estate Portfolios is Van Eck Associates Corporation
("Van Eck Associates"). The investment adviser for the Van Eck Worldwide
Emerging Markets Portfolio is Van Eck Global Asset Management (Asia) Limited, a
wholly-owned investment adviser subsidiary of Van Eck Associates.
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
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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 MS Fund, Alger American, VIP Fund, VIP Fund II, AMT, and Van Eck Trust
are now, or may be in the future, used as investment vehicles for variable life
insurance policies and variable annuity contracts issued by Providentmutual or
PMLIC, as well as registered separate accounts of other insurance companies
offering variable life and annuity contracts. 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.
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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).
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
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of the initial Net Premium which is to be allocated to the Subaccounts of the
Variable Account will be allocated to the Money Market Subaccount for a 15-day
period. After the expiration of such 15-day period, the amount in the Money
Market Subaccount will be allocated to the chosen Subaccounts based on the
proportion that the allocation percentage for such Subaccount bears to the sum
of the Subaccount allocation percentages. Any subsequent Net Premiums will be
allocated at the end of the Valuation Period in which the subsequent premium is
received by Providentmutual in the same manner, unless the allocation
percentages are changed. Premiums will be allocated in accordance with the
allocation schedule in effect at the time the premium payment is received.
For contracts sold to residents of states where the amount of the premium
returned during the "Free-Look Period" as described above reflects the
investment performance of the Variable Account, (i.e., Arizona, Minnesota and
Pennsylvania) the portion of the initial Net Premium for such Contract which is
to be allocated to the Variable Account will not automatically be allocated to
the Money Market Subaccount for the 15-day period but instead will be credited
to the chosen Subaccounts of the Variable Account within 2 or 5 business days of
receipt of such premium.
The values of the Subaccounts of the Variable Account will vary with the
investment experience of the Subaccounts, and the Owner bears the entire
investment risk. Owners should periodically review their allocation schedule for
premiums in light of market conditions and the Owner's overall financial
objectives.
VARIABLE ACCOUNT VALUE
The Variable Account Value will reflect the investment experience of the
chosen Subaccounts of the Variable Account, any premiums paid, any withdrawals,
any surrenders, any transfers, and any charges assessed in connection with the
Contract. There is no guaranteed minimum Variable Account Value, and, because a
Contract's Variable Account Value on any future date depends upon a number of
variables, it cannot be predetermined.
Calculation of Variable Account Value. The Variable Account Value is
determined on each Valuation Date. The value will be the aggregate of the values
attributable to the Contract in each of the Subaccounts, determined for each
Subaccount by multiplying the Subaccount's Unit Value on the relevant Valuation
Date by the number of Subaccount units allocated to the Contract.
Determination of Number of Units. Any amounts allocated to the Subaccounts
will be converted into units of the Subaccount. The number of units to be
credited to the Contract is determined by dividing the dollar amount being
allocated to the Subaccount by the Unit Value for that Subaccount at the end of
the Valuation Period during which the amount was allocated. The number of units
in any Subaccount will be increased at the end of the Valuation Period by any
premiums allocated to the Subaccount during the current Valuation Period and by
any transfers to the Subaccount from another Subaccount or from the Guaranteed
Account during the current Valuation Period. The number of units in any
Subaccount will be decreased at the end of the Valuation Period by any amounts
transferred from the Subaccount to another Subaccount or the Guaranteed Account
during the current Valuation Period and any surrender charge upon a withdrawal
or surrender and the Annual Administration Fee assessed in connection with the
Contract during the current Valuation Period.
Determination of Unit Value. The Unit Value for each Subaccount's first
Valuation Period is set at $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
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Investment Factor, which may be greater or less than one. The Net Investment
Factor for each Subaccount for a Valuation Period equals 1 plus the fraction
obtained by dividing (a) by (b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited during the current Valuation Period; plus
2. any amount credited or released from reserves for taxes
attributable to the operation of the Subaccount; minus
3. the capital losses, realized or unrealized, charged during the
current Valuation Period; minus
4. any amount charged for taxes or any amount set aside during the
Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Subaccount; minus
5. the amount charged for mortality and expense risk for that
Valuation Period; minus
6. the amount charged for administration for that Valuation Period;
and
(b) is the value of the assets in the Subaccount at the end of the
preceding Valuation Period, adjusted for allocations and transfers to and
withdrawals and transfers from the Subaccount occurring during that
preceding Valuation Period.
TRANSFER PRIVILEGE
Before the Maturity Date, an Owner may transfer all or a part of an amount
in the Subaccount(s) to another Subaccount(s) or to the Guaranteed Account, or
transfer a part of an amount in the Guaranteed Account to the Subaccount(s),
subject to these general restrictions and the additional restrictions below. The
minimum transfer amount must be the lesser of $500 or the entire amount in that
Subaccount or the Guaranteed Account. A transfer request that would reduce the
amount in a Subaccount or the Guaranteed Account below $500 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 27).
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.
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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 Providentmutual, or by telephone if
you have previously authorized us to take telephone instructions.
Providentmutual 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.
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 27.)
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 not 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 27.)
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 34.)
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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 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 27.)
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 27), 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.
Charitable Remainder Trust Rider. Contract Owner may elect a Charitable
Remainder Trust Rider, which combines an extended Maturity Date to the contract
anniversary nearest the Annuitant's age 100, unless a lump sum payment of Cash
Surrender Value is elected, with a replacement of the surrender
charge/withdrawal provision for contracts issued in a Charitable Remainder
Trust. A Charitable Remainder Trust allows for income to be distributed and for
the payment of trustee fees and charges. The rider would only apply the
appropriate surrender charge to withdrawals or surrenders during a contract year
that exceed the greater of: (1) 10% of the Contract Account Value as of the
beginning of the contract year; or (2) any amounts in excess of the total
premiums paid. There will be no limit on the number of withdrawals occurring in
any contract year.
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 27.) 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
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<PAGE> 31
sum unless the Owner requests payment under a Payment Option. A surrender may
have adverse Federal income tax consequences. (See "Taxation of Annuities." Page
34.)
Restrictions on Distributions from Certain Contracts. There are certain
restrictions on surrenders of and withdrawals from Contracts used as funding
vehicles for Internal Revenue Code 403(b) retirement plans. Section 403(b)(11)
of the Internal Revenue Code of 1986, as amended, restricts the distribution
under Section 403(b) annuity contracts of: (i) elective contributions made in
years beginning after December 31, 1988; (ii) earnings on those contributions;
and (iii) earnings in such years on amounts held as of the last year beginning
before January 1, 1989. Distributions of those amounts may only occur upon the
death of the employee, attainment of age 59 1/2, separation from service,
disability, or financial hardship. In addition, income attributable to elective
contributions may not be distributed in the case of hardship.
Contract Termination. Providentmutual may end this Contract and pay the
Cash Surrender Value to the Owner if, before the Maturity Date, all of these
events simultaneously exist;
1. no premiums have been paid for at least two years;
2. the Contract Account Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than
$2,000.
Providentmutual will mail the Owner a notice of its intention to end the
Contract at least six months in advance. The Contract will automatically
terminate on the date specified in the notice, unless Providentmutual receives
an additional premium payment before the termination date specified in the
notice. This additional premium payment must be for at least the required
minimum amount. (Termination of the Contract under this provision is not
permitted in New Jersey.)
DEATH BENEFIT BEFORE MATURITY DATE
Step-Up Rider. Contract Owner may elect the Step-Up Rider, which provides
a guaranteed minimum death benefit equal to the Contract Account Value as of the
six year anniversary and is reset every six years to the Contract Account Value
on the next six year contract anniversary, if greater. This reset continues
until the six year contract anniversary on or before the annuitant's 85th
birthday. Premiums paid between the six year contract anniversaries are also
included in the death benefit proceeds. A reduction in the guaranteed minimum
death benefit for any withdrawal will be based on the proportion of the
withdrawal to the Contract Account Value. At no time will the death benefit
proceeds be less than either the Contract Account Value on the date
Providentmutual receives due proof of the Annuitant's death or the sum of
premiums paid, less any withdrawals, including applicable Surrender Charges.
Rising Floor Rider. Contract Owner may elect the Rising Floor Rider, which
provides a guaranteed minimum death benefit equal to the sum of premiums paid
less reductions for withdrawals accumulating at 4 1/2% interest until the
contract anniversary prior to the annuitant's 75th birthday. Thereafter,
premiums are added and reductions for withdrawals are deducted from the
guaranteed death benefit. A reduction in the guaranteed minimum death benefit
for any withdrawal will be based on the proportion of the withdrawal to the
Contract Account Value. At no time will the death benefit proceeds be less than
the Contract Account Value.
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).
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<PAGE> 32
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.
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
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<PAGE> 33
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 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
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<PAGE> 34
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.
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.
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<PAGE> 35
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>
CONTRACT YEAR IN WHICH CHARGES AS PERCENTAGE OF
WITHDRAWAL OR AMOUNT
SURRENDER OCCURS WITHDRAWN OR 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 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),
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<PAGE> 36
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).
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.
In the event that there are any profits from fees and charges deducted
under the Contract, including but not limited to mortality and expense risk
charges, such profits could be used to finance the distribution of the
Contracts.
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.
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<PAGE> 37
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 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.
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<PAGE> 38
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 historic performance data for the Variable Accounts, including
yields, effective yields, standard annual total returns, and non standard
measurements of performance 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
investment income generated by an investment in the Subaccount over a specified
seven-day period. The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-day period over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
the Subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Subaccount (except the Money Market Subaccount) refers to
the annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30-day or one-month period is
generated each period over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time including, but not limited to, a period measured from the date the
Subaccount commenced operations. When a Subaccount has been in operation for
one, five, and ten years, respectively, the total return for these periods will
be provided. For periods prior to the date the Variable Account commenced
operations, performance information for Contracts funded by the Subaccounts will
be calculated based on the performance of the Funds' Portfolios and the
assumption that the Subaccounts were in existence for the same periods as those
indicated for the Funds' Portfolios, with the level of Contract charges that
were in effect at the inception of the Subaccounts for the Contracts.
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the Subaccount from the beginning date of the measuring
period to the end of that period. This standardized version of average annual
total return reflects all historical investment results, less all charges and
deductions applied against the Subaccount (including any surrender charge that
would apply if an Owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium taxes).
In addition to the standard version described above, total return
performance information computed on two different non-standard bases may be used
in advertisements. Average total return information may be presented, computed
on the same basis as described above, except deductions will not include the
Surrender
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<PAGE> 39
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.
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
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tax treatment under Sections 401(a), 403(b), or 408A 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.
Owner Control. In certain circumstances, owners of variable annuity
contracts may be considered the owners, for Federal income tax purposes, of the
assets of the separate account used to support their contracts. In those
circumstances, income and gains from the separate account assets would be
includable in the variable annuity contract owner's gross income. Several years
ago, the IRS stated in published rulings that a variable contract owner will be
considered the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. More recently, the Treasury Department
announced, in connection with the issuance of regulations concerning investment
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor, rather that the insurance company, to be treated
as the owner of the assets in the account." This announcement also stated that
guidance would be issued by way of regulations or rulings on the "extent to
which policyholders may direct their investments to particular subaccounts
without being treated as owners of the underlying assets."
The ownership rights under the contract are similar to, but different in
certain resects from, those described by the Service in rulings in which it was
determined that contractowners were not owners of separate account assets. For
example, the Owner of the Contract has the choice of one or more Subaccounts in
which to allocate premiums and Contract values, and may be able to transfer
among Subaccounts more frequently than in such rulings. These differences could
result in the Owner's being treated as the owner of the assets of the Variable
Account. In addition, Providentmutual does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. Providentmutual therefore reserves the right to
modify the Contract as necessary to attempt to prevent the Owner from being
considered the owner of the assets of the Variable Account.
Required Distributions. In addition to the requirements of Section 817(h)
of the Code, in order to be treated as an annuity contract for Federal income
tax purposes, Section 72(s) of the Code requires any Non-Qualified Contract to
provide that; (a) if any Owner dies on or after the Maturity Date but prior to
the time the entire interest in the Contract has been distributed, the remaining
portion of such interest will be distributed at least as rapidly as under the
method of distribution being used as of the date of that Owner's death; and (b)
if any Owner dies prior to the annuity commencement date, the entire interest in
the Contract will be distributed within five years after the date of the Owner's
death. These requirements will be considered satisfied as to any portion of the
Owner's interest which is payable to or for the benefit of a "designated
beneficiary" and which is distributed over the life of such Beneficiary or over
a period not extending beyond
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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.
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
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amount of any additional annuity payments is taxable. If Annuity payments cease
as a result of an Annuitant's death before full recovery of the "investment in
the contract," consult a competent tax adviser regarding deductibility of the
unrecovered amount.\
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.
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. For instance, the President's 1999 Budget Proposal
recommended legislation that, if enacted, would adversely modify the federal
taxation of the Contracts. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax adviser
should be consulted with respect to legislative developments and their effect on
the Contract.
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
Distributions from Contracts generally are subject to withholding for the
Owner's federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and section
403(b) tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. An eligible rollover distribution is the taxable
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<PAGE> 43
portion of any distribution from such a plan, except certain distributions such
as distributions required by the Code or distributions in a specified annuity
form. The 20% withholding does not apply, however, if the Owner chooses a
"direct rollover" from the plan to another tax-qualified plan or IRA.
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; 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.
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. The Contract includes a Death Benefit that in some cases may exceed the
greater of the Purchase Payments or the Contract Value. The Death Benefit could
be characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. Because the Death Benefit may exceed this
limitation, employers using the Contract in connection with such plans should
consult their tax adviser.
Individual Retirement Annuities. Sections 408 and 408A of the Code permit
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." All IRAs are subject to limits on
the amount that may be contributed, the persons who are eligible, and on the
time when distributions may commence. Section 408 governs "ordinary" IRAs.
Subject to certain income limits, contributions to an ordinary IRA may be tax
deductible. Distributions from certain other types of qualified retirement plans
may be "rolled over" on a tax-deferred basis into an ordinary IRA. Distributions
from an ordinary IRA prior to age 59 1/2 (unless certain exceptions apply) are
subject to a 10% penalty tax.
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Section 408A of the Code permits individuals to contribute to a special
type of IRA called a Roth IRA. The IRA must be designated as a "Roth IRA" at the
time it is established, in accordance with IRS rules. Contributions to a Roth
IRA are not deductible. If certain conditions are met, qualified distributions
from a Roth IRA are tax free. Subject to special limitations, a distribution
from an ordinary IRA or another Roth IRA may be rolled over to a Roth IRA and an
ordinary IRA may be converted to a Roth IRA. You should consult a tax adviser
before combining any converted amounts with any other Roth IRA contributions,
including any other conversion amounts from other tax years. Distributions from
a Roth IRA generally are not taxed, except that, once aggregate distributions
exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply
to distributions made (1) before age 59 1/2 (subject to certain exceptions) or
(2) during the five taxable years starting with the year in which the first
contribution is made to the Roth IRA.
Sales of a Contract for use with an ordinary or Roth IRA may be subject to
special requirements of the IRS. The IRS has not reviewed the contract for
qualification as a 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 IRS 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.
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. The
Contract includes a Death Benefit that in some cases may exceed the greater of
the Purchase Payments or the Contract Value. The Death Benefit could be
characterized as an incidental benefit, the amount of which is limited in any
tax-sheltered annuity under section 403(b). Because the Death Benefit may exceed
this limitation, employers using the Contract in connection with such plans
should consult their tax advisor.
Required Distributions. For qualified plans under Section 401(a) and
403(b), the Code requires that distributions generally must commence no later
than the later of April 1 of the calendar year following the calendar year in
which the Owner (or plan participant) (i) reaches age 70 1/2 or (ii) retires,
and must be made in a specified form or manner. If the plan participant is a "5
percent owner" (as defined in the Code), distributions generally must begin no
later than April 1 of the calendar year following the calendar year in which the
Owner (or plan participant) reaches age 70 1/2. For ordinary IRAs, distributions
generally must commence no later than April 1 of the calendar year following the
calendar year in which the Owner (or plan participant) reaches age 70 1/2. Roth
IRAs do not require distributions at any time prior to the Owner's death.
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.
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POSSIBLE CHARGE FOR PROVIDENTMUTUAL'S TAXES
At the present time, the Company makes no charge to the Subaccounts for any
Federal, state, or local taxes that the Company incurs which may be attributable
to such Subaccounts or to the Contracts. The Company, however, reserves the
right in the future to make a charge for any such tax or other economic burden
resulting from the application of the tax laws that it determines to be properly
attributable to the Subaccounts or to the Contracts.
If any tax charges are made in the future, they will be accumulated daily
and transferred from the applicable Subaccount to Providentmutual's General
Account. Any investment earnings on tax charges accumulated in a Subaccount will
be retained by Providentmutual.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this Prospectus. Further, the
Federal income tax consequences discussed herein reflect Providentmutual's
understanding of current law and the law may change. Federal estate and state
and local estate, inheritance, and other tax consequences of ownership or
receipt of distributions under a Contract depend on the individual circumstances
of each Owner or recipient of the distribution. A competent tax advisor should
be consulted for further information.
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.
PREPARING FOR YEAR 2000
Like all financial services providers, Providentmutual and its affiliates
utilize systems that may be affected by Year 2000 transition issues and they
rely on service providers, including banks, custodians, administrators, and
investment managers that also may be affected. Providentmutual and its
affiliates have developed, and are in the process of implementing, a Year 2000
transition plan, and are confirming that its service providers are also so
engaged. The resources that are being devoted to this effort are substantial. It
is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on Provident Mutual and its affiliates. However, as of the date of this
prospectus, it is not anticipated that Owners will experience negative effects
on their investment, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. Providentmutual and its
affiliates currently anticipate that their systems will be Year 2000 compliant
on or about January 1, 1999 but there can
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be no assurance that Providentmutual and its affiliates will be successful, or
that interaction with other service providers will not impair Providentmutual or
its affiliates' services at that time.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that at the
present time there are not pending or threatened lawsuits that are reasonably
likely to have a material adverse impact on the Separate Account or PMLIC.
VOTING RIGHTS
In accordance with its view of present applicable law, Providentmutual will
vote the Portfolio shares held in the Variable Account at special shareholder
meetings of the Funds in accordance with instructions received from persons
having voting interests in the corresponding Subaccounts. If, however, the
Investment Company Act of 1940 or any regulation thereunder should be amended,
or if the present interpretation thereof should change, or Providentmutual
determines that it is allowed to vote the Portfolio shares in its own right, it
may elect to do so.
The number of votes which are available to an Owner will be calculated
separately for each Subaccount of the Variable Account, and may include
fractional votes. The number of votes attributable to a Subaccount will be
determined by applying an Owner's percentage interest, if any, in a particular
Subaccount to the total number of votes attributable to that Subaccount. An
Owner holds a voting interest in each Subaccount to which the Variable Account
Value is allocated. The Owner only has voting interest prior to the Maturity
Date.
The number of votes of a Portfolio which are available to the Contract
Owner will be determined as of the date coincident with the date established by
that Portfolio for determining shareholders eligible to vote at the relevant
meeting of each Fund. Voting instructions will be solicited by written
communication prior to such meeting in accordance with procedures established by
the Funds.
Fund shares as to which no timely instructions are received and shares held
by Providentmutual in a Subaccount as to which an Owner has no beneficial
interest will be voted in proportion to the voting instructions which are
received with respect to all Contracts participating in that Subaccount. Voting
instructions to abstain on any item to be voted upon will be applied on a pro
rata basis to reduce the votes eligible to be cast.
FINANCIAL STATEMENTS
The audited statements of financial condition for Providentmutual as of
December 31, 1997 and 1996 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, 1997 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, 1997 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.
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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-9
Legal Matters............................................... S-10
Experts..................................................... S-10
Other Information........................................... S-10
Financial Statements........................................ S-10
</TABLE>
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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; 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, 1998
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-9
LEGAL MATTERS (30).......................................... S-10
EXPERTS..................................................... S-10
OTHER INFORMATION........................................... S-10
FINANCIAL STATEMENTS (31)................................... S-10
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the Prospectus.
<PAGE> 49
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 historic performance data
for the subaccounts including yields, standard annual, total returns, and other
nonstandard measures of performance. 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 or income other than investment income, 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 and exclusive of income other than investment
income) 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
S-2
<PAGE> 50
deductions imposed under the Contract which are attributable to the hypothetical
account. The charges and deductions include the per unit charges for the
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 and exclusive of income other than investment
income) for the seven-day period attributable to a hypothetical
account having a balance of 1 Subaccount unit.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = The unit value on the first day of the seven-day period.
The effective yield of the Money Market Subaccount determined on a
compounded basis for the same seven-day period may also be quoted.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains or losses on the sale of securities and unrealized appreciation
and depreciation and exclusive of income other than investment
income) 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
S-3
<PAGE> 51
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 yield, an average administration fee per dollar of Contract
value in the Variable Account is used to determine the amount of the charge
attributable to the Subaccount for the 30-day or one-month period. The 30-day or
one-month yield is calculated according to the following formula:
Yield = 2 X (((NI - ES)/(U X UV)) + 1)(6-1)
Where:
NI = net income of the Portfolio for the 30-day or one-month period
attributable to the Subaccount's units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30-day
or one-month period.
Because of the charges and deductions imposed under the Contracts, the
yield for the Subaccount will be lower than the yield for the corresponding Fund
Portfolio.
The yield on the amounts held in the Subaccounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Subaccount's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio and its operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 1% to 6% of premiums paid during the six years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
amounts surrendered or withdrawn under the contract. A Surrender Charge will not
be imposed on the first or second withdrawal in any Contract Year on an amount
up to 10% of the Contract Account Value as of the beginning of such year.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.
Until a Subaccount has been in operation for 10 years, Providentmutual will
always include quotes of average annual total return for the period measured
from the date the Contracts were first offered for sale. When a Subaccount has
been in operation for 1, 5, and 10 years, respectively, the average annual total
return for these periods will be provided. Average annual total returns for
other periods of time may, from time to time, also be disclosed.
Average annual total returns represent the average annual compounded rates
of return that would equate an initial investment of $1,000 under a Contract to
the redemption value of that investment as of the last day of each of the
periods. The ending date for each period for which total return quotations are
provided will be for the most recent month-end practicable, considering the type
and media of the communication and will be stated in the communication.
Average annual total returns will be calculated using Subaccount unit
values which Providentmutual calculates on each Valuation Day based on the
performance of the Subaccount's underlying Portfolio, the deductions for the
Mortality and Expense Risk Charge, the Asset-Based Administration Charge, and
the Annual Administration Fee. The calculation assumes that the administration
fee is $30 per year per contract deducted at the end of each Contract Year. For
purposes of calculating average annual total return, an average per dollar
administration fee attributable to the hypothetical account for the period is
used. The calculation also assumes surrender of the Contract at the end of the
period for the return quotation. Total returns will
S-4
<PAGE> 52
therefore reflect a deduction of the Surrender Charge for any period less than
seven years. The total return will then be calculated according to the following
formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return net of Subaccount recurring charges.
ERV = the ending redeemable value (net of any applicable surrender charge)
of the hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Subaccounts will be
calculated based on the performance of the Portfolios and the assumption that
the Subaccounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect.
The Funds have provided the total return information for the Portfolios,
including the Portfolio total return information used to calculate the total
returns of the Subaccounts for periods prior to the Subaccounts' inception of
the Subaccounts. The Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Neuberger & Berman Advisers Management Trust, 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> 53
Such average annual total return information for the Subaccounts is as
follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/97
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/97 12/31/97 THAN 10 YEARS)
--------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)....................... 16.43% 14.97% 14.00%
Money Market (December 12, 1985)................. (1.40)% 2.61% 3.87%
Bond (December 12, 1985)......................... 2.51% 5.25% 6.35%
Managed (December 12, 1985)...................... 13.52% 11.14% 9.46%
Aggressive Growth (May 1, 1989).................. 13.50% 9.90% 12.73%
International (November 1, 1991)................. 2.66% 11.71% 7.46%
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE
INSURANCE PRODUCTS FUND II
High Income (September 19, 1985)................. 10.18% 11.96% 11.13%
Equity Income (October 9, 1986).................. 19.98% 18.15% 15.02%
Growth (October 9, 1986)......................... 15.63% 16.02% 15.48%
Overseas (January 28, 1987)...................... 4.44% 12.17% 7.95%
Investment Grade Bond (December 5, 1988)......... 2.10% 5.22% 6.58%
Asset Manager (September 6, 1989)................ 12.98% 11.04% 11.05%
Index 500 (August 27, 1992)...................... 24.29% 17.90% 17.91%
Contrafund (July 3, 1995)........................ 16.26% 24.74%
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Bond (September 10, 1984)........................ (0.08)% 3.70% 5.38%
Partners (March 22, 1994)........................ 21.38% 21.50%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... (4.17)% 3.66% 4.48%
Worldwide Hard Assets (September 1, 1989)........ (7.99)% 13.17% 5.31%
Worldwide Emerging Markets (December 27, 1995)... (17.30)% 1.76%
Worldwide Real Estate (June 23, 1997)............ 20.53%
ALGER AMERICAN FUND
Small Cap (September 21, 1988)................... 4.28% 10.72% 17.52%
</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> 54
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 12/31/97
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/97 12/31/97 THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)................. 22.30% 15.15% 14.00%
Money Market (December 12, 1985)........... 3.58% 2.78% 3.87%
Bond (December 12, 1985)................... 7.68% 5.42% 6.35%
Managed (December 12, 1985)................ 19.24% 11.32% 9.46%
Aggressive Growth (May 1, 1989)............ 19.22% 10.08% 12.73%
International (November 1, 1991)........... 7.84% 11.89% 7.51%
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE
INSURANCE PRODUCTS FUND II
High Income (September 19, 1985)........... 15.73% 12.14% 11.13%
Equity Income (October 9, 1986)............ 26.03% 18.34% 15.02%
Growth (October 9, 1986)................... 21.47% 16.20% 15.48%
Overseas (January 28, 1987)................ 9.70% 12.36% 7.95%
Investment Grade Bond (December 5, 1988)... 7.25% 5.39% 6.58%
Asset Manager (September 6, 1989).......... 18.67% 11.22% 11.05%
Index 500 (August 27, 1992)................ 30.55% 18.09% 18.08%
Contrafund (July 3, 1995).................. 22.12% 26.23%
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Bond (September 10, 1984).................. 4.96% 3.87% 5.38%
Partners (March 22, 1994).................. 29.13% 22.28%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)......... 0.66% 3.82% 4.48%
Worldwide Hard Assets (September 1,
1989)................................... (3.35)% 13.35% 5.31%
Worldwide Emerging Markets (December 27,
1995)................................... (13.13)% 3.57%
Worldwide Real Estate (June 23, 1997)...... 38.46%
ALGER AMERICAN FUND
Small Cap (September 21, 1988)............. 9.54% 10.90% 17.52%
</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> 55
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> 56
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.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Worldwide
Insurance Trust "Van Eck Trust") provides for termination 1) by Providentmutual,
Van Eck Trust or Van Eck Trust's Distributor upon six months prior written
notice or in the event that formal proceedings are initiated against the other
party by the SEC or another regulator, 2) by 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 or such law
precludes the use of Trust shares, 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) by PMLIC if a Portfolio
fails to meet the diversification and other requirements of the Internal Revenue
Code, or PMLIC reasonably believes it may fail to do so, 5) 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 fraudulent acts of officers and employees.
STATE REGULATION
Providentmutual is subject to regulation and supervision by the Insurance
Department of the State of Delaware which periodically examines its affairs. It
is also subject to the insurance laws and regulations of all jurisdictions where
it is authorized to do business. A copy of the Contract form has been filed
with, and where required approved by, insurance officials in each jurisdiction
where the Contracts are sold. Providentmutual is required to submit annual
statements of its operations, including financial statements, to the insurance
departments of the various jurisdictions in which it does business for the
purposes of determining solvency and compliance with local insurance laws and
regulations.
RECORDS AND REPORTS
Providentmutual will maintain all records and accounts relating to the
Variable Account. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, reports containing such information as
may be required under the Act or by any other applicable law or regulation will
be sent to Contract Owners semi-annually at the last address known to the
Company.
S-9
<PAGE> 57
LEGAL MATTERS
Adam Scaramella, Counsel of Provident Mutual Life Insurance Company, 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, 1997 and 1996 and the related statements of operations, capital and surplus,
and cash flows for each of the three years in the period ended December 31, 1997
and the audited statements of assets and liabilities of the Providentmutual
Variable Annuity Separate Account as of December 31, 1997 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, 1997 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, 1997
and 1996 and the related statements of operations, capital and surplus, and cash
flows for each of the three years in the period ended December 31, 1997, 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> 58
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,
1997.................................................. F-3
Statements of Operations for the Year Ended December
31, 1997.............................................. F-9
Statements of Changes in Net Assets for the Year Ended
December 31, 1997..................................... F-15
Statements of Changes in Net Assets for the Year Ended
December 31, 1996..................................... F-21
Notes to Financial Statements.......................... F-27
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-43
Statements of Financial Condition as of December 31,
1997 and 1996......................................... F-44
Statements of Operations for the Years Ended December
31, 1997, 1996, and 1995.............................. F-45
Statements of Capital and Surplus for the Years Ended
December 31, 1997, 1996, and 1995..................... F-46
Statements of Cash Flows for the Years Ended December
31, 1997, 1996, and 1995.............................. F-47
Notes to Financial Statements.......................... F-48
</TABLE>
F-1
<PAGE> 59
- --------------------------------------------------------------------------------
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, 1997, 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, 1997 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, 1997, 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.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998
F-2
<PAGE> 60
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<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................. $40,187,145
Money Market Portfolio........... $29,558,266
Bond Portfolio................... $8,035,105
Managed Portfolio................ $16,388,015
Aggressive Growth Portfolio...... $10,901,871
International Portfolio.......... $18,609,318
Dividends receivable............... 139,080
Receivable from Providentmutual
Life and Annuity Company of
America.......................... 175,788
----------- ----------- ---------- ----------- ----------- -------------
NET ASSETS......................... $40,187,145 $29,873,134 $8,035,105 $16,388,015 $10,901,871 $18,609,318
=========== =========== ========== =========== =========== =============
Held for the benefit of
contractholders.................. $40,111,649 $29,828,503 $7,996,097 $16,355,197 $10,836,973 $18,564,060
Attributable to Providentmutual
Life and Annuity Company of
America.......................... 75,496 44,631 39,008 32,818 64,898 45,258
----------- ----------- ---------- ----------- ----------- -------------
$40,187,145 $29,873,134 $8,035,105 $16,388,015 $10,901,871 $18,609,318
=========== =========== ========== =========== =========== =============
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 61
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<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............ $18,444,392
Equity-Income Portfolio.......... $78,900,963
Growth Portfolio................. $64,877,265
Overseas Portfolio............... $1,931,345
Investment in the Variable
Insurance Products Fund II, at
market value:
Asset Manager Portfolio.......... $30,153,803
Index 500 Portfolio.............. $58,389,961
----------- ----------- ----------- ---------- ----------- -----------
NET ASSETS......................... $18,444,392 $78,900,963 $64,877,265 $1,931,345 $30,153,803 $58,389,961
=========== =========== =========== ========== =========== ===========
Held for the benefit of
contractholders.................. $18,411,224 $78,834,350 $64,802,399 $1,902,644 $30,095,805 $58,325,728
Attributable to Providentmutual
Life and Annuity Company of
America.......................... 33,168 66,613 74,866 28,701 57,998 64,233
----------- ----------- ----------- ---------- ----------- -----------
$18,444,392 $78,900,963 $64,877,265 $1,931,345 $30,153,803 $58,389,961
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 62
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
INVESTMENT
FIDELITY GRADE OCC OCC OCC
CONTRAFUND 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.......................... $37,275,257
Investment Grade Bond Portfolio............... $1,051,370
Investment in the OCC Accumulation Trust, at
market value:
Equity Portfolio.............................. $20,484,486
Small Cap Portfolio........................... $18,158,198
Managed Portfolio............................. $57,318,003
----------- ---------- ----------- ----------- -----------
NET ASSETS...................................... $37,275,257 $1,051,370 $20,484,486 $18,158,198 $57,318,003
=========== ========== =========== =========== ===========
Held for the benefit of contractholders......... $37,227,370 $1,024,243 $20,431,344 $18,108,399 $57,255,282
Attributable to Providentmutual Life and Annuity
Company of America............................ 47,887 27,127 53,142 49,799 62,721
----------- ---------- ----------- ----------- -----------
$37,275,257 $1,051,370 $20,484,486 $18,158,198 $57,318,003
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 63
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS
SCUDDER GROWTH SCUDDER DREYFUS 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................. $7,946,949
Growth and Income Portfolio.... $15,812,300
International Portfolio........ $10,657,678
Investment in the Dreyfus
Variable Investment Fund, at
market value:
Zero Coupon 2000 Portfolio..... $5,849,377
Growth and Income Portfolio.... $17,037,442
Socially Responsible
Portfolio.................... $5,448,634
---------- ----------- ----------- ---------- ----------- ----------
NET ASSETS....................... $7,946,949 $15,812,300 $10,657,678 $5,849,377 $17,037,442 $5,448,634
========== =========== =========== ========== =========== ==========
Held for the benefit of
contractholders................ $7,917,505 $15,763,702 $10,623,552 $5,821,032 $16,991,629 $5,402,009
Attributable to Providentmutual
Life and Annuity Company
of America..................... 29,444 48,598 34,126 28,345 45,813 46,625
---------- ----------- ----------- ---------- ----------- ----------
$7,946,949 $15,812,300 $10,657,678 $5,849,377 $17,037,442 $5,448,634
========== =========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 64
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
FUND FOR NEUBERGER NEUBERGER NEUBERGER &
U.S. GOVERNMENT FEDERATED & BERMAN & BERMAN BERMAN LIMITED
SECURITIES II UTILITY FUND II BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Federated Insurance
Series, at market value:
Fund for U.S. Government Securities
II Portfolio...................... $3,601,347
Utility Fund II Portfolio........... $5,130,507
Investment in the Neuberger & Berman
Advisers Management Trust, at
market value:
Balanced Portfolio.................. $721,721
Growth Portfolio.................... $935,110
Limited Maturity Bond Portfolio..... $981,512
---------- ---------- -------- -------- --------
NET ASSETS............................ $3,601,347 $5,130,507 $721,721 $935,110 $981,512
========== ========== ======== ======== ========
Held for the benefit of
contractholders..................... $3,570,011 $5,089,318 $690,349 $901,290 $953,645
Attributable to Providentmutual Life
and Annuity Company of America...... 31,336 41,189 31,372 33,820 27,867
---------- ---------- -------- -------- --------
$3,601,347 $5,130,507 $721,721 $935,110 $981,512
========== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 65
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK ALGER
CENTURY VP VAN ECK WORLDWIDE WORLDWIDE AMERICAN
CAPITAL WORLDWIDE HARD EMERGING SMALL
APPRECIATION BOND ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in American Century Variable
Portfolios Inc., at market value:
American Century VP Capital Appreciation
Portfolio................................ $161,139
Investment in Van Eck Worldwide Insurance
Trust, at market value:
Van Eck Worldwide Bond Portfolio........... $923,361
Van Eck Worldwide Hard Assets Portfolio.... $156,819
Van Eck Worldwide Emerging Markets
Portfolio................................ $931,951
Investment in the Alger American Fund, at
market value:
Alger American Small Capitalization
Portfolio................................ $2,239,590
-------- -------- -------- -------- ----------
NET ASSETS................................... $161,139 $923,361 $156,819 $931,951 $2,239,590
======== ======== ======== ======== ==========
Held for the benefit of contractholders...... $137,716 $896,285 $130,912 $908,450 $2,212,017
Attributable to Providentmutual Life and
Annuity Company of America................. 23,423 27,076 25,907 23,501 27,573
-------- -------- -------- -------- ----------
$161,139 $923,361 $156,819 $931,951 $2,239,590
======== ======== ======== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-8
<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, 1997
- --------------------------------------------------------------------------------
<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............................ $ 683,987 $1,479,330 $361,124 $ 452,363 $ 69,133 $ 137,769
EXPENSES
Mortality and expense risks.......... 452,371 409,048 84,658 186,866 128,899 254,141
---------- ---------- -------- ---------- ---------- ----------
Net investment income (loss)......... 231,616 1,070,282 276,466 265,497 (59,766) (116,372)
---------- ---------- -------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested......................... 3,151,879 91,718 13,711 1,078,588
Net realized gain (loss) from
redemption of investment shares.... 278,162 (15,685) 247,551 455,523 309,239
---------- ---------- -------- ---------- ---------- ----------
Net realized gain (loss) on
investments........................ 3,430,041 (15,685) 339,269 469,234 1,387,827
---------- ---------- -------- ---------- ---------- ----------
Net unrealized appreciation of
investments:
Beginning of year.................. 4,997,236 86,993 1,316,337 945,250 1,575,419
End of year........................ 8,125,549 341,931 3,141,355 2,237,231 1,663,549
---------- ---------- -------- ---------- ---------- ----------
Net unrealized appreciation during
the year........................... 3,128,313 254,938 1,825,018 1,291,981 88,130
---------- ---------- -------- ---------- ---------- ----------
Net realized and unrealized gain on
investments........................ 6,558,354 239,253 2,164,287 1,761,215 1,475,957
---------- ---------- -------- ---------- ---------- ----------
Net increase in net assets resulting
from operations.................... $6,789,970 $1,070,282 $515,719 $2,429,784 $1,701,449 $1,359,585
========== ========== ======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-9
<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, 1997
- --------------------------------------------------------------------------------
<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.......................... $ 773,832 $ 862,294 $ 310,714 $ 3,965 $ 748,757 $ 291,382
EXPENSES
Mortality and expense risks........ 194,498 885,637 770,166 14,204 355,204 565,085
---------- ----------- ----------- -------- ---------- -----------
Net investment income (loss)....... 579,334 (23,343) (459,452) (10,239) 393,553 (273,703)
---------- ----------- ----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested....................... 95,642 4,335,423 1,390,815 15,739 1,878,238 591,252
Net realized gain from redemption
of investment shares............. 194,367 792,883 1,249,941 10,908 340,012 316,572
---------- ----------- ----------- -------- ---------- -----------
Net realized gain on investments... 290,009 5,128,306 2,640,756 26,647 2,218,250 907,824
---------- ----------- ----------- -------- ---------- -----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year................ 788,054 7,714,797 6,606,438 6,677 2,991,814 3,722,079
End of year...................... 1,994,767 17,071,432 14,960,831 3,948 4,749,426 13,147,837
---------- ----------- ----------- -------- ---------- -----------
Net unrealized appreciation
(depreciation) during the year... 1,206,713 9,356,635 8,354,393 (2,729) 1,757,612 9,425,758
---------- ----------- ----------- -------- ---------- -----------
Net realized and unrealized gain on
investments...................... 1,496,722 14,484,941 10,995,149 23,918 3,975,862 10,333,582
---------- ----------- ----------- -------- ---------- -----------
Net increase in net assets
resulting from operations........ $2,076,056 $14,461,598 $10,535,697 $ 13,679 $4,369,415 $10,059,879
========== =========== =========== ======== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-10
<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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
INVESTMENT
FIDELITY GRADE OCC OCC OCC
CONTRAFUND BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends....................................... $ 153,755 $14,240 $ 103,937 $ 66,503 $ 440,814
EXPENSES
Mortality and expense risks..................... 380,649 6,700 210,252 199,279 684,780
---------- ------- ---------- ---------- -----------
Net investment gain (loss)...................... (226,894) 7,540 (106,315) (132,776) (243,966)
---------- ------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Realized gain distributions reinvested.......... 406,354 370,000 468,993 1,353,882
Net realized gain from redemption of investment
shares........................................ 249,218 1,806 426,084 214,594 1,680,914
---------- ------- ---------- ---------- -----------
Net realized gain on investments................ 655,572 1,806 796,084 683,587 3,034,796
---------- ------- ---------- ---------- -----------
Net unrealized appreciation of investments:
Beginning of year............................. 2,216,487 4,399 2,228,445 1,970,184 9,403,779
End of year................................... 7,221,948 41,164 4,899,452 4,006,030 15,384,550
---------- ------- ---------- ---------- -----------
Net unrealized appreciation during the year..... 5,005,461 36,765 2,671,007 2,035,846 5,980,771
---------- ------- ---------- ---------- -----------
Net realized and unrealized gain on
investments................................... 5,661,033 38,571 3,467,091 2,719,433 9,015,567
---------- ------- ---------- ---------- -----------
Net increase in net assets resulting from
operations.................................... $5,434,139 $46,111 $3,360,776 $2,586,657 $ 8,771,601
========== ======= ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 69
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS
SCUDDER ZERO DREYFUS DREYFUS
SCUDDER GROWTH AND SCUDDER COUPON GROWTH AND SOCIALLY
BOND INCOME INTERNATIONAL 2000 INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends......................... $387,826 $ 211,659 $100,838 $282,144 $ 213,322 $ 19,638
EXPENSES
Mortality and expense risks....... 89,466 133,020 118,456 69,398 215,717 49,568
-------- ---------- -------- -------- ---------- --------
Net investment income (loss)...... 298,360 78,639 (17,618) 212,746 (2,395) (29,930)
-------- ---------- -------- -------- ---------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested...................... 17,188 213,481 52,820 50,736 1,188,467 153,000
Net realized gain from redemption
of investment shares............ 14,064 151,816 92,814 23,258 328,089 74,055
-------- ---------- -------- -------- ---------- --------
Net realized gain on
investments..................... 31,252 365,297 145,634 73,994 1,516,556 227,055
-------- ---------- -------- -------- ---------- --------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year............... 31,472 449,079 382,202 11,496 (407,725) 65,790
End of year..................... 182,019 2,145,837 695,843 (4,370) 135,652 633,396
-------- ---------- -------- -------- ---------- --------
Net unrealized appreciation
(depreciation) during the
year............................ 150,547 1,696,758 313,641 (15,866) 543,377 567,606
-------- ---------- -------- -------- ---------- --------
Net realized and unrealized gain
on investments.................. 181,799 2,062,055 459,275 58,128 2,059,933 794,661
-------- ---------- -------- -------- ---------- --------
Net increase in net assets
resulting from operations....... $480,159 $2,140,694 $441,657 $270,874 $2,057,538 $764,731
======== ========== ======== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 70
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
FUND FOR NEUBERGER NEUBERGER NEUBERGER &
U.S. GOVERNMENT FEDERATED & BERMAN & BERMAN BERMAN LIMITED
SECURITIES II UTILITY FUND II BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................. $ 87,041 $ 76,808 $ 1,790 $15,192
EXPENSES
Mortality and expense risks........... 35,242 49,660 4,146 $ 7,191 7,485
-------- -------- ------- -------- -------
Net investment income (loss).......... 51,799 27,148 (2,356) (7,191) 7,707
-------- -------- ------- -------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested.......................... 65,766 4,594 22,230
Net realized gain (loss) from
redemption of investment shares..... (1,435) 42,795 3,024 12,512 520
-------- -------- ------- -------- -------
Net realized gain (loss) on
investments......................... (1,435) 108,561 7,618 34,742 520
-------- -------- ------- -------- -------
Net unrealized appreciation of
investments:
Beginning of year................... 6,635 190,839 1,338 7,212 463
End of year......................... 139,066 942,031 36,672 83,141 21,796
-------- -------- ------- -------- -------
Net unrealized appreciation during the
year................................ 132,431 751,192 35,334 75,929 21,333
-------- -------- ------- -------- -------
Net realized and unrealized gain
on investments...................... 130,996 859,753 42,952 110,671 21,853
-------- -------- ------- -------- -------
Net increase in net assets
resulting from operations........... $182,795 $886,901 $40,596 $103,480 $29,560
======== ======== ======= ======== =======
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 71
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK ALGER
CENTURY VP VAN ECK WORLDWIDE WORLDWIDE AMERICAN
CAPITAL WORLDWIDE HARD EMERGING SMALL
APPRECIATION BOND ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends..................................... $ 4,941 $ 1,157 $ 511
EXPENSES
Mortality and expense risks................... $ 1,534 7,065 957 7,400 $ 18,151
------- ------- ------- --------- --------
Net investment gain (loss).................... (1,534) (2,124) 200 (6,889) (18,151)
------- ------- ------- --------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested........ 2,357 853 42,209
Net realized gain (loss) from redemption of
investment shares........................... (2,828) 150 (191) 11,001 3,889
------- ------- ------- --------- --------
Net realized gain (loss) on investments....... (471) 150 662 11,001 46,098
------- ------- ------- --------- --------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year........................... (1,957) 1,185 1,566 3,026 5,653
End of year................................. (6,096) 25,331 (8,342) (247,842) 126,890
------- ------- ------- --------- --------
Net unrealized appreciation (depreciation)
during the year............................. (4,139) 24,146 (9,908) (250,868) 121,237
------- ------- ------- --------- --------
Net realized and unrealized gain (loss) on
investments................................. (4,610) 24,296 (9,246) (239,867) 167,335
------- ------- ------- --------- --------
Net increase (decrease) in net assets
resulting from operations................... $(6,144) $22,172 $(9,046) $(246,756) $149,184
======= ======= ======= ========= ========
</TABLE>
See accompanying notes to financial statements
F-14
<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, 1997
- --------------------------------------------------------------------------------
<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).... $ 231,616 $ 1,070,282 $ 276,466 $ 265,497 $ (59,766) $ (116,372)
Net realized gain (loss) on
investments................... 3,430,041 (15,685) 339,269 469,234 1,387,827
Net unrealized appreciation of
investments during the year... 3,128,313 254,938 1,825,018 1,291,981 88,130
----------- ------------- ---------- ----------- ----------- -----------
Net increase in net assets from
operations.................... 6,789,970 1,070,282 515,719 2,429,784 1,701,449 1,359,585
----------- ------------- ---------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums... 2,088,885 130,399,881 551,478 1,148,358 850,433 1,255,853
Administrative charges.......... (17,605) (7,663) (3,214) (7,746) (6,581) (11,877)
Surrenders and forfeitures...... (1,365,373) (3,060,448) (279,782) (621,704) (484,756) (1,100,295)
Transfers between investment
portfolios.................... 5,570,307 (124,703,022) 2,062,898 1,923,797 1,707,222 787,778
Net withdrawals due to policy
loans......................... (5,569) (2,194) (406) (963) (5,084) (2,337)
Withdrawals due to death
benefits...................... (60,690) (66,875) (40,881) (41,895) (78,959) (99,780)
----------- ------------- ---------- ----------- ----------- -----------
Net increase in net assets
derived from contract
transactions.................. 6,209,955 2,559,679 2,290,093 2,399,847 1,982,275 829,342
----------- ------------- ---------- ----------- ----------- -----------
Total increase in net assets.... 12,999,925 3,629,961 2,805,812 4,829,631 3,683,724 2,188,927
NET ASSETS
Beginning of year............. 27,187,220 26,243,173 5,229,293 11,558,384 7,218,147 16,420,391
----------- ------------- ---------- ----------- ----------- -----------
End of year................... $40,187,145 $ 29,873,134 $8,035,105 $16,388,015 $10,901,871 $18,609,318
=========== ============= ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-15
<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, 1997
- --------------------------------------------------------------------------------
<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)...... $ 579,334 $ (23,343) $ (459,452) $ (10,239) $ 393,553 $ (273,703)
Net realized gain on
investments..................... 290,009 5,128,306 2,640,756 26,647 2,218,250 907,824
Net unrealized appreciation
(depreciation) of investments
during the year................. 1,206,713 9,356,635 8,354,393 (2,729) 1,757,612 9,425,758
----------- ----------- ----------- ---------- ----------- -----------
Net increase in net assets from
operations...................... 2,076,056 14,461,598 10,535,697 13,679 4,369,415 10,059,879
----------- ----------- ----------- ---------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums..... 1,280,526 4,268,560 4,338,146 158,943 1,519,377 5,358,511
Administrative charges............ (7,533) (35,464) (39,051) (395) (13,984) (20,920)
Surrenders and forfeitures........ (747,010) (2,452,358) (1,961,173) (10,628) (1,204,262) (1,030,109)
Transfers between investment
portfolios...................... 5,414,722 13,589,788 7,419,053 1,610,770 4,483,284 20,918,768
Net repayments (withdrawals) due
to policy loans................. (33,050) (33,934) (14,356) 975 (20,224)
Withdrawals due to death
benefits........................ (17,041) (632,965) (421,777) (113) (123,325) (147,455)
----------- ----------- ----------- ---------- ----------- -----------
Net increase in net assets derived
from contract transactions...... 5,890,614 14,703,627 9,320,842 1,758,577 4,662,065 25,058,571
----------- ----------- ----------- ---------- ----------- -----------
Total increase in net assets...... 7,966,670 29,165,225 19,856,539 1,772,256 9,031,480 35,118,450
NET ASSETS
Beginning of year............... 10,477,722 49,735,738 45,020,726 159,089 21,122,323 23,271,511
----------- ----------- ----------- ---------- ----------- -----------
End of year..................... $18,444,392 $78,900,963 $64,877,265 $1,931,345 $30,153,803 $58,389,961
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-16
<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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
INVESTMENT
FIDELITY GRADE OCC OCC OCC
CONTRAFUND BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................... $ (226,894) $ 7,540 $ (106,315) $ (132,776) $ (243,966)
Net realized gain on investments................ 655,572 1,806 796,084 683,587 3,034,796
Net unrealized appreciation of investments
during the year............................... 5,005,461 36,765 2,671,007 2,035,846 5,980,771
----------- ---------- ----------- ----------- -----------
Net increase in net assets from operations...... 5,434,139 46,111 3,360,776 2,586,657 8,771,601
----------- ---------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums................... 2,843,886 54,796 1,602,917 1,130,432 3,738,480
Administrative charges.......................... (16,030) (195) (8,166) (9,057) (26,367)
Surrenders and forfeitures...................... (1,027,236) (3,478) (774,950) (504,489) (1,990,422)
Transfers between investment portfolios......... 12,918,442 783,432 5,613,117 4,233,814 8,848,392
Net withdrawals due to policy loans............. (13,879) (688) (11,287) (31,626)
Withdrawals due to death benefits............... (130,515) (46,072) (313,679)
----------- ---------- ----------- ----------- -----------
Net increase in net assets derived from contract
transactions.................................. 14,705,183 834,555 6,301,715 4,793,341 10,224,778
----------- ---------- ----------- ----------- -----------
Total increase in net assets.................... 20,139,322 880,666 9,662,491 7,379,998 18,996,379
NET ASSETS
Beginning of year............................. 17,135,935 170,704 10,821,995 10,778,200 38,321,624
----------- ---------- ----------- ----------- -----------
End of year................................... $37,275,257 $1,051,370 $20,484,486 $18,158,198 $57,318,003
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-17
<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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS
SCUDDER GROWTH SCUDDER DREYFUS ZERO GROWTH SOCIALLY
BOND AND 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)... $ 298,360 $ 78,639 $ (17,618) $ 212,746 $ (2,395) $ (29,930)
Net realized gain on
investments.................. 31,252 365,297 145,634 73,994 1,516,556 227,055
Net unrealized appreciation
(depreciation) of investments
during the year.............. 150,547 1,696,758 313,641 (15,866) 543,377 567,606
---------- ----------- ----------- ---------- ----------- ----------
Net increase in net assets from
operations................... 480,159 2,140,694 441,657 270,874 2,057,538 764,731
---------- ----------- ----------- ---------- ----------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net
premiums..................... 291,718 1,186,505 1,046,437 509,829 1,412,748 505,234
Administrative charges......... (3,726) (4,669) (4,407) (2,535) (11,090) (2,482)
Surrenders and forfeitures..... (191,865) (301,213) (175,614) (703,664) (574,271) (134,940)
Transfers between investment
portfolios................... 1,707,689 8,319,936 3,778,824 805,262 1,705,003 2,541,677
Net withdrawals due to policy
loans........................ (4,218) (8,156) (7,520) (2,358) (14,113) (4,931)
Withdrawals due to death
benefits..................... (22,128) (65,835) (10,135) (5,854) (76,105) (1,793)
---------- ----------- ----------- ---------- ----------- ----------
Net increase in net assets
derived from contract
transactions................. 1,777,470 9,126,568 4,627,585 600,680 2,442,172 2,902,765
---------- ----------- ----------- ---------- ----------- ----------
Total increase in net assets... 2,257,629 11,267,262 5,069,242 871,554 4,499,710 3,667,496
NET ASSETS
Beginning of year............ 5,689,320 4,545,038 5,588,436 4,977,823 12,537,732 1,781,138
---------- ----------- ----------- ---------- ----------- ----------
End of year.................. $7,946,949 $15,812,300 $10,657,678 $5,849,377 $17,037,442 $5,448,634
========== =========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
FUND FOR NEUBERGER NEUBERGER NEUBERGER &
U.S. GOVERNMENT FEDERATED & BERMAN & BERMAN BERMAN LIMITED
SECURITIES II UTILITY FUND II BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........ $ 51,799 $ 27,148 $ (2,356) $ (7,191) $ 7,707
Net realized gain (loss) on
investments....................... (1,435) 108,561 7,618 34,742 520
Net unrealized appreciation of
investments during the year....... 132,431 751,192 35,334 75,929 21,333
---------- ---------- -------- -------- --------
Net increase in net assets from
operations........................ 182,795 886,901 40,596 103,480 29,560
---------- ---------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums....... 208,631 521,063 22,838 80,259 68,951
Administrative charges.............. (1,031) (1,719) (65) (252) (98)
Surrenders and forfeitures.......... (62,558) (89,033) (10,471) (1,022) (1,686)
Transfers between investment
portfolios........................ 1,295,645 1,039,150 600,636 619,422 783,333
Net withdrawals due to policy
loans............................. (324)
Withdrawals due to death benefits... (4,837) (5,282)
---------- ---------- -------- -------- --------
Net increase in net assets derived
from contract transactions........ 1,435,850 1,463,855 612,938 698,407 850,500
---------- ---------- -------- -------- --------
Total increase in net assets........ 1,618,645 2,350,756 653,534 801,887 880,060
NET ASSETS
Beginning of year................. 1,982,702 2,779,751 68,187 133,223 101,452
---------- ---------- -------- -------- --------
End of year....................... $3,601,347 $5,130,507 $721,721 $935,110 $981,512
========== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-19
<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, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK ALGER
CENTURY VP VAN ECK WORLDWIDE WORLDWIDE AMERICAN
CAPITAL WORLDWIDE HARD EMERGING SMALL
APPRECIATION BOND ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment gain (loss).................... $ (1,534) $ (2,124) $ 200 $ (6,889) $ (18,151)
Net realized gain (loss) on investments....... (471) 150 662 11,001 46,098
Net unrealized appreciation (depreciation) of
investments during the year................. (4,139) 24,146 (9,908) (250,868) 121,237
-------- -------- -------- ---------- ----------
Net increase (decrease) in net assets from
operations.................................. (6,144) 22,172 (9,046) (246,756) 149,184
-------- -------- -------- ---------- ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums................. 17,286 80,140 7,900 143,354 180,116
Administrative charges........................ (92) (96) (42) (148) (595)
Surrenders and forfeitures.................... (345) (3,711) (4,908) (5,167)
Transfers between investment portfolios....... 67,816 707,353 115,282 943,837 1,434,196
-------- -------- -------- ---------- ----------
Net increase in net assets derived from
contract transactions....................... 84,665 783,686 123,140 1,082,135 1,608,550
-------- -------- -------- ---------- ----------
Total increase in net assets.................. 78,521 805,858 114,094 835,379 1,757,734
NET ASSETS
Beginning of year........................... 82,618 117,503 42,725 96,572 481,856
-------- -------- -------- ---------- ----------
End of year................................. $161,139 $923,361 $156,819 $ 931,951 $2,239,590
======== ======== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-20
<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, 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-21
<PAGE> 79
- --------------------------------------------------------------------------------
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-22
<PAGE> 80
- --------------------------------------------------------------------------------
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
INVESTMENT QUEST FOR QUEST FOR
FIDELITY GRADE QUEST FOR VALUE VALUE
CONTRAFUND 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 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-23
<PAGE> 81
- --------------------------------------------------------------------------------
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
SCUDDER GROWTH SCUDDER DREYFUS ZERO GROWTH SOCIALLY
BOND AND 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-24
<PAGE> 82
- --------------------------------------------------------------------------------
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. 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>
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 1,900,363 41,860 101,241 74,183
---------- ---------- ------- -------- --------
Capital Contribution from
Providentmutual Life and Annuity
Company of America.................... 25,000 25,000 25,000
---------- ---------- ------- -------- --------
Total increase in net assets............ 1,485,469 2,132,324 68,187 133,223 101,452
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-25
<PAGE> 83
- --------------------------------------------------------------------------------
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 89,561 16,121 68,701 452,230
------- -------- ------- ------- --------
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............... 82,618 117,503 42,725 96,572 481,856
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-26
<PAGE> 84
- --------------------------------------------------------------------------------
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 OCC Equity (formerly Quest for Value Equity), OCC Small
Cap (formerly Quest for Value Small Cap) and OCC Managed (formerly 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 Fund for
U.S. Government Securities II (formerly Federated U.S. Government Bond Fund) and
Federated Utility Fund II (formerly Federated Utility Fund) Subaccounts invest
in the corresponding portfolios of the Federated Insurance Series (formerly
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 American Century VP Capital Appreciation (formerly TCI Growth)
Subaccount invests in the corresponding portfolio of the American Century
Variable Portfolios, Inc. (formerly TCI Portfolios, Inc.); the Van Eck Worldwide
Bond, Van Eck Worldwide Hard Assets (formerly Van Eck Worldwide Gold and Natural
Resources) and Van Eck Worldwide Emerging Markets (formerly 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.
F-27
<PAGE> 85
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes To Financial Statements -- continued
- --------------------------------------------------------------------------------
1. ORGANIZATION, CONTINUED
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.
The Separate Account's assets are the property of Providentmutual.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of
Providentmutual's General Account.
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-28
<PAGE> 86
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1997, 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................................... 2,065,115 $32,061,596 $40,187,145
Money Market Portfolio............................. 29,558,266 $29,558,266 $29,558,266
Bond Portfolio..................................... 731,795 $7,693,174 $8,035,105
Managed Portfolio.................................. 960,610 $13,246,660 $16,388,015
Aggressive Growth Portfolio........................ 491,297 $8,664,640 $10,901,871
International Portfolio............................ 1,367,327 $16,945,769 $18,609,318
Variable Insurance Products Fund:
High Income Portfolio.............................. 1,358,203 $16,449,625 $18,444,392
Equity-Income Portfolio............................ 3,249,628 $61,829,531 $78,900,963
Growth Portfolio................................... 1,748,713 $49,916,434 $64,877,265
Overseas Portfolio................................. 100,591 $1,927,397 $1,931,345
Variable Insurance Products Fund II:
Asset Manager Portfolio............................ 1,674,281 $25,404,377 $30,153,803
Index 500 Portfolio................................ 510,446 $45,242,124 $58,389,961
Contrafund Portfolio............................... 1,869,371 $30,053,309 $37,275,257
Investment Grade Bond Portfolio.................... 83,708 $1,010,206 $1,051,370
OCC Accumulation Trust:
Equity Portfolio................................... 560,911 $15,585,034 $20,484,486
Small Cap Portfolio................................ 688,593 $14,152,168 $18,158,198
Managed Portfolio.................................. 1,352,478 $41,933,453 $57,318,003
Scudder Variable Life Investment Fund:
Bond Portfolio..................................... 1,156,761 $7,764,930 $7,946,949
Growth and Income Portfolio........................ 1,377,378 $13,666,463 $15,812,300
International Portfolio............................ 755,328 $9,961,835 $10,657,678
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio......................... 475,559 $5,853,747 $5,849,377
Growth and Income Portfolio........................ 819,896 $16,901,790 $17,037,442
Socially Responsible Portfolio..................... 218,207 $4,815,238 $5,448,634
</TABLE>
F-29
<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>
- --------------------------------------------------------------------------------------------
SHARES COST MARKET VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federated Insurance Series:
Fund for U.S. Government Securities II Portfolio... 341,684 $3,462,281 $3,601,347
Utility Fund II Portfolio.......................... 359,028 $4,188,476 $5,130,507
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio................................. 40,546 $685,049 $721,721
Growth Portfolio................................... 30,619 $851,969 $935,110
Limited Maturity Bond Portfolio.................... 69,512 $959,716 $981,512
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation
Portfolio....................................... 16,647 $167,235 $161,139
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio................... 84,018 $898,030 $923,361
Van Eck Worldwide Hard Assets Portfolio............ 9,976 $165,161 $156,819
Van Eck Worldwide Emerging Markets Portfolio....... 84,723 $1,179,793 $931,951
Alger American Fund:
Alger American Small Capitalization Portfolio...... 51,191 $2,112,700 $2,239,590
</TABLE>
F-30
<PAGE> 88
- --------------------------------------------------------------------------------
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, 1997 and 1996, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................ 388,406 353,660 49,458,951 48,257,103 299,562 176,063
Shares received from reinvestment of:
Dividends............................. 39,547 38,004 1,340,251 1,086,441 26,180 23,197
Capital gain distributions............ 197,982 56,193
----------- ---------- ----------- ----------- ---------- ----------
Total shares acquired................... 625,935 447,857 50,799,202 49,343,544 325,742 199,260
Total shares redeemed................... (62,876) (65,428) (47,463,144) (38,849,836) (84,040) (41,198)
----------- ---------- ----------- ----------- ---------- ----------
Net increase in shares owned............ 563,059 382,429 3,336,058 10,493,708 241,702 158,062
Shares owned, beginning of year......... 1,502,056 1,119,627 26,222,208 15,728,500 490,093 332,031
----------- ---------- ----------- ----------- ---------- ----------
Shares owned, end of year............... 2,065,115 1,502,056 29,558,266 26,222,208 731,795 490,093
=========== ========== =========== =========== ========== ==========
Cost of shares acquired................. $10,722,252 $7,269,012 $50,799,202 $49,343,544 $3,458,106 $2,101,906
=========== ========== =========== =========== ========== ==========
Cost of shares redeemed................. $ 850,640 $ 883,404 $47,463,144 $38,849,836 $ 907,232 $ 460,127
=========== ========== =========== =========== ========== ==========
</TABLE>
F-31
<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>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------
AGGRESSIVE
MANAGED PORTFOLIO GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 239,027 217,165 176,404 143,742 229,002 338,046
Shares received from reinvestment of:
Dividends............................... 29,247 25,583 3,772 2,905 11,165 11,412
Capital gain distributions.............. 6,347 26,337 748 29,259 87,406 46,267
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 274,621 269,085 180,924 175,906 327,573 395,725
Total shares redeemed..................... (101,367) (94,568) (79,376) (23,509) (184,734) (80,224)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.............. 173,254 174,517 101,548 152,397 142,839 315,501
Shares owned, beginning of year........... 787,356 612,839 389,749 237,352 1,224,488 908,987
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 960,610 787,356 491,297 389,749 1,367,327 1,224,488
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $4,306,753 $3,730,420 $3,564,490 $2,907,441 $4,278,967 $4,989,324
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $1,302,140 $1,258,679 $1,172,747 $ 355,445 $2,178,170 $ 953,471
========== ========== ========== ========== ========== ==========
</TABLE>
F-32
<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>
VARIABLE INSURANCE PRODUCTS FUND
- ------------------------------------------------------------------------------------------------------------------------------
OVERSEAS
HIGH INCOME PORTFOLIO EQUITY-INCOME PORTFOLIO GROWTH PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased..... 556,624 497,171 738,222 948,858 353,805 625,760 97,803 9,008
Shares received from
reinvestment of:
Dividends.......... 65,635 31,527 43,550 2,439 9,845 2,459 229
Capital gain
distributions.... 8,112 6,168 218,961 69,930 44,069 62,080 908
---------- ---------- ----------- ----------- ----------- ----------- ---------- --------
Total shares
acquired........... 630,371 534,866 1,000,733 1,021,227 407,719 690,299 98,940 9,008
Total shares
redeemed........... (109,047) (53,745) (116,095) (72,484) (104,758) (27,427) (6,793) (564)
---------- ---------- ----------- ----------- ----------- ----------- ---------- --------
Net increase in
shares owned....... 521,324 481,121 884,638 948,743 302,961 662,872 92,147 8,444
Shares owned,
beginning of
year............... 836,879 355,758 2,364,990 1,416,247 1,445,752 782,880 8,444
---------- ---------- ----------- ----------- ----------- ----------- ---------- --------
Shares owned, end of
year............... 1,358,203 836,879 3,249,628 2,364,990 1,748,713 1,445,752 100,591 8,444
========== ========== =========== =========== =========== =========== ========== ========
Cost of shares
acquired........... $7,933,056 $6,332,243 $21,544,493 $19,840,748 $13,852,376 $20,153,196 $1,896,772 $162,451
========== ========== =========== =========== =========== =========== ========== ========
Cost of shares
redeemed........... $1,173,099 $ 581,561 $ 1,735,903 $ 1,117,224 $ 2,350,230 $ 641,881 $ 121,787 $ 10,039
========== ========== =========== =========== =========== =========== ========== ========
</TABLE>
F-33
<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>
VARIABLE INSURANCE PRODUCTS FUND II
- ----------------------------------------------------------------------------------------------------------------------------
ASSET MANAGER CONTRAFUND INVESTMENT GRADE
PORTFOLIO INDEX 500 PORTFOLIO PORTFOLIO BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares
purchased.......... 387,965 278,005 245,745 166,250 846,924 724,270 71,947 14,613
Shares received from
reinvestment of:
Dividends.......... 48,526 39,874 3,170 1,306 9,341 1,225
Capital gain
distributions.... 121,726 32,878 6,432 3,358 24,687 3,706
---------- ---------- ----------- ----------- ----------- ----------- -------- --------
Total shares
acquired........... 558,217 350,757 255,347 170,914 880,952 727,976 73,172 14,613
Total shares
redeemed........... (131,563) (146,266) (5,997) (5,528) (46,360) (22,255) (3,410) (667)
---------- ---------- ----------- ----------- ----------- ----------- -------- --------
Net increase in
shares owned....... 426,654 204,491 249,350 165,386 834,592 705,721 69,762 13,946
Shares owned,
beginning of
year............... 1,247,627 1,043,136 261,096 95,710 1,034,779 329,058 13,946
---------- ---------- ----------- ----------- ----------- ----------- -------- --------
Shares owned, end of
year............... 1,674,281 1,247,627 510,446 261,096 1,869,371 1,034,779 83,708 13,946
========== ========== =========== =========== =========== =========== ======== ========
Cost of shares
acquired........... $9,113,810 $5,494,521 $26,020,287 $13,621,230 $15,732,802 $10,770,383 $883,549 $173,988
========== ========== =========== =========== =========== =========== ======== ========
Cost of shares
redeemed........... $1,839,942 $2,124,398 $ 327,595 $ 311,911 $ 598,941 $ 266,200 $ 39,648 $ 7,683
========== ========== =========== =========== =========== =========== ======== ========
</TABLE>
F-34
<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>
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO SMALL CAP PORTFOLIO MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................ 214,672 162,103 220,838 162,087 333,304 413,755
Shares received from reinvestment of:
Dividends............................. 3,476 2,142 3,052 4,346 12,218 9,660
Capital gain distributions............ 12,375 4,293 21,523 11,176 37,524 6,160
---------- ---------- ---------- ---------- ----------- -----------
Total shares acquired................... 230,523 168,538 245,413 177,609 383,046 429,575
Total shares redeemed................... (29,505) (14,069) (33,520) (30,188) (88,884) (29,711)
---------- ---------- ---------- ---------- ----------- -----------
Net increase in shares owned............ 201,018 154,469 211,893 147,421 294,162 399,864
Shares owned, beginning of year......... 359,893 205,424 476,700 329,279 1,058,316 658,452
---------- ---------- ---------- ---------- ----------- -----------
Shares owned, end of year............... 560,911 359,893 688,593 476,700 1,352,478 1,058,316
========== ========== ========== ========== =========== ===========
Cost of shares acquired................. $7,519,820 $4,592,764 $5,908,364 $3,646,820 $14,890,450 $13,972,601
========== ========== ========== ========== =========== ===========
Cost of shares redeemed................. $ 528,336 $ 250,929 $ 564,212 $ 529,972 $ 1,874,842 $ 630,417
========== ========== ========== ========== =========== ===========
</TABLE>
F-35
<PAGE> 93
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME
BOND PORTFOLIO PORTFOLIO INTERNATIONAL PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 385,038 367,411 901,830 420,073 362,848 367,511
Shares received from reinvestment of:
Dividends............................... 58,342 58,022 20,474 6,977 7,622 2,055
Capital gain distributions.............. 2,585 22,214 1,768 3,992
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 445,965 425,433 944,518 428,818 374,462 369,566
Total shares redeemed..................... (134,571) (86,886) (52,203) (19,789) (40,903) (2,168)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.............. 311,394 338,547 892,315 409,029 333,559 367,398
Shares owned, beginning of year........... 845,367 506,820 485,063 76,034 421,769 54,371
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 1,156,761 845,367 1,377,378 485,063 755,328 421,769
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $2,995,282 $2,843,858 $9,963,127 $3,671,539 $5,230,236 $4,599,283
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $ 888,200 $ 589,564 $ 392,623 $ 139,882 $ 474,635 $ 24,108
========== ========== ========== ========== ========== ==========
</TABLE>
F-36
<PAGE> 94
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................... 178,897 228,907 277,054 477,085 135,060 81,633
Shares received from reinvestment of:
Dividends.............................. 21,457 18,860 10,424 6,707 788 186
Capital gain distributions............. 1,345 59,160 65,140 6,135 3,323
---------- ---------- ---------- ----------- ---------- ----------
Total shares acquired.................... 200,354 249,112 346,638 548,932 141,983 85,142
Total shares redeemed.................... (129,825) (66,959) (168,058) (34,778) (12,434) (5,663)
---------- ---------- ---------- ----------- ---------- ----------
Net increase in shares owned............. 70,529 182,153 178,580 514,154 129,549 79,479
Shares owned, beginning of year.......... 405,030 222,877 641,316 127,162 88,658 9,179
---------- ---------- ---------- ----------- ---------- ----------
Shares owned, end of year................ 475,559 405,030 819,896 641,316 218,207 88,658
========== ========== ========== =========== ========== ==========
Cost of shares acquired.................. $2,451,313 $3,073,171 $7,078,888 $11,274,699 $3,325,662 $1,653,499
========== ========== ========== =========== ========== ==========
Cost of shares redeemed.................. $1,563,893 $ 791,662 $3,122,555 $ 583,074 $ 225,772 $ 92,804
========== ========== ========== =========== ========== ==========
</TABLE>
F-37
<PAGE> 95
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES
- --------------------------------------------------------------------------------------------------------------------
FUND FOR
U.S. GOVERNMENT
SECURITIES II PORTFOLIO UTILITY FUND II PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased.......................................... 187,156 155,414 140,162 189,045
Shares received from reinvestment of:
Dividends............................................... 8,648 7,430 6,422 5,693
Capital gain distributions.............................. 332 5,679 525
---------- ---------- ---------- ----------
Total shares acquired..................................... 195,804 163,176 152,263 195,263
Total shares redeemed..................................... (50,622) (14,996) (28,608) (18,587)
---------- ---------- ---------- ----------
Net increase in shares owned.............................. 145,182 148,180 123,655 176,676
Shares owned, beginning of year........................... 196,502 48,322 235,373 58,697
---------- ---------- ---------- ----------
Shares owned, end of year................................. 341,684 196,502 359,028 235,373
========== ========== ========== ==========
Cost of shares acquired................................... $2,003,403 $1,637,184 $1,905,479 $2,157,050
========== ========== ========== ==========
Cost of shares redeemed................................... $ 517,189 $ 150,038 $ 305,915 $ 187,545
========== ========== ========== ==========
</TABLE>
F-38
<PAGE> 96
- --------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------
LIMITED MATURITY
BALANCED PORTFOLIO GROWTH PORTFOLIO BOND PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased..................................... 37,500 4,283 26,907 5,195 62,507 11,388
Shares received from reinvestment of:
Dividends.......................................... 114 1,137
Capital gain distributions......................... 294 871
-------- ------- -------- -------- -------- --------
Total shares acquired................................ 37,908 4,283 27,778 5,195 63,644 11,388
Total shares redeemed................................ (1,645) (2,327) (27) (1,353) (4,167)
-------- ------- -------- -------- -------- --------
Net increase in shares owned......................... 36,263 4,283 25,451 5,168 62,291 7,221
Shares owned, beginning of year...................... 4,283 -- 5,168 -- 7,221 --
-------- ------- -------- -------- -------- --------
Shares owned, end of year............................ 40,546 4,283 30,619 5,168 69,512 7,221
======== ======= ======== ======== ======== ========
Cost of shares acquired.............................. $643,054 $66,858 $781,196 $126,671 $877,259 $157,410
======== ======= ======== ======== ======== ========
Cost of shares redeemed.............................. $ 24,854 $ 9 $ 55,238 $ 660 $ 18,532 $ 56,421
======== ======= ======== ======== ======== ========
</TABLE>
F-39
<PAGE> 97
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN CENTURY VAN ECK
VARIABLE WORLDWIDE
PORTFOLIOS, INC. INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------
AMERICAN
CENTURY VP VAN ECK
CAPITAL APPRECIATION WORLDWIDE
PORTFOLIO BOND PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 11,508 8,077 75,793 15,517
Shares received from reinvestment of:
Dividends................................................. 468
Capital gain distributions................................ 266
-------- ------- -------- --------
Total shares acquired....................................... 11,774 8,077 76,261 15,517
Total shares redeemed....................................... (3,195) (9) (2,829) (4,931)
-------- ------- -------- --------
Net increase in shares owned................................ 8,579 8,068 73,432 10,586
Shares owned, beginning of year............................. 8,068 -- 10,586 --
-------- ------- -------- --------
Shares owned, end of year................................... 16,647 8,068 84,018 10,586
======== ======= ======== ========
Cost of shares acquired..................................... $116,229 $84,678 $812,049 $168,730
======== ======= ======== ========
Cost of shares redeemed..................................... $ 33,569 $ 103 $ 30,337 $ 52,412
======== ======= ======== ========
</TABLE>
F-40
<PAGE> 98
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK ALGER
WORLDWIDE AMERICAN
INSURANCE TRUST FUND
- ----------------------------------------------------------------------------------------------------------------------
VAN ECK VAN ECK ALGER
WORLDWIDE WORLDWIDE AMERICAN
HARD ASSETS EMERGING MARKETS SMALL CAPITALIZATION
PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................... 7,648 2,662 87,201 7,735 40,894 11,790
Shares received from reinvestment of:
Dividends........................................ 73 38
Capital gain distributions....................... 54 1,128
-------- ------- ---------- ------- ---------- --------
Total shares acquired.............................. 7,775 2,662 87,239 7,735 42,022 11,790
Total shares redeemed.............................. (354) (107) (10,248) (3) (2,609) (12)
-------- ------- ---------- ------- ---------- --------
Net increase in shares owned....................... 7,421 2,555 76,991 7,732 39,413 11,778
Shares owned, beginning of year.................... 2,555 -- 7,732 -- 11,778 --
-------- ------- ---------- ------- ---------- --------
Shares owned, end of year.......................... 9,976 2,555 84,723 7,732 51,191 11,778
======== ======= ========== ======= ========== ========
Cost of shares acquired............................ $129,621 $42,864 $1,212,177 $93,586 $1,740,549 $476,692
======== ======= ========== ======= ========== ========
Cost of shares redeemed............................ $ 5,619 $ 1,705 $ 125,930 $ 40 $ 104,052 $ 489
======== ======= ========== ======= ========== ========
</TABLE>
F-41
<PAGE> 99
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
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, 1997 and 1996.
The Policies provide for an initial free-look period. If a policy is
cancelled within certain time constraints, the policyholder will receive a
refund equal to the policy account value plus certain deductions made under the
policy. Where state law requires a minimum refund equal to gross premiums paid,
the refund will instead equal the gross premiums paid on the policy and will not
reflect investment experience.
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-42
<PAGE> 100
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholder and 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 (a wholly-owned stock life
insurance subsidiary of Provident Mutual Life Insurance Company) as of December
31, 1997 and 1996, and the related statements of operations, capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 1996 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.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 4, 1998
F-43
<PAGE> 101
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Financial Condition (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
- ------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1997-$311,637;
1996-$288,732)......................................... $ 320,363 $294,294
Held to maturity, at amortized cost (market:
1997-$65,305; 1996-$80,638)............................ 62,753 79,526
Equity securities, at market (cost: 1997-$1,714;
1996-$2,566).............................................. 1,776 1,582
Mortgage loans.............................................. 46,871 42,187
Real estate................................................. 2,494 3,146
Policy loans and premium notes.............................. 6,725 6,352
Other invested assets....................................... 302 276
Short-term investments...................................... 552 8,453
---------- --------
Total Investments........................................... 441,836 435,816
---------- --------
Cash........................................................ 1,063 472
Investment income due and accrued........................... 7,046 6,609
Deferred acquisition costs.................................. 83,291 62,520
Reinsurance recoverable..................................... 74,674 80,346
Deferred Federal income taxes............................... -- 673
Separate account assets..................................... 627,081 373,802
Other assets................................................ 1,342 1,981
---------- --------
Total Assets................................................ $1,236,333 $962,219
========== ========
LIABILITIES
Policy Liabilities:
Future policyholder benefits.............................. $ 516,591 $511,447
Other policy obligations.................................. 8,147 6,836
---------- --------
Total Policy Liabilities.................................. 524,738 518,283
---------- --------
Payable to parent........................................... 1,837 4,936
Federal income taxes payable:
Current................................................... 3,928 4,737
Deferred.................................................. 2,363 --
Separate account liabilities................................ 624,872 372,005
Other liabilities........................................... 8,506 8,109
---------- --------
Total Liabilities........................................... 1,166,244 908,070
---------- --------
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........................ 44,165 37,665
Unassigned surplus.......................................... 20,565 13,087
Net unrealized appreciation on securities................... 2,859 897
---------- --------
Total Capital and Surplus................................... 70,089 54,149
---------- --------
Total Liabilities, Capital and Surplus...................... $1,236,333 $962,219
========== ========
</TABLE>
See accompanying notes to financial statements
F-44
<PAGE> 102
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Operations (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $13,904 $13,541 $12,930
Policy and contract charges................................. 11,729 6,068 2,467
Net investment income....................................... 32,314 32,213 32,112
Other income................................................ 4,815 2,994 3,715
Realized gains on investments............................... 69 112 730
------- ------- -------
Total Revenues.............................................. 62,831 54,928 51,954
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 15,606 12,861 11,081
Change in future policyholder benefits...................... 19,254 24,092 25,462
Commissions and operating expenses.......................... 15,271 8,564 9,684
Policyholder dividends...................................... 773 541 353
------- ------- -------
Total Benefits and Expenses................................. 50,904 46,058 46,580
------- ------- -------
Income Before Income Taxes.................................. 11,927 8,870 5,374
Income tax expense (benefit):
Current................................................... 2,470 2,612 3,728
Deferred.................................................. 1,979 988 (1,339)
------- ------- -------
Total Income Tax Expense.................................... 4,449 3,600 2,389
------- ------- -------
Net Income.................................................. $ 7,478 $ 5,270 $ 2,985
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-45
<PAGE> 103
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Capital and Surplus For the Years Ended December 31, 1997, 1996
and 1995 (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NET
CONTRIBUTED UNREALIZED
COMMON CAPITAL APPRECIATION TOTAL
STOCK COMMON IN EXCESS UNASSIGNED (DEPRECIATION) CAPITAL AND
SHARES STOCK OF PAR SURPLUS ON SECURITIES SURPLUS
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995............ 2,500 $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 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 2,500 37,665 13,087 897 54,149
Net income.......................... -- -- -- 7,478 -- 7,478
Capital contribution from parent.... -- -- 6,500 -- -- 6,500
Change in unrealized appreciation
(depreciation).................... -- -- -- -- 1,962 1,962
----- ------ ------- ------- ------- -------
Balance at December 31, 1997.......... 2,500 $2,500 $44,165 $20,565 $ 2,859 $70,089
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-46
<PAGE> 104
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Statements of Cash Flows (Dollars in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 7,478 $ 5,270 $ 2,985
Adjustments to reconcile net income to net cash provided
by operating activities:
Interest credited to variable universal life and
investment products................................... 15,076 19,684 16,780
Policy fees assessed on variable universal life and
investment products................................... (11,729) (6,068) (2,467)
Amortization of deferred policy acquisition costs....... 9,445 5,433 5,263
Capitalization of deferred policy acquisition costs..... (31,404) (25,182) (19,579)
Deferred Federal income taxes........................... 1,979 988 (1,339)
Depreciation and amortization expense................... 625 798 816
Realized gains on investments........................... (69) (112) (730)
Change in investment income due and accrued............. (437) 66 845
Change in reinsurance recoverable....................... 5,672 772 (21,413)
Change in policy liabilities and other policyholders'
funds of traditional life products.................... (12,255) (2,124) 30,526
Change in other liabilities............................. 431 (210) (1,993)
Change in current Federal income taxes payable.......... (809) (928) 2,473
Other, net.............................................. (2,676) 3,756 2,349
--------- --------- ---------
Net cash (used in) provided by operating
activities........................................ (18,673) 2,143 14,516
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities........................... 21,382 6,956 12,817
Equity securities....................................... 100 200 46,114
Real estate............................................. 772 -- 940
Other invested assets................................... 333 158 --
Proceeds from maturities of investments:
Held to maturity securities............................. 19,184 17,323 16,030
Available for sale securities........................... 28,439 21,467 20,422
Mortgage loans.......................................... 2,599 7,873 8,065
Purchases of investments:
Held to maturity securities............................. (2,029) (15,887) (16,418)
Available for sale securities........................... (72,520) (38,542) (58,802)
Equity securities....................................... (609) (157) (44,930)
Mortgage loans.......................................... (7,179) (11,342) (8,418)
Real estate............................................. (99) (36) (213)
Other invested assets................................... (302) -- --
Net withdrawals of separate account seed money............ -- (335) (650)
Policy loans and premium notes, net....................... (373) (906) (989)
Net sales of short-term investments....................... 7,901 4,203 1,596
--------- --------- ---------
Net cash used in investing activities............... (2,401) (9,025) (24,436)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits... 232,307 185,984 124,336
Variable universal life and investment product
withdrawals............................................. (217,142) (186,630) (114,416)
Capital contribution from parent.......................... 6,500 8,000 --
--------- --------- ---------
Net cash provided by financing activities........... 21,665 7,354 9,920
--------- --------- ---------
Net change in cash.................................. 591 472 --
Cash, beginning of year..................................... 472 -- --
--------- --------- ---------
Cash, end of year........................................... $ 1,063 $ 472 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 3,280 $ 3,540 $ 1,438
========= ========= =========
Foreclosure of mortgage loans............................. $ -- $ -- $ 667
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-47
<PAGE> 105
- --------------------------------------------------------------------------------
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 14 states accounted for 74% of the Company's sales for the year ended
December 31, 1997. 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 the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of."
F-48
<PAGE> 106
- --------------------------------------------------------------------------------
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 for 1995 as
previously reported, has been restated as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------
<S> <C>
Net income, as previously reported.......................... $ 1,581
Effect of changing to a different basis of accounting:
Deferred acquisition costs................................ 14,316
Net policyholder liabilities.............................. (14,165)
Deferred income taxes..................................... 1,339
Adjustment in valuation of investments.................... 567
Other, net................................................ (653)
--------
Net income, as adjusted..................................... $ 2,985
========
</TABLE>
As a result of the change in accounting principles, capital and surplus, as
of December 31, 1995 as previously reported, has been restated as follows (in
thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1995
- ------------------------------------------------------------------------
<S> <C>
Balance at beginning of year, as previously reported........ $ 29,382
Add adjustment for the cumulative effect on prior years of
applying retroactively the new basis of accounting:
Deferred acquisition costs................................ 45,971
Net policyholder liabilities.............................. (41,068)
Deferred income taxes..................................... 2,144
Adjustment in valuation of investments.................... 854
Asset valuation reserve................................... 3,939
Other, net................................................ (4,225)
--------
Balance at beginning of year, as adjusted................... 36,997
Net income.................................................. 2,985
Add adjustment for the cumulative effect on prior years of
applying accounting change -- securities.................. (2,320)
Change in unrealized gains (losses) on investment
securities................................................ 5,074
--------
Balance at end of year...................................... $ 42,736
========
</TABLE>
F-49
<PAGE> 107
- --------------------------------------------------------------------------------
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 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, 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 $1,792, $1,448 and $1,581 for the years ended
December 31, 1997, 1996 and 1995, respectively. Statutory surplus was $47,225
and $39,530 as of December 31, 1997 and 1996, 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 related Federal income taxes and 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 according to the contractual terms of the loan agreement.
When a mortgage loan has been determined to
F-50
<PAGE> 108
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Invested Assets -- continued
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.
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.
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. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
Investment Valuation Reserves
Investment valuation reserves have been provided for impairments of
mortgage loans and totalled $1,170 and $1,274 at December 31, 1997 and 1996,
respectively. Changes in the reserves are reflected as realized capital gains
and losses.
F-51
<PAGE> 109
- --------------------------------------------------------------------------------
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
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%.
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 3.8% to 8.2% in 1997.
F-52
<PAGE> 110
- --------------------------------------------------------------------------------
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
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 8.0% for 1997.
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 1997, 1996 and 1995 were $31,404, $25,182 and
$19,579, respectively. Amortization of deferred policy acquisition costs
was $9,445, $5,433 and $5,263 during 1997, 1996 and 1995, 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, 1997, approximately 69% of the Company's in force life
insurance business was written on a participating basis. Dividends are earned by
the policyholders ratably over the policy year. Dividends are included in the
accompanying financial statements as a liability and as a charge to operations.
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.
F-53
<PAGE> 111
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 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.
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, 1997 and 1996:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
- ------------------------------------------------------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale.................... $320,363 $320,363 $294,294 $294,294
Held to maturity...................... $65,305 $62,753 $80,638 $79,526
Equity securities....................... $1,776 $1,776 $1,582 $1,582
Commercial mortgage loans............... $49,379 $46,871 $43,976 $42,187
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Supplementary contracts without life
contingencies......................... $7,304 $7,185 $5,736 $5,835
Individual annuities.................... $977,658 $1,012,040 $802,622 $829,783
</TABLE>
F-54
<PAGE> 112
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the owner. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at 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.
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.
F-55
<PAGE> 113
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
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.
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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------
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................................... $ 563 $ 12 $ 2 $ 573
Obligations of states and political
subdivisions............................... 4,083 187 -- 4,270
Corporate securities......................... 274,262 8,651 1,076 281,837
Mortgage-backed securities................... 32,729 958 4 33,683
-------- ------- ------ --------
Subtotal -- fixed maturities............ 311,637 9,808 1,082 320,363
Equity securities............................ 1,714 487 425 1,776
-------- ------- ------ --------
Total.............................. $313,351 $10,295 $1,507 $322,139
======== ======= ====== ========
</TABLE>
F-56
<PAGE> 114
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------
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................................... $ 4,704 $ 417 $ 10 $ 5,111
Corporate securities......................... 54,563 1,899 28 56,434
Mortgage-backed securities................... 3,486 274 -- 3,760
-------- ------- ------ --------
Total.............................. $ 62,753 $ 2,590 $ 38 $ 65,305
======== ======= ====== ========
</TABLE>
<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-57
<PAGE> 115
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1997, 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..................................... $ 32,283 $ 32,366
Due after one year through five years....................... 107,134 109,530
Due after five years through ten years...................... 100,827 104,315
Due after ten years......................................... 71,393 74,152
-------- --------
Total............................................. $311,637 $320,363
======== ========
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
ESTIMATED
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less..................................... $ 2,215 $ 2,231
Due after one year through five years....................... 22,403 23,047
Due after five years through ten years...................... 34,541 36,123
Due after ten years......................................... 3,594 3,904
-------- --------
Total............................................. $ 62,753 $ 65,305
======== ========
</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,
1997, 1996 and 1995 are summarized as follows:
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------
Fixed maturities......................................... $1,135 $ 71 $ 561
Equity securities........................................ (1,360) 6 253
Mortgage loans........................................... 104 35 (103)
Real estate.............................................. 133 -- 19
Other invested assets.................................... 57 -- --
------ ---- -----
$ 69 $112 $ 730
====== ==== =====
</TABLE>
F-58
<PAGE> 116
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES, CONTINUED
Net unrealized appreciation (depreciation) on available for sale securities
as of December 31, 1997 and 1996 is summarized as follows:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
Net unrealized appreciation before adjustments for the
following:................................................ $ 8,788 $ 4,578
Amortization of deferred policy acquisition costs......... (4,389) (3,198)
Deferred Federal income taxes............................. (1,540) (483)
------- -------
Net unrealized appreciation................................. $ 2,859 $ 897
======= =======
</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
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 has been
amortized to realized capital gains/losses.
Net investment income, by type of investment, is as follows for the years
ending December 31, 1997, 1996 and 1995:
<TABLE>
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
Gross investment income:
Fixed maturities:
Available for sale................................ $22,559 $21,379 $20,222
Held to maturity.................................. 5,692 6,699 7,725
Equity securities................................... 92 87 211
Mortgage loans...................................... 3,924 3,750 3,592
Real estate......................................... 591 759 747
Policy loans and premium notes...................... 214 158 113
Short-term investments.............................. 258 363 521
Other, net.......................................... 9 27 35
------- ------- -------
33,339 33,222 33,166
Less: investment expenses........................... (1,025) (1,009) (1,054)
------- ------- -------
Net investment income............................... $32,314 $32,213 $32,112
======= ======= =======
</TABLE>
F-59
<PAGE> 117
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. MORTGAGE LOANS
Impaired mortgage loans and the related reserves are as follows at December
31, 1997 and 1996:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Impaired mortgage loans..................................... $3,655 $3,878
Reserves.................................................... (704) (848)
------ ------
Net impaired mortgage loans................................. $2,951 $3,030
====== ======
</TABLE>
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1997 and 1996 is as follows:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------
Balance at January 1........................................ $1,274 $1,309
Losses charged, net of recoveries........................... (104) (35)
Releases due to foreclosures................................ -- --
------ ------
Balance at December 31...................................... $1,170 $1,274
====== ======
</TABLE>
The average recorded investment in impaired loans was $3,767 and $4,378
during 1997 and 1996, respectively. Interest income recognized on impaired loans
during 1997, 1996 and 1995 was $284, $405 and $434, respectively. All interest
income on impaired mortgage loans was recognized on the cash basis.
5. REAL ESTATE
Real estate totalled $2,494 and $3,146 as of December 31, 1997 and 1996,
respectively. Depreciation expense was $113, $112 and $106 for the years ended
December 31, 1997, 1996 and 1995, respectively. Accumulated depreciation for
real estate totalled $435 and $353 at December 31, 1997 and 1996, 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.
F-60
<PAGE> 118
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES, CONTINUED
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,
- -----------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax at statutory rate................... $4,174 $3,105 $1,881
Current year equity tax.............................. 900 800 625
True down of prior years' equity tax................. (625) (305) --
Other................................................ -- -- (117)
------ ------ ------
Provision for Federal income tax from operations....... $4,449 $3,600 $2,389
====== ====== ======
</TABLE>
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 (liability) asset is as
follows at December 31, 1997 and 1996:
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
DEFERRED TAX ASSET
Reserves.................................................... $26,650 $21,679
Invested assets............................................. 409 445
Policyholder dividends...................................... 159 115
Other....................................................... (1,491) (714)
------- -------
Total deferred tax asset.................................. 25,727 21,525
------- -------
DEFERRED TAX LIABILITY
Deferred policy acquisition costs........................... 26,550 19,249
Net unrealized gain on available for sale securities........ 1,540 1,603
------- -------
Total deferred tax liability.............................. 28,090 20,852
------- -------
Net deferred tax (liability) asset.......................... $(2,363) $ 673
======= =======
</TABLE>
Under current tax law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31,
F-61
<PAGE> 119
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
6. FEDERAL INCOME TAXES, CONTINUED
1983. The aggregate accumulation at December 31, 1983 was $2,037. The Company
has no present plans to make any distributions which would subject the Account
to current taxation.
The Company's Federal income tax returns have been audited through 1992.
All years through 1985 are closed. Years 1986 through 1992 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1993 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.
At December 31, 1997, there were $73,108 of individual fixed annuity
account values coinsured by the Company, or approximately 17.2% of total
individual fixed annuity account values outstanding.
F-62
<PAGE> 120
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
7. REINSURANCE, CONTINUED
The tables below highlight the amounts shown in the accompanying financial
statements which are net of reinsurance activity:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CEDED TO ASSUMED
GROSS OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
Life insurance in force.................. $2,153,084 $1,591,141 $ 50,233 $612,176
========== ========== ======== ========
Premiums................................. $ 14,367 $ 614 $ 151 $ 13,904
========== ========== ======== ========
Future policyholder benefits............. $ 74,674 $ 3,102
========== ========
December 31, 1996:
Life insurance in force.................. $1,591,685 $1,282,667 $ 42,330 $351,348
========== ========== ======== ========
Premiums................................. $ 14,240 $ 801 $ 102 $ 13,541
========== ========== ======== ========
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
========== ========
</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. There were no deposits
ceded in 1997 and $5,317 during 1996, respectively. Reinsurance recoverables
were $71,995 and $77,801 at December 31, 1997 and 1996, 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, 1997 and 1996. Deposits
ceded during 1997 and 1996 were $2,351 and $2,320, respectively.
Approximately $1,169,702 and $1,007,498 of the Company's life insurance in
force is ceded to Provident Mutual under two reinsurance agreements and a
modified coinsurance agreement at December 31, 1997 and 1996, respectively.
Premiums ceded were $3,889 and $436 during 1997 and 1996, respectively.
Reinsurance recoverables at December 31, 1997 and 1996 were $74 and $471,
respectively.
F-63
<PAGE> 121
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
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 a 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
$13,964, $10,013 and $9,238 for 1997, 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, 1997 and 1996
approximated $90,995 and $105,004, 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, 1997, the Company had outstanding mortgage loan commitments
of approximately $2,200. The mortgage loan commitments, which expire through
April 1998, were issued during 1997 at interest rates consistent with rates
applicable on December 31, 1997. As a result, the fair value of these
commitments approximates the face amount.
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 hedge position
activity for the years ended December 31, 1997 and 1996.
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, 1997.
Investment Portfolio Credit Risk
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1997 and 1996, approximately
$14,771 and $14,777, respectively, in debt security investments (3.9% and 4.0%,
respectively, of the total debt security portfolio) are considered "below
F-64
<PAGE> 122
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
9. COMMITMENTS AND CONTINGENCIES, CONTINUED
Investment Portfolio Credit Risk -- continued
Bonds -- continued
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, 1997 of
$385 were non-income producing for the year ended December 31, 1997.
The Company had debt security investments in the financial services
industry at both December 31, 1997 and 1996 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, 1997 and 1996, 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 capital and surplus.
Litigation and Unasserted Claims
The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business which, in the
opinion of management and legal counsel, will not have a material effect on the
Company's financial position or its operations.
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 $236, $82 and $343 in 1997, 1996 and 1995,
respectively. Of those amounts, $117, $58 and $285 in 1997, 1996 and 1995,
respectively, are creditable against future years' premium taxes.
F-65
<PAGE> 123
- --------------------------------------------------------------------------------
Providentmutual Life and Annuity Company
of America
Notes to Financial Statements -- concluded
- --------------------------------------------------------------------------------
10. SUBSEQUENT EVENT
On January 5, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion to reorganize Provident Mutual Life
Insurance Company, utilizing a mutual holding company structure. The proposed
conversion plan was submitted to the Insurance Department of the Commonwealth of
Pennsylvania and is awaiting approval.
F-66
<PAGE> 124
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
<TABLE>
<S> <C>
(a) Financial Statements
All required financial statements are included in Part A and Part B of
this Registration Statement.
(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.(1)
(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.(1)
(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.(1)
(e) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account.(1)
(2) Not applicable.
(3) (a) Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and the
Providentmutual Variable Annuity Separate Account.(1)
(b) Form of Selling Agreement between PML Securities, Inc. and
Sentinel Financial Services Company.(1)
(4) Form of Flexible Premium Deferred Variable Annuity Contract
(PL516).
(a) Amendment of Contract Provisions Rider (PL470.13A).(1)
(b) Qualified Plan Rider (PI471).(1)
(c) 403(b) Annuity Loan Rider (PL515).(1)
(d) Death Benefit Rider "Step Up" (PL547).(1)
(e) Death Benefit Rider "Rising Floor" (PL548).(1)
(f) Simple IRA Rider (PL549).(1)
(g) SEP IRA Rider (PL550).(1)
(h) Qualify as an IRA Rider (PL553).(1)
(i) Qualify as a TSA Under 403(b) Rider (PL554).(1)
(j) Amendment for a Charitable Remainder Trust Rider (PL558).(1)
(k) Systematic Withdraw Plan Rider (PL600).(1)
(5) Form of Application and 1717 Capital Management Company
Suitability Statement.(1)
(a) Initial Allocation Schedule.(2)
(6) (a) Charter of Providentmutual Life and Annuity Company of
America.(1)
(b) By-Laws of Providentmutual Life and Annuity Company of
America.(1)
</TABLE>
C-1
<PAGE> 125
<TABLE>
<S> <C> <C> <C>
(7) Not applicable.
(8) (a) Participation Agreement among Market Street Fund, Inc., Providentmutual Life and Annuity
Company of America and PML Securities, Inc.(1)
(b) Participation Agreement among Variable Insurance Products Fund, Fidelity Distributors
Corporation and Providentmutual Life and Annuity Company of America.(3)
(c) Participation Agreement among Variable Insurance Products Fund II, Fidelity Distributors
Corporation and Providentmutual Life and Annuity Company of America.(3)
(d) Form of Fund Participation Agreement among Neuberger & Berman Advisers Management Trust,
Advisers Managers Trust and Providentmutual Life and Annuity Company of America.(1)
(e) Fund Participation Agreement among TCI Portfolios, Inc., Investors Research Corporation,
and Providentmutual Life and Annuity Company of America.(1)
(f) Participation Agreement between Van Eck Investment Trust and Providentmutual Life and
Annuity Company of America.(1)
(g) Service Agreement between Providentmutual Life and Annuity Company of America and Provident
Mutual Life Insurance Company of Philadelphia.(1)
(h) Support Agreement between Provident Mutual Life Insurance Company and Providentmutual Life
and Annuity Company of America.(1)
(9) Consent of Adam Scaramella, 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.(1)
</TABLE>
- ---------------
(1) Incorporated herein by reference to Post-Effective Amendment No. 5, filed on
May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to Post-Effective Amendment No. 18, filed
on May 1, 1998, File No. 33-2625.
(3) Incorporated herein by reference to Post-Effective Amendment No. 4, filed on
May 1, 1998, File No. 33-83138.
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
Alan F. Hinkle**........................................ Director, Vice President and
Actuary
James D. Kestner**...................................... Director
Sarah C. Lange**........................................ Director
J. Kevin McCarthy**..................................... Director
James Potter**.......................................... Director, Secretary and Legal
Officer
Linda M. Springer**..................................... Director
</TABLE>
C-2
<PAGE> 126
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
------------------------------------ -----------------------------------
<S> <C>
Joan C. Tucker.......................................... Director and Vice President
James D. Benson**....................................... Assistant Financial Reporting
Officer
Scott V. Carney**....................................... Vice President and Actuary
Katherine DePeri**...................................... Actuarial Compliance Officer
Rosanne Gatta**......................................... Treasurer
Anthony Giampietro**.................................... Assistant Treasurer
Louis S. Goldman**...................................... Tax Officer
Deborah Thiel Hall **................................... Compliance Officer
Timothy P. Henry**...................................... Vice President
Joseph T. Laudadio...................................... Underwriting Officer
William P. Loesche**.................................... Assistant Secretary
Todd R. Miller**........................................ Financial Reporting Officer
Edward Schmid, Jr.**.................................... Investment Officer
Andrew J. Stack**....................................... Marketing Officer
Stephen L. White**...................................... Vice President and Actuary
</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
1717 Brokerage Services, Inc. Pennsylvania Ownership of all voting Insurance Agency
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
</TABLE>
C-3
<PAGE> 127
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
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
Sigma American Delaware Ownership of 80.2% Investment Management
Corporation* voting securities by and Advisory Services
PHC 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 454 individual flexible
premium deferred variable annuity contracts (File No. 33-65195) in force -- 383
non-qualified and 771 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
C-4
<PAGE> 128
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 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>
Mary Lynn Finelli**........................ Director Director
Alan F. Hinkle**........................... Director Director, Vice President and
Actuary
Robert W. Kloss**.......................... Director President and Director
J. Kevin McCarthy**........................ Director Director
James Potter**............................. Director Director, Secretary and
Legal Officer
Joan C. Tucker............................. Director Director and Vice President
Louise A. Aviola, Jr. ..................... Vice President and Manager None
of Operations
Rosanne Gatta**............................ Treasurer Treasurer
Anthony Giampietro**....................... Assistant Treasurer Assistant Treasurer
Deborah Thiel Hall**....................... Insurance Compliance Compliance Officer
Officer
Michael Krulikowski........................ Senior Compliance Officer None
William P. Loesche**....................... Assistant Secretary Assistant Secretary
Anthony Mastrangelo**...................... Assistant Financial None
Reporting Officer
Todd R. Miller**........................... Assistant Financial Financial Reporting Officer
Reporting Officer
Alison Naylor.............................. Compliance Officer None
Linda M. Springer**........................ Financial Reporting Officer Director
Adam Scaramella**.......................... Legal Officer and Secretary None
</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.
C-5
<PAGE> 129
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) 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> 130
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 1ST
DAY OF MAY, 1998.
PROVIDENTMUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT (REGISTRANT)
<TABLE>
<S> <C>
Attest: /s/ JAMES POTTER By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President
</TABLE>
By: PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (DEPOSITOR)
<TABLE>
<S> <C>
Attest: /s/ JAMES POTTER 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 May 1, 1998
- ----------------------------------------------------- (Principal Executive
ROBERT W. KLOSS Officer)
/s/ STEPHEN L. WHITE Vice President -- Actuary May 1, 1998
- -----------------------------------------------------
STEPHEN L. WHITE
* Director May 1, 1998
- -----------------------------------------------------
MARY LYNN FINELLI
* Director May 1, 1998
- -----------------------------------------------------
ALAN F. HINKLE
* Director May 1, 1998
- -----------------------------------------------------
JAMES D. KESTNER
* Director May 1, 1998
- -----------------------------------------------------
SARAH C. LANGE
* Director May 1, 1998
- -----------------------------------------------------
J. KEVIN MCCARTHY
</TABLE>
C-7
<PAGE> 131
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director May 1, 1998
- -----------------------------------------------------
JAMES POTTER
* Director May 1, 1998
- -----------------------------------------------------
LINDA M. SPRINGER
* Director May 1, 1998
- -----------------------------------------------------
JOAN C. TUCKER
</TABLE>
*By: /s/ ADAM SCARAMELLA
-------------------------------
ADAM SCARAMELLA
Attorney-in-Fact
Pursuant to Power of Attorney
C-8
<PAGE> 132
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<C> <S> <C> <C>
(4) Form of Flexible Premium Deferred Variable Annuity Contract
(PL516).
(9) Consent of Adam Scaramella, 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.
</TABLE>
<PAGE> 1
EXHIBIT 4
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
NEWARK, DELAWARE
-------------------------------------
ANNUITANT JOHN DOE JUNE 1, 1994 CONTRACT DATE
CONTRACT NUMBER 123,456 JUNE 1, 2024 MATURITY DATE
-------------------------------------
In this Contract, Providentmutual Life and Annuity Company of America will be
referred to as "we," "us" or "our." The Owner ("you," "your") is the Annuitant,
unless another person is named in the application or later becomes the Owner as
allowed by this Contract.
We agree to pay the proceeds as described in this Contract, subject to its
provisions.
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, INCLUDING ANY DEATH
BENEFIT THAT MAY BE PAYABLE, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE
VARIABLE ACCOUNT MAY INCREASE OR DECREASE DAILY, DEPENDING UPON THE INVESTMENT
PERFORMANCE OF THE FUND PORTFOLIOS IN WHICH YOUR CHOSEN SUBACCOUNTS ARE INVESTED
AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS. NO MINIMUM CONTRACT ACCOUNT
VALUE IS GUARANTEED, EXCEPT FOR ANY AMOUNTS IN THE GUARANTEED ACCOUNT.
PLEASE READ THIS CONTRACT CAREFULLY
It is a legal contract between you and us.
NOTICE OF 10 DAY RIGHT TO EXAMINE CONTRACT
PLEASE EXAMINE THIS CONTRACT CLOSELY. IF FOR ANY REASON YOU ARE NOT SATISFIED
WITH THIS CONTRACT, YOU MAY RETURN IT TO US FOR CANCELLATION BY DELIVERING OR
MAILING IT TO:
1. OUR SERVICE CENTER, 300 CONTINENTAL DRIVE, NEWARK, DELAWARE
19713;
2. ONE OF OUR AGENCY OFFICES; OR
3. THE AGENT THROUGH WHOM IT WAS PURCHASED.
THIS CONTRACT MUST BE RETURNED TO US NO LATER THAN 10 DAYS AFTER YOU FIRST
RECEIVE IT. UPON SUCH DELIVERY OR MAILING, THIS CONTRACT WILL BE VOID AS OF THE
DATE WE RECEIVE YOUR CONTRACT AND REQUEST. WE WILL RETURN THE GREATER OF: (i)
THE AMOUNT OF PREMIUMS YOU PAID; OR (ii) THE CONTRACT ACCOUNT VALUE PLUS ANY
CHARGES WE DEDUCTED, EXCEPT THE MORTALITY AND EXPENSE RISK CHARGE, THE
ADMINISTRATION CHARGE, AND THE ADVISORY FEES AND EXPENSES OF THE FUND.
Signed for the Company in Newark, Delaware
/s/ illegible /s/ Robert W. Kloss
Secretary President
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Flexible premiums as stated in the Premiums Provision.
Contract values are variable, except for amounts in the Guaranteed Account
After the Maturity Date, Payment Options are on a guaranteed basis.
Death benefit payable upon death of Annuitant before Maturity Date.
Non-participating - Contract does not pay dividends.
[PROVIDENTMUTUAL LOGO] [PROVIDENTMUTUAL LOGO]
FOR INQUIRIES, INFORMATION AND RESOLUTION OF COMPLAINTS CALL: 1-800-654-7796
Form PL516
<PAGE> 2
A GUIDE TO THE PROVISIONS OF THIS CONTRACT
Page
Allocations and Transfers ............................................. 9
Contract Schedule ..................................................... 3
Contract Values ....................................................... 10-11
Definitions ........................................................... 5
Description of Subaccounts ............................................ 4
General Provisions .................................................... 5-6
Guaranteed Account .................................................... 8-9
Payment Options ....................................................... 13
Payment of Proceeds ................................................... 11-13
Premiums .............................................................. 7
Variable Account ...................................................... 7-8
A COPY OF THE APPLICATION AND ANY RIDERS ARE INCLUDED AFTER PAGE 14.
ENDORSEMENTS
(To be made by the Company only)
Page 2
Form PL516
<PAGE> 3
CONTRACT SCHEDULE
ANNUITANT JOHN DOE JUNE 1, 1994 CONTRACT DATE
CONTRACT NUMBER 123,456 JUNE 1, 2024 MATURITY DATE
<TABLE>
<S> <C>
Initial Premium Payment: $ 2,000
Minimum Additional Premium Amount: $ 100
[$ 50 for Qualified Contracts]
Planned Periodic Premium: $ 100 monthly
Minimum Withdrawal Amount: $ 500
Minimum Transfer Amount: $ 500
Minimum Remaining Cash Surrender Value
After Withdrawal: $ 2,000
</TABLE>
CHARGES AND FEES
<TABLE>
<S> <C>
Annual Mortality and Expense Risk Charge: 1.25%
Administration Charge: Current: 0.15% of assets
Maximum: 0.25% of assets
Annual Administration Fee: Current: $30.00
Maximum: $40.00
</TABLE>
<TABLE>
<CAPTION>
CONTRACT YEAR CHARGE
------------- ------
<S> <C> <C>
Surrender Charge: * 1 7%
2 6%
3 5%
4 4%
5 3%
6 2%
7 1%
8 0%
</TABLE>
* For the first Contract Year, applies to amount withdrawn or
surrendered; after the first Contract Year, applies to amount
withdrawn or surrendered as described under the Surrender
Charge provision. In no event will the Surrender Charge exceed
8.5% of the total premiums received under the Contract.
CERTAIN RESTRICTIONS APPLY. (SEE "SURRENDER CHARGE" ON PAGE
10).
Page 3
Form PL516
<PAGE> 4
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE> 5
CONTRACT SCHEDULE
(CONTINUED)
ALLOCATION OPTIONS
SCHEDULE A-1
THE MARKET STREET FUND, INC.:
Providentmutual Variable Large Cap Growth Subaccount
Providentmutual Variable Large Cap Value Subaccount
Providentmutual Variable Small Cap Growth Subaccount
Providentmutual Variable Small Cap Value Subaccount
Providentmutual Variable Growth Subaccount
Providentmutual Variable Aggressive Growth Subaccount
Providentmutual Variable Bond Subaccount
Providentmutual Variable Managed Subaccount
Providentmutual Variable Money Market Subaccount
Providentmutual Variable International Subaccount
THE ALGER AMERICAN FUND:
Alger American Small Capitalization Subaccount
VARIABLE INSURANCE PRODUCTS FUND (VIP) OR THE
VARIABLE INSURANCE PRODUCTS FUND II (VIP II):
Fidelity Asset Manager Subaccount (VIP II)
Fidelity Contrafund Subaccount (VIP II)
Fidelity Equity-Income Subaccount (VIP)
Fidelity Growth Subaccount (VIP)
Fidelity High Income Subaccount (VIP)
Fidelity Index 500 Subaccount (VIP II)
Fidelity Investment Grade Bond Subaccount (VIP II)
Fidelity Overseas Subaccount (VIP)
Page 4
Form ASA3 (ASA3598)
<PAGE> 6
BENEFICIARY. We will pay the Beneficiary any proceeds payable on your death or
the death of the Annuitant. During the Annuitant's lifetime and before the
Maturity Date, you may change the named Beneficiary by giving us Written Notice
of such change.
We will pay the proceeds under the beneficiary designation in effect at the
date of death. The proceeds will be paid to the surviving Beneficiaries equally
unless you have indicated otherwise. If no Beneficiary is living when the
Annuitant dies, or if none has been named, the proceeds will be paid to you or
to your estate. If no Beneficiary is living when you die, any proceeds will be
paid to your estate.
CHANGE OF OWNER OR BENEFICIARY. Written Notice must be signed by you, dated, and
of a form and content acceptable to us. Your Written Notice will not be
effective until we receive and file it at our Service Center. However, the
change provided in your Written Notice will then be effective as of the date you
signed such notice:
1. subject to any payments made or other action we take before we receive and
file your Written Notice; and
2. whether or not you or the Annuitant are alive when we receive and file
your Written Notice.
ASSIGNMENT. You may assign this Contract or an interest in it at any time before
the Maturity Date during the lifetime of the Annuitant. An assignment must be in
a Written Notice acceptable to us. It will not be binding on us until we receive
and file it at our Service Center. We are not responsible for the validity or
sufficiency of any assignment. Your rights and the rights of any Beneficiary
will be affected by an assignment.
MISSTATEMENT OF AGE OR SEX. If the age or sex of the Annuitant has been
misstated, we will pay the amount which the proceeds would have purchased at the
correct age and sex.
If we make an overpayment because of an error in age or sex, the overpayment
plus interest at 3% compounded annually will be a debt against this Contract. If
the debt is not repaid, future payments will be reduced accordingly.
If we make an underpayment 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.
PERIODIC REPORTS. We will mail you a report showing the following items:
1. the number of units credited to this Contract and the dollar value of a
unit;
2. the Contract Account Value and Cash Surrender Value;
3. any premiums paid, withdrawals, and charges made since the last report;
and
4. any other information required by law.
The information in the report will be as of a date not more than two months
before the date of the mailing. We will mail the report to you:
1. at least annually, or more often as required by law; and
2. to your last address known to us.
MODIFICATION. Upon notice to you, we 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 we are 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 modification, we may make appropriate endorsement to
the Contract.
NON-PARTICIPATION. This Contract is non-participating and does not share in our
profits or surplus earnings.
PROTECTION OF PROCEEDS. No Beneficiary may commute, encumber or alienate any
payments under this Contract before they are due. No annuity payments shall be
subject to the debts, contract or engagements of any Beneficiary nor to any
judicial process to levy upon or attach the same for payment of such debts.
CREDITOR CLAIMS. To the extent permitted by applicable laws, no right or benefit
under this Contract shall be subject to claims of creditors, except as may be
provided by an Assignment.
DISCHARGE OF LIABILITY. We shall be discharged from all liability to the extent
of any withdrawal, surrender or death benefit paid. Any payments made by us
under any Payment Option shall discharge our liability to the extent of each
such payment.
Page 6
Form PL516
<PAGE> 7
PREMIUMS
INITIAL PREMIUM. The Initial Premium is shown in the Contract Schedule, and is
payable on or before the Contract Date.
ADDITIONAL PREMIUMS. You may make additional premium payments at any time during
the Annuitant's lifetime and before the Maturity Date.
The amount of additional premium payments may vary. The minimum additional
premium that we will accept is shown in the Contract Schedule.
NET PREMIUM. The Net Premium is the premium paid less any premium tax levied on
us relating to this Contract for the year the premium is paid.
THE VARIABLE ACCOUNT
VARIABLE ACCOUNT. We have established the Providentmutual Variable Annuity
Separate Account (the "Variable Account"). The Variable Account is registered
with the Securities and Exchange Commission as a unit investment trust under the
Investment Company Act of 1940. The Variable Account is also subject to the laws
of the State of Delaware.
Although we own the assets in the Variable Account, these assets are held
separately from our other assets and are not part of our General Account. The
assets in the Variable Account are used to support the operation of and provide
the variable values and benefits for this Contract and similar Contracts.
The portion of the assets of the Variable Account equal to the reserves and
other contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business that we conduct. We have the
right to transfer to our General Account any assets of the Variable Account
which are in excess of such reserves and other liabilities.
SUBACCOUNTS. The Variable Account currently consists of the Subaccounts listed
in the Contract Schedule and in the current prospectus you received. Each
Subaccount invests in shares of a corresponding series of the designated
investment fund, as shown in the Contract Schedule (referred to as the "Fund").
Shares of a series are purchased and redeemed for a Subaccount at their net
asset value. Any amounts of income, dividends and gains distributed from the
shares of a series will be reinvested in additional shares of that series at its
net asset value. The Fund prospectus you received defines the net asset value
and describes each portfolio of the Fund.
The dollar amounts of values and benefits of this Contract provided by the
Variable Account depend on the investment performance of the portfolios of the
Fund in which your selected Subaccounts are invested. We do not guarantee the
investment performance of the portfolios. You bear the full investment risk for
amounts applied to THE selected Subaccounts.
VARIABLE ACCOUNT VALUE. This Contract's Variable Account Value for any Valuation
Period before the Maturity Date is determined by multiplying:
1. the amount of units credited to this Contract for each Subaccount as of
the end of the Valuation Period; by
2. the current unit value for each Subaccount.
The sum of these amounts equals the Variable Account Value.
UNITS. We credit Net Premiums in the form of units. We will credit units for the
Initial Net Premium on the Contract Date. The number of units of each Subaccount
credited under this contract is determined by dividing:
1. the Net Premium allocated to that Subaccount; by
2. the unit value for that Subaccount at the end of the Valuation Period
during which we receive and accept the premium at our Service Center.
We will adjust the units for any transfers in or out of a Subaccount.
We will cancel the appropriate number of units based on the unit value at the
end of the Valuation Period in which any of the following events occurs:
1. the Annual Administration Fee shown in the Contract Schedule is assessed;
2. the date we receive and file your Written Notice for a withdrawal or a
cash surrender;
3. the Maturity Date occurs;
4. the date we receive due proof of the Annuitant's death; or
5. the date the Contract Account Value is distributed upon your death.
Page 7
Form PL516
<PAGE> 8
UNIT VALUE. The unit value for each Subaccount for its first Valuation Period
is set at $500. The unit value for each subsequent Valuation Period is
determined by multiplying:
1. the unit value at the end of the immediately preceding Valuation Period;
by
2. the net investment factor for the Valuation Period for which the value is
being determined.
The unit value for a Valuation Period applies to each day in that period. The
unit value may increase or decrease from one Valuation Period to the next.
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 a Net Investment Factor for each Valuation Period, which may
be greater than 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 we 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 as shown in the Contract Schedule; minus
6. the amount charged for administration for that Valuation Period, as
shown in the Contract Schedule; 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.
RESERVED RIGHTS. When permitted by law, we reserve the right to:
1. create new variable accounts;
2. combine variable accounts, including the Variable Account;
3. remove, combine or add Subaccounts and make the new Subaccounts available
to contractowners at our discretion;
4. substitute shares of another portfolio of the Fund or shares of another
investment company for those of the Fund;
5. add new portfolios to the Fund;
6. deregister the Variable Account under the Investment Company Act of 1940
if registration is no longer required;
7. make any changes required by the Investment Company Act of 1940; and
8. operate the Variable Account as a managed investment company under the
Investment Company Act of 1940 or any other form permitted by law.
If a change is made, we will send you a revised prospectus and any notice
required by law.
CHANGE IN INVESTMENT POLICY. The investment policy of a Subaccount may not be
changed unless:
1. the change is approved, if required, by the Delaware Insurance Department;
and
2. a statement of such approval is filed, if required, with the insurance
department of the state in which this Contract is delivered.
THE GUARANTEED ACCOUNT
GUARANTEED ACCOUNT. Amounts in the Guaranteed Account are part of our General
Account. The Guaranteed Account is not part of and does not depend on the
investment performance of the Variable Account.
We credit interest to amounts in the Guaranteed Account at rates we
determine. We guarantee that the effective annual interest rate will not be less
than 3%. We may credit a higher current interest rate. For the amount in the
Guaranteed Account at the beginning of a calendar year, we will determine such
interest rates in advance of each calendar year. Such rates will apply to the
calendar year which follows the date of determination. For amounts allocated or
transferred to the Guaranteed Account during a calendar year, we will determine
interest rates applicable to such amounts in advance of the date such amount is
received or transferred. Such rates will apply to the end of the calendar year
in which the payment is received or the transfer is made.
Page 8
Form PL516
<PAGE> 9
GUARANTEED ACCOUNT VALUE. This Contract's Guaranteed Account Value for any
Valuation Period before the Maturity Date is:
1. the sum of the Net Premiums allocated to the Guaranteed Account; plus
2. any amounts transferred to the Guaranteed Account from a Subaccount of the
Variable Account; minus
3. any amounts withdrawn or transferred from the Guaranteed Account together
with any associated charges; minus
4. any Annual Administration Fee deducted from the amount in THE Guaranteed
Account; plus
5. interest we credit to the amount in the Guaranteed Account.
For the purpose of crediting interest, amounts deducted, transferred and
withdrawn from the Guaranteed Account will be accounted for on a last-in,
first-out basis.
ALLOCATIONS AND TRANSFERS
NET PREMIUM ALLOCATION. In your application you selected how you wanted your
Initial Net Premium to be allocated among the Subaccounts and the Guaranteed
Account.
We will allocate that portion of the Initial Net Premium which is to be
allocated to the Variable Account to the Money Market Subaccount for a 15-day
period. At the end of such period, we will allocate the amount in the Money
Market Subaccount to each of the chosen Subaccounts based on the proportion that
the allocation percentage for such Subaccount bears to the sum of the Subaccount
premium allocation percentages.
You may change the allocation schedule by Written Notice. Any additional Net
Premiums will be allocated in accordance with the allocation schedule in effect
when such premium is received, unless at the time of payment we receive Written
Notice to the contrary. The portion of a Net Premium to be applied to each
selected Subaccount and the Guaranteed Account must be a whole percentage.
TRANSFER PRIVILEGE. Before the Maturity Date, you may transfer all or part of
the amount in the Subaccount(s) to another Subaccount(s) or to the Guaranteed
Account, or transfer a part of the amount in the Guaranteed Account to the
Subaccount(s), subject to the availability of a Subaccount or shares of a
portfolio.
The minimum transfer amount is shown in the Contract Schedule.
If a transfer amount reduces the amount in a Subaccount or the Guaranteed
Account to less than $500, we reserve the right to treat the transfer request as
a request to transfer the entire amount in that Subaccount or Guaranteed
Account.
RESTRICTIONS ON TRANSFERS FROM GUARANTEED ACCOUNT. You may transfer a part of
the amount in the Guaranteed Account to the Subaccount(s) of the Variable
Account, subject to these additional restrictions:
1. we allow only one transfer each year and this transfer must be within the
period that is 30 days before and 30 days after the Contract Anniversary.
An unused transfer option does not carry over to the next year; and
2. the maximum transfer amount is 25% of the Contract's Guaranteed Account
Value on the date of the transfer, unless the balance after the transfer
is less than $500.
We will make the transfer on the Contract Anniversary if your Written Notice
is received prior to the Contract Anniversary; if your Written Notice is
received after the Contract Anniversary, we will make the transfer as of the
date we receive your request at our Service Center.
Page 9
Form PL516
<PAGE> 10
CONTRACT VALUES
CONTRACT ACCOUNT VALUE. The Contract Account Value is the sum of the Variable
Account Value and the Guaranteed Account Value.
CASH SURRENDER VALUE. The Cash Surrender Value is the Contract Account Value,
less any applicable Surrender Charge. The Cash Surrender Value will be
determined on the date we receive your Written Notice for surrender and this
Contract at our Service Center.
You may surrender this Contract for its Cash Surrender Value at any time
before the earlier of the death of the Annuitant or the Maturity Date. You may
elect to have the Cash Surrender Value (less any applicable deduction for
premium tax) paid in a single sum or under a Payment Option. This Contract ends
when we pay the Cash Surrender Value or apply such sum under a Payment Option.
WITHDRAWALS. You may withdraw part of the Cash Surrender Value at any time
before the earlier of the death of the Annuitant or the Maturity Date, subject
to these limits:
1. the minimum withdrawal amount is shown in the Contract Schedule;
2. the maximum withdrawal is the amount that would leave a minimum Cash
Surrender Value of the amount shown in the Contract Schedule; and
3. a withdrawal request which would reduce the amount in a Subaccount or the
Guaranteed Account below $500 will be treated as a request for a full
withdrawal of the amount in that Subaccount or Guaranteed Account.
On the date we receive your Written Notice for a withdrawal at our Service
Center we will withdraw the amount of the withdrawal from the Contract Account
Value. We will then deduct any applicable Surrender Charge from the amount
withdrawn, unless you request in advance that any applicable Surrender Charge be
deducted from the remaining Contract Account Value. In that event, the amount
that will be withdrawn from the Contract Account Value will equal the amount of
the withdrawal request plus any applicable Surrender Charge.
You may specify the amount to be withdrawn from certain Subaccounts or the
Guaranteed Account for your partial withdrawal, If you do not specify this
information to us, or the amount in the designated Subaccounts or Guaranteed
Account is inadequate to comply with your request, we will make the withdrawal
based on the proportion that your Subaccount Values and the Guaranteed Account
Value bear to the Contract Account Value prior to the withdrawal.
SURRENDER CHARGE. The applicable percentage from the Surrender Charge Table in
the Contract Schedule will be deducted upon any withdrawal or surrender and will
be applied as follows:
a. to the entire withdrawal or surrender amount if such withdrawal or
surrender occurs during the first Contract Year; or
b. to the portion of the withdrawal or surrender which is in excess of the
percentage listed in the table below for the applicable Contract Year:
<TABLE>
<CAPTION>
% OF CONTRACT
CONTRACT YEAR ACCOUNT VALUE
- ------------- -------------
<S> <C>
1 0%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
</TABLE>
Amounts up to the Contract Account Value percentage shown above are available
for withdrawal in the applicable Contract Year without the imposition of a
surrender charge. However, starting in Contract Year 3 and in each subsequent
Contract Year listed above, the applicable percentage for each year will be
reduced by the total percentage withdrawn without imposition of surrender charge
from the Contract Account Value in the prior years.
There is no limit on the number of withdrawals occurring in any Contract
Year.
If the Contract is being 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 you request in advance that the Surrender
Charge be deducted from the remaining Contract Account Value.
In no event will the Surrender Charge exceed 8.5% of the total premiums
received under the Contract.
Page 10
Form PL516
<PAGE> 11
ANNUAL ADMINISTRATION FEE. We will assess the Annual Administration Fee shown in
the Contract Schedule:
1. for the prior Contract Year, on the Contract Anniversary; or
2. for the current Contract Year on the date this Contract is surrendered for
its Cash Surrender Value or on the Maturity Date (unless the Contract is
surrendered on a Contract Anniversary or the Maturity Date is a Contract
Anniversary and the fee is assessed under 1 above).
The fee will be assessed against the Subaccount(s) and Guaranteed Account
based on the proportion that your Subaccount Values and the Guaranteed Account
Value bear to the Contract Account Value.
If the fee is obtained from the Subaccounts, we will cancel the appropriate
number of units credited to this Contract based on the Unit Value at the end of
the Valuation Period when the fee is assessed. If the fee is obtained from the
Guaranteed Account, we will reduce this Contract's Guaranteed Account Value by
the amount of the fee.
MATURITY DATE. No Surrender Charge will be applied to the Contract Account Value
on the Maturity Date if the proceeds are applied under a Payment Option. If the
proceeds are paid in a lump sum on the Maturity Date, the proceeds will equal
the Cash Surrender Value on such date.
You may change the Maturity Date, subject to these limitations:
1. we must receive your Written Notice at our Service Center at least 30 days
before the current Maturity Date;
2. the requested Maturity Date must be a date that is at least 30 days after
we receive your Written Notice; and
3. 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.
TERMINATION. We may pay you the Cash Surrender Value and end this Contract if,
before the Maturity Date, all of these events simultaneously exist:
1. you have not paid any premiums 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.
We will mail you a notice of our intention to end this Contract at least six
months in advance. This Contract will automatically terminate on the date
specified in the notice, unless we receive an additional premium payment before
the termination date specified in the notice. This additional premium payment
must be for at least the minimum additional premium amount specified in the
Contract Schedule.
BASIS OF VALUES. Any paid-up annuity, cash surrender or death benefits that may
be available are at least equal to the minimum required by law in the state in
which this Contract is delivered. A detailed statement of the method used to
compute the minimum values has been filed, where required, with the insurance
officials of the jurisdiction in which this Contract is delivered.
PAYMENT OF PROCEEDS
PROCEEDS. Proceeds means the amount we will pay when the first of the following
events occurs: the Maturity Date; the Contract is surrendered; or we receive due
proof of death of the Annuitant or the Owner. This Contract ends when we pay the
proceeds.
"Due Proof of Death" is proof of death that is satisfactory to us. Such proof
may consist of:
1. a certified copy of the death certificate;and/or
2. a certified copy of the decree of a court of competent jurisdiction as to
the finding of death.
We will deduct any applicable premium tax from the proceeds described below,
unless we already deducted the tax from the premiums when paid. (See the "Net
Premium" provision.)
PROCEEDS ON MATURITY DATE. If you have not elected to receive the proceeds in a
lump sum, the proceeds we will pay is the Contract Account Value, which we will
apply under a Payment Option on the Maturity Date. (See the "Maturity Date"
provision and the "Payment Options" section.) If the proceeds are paid in a lump
sum, we will pay the Cash Surrender Value.
PROCEEDS ON SURRENDER. If you surrender this Contract before the earlier of the
death of the Annuitant or the Maturity Date, the proceeds we will pay is the
Cash Surrender Value. (See the "Maturity Date" provision concerning changing the
Maturity Date and having the Contract Account Value applied under a Payment
Option.)
Page 11
Form PL516
<PAGE> 12
PROCEEDS ON DEATH OF ANNUITANT BEFORE MATURITY DATE. If the Annuitant dies
before the Maturity Date, the proceeds we will pay to the Beneficiary is the
death benefit.
If the Annuitant dies before the end of the seventh Contract Year, the death
benefit will equal the greater of:
1. the premiums paid, less any withdrawals including applicable surrender
charges; or
2. the Contract Account Value on the date we receive due proof of the
Annuitant's death.
If the Annuitant dies after the end of the seventh Contract Year, the death
benefit will equal the greatest of:
1. the Contract Account Value as of the end of the seventh Contract Year plus
any subsequent deposits less any subsequent withdrawals; or
2. the Contract Account Value on the date we receive due proof of the
Annuitant's death; or
3. the premiums paid less any withdrawals including applicable surrender
charges.
The proceeds will be paid in a lump sum or under a Payment Option. If you are
the Annuitant, the proceeds must be distributed in accordance with the rules set
forth in "Proceeds on Death of an Owner" for an Owner's death before the
Maturity Date. No death benefit is payable if this Contract is surrendered
before the Annuitant's death.
PROCEEDS ON DEATH OF AN OWNER. If any Owner dies before the Maturity Date, the
Contract Account Value (or if the deceased Owner is the Annuitant, the proceeds
payable on the Annuitant's death) must be distributed to the Beneficiary within
five years after the date of such death.
If any 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 death.
These distribution requirements will be considered satisfied as to any
portion of the proceeds:
1. payable to or for the benefit of a designated beneficiary; and
2. which is distributed over the life (or period not exceeding the life
expectancy) of that Beneficiary, provided that such distributions begin
within one year of the Owner's death.
The designated beneficiary is the person designated by the Owner as
Beneficiary and to whom the ownership of the Contract passes by reason of an
Owner's death and must be a natural person. However, if the Owner's spouse is
the designated beneficiary, the Contract may be continued with the surviving
spouse as the new Owner. If the Contract has Joint Owners, the surviving Joint
Owner will be the designated beneficiary.
If you are not an individual, the Annuitant as determined in accordance with
section 72(s) of the Internal Revenue Code (i.e. the individual the events in
the life of whom are of primary importance in effecting the timing or amount of
the payout under the Contract) will be treated as Owner for purposes of these
distribution requirements, and any change in the Annuitant will be treated as
the death of the Owner.
PAYMENTS. We will usually pay any proceeds, withdrawals, or cash surrenders
within seven business days after:
1. we receive and file your Written Notice for a withdrawal or a cash
surrender; or
2. we receive and file due proof of death of the Owner or Annuitant.
However, we can postpone the payment of proceeds, withdrawals, or cash
surrenders or the transfer of amounts between Subaccounts 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 Securities and Exchange Commission; or
2. the Securities and Exchange Commission permits by an order the
postponement for the protection of contractholders; or
3. the Securities and Exchange Commission determines that an emergency exists
that would make the disposal of securities held in the Variable Account or
the determination of their value not reasonably practicable; or
4. the Fund is permitted by law or regulation to postpone payment of
proceeds.
If a recent check or draft has been submitted, we have the right to defer
payment of the Contract Account Value, Cash Surrender Value or death benefit
until such check or draft has been honored.
We have the right to defer payment of any withdrawal, transfer or Cash
Surrender Value from the Guaranteed Account for up to six months from the date
we receive your Written Notice for a withdrawal or surrender.
Page 12
Form PL516
<PAGE> 13
INTEREST ON PROCEEDS. We will pay interest on proceeds if we do not pay the
proceeds in a single sum or begin paying the proceeds under a Payment Option:
1. within 30 days after the proceeds become payable; or
2. within the time required by the applicable jurisdiction, if less than 30
days.
This interest will accrue from the date the proceeds become payable to the
date of payment, but not for more than one year, at an annual rate of 3%, or the
rate and time required by law, if greater.
CONFORMITY WITH LAWS. To the extent this Contract conflicts with any applicable
laws or the requirements of the Internal Revenue Service concerning
distributions on death, this Contract shall be considered to be amended to
conform with such requirements.
PAYMENT OPTIONS
ELECTION OF OPTION. The following options are available to you during your
lifetime. They are also available to the Beneficiary after your death, if you
have not selected an option for such Beneficiary.
You may elect to have the Cash Surrender Value, Contract Account Value or
death benefit paid in accordance with any one of the options described below or
in any other manner acceptable to us and permissible under applicable law. If no
election has been made, the automatic option shall be Option B. The amount paid
under these options is fixed and does not depend on the investment performance
of the Variable Account.
OPTION A - LIFE ANNUITY: An income payable during the lifetime of the Payee,
ceasing with the last payment due prior to the death of the Payee, according to
the Option Table, Life Only column.
OPTION B - LIFE ANNUITY WITH 10 YEARS GUARANTEED: An income payable during the
lifetime of the Payee with the guarantee that payments shall be made for a
period of not less than 10 years according to the Option Table, 10 Year Period
Certain column.
Under Option B, 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 shall 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.
ALTERNATE INCOME OPTION. In lieu of one of the above options you may elect to
settle the Cash Surrender Value, Contract Account Value or death benefit under
an alternate income option based on our single premium immediate annuity rates
in effect at the time of settlement. Such rates will be adjusted to a due basis
and the income thus produced will be increased by 4%. In no case will the
resulting 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.
GENERAL PROVISIONS. Annuity payments shall commence and continue subject to the
following provisions:
A. This Contract shall be surrendered to us at our Service Center. We shall
issue a Supplementary Contract stating the terms of payment under the
option elected.
B. Proof satisfactory to us of the identity, birth date and sex of any person
on whose life an annuity depends shall be provided to us before any
annuity payments will be made.
C. We shall make each annuity payment by check which shall be personally
endorsed by the person upon whose life the annuity depends, or other
evidence must be furnished that such person is alive.
D. No election of any option may be made under this Contract for any Payee
unless such election would produce a periodic payment of at least $50 to
that Payee. If at any time payments to be made become less than $50 each,
we shall have the right to change the frequency of payments to such
interval as shall result in the payment of at least $50. Subject to this
condition, payments may be made annually, semi-annually, quarterly or
monthly.
E. If the Payee is other than you, the election of a Payment Option shall
require our consent.
F. We shall deduct from the Cash Surrender Value or the Contract Account
Value any Premium Tax at the time income payments commence.
Page 13
Form PL516
<PAGE> 14
OPTION TABLE
GUARANTEED AMOUNT OF MONTHLY PAYMENT FOR EACH $1,000 OF
ANNUITY VALUE APPLIED
<TABLE>
<CAPTION>
GUARANTEED MONTHLY PAYMENTS GUARANTEED MONTHLY PAYMENTS
Age of Payee 10 Year Age of Payee 10 Year
Life Only Period Life Only Period
Male Female (Option A) Certain Male Female (Option A) Certain
(Option B) (Option B)
---- ------ ---------- ------- ---- ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
5* $2.70 $2.70 45 50 $3.59 $3.58
6 2.71 2.71 46 51 3.63 3.62
7 2.72 2.72 47 52 3.68 3.67
8 2.72 2.73 48 53 3.73 3.72
9 2.73 2.73 49 54 3.78 3.76
5* 10 2.74 2.74 50 55 3.83 3.82
6 11 2.75 2.75 51 56 3.89 3.87
7 12 2.76 2.76 52 57 3.95 3.93
8 13 2.77 2.77 53 58 4.01 3.99
9 14 2.78 2.78 54 59 4.07 4.05
10 15 2.79 2.79 55 60 4.14 4.11
11 16 2.80 2.80 56 61 4.21 4.18
12 17 2.81 2.81 57 62 4.29 4.25
13 is 2.82 2.83 58 63 4.37 4.33
14 19 2.83 2.84 59 64 4.46 4.41
15 20 2.85 2.85 60 65 4.55 4.50
16 21 2.86 2.86 61 66 4.64 4.58
17 22 2.87 2.88 62 67 4.75 4.68
18 23 2.89 2.89 63 68 4.86 4.78
19 24 2.90 2.90 64 69 4.97 4.88
20 25 2.92 2.92 65 70 5.09 4.99
21 26 2.93 2.93 66 71 5.22 5.10
22 27 2.95 2.95 67 72 5.36 5.21
23 28 2.96 2.97 68 73 5.51 5.34
24 29 2.98 2.98 69 74 5.67 5.46
25 30 3.00 3.00 70 75 5.83 5.60
26 31 3.02 3.02 71 76 6.01 5.73
27 32 3.04 3.04 72 77 6.19 5.87
28 33 3.06 3.06 73 78 6.39 6.02
29 34 3.08 3.08 74 79 6.60 6.17
30 35 3.10 3.10 75 so 6.82 6.32
31 36 3.13 3.13 76 81 7.06 6.48
32 37 3.15 3.15 77 82 7.31 6.64
33 38 3.18 3.18 78 83 7.58 6.80
34 39 3.20 3.20 79 84 7.87 6.97
35 40 3.23 3.23 80 85** 8.17 7.13
36 41 3.26 3.26 81 8.49 7.29
37 42 3.29 3.29 82 8.83 7.45
38 43 3.32 3.32 83 9.19 7.61
39 44 3.35 3.35 84 9.57 7.77
40 45 3.39 3.39 85** 9.96 7.92
41 46 3.42 3.42
42 47 3.46 3.46
43 48 3.50 3.50
44 49 3.54 3.54
- ----------
</TABLE>
*Payment shown applies to all younger ages.
**Payment shown applies to all older ages.
Page 14
Form PL516
<PAGE> 15
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Flexible premiums as stated in the Premiums Provision.
Contract values are variable, except for amounts in the Guaranteed Account.
After the Maturity Date, Payment Options are on a guaranteed basis.
Death benefit payable upon death of Annuitant before Maturity Date.
Non-participating - Contract does not pay dividends.
[PROVIDENTMUTUAL LOGO]
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
300 Continental Drive, Newark, Delaware 19713
Form PL516
<PAGE> 1
EXHIBIT 9
April 30, 1998
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
RE: Providentmutual Life and Annuity Company of America
Providentmutual Variable Annuity Separate Account
(File No. 33-65195)
Gentlemen:
I hereby consent to the use of my name in the Prospectus under the heading
"Legal Matters" filed as part of the Post-Effective Amendment No. 2 to the
Registration Statement on Form N-4 (File No. 33-65195) for the Providentmutual
Variable Annuity Separate Account.
Very truly yours,
/s/ ADAM SCARAMELLA
-------------------------------
Adam Scaramella
<PAGE> 1
EXHIBIT 10.A
SUTHERLAND, ASBILL & BRENNAN
Atlanta - Austin - New York - Washington
1275 PENNSYLVANIA AVENUE, N.W. TEL: (202) 383-0100
WASHINGTON, D.C. 20004-2404 FAX: (202) 637-3593
April 29, 1998
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
Providentmutual Life and Annuity Comany of America
300 Continental Drive
Newark, DE 19713
Re: Providentmutual Life and Annuity Company of America
Providentmutual Variable Annuity Separate Account
(File No. 33-65195)
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the prospectus filed as part of post-effective amendment number 11
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 cotract (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
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EXHIBIT 10.B
April 30, 1998
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. 2 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
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EXHIBIT 10.C
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 2 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 4, 1998 on our audits of the financial
statements of Providentmutual Life and Annuity Company of America
as of December 31, 1997 and 1996 and for each of
the three years in the period ended December 31, 1997.
2. Our report dated March 4, 1998 on our audits of the financial
statements of Providentmutual Variable Annuity Separate Account
(comprising thirty-three subaccounts) as of December 31, 1997, and
the related statements of operations for the year then ended and
the statements of changes in net accets 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 30, 1998
