<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 19, 1999
FILE NO. 33-65512
811-6484
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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. 6 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 11 [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
---------------------
JAMES G. POTTER, JR., ESQ.,
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 LLP
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)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[X] on May 1, 1998 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 Provfirst Life and Annuity 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
PROVFIRST AMERICA LIFE AND ANNUITY COMPANY
PROSPECTUS
MAY 1, 1999
Please read this prospectus carefully before investing and keep it for future
reference. It contains important information about this variable annuity
contract that you should know before investing.
To learn more about this variable annuity contract, you should consult the
Statement of Additional Information ("SAI") dated May 1, 1999. For a free copy
of the SAI, please contact us at:
Provfirst America Life and Annuity Company
300 Continental Drive
Newark, Delaware 19713
Telephone: 1-800-688-5177
Provfirst America Life and Annuity Company ("Provfirst Life and Annuity") has
filed the SAI with the Securities and Exchange Commission and incorporates the
SAI by reference into this prospectus. The Table of Contents for the SAI appears
on page of this prospectus. The Securities and Exchange Commission maintains
an Internet website (http://www.sec.gov) that contains the SAI, material
incorporated by reference, and other information.
Variable annuity contracts involve certain risks, and you may lose some or all
of your investment. The investment performance of the subaccounts will vary, and
you bear the entire investment risk of amounts allocated to the subaccounts.
The contract is not a deposit or obligation of any bank, and no bank endorses or
guarantees the contract. Neither the Federal Deposit Insurance Corporation nor
any federal agency insures your investment in the contract.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
This variable annuity contract has 32 funding choices -- one fixed account
(paying a guaranteed minimum fixed rate of interest) and 31 subaccounts of the
Provfirst Variable Annuity Separate Account which invest in the following
portfolios:
MARKET STREET FUND, INC.
- - Money Market Portfolio
- - Growth Portfolio
- - Bond Portfolio
- - Managed Portfolio
- - Aggressive Growth Portfolio
- - International Portfolio
- - All Pro Large Cap Growth Portfolio
- - All Pro Small Cap Growth Portfolio
- - All Pro Large Cap Value Portfolio
- - All Pro Small Cap Value Portfolio
VARIABLE INSURANCE PRODUCTS FUND
- - VIP High Income Portfolio
- - VIP Equity-Income Portfolio
- - VIP Growth Portfolio
VARIABLE INSURANCE PRODUCTS FUND II
- - VIP II Asset Manager Portfolio
- - VIP II Contrafund Portfolio
- - VIP II Index 500 Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND
- - Bond Portfolio
- - Growth and Income Portfolio
- - International Portfolio
OCC ACCUMULATION TRUST
- - Equity Portfolio
- - Small Cap Portfolio
- - Managed Portfolio
DREYFUS VARIABLE INVESTMENT FUND
- - Growth and Income Portfolio
- - Zero Coupon 2000 Portfolio
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
- - Socially Responsible Portfolio
FEDERATED INSURANCE SERIES
- - Fund for U.S. Government Securities II Portfolio
- - Utility Fund II Portfolio
VAN ECK WORLDWIDE INSURANCE TRUST
- - Van Eck Worldwide Hard Assets Portfolio
- - Van Eck Worldwide Bond Portfolio
- - Van Eck Worldwide Emerging Markets Portfolio
- - Van Eck Worldwide Real Estate Portfolio
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions................................................. 1
Table of Expenses........................................... 2
Summary..................................................... 8
The Company, Variable Account and Funds..................... 11
Providentmutual Life and Annuity Company of America.... 11
The Provfirst Life and Annuity Variable Annuity
Separate Account...................................... 11
The Funds.............................................. 12
Market Street Fund, Inc. ......................... 13
Variable Insurance Products Fund and Variable
Insurance Products Fund II......................... 14
Scudder Variable Life Investment Fund............. 15
OCC Accumulation Trust............................ 15
Dreyfus Variable Investment Fund and The Dreyfus
Socially Responsible Growth Fund, Inc. ............ 16
Federated Insurance Series........................ 16
Van Eck Worldwide Insurance Trust................. 17
Resolving Material Conflicts................................ 18
Addition, Deletion or Substitution of Investments........... 18
Description of Annuity Contract............................. 19
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.............................. 23
Death Benefit Before Maturity Date..................... 25
Proceeds on Maturity Date.............................. 26
Payments............................................... 26
Modification........................................... 26
Reports to Contract Owners............................. 27
Contract Inquiries..................................... 27
The Guaranteed Account...................................... 27
Minimum Guaranteed and Current Interest Rates.......... 27
Transfers from Guaranteed Account...................... 28
Payment Deferral....................................... 28
Charges and Deductions...................................... 28
Surrender Charge (Contingent Deferred Sales Charge).... 28
Administrative Charges................................. 29
Transfer Processing Fee................................ 29
Mortality and Expense Risk Charge...................... 30
Other Charges Including Investment Advisory Fees of the
Funds................................................. 30
Premium Taxes.......................................... 30
Other Taxes............................................ 30
Payment Options............................................. 30
Election of Options.................................... 31
Description of Options................................. 31
Yields and Total Returns.................................... 31
Federal Tax Status.......................................... 33
Introduction........................................... 33
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Status of the Contract............................. 34
The Treatment of Annuities............................. 34
Taxation of Non-Qualified Contracts.................... 34
Taxation of Qualified Contracts........................ 35
Other Tax Consequences................................. 37
Distribution of Contracts................................... 37
Preparing for Year 2000..................................... 37
Legal Proceedings........................................... 38
Voting Rights............................................... 38
Financial Statements........................................ 38
Statement of Additional Information Table of Contents....... 39
Appendix A -- Financial Highlights.......................... A-1
Appendix B -- Provfirst Life................................ B-1
</TABLE>
<PAGE> 8
DEFINITIONS
ANNUITANT.................. The person whose life determines the annuity
benefits payable under the Contract and whose death
determines the death benefit.
BENEFICIARY................ The person to whom we pay the proceeds payable on
the death of the Owner or the Annuitant.
CASH SURRENDER VALUE....... The Contract Account Value less any applicable
Surrender Charge and any applicable Premium Tax
Charge.
CONTRACT................... The individual flexible premium deferred variable
annuity contract issued by Providentmutual and
offered in this prospectus.
CONTRACT ACCOUNT VALUE..... The sum of the Variable Account Value and the
Guaranteed Account Value.
CONTRACT YEARS, MONTHS, AND
ANNIVERSARIES.............. Are measured from the effective date of the
Contract.
FUND....................... A designated mutual fund in which the Variable
Account invests.
GUARANTEED ACCOUNT......... This account is part of our general account and is
not part of nor dependent upon the investment
performance of the Variable Account.
GUARANTEED ACCOUNT VALUE... Net Premiums allocated and Contract Account Value
transferred to the Guaranteed Account, plus interest
credited to the Guaranteed Account, minus amounts
deducted, transferred, or withdrawn from the
Guaranteed Account.
MATURITY DATE.............. The date when we apply the Contract Account Value to
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.
PAYMENT OPTION............. One of the three annuity payment options available
under the Contract.
PORTFOLIO.................. An investment portfolio of a Fund.
PROVFIRST LIFE AND ANNUITY,
WE, OUR, US................ Provfirst America Life and Annuity Company.
QUALIFIED CONTRACT......... A Contract issued in connection with plans that
qualify for special Federal income tax treatment
under sections 401, 403(b), 408 or 408A of the
Internal Revenue Code of 1986, as amended.
SERVICE CENTER............. Providentmutual's office at 300 Continental Drive,
Newark, Delaware 19713.
SUBACCOUNT................. A subdivision of the Variable Account.
VALUATION DAY.............. Each day on which applicable law requires valuation
of the assets of a Subaccount.
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........... Provfirst Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE..... 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 Day by the number of
Subaccount units allocated to the Contract.
WRITTEN NOTICE............. A written request or notice in a form satisfactory
to Providentmutual which is signed by the Owner and
received at the Service Center.
YOU........................ The Owner.
1
<PAGE> 9
TABLE OF EXPENSES
The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
<TABLE>
<S> <C> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Premiums............... none
Maximum Contingent Deferred Sales Charge (as
a percentage of amount surrendered or
withdrawn)(1).............................. 6%
Transfer Processing Fee...................... No fee for first twelve transfers in Contract Year;
$25 fee for each transfer thereafter during Contract
Year.
ANNUAL ADMINISTRATION FEE.................... $30 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of Variable Account Value)
Mortality and Expense Risk Charges........... 1.25%
Account Fees and Expenses(2)................. 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)................. % % % % % %
Other Expenses............................... % % % % % %
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses................... % % % % % %
</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> <C> <C>
MARKET STREET FUND ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. % % % %
Other Expenses............................... % % % %
---- ---- ---- ----
Total Fund Annual Expenses................... % % % %
</TABLE>
<TABLE>
<CAPTION>
HIGH EQUITY-
INCOME INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <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)................. % % %
Other Expenses
(after reimbursement)(3)................... % % %
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... % % %
</TABLE>
2
<PAGE> 10
<TABLE>
<CAPTION>
ASSET INDEX
MANAGER 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------- -------------
<S> <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)................. % % %
Other Expenses
(after reimbursement)(3)................... % % %
---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)................... % % %
</TABLE>
<TABLE>
<CAPTION>
GROWTH &
BOND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------- -------------
<S> <C> <C> <C>
SCUDDER VARIABLE LIFE INVESTMENT FUND
ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. % % %
Other Expenses............................... % % %
---- ---- ----
Total Fund Annual Expenses................... % % %
</TABLE>
<TABLE>
<CAPTION>
SMALL
EQUITY CAP MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO
---------------- --------- -------------
<S> <C> <C> <C>
OCC ACCUMULATION TRUST
ANNUAL EXPENSES(4)
(as a % of average net assets)
Management Fees
(Investment Advisory Fees)................. % % %
Other Expenses
(after reimbursement)(3A).................. % % %
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(3A)......................... % % %
</TABLE>
<TABLE>
<CAPTION>
ZERO COUPON GROWTH &
2000 INCOME
PORTFOLIO PORTFOLIO
---------------- ---------
<S> <C> <C> <C>
DREYFUS VARIABLE INVESTMENT FUND
ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. % %
Other Expenses............................... % %
---- ----
Total Fund Annual Expenses................... % %
</TABLE>
3
<PAGE> 11
<TABLE>
<CAPTION>
SOCIALLY
RESPONSIBLE
PORTFOLIO
----------------
<S> <C> <C> <C>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. %
Other Expenses............................... %
----
Total Fund Annual Expenses................... %
</TABLE>
<TABLE>
<CAPTION>
FUND FOR
U.S. GOVN'T UTILITY
SECURITIES II FUND II
PORTFOLIO PORTFOLIO
---------------- ---------
<S> <C> <C> <C>
FEDERATED INSURANCE SERIES
ANNUAL EXPENSES(4)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. % %
Other Expenses
(after reimbursement)(3)................... % %
---- ----
Total Fund Annual Expenses (after
reimbursement)(3).......................... % %
</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)................. % % % %
Other Expenses
(after reimbursement)(3)................... % % % %
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(3).......................... % % % %
</TABLE>
Premium taxes may be applicable, depending on various states' laws.
The above tables are intended to assist the Owner in understanding the
costs and expenses that will be borne by the Contract Owner, directly or
indirectly. The tables reflect expenses of the Variable Account as well as for
the Funds for the 1998 calendar year. For a more complete description of the
various costs and expenses, see "Charges and Deductions," Page .
- ---------------
(1) A surrender charge is deducted only if a withdrawal or surrender occurs
during the first six Contract Years; no surrender charge is deducted for a
withdrawal or surrender in Contract Years seven and later. For the first
Contract Year, the maximum charge is 6% of the amount withdrawn or
surrendered. Thereafter, the surrender charge decreases by 1% each
subsequent Contract Year until it is zero in Contract Year seven. The
maximum total surrender charge will not exceed 8 1/2% of the total gross
premiums paid under the Contract. Subject to certain restrictions, after
the first Contract Year up to 10% of the Contract Account Value as of the
beginning of a Contract Year may be surrendered or withdrawn without charge
in such Contract Year. (See "Surrender Charge," Page .)
(2) Asset-based administration charge.
4
<PAGE> 12
(3) For certain portfolios, certain expenses were reimbursed during 1998. It is
anticipated that expense reimbursement and fee waiver arrangements will
continue past the current year. Absent the expense reimbursement, the 1998
Other Expenses and Total Annual Expenses would have been %, %,
respectively, for the VIP Fund Equity Income Portfolio, %, %,
respectively, for the VIP Fund Growth Portfolio, %, %,
respectively, for the VIP II Fund Asset Manager Portfolio, %, %,
respectively, for the VIP II Fund Index 500 Portfolio, %, %,
respectively, for the VIP II Fund Contrafund Portfolio, %, %,
respectively, for the Federated U.S. Government Securities II Portfolio,
%, %, respectively, for the Federated Utility Fund II Portfolio
and %, % respectively, for the Van Eck Worldwide Hard Assets
Portfolio. Similar expense reimbursement and fee waiver arrangements were
also in place for the other Portfolios and it is anticipated that such
arrangements will continue past the current year. However, no expenses were
reimbursed or fees waived during 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.
(3A) Effective May 1, 1996, the expenses of the Portfolios of the OCC
Accumulation Trust are contractually limited by OpCap Advisors so that
their respective annualized operating expenses of these Portfolios do not
exceed 1.25% of their respective average daily net assets. Furthermore,
through April 30, 1998, the annualized operating expenses of the OCC
Accumulation Trust Equity, Managed, and Small Cap Portfolios have been
voluntarily limited by OpCap Advisors so that annualized operating expenses
of these Portfolios do not exceed 1.00% of their respective average daily
net assets.
(4) The fee and expense information regarding the Funds was provided by those
Funds. The VIP Fund, the VIP II Fund, the Scudder Variable Life Investment
Fund, the OCC Accumulation Trust, the Dreyfus Variable Investment Fund, The
Dreyfus Socially Responsible Growth Fund, Inc., the Federated Insurance
Series and the Van Eck Worldwide Insurance Trust are not affiliated with
Provfirst Life and Annuity. While Provfirst Life and Annuity has no reason
to doubt the accuracy of these figures provided by these non-affiliated
Funds, Provfirst Life and Annuity does not represent that they are true and
complete, and disclaims all responsibility for these figures.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets:
1. If the Contract is surrendered at the end of the applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
MS Growth..................................... $67.73 $ 95.23 $123.19 $242.72
MS Money Market............................... 67.35 94.06 121.18 238.60
MS Bond....................................... 69.06 99.33 130.20 257.02
MS Managed.................................... 69.16 99.63 130.70 258.03
MS Aggressive Growth.......................... 69.63 101.09 133.19 263.08
MS International.............................. 73.34 112.44 152.44 301.67
MS All Pro Large Cap Growth................... 74.10 114.75 156.36 309.41
MS All Pro Large Cap Value.................... 74.10 114.75 156.36 309.41
MS All Pro Small Cap Growth................... 76.00 120.53 166.08 328.49
MS All Pro Small Cap Value.................... 76.00 120.53 166.08 328.49
Fidelity High Income.......................... 70.39 103.42 137.16 271.12
Fidelity Equity Income........................ 69.06 99.33 130.20 257.02
Fidelity Growth............................... 70.01 102.26 135.18 267.11
Fidelity Asset Manager........................ 69.73 101.38 133.68 264.09
Fidelity Index 500............................ 66.31 90.83 115.64 227.19
Fidelity Contrafund........................... 70.11 102.55 135.67 268.11
Scudder Bond.................................. 69.54 100.80 132.69 262.08
Scudder Growth & Income....................... 69.16 99.63 130.70 258.03
</TABLE>
5
<PAGE> 13
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Scudder International......................... 73.15 111.86 151.46 299.73
OCC Equity.................................... 73.05 111.57 150.97 298.76
OCC Small Cap................................. 72.86 110.99 149.99 296.81
OCC Managed................................... 71.91 108.08 145.07 287.00
Dreyfus Zero Coupon 2000...................... 69.44 100.50 132.19 261.07
Dreyfus Growth & Income....................... 71.25 106.05 141.62 280.08
Dreyfus Socially Resp......................... 71.44 106.63 142.61 282.07
Federated U.S. Gov't Securities II............ 71.25 106.05 141.62 280.08
Federated Utility Fund II..................... 71.72 107.50 144.09 285.03
Van Eck Worldwide Bond........................ 74.29 115.33 157.33 311.34
Van Eck Worldwide Hard Assets................. 74.76 116.78 159.77 316.13
Van Eck Worldwide Emerging Mkts............... 73.15 111.86 151.46 299.73
Van Eck Worldwide Real Estate................. 74.76 116.78 159.77 316.13
</TABLE>
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
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 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
Scudder Bond................................... 23.20 71.48 122.39 262.08
Scudder Growth & Income........................ 22.80 70.28 120.37 258.03
Scudder International.......................... 27.00 82.88 141.35 299.73
OCC Equity..................................... 26.90 82.58 140.86 298.76
OCC Small Cap.................................. 26.70 81.98 139.87 296.81
OCC Managed.................................... 25.70 78.99 134.90 287.00
Dreyfus Zero Coupon 2000....................... 23.10 71.18 121.88 261.07
Dreyfus Growth & Income........................ 25.00 76.89 131.41 280.08
Dreyfus Socially Resp.......................... 25.20 77.49 132.41 282.07
Federated U.S. Gov't Securities II............. 25.00 76.89 131.41 280.08
Federated Utility Fund II...................... 25.50 78.39 133.90 285.03
Van Eck Worldwide Bond......................... 28.20 86.46 147.28 311.34
Van Eck Worldwide 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.
6
<PAGE> 14
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
This section is a summary of some of the more important points that you
should know and consider before purchasing this variable annuity contract. We
discuss each of these topics in greater detail further back in this prospectus.
THE CONTRACT
Issuance of a Contract. The Contract is an individual flexible premium
deferred variable annuity issued by us. The Contract allows you to invest on a
tax-deferred basis for your retirement or other long-term purposes. We may sell
these Contracts in connection with retirement plans which qualify for special
tax treatment (Qualified Contracts), as well as those which do not qualify for
special tax treatment (Non-Qualified Contracts).
To purchase a Contract, you must submit an application and pay the minimum
initial premium. We will not begin to make annuity payments until the Maturity
Date.
Free-Look Period. You have the right to return the Contract within 10 days
after you receive it. We treat the returned Contract as if it was never issued.
If you return the Contract within the free-look period, we will return a refund
amount to you. In most states, the amount we return is:
- premiums paid, including any contract fees and charges,
minus
- any amounts allocated to the Variable Account
plus
- the Variable Account Value on the date of termination.
In states where required, we will return the premiums that you paid.
Premiums. We require a minimum initial premium of at least $2,000. For
Qualified Contracts, as an alternative to the minimum initial premium, you may
commit to paying premiums of $100 per month. You may make subsequent premiums at
any time. For Non-Qualified Contracts, the minimum subsequent premium is $100.
For Qualified Contracts, the minimum subsequent premium is $50. You may also
select a planned periodic premium schedule, which specifies each planned premium
amount and payment frequency.
Allocation of Net Premiums. We will allocate Net Premiums under a Contract
as designated by you to one or more of the Subaccounts or to the Guaranteed
Account, or to both. (We do not offer the Guaranteed Account in Oregon.) In
states where you are guaranteed the return of your premium if you cancel during
the free-look period, all Net Premiums will be initially allocated to the Money
Market Subaccount for a 15-day period. At the end of that period, we will
allocate the amount in the Money Market Subaccount to your designated
Subaccounts.
We invest the assets of each Subaccount solely in a corresponding Portfolio. The
Contract Account Value (except for amounts in the Guaranteed Account) will vary
according to the investment performance of the Portfolios in which the chosen
Subaccounts invest. We credit interest to amounts in the Guaranteed Account at a
guaranteed minimum rate of 3% per year, or a higher current interest rate as we
may declare.
Transfers. On or before the Maturity Date, you 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. Each
transfer must be at least $500 or the entire amount in the Subaccount or
Guaranteed Account, if less. We only allow one transfer out of the Guaranteed
Account each Contract Year. You must make this transfer within 30 days of the
Contract Anniversary. We limit the amount that you can transfer from the
Guaranteed Account. After twelve transfers during a Contract Year, we deduct a
transfer processing fee of $25 for each additional transfer during that Contract
Year.
8
<PAGE> 16
Withdrawals. At any time before the earlier of the death of the Annuitant
or the Maturity Date, you may withdraw part of the Cash Surrender Value
(Contract Account Value less any applicable Surrender Charge), subject to
certain limitations.
Surrender. Upon Written Notice received at the Service Center on or before
the earlier of the death of the Annuitant or the Maturity Date, you may
surrender the Contract in full and receive its Cash Surrender Value (Contract
Account Value less any applicable Surrender Charge).
Death Benefit. If the Annuitant dies before the Maturity Date, we will pay
the Beneficiary a death benefit. During the first six Contract years, the death
benefit equals the greater of:
- premiums paid less any amounts withdrawn (including applicable Surrender
Charges), or
- the Contract Account Value on the date of receipt of due proof of the
Annuitant's death.
After the end of the sixth Contract Year, the death benefit equals the greatest
of:
- the Contract Account Value as of the end of the sixth Contract Year less
subsequent amounts withdrawn, or
- the Contract Account Value on the date of receipt of due proof of the
Annuitant's death, or
- premiums paid less any amounts withdrawn (including applicable Surrender
Charges).
If you die before the Maturity Date, we must generally distribute the Contract
Account Value (or, if you are also the Annuitant, the death benefit) to the
Beneficiary within five years after the date of your death.
Step-Up Rider. You may also elect a Step-up Rider, which provides a
guaranteed minimum death benefit. This guaranteed minimum death benefit
initially equals the Contract Account Value as of the sixth Contract
Anniversary. We will reset or "step-up" the guaranteed minimum death benefit to
the Contract Account Value, if greater, on the next six year Contract
Anniversary. This "step-up" continues until the six year Contract Anniversary on
or before the Annuitant's 85th birthday. We will also "step-up" the guaranteed
death benefit by an amount equal to aggregate Net Premiums paid since the last
six year Contract Anniversary. In the event of a withdrawal at any time, we
reduce the guaranteed minimum death benefit by the same percentage that the
withdrawal reduces the Contract Account Value. At no time will the death benefit
proceeds be less than either:
- the Contract Account Value on the date we receive due proof of the
Annuitant's death, or
- the sum of premiums paid, less any withdrawals (including applicable
Surrender Charges).
Rising Floor Rider. You may also elect a Rising Floor Rider, which
provides a guaranteed minimum death benefit. This guaranteed minimum death
benefit equals the sum of premiums paid less reductions for withdrawals, with
interest accumulating at an annual rate of 4 1/2% until the Contract Anniversary
prior to the Annuitant's 75th birthday. Thereafter, we add premiums and deduct
withdrawals from the guaranteed death benefit. We reduce the guaranteed minimum
death benefit for a withdrawal by the same percentage that the withdrawal
reduces Contract Account Value. At no time will the death benefit proceeds be
less than the Contract Account Value.
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge). We do not deduct any
charge for sales expenses from premiums. However, if you surrender your Contract
or make certain withdrawals before the sixth Contract Anniversary, we will
deduct a Surrender Charge from the amount surrendered or withdrawn.
For the first Contract Year, the charge is 6% of the amount withdrawn or
surrendered. Thereafter, the Surrender Charge decreases by 1% each subsequent
Contract Year. In no event is the total Surrender Charge on any Contract in
excess of 8 1/2% of the total gross premiums paid under the Contract.
9
<PAGE> 17
During each Contract Year after the first Contract Year, you may, subject to
certain restrictions, withdraw up to 10% of the Contract Account Value (as of
the beginning of a Contract Year) free of the Surrender Charge.
Annual Administration Fee. On each Contract Anniversary prior to and
including the Maturity Date, we deduct an Annual Administration Fee of $30 from
the Contract Account Value. We also deduct this charge on the Maturity Date if
it is not a Contract Anniversary and upon surrender if the surrender occurs at
any time other than on a Contract Anniversary.
Transfer Processing Fee. The first twelve transfers of amounts in the
Subaccounts and the Guaranteed Account each Contract year are free. We assess a
$25 transfer charge for each additional transfer during such Contract Year.
Mortality and Expense Risk Charge. We deduct a daily Mortality and Expense
Risk Charge to compensate us for assuming certain mortality and expense risks.
On or prior to the Maturity Date, we deduct the charge 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).
Asset-Based Administration Charge. We deduct a daily administration charge
to compensate us for certain expense we incur in administration of the
Contracts. On or prior to the Maturity Date, we deduct the charge from the
assets of the Variable Account at an annual rate of 0.15%.
Premium Taxes. If state or other Premium Taxes apply to a Contract, we
deduct such taxes. Depending upon when we must pay such taxes to the taxing
authority, we deduct those taxes either:
- from premiums as they are received, or
- 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.
Investment Advisory Fees and Other Expenses of the Funds. Because each
Subaccount holds shares of a Portfolio, its net assets reflect the investment
advisory fee incurred by the Portfolio. Each Portfolio pays a daily investment
advisory fee to its investment adviser based on its average daily net assets. As
a result, the amount of the fee depends upon the size of the Portfolio. Each
Portfolio also pays other of its own expenses. Currently, the investment adviser
waives part of the investment advisory fee and the Company may reimburse certain
expenses of the Portfolios.
ANNUITY PROVISIONS
Maturity Date. We will apply the Contract Account Value (less any
applicable Premium Tax) to a Payment Option on the Maturity Date unless you
elect to receive the Cash Surrender Value at that time.
Payment Options. The Contract offers three Payment Options. The amount of
the payments under them does not vary with the Variable Account's performance.
They are:
- Life Annuity,
- Life Annuity with 10 Years Guaranteed, and
- Alternate Income Option.
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.
10
<PAGE> 18
THE COMPANY, VARIABLE ACCOUNT AND FUNDS
PROVFIRST AMERICA LIFE AND ANNUITY COMPANY
The Contracts are issued by Provfirst America Life and Annuity Company
("Provfirst Life and Annuity") which originated as a stock life insurance
company incorporated under the name of Washington Square Life Insurance Company
in the Commonwealth of Pennsylvania in 1958. The name of the Company was changed
from Washington Square to Provfirst Life and Annuity in 1991 and the Company was
redomiciled as a Delaware insurance company in December, 1992. Provfirst Life
and Annuity is currently licensed to transact life insurance business in 48
states and the District of Columbia. As of December 31, 1998, Provfirst Life and
Annuity had total assets of approximately $ billion.
Provfirst Life and Annuity is a wholly-owned subsidiary of Provfirst
America Life Insurance Company ("Provfirst Life"). Provfirst Life was chartered
by the Commonwealth of Pennsylvania in 1865 and at the end of 1998 had total
assets of approximately $ billion. More information about Provfirst Life is
provided in Appendix B. On December 31, 1998, Provfirst Life and Annuity and
Provfirst Life entered into a Support Agreement whereby Provfirst Life agrees to
ensure that Provfirst Life and Annuity's total adjusted capital will remain at
the level of 200% of the company action level for risk-based capital ("RBC") at
the end of each calendar quarter during the term of the agreement, agreeing to
contribute to Provfirst Life and Annuity 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, Provfirst Life agrees to cause Provfirst Life and Annuity 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
Provfirst Life and Annuity. This agreement will remain in effect provided
Provfirst Life and Annuity is, and remains, a subsidiary of Provfirst Life.
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 Provfirst Life and Annuity. Such
determination shall be based on the ability of Provfirst Life and Annuity 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,
Provfirst Life is under no obligation to invest money in Provfirst Life and
Annuity nor is it in any way a guarantor of Provfirst Life and Annuity's
contractual obligations or obligations under the Contract.
Provfirst Life and Annuity 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. Provfirst Life and
Annuity 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.
Provfirst Life and Annuity 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.
PROVFIRST LIFE AND ANNUITY VARIABLE ANNUITY SEPARATE ACCOUNT
Provfirst Life and Annuity Variable Annuity Separate Account is a separate
investment account of Provfirst Life and Annuity, established by the Board of
Directors of Provfirst Life and Annuity on May 9, 1991, under Pennsylvania law.
Because Provfirst Life and Annuity later redomesticated as a Delaware Insurance
Company, the Variable Account is now subject to regulation by the Delaware
Insurance Department. Provfirst Life and Annuity 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.
11
<PAGE> 19
The assets of the Variable Account are owned by Provfirst Life and Annuity.
However, these assets are held separate from other assets and are not part of
Provfirst Life and Annuity'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 Provfirst Life and Annuity conducts. Provfirst Life and Annuity 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. Provfirst Life
and Annuity 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-one Subaccounts: 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; Fidelity High Income; Fidelity Equity-Income; Fidelity Growth; Fidelity
Asset Manager; Fidelity Index 500; Fidelity Contrafund; Scudder Bond; Scudder
Growth and Income; Scudder International; OCC Equity; OCC Small Cap; OCC
Managed; Dreyfus Growth and Income; Dreyfus Socially Responsible; Dreyfus Zero
Coupon 2000; Federated Fund for U.S. Government Securities II; Federated Utility
Fund II; Van Eck Worldwide Bond; Van Eck Worldwide Hard Assets; Van Eck
Worldwide Emerging Mkts; 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: Market Street Fund, Inc.; Variable Insurance Products Fund;
Variable Insurance Products Fund II; Scudder Variable Life Investment Fund; OCC
Accumulation Trust; Dreyfus Variable Investment Fund; The Dreyfus Socially
Responsible Growth Fund, Inc.; Federated Insurance Series and Van Eck Worldwide
Fund (collectively, the "Funds"). Each of these Funds is registered with the SEC
under the 1940 Act as an open-end diversified investment company. The SEC does
not, however, supervise the management or the investment practices and policies
of the Funds.
The assets of each Fund portfolio are separate from other portfolios of
that Fund and each portfolio has separate investment objective and policies. As
a result, each portfolio operates as a separate investment portfolio and the
investment performance of one portfolio has no effect on the investment
performance of any other portfolio. Some of the Funds may, in the future, create
additional portfolios. The investment experience of each of the Subaccounts of
the Variable Account depends on the investment performance of its corresponding
portfolio.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and Provfirst Life
and Annuity. 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 Provfirst Life and Annuity 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 Provfirst
Life and Annuity has not been terminated. Should a Fund or a portfolio of a Fund
decide not to sell its shares to Provfirst Life and Annuity, Provfirst Life and
Annuity 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.
12
<PAGE> 20
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.
The investment objectives of the Portfolios are set forth below.
The Growth Portfolio. This Portfolio seeks intermediate and long-term
growth of capital by investing in common stocks of companies believed to offer
above-average growth potential over both the intermediate and the long-term.
Current income is a secondary consideration.
The Money Market Portfolio. The Money Market Portfolio seeks to provide
maximum current income consistent with capital preservation and liquidity by
investing in high-quality money market instruments.
The Bond Portfolio. The Bond Portfolio seeks to generate a high level of
current income consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
The Managed Portfolio. The Managed Portfolio seeks to realize as high a
level of long-term total rate of return as is consistent with prudent investment
risk by investing in stocks, bonds, money market instruments or a combination
thereof.
The Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks to
achieve a high level of long-term capital appreciation by investing in
securities of a diverse group of smaller emerging companies.
The International Portfolio. The International Portfolio seeks long-term
growth of capital principally through investments in a diversified portfolio of
marketable equity securities of established non-United States companies.
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
13
<PAGE> 21
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.
VARIABLE INSURANCE PRODUCTS AND VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity High Income Subaccount, the Fidelity Equity-Income Subaccount
and the Fidelity Growth Subaccount invest in shares of their corresponding
portfolios of the Variable Insurance Products Fund ("VIP Fund"); the Fidelity
Asset Manager Subaccount, Fidelity Contrafund Subaccount and the Fidelity Index
500 Subaccount invest in shares of their corresponding portfolios of the
Variable Insurance Products Fund II ("VIP II Fund"). The VIP Fund and the VIP II
Fund each offer insurance companies a selection of investment vehicles for
variable annuity contracts and variable life insurance policies. The VIP Fund
issues a number of "series" or classes of shares, each of which represents an
interest in a separate portfolio within the VIP Fund or a VIP II Fund. Three of
the VIP Fund series are available for investment under the Contracts: VIP High
Income Portfolio; VIP Equity-Income Portfolio; and VIP Growth Portfolio. Three
of the VIP II Fund Series are available for investment under the Contracts: VIP
II Asset Manager Portfolio, VIP II Contrafund Portfolio and VIP II Index 500
Portfolio.
The investment objectives of the pertinent Portfolios of the Funds are set
forth below.
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 Equity-Income Portfolio. This Portfolio seeks reasonable income by
investing primarily in income-producing equity securities. In choosing these
securities, the Portfolio considers the potential for capital appreciation. The
Portfolio's goal is to achieve a yield which exceeds the composite yield of the
securities comprising the Standard and Poor's 500 Composite Stock Price Index.
VIP Growth Portfolio. This Portfolio seeks to achieve capital
appreciation. The Portfolio normally purchases common stocks, although its
investments are not restricted to any one type of security. Capital appreciation
may also be found in other types of securities, including bonds and preferred
stocks.
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 common stocks publicly traded in the United
States. In seeking this objective, the Portfolio attempts to duplicate the
composition and total return of the Standard and Poor's 500 Composite Stock
Price Index while keeping transaction costs and other expenses low. The
Portfolio is designed as a long-term investment option.
The Portfolios of the VIP Fund and VIP 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
14
<PAGE> 22
Management & Research (Far East) Inc. ("FMR Far East"), pursuant to which these
entities provide research and investment recommendations with respect to
companies based outside the United States. FMR (U.K.) primarily focuses on
companies based in Europe while FMR Far East focuses primarily on companies
based in Asia and the Pacific Basin.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
SCUDDER VARIABLE LIFE INVESTMENT FUND
The Scudder Bond Subaccount, the Scudder Growth and Income Subaccount and
the Scudder International Subaccount invest in shares of their corresponding
portfolios of the Scudder Variable Life Investment Fund ("Scudder Fund"). The
Scudder Fund is designed to provide an investment vehicle for variable annuity
contracts and variable life insurance policies. Therefore, shares of the Scudder
Fund are sold only to insurance company separate accounts including the
Provfirst Life and Annuity Variable Annuity Separate Account.
The Scudder Fund currently consists of seven Portfolios. Only the Bond
Portfolio, Growth and Income Portfolio and International Portfolio are available
under the variable annuity Contracts offered by Provfirst Life and Annuity.
Their investment objectives are as follows:
Bond Portfolio. This Portfolio pursues a policy of investing for a high
level of income consistent with a high quality portfolio of securities. It
primarily invests in U.S. Government, corporate, and other notes and bonds.
Growth and Income Portfolio. This Portfolio seeks long-term growth of
capital, current income and growth of income. It primarily invests in common
stocks, preferred stocks and securities convertible into common stocks.
International Portfolio. This Portfolio seeks long-term growth of capital
primarily through diversified holdings of marketable foreign equity investments.
The Portfolio invests in companies, wherever organized, which do business
primarily outside the United States.
Scudder Kemper Investments, Inc., an investment adviser registered with the
SEC under the Investment Advisers Act of 1940, as amended, manages daily
investments and business affairs of the Scudder Fund, subject to policies
established by the Trustees of the Scudder Fund.
OCC ACCUMULATION TRUST
The OCC Equity Subaccount, the OCC Small Cap Subaccount and the OCC Managed
Subaccount invest only in shares of their corresponding portfolios of the OCC
Accumulation Trust ("OCC Trust"). Shares of the OCC Trust are sold only to
separate accounts of life insurance companies established to fund variable
annuity contracts.
The OCC Trust currently has seven Portfolios, three of which are available
for investment under the Contracts. The investment objectives of the Portfolios
available with the variable annuity Contracts issued by Provfirst Life and
Annuity are described below.
Equity Portfolio. Long term capital appreciation through investment in a
diversified portfolio of primarily equity securities selected on the basis of a
value-oriented approach to investing.
15
<PAGE> 23
Small Cap Portfolio. Capital appreciation through investment in a
diversified portfolio of primarily equity securities of companies with market
capitalizations of under $1 billion.
Managed Portfolio. Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds, and cash equivalents, the
percentages of which will vary over time based on the investment manager's
assessments of relative investment values.
The OCC Trust receives investment advice with respect to each of its
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital which is a
subsidiary of PIMCO Advisors L.P. and which is registered as an investment
adviser under the Investment Advisers Act of 1940.
DREYFUS VARIABLE INVESTMENT FUND AND DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND,
INC.
The Dreyfus Growth and Income Subaccount and the Dreyfus Zero Coupon 2000
Subaccount invest in shares of their corresponding portfolios of the Dreyfus
Variable Investment Fund and the Dreyfus Socially Responsible Subaccount invests
in shares of The Dreyfus Socially Responsible Growth Fund, Inc. (collectively,
the "Dreyfus Funds"). The Dreyfus Funds are intended to be a funding vehicle for
variable annuity contracts and variable life insurance policies offered by the
separate accounts of various life insurance companies.
The Dreyfus Funds investment objectives are as follows:
Growth and Income Portfolio. This Portfolio seeks long-term capital
growth, current income and growth of income, consistent with reasonable
investment risk. The Portfolio invests in equity and debt securities and money
market instruments of domestic and foreign issuers.
Zero Coupon 2000 Portfolio. The Zero Coupon 2000 Portfolio's goal is to
provide as high an investment return as is consistent with the preservation of
capital. This Portfolio invests primarily in debt obligations of the U.S.
Treasury that have been stripped of their unmatured interest coupons, interest
coupons that have been stripped from debt obligations issued by the U.S.
Treasury, receipts and certificates for such stripped debt obligations, and
stripped coupons and zero coupon securities issued by domestic corporations.
This Portfolio will consist primarily of portfolio securities which will mature
on or about December 31, 2000.
Socially Responsible Portfolio. This Portfolio seeks to provide capital
growth primarily through equity investments in companies that, in the opinion of
the Portfolio's management, not only meet traditional investment standards but
which also show evidence that they conduct their business in a manner that
contributes to the quality of life in America, current income is a secondary
goal.
The Dreyfus Corporation ("Dreyfus") serves as investment adviser to the
Dreyfus Fund. Dreyfus supervises and assists in the overall management of each
Dreyfus Funds' affairs, subject to the overall authority of the Fund Boards. NCM
Capital Management Group, Inc., serves as sub-investment adviser of The Dreyfus
Socially Responsible Growth Fund, Inc. and provides day-to-day management of the
Fund's portfolio.
FEDERATED INSURANCE SERIES
The Federated Fund for U.S. Government Securities II Subaccount and the
Federated Utility Fund II Subaccount invest in shares of their corresponding
portfolios of the Federated Insurance Series. The Federated Insurance Series is
intended to be a funding vehicle for variable annuity contracts and variable
life insurance policies offered by the separate accounts of various life
insurance companies.
16
<PAGE> 24
The Federated Insurance Series currently consists of two Portfolios. Only
the Fund for U.S. Government Securities II Portfolio and Utility Fund II
Portfolio are available with the Variable Annuity Contract offered by Provfirst
Life and Annuity. Their investment objectives are as follows:
Fund for U.S. Government Securities II Portfolio. This Portfolio seeks to
provide current income. It invests primarily in securities which are guaranteed
as to payment of principal and interest by the U.S. Government, its agencies or
instrumentalities.
Utility Fund II Portfolio. This Portfolio seeks to achieve high current
income and moderate capital appreciation. It invests primarily in equity and
debt securities of utility companies.
VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, the Van Eck Worldwide Hard Assets, the Van Eck
Worldwide Emerging Markets and the Van Eck Worldwide Real Estate Subaccounts of
the Variable Account invest in shares of the Van Eck Worldwide Bond, the Van Eck
Worldwide Hard Assets, the Van Eck Worldwide Emerging Markets, Van Eck Worldwide
Real Estate Portfolio, respectively, of the Van Eck Worldwide Insurance Trust
("Van Eck Trust"). Shares of the Van Eck Worldwide Bond Portfolio, the Worldwide
Hard Assets Portfolio, and the Worldwide Emerging Markets Portfolio, Van Eck
Worldwide Real Estate Portfolio are purchased and redeemed by the Variable
Account at net asset value without a sales charge. The Variable Account
purchases shares of the Portfolio from Van Eck Trust in accordance with a
participation agreement between the Van Eck Trust and Provfirst Life and
Annuity. 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, petrochemicals or other hydrocarbons,
(iv) forest products, (v) real estate and (vi) other basic non-agricultural
commodities. Income is a secondary consideration.
Van Eck Worldwide Bond Portfolio 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 Van Eck
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.
17
<PAGE> 25
More detailed information concerning the investment objectives, policies
and restrictions pertaining to the Funds and the expenses, investment advisory
services and charges and the risks attendant to investing in the Portfolios and
other aspects of their operations can be found in the current Prospectus for
each Fund which accompany this prospectus and the current Statement of
Additional Information for each Fund. The Fund prospectuses should be read
carefully before any decision is made concerning the allocation of premium
payments or transfers among the Subaccounts.
You should note that, except for the Portfolios of the Market Street Fund
and the Bond Portfolio of the Scudder Fund, not all of the Portfolios described
in the Prospectuses for the Funds are available with the Contract. Moreover,
Provfirst Life and Annuity 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, Provfirst Life and Annuity 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.
RESOLVING MATERIAL CONFLICTS
The MS Fund, VIP Fund, VIP II Fund, Scudder Fund, Occ Trust, Dreyfus Funds
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
Provfirst Life and Annuity or Provfirst Life, as well as registered separate
accounts of other insurance companies offering variable life and annuity
contracts. In addition, certain Funds available with the Contract may sell
Shares to retirement plans qualifying under Section 401 of the Code ("Retirement
Plans"). As a result, there is a possibility that a material conflict may arise
between the interests of Owners of Contracts, generally, or certain classes of
Owners, and such Retirement Plans or participants in such Retirement Plans.
Provfirst Life and Annuity currently does not foresee any disadvantages to
Owners resulting from the Funds selling shares to fund products other than
Provfirst Life and Annuity 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, Provfirst Life and
Annuity 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
Provfirst Life and Annuity 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 Provfirst Life and Annuity's judgment further investment in any Portfolio
should become inappropriate in view of the purposes of the Variable Account,
Provfirst Life and Annuity may redeem the shares, if any, of that Portfolio and
substitute shares of another registered open-end management company. Provfirst
Life and Annuity 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.
Provfirst Life and Annuity 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, Provfirst Life and Annuity may, in its sole
discretion, establish new Subaccounts
18
<PAGE> 26
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 Provfirst Life and
Annuity.
If any of these substitutions or charges are made, Provfirst Life and
Annuity may by appropriate endorsement change the Contract to reflect the
substitution or change. If Provfirst Life and Annuity 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 Provfirst
Life and Annuity separate accounts.
DESCRIPTION OF ANNUITY CONTRACT
ISSUANCE OF A CONTRACT
In order to purchase a Contract, application must be made to Provfirst Life
and Annuity through a licensed representative of Provfirst Life and Annuity, 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 Provfirst Life and Annuity will normally
accept is $2,000. For Qualified Contracts, as an alternative to the minimum
initial premium, Owner may commit to paying $100 per month during the first
contract year. 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 Provfirst Life and Annuity receives the returned Contract at its
Service Center, it will be canceled and, in most states, Provfirst Life and
Annuity will refund to the Owner an amount equal to the sum of: (a) 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 (b) 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.) In
states that require it, Provfirst Life and Annuity will refund the premiums
paid.
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 among the Subaccounts and the Guaranteed
19
<PAGE> 27
Account (as designated by the Owner in the application) within two business days
of receipt of such premium by Provfirst Life and Annuity at its Service Center.
If the application is not properly completed, Provfirst Life and Annuity 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, Provfirst Life and Annuity will inform the applicant of the reason for
the delay and the initial premium will be returned immediately, unless the
applicant specifically consents to Provfirst Life and Annuity retaining the
premium until the application is complete. Once the application is complete, the
initial Net Premium will be allocated within two business days.
In states where the Owner, as described above, is guaranteed a refund of
premiums paid for cancellation during the Free-look period, the portion of the
initial Net Premium which is to be allocated to the Subaccounts 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 Provfirst
Life and Annuity 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.
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
20
<PAGE> 28
Investment Factor, which may be greater or less than one. The Net Investment
Factor for each Subaccount for a Valuation Period equals 1 plus the fraction
obtained by dividing (a) by (b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited during the current Valuation Period; plus
2. any amount credited or released from reserves for taxes
attributable to the operation of the Subaccount; minus
3. the capital losses, realized or unrealized, charged during the
current Valuation Period; minus
4. any amount charged for taxes or any amount set aside during the
Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Subaccount; minus
5. the amount charged for mortality and expense risk for that
Valuation Period; minus
6. the amount charged for administration for that Valuation Period;
and
(b) is the value of the assets in the Subaccount at the end of the
preceding Valuation Period, adjusted for allocations and transfers to and
withdrawals and transfers from the Subaccount occurring during that
preceding Valuation Period.
TRANSFER PRIVILEGE
Before the Maturity Date, an Owner may transfer all or a part of an amount
in the Subaccount(s) to another Subaccount(s) or to the Guaranteed Account, or
transfer a part of an amount in the Guaranteed Account to the Subaccount(s),
subject to these general restrictions and the additional restrictions below. The
minimum transfer amount must be the lesser of $500 or the entire amount in that
Subaccount or the Guaranteed Account. A transfer request that would reduce the
amount in a Subaccount or the Guaranteed Account below $500 will be treated as a
transfer request for the entire amount in that Subaccount or the Guaranteed
Account.
The transfer will be made on the day Written Notice requesting such
transfer is received by Provfirst Life and Annuity. 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"). The first twelve
transfers during each Contract Year are free. Any unused free transfers do not
carry over to the next Contract Year. A $25 Transfer Processing Fee will be
assessed for the thirteenth and subsequent transfers during a Contract Year. For
the purpose of assessing the fee, each written request is considered to be one
transfer, regardless of the number of Subaccounts or the Guaranteed Account
affected by the transfer. The processing fee will be deducted from the amount
being transferred.
Telephone Transfers. Transfers will be made based upon instructions given
by telephone, provided the appropriate election has been made at the time of
application or proper authorization is provided to Provfirst Life and Annuity.
Provfirst Life and Annuity reserves the right to suspend telephone transfer
privileges at any time, for any class of Contracts, for any reason.
Provfirst Life and Annuity 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. Provfirst Life and Annuity, however, may be liable for
such losses if it does not follow those reasonable procedures. The procedures
Provfirst Life and Annuity 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.
21
<PAGE> 29
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of Variable Account Values
among the Subaccounts in order to achieve a particular percentage allocation of
Variable Account Values among such Subaccounts. Such percentage allocations must
be in whole numbers and must allocate amounts only among the Subaccounts. No
amounts will be transferred to the Guaranteed Account as a part of Automatic
Asset Rebalancing. The percentage allocation of your Contract Account Value for
rebalancing will be based on your premium allocation instructions in effect at
the time of rebalancing. Any allocation instructions that you give us that
differ from your then current allocation instructions will be treated as a
request to change such allocation instructions.
Once elected Automatic Asset Rebalancing begins on the first quarterly or
annual anniversary following election. You may change or terminate Automatic
Asset Rebalancing by written instruction to Provfirst Life and Annuity, or by
telephone if you have previously authorized us to take telephone instructions.
Provfirst Life and Annuity reserves the right to suspend Automatic Asset
Rebalancing at any time for any class of contracts for any reason upon written
notice to you.
Advance Orders of Transfers. Owners may elect to request transfers of
amounts in a Subaccount (other than the Money Market Subaccount) out of that
Subaccount to the Money Market Subaccount in advance of the time that they want
the transfers executed. To make this election, Owners must submit a written
Advance Order to the Service Center specifying a percentage amount by which they
want their Variable Account Value in a specific Subaccount to increase (or
decrease) above (below) the value as of the Valuation Period next ended after
receipt of the Advance Order at the Service Center. Provfirst Life and Annuity
will measure the percentage change in such Variable Account Value by reference
to the Net Investment Factor for the specified Subaccount and execute the
transfer when the unit value for that Subaccount increases or decreases by at
least the percentage specified by the Owner, as measured using the unit value as
of the Valuation Period next ended after receipt of the Advance Order at the
Service Center.
Once received at the Service Center, an Advance Order remains in effect
until executed, cancelled, or superseded by subsequent Advance Order for a
transfer out of the same Subaccount. Provfirst Life and Annuity does not
currently asses a charge for Advance Orders, but reserves the right to charge
for this service. In addition, Provfirst Life and Annuity may terminate the
Advance Order privilege or change its terms at any time by providing written
notice to Owners at least 15 days in advance of such termination or
modification.
DOLLAR COST AVERAGING
Dollar Cost Averaging is a program which, if elected, enables the Owner of
a Contract to systematically and automatically transfer, on a monthly basis,
specified dollar amounts from the 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. Provfirst Life and Annuity,
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;
18 months -- $9,000; 24 months -- $12,000; 30 months -- $15,000; 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.")
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
22
<PAGE> 30
amount is in the Money Market Subaccount, Dollar Cost Averaging transfers may
not commence until the later of (a) 30 days after the Contract Date and (b) five
days after the end of the free look period.
Once elected, transfers from the Money Market Subaccount will be processed
monthly until the number of designated transfers have been completed, or the
value of the Money Market Subaccount is completely depleted, or the Owner
instructs Provfirst Life and Annuity in writing to cancel the monthly transfers.
Transfers made under the Dollar Cost Averaging program will not count
toward the twelve transfers permitted each Contract Year without imposing the
Transfer Charge. Provfirst Life and Annuity 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. Provfirst Life and Annuity
will withdraw the amount requested from the Contract Account Value on the day
Written Notice for the withdrawal is received at its Service Center. Any
applicable Surrender Charge will be deducted from the remaining Contract Account
Value. (See "Surrender Charge.")
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.")
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 Provfirst Life and Annuity
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. Provfirst Life
and Annuity will notify the Owner if 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 Provfirst Life and
Annuity to reduce the withdrawal amount for that year so that it does not exceed
the 10% limit, Provfirst Life and Annuity will continue to process withdrawals
for the designated amount. Once the amount of the withdrawals exceeds the 10%
limit, Provfirst Life and Annuity will deduct the applicable Surrender Charge
from the remaining payments made during that Contract Year. (See "Surrender
Charge.")
Provfirst Life and Annuity 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
23
<PAGE> 31
Subaccount's Value, Provfirst Life and Annuity 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"), 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 Provfirst Life and Annuity. Provfirst Life and Annuity
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.") The Cash Surrender Value will be determined on the date
Written Notice of Surrender and the Contract are received at Provfirst Life and
Annuity's Service Center. The Cash Surrender Value will be paid in a lump sum
unless the Owner requests payment under a Payment Option. A surrender may have
adverse Federal income tax consequences. (See "Taxation of Annuities.")
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. Provfirst Life and Annuity 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.
Provfirst Life and Annuity 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 Provfirst Life and Annuity
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.)
24
<PAGE> 32
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 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 Provfirst
Life and Annuity 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 for 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,
Provfirst Life and Annuity will pay the death benefit under the Contract to the
Beneficiary. During the first six Contract Years, the death benefit is equal to
the greater of: the premiums paid, less any withdrawals (including applicable
surrender charges); or the Contract Account Value on the date Provfirst Life and
Annuity receives due proof of Annuitant's death. After the end of the sixth
Contract Year, the death benefit is equal to the greatest of:
1. the Contract Account Value as of the end of the sixth Contract Year
less subsequent amounts withdrawn; or
2. the Contract Account Value on the date Provfirst Life and Annuity
receives due proof of the Annuitant's death; or
3. the premiums paid, less any withdrawals (including applicable
Surrender Charges).
There is no death benefit payable if the Annuitant dies after the Maturity Date.
The proceeds will be paid to the Beneficiary in a lump sum unless the Owner or
Beneficiary elects a Payment Option. If the Annuitant is the Owner, the proceeds
must be distributed in accordance with the rules set forth below in "Death of
Owner" for the death of an Owner before the Maturity Date.
Death of Owner. If an Owner dies before the Maturity Date, Federal tax law
requires (for a Non-Qualified Contract) that the Contract Account Value (or if
the Owner is the Annuitant, the proceeds payable upon the Annuitant's death) be
distributed to the Beneficiary within five years after the date of the Owner's
death. If an Owner dies on or after the Maturity Date, any remaining payments
must be distributed at least as rapidly as under the Payment Option in effect on
the date of such Owner's death.
These distribution requirements will be considered satisfied as to any
portion of the proceeds payable to or for the benefit of a designated
Beneficiary, and which is distributed over the life (or a period not exceeding
the life expectancy) of that Beneficiary, provided that such distributions begin
within one year of the Owner's death. However, if the Owner's spouse is the
designated Beneficiary, the Contract may be continued with such surviving spouse
as the new Owner. If the Contract has joint owners, the surviving joint owner
will be the designated Beneficiary. Joint owners must be husband and wife as of
the Contract Date.
If the Owner is not an individual, the Annuitant, as determined in
accordance with Section 72(s) of the Internal Revenue Code, will be treated as
Owner for purposes of these distribution requirements, and any changes in the
Annuitant will be treated as the death of the Owner.
Other rules may apply to a Qualified Contract.
25
<PAGE> 33
PROCEEDS ON MATURITY DATE
The Maturity Date is selected by the Owner, subject to Provfirst Life and
Annuity'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 Service Center 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, Provfirst Life and Annuity
has the right to defer payment until such check or draft has been honored.
Provfirst Life and Annuity has the right to defer payment of any
withdrawal, cash surrender, or transfer from the Guaranteed Account for up to
six months from the date of receipt of Written Notice for a withdrawal,
surrender, or transfer. If payment is not made within 30 days after receipt of
documentation necessary to complete the transaction, or such shorter period
required by a particular jurisdiction, interest will be added to the amount paid
from the date of receipt of documentation at 3% or such higher rate required for
a particular state.
MODIFICATION
Upon notice to the Owner, Provfirst Life and Annuity 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 Provfirst
Life and Annuity 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, Provfirst Life and Annuity will
make appropriate endorsement to the Contract.
26
<PAGE> 34
REPORTS TO CONTRACT OWNERS
At least quarterly, Provfirst Life and Annuity 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 Provfirst Life and
Annuity at its Service Center, 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
Provfirst Life and Annuity'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. Provfirst Life and
Annuity's General Account supports its insurance and annuity obligations. The
Guaranteed Account has not, and is not required to be, registered with the SEC
under the Securities Act of 1933, and neither the Guaranteed Account nor
Provfirst Life and Annuity's General Account has been registered as an
investment company under the Investment Company Act of 1940. Therefore, neither
Provfirst Life and Annuity'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 Provfirst Life and Annuity's General Account,
Provfirst Life and Annuity assumes the risk of investment gain or loss on this
amount. All assets in the General Account are subject to Provfirst Life and
Annuity'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%. Provfirst Life and Annuity intends to
credit the Guaranteed Account Value with current rates in excess of the minimum
guarantee but is not obligated to do so. These current interest rates are
influenced by, but do not necessarily correspond to, prevailing general market
interest rates. Since Provfirst Life and Annuity, 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, Provfirst Life and Annuity 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 Provfirst Life and Annuity.
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.
27
<PAGE> 35
Provfirst Life and Annuity 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 request for such transfer is received prior to the Contract
Anniversary, the transfer will be made as of the Contract Anniversary; if the
written request is received after the Contract Anniversary, the transfer will be
made as of the date Provfirst Life and Annuity receives the written request at
its Service Center.
PAYMENT DEFERRAL
Provfirst Life and Annuity 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 Provfirst Life and Annuity;
conversely, if the amount of such charges proves more than enough, the excess
will be retained by Provfirst Life and Annuity. Provfirst Life and Annuity 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
Provfirst Life and Annuity's general assets.
Charges for Withdrawals or Surrender. If a withdrawal is made or a
Contract is surrendered, the applicable Surrender Charge will be as follows:
<TABLE>
<CAPTION>
CONTRACT YEAR IN WHICH CHARGES AS PERCENTAGE OF
WITHDRAWAL OR AMOUNT
SURRENDER OCCURS WITHDRAWN OR SURRENDERED
- ---------------------- ------------------------
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
</TABLE>
No Surrender Charge is deducted if the withdrawal or surrender occurs after
six full Contract Years. In addition, no Surrender Charge is deducted on the
Maturity Date if the Contract proceeds are applied under a Payment Option.
28
<PAGE> 36
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. Subject to certain restrictions,
up to 10% of the Contract Account Value as of the beginning of a Contract Year
may be withdrawn or surrendered in that Contract Year without a Surrender
Charge. Specifically, after the first Contract Year, the otherwise applicable
Surrender Charge will not be applied to the first and second withdrawals during
a Contract Year to the extent that the amount withdrawn is not in excess of 10%
of the Contract Account Value as of the beginning of such Contract Year. During
the first Contract Year, the full amount of all withdrawals (and any surrender)
will be subject to the Surrender Charge.
After the first Contract Year, any amounts withdrawn in excess of 10% or
subsequent to the second withdrawal in a Contract Year will be assessed a
Surrender Charge. This right is not cumulative from Contract Year to Contract
Year. If the Contract is surrendered and there have been no prior withdrawals
during such Contract Year, no Surrender Charge will apply to the amount of the
surrender up to 10% of the Contract Account Value as of the beginning of that
Contract Year. If a surrender is made during a Contract Year in which one or
more withdrawals have been made, the Contract Owner may surrender free of charge
an amount equal to 10% of the Contract Account Value as of the beginning of the
Contract Year less the total amount previously withdrawn during such Contract
Year without imposition of the Surrender Charge. In the event that a surrender
is made in excess of the amount which may be surrendered free of charge, only
the excess amount will be subject to the Surrender Charge.
ADMINISTRATIVE CHARGES
Annual Administration Fee. On each Contract Anniversary prior to and
including the Maturity Date, and upon surrender of the Contract or on the
Maturity Date (other than on a Contract Anniversary), Provfirst Life and Annuity
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.
Asset-Based Administration Charge. To compensate Provfirst Life and
Annuity for costs associated with administration of the Contracts, prior to the
Maturity Date Provfirst Life and Annuity deducts a daily asset-based
administration charge from the assets of the Variable Account equal to an annual
rate of .15%.
The Contracts are administered by Provfirst Life pursuant to a Service
Agreement between Provfirst Life and Annuity and Provfirst Life. Under the
agreement, Provfirst Life also maintains records of transactions relating to the
Contracts and provides other services.
TRANSFER PROCESSING FEE
The first twelve transfers during each Contract Year are free. A $25
Transfer Processing Fee will be assessed for each additional transfer during
such Contract Year. For the purpose of assessing the fee, each Written Notice of
transfer is considered to be one transfer, regardless of the number of
Subaccounts or accounts affected by the transfer. The processing fee will be
deducted from the amount being transferred. Provfirst Life and Annuity does not
expect a profit from this fee.
29
<PAGE> 37
MORTALITY AND EXPENSE RISK CHARGE
To compensate Provfirst Life and Annuity for assuming mortality and expense
risks, prior to the Maturity Date Provfirst Life and Annuity deducts a daily
Mortality and Expense Risk Charge from the assets of the Variable Account.
Provfirst Life and Annuity 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 Provfirst Life and Annuity 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 Provfirst Life and Annuity assumes also includes a guarantee
to pay a death benefit if the Annuitant dies before the Maturity Date. The
expense risk Provfirst Life and Annuity 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.
OTHER TAXES
Currently, no charge will be made against the Variable Account for Federal
income taxes. Provfirst Life and Annuity 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 Provfirst Life and Annuity. 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 Provfirst Life and Annuity's Service Center 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.
30
<PAGE> 38
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 Provfirst Life
and Annuity. 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 Service Center.
An option may not be elected if any periodic payment under the election
would be less than $50. Subject to this condition, payments may be made
annually, semi-annually, quarterly, or monthly and are made at the beginning of
such period.
DESCRIPTION OF OPTIONS
Option A -- Life Annuity Option. To have the proceeds paid in equal
amounts each month during the Payee's lifetime with payments ceasing with the
last payment prior to the death of the Payee. No amounts are payable after the
Payee dies. Therefore, if the Payee dies immediately following the date of the
first payment, the Payee will receive one monthly payment only.
Option B -- Life Annuity Option with 10 Years Guaranteed. To have the
proceeds paid in equal amounts each month during the Payee's lifetime with the
guarantee that payments will be made for a period of not less than ten years.
Under this option, if any Beneficiary dies while receiving payment, the present
value of the current dollar amount on the date of death of any remaining
guaranteed payments will be paid in one sum to the executors or administrators
of the Beneficiary unless otherwise provided in writing. Calculation of such
present value shall be at 3% which is the rate of interest assumed in computing
the amount of annuity payments.
The amount of each payment will be determined from the Tables in the
Contract which apply to the particular option using the Payee's age and sex. If
the Contract is sold in a group or employer-sponsored arrangement, the amount of
the payments will be based on the Payee's age, only. Age will be determined from
the nearest birthday at the due date of the first payment.
Alternate Income Option. In lieu of one of the above options, the Contract
Account Value, Cash Surrender Value or death benefit, as applicable, may be
settled under an Alternate Income Option based on Provfirst Life and Annuity'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, Provfirst Life and Annuity may advertise or include in
sales literature historic performance data for the Variable Accounts, including
yields, effective yields, standard annual total returns and nonstandard measures
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
31
<PAGE> 39
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 Charge. In addition, Provfirst Life and Annuity may from time to time
disclose average annual total return in non-standard formats and cumulative
total return for Contracts funded by the Subaccounts.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of each Subaccount may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the Subaccounts. Lipper Analytical Services, Inc. ("Lipper") and the
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
32
<PAGE> 40
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.
Provfirst Life and Annuity 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
The following summary provides a general description of the federal income
tax considerations associated with the Contract and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. Counsel or other competent tax advisers should be consulted for more
complete information. This discussion is based upon Provfirst Life and Annuity's
understanding of the present Federal income tax laws. No representation is made
as to the likelihood of continuation of the present federal income tax laws or
as to how they may be interpreted by the Internal Revenue Service (the "IRS").
The Contract may be purchased on a tax-qualified basis or on a
non-tax-qualified basis. Qualified Contracts are designed for use by individuals
whose premium payments are comprised solely of proceeds from and/or
contributions under retirement plans that are intended to qualify as plans
entitled to special income tax treatment under Sections 401(a), 403(b), 408, or
408A of the Code. The ultimate effect of federal income taxes on the amounts
held under a Contract, or annuity payments, depends on the type of retirement
plan, on the tax and employment status of the individual concerned, and on
Provfirst Life and Annuity'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. Some retirement plans are
subject to distribution and other requirement that are not incorporated into our
Contract administration procedures. Owners, participants, Beneficiaries, and
Payees are responsible for determining that contributions, distributions and
other transactions with respect to the Contracts comply with applicable law.
Therefore, purchasers of Qualified Contracts should seek competent legal and tax
advice regarding the suitability of a Contract for their situation. 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.
33
<PAGE> 41
TAX STATUS OF THE CONTRACTS
Diversification Requirements. The Code requires that the investments of
the Variable Account be "adequately diversified" in order for the Contracts to
be treated as annuity contracts for federal income tax purposes. It is intended
that the Variable Account, through the Funds, will satisfy these diversification
requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for federal income tax purposes to be the owners
of the assets of the Variable Account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the case,
the contract owners have been currently taxed on income and gains attributable
to the variable account assets. There is little guidance in this area, and some
features of the Contracts, such as the flexibility of an Owner to allocate
premium payments and transfer Contract Account Value, have not been explicitly
addressed in published rulings. While Provfirst Life and Annuity believes that
the Contracts do not give Owners investment control over Variable Account
assets, Provfirst Life and Annuity reserves the right to modify the Contracts as
necessary to prevent an Owner from being treated as the owner of the Variable
Account assets supporting the Contract.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any Non-Qualified Contract to
contain certain provisions specifying how your interest in the Contract will be
distributed in the event of your death. The Non-Qualified Contracts contain
provisions that are intended to comply with these Code requirements, although no
regulations interpreting these requirements have yet been issued. We intend to
review such provisions and modify them if necessary to assure that they comply
with the applicable requirements when such requirements are 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.
THE TREATMENT OF ANNUITIES
In General. Provfirst Life and Annuity believes that if you are a natural
person you will not be taxed on increases in the value of a Contract until a
distribution occurs or until annuity payments begin. (For these purposes, an
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 is treated as a distribution.)
TAXATION OF NON-QUALIFIED CONTRACTS
Non-Natural Person. 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" (generally, the
premiums or other consideration paid for 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 tax adviser. The following
discussion generally applies to Contracts owned by natural persons.
Withdrawals. When a withdrawal from a Non-Qualified Contract occurs, the
amount received will be treated as ordinary income subject to tax up to an
amount equal to the excess (if any) of the Contract Account Value immediately
before the distribution over the Owner's investment in the Contract at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the Contract.
34
<PAGE> 42
Penalty Tax on Certain Withdrawals. In the case of a distribution from a
Non-Qualified Contract, there may be imposed a federal tax penalty equal to ten
percent of the amount treated as income. In general, however, there is no
penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments for the
life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and special
rules may be applicable in connection with the exceptions enumerated above. A
tax adviser should be consulted with regard to exceptions from the penalty tax.
Other penalties may apply to Qualified Contracts.
Annuity Payments. Although tax consequences may vary depending on the
Payment Option elected under an annuity contract, a portion of each annuity
payment is generally not taxed and the remainder is taxed as ordinary income.
The non-taxable portion of an annuity payment is generally determined in a
manner that is designed to allow an Owner to recover his or her investment in
the Contract ratably on a tax-free basis over the expected stream of annuity
payments, as determined when annuity payments start. Once an investment in the
Contract has been fully recovered, however, the full amount of each annuity
payment is subject to tax as ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the Owner's or Annuitant's death. Generally, such amounts
are includible in the income of the recipient as follows: (a) if distributed in
a lump sum, they are taxed in the same manner as a surrender of the Contract, or
(b) if distributed under a Payment Option, they are taxed in the same way as
annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or
assignment of ownership of a Contract, the designation of an Annuitant, the
selection of certain Maturity Dates, or the exchange of a Contract may result in
certain tax consequences to Owners that are not discussed herein. An Owner
contemplating any such transfer, assignment or exchange, should consult a tax
adviser as to the tax consequences.
Multiple Contracts. All annuity contracts that are issued by Provfirst
Life and Annuity (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 such Owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
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. Owners,
Annuitants, Beneficiaries and Payees 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 Provfirst Life and Annuity is not bound by the
terms and conditions of such plans to the extent such terms contradict the
Contract, unless Provfirst Life and Annuity consents.
Distributions. Annuity payments are generally taxed in the same manner as
under a Non-Qualified Contract. When a withdrawal from a Qualified Contract
occurs, a pro rata portion of the amount received
35
<PAGE> 43
is taxable, generally based on the Owner's investment in the Contract to the
participant's total accrued benefit balance under the retirement plan. For
Qualified Contracts, the investment in the contract can be zero.
Brief descriptions follow of the various types of qualified retirement
plans in connection with a Contract. Provfirst Life and Annuity will endorse the
Contract as necessary to conform it to the requirements of such plan.
Corporate and Self-Employed Pension and Profit Sharing Plans. Section
401(a) of the Code permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish these plans for themselves and their 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. Employers intending to use the Contract with such
plans should seek competent tax advice.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA." These IRAs are subject to limits on
the amount that can be contributed, the deductible amount of the contribution,
the persons who may be eligible, and the time when distributions commence. Also,
distributions from certain other types of qualified retirement plans may be
"rolled over" or transferred on a tax-deferred basis into an IRA. There are
significant restrictions on rollover or transfer contributions from Savings
Incentive Match Plans (SIMPLE), under which certain employers may, provide
contributions to IRAs on behalf of their employees, subject to special
restrictions. Employers may establish Simplified Employee Pension (SEP) Plans to
provide IRA contributions on behalf of their employees. Sales of the Contract
for use with IRAs may be subject to special requirements of the IRS.
Roth IRAs. Effective January 1, 1998, section 408A of the Code permits
certain eligible individuals to contribute to a Roth IRA. Contributions to a
Roth IRA, which are subject to certain limitations, are not deductible, and must
be made in cash or as a rollover or transfer from another Roth IRA or other IRA.
A rollover from or conversion of an IRA to a Roth IRA may be subject to tax, and
other special rules may apply. 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.
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 premium payments made, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These premium
payments may be subject to FICA (social security ) tax.
The following amounts may not be distributed from Code section 403(b)
annuity contracts prior to the employee's death, attainment of age 59 1/2,
separation from service, disability, or financial hardship: (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. In addition, income attributable to
elective contributions may not be distributed in the case of hardship.
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 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
36
<PAGE> 44
taxable portion of any distribution from such a plan, except certain
distributions such as minimum 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.
POSSIBLE CHANGES IN TAXATION
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. 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.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under the 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 Provfirst Life and
Annuity'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
adviser should be consulted for further information.
DISTRIBUTION OF CONTRACTS
The Contracts will be offered to the public on a continuous basis, and
Provfirst Life and Annuity does not anticipate discontinuing the offering of the
Contracts. However, Provfirst Life and Annuity reserves the right to discontinue
the offering. Applications for Contracts are solicited by agents who are
licensed by applicable state insurance authorities to sell Provfirst Life and
Annuity'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 Provfirst Life and Annuity and 1717. 1717 is not
obligated to sell any specific number of Contracts. 1717's principal business
address is Christiana Executive Campus, P.O. Box 15626, Wilmington, Delaware
19850. The Contracts may also be sold through other broker-dealers registered
under the Securities Exchange Act of 1934 whose representatives are authorized
by applicable law to sell variable annuity contracts. 1717 has entered into a
Selling Agreement with Sentinel Financial Services Company (SFSC), a registered
broker-dealer affiliated with 1717. Under the terms of the Selling Agreement,
SFSC will be national distributor of the Contracts. Registered Representatives
of SFSC will solicit applications and SFSC will also enter into selling
agreements with other broker-dealers with respect to distribution of the
Contracts. 1717 and SFSC receive the full commissions on Contracts sold by their
registered representatives. Nonaffiliated broker-dealers receive full
commissions on Contracts sold by their registered representatives, less a
nominal charge by 1717 or SFSC for expenses incurred. The commissions paid are
no greater than 6% of premiums.
PREPARING FOR YEAR 2000
Like all financial services providers, Provfirst Life and Annuity and its
affiliates utilize systems that may be affected by Year 2000 transition issues
and they rely on service providers, including banks, custodians, administrators,
and investment managers that also may be affected. Provfirst Life and Annuity
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
37
<PAGE> 45
devoted, or the outcome of these efforts, will have any negative impact on
Provfirst Life and Annuity 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. Provfirst Life and Annuity and
its affiliates currently anticipate that their systems will be Year 2000
compliant on or about January 1, 1999 but there can be no assurance that
Provfirst Life and Annuity and its affiliates will be successful, or that
interaction with other service providers will not impair Provfirst Life and
Annuity or its affiliates' services at that time.
LEGAL PROCEEDINGS
Provfirst Life and its subsidiaries, like other life insurance companies,
are involved in lawsuits, including class action lawsuits. In some class action
and other lawsuits involving insurers, substantial damages have been sought
and/or material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, Provfirst Life believes that at
the present time there are not pending or threatened lawsuits that are
reasonable likely to have a material adverse impact on the Separate Account or
Provfirst Life.
VOTING RIGHTS
In accordance with its view of present applicable law, Provfirst Life and
Annuity 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 Provfirst
Life and Annuity 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 Provfirst Life and Annuity 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 Provfirst Life and
Annuity as of December 31, 1998 and 1997 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, 1998 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, 1998 and the related statements of operations for the year then
ended and the statements of changes in net assets for each of the two years in
the period then ended are included in the Statement of Additional Information
for the Variable Account.
38
<PAGE> 46
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Contract Provisions.............................. S-2
The Contract........................................... S-2
Incontestability....................................... S-2
Misstatement of Age or Sex............................. S-2
Non-Participation...................................... S-2
Calculation of Yields and Total Returns..................... S-2
Money Market Subaccount Yields......................... S-2
Other Subaccount Yields................................ S-3
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-7
Effect of the Administration Fee on Performance Data... S-8
Termination of Participation Agreements..................... S-8
Safekeeping of Account Assets............................... S-10
State Regulation............................................ S-10
Records and Reports......................................... S-10
Legal Matters............................................... S-10
Experts..................................................... S-10
Other Information........................................... S-11
Financial Statements........................................ S-11
</TABLE>
39
<PAGE> 47
APPENDIX A
FINANCIAL HIGHLIGHTS
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 and Van Eck Subaccounts are not included because they
were not available under the contract prior to May 1, 1998.
The table below sets forth certain information regarding the Subaccounts as
of December 31, 1998.
<TABLE>
<CAPTION>
UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE
AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF
SUBACCOUNT 12/31/98 12/31/98 12/31/97 12/31/97 12/31/96
---------- ---------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
MS Money Market................................. 575.95 45,925.41 554.47
MS Growth....................................... 950.55 32,051.38 775.34
MS Bond......................................... 597.74 10,217.64 553.59
MS Managed...................................... 781.27 16,899.90 653.55
MS Aggressive Growth............................ 833.15 11,389.39 697.07
MS International................................ 704.02 23,495.92 651.04
MS All Pro Large Cap Growth.....................
MS All Pro Small Cap Growth.....................
MS All Pro Large Cap Value......................
MS All Pro Small Cap Value......................
Fidelity High Income............................ 788.02 21,860.95 679.15
Fidelity Equity Income.......................... 1,011.99 73,730.38 801.08
Fidelity Growth................................. 905.80 67,965.10 743.89
Fidelity Asset Man.............................. 763.46 37,474.25 641.70
Fidelity Index 500.............................. 1,088.42 48,054.18 831.78
Fidelity Contrafund............................. 879.99 38,683.95 718.85
OCC Equity...................................... 1,071.54 19,067.19 858.13
OCC Small Cap................................... 808.05 22,411.36 670.35
OCC Managed..................................... 1,057.94 54,119.40 877.27
Scudder Bond.................................... 594.92 13,308.44 553.18
Scudder Growth & Inc............................ 913.35 17,259.20 709.94
Scudder International........................... 641.18 16,570.16 596.09
Drey. Zero Coup. 2000........................... 580.67 10,024.98 550.29
Dreyfus Growth & Inc............................ 884.85 19,203.03 772.15
Dreyfus Socially Resp........................... 918.99 5,878.19 725.61
Federated Fund for U.S. Gov't. Securities II.... 582.47 6,129.09 544.01
Federated Utility Fund II....................... 789.26 6,448.18 632.04
Van Eck Worldwide Hard Assets...................
Van Eck Worldwide Bond..........................
Van Eck Worldwide Emerging Markets..............
Van Eck Worldwide Real Estate...................
<CAPTION>
NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE
OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF
SUBACCOUNT 12/31/96 12/31/95 12/31/95 12/31/94
---------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C>
MS Money Market................................. 45,000.79 534.58 30,689.17 513.30
MS Growth....................................... 26,301.47 657.63 18,875.42 511.45
MS Bond......................................... 7,672.67 545.35 4,938.33 459.55
MS Managed...................................... 13,564.35 592.07 9,803.13 482.84
MS Aggressive Growth............................ 9,335.43 584.65 6,154.75 522.44
MS International................................ 23,424.42 595.43 17,907.81 528.22
MS All Pro Large Cap Growth.....................
MS All Pro Small Cap Growth.....................
MS All Pro Large Cap Value......................
MS All Pro Small Cap Value......................
Fidelity High Income............................ 14,990.01 604.03 7,048.75 507.88
Fidelity Equity Income.......................... 61,560.52 710.92 38,336.60 533.64
Fidelity Growth................................. 59,854.74 657.74 34,695.62 492.73
Fidelity Asset Man.............................. 32,768.43 567.88 28,966.21 492.38
Fidelity Index 500.............................. 27,336.06 686.84 10,498.25 507.68
Fidelity Contrafund............................. 23,454.47 601.00 7,495.00 --
OCC Equity...................................... 12,563.72 572.66 11,392.30 515.26
OCC Small Cap................................... 16,021.07 724.69 27,336.42 503.97
OCC Managed..................................... 43,626.63 545.82 6,615.25
Scudder Bond.................................... 10,238.78 705.50 7,248.38 468.40
Scudder Growth & Inc............................ 6,349.82 589.44 978.99 504.88
Scudder International........................... 9,325.04 526.65 1,170.05 --
Drey. Zero Coup. 2000........................... 8,998.27 544.02 5,157.10 467.73
Dreyfus Growth & Inc............................ 16,123.15 648.54 3,543.50 --
Dreyfus Socially Resp........................... 2,403.71 607.04 211.32 --
Federated Fund for U.S. Gov't. Securities II.... 3,591.63 529.49 888.69 --
Federated Utility Fund II....................... 4,346.85 574.58 1,076.36 --
Van Eck Worldwide Hard Assets...................
Van Eck Worldwide Bond..........................
Van Eck Worldwide Emerging Markets..............
Van Eck Worldwide Real Estate...................
<CAPTION>
NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS
OUTSTANDING AS OF AS OF OUTSTANDING AS OF
SUBACCOUNT 12/31/94 12/31/93 12/31/93
---------- ----------------- ---------- -----------------
<S> <C> <C> <C>
MS Money Market................................. 16,531.43 501.47 4,652.76
MS Growth....................................... 12,476.41 506.46 3,168.61
MS Bond......................................... 3,487.30 493.74 1,656.64
MS Managed...................................... 8,582.76 498.70 2,536.72
MS Aggressive Growth............................ 2,846.86 529.79 452.21
MS International................................ 15,548.80 534.25 2,539.74
MS All Pro Large Cap Growth.....................
MS All Pro Small Cap Growth.....................
MS All Pro Large Cap Value......................
MS All Pro Small Cap Value......................
Fidelity High Income............................ 4,060.78 523.11 298.26
Fidelity Equity Income.......................... 16,111.04 505.43 2,674.86
Fidelity Growth................................. 19,272.81 499.75 2,368.98
Fidelity Asset Man.............................. 28,637.01 531.69 2,806.80
Fidelity Index 500.............................. 3,571.24 509.51 818.51
Fidelity Contrafund............................. -- -- --
OCC Equity...................................... 2,813.10 503.29 313.68
OCC Small Cap................................... 8,553.37 516.26 842.45
OCC Managed.....................................
Scudder Bond.................................... 4,419.73 498.86 726.58
Scudder Growth & Inc............................ 15,233.99 498.94 2,723.17
Scudder International........................... -- -- --
Drey. Zero Coup. 2000........................... 3,101.11 493.62 113.90
Dreyfus Growth & Inc............................ -- -- --
Dreyfus Socially Resp........................... -- -- --
Federated Fund for U.S. Gov't. Securities II.... -- -- --
Federated Utility Fund II....................... -- -- --
Van Eck Worldwide Hard Assets...................
Van Eck Worldwide Bond..........................
Van Eck Worldwide Emerging Markets..............
Van Eck Worldwide Real Estate...................
</TABLE>
A-1
<PAGE> 48
APPENDIX B
PLAN OF CONVERSION
As of February , 1999 ("the Effective Date"), a Plan of Conversion (the
"Plan") became effective pursuant to which Provident Mutual Life Insurance
Company, a Pennsylvania mutual life insurance corporation ("Provident Mutual"),
reorganized and continued its corporate existence (the "Conversion") as
Provfirst America Life Insurance Company, a Pennsylvania stock life insurance
corporation ("Provfirst Life"). The Plan, as amended, was adopted by Provident
Mutual's board of directors on October 13, 1998. The Plan was approved by the
Pennsylvania Deputy Insurance Commissioner by a Decision and Order dated
November 6, 1998 ("Order"). The Provident Mutual policyholders entitled to vote
on the Plan duly adopted the Plan at a special meeting held on February 9, 1999.
Before the Conversion, Providentmutual Life and Annuity Company of America
("PLACA") was a wholly-owned subsidiary of Provident Mutual. With the Conversion
PLACA became a wholly-owned by Provfirst Life, and its name was changed to
Provfirst America Life and Annuity Company ("Provfirst Life and Annuity"). No
other changes to PLACA have occurred as a result of the Conversion. THE CURRENT
AND FUTURE RIGHTS AND INTERESTS OF OWNERS OF PLACA ANNUITY CONTRACTS, INCLUDING
THE CONTRACTS, HAVE NOT CHANGED AS A RESULT OF THE CONVERSION AND THE CONVERSION
DOES NOT, IN ANY WAY, INCREASE PREMIUMS OR REDUCE CONTRACT BENEFITS, VALUES,
GUARANTEES OR OTHER CONTRACT OBLIGATIONS TO OWNERS. THE CONVERSION DID NOT IN
ANY WAY CHANGE THE OPERATIONS OF THE VARIABLE ACCOUNT AND DID NOT RESULT IN ANY
MATERIAL DISRUPTION OF THE SERVICES PROVIDED TO OWNERS.
Provfirst Life and Annuity is currently conducting business in all
jurisdictions under the name "Provfirst America Life and Annuity Company,"
except in those jurisdictions in which regulators have not yet approved use of
this name. In those jurisdictions, Provfirst Life and Annuity will continue to
do business using the name "Providentmutual Life and Annuity Company of America"
until it receives approval to use the new name. Likewise, the name of the
Variable Account is being changed to Provfirst Variable Annuity Separate
Account. Use of new Variable Account name in each jurisdiction will begin
concurrently with the use of Provfirst Life and Annuity's new name.
Pursuant to the Plan, Provident Mutual also formed Provident Mutual Holding
Company, a Pennsylvania nonstock corporation, and Provfirst America Corporation,
a Pennsylvania business corporation. All the shares of voting stock of Provfirst
Life were issued to the Provfirst America Corporation, and all the shares of
voting stock of Provfirst America Corporation were issued to Provident Mutual
Holding Company, except for approximately 1% of the shares of voting stock of
Provfirst America Corporation, which were issued to an employee stock ownership
plan formed by Provfirst Life. Pursuant to the Order and as set forth in the
Plan, Provident Mutual Holding Company will at all times, directly or
indirectly, control Provfirst Life through the ownership of at least a majority
of the voting authority of Provfirst America Corporation, which will hold,
directly or indirectly, all the outstanding voting stock of Provfirst Life. The
directors and executive officers of Provfirst Life serving immediately prior to
the Effective Date remained as the directors and executive officers of each of
Provident Mutual Holding Company, Provfirst America Corporation and Provfirst
Life after the Effective Date.
Prior to the Conversion, Provident Mutual policyholders had (1) contract
rights under their insurance policies and annuity contracts, and (2) certain
membership rights in Provident Mutual. The principal contract right of
policyholders was the right to receive the type and amount of benefits then
specified in their policies or contracts in accordance with their terms and
conditions, including the right to receive policy dividends when, if, and as
declared by the board of directors of Provident Mutual in accordance with the
terms and conditions of such policies. The membership rights of policyholders
included the right to vote at annual or special meetings of Provident Mutual,
and certain rights as provided by law in any remaining surplus of Provident
Mutual in the event of the insolvency, winding-up or liquidation of Provident
Mutual, after the discharge of all other liabilities.
B-1
<PAGE> 49
On and after the Effective Date, the contract rights and the membership
rights of policyholders of Provident Mutual policies were separated. The
contract rights remained with Provfirst Life and the membership rights in
Provident Mutual were extinguished. Each policyholder then received membership
rights in Provident Mutual Holding Company. Each future policyholder of
Provfirst Life will become a member of Provident Mutual Holding Company, and
each member will remain a member of Provident Mutual Holding Company as long as
the policy or policies conferring such membership remain in force.
B-2
<PAGE> 50
PROVFIRST AMERICA LIFE AND ANNUITY COMPANY
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 Provfirst America Life and
Annuity Company. This Statement of Additional Information is not a Prospectus,
and it should be read only in conjunction with the Prospectuses for the Contract
and The Market Street Fund, Inc., the Variable Insurance Products Fund, the
Variable Insurance Products Fund II, the Scudder Variable Life Investment Fund,
the OCC Accumulation Trust, the Dreyfus Variable Investment Fund and the
Federated Insurance Series. The Prospectus is dated the same as this Statement
of Additional Information. You may obtain a copy of the Prospectus by writing or
calling us at our address or phone number shown above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 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-7
Effect of the Administration Fee on Performance Data... S-8
TERMINATION OF PARTICIPATION AGREEMENTS..................... S-8
SAFEKEEPING OF ACCOUNT ASSETS............................... S-10
STATE REGULATION (7)........................................ S-10
RECORDS AND REPORTS......................................... S-10
LEGAL MATTERS (30).......................................... S-10
EXPERTS..................................................... S-10
OTHER INFORMATION........................................... S-11
FINANCIAL STATEMENTS (31)................................... S-11
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the Prospectus.
<PAGE> 51
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. Provfirst Life and Annuity 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
Provfirst Life and Annuity 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
Provfirst Life and Annuity's divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, Provfirst Life and Annuity 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
S-2
<PAGE> 52
beginning of the period to determine the base period return, and annualizing
this quotient on a 365-day basis. The net change in account value reflects: 1)
net income from the Portfolio attributable to the hypothetical account; and 2)
charges and deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the 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.
S-3
<PAGE> 53
The yield is computed by: 1) dividing the net investment income of the
Portfolio attributable to the Subaccount units less Subaccount expenses for the
period; by 2) the maximum offering price per unit on the last day of the period
times the daily average number of units outstanding for the period; by 3)
compounding that yield for a six-month period; and by 4) multiplying that result
by 2. Expenses attributable to the Subaccount include the Annual Administration
Fee, the Asset-Based Administration Charge and the Mortality and Expense Risk
charge. The yield calculation assumes an administration fee of $30 per year per
Contract deducted at the end of each Contract Year. For purposes of calculating
the 30-day or one-month yield, an average administration fee per dollar of
Contract value in the Variable Account is used to determine the amount of the
charge attributable to the Subaccount for the 30-day or one-month period. The
30-day or one-month yield is calculated according to the following formula:
Yield = 2 (((NI - ES)/(U X UV)) + 1)(6-1)
Where:
NI = net income of the Portfolio for the 30-day or one-month period
attributable to the Subaccount's units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close (highest) of the last day in the 30-day
or one-month period.
Because of the charges and deductions imposed under the Contracts, the
yield for the Subaccount will be lower than the yield for the corresponding Fund
Portfolio.
The yield on the amounts held in the Subaccounts normally will fluctuate
over time. Therefore, the disclosed yield for any given past period is not an
indication or representation of future yields or rates of return. The
Subaccount's actual yield is affected by the types and quality of portfolio
securities held by the Portfolio and its operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract equal to 1% to 6% of premiums paid during the six years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
amounts surrendered or withdrawn under the contract. A Surrender Charge will not
be imposed on the first or second withdrawal in any Contract Year on an amount
up to 10% of the Contract Account Value as of the beginning of such year.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.
Until a Subaccount has been in operation for 10 years, Provfirst Life and
Annuity 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 Provfirst Life and Annuity 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
S-4
<PAGE> 54
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 therefore reflect a deduction of the
Surrender Charge for any period less than seven years. The total return will
then be calculated according to the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return net of Subaccount recurring charges.
ERV = the ending redeemable value (net of any applicable surrender charge)
of the hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Variable Account
commenced operations. Such performance information for the Subaccounts will be
calculated based on the performance of the Portfolios and the assumption that
the Subaccounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect. In
addition, sales literature or advertisements may quote average annual total
return for the Growth, Money Market, Bond, Managed, Aggressive Growth, and
International Subaccounts for the period before the Contracts were registered
under the 1933 Act (from the inception of these Subaccounts (April 14, 1992) to
December 31, 1992), with the level of Contract charges currently in effect.
The Funds have provided the total return information for the Portfolios,
including the Portfolio total return information used to calculate the total
returns of the Subaccounts for periods prior to the Subaccounts' inception of
the Subaccounts. The Variable Insurance Products Fund, the Variable Insurance
Products Fund II, the Scudder Variable Life Investment Fund, the OCC
Accumulation Trust, the Dreyfus Variable Investment Fund and The Federated
Insurance Series are not affiliated with Provfirst Life and Annuity. While
Provfirst Life and Annuity has no reason to doubt the accuracy of these figures
provided by these non-affiliated Funds, Provfirst Life and Annuity does not
represent that they are true and complete, and disclaims all responsibility for
these figures.
S-5
<PAGE> 55
Such average annual total return information for the Subaccounts is as
follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/98
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
--------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985).......................
Money Market (December 12, 1985).................
Bond (December 12, 1985).........................
Managed (December 12, 1985)......................
Aggressive Growth (May 1, 1989)..................
International (November 1, 1991).................
VARIABLE INSURANCE PRODUCTS FUND AND
VARIABLE INSURANCE PRODUCTS FUND II
High Income (September 19, 1985).................
Equity Income (October 9, 1986)..................
Growth (October 9, 1986).........................
Asset Manager (September 6, 1989)................
Index 500 (August 27, 1992)......................
Contrafund (July 3, 1995)........................
OCC ACCUMULATION TRUST
Equity (August 1, 1988)..........................
Small Cap (August 1, 1988).......................
Managed (August 1, 1988).........................
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985).............................
Growth & Income (May 2, 1994)....................
International (May 1, 1987)......................
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 (August 31, 1990)...............
Growth & Income (May 2, 1994)....................
Socially Responsible (October 7, 1993)...........
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994).........................................
Utility Fund II (April 14, 1994).................
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)...............
Worldwide Hard Assets (September 1, 1989)........
Worldwide Emerging Markets (December 27, 1995)...
Worldwide Real Estate (June 23, 1997)............
</TABLE>
S-6
<PAGE> 56
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered or withdrawn. Such information
is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/98
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
--------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985).......................
Money Market (December 12, 1985).................
Bond (December 12, 1985).........................
Managed (December 12, 1985)......................
Aggressive Growth (May 1, 1989)..................
International (November 1, 1991).................
VARIABLE INSURANCE PRODUCTS FUND AND
VARIABLE INSURANCE PRODUCTS FUND II
High Income (September 19, 1985).................
Equity Income (October 9, 1986)..................
Growth (October 9, 1986).........................
Asset Manager (September 6, 1989)................
Index 500 (August 27, 1992)......................
Contrafund (July 3, 1995)........................
OCC ACCUMULATION TRUST
Equity (August 1, 1988)..........................
Small Cap (August 1, 1988).......................
Managed (August 1, 1988).........................
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985).............................
Growth & Income (May 2, 1994)....................
International (May 1, 1987)......................
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 (August 31, 1990)...............
Growth & Income (May 2, 1994)....................
Socially Responsible (October 7, 1993)...........
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994).........................................
Utility Fund II (April 14, 1994).................
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)...............
Worldwide Hard Assets (September 1, 1989)........
Worldwide Emerging Markets (December 27, 1995)...
Worldwide Real Estate (June 23, 1997)............
</TABLE>
S-7
<PAGE> 57
Provfirst Life and Annuity may disclose Cumulative Total Returns in
conjunction with the standard formats described above. The Cumulative Total
Returns will be calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The Cumulative Total Return net of Subaccount recurring charges for
the period.
ERV = The ending redeemable value of the hypothetical investment at the end
of the period.
P = A hypothetical single payment of $1,000.
EFFECT OF THE ADMINISTRATION FEE ON PERFORMANCE DATA
The Contract provides for a $30 Annual Administration Fee to be deducted
annually at the end of each Contract Year, from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each such account
bears to the total Contract Account Value. For purposes of reflecting the
administration fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on the average contract value
in the Variable Account of all Contracts on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to the Variable Account contain varying provisions regarding termination. The
following summarizes those provisions:
Market Street Fund, Inc. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at Provfirst Life and Annuity'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 Provfirst Life
and Annuity 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 Provfirst Life and Annuity'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 Provfirst Life and
Annuity 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 Provfirst Life and Annuity if it has
withdrawn the Variable Account's investment in the Fund; or (8) at the option of
any party upon another party's material breach of any provision of the
agreement.
Variable Insurance Products Fund and Variable Insurance Products Fund
II. These agreements provide for termination: (1) on six months' advance notice
by any party; (2) at Provfirst Life and Annuity's option if shares of the Fund
are not reasonably available to meet the requirements of the Contracts; (3) at
Provfirst Life and Annuity'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 Provfirst Life and Annuity has
suffered material adverse changes in its business or financial conditions or is
the subject to material adverse publicity; (5) at the option of Provfirst Life
and Annuity if the Fund has suffered material adverse changes in its business or
financial condition or is the subject of material adverse publicity; or (6) at
the option of the Fund or its principal underwriter if Provfirst Life and
Annuity decides to make another mutual fund available as a funding vehicle for
its Contracts.
Scudder Variable Life Investment Fund. This agreement provides for
termination: (1) one hundred twenty days after the renegotiation date if the
Fund and Provfirst Life and Annuity fail within sixty days after such
renegotiation date to agree to continue or amend the agreement; (2) at the
option of Provfirst Life and Annuity or the Fund if no shares of the Fund are
owned by Provfirst Life and Annuity, the Variable Account, an affiliated
insurance company or a separate account of such affiliated insurance company;
(3) upon determination that an irreconcilable conflict exists between the
interests of owners of
S-8
<PAGE> 58
the Contracts and variable insurance products of all separate accounts or the
interests of participating insurance companies investing in the Fund.
OCC Accumulation Trust. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at Provfirst Life and Annuity'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 Provfirst Life
and Annuity 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 Provfirst Life and Annuity'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 Provfirst Life and
Annuity 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 Provfirst Life and Annuity if it has
withdrawn the Variable Account's investment in the Fund; (8) at the option of
any party upon another party's material breach of any provision of the
agreement; or (9) at Provfirst Life and Annuity's option or the Fund's if it
determines that the other party has suffered a material adverse change in its
business, operations or financial condition or is the subject of material
adverse publicity.
Dreyfus Variable Investment Fund. This agreement provides for termination:
(a) on 180 days' notice by Provfirst Life and Annuity or the Fund; (b) at
Provfirst Life and Annuity's option if shares of the Fund are not reasonably
available to meet the requirements of the Contracts; (c) at the option of
Provfirst Life and Annuity or the Fund if certain enforcement proceedings are
instituted against the other; (d) at the option of the Fund if it determines
that Provfirst Life and Annuity has suffered a material adverse change in its
business or financial condition or is the subject of material adverse publicity;
(e) upon termination of the Investment Advisory Agreement between the Fund and
Dreyfus; (f) in the event the Fund's shares are not registered, issued or sold
in accordance with applicable laws; (g) at the option of the Fund upon a
determination that it is no longer advisable and in the interests of
shareholders to continue the agreement; (h) at the option of the Fund if the
Contracts cease to qualify as annuity contracts under the Code; (i) at the
option of either party upon another's breach of any material provision of the
agreement; (j) at the option of the Fund, if the Contracts are not registered,
issued or sold in accordance with applicable law; (k) upon assignment of the
agreement.
Federated Insurance Series. This agreement provides for termination: (a)
on 180 days' notice by Provfirst Life and Annuity or the Fund; (b) at Provfirst
Life and Annuity's option if shares of the Portfolios are not reasonably
available to meet the requirements of the Contracts; (c) at the option of
Provfirst Life and Annuity or the Fund if certain enforcement proceedings are
instituted against the other; (d) upon the vote of Owners having an interest in
a subaccount investing in a Fund Portfolio to substitute shares of another
investment company for corresponding shares of the Portfolio of the Fund; (e) in
the event the Fund's shares are not registered, issued or sold in accordance
with applicable law; (f) at the option of Provfirst Life and Annuity or the Fund
upon a determination that an irreconcilable conflict exists between Owners of
variable insurance products of all separate accounts and the interests of
participating insurance companies investing in the Fund; and (g) at the option
of Provfirst Life and Annuity if the Fund or a Portfolio ceases to qualify as a
regulated investment company under the Code or fails to meet the diversification
requirements thereunder.
Van Eck Worldwide Insurance Trust. The agreement with Van Eck Worldwide
Insurance Trust ("Van Eck Trust") provides for termination 1) by Provfirst Life
and Annuity, Van Eck Trust or Van Eck Trust's Distributor upon six months prior
written notice or in the event that formal proceedings are initiated against the
other party by the SEC or another regulator, 2) by Provfirst Life and Annuity or
Van Eck Trust in the event that shares of Van Eck Trust subject to the agreement
are not registered, offered or sold in conformity with applicable law or such
law precludes the use of Trust shares, 3) by Provfirst Life and Annuity 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 Provfirst Life and
Annuity should substitute shares of another fund or Fund for those of Van Eck
Trust, 4) by Provfirst Life if a Portfolio fails to meet the diversification and
other requirements of the Internal Revenue Code, or Provfirst Life reasonably
believes
S-9
<PAGE> 59
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 Provfirst Life and Annuity 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 Provfirst Life and Annuity
has not been terminated. Should a Fund or portfolio of such Fund decide not to
sell its shares to Provfirst Life and Annuity, Provfirst Life and Annuity 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
Provfirst Life and Annuity 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 Provfirst Life and Annuity are covered by an
insurance company blanket bond issued by Aetna Casualty and Surety Company to
Provident Mutual Life Insurance Company of Philadelphia in the amount of ten
million dollars. The bond insurers against dishonest and fraudulent acts of
officers and employees.
STATE REGULATION
Provfirst Life and Annuity 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. Provfirst Life and Annuity 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
Provfirst Life and Annuity will maintain all records and accounts relating
to the Variable Account. As presently required by the Investment Company Act of
1940 and regulations promulgated thereunder, reports containing such information
as may be required under the Act or by any other applicable law or regulation
will be sent to Contract Owners semi-annually at the last address known to the
Company.
LEGAL MATTERS
James G. Potter, Jr., Esquire, General Counsel of Provfirst America Life
Insurance Company, has provided advice on certain matters relating to the laws
of Delaware regarding the Contacts and Provfirst Life and Annuity's issuance of
the Contracts. Sutherland Asbill & Brennan LLP, of Washington, D.C. has provided
advice on certain matters relating to the Federal securities laws.
S-10
<PAGE> 60
EXPERTS
The statements of financial condition for Provfirst Life and Annuity as of
December 31, 1998 and 1997 and the related statements of operations, capital and
surplus and cash flows for each of the three years in the period ended December
31, 1998 and the audited statements of assets and liabilities of the Provfirst
Life and Annuity 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 PricewaterhouseCoopers LLP 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 Provfirst Life and Annuity Variable Annuity
Separate Account as of December 31, 1998 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. PricewaterhouseCoopers LLP
serves as independent accountants for the Provfirst Life and Annuity Variable
Annuity Separate Account.
Provfirst Life and Annuity's statements of financial condition as of
December 31, 1998 and 1997 and the related statements of operations, capital and
surplus, and cash flows for each of the three years in the period ended December
31, 1998, which are included in this Statement of Additional Information, should
be considered only as bearing Provfirst Life and Annuity'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 Provfirst Life and Annuity
Variable Annuity Separate Account.
S-11
<PAGE> 61
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
<TABLE>
<S> <C> <C> <C>
(a) Financial Statements
All required financial statements are included in Part A and Part B of
this Registration Statement.
(1) (a) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the PALAC 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 PALAC 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 PALAC 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 PALAC 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 PALAC 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
PALAC 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
(PL512).(1)
(a) Amendment of Contract Provisions Rider (PL470.13A).(1)
(b) Qualified Plan Rider (PL471).(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.
(a) Initial Allocation Schedule.(1)
</TABLE>
C-1
<PAGE> 62
<TABLE>
<S> <C> <C> <C>
(6) (a) Charter of Providentmutual Life and Annuity Company of
America.(1)
(b) By-Laws of Providentmutual Life and Annuity Company of
America.(1)
(7) Not applicable.
(8) (a) Participation Agreement 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.(2)
(c) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and
Providentmutual Life and Annuity Company of America.(2)
(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 James G. Potter, Jr., Esquire (to be filed by
amendment).
(10) (a) Consent of Sutherland Asbill & Brennan LLP (to be filed by
amendment).
(b) Consent of Scott V. Carney, FSA, MAAA (to be filed by
amendment).
(c) Consent of PricewaterhouseCoopers LLP, Independent
Accountants (to be filed by amendment).
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data (to be filed by
amendment).
(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 number 18 to
the Form S-6 registration statement for Provident Mutual Variable Growth
Separate Account, et al., filed on May 1, 1998, File No. 33-2625.
C-2
<PAGE> 63
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 G. Potter, Jr.**................................. Director, Secretary and Legal Officer
Linda M. Springer**.................................... Director
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
Deborah Thiel Hall**................................... Compliance Officer
Timothy P. Henry**..................................... Vice President
Joseph T. Laudadio..................................... Underwriting Officer
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*
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
</TABLE>
C-3
<PAGE> 64
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
1717 Capital Management Pennsylvania Ownership of all Broker/Dealer
Company* voting securities by
PHC
1767 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
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, 1998 there were a total of individual flexible
premium deferred variable annuity contracts (File No. 33-65512) in
force -- 4,499 non-qualified and 6,885 qualified.
C-4
<PAGE> 65
Item 28. Indemnification
The By-Laws of Provfirst America Life and Annuity Company provide, in part
in Article XII, as follows:
ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
Section 12.01. To the fullest extent permitted by law, the Company shall
indemnify any present, former, or future Director, officer,
or employee of the Company or any person who may serve or
has served at its request as officer or Director of another
corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including
attorneys' fees, necessarily incurred in connection with the
defense of any action, suit or other proceeding to which any
of them is made a party because of service as Director,
officer, or employee of the Company or such other
corporation, or in connection with any appeal therein, and
against any amounts paid by such Director, officer, or
employee in settlement of, or in satisfaction of a judgment
or fine in any such action, suit or proceeding, except
expenses incurred in defense of or amounts paid in
connection with any action, suit or other proceeding in
which such Director, officer or employee shall be adjudged
to be liable for negligence or misconduct in the performance
of his duty. A judgment entered in connection with a
compromise or dismissal or settlement of any such action,
suit or other proceeding shall not of itself be deemed an
adjudication of negligence or misconduct. The
indemnification herein provided shall not be exclusive of
any other rights to which the persons indemnified may be
entitled.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses 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 PALAC Variable Life Separate Account
and for the Provfirst Life Variable Life and Annuity Separate Accounts.
C-5
<PAGE> 66
(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 G. Potter, Jr.**.................... Director Director, Secretary and
Legal Officer
Joan C. Tucker............................ Director Director and Vice President
Louise A. Aviola, Jr. .................... Vice President and Manager of None
Operations
Rosanne Gatta**........................... Treasurer Treasurer
Anthony Giampietro**...................... Assistant Treasurer Assistant Treasurer
Deborah Thiel Hall**...................... Insurance Compliance Officer Compliance Officer
Michael Krulikowski....................... Senior Compliance Officer None
Anthony Mastrangelo**..................... Assistant Financial Reporting None
Officer
Todd R. Miller**.......................... Assistant Financial Reporting Financial Reporting Officer
Officer
Alison Naylor............................. Compliance Officer None
Linda M. Springer**....................... Financial Reporting Officer Director
</TABLE>
- ---------------
* Unless otherwise indicated, principal business address is Christiana
Executive Campus, P.O. Box 15626, Wilmington, DE 19850.
** Principal business address is 1050 Westlakes Drive, Berwyn, PA 19312.
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder are maintained by
Provfirst America Life and Annuity Company 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.
C-6
<PAGE> 67
(d) Reliance on No-Action Letter Regarding Section 403(b) Retirement Plan.
PALAC 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
Provfirst America Life and Annuity Company 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 Provfirst America Life and Annuity Company.
C-7
<PAGE> 68
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 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 18TH
DAY OF FEBRUARY, 1999.
PROVIDENTMUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT (REGISTRANT)
<TABLE>
<S> <C>
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President
</TABLE>
By: PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (DEPOSITOR)
<TABLE>
<C> <S>
Attest: /s/ JAMES G. POTTER, JR. 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 February 18, 1999
- --------------------------------------- (Principal Executive Officer)
ROBERT W. KLOSS
/s/ LINDA M. SPRINGER Financial Reporting Officer February 18, 1999
- --------------------------------------- (Principal Financial Officer)
LINDA M. SPRINGER
* Director February 18, 1999
- ---------------------------------------
MARY LYNN FINELLI
* Director February 18, 1999
- ---------------------------------------
ALAN F. HINKLE
* Director February 18, 1999
- ---------------------------------------
JAMES D. KESTNER
* Director February 18, 1999
- ---------------------------------------
SARAH C. LANGE
* Director February 18, 1999
- ---------------------------------------
J. KEVIN MCCARTHY
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director February 18, 1999
- ---------------------------------------
JAMES G. POTTER, JR.
* Director February 18, 1999
- ---------------------------------------
JOAN C. TUCKER
*By: /s/ JAMES G. POTTER, JR.
- ---------------------------------------
JAMES G. POTTER, JR.
Attorney-in-Fact
Pursuant to Power of Attorney
</TABLE>
