<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 30, 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. 7 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 12 [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
---------------------
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Interests in Flexible Individual Flexible Premium Deferred Variable Annuity
contracts.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO RULE 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required By Form N-4.
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
---------------- ------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Definitions................................ Definitions
3. Synopsis................................... Table of Expenses; Summary
4. Condensed Financial Information............ Financial Highlights
5. General Description of Registrant,
Depositor and Portfolio Companies........ PLACA, the Variable Account and Funds
a. Depositor............................... PLACA, the Variable Account and Funds
--Providentmutual Life and Annuity
Company of America
b. Registrant.............................. PLACA, the Variable Account and Funds
--Providentmutual Variable Annuity
Separate Account
c. Portfolio Company....................... PLACA, the Variable Account and the Funds
d. Fund Prospectus......................... PLACA, the Variable Account and the Funds
e. Voting Rights........................... PLACA, the Variable Account and the Funds
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
(iii) Exchanges............................ N/A
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--PLACA, the Variable Account
and the Funds
18. Services
a. Fees and Expenses of Registrant......... N/A
b. Management Contract..................... See Prospectus--Administrative Charges
c. Custodian............................... Safekeeping of Account Assets
d. Independent Public Accountant........... Experts
e. Assets of Registration.................. Safekeeping of Account Assets
f. Affiliated Persons...................... N/A
g. Principal Underwriter................... See Prospectus--Distribution of Contracts
19. Purchase of Securities Being Offered....... See Prospectus--Distribution of Contracts
20. Underwriter................................ See Prospectus--Distribution of Contracts
21. Calculation of Performance Data............ Calculation of Yields and Total Returns
22. Annuity Payments........................... See Prospectus--Payment Options
23. Financial Statements....................... Financial Statements
</TABLE>
<PAGE> 4
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE> 5
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
ISSUED BY
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
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:
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713
Telephone: 1-800-688-5177
Providentmutual Life and Annuity Company of America ("PLACA") 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 39 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
Providentmutual 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
PLACA, the Variable Account and the Funds................... 11
Providentmutual Life and Annuity Company of America.... 11
Providentmutual Variable Annuity Separate Account...... 11
The Funds.............................................. 12
Market Street Fund, Inc. ......................... 12
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................................. 20
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............................. 26
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............................. 33
The Treatment of Annuities............................. 34
Taxation of Non-Qualified Contracts.................... 34
Taxation of Qualified Contracts........................ 35
Withholding............................................ 36
Possible Changes in Taxation........................... 37
Other Tax Consequences................................. 37
Distribution of Contracts................................... 37
Preparing for Year 2000..................................... 37
Legal Proceedings........................................... 38
Voting Rights............................................... 38
Statement of Additional Information Table of Contents....... 39
Appendix A -- Financial Highlights.......................... A-1
Appendix B -- Plan of Conversion............................ 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.
CONTRACT................... The individual flexible premium deferred variable
annuity contract issued by PLACA 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.
PLACA, WE, OUR, US......... Providentmutual Life and Annuity Company of America.
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........... Providentmutual 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 PLACA 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.
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
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, INC.
ANNUAL EXPENSES
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.32% 0.25% 0.35% 0.40% 0.41% 0.75%
Other Expenses................... 0.15% 0.17% 0.20% 0.18% 0.21% 0.25%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses....... 0.47% 0.42% 0.55% 0.58% 0.62% 1.00%
</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, INC.
ANNUAL EXPENSES
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.70% 0.70% 0.90% 0.90%
Other Expenses................... 0.22% 0.27% 0.35% 0.39%
---- ---- ---- ----
Total Fund Annual Expenses(3).... 0.92% 0.97% 1.25% 1.29%
</TABLE>
2
<PAGE> 10
<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)..... 0.58% 0.49% 0.59%
Other Expenses (after
reimbursement)................. 0.12% 0.08% 0.07%
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(3).............. 0.70% 0.57% 0.66%
</TABLE>
<TABLE>
<CAPTION>
ASSET INDEX
MANAGER 500 CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
II
("VIP II FUND")
ANNUAL EXPENSES(4)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.54% 0.24% 0.59%
Other Expenses (after
reimbursement)................. 0.09% 0.04% 0.07%
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(3).............. 0.63% 0.28% 0.66%
</TABLE>
<TABLE>
<CAPTION>
GROWTH &
BOND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
SCUDDER VARIABLE LIFE INVESTMENT
FUND
ANNUAL EXPENSES(4)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.48% 0.46% 0.86%
Other Expenses................... 0.09% 0.10% 0.18%
---- ---- ----
Total Fund Annual Expenses....... 0.57% 0.56% 1.04%
</TABLE>
<TABLE>
<CAPTION>
SMALL
EQUITY CAP MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OCC ACCUMULATION TRUST
ANNUAL EXPENSES(4)
(as a % of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.80% 0.80% 0.78%
Other Expenses (after
reimbursement)................. 0.14% 0.07% 0.04%
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(3)(3A).......... 0.94% 0.87% 0.82%
</TABLE>
3
<PAGE> 11
<TABLE>
<CAPTION>
ZERO
COUPON GROWTH &
2000 INCOME
PORTFOLIO PORTFOLIO
------------- ---------
<S> <C> <C> <C> <C> <C> <C>
DREYFUS VARIABLE INVESTMENT FUND
ANNUAL EXPENSES(4)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.45% 0.75%
Other Expenses................... 0.14% 0.03%
---- ----
Total Fund Annual Expenses....... 0.59% 0.78%
</TABLE>
<TABLE>
<CAPTION>
SOCIALLY
RESPONSIBLE
PORTFOLIO
-------------
<S> <C> <C> <C> <C> <C> <C>
THE DREYFUS SOCIALLY RESPONSIBLE
GROWTH FUND, INC.
ANNUAL EXPENSES(4)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.75%
Other Expenses................... 0.05%
----
Total Fund Annual Expenses....... 0.80%
</TABLE>
<TABLE>
<CAPTION>
FUND FOR
U.S. GOVN'T UTILITY
SECURITIES II FUND II
PORTFOLIO PORTFOLIO
------------- ---------
<S> <C> <C> <C> <C> <C> <C>
FEDERATED INSURANCE SERIES
ANNUAL EXPENSES(4)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 0.60% 0.75%
Other Expenses (after
reimbursement)................. 0.25% 0.18%
---- ----
Total Fund Annual Expenses (after
reimbursement)(3).............. 0.85% 0.93%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE HARD EMERGING REAL
BOND ASSETS MARKETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE
ANNUAL EXPENSES(4)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory Fees)..... 1.00% 1.00% 1.00% 1.00%
Other Expenses (after
reimbursement)................. 0.15% 0.16% 0.50% 0.50%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)....... 1.15% 1.16% 1.50% 1.50%
</TABLE>
Premium taxes may be applicable, depending on various states' laws.
4
<PAGE> 12
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."
- ---------------
(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.")
(2) Asset-based administration charge.
(3) For certain portfolios, certain expenses were reimbursed or fees waived
during. It is anticipated that expense reimbursement and fee waiver
arrangements will continue past the current year. Absent the expense
reimbursement, the Total Annual Expenses would have been 1.36% for the
Market Street Fund All-Pro Small Cap Value Portfolio, 0.58% for the VIP
Fund Equity-Income Portfolio, 0.68% for the VIP Fund Growth Portfolio,
0.64% for the VIP II Fund Asset Manager Portfolio, 0.35% for the VIP II
Fund Index 500 Portfolio, 0.70% for the VIP II Fund Contrafund Portfolio,
0.88% for the OCC Small Cap Portfolio, 0.93% for the Federated U.S.
Government Securities II Portfolio, 1.00% for the Federated Utility Fund II
Portfolio, 1.20% for the Van Eck Worldwide Hard Assets Portfolio, 1.61% for
the Van Eck Worldwide Emerging Markets Portfolio and 5.32% for the Van Eck
Worldwide Real Estate 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 for these
Portfolios because the level of actual expenses and fees never exceeded the
thresholds at which the reimbursement and waiver arrangements would have
become operative.
(3A) The Advisers of the OCC Accumulation Trust Equity, Small Cap and Managed
Portfolios are contractually obligated to waive that portion of the
advisory fee and to assume any necessary expense to limit total operating
expenses of the Portfolio to 1.00% of average net assets (net of expense
offset) on an annual basis.
(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 WIT are not affiliated with PLACA.
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............................................ $68.11 $ 96.41 $125.20 $246.83
MS Money Market...................................... 67.64 94.94 122.69 241.70
MS Bond.............................................. 68.88 98.75 129.20 254.99
MS Managed........................................... 69.16 99.63 130.70 258.03
MS Aggressive Growth................................. 69.54 100.80 132.69 262.08
MS International..................................... 73.15 111.86 151.46 299.73
MS All Pro Large Cap Growth.......................... 72.39 109.53 147.54 291.92
</TABLE>
5
<PAGE> 13
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
MS All Pro Large Cap Value........................... 72.86 110.99 149.99 296.81
MS All Pro Small Cap Growth.......................... 75.52 119.09 163.66 323.76
MS All Pro Small Cap Value........................... 75.90 120.24 165.60 327.55
Fidelity High Income................................. 70.30 103.13 136.67 270.12
Fidelity Equity Income............................... 69.06 99.33 130.20 257.02
Fidelity Growth...................................... 69.92 101.96 134.68 266.10
Fidelity Asset Manager............................... 69.63 101.09 133.19 263.08
Fidelity Index 500................................... 66.31 90.83 115.64 227.19
Fidelity Contrafund.................................. 69.92 101.96 134.68 266.10
OCC Equity........................................... 72.60 110.17 148.61 294.06
OCC Small Cap........................................ 71.96 108.21 145.29 287.44
OCC Managed.......................................... 71.42 106.58 142.53 281.91
Scudder Bond......................................... 69.06 99.33 130.20 257.02
Scudder Growth & Income.............................. 68.97 99.04 129.70 256.00
Scudder International................................ 73.53 113.01 153.42 303.61
Dreyfus Zero Coupon 2000............................. 69.25 99.92 131.19 259.04
Dreyfus Growth & Income.............................. 71.06 105.46 140.63 278.10
Dreyfus Socially Resp. .............................. 71.25 106.05 141.62 280.08
Federated U.S. Gov't Securities II................... 71.72 107.50 144.09 285.03
Federated Utility Fund II............................ 72.49 109.82 148.03 292.90
Van Eck Worldwide Bond............................... 74.57 116.20 158.79 314.22
Van Eck Worldwide Hard Assets........................ 74.67 116.49 159.28 315.17
Van Eck Worldwide Emerging Markets................... 77.90 126.28 175.72 347.20
Van Eck Worldwide Real Estate........................ 77.90 126.28 175.72 347.20
</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............................................. $21.70 $66.96 $114.82 $246.83
MS Money Market....................................... 21.20 65.45 112.28 241.70
MS Bond............................................... 22.50 69.37 118.86 254.99
MS Managed............................................ 22.80 70.28 120.37 258.03
MS Aggressive Growth.................................. 23.20 71.48 122.39 262.08
MS International...................................... 27.00 82.88 141.35 299.73
MS All Pro Large Cap Growth........................... 26.20 80.49 137.39 291.92
MS All Pro Large Cap Value............................ 26.70 81.98 139.87 296.81
MS All Pro Small Cap Growth........................... 29.50 90.33 153.67 323.76
MS All Pro Small Cap Value............................ 29.90 91.52 155.63 327.55
Fidelity High Income.................................. 24.00 73.89 126.40 270.12
Fidelity Equity Income................................ 22.70 69.98 119.87 257.02
Fidelity Growth....................................... 23.60 72.69 124.40 266.10
Fidelity Asset Manager................................ 23.30 71.78 122.89 263.08
Fidelity Index 500.................................... 19.80 61.21 105.16 227.19
Fidelity Contrafund................................... 23.60 72.69 124.40 266.10
OCC Equity............................................ 26.42 81.14 138.47 294.06
OCC Small Cap......................................... 25.74 79.12 135.12 287.44
OCC Managed........................................... 25.18 77.44 132.33 281.91
Scudder Bond.......................................... 22.70 69.98 119.87 257.02
Scudder Growth & Income............................... 22.60 69.67 119.36 256.00
</TABLE>
6
<PAGE> 14
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Scudder International................................. 27.40 84.07 143.33 303.61
Dreyfus Zero Coupon 2000.............................. 22.90 70.58 120.88 259.04
Dreyfus Growth & Income............................... 24.80 76.29 130.41 278.10
Dreyfus Socially Resp. ............................... 25.00 76.89 131.41 280.08
Federated U.S. Gov't Securities II.................... 25.50 78.39 133.90 285.03
Federated Utility Fund II............................. 26.30 80.78 137.88 292.90
Van Eck Worldwide Bond................................ 28.50 87.35 148.76 314.22
Van Eck Worldwide Hard Assets......................... 28.60 87.65 149.25 315.17
Van Eck Worldwide Emerging Markets.................... 32.00 97.74 165.86 347.20
Van Eck Worldwide Real Estate......................... 32.00 97.74 165.86 347.20
</TABLE>
The Examples provided above assume that no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $30 and that the Contract Account Value per contract is
$10,000, which translates the Administration Fee into an assumed .30% charge for
purposes of the Examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESSER THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE GREATER OR LESSER THAN THE
ASSUMED AMOUNT.
7
<PAGE> 15
SUMMARY
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
may waive 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
PLACA, THE VARIABLE ACCOUNT AND THE FUNDS
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
The Contracts are issued by Providentmutual Life and Annuity Company of
America ("PLACA") 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 PLACA in 1991 and the Company was redomiciled as a Delaware
insurance company in December, 1992. PLACA is currently licensed to transact
life insurance business in 48 states and the District of Columbia. As of
December 31, 1998, PLACA had total assets of approximately $1.5 billion.
PLACA is a wholly-owned subsidiary of Provident Mutual Life Insurance
Company ("PMLIC"). PMLIC was chartered by the Commonwealth of Pennsylvania in
1865 and at the end of 1998 had total assets of approximately $8.7 billion. More
information about PMLIC is provided in Appendix B. On December 31, 1997, PLACA
and PMLIC entered into a Support Agreement whereby PMLIC agrees to ensure that
PLACA'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 PLACA an amount of
capital sufficient to attain such level of total adjusted capital. RBC
requirements are used to monitor sufficient capitalization of insurance
companies based upon the types and mixtures of risk inherent in such companies'
operations.
Further, PMLIC agrees to cause PLACA 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 PLACA. This agreement will
remain in effect provided PLACA is, and remains, a subsidiary of PMLIC. Prior to
any material modification or termination of the agreement, a determination must
be made that such modification or termination will not have an adverse impact on
the policyholders of PLACA. Such determination shall be based on the ability of
PLACA at the time of such determination to maintain its own financial stability
according to the standards contained in the agreement. Other than this Support
Agreement, PMLIC is under no obligation to invest money in PLACA nor is it in
any way a guarantor of PLACA's contractual obligations or obligations under the
Contract.
PLACA 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. PLACA 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.
PLACA 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.
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
Providentmutual Variable Annuity Separate Account is a separate investment
account of PLACA, established by the Board of Directors of PLACA on May 9, 1991,
under Pennsylvania law. Because PLACA later redomesticated as a Delaware
Insurance Company, the Variable Account is now subject to regulation by the
Delaware Insurance Department. PLACA has caused the Variable Account to be
registered with the Securities and Exchange Commission (the "SEC") as a unit
investment trust under the investment Company Act of 1940 (the "1940 Act"). Such
registration does not involve supervision by the SEC of the management or
investment policies or practices of the Variable Account.
The assets of the Variable Account are owned by PLACA. However, these
assets are held separate from other assets and are not part of PLACA'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 PLACA conducts. PLACA may
transfer to its General Account any assets of the Variable Account which exceed
the reserves and the Contract liabilities of the
11
<PAGE> 19
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. PLACA may
accumulate in the Variable Account the charge for expense and expense risks,
mortality gains and losses and investment results applicable to those assets
that are in excess of the net assets supporting the Contracts.
The Variable Account currently has thirty-six Subaccounts thirty-one of
which are available under the Contracts. They are: 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 PLACA. 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 PLACA 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 PLACA has
not been terminated. Should a Fund or a portfolio of a Fund decide not to sell
its shares to PLACA, PLACA will not be able to honor requests of Owners to
allocate their Account Values or premium payments to Subaccounts investing in
shares of that Fund or portfolio.
Certain Subaccounts invest in portfolios that have similar investment
objectives and/or policies; therefore before choosing Subaccounts, carefully
read the individual prospectuses for the Funds along with this prospectus.
THE MARKET STREET FUND, INC.
The Growth, Money Market, Bond, Managed, Aggressive Growth, International
All Pro Large Cap Growth, All Pro Small Cap Growth, All Pro Large Cap Value and
All Pro Small Cap Value Subaccounts invest in shares of the Market Street Fund,
Inc. The Fund currently issues six "series" or classes of shares, each of which
represents an interest in a separate Portfolio within the Fund: the Growth,
Money Market,
12
<PAGE> 20
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 included in the Wilshire
4500 Equity Index 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 included in
the Wilshire 4500 Equity Index at the time of purchase, which the Advisers
believe offer above-average potential for growth in future earnings.
The Growth, Money Market, Bond, Managed, and Aggressive Growth Portfolios
are advised by Sentinel Advisors Company; and the International Portfolio is
advised by Providentmutual Investment Management Company ("PIMC"). PIMC employs
The Boston Company Asset Management, Inc. to provide investment advisory
services in connection with the International Portfolio. PIMC serves as
investment adviser for the All Pro Portfolios. PIMC uses a "manager of managers"
approach for the All Pro Portfolios under which PIMC allocates each Portfolio's
assets among one or more "specialist"
13
<PAGE> 21
investment sub-advisers. As of the date of this prospectus, the assets of each
All Pro Portfolio are managed in part by the following:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISERS
- --------- -----------
<S> <C>
All Pro Large Cap Growth Cohen, Klingenstein & Marks; Geewax, Terker
& Co.
All Pro Small Cap Growth Standish, Ayer & Wood; Husic Capital
Management.
All Pro Large Cap Value Equinox Capital Management, Inc.; Harris
Associates, Inc.; Mellon Equity Associates.
All Pro Small Cap Value 1838 Investment Advisors; Denver Investment
Advisors.
</TABLE>
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.
14
<PAGE> 22
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 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 PLACA
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 PLACA. 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 PLACA are described
below.
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Equity Portfolio. Long term capital appreciation through investment in a
diversified portfolio of primarily equity securities selected on the basis of a
value-oriented approach to investing.
Small Cap Portfolio. Capital appreciation through investment in a
diversified portfolio of primarily equity securities of companies with market
capitalizations of under $1 billion.
Managed Portfolio. Growth of capital over time through investment in a
portfolio consisting of common stocks, bonds, and cash equivalents, the
percentages of which will vary over time based on the investment manager's
assessments of relative investment values.
The OCC Trust receives investment advice with respect to each of its
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital which is a
subsidiary of 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.
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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 PLACA.
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 PLACA. 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.
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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,
PLACA 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, PLACA
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.
PLACA has entered into agreements with the investment advisers of several
of the Funds pursuant to which each such investment adviser will pay PLACA a
service fee based upon an annual percentage of average net assets invested by
PLACA on behalf of the Variable Account. These agreements cover administrative
services provided to the Funds by PLACA. Payments of such amounts by an
investment adviser do not increase the fees paid by the Portfolios or Owners
invested in the Portfolios.
Certain Portfolios may have investment objectives and policies similar to
other investment portfolios or mutual funds managed by the same investment
adviser or manager. The investment results of the Portfolios, however, may be
higher or lower than those of such other investment portfolios or mutual funds.
Providentmutual does not guarantee or make any representation that the
investment results of any Portfolio will be comparable to that of any other
investment portfolio or mutual fund, even those with the same investment adviser
or manager.
RESOLVING MATERIAL CONFLICTS
The MS Fund, VIP Fund, VIP II Fund, Scudder Fund, OCC Trust, Dreyfus Funds
Federated Insurance Series 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 PLACA or PMLIC, 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.
PLACA currently does not foresee any disadvantages to Owners resulting from
the Funds selling shares to fund products other than PLACA 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, PLACA will take any necessary steps, including removing the
Variable Account from that Fund, to resolve the matter. The Board of Directors
of each Fund also 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.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
PLACA 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 PLACA's judgment
further investment in any Portfolio should become inappropriate in view of the
purposes of the Variable Account, PLACA may redeem the shares, if any, of that
Portfolio and substitute shares of
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another registered open-end management company. PLACA 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.
PLACA 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, PLACA may, in its sole discretion, establish new Subaccounts or
eliminate one or more Subaccounts if marketing needs, tax considerations or
investment conditions warrant. Any new Subaccounts may be made available to
existing Contract Owners on a basis to be determined by PLACA.
If any of these substitutions or charges are made, PLACA may by appropriate
endorsement change the Contract to reflect the substitution or change. If PLACA
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 PLACA separate accounts.
DESCRIPTION OF ANNUITY CONTRACT
ISSUANCE OF A CONTRACT
In order to purchase a Contract, application must be made to PLACA through
a licensed representative of PLACA, 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 do 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). See "Federal Tax Status -- Taxation of Qualified
Contracts" for important information about purchasing a Qualified Contract.
PREMIUMS
The minimum initial premium which PLACA 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 PLACA receives the returned Contract at its Service Center, it
will be canceled and, in most states, PLACA 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, PLACA will refund
the premiums paid.
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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 Account (as
designated by the Owner in the application) within two business days of receipt
of such premium by PLACA at its Service Center. If the application is not
properly completed, PLACA 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, PLACA will inform the applicant of the
reason for the delay and the initial premium will be returned immediately,
unless the applicant specifically consents to PLACA retaining the premium until
the application is complete. Once the application is complete, the initial Net
Premium will be allocated within two business days.
The Owner designates in the application how the initial Net Premium is to
be allocated among the Subaccounts and the Guaranteed Account. 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 PLACA 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
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the Unit Value at the end of the immediately preceding Valuation Period by the
Net Investment Factor for the Valuation Period for which the value is being
determined.
Net Investment Factor. The Net Investment Factor is an index that measures
the investment performance of a Subaccount from one Valuation Period to the
next. Each Subaccount has its own Net Investment Factor, which may be greater or
less than one. The Net Investment Factor for each Subaccount for a Valuation
Period equals 1 plus the fraction obtained by dividing (a) by (b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited during the current Valuation Period; plus
2. any amount credited or released from reserves for taxes
attributable to the operation of the Subaccount; minus
3. the capital losses, realized or unrealized, charged during the
current Valuation Period; minus
4. any amount charged for taxes or any amount set aside during the
Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Subaccount; minus
5. the amount charged for mortality and expense risk for that
Valuation Period; minus
6. the amount charged for administration for that Valuation Period;
and
(b) is the value of the assets in the Subaccount at the end of the
preceding Valuation Period, adjusted for allocations and transfers to and
withdrawals and transfers from the Subaccount occurring during that
preceding Valuation Period.
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 PLACA. 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 PLACA. PLACA reserves the
right to suspend telephone transfer privileges at any time, for any class of
Contracts, for any reason.
PLACA 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.
PLACA, however, may be liable for such losses if it does not follow those
reasonable procedures. The procedures PLACA will follow for telephone transfers
include requiring some
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form of personal identification prior to acting on instructions received by
telephone, providing written confirmation of the transaction and making a
tape-recording of the instructions given by telephone.
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of Variable Account Values
among the Subaccounts in order to achieve a particular percentage allocation of
Variable Account Values among such Subaccounts. Such percentage allocations must
be in whole numbers and must allocate amounts only among the Subaccounts. No
amounts will be transferred to the Guaranteed Account as a part of Automatic
Asset Rebalancing. The percentage allocation of your Contract Account Value for
rebalancing will be based on your premium allocation instructions in effect at
the time of rebalancing. Any allocation instructions that you give us that
differ from your then current allocation instructions will be treated as a
request to change such allocation instructions.
Once elected Automatic Asset Rebalancing begins on the first quarterly or
annual anniversary following election. You may change or terminate Automatic
Asset Rebalancing by written instruction to PLACA, or by telephone if you have
previously authorized us to take telephone instructions. PLACA 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. PLACA 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. PLACA does not currently asses a charge for
Advance Orders, but reserves the right to charge for this service. In addition,
PLACA 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. PLACA, 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
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returning it to the Company by the beginning of the month and ensuring that the
required minimum amount is in the Money Market Subaccount, Dollar Cost Averaging
transfers may not commence until the later of (a) 30 days after the Contract
Date and (b) five days after the end of the free look period.
Once elected, transfers from a Subaccount will be processed monthly until
the number of designated transfers have been completed, or the value of the
Subaccount is completely depleted, or the Owner instructs PLACA 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. PLACA 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. PLACA 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 PLACA 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. PLACA 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 PLACA to reduce the withdrawal amount for that year so that it
does not exceed the 10% limit, PLACA will continue to process withdrawals for
the designated amount. Once the amount of the withdrawals exceeds the 10% limit,
PLACA will deduct the applicable Surrender Charge from the remaining payments
made during that Contract Year. (See "Surrender Charge.")
PLACA will pay the Owner the amount requested each month or quarter and
cancel units equal to the amount withdrawn from the Subaccounts and the
Guaranteed Account based on the proportion that the value in such Subaccount or
Guaranteed Account bears to the Contract Account Value immediately prior to the
withdrawal. In the event that the amount to be withdrawn exceeds the
Subaccount's Value,
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PLACA 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 PLACA. PLACA 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 Cash Surrender
Value less 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 PLACA'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. PLACA 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.
PLACA 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 PLACA receives an additional premium
payment before the termination date specified in the notice. This additional
premium payment must be for at least the required minimum amount. (Termination
of the Contract under this provision is not permitted in New Jersey.)
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DEATH BENEFIT BEFORE MATURITY DATE
Step Up Rider. At issue, a Contract Owner may elect the Step-up Rider for
an Annuitant who is age 0-70. The Step-up Rider 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 PLACA receives due proof of the
Annuitant's death or the sum of premiums paid, less any withdrawals, including
applicable Surrender Charges.
Rising Floor Rider. At issue, a Contract Owner also may elect the Rising
Floor Rider for an Annuitant who is age 0-70. The Rider 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, PLACA
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 PLACA 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 PLACA 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.
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<PAGE> 33
PROCEEDS ON MATURITY DATE
The Maturity Date is selected by the Owner, subject to PLACA'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, PLACA has the right to defer
payment until such check or draft has been honored.
PLACA 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, PLACA 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 PLACA 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, PLACA will make appropriate
endorsement to the Contract.
REPORTS TO CONTRACT OWNERS
At least quarterly, PLACA 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
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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 PLACA 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
PLACA'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. PLACA'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 PLACA's General Account has been
registered as an investment company under the Investment Company Act of 1940.
Therefore, neither PLACA'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 PLACA's General Account, PLACA assumes the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to PLACA'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%. PLACA 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
PLACA, 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, PLACA 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 PLACA. 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.
PLACA 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).
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<PAGE> 35
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 PLACA receives the written request at its Service Center.
PAYMENT DEFERRAL
PLACA 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 PLACA; conversely, if the
amount of such charges proves more than enough, the excess will be retained by
PLACA. PLACA 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 PLACA'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.
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.
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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), PLACA 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 PLACA for costs
associated with administration of the Contracts, prior to the Maturity Date
PLACA 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 PMLIC pursuant to a Service Agreement
between PLACA and PMLIC. Under the agreement, PMLIC also maintains records of
transactions relating to the Contracts and provides other services.
TRANSFER PROCESSING FEE
The first twelve transfers during each Contract Year are free. A $25
Transfer Processing Fee will be assessed for each additional transfer during
such Contract Year. For the purpose of assessing the fee, each Written Notice of
transfer is considered to be one transfer, regardless of the number of
Subaccounts or accounts affected by the transfer. The processing fee will be
deducted from the amount being transferred. PLACA does not expect a profit from
this fee.
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MORTALITY AND EXPENSE RISK CHARGE
To compensate PLACA for assuming mortality and expense risks, prior to the
Maturity Date PLACA deducts a daily Mortality and Expense Risk Charge from the
assets of the Variable Account. PLACA 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 PLACA 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 PLACA assumes also includes a guarantee to pay a death benefit if the
Annuitant dies before the Maturity Date. The expense risk PLACA 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. PLACA 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 PLACA. 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 PLACA'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.
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
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<PAGE> 38
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 PLACA. 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 PLACA'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, PLACA 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 information, as well
as comparisons with unmanaged market indices, appears in the Statement of
Additional Information.
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<PAGE> 39
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, PLACA may from time to time disclose average
annual total return in non-standard formats and cumulative total return for
Contracts funded by the Subaccounts.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of each Subaccount may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the Subaccounts. Lipper Analytical Services, Inc. ("Lipper") and the
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life insurance issuers as well as
variable annuity issuers. VARDS rankings compare only variable annuity issuers.
The performance analyses prepared by Lipper and VARDS
32
<PAGE> 40
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.
PLACA 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 PLACA'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
PLACA'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.
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.
33
<PAGE> 41
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 PLACA believes that the Contracts do not
give Owners investment control over Variable Account assets, PLACA 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. PLACA 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.
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.
34
<PAGE> 42
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 PLACA (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 PLACA is not bound by the terms and conditions
of such plans to the extent such terms contradict the Contract, unless PLACA
consents.
The Owner may wish to consult a qualified tax and/or financial adviser
regarding the use of the Contract within a qualified plan or in connection with
other employee benefit plans or arrangements that receive favorable tax
treatment, since many such plans or arrangements provide the same type of tax
deferral as provided by the Contract. The Contract provides a number of extra
benefits and features not provided by employee benefit plans or arrangements
alone, although there are costs and expenses under the Contract related to these
benefits and features. Owners should carefully consider these benefits and
features in relation to their costs as they apply to the Owner's particular
situation.
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 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.
35
<PAGE> 43
Brief descriptions follow of the various types of qualified retirement
plans in connection with a Contract. PLACA 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 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.
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<PAGE> 44
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 PLACA'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
PLACA does not anticipate discontinuing the offering of the Contracts. However,
PLACA reserves the right to discontinue the offering. Applications for Contracts
are solicited by agents who are licensed by applicable state insurance
authorities to sell PLACA'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 PLACA 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 will also enter into selling agreements
with other broker-dealers with respect to distribution of the Contracts. 1717
and receives the full commissions on Contracts sold by its registered
representatives. Nonaffiliated broker-dealers receive full commissions on
Contracts sold by their registered representatives, less a nominal charge by
1717 for expenses incurred. The commissions paid are no greater than 7% of
premiums.
PREPARING FOR YEAR 2000
Like all financial services providers, PLACA 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. PLACA and its affiliates have developed, and
are in the process of implementing, a Year 2000 transition plan, and are
confirming that its service providers are also so engaged. The resources that
are being devoted to this effort are substantial. It is difficult to predict
with precision whether the amount of resources ultimately devoted, or the
outcome of these efforts, will have any negative impact on PLACA 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. PLACA and its affiliates currently anticipate that their systems
will be Year 2000 compliant on or about July 1, 1999 but there can be no
assurance that PLACA and its affiliates will be successful, or that interaction
with other service providers will not impair PLACA or its affiliates' services
at that time.
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<PAGE> 45
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC believes that at the
present time there are not pending or threatened lawsuits that are reasonable
likely to have a material adverse impact on the Separate Account or PMLIC.
VOTING RIGHTS
In accordance with its view of present applicable law, PLACA 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 PLACA 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 PLACA 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 PLACA 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.
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<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........................................ F-1
</TABLE>
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<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,"
concerning financial statements contained in the Statement of Additional
Information.
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................................. 598.06 62,328.14 575.95 45,925.41 554.47
MS Growth....................................... 1,065.67 34,680.05 950.55 32,051.38 775.34
MS Bond......................................... 637.92 18,437.76 597.74 10,217.64 553.59
MS Managed...................................... 866.94 18,219.44 781.27 16,899.90 653.55
MS Aggressive Growth............................ 887.21 12,301.49 833.15 11,389.39 697.07
MS International................................ 764.54 22,728.56 704.02 23,495.92 651.04
MS All Pro Large Cap Growth..................... 583.02 3,398.61
MS All Pro Small Cap Growth..................... 485.44 2,787.56
MS All Pro Large Cap Value...................... 490.39 3,752.20
MS All Pro Small Cap Value...................... 408.65 2,343.81
Fidelity High Income............................ 743.43 26,474.33 788.02 21,860.95 679.15
Fidelity Equity Income.......................... 1,113.96 78,563.14 1,011.99 73,730.38 801.08
Fidelity Growth................................. 1,245.95 74,160.15 905.80 67,965.10 743.89
Fidelity Asset Manager.......................... 866.16 42,506.75 763.46 37,474.25 641.70
Fidelity Index 500.............................. 1,377.32 61,689.14 1,088.42 48,054.18 831.78
Fidelity Contrafund............................. 1,127.92 46,442.16 879.99 38,683.95 718.85
OCC Equity...................................... 1,181.96 19,823.89 1,071.54 19,067.19 858.13
OCC Small Cap................................... 724.89 22,809.77 808.05 22,411.36 670.35
OCC Managed..................................... 1,117.54 53,641.58 1,057.94 54,119.40 877.27
Scudder Bond.................................... 625.13 17,333.39 594.92 13,308.44 553.18
Scudder Growth & Inc............................ 962.07 22,590.73 913.35 17,259.20 709.94
Scudder International........................... 748.08 19,335.69 641.18 16,570.16 596.09
Drey. Zero Coup. 2000........................... 614.21 12,081.33 580.67 10,024.98 550.29
Dreyfus Growth & Inc............................ 975.63 20,073.85 884.85 19,203.03 772.15
Dreyfus Socially Resp........................... 1,172.49 9,357.48 918.99 5,878.19 725.61
Federated Fund for U.S. Gov't. Securities II.... 618.36 15,015.43 582.47 6,129.09 544.01
Federated Utility Fund II....................... 886.67 11,449.65 789.26 6,448.18 632.04
Van Eck Worldwide Hard Assets................... 345.27 791.04
Van Eck Worldwide Bond.......................... 588.75 430.59
Van Eck Worldwide Emerging Markets.............. 297.26 1,094.81
Van Eck Worldwide Real Estate................... 425.72 396.85
<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 Manager.......................... 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 Manager.......................... 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
It is anticipated that, at some point in the future, a Plan of Conversion
("Plan") will become effective pursuant to which Provident Mutual Life Insurance
Company, a Pennsylvania mutual life insurance corporation ("Provident Mutual"),
will be reorganized and continue its corporate existence ("Conversion") as
Provfirst American Life Insurance Company, a Pennsylvania stock life insurance
corporation ("PMLIC"). The Plan 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. On February 11, 1999, the
Court of Common Pleas of Philadelphia County issued an order granting a
preliminary injunction, which has postponed completion of the Conversion until
the court conducts a hearing. The Company believes the Plan and related
disclosure documents meet all applicable legal requirements.
Before the Conversion, Providentmutual Life and Annuity Company of America
("PLACA") is a wholly-owned subsidiary of Provident Mutual. If the Conversion
occurs, PLACA will remain a wholly-owned subsidiary of PMLIC, and PLACA's name
will be changed to Provfirst America Life and Annuity Company ("PMLIC and
Annuity"). No other changes to PLACA are anticipated to occur as a result of the
Conversion. THE CURRENT AND FUTURE RIGHTS AND INTERESTS OF OWNERS OF PLACA
INSURANCE AND ANNUITY CONTRACTS, INCLUDING THE CONTRACTS, WILL NOT CHANGE AS A
RESULT OF THE CONVERSION, AND THE CONVERSION WILL NOT INCREASE PREMIUMS OR
REDUCE CONTRACT BENEFITS, VALUES, GUARANTEES OR OTHER CONTRACT OBLIGATIONS TO
OWNERS. THE CONVERSION WILL NOT CHANGE THE OPERATIONS OF THE VARIABLE ACCOUNT
AND WILL NOT RESULT IN ANY MATERIAL DISRUPTION OF THE SERVICES PROVIDED TO
OWNERS.
Before the Conversion, PLACA will continue to conduct business in all
jurisdictions under the name "Providentmutual Life and Annuity Company of
America." After the Conversion it is anticipated that PLACA will conduct
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, PMLIC 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 will be changed to Provfirst Variable Annuity Separate
Account. Use of the new Variable Account name in each jurisdiction will begin
concurrently with the use of PMLIC and Annuity's new name in such jurisdiction.
Pursuant to the Plan, Provident Mutual will also form Provident Mutual
Holding Company, a Pennsylvania nonstock corporation, and Provfirst America
Corporation, a Pennsylvania business corporation. If the Conversion occurs, all
the shares of voting stock of PMLIC will be issued to the Provfirst America
Corporation, and all the shares of voting stock of Provfirst America Corporation
will be issued to Provident Mutual Holding Company, except for approximately 1%
of the then-issued shares of voting stock of Provfirst America Corporation,
which will be issued to an employee stock ownership plan to be formed by PMLIC.
Pursuant to the Order and as set forth in the Plan, Provident Mutual Holding
Company will at all times, directly or indirectly, control PMLIC 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 PMLIC. If the Conversion occurs, the directors and executive officers
of PMLIC serving immediately prior to the Effective Date will remain as the
directors and executive officers of each of Provident Mutual Holding Company,
Provfirst America Corporation and PMLIC after the Effective Date.
Before the Conversion, Provident Mutual policyholders have (1) contract
rights under their insurance policies and annuity contracts, and (2) certain
membership rights in Provident Mutual. The principal contract right of
policyholders is the right to receive the type and amount of benefits 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 include the
right to vote at
B-1
<PAGE> 49
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.
If the Conversion occurs, the contract rights and the membership rights of
policyholders of Provident Mutual policies will be separated. The contract
rights will remain with PMLIC and the membership rights in Provident Mutual will
be extinguished. Each policyholder will then receive, by operational law,
membership rights in Provident Mutual Holding Company. Each future policyholder
of PMLIC 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
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
300 CONTINENTAL DRIVE
NEWARK, DELAWARE 19713
1-800-688-5177
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY SEPARATE ACCOUNT
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information contains information in addition
to the information described in the Prospectus for the flexible premium deferred
variable annuity contract (the "Contract") offered by Providentmutual Life and
Annuity Company of America. This Statement of Additional Information is not a
Prospectus, and it should be read only in conjunction with the Prospectuses for
the Contract and The Market Street Fund, Inc., the 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, the Federated Insurance Series and the Van Eck Worldwide Insurance Trust.
The Prospectus is dated the same as this Statement of Additional Information.
You may obtain a copy of the Prospectus by writing or calling us at our address
or phone number shown above.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 1999
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (19-27)...................... 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 (31)................ 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 (Appendix B)............................... S-10
RECORDS AND REPORTS......................................... S-10
LEGAL MATTERS (37).......................................... S-10
EXPERTS..................................................... S-10
OTHER INFORMATION........................................... S-11
FINANCIAL STATEMENTS (Appendix A)........................... F-1
</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. PLACA 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
PLACA 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
PLACA's divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, PLACA may disclose historic performance data for the
subaccounts including yields, standard annual total returns, and other
nonstandard measures of performance. Such performance data will be computed, or
accompanied by performance data computed, in accordance with the standards
defined by the Securities and Exchange Commission.
Because of the charges and deductions imposed under a Contract, the yield
for the Subaccounts will be lower than the yield for their respective
Portfolios. The calculations of yields, total returns, and other performance
data do not reflect the effect of any premium tax that may be applicable to a
particular Contract. Premium taxes currently range from 0% to 3.5% of premium
based on the state in which the Contract is sold.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, advertisements and sales literature may quote the
current annualized yield of the Money Market Subaccount for a seven-day period
in a manner which does not take into consideration any realized or unrealized
gains or losses or income other than investment income on shares of the Money
Market Portfolio or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and exclusive of income other than investment
income) at the end of the seven-day period in the value of a hypothetical
account under a Contract having a balance of 1 unit of the Money Market
Subaccount at the beginning of the period, dividing such net change in account
value by the value of the hypothetical account at the beginning of the period to
determine the base period return, and annualizing this quotient on a 365-day
S-2
<PAGE> 52
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.
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
S-3
<PAGE> 53
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, PLACA 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 PLACA calculates on each Valuation Day based on the performance of
the Subaccount's underlying Portfolio, the deductions for the Mortality and
Expense Risk Charge, the Asset-Based Administration Charge, and the Annual
Administration Fee. The calculation assumes that the administration fee is $30
per year per contract deducted at the end of each Contract Year. For purposes of
calculating average annual total return, an average per dollar administration
fee attributable to the hypothetical account for the period is
S-4
<PAGE> 54
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.
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 PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)....................... 6.78% 15.67% 13.52%
Money Market (December 12, 1985)................. (1.12%) 3.14% 3.68%
Bond (December 12, 1985)......................... 1.63% 4.82% 6.53%
Managed (December 12, 1985)...................... 5.68% 11.30% 9.72%
Aggressive Growth (May 1, 1989).................. 1.41% 10.46% 12.06%
International (November 1, 1991)................. 3.42% 7.01% 7.65%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 11.07% 9.35%
All Pro Large Cap Value (May 4, 1998)............ (6.62%) (8.06%)
All Pro Small Cap Growth (May 4, 1998)........... (7.57%) (8.99%)
All Pro Small Cap Value (May 4, 1998)............ (22.23%) (23.43%)
VARIABLE INSURANCE PRODUCTS FUND AND
VARIABLE INSURANCE PRODUCTS FUND II
High Income (September 19, 1985)................. (10.19%) 6.86% 9.41%
Equity Income (October 9, 1986).................. 4.84% 16.75% 13.93%
Growth (October 9, 1986)......................... 31.08% 19.68% 17.69%
Asset Manager (September 6, 1989)................ 8.06% 9.85% 11.30%
Index 500 (August 27, 1992)...................... 20.56% 21.65% 19.39%
Contrafund (July 3, 1995)........................ 22.12% 25.84%
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 5.05% 18.25% 17.67%
Small Cap (August 1, 1988)....................... (14.62%) 6.60% 6.83%
Managed (August 1, 1988)......................... 0.59% 17.13% 16.56%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985)............................. 0.06% 4.18% 6.99%
Growth & Income (May 2, 1994).................... 0.31% 17.86%
International (May 1, 1987)...................... 11.13% 8.35% 10.27%
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 (August 31, 1990)............... 0.73% 4.03% 7.85%
Growth & Income (May 2, 1994).................... 5.01% 19.51%
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND
Socially Responsible (October 7, 1993)........... 21.56% 20.38% 20.96%
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994)......................................... 1.10% 4.52%
Utility Fund II (April 14, 1994)................. 7.00% 12.22%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... 5.90% 4.58% 5.03%
Worldwide Hard Assets (September 1, 1989)........ (35.24%) (5.14%) 0.38%
Worldwide Emerging Markets (December 27, 1995)... (38.27%) (11.47%)
Worldwide Real Estate (June 23, 1997)............ (16.80%) 0.43%
</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 PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)....................... 11.81% 15.88% 13.52%
Money Market (December 12, 1985)................. 3.54% 3.32% 3.68%
Bond (December 12, 1985)......................... 6.42% 5.01% 6.53%
Managed (December 12, 1985)...................... 10.66% 11.50% 9.72%
Aggressive Growth (May 1, 1989).................. 6.19% 10.66% 12.06%
International (November 1, 1991)................. 8.30% 7.21% 7.65%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 16.30% 16.33%
All Pro Large Cap Value (May 4, 1998)............ (2.22%) (2.19%)
All Pro Small Cap Growth (May 4, 1998)........... (3.21%) (3.18%)
All Pro Small Cap Value (May 4, 1998)............ (18.57%) (18.54%)
VARIABLE INSURANCE PRODUCTS FUND AND
VARIABLE INSURANCE PRODUCTS FUND II
High Income (September 19, 1985)................. (5.96%) 7.06% 9.41%
Equity Income (October 9, 1986).................. 9.78% 16.96% 13.93%
Growth (October 9, 1986)......................... 37.25% 19.90% 17.69%
Asset Manager (September 6, 1989)................ 13.15% 10.05% 11.30%
Index 500 (August 27, 1992)...................... 26.24% 21.87% 19.39%
Contrafund (July 3, 1995)........................ 27.87% 26.71%
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 10.00% 18.47% 17.88%
Small Cap (August 1, 1988)....................... (10.59%) 6.79% 7.02%
Managed (August 1, 1988)......................... 5.33% 17.34% 16.77%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (July 16, 1985)............................. 4.78% 4.36% 6.99%
Growth & Income (May 2, 1994).................... 5.03% 18.32%
International (May 1, 1987)...................... 16.37% 8.55% 10.27%
DREYFUS VARIABLE INVESTMENT FUND
Zero Coupon 2000 (August 31, 1990)............... 5.48% 4.22% 7.85%
Growth & Income (May 2, 1994).................... 9.96% 19.98%
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND
Socially Responsible (October 7, 1993)........... 27.28% 20.59% 21.16%
FEDERATED INSURANCE SERIES
Fund for US Gov't Securities II (March 29,
1994)......................................... 5.86% 4.92%
Utility Fund II (April 14, 1994)................. 12.04% 12.64%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... 10.89% 4.77% 5.03%
Worldwide Hard Assets (September 1, 1989)........ (32.19%) (4.97%) 0.38%
Worldwide Emerging Markets (December 27, 1995)... (35.36%) (10.72%)
Worldwide Real Estate (June 23, 1997)............ (12.88%) 3.08%
</TABLE>
S-7
<PAGE> 57
PLACA 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 PLACA'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 PLACA 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 PLACA'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 PLACA 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 PLACA 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 PLACA's option if shares of the Fund are not reasonably
available to meet the requirements of the Contracts; (3) at PLACA'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
PLACA has suffered material adverse changes in its business or financial
conditions or is the subject to material adverse publicity; (5) at the option of
PLACA 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 PLACA 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 PLACA fail within sixty days after such renegotiation date to agree to
continue or amend the agreement; (2) at the option of PLACA or the Fund if no
shares of the Fund are owned by PLACA, 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 the Contracts and variable insurance products of all
separate accounts or the interests of participating insurance companies
investing in the Fund.
S-8
<PAGE> 58
OCC Accumulation Trust. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at PLACA'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 PLACA 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 PLACA'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 PLACA 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 PLACA 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 PLACA'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 PLACA or the Fund; (b) at PLACA's option if shares of
the Fund are not reasonably available to meet the requirements of the Contracts;
(c) at the option of PLACA or the Fund if certain enforcement proceedings are
instituted against the other; (d) at the option of the Fund if it determines
that PLACA 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 PLACA or the Fund; (b) at PLACA's option if shares of the
Portfolios are not reasonably available to meet the requirements of the
Contracts; (c) at the option of PLACA 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 PLACA 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 PLACA 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 PLACA, 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 PLACA 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 PLACA 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
PLACA should substitute shares of another fund or Fund for those of Van Eck
Trust, 4) by PMLIC if a Portfolio fails to meet the diversification and other
requirements of the Internal Revenue Code, or PMLIC reasonably believes it may
fail to do so, 5) upon assignment of the agreement unless both parties agree to
the assignment in writing.
Should an agreement between PLACA 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.
S-9
<PAGE> 59
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 PLACA has not been
terminated. Should a Fund or portfolio of such Fund decide not to sell its
shares to PLACA, PLACA 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
PLACA 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 PLACA are covered by an insurance company
blanket bond issued by Reliance Insurance Company to Provident Mutual Life
Insurance Company ("PMLIC") in the amount of ten million dollars. The bond
insurers against dishonest and fraudulent acts of officers and employees.
STATE REGULATION
PLACA 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. PLACA 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
PLACA 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 PMLIC, has provided
advice on certain matters relating to the laws of Delaware regarding the
Contacts and PLACA'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.
EXPERTS
The statements of financial condition for PLACA as of December 31, 1998 and
1997 and the related statements of operations, equity 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 PLACA 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, 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.
S-10
<PAGE> 60
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 PLACA 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 PLACA Variable Annuity Separate Account.
PLACA'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 PLACA'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 PLACA Variable Annuity Separate Account.
S-11
<PAGE> 61
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Providentmutual Variable Annuity Separate Account
Report of Independent Accountants...................... F-2
Statements of Assets and Liabilities, December 31,
1998.................................................. F-3
Statements of Operations for the Year Ended December
31, 1998.............................................. F-10
Statements of Changes in Net Assets for the Year Ended
December 31, 1998..................................... F-17
Statements of Changes in Net Assets for the Year Ended
December 31, 1997..................................... F-24
Notes to Financial Statements.......................... F-30
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-56
Statements of Financial Condition as of December 31,
1998 and 1997......................................... F-57
Statements of Operations for the Years Ended December
31, 1998, 1997, and 1996.............................. F-58
Statements of Equity for the Years Ended December 31,
1998, 1997, and 1996.................................. F-59
Statements of Cash Flows for the Years Ended December
31, 1998, 1997, and 1996.............................. F-60
Notes to Financial Statements.......................... F-61
</TABLE>
F-1
<PAGE> 62
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Contractholders and
Board of Directors of
Providentmutual Life and Annuity Company of America:
In our opinion, the accompanying statements of assets and liabilities of the
Providentmutual Variable Annuity Separate Account (comprising thirty-nine
subaccounts, hereafter collectively referred to as the "Separate Account") and
the related statements of operations and changes in net assets present fairly,
in all material respects, the financial position of the Separate Account at
December 31, 1998, and the results of its operations for the year then ended and
the changes in its net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the management of the Separate
Account; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities owned at
December 31, 1998 by correspondence with the transfer agents, provide a
reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 26, 1999
F-2
<PAGE> 63
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc.,
at market value:
Growth Portfolio.......................... $47,858,933
Money Market Portfolio.................... $40,359,766
Bond Portfolio............................ $15,203,142
Managed Portfolio......................... $19,429,859
Aggressive Growth Portfolio............... $12,484,988
International Portfolio................... $19,698,014
Dividends receivable........................ 166,127
Receivable from Providentmutual Life and
Annuity Company of America................ 1,931,561
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS.................................. $47,858,933 $42,457,454 $15,203,142 $19,429,859 $12,484,988 $19,698,014
=========== =========== =========== =========== =========== ===========
Held for the benefit of contractholders..... $47,788,559 $42,411,955 $15,163,134 $19,391,137 $12,414,832 $19,645,061
Attributable to Providentmutual Life and
Annuity Company of America................ 70,374 45,499 40,008 38,722 70,156 52,953
----------- ----------- ----------- ----------- ----------- -----------
$47,858,933 $42,457,454 $15,203,142 $19,429,859 $12,484,988 $19,698,014
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 64
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market value:
All Pro Large Cap Growth Portfolio........................ $2,296,724
All Pro Large Cap Value Portfolio......................... $2,084,201
All Pro Small Cap Growth Portfolio........................ $1,668,424
All Pro Small Cap Value Portfolio......................... $1,314,681
---------- ---------- ---------- ----------
NET ASSETS.................................................. $2,296,724 $2,084,201 $1,668,424 $1,314,681
========== ========== ========== ==========
Held for the benefit of contractholders..................... $2,268,888 $2,059,187 $1,645,316 $1,292,614
Attributable to Providentmutual Life and Annuity Company of
America................................................... 27,836 25,014 23,108 22,067
---------- ---------- ---------- ----------
$2,296,724 $2,084,201 $1,668,424 $1,314,681
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 65
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance
Products Fund, at market value:
High Income Portfolio.................... $21,941,333
Equity-Income Portfolio.................. $95,994,948
Growth Portfolio......................... $101,771,312
Overseas Portfolio....................... $3,459,303
Investment in the Variable Insurance
Products Fund II, at market value:
Asset Manager Portfolio.................. $41,654,028
Index 500 Portfolio...................... $99,729,620
----------- ----------- ------------ ---------- ----------- -----------
NET ASSETS................................. $21,941,333 $95,994,948 $101,771,312 $3,459,303 $41,654,028 $99,729,620
=========== =========== ============ ========== =========== ===========
Held for the benefit of contractholders.... $21,908,598 $95,932,993 $101,692,038 $3,426,276 $41,581,094 $99,662,023
Attributable to Providentmutual Life and
Annuity Company of America............... 32,735 61,955 79,274 33,027 72,934 67,597
----------- ----------- ------------ ---------- ----------- -----------
$21,941,333 $95,994,948 $101,771,312 $3,459,303 $41,654,028 $99,729,620
=========== =========== ============ ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 66
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY INVESTMENT OCC OCC OCC
CONTRAFUND GRADE BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in the Variable Insurance Products Fund II,
at market value:
Contrafund Portfolio................................ $59,330,973
Investment Grade Bond Portfolio..................... $2,530,093
Investment in the OCC Accumulation Trust, at market
value:
Equity Portfolio.................................... $23,494,162
Small Cap Portfolio................................. $16,579,552
Managed Portfolio................................... $60,000,044
----------- ---------- ----------- ----------- -----------
NET ASSETS............................................ $59,330,973 $2,530,093 $23,494,162 $16,579,552 $60,000,044
=========== ========== =========== =========== ===========
Held for the benefit of contractholders............... $59,253,284 $2,500,753 $23,431,003 $16,534,495 $59,946,648
Attributable to Providentmutual Life and Annuity
Company of America.................................. 77,689 29,340 63,159 45,057 53,396
----------- ---------- ----------- ----------- -----------
$59,330,973 $2,530,093 $23,494,162 $16,579,552 $60,000,044
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 67
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS
SCUDDER GROWTH AND SCUDDER DREYFUS ZERO GROWTH SOCIALLY
BOND INCOME INTERNATIONAL COUPON 2000 AND INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Scudder Variable Life
Investment Fund, at market value:
Bond Portfolio........................... $10,868,157
Growth and Income Portfolio.............. $21,802,912
International Portfolio.................. $14,525,316
Investment in the Dreyfus Variable
Investment Fund, at market value:
Zero Coupon 2000 Portfolio............... $7,450,796
Growth and Income Portfolio.............. $19,640,705
Investment in the Dreyfus Socially
Responsible Growth Fund, Inc., at market
value:
Socially Responsible Portfolio........... $11,010,184
----------- ----------- ----------- ---------- ----------- -----------
NET ASSETS................................. $10,868,157 $21,802,912 $14,525,316 $7,450,796 $19,640,705 $11,010,184
=========== =========== =========== ========== =========== ===========
Held for the benefit of contractholders.... $10,835,622 $21,733,752 $14,464,625 $7,420,427 $19,584,714 $10,971,508
Attributable to Providentmutual Life and
Annuity Company of America............... 32,535 69,160 60,691 30,369 55,991 38,676
----------- ----------- ----------- ---------- ----------- -----------
$10,868,157 $21,802,912 $14,525,316 $7,450,796 $19,640,705 $11,010,184
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 68
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED NEUBERGER
FUND FOR FEDERATED NEUBERGER NEUBERGER & BERMAN NEUBERGER
U.S. GOVERNMENT UTILITY & BERMAN & BERMAN LIMITED & BERMAN
SECURITIES II FUND II BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Federated
Insurance Series, at market value:
Fund for U.S. Government
Securities II Portfolio......... $9,318,436
Utility Fund II Portfolio......... $10,201,206
Investment in the Neuberger & Berman
Advisers Management Trust, at
market value:
Balanced Portfolio................ $775,638
Growth Portfolio.................. $994,739
Limited Maturity Bond Portfolio... $1,433,927
Partners Portfolio................ $408,652
---------- ----------- -------- -------- ---------- --------
NET ASSETS.......................... $9,318,436 $10,201,206 $775,638 $994,739 $1,433,927 $408,652
========== =========== ======== ======== ========== ========
Held for the benefit of
contractholders................... $9,284,944 $10,152,016 $740,239 $955,279 $1,404,964 $385,194
Attributable to Providentmutual Life
and Annuity Company of America.... 33,492 49,190 35,399 39,460 28,963 23,458
---------- ----------- -------- -------- ---------- --------
$9,318,436 $10,201,206 $775,638 $994,739 $1,433,927 $408,652
========== =========== ======== ======== ========== ========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 69
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in American Century Variable
Portfolios Inc., at market value:
American Century VP Capital
Appreciation Portfolio............... $209,599
Investment in Van Eck Worldwide Insurance
Trust, at market value:
Van Eck Worldwide Bond Portfolio....... $1,669,654
Van Eck Worldwide Hard Assets
Portfolio............................ $428,820
Van Eck Worldwide Emerging Markets
Portfolio............................ $1,374,304
Van Eck Worldwide Real Estate
Portfolio............................ $279,755
Investment in the Alger American Fund, at
market value:
Alger American Small Capitalization
Portfolio............................ $3,782,524
-------- ---------- -------- ---------- -------- ----------
NET ASSETS............................... $209,599 $1,669,654 $428,820 $1,374,304 $279,755 $3,782,524
======== ========== ======== ========== ======== ==========
Held for the benefit of
contractholders........................ $186,642 $1,631,689 $401,261 $1,345,409 $257,330 $3,749,591
Attributable to Providentmutual Life and
Annuity Company of America............. 22,957 37,965 27,559 28,895 22,425 32,933
-------- ---------- -------- ---------- -------- ----------
$209,599 $1,669,654 $428,820 $1,374,304 $279,755 $3,782,524
======== ========== ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 70
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................... $ 678,062 $1,927,975 $565,191 $ 562,813 $ 87,941 $ 139,749
EXPENSES
Mortality and expense risks.................... 597,986 520,330 147,914 241,665 159,423 272,622
----------- ---------- -------- ---------- ---------- ----------
Net investment income (loss)................... 80,076 1,407,645 417,277 321,148 (71,482) (132,873)
----------- ---------- -------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested......... 5,355,167 1,238 789,131 839,522 1,292,463
Net realized gain from redemption of investment
shares....................................... 848,719 119,046 562,187 335,385 293,587
----------- ---------- -------- ---------- ---------- ----------
Net realized gain on investments............... 6,203,886 120,284 1,351,318 1,174,907 1,586,050
----------- ---------- -------- ---------- ---------- ----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year............................ 8,125,549 341,931 3,141,355 2,237,231 1,663,549
End of year.................................. 6,880,781 501,349 3,311,102 1,843,257 1,759,586
----------- ---------- -------- ---------- ---------- ----------
Net unrealized appreciation (depreciation)
during the year.............................. (1,244,768) 159,418 169,747 (393,974) 96,037
----------- ---------- -------- ---------- ---------- ----------
Net realized and unrealized gain on
investments.................................. 4,959,118 279,702 1,521,065 780,933 1,682,087
----------- ---------- -------- ---------- ---------- ----------
Net increase in net assets resulting from
operations................................... $ 5,039,194 $1,407,645 $696,979 $1,842,213 $ 709,451 $1,549,214
=========== ========== ======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 71
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................................................
EXPENSES
Mortality and expense risks................................. $ 8,510 $ 9,025 $ 5,994 $ 4,635
-------- -------- -------- --------
Net investment loss......................................... (8,510) (9,025) (5,994) (4,635)
-------- -------- -------- --------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested......................
Net realized gain (loss) from redemption of investment
shares.................................................... 25,035 (22,796) (34,054) (36,679)
-------- -------- -------- --------
Net realized gain (loss) on investments..................... 25,035 (22,796) (34,054) (36,679)
-------- -------- -------- --------
Net unrealized appreciation of investments:
Beginning of year.........................................
End of year............................................... 345,515 157,479 191,093 35,087
-------- -------- -------- --------
Net unrealized appreciation during the year................. 345,515 157,479 191,093 35,087
-------- -------- -------- --------
Net realized and unrealized gain (loss) on investments...... 370,550 134,683 157,039 (1,592)
-------- -------- -------- --------
Net increase (decrease) in net assets resulting from
operations................................................ $362,040 $125,658 $151,045 $(6,227)
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 72
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends..................................... $1,317,100 $ 1,124,518 $ 336,043 $ 40,987 $ 971,784 $ 708,340
EXPENSES
Mortality and expense risks................... 286,587 1,237,185 1,097,140 36,617 486,170 1,074,774
----------- ----------- ----------- -------- ---------- -----------
Net investment income (loss).................. 1,030,513 (112,667) (761,097) 4,370 485,614 (366,434)
----------- ----------- ----------- -------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested........ 836,907 4,001,961 8,790,172 120,802 2,915,352 1,640,640
Net realized gain from redemption of
investment shares........................... 104,890 2,824,563 3,494,841 6,184 487,425 3,697,158
----------- ----------- ----------- -------- ---------- -----------
Net realized gain on investments.............. 941,797 6,826,524 12,285,013 126,986 3,402,777 5,337,798
----------- ----------- ----------- -------- ---------- -----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year........................... 1,994,767 17,071,432 14,960,831 3,948 4,749,426 13,147,837
End of year................................. (1,322,566) 18,402,980 29,499,701 72,711 5,498,936 26,388,869
----------- ----------- ----------- -------- ---------- -----------
Net unrealized appreciation (depreciation)
during the year............................. (3,317,333) 1,331,548 14,538,870 68,763 749,510 13,241,032
----------- ----------- ----------- -------- ---------- -----------
Net realized and unrealized gain (loss) on
investments................................. (2,375,536) 8,158,072 26,823,883 195,749 4,152,287 18,578,830
----------- ----------- ----------- -------- ---------- -----------
Net increase (decrease) in net assets
resulting from operations................... $(1,345,023) $ 8,045,405 $26,062,786 $200,119 $4,637,901 $18,212,396
=========== =========== =========== ======== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 73
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY INVESTMENT OCC OCC OCC
CONTRAFUND GRADE BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................................. $ 265,307 $ 52,491 $ 216,157 $ 58,867 $ 442,380
EXPENSES
Mortality and expense risks............................ 639,927 23,818 314,327 244,040 839,202
----------- -------- ----------- ----------- -----------
Net investment gain (loss)............................. (374,620) 28,673 (98,170) (185,173) (396,822)
----------- -------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested................. 1,951,899 6,228 932,782 642,781 1,765,223
Net realized gain from redemption of investment
shares............................................... 1,556,394 20,635 2,594,973 883,830 4,247,341
----------- -------- ----------- ----------- -----------
Net realized gain on investments....................... 3,508,293 26,863 3,527,755 1,526,611 6,012,564
----------- -------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.................................... 7,221,948 41,164 4,899,452 4,006,030 15,384,550
End of year.......................................... 16,048,820 110,611 3,483,399 661,747 12,739,481
----------- -------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) during the
year................................................. 8,826,872 69,447 (1,416,053) (3,344,283) (2,645,069)
----------- -------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments.......................................... 12,335,165 96,310 2,111,702 (1,817,672) 3,367,495
----------- -------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations........................................... $11,960,545 $124,983 $ 2,013,532 $(2,002,845) $ 2,970,673
=========== ======== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 74
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS
SCUDDER GROWTH AND SCUDDER DREYFUS ZERO GROWTH AND SOCIALLY
BOND INCOME INTERNATIONAL COUPON 2000 INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................................... $525,798 $ 444,887 $ 201,172 $342,964 $ 172,646 $ 17,220
EXPENSES
Mortality and expense risks.................. 128,282 283,325 177,297 87,726 248,422 106,812
-------- ----------- ---------- -------- ---------- ----------
Net investment income (loss)................. 397,516 161,562 23,875 255,238 (75,776) (89,592)
-------- ----------- ---------- -------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested....... 30,563 1,227,288 1,323,096 317,580 399,199
Net realized gain (loss) from redemption of
investment shares.......................... 38,189 899,378 197,125 (14,397) (9,428) 542,237
-------- ----------- ---------- -------- ---------- ----------
Net realized gain (loss) on investments...... 68,752 2,126,666 1,520,221 (14,397) 308,152 941,436
-------- ----------- ---------- -------- ---------- ----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.......................... 182,019 2,145,837 695,843 (4,370) 135,652 633,396
End of year................................ 169,689 559,240 1,001,546 98,289 1,610,492 1,746,511
-------- ----------- ---------- -------- ---------- ----------
Net unrealized appreciation (depreciation)
during the year............................ (12,330) (1,586,597) 305,703 102,659 1,474,840 1,113,115
-------- ----------- ---------- -------- ---------- ----------
Net realized and unrealized gain on
investments................................ 56,422 540,069 1,825,924 88,262 1,782,992 2,054,551
-------- ----------- ---------- -------- ---------- ----------
Net increase in net assets resulting from
operations................................. $453,938 $ 701,631 $1,849,799 $343,500 $1,707,216 $1,964,959
======== =========== ========== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 75
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED FUND NEUBERGER
FOR U.S. NEUBERGER NEUBERGER & BERMAN NEUBERGER
GOVERNMENT FEDERATED & BERMAN & BERMAN LIMITED & BERMAN
SECURITIES II UTILITY FUND II BALANCED GROWTH MATURITY BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 68,150 $ 53,084 $ 18,342 $ 63,745
EXPENSES
Mortality and expense risks............. 75,900 96,287 10,814 $ 14,057 17,119 $ 1,906
-------- ---------- -------- --------- -------- -------
Net investment income (loss)............ (7,750) (43,203) 7,528 (14,057) 46,626 (1,906)
-------- ---------- -------- --------- -------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested............................ 3,016 324,199 128,829 289,444
Net realized gain (loss) from redemption
of investment shares.................. 74,776 228,881 (37,544) (45,239) (1,093) (1,266)
-------- ---------- -------- --------- -------- -------
Net realized gain (loss) on
investments........................... 77,792 553,080 91,285 244,205 (1,093) (1,266)
-------- ---------- -------- --------- -------- -------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year..................... 139,066 942,031 36,672 83,141 21,796
End of year........................... 380,998 1,407,591 (8,783) (24,306) 10,244 16,829
-------- ---------- -------- --------- -------- -------
Net unrealized appreciation
(depreciation) during the year........ 241,932 465,560 (45,455) (107,447) (11,552) 16,829
-------- ---------- -------- --------- -------- -------
Net realized and unrealized gain (loss)
on investments........................ 319,724 1,018,640 45,830 136,758 (12,645) 15,563
-------- ---------- -------- --------- -------- -------
Net increase in net assets resulting
from operations....................... $311,974 $ 975,437 $ 53,358 $ 122,701 $ 33,981 $13,657
======== ========== ======== ========= ======== =======
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 76
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING WORLDWIDE SMALL
APPRECIATION BOND HARD ASSETS MARKETS REAL ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................... $ 8,646 $ 904 $ 8,344
EXPENSES
Mortality and expense risks................. $ 2,380 15,687 2,295 13,188 $ 420 $ 41,145
-------- -------- -------- --------- -------- --------
Net investment loss......................... (2,380) (7,041) (1,391) (4,844) (420) (41,145)
-------- -------- -------- --------- -------- --------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions reinvested...... 9,248 22,207 7,417 393,865
Net realized gain (loss) from redemption of
investment shares......................... (5,083) 35,727 (89,092) (265,838) (15,225) (10,462)
-------- -------- -------- --------- -------- --------
Net realized gain (loss) on investments..... 4,165 35,727 (66,885) (258,421) (15,225) 383,403
-------- -------- -------- --------- -------- --------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year......................... (6,096) 25,331 (8,342) (247,842) 126,890
End of year............................... (16,405) 134,095 (26,474) (374,273) 1,481 204,321
-------- -------- -------- --------- -------- --------
Net unrealized appreciation (depreciation)
during the year........................... (10,309) 108,764 (18,132) (126,431) 1,481 77,431
-------- -------- -------- --------- -------- --------
Net realized and unrealized gain (loss) on
investments............................... (6,144) 144,491 (85,017) (384,852) (13,744) 460,834
-------- -------- -------- --------- -------- --------
Net increase (decrease) in net assets
resulting from operations................. $ (8,524) $137,450 $(86,408) $(389,696) $(14,164) $419,689
======== ======== ======== ========= ======== ========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 77
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........... $ 80,076 $ 1,407,645 $ 417,277 $ 321,148 $ (71,482) $ (132,873)
Net realized gain on investments....... 6,203,886 120,284 1,351,318 1,174,907 1,586,050
Net unrealized appreciation
(depreciation) of investments during
the year............................. (1,244,768) 159,418 169,747 (393,974) 96,037
----------- ------------- ----------- ----------- ----------- -----------
Net increase in net assets from
operations........................... 5,039,194 1,407,645 696,979 1,842,213 709,451 1,549,214
----------- ------------- ----------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums.......... 2,348,484 127,871,256 1,223,548 1,148,804 806,172 902,903
Administrative charges................. (22,011) (12,419) (5,131) (8,956) (7,791) (12,670)
Surrenders and forfeitures............. (3,442,237) (3,212,313) (643,334) (1,558,892) (727,131) (1,572,725)
Transfers between investment
portfolios........................... 3,846,147 (113,341,557) 5,948,828 1,682,450 802,568 269,675
Net (withdrawals) repayments due to
policy loans......................... (7,097) 8,668 (614) (3,394) 464 1,820
Withdrawals due to death benefits...... (65,692) (136,960) (52,239) (60,381) (616) (49,521)
----------- ------------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from contract transactions... 2,657,594 11,176,675 6,471,058 1,199,631 873,666 (460,518)
----------- ------------- ----------- ----------- ----------- -----------
Return of capital to Providentmutual
Life and Annuity Company of
America.............................. (25,000)
----------- ------------- ----------- ----------- ----------- -----------
Total increase in net assets........... 7,671,788 12,584,320 7,168,037 3,041,844 1,583,117 1,088,696
NET ASSETS
Beginning of year.................... 40,187,145 29,873,134 8,035,105 16,388,015 10,901,871 18,609,318
----------- ------------- ----------- ----------- ----------- -----------
End of year.......................... $47,858,933 $ 42,457,454 $15,203,142 $19,429,859 $12,484,988 $19,698,014
=========== ============= =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 78
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss........................................ $ (8,510) $ (9,025) $ (5,994) $ (4,635)
Net realized gain (loss) on investments.................... 25,035 (22,796) (34,054) (36,679)
Net unrealized appreciation of investments during the
year..................................................... 345,515 157,479 191,093 35,087
---------- ---------- ---------- ----------
Net increase (decrease) in net assets from operations...... 362,040 125,658 151,045 (6,227)
---------- ---------- ---------- ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums.............................. 222,573 292,763 157,600 308,901
Administrative charges..................................... (141) (187) (87) (60)
Surrenders and forfeitures................................. (21,345) (16,648) (14,326) (33,127)
Transfers between investment portfolios.................... 1,708,597 1,657,615 1,349,192 1,020,194
---------- ---------- ---------- ----------
Net increase in net assets derived from contract
transactions............................................. 1,909,684 1,933,543 1,492,379 1,295,908
---------- ---------- ---------- ----------
Capital contribution from Providentmutual Life and Annuity
Company of America....................................... 25,000 25,000 25,000 25,000
---------- ---------- ---------- ----------
Total increase in net assets............................... 2,296,724 2,084,201 1,668,424 1,314,681
NET ASSETS
Beginning of year........................................ -- -- -- --
---------- ---------- ---------- ----------
End of year.............................................. $2,296,724 $2,084,201 $1,668,424 $1,314,681
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 79
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................. $ 1,030,513 $ (112,667) $ (761,097) $ 4,370 $ 485,614 $ (366,434)
Net realized gain on investments............. 941,797 6,826,524 12,285,013 126,986 3,402,777 5,337,798
Net unrealized appreciation (depreciation) of
investments during the year................ (3,317,333) 1,331,548 14,538,870 68,763 749,510 13,241,032
----------- ----------- ------------ ---------- ----------- -----------
Net increase (decrease) in net assets from
operations................................. (1,345,023) 8,045,405 26,062,786 200,119 4,637,901 18,212,396
----------- ----------- ------------ ---------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums................ 1,750,277 5,296,132 4,791,231 339,626 1,700,971 6,577,374
Administrative charges....................... (9,948) (45,049) (49,011) (1,255) (17,744) (42,384)
Surrenders and forfeitures................... (1,298,153) (4,233,958) (3,843,463) (33,023) (1,840,921) (4,314,988)
Transfers between investment portfolios...... 4,540,682 8,532,004 10,374,588 1,075,414 7,109,273 21,217,455
Net withdrawals due to policy loans.......... (3,583) (6,732) (11,811) (1,589) (5,124) (6,625)
Withdrawals due to death benefits............ (137,311) (463,817) (370,273) (51,334) (84,131) (263,569)
----------- ----------- ------------ ---------- ----------- -----------
Net increase in net assets derived from
contract transactions...................... 4,841,964 9,078,580 10,891,261 1,327,839 6,862,324 23,167,263
----------- ----------- ------------ ---------- ----------- -----------
Return of capital to Providentmutual Life and
Annuity Company of America................. (30,000) (60,000) (40,000)
----------- ----------- ------------ ---------- ----------- -----------
Total increase in net assets................. 3,496,941 17,093,985 36,894,047 1,527,958 11,500,225 41,339,659
NET ASSETS
Beginning of year.......................... 18,444,392 78,900,963 64,877,265 1,931,345 30,153,803 58,389,961
----------- ----------- ------------ ---------- ----------- -----------
End of year................................ $21,941,333 $95,994,948 $101,771,312 $3,459,303 $41,654,028 $99,729,620
=========== =========== ============ ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 80
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY INVESTMENT OCC OCC OCC
CONTRAFUND GRADE BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).......................... $ (374,620) $ 28,673 $ (98,170) $ (185,173) $ (396,822)
Net realized gain on investments...................... 3,508,293 26,863 3,527,755 1,526,611 6,012,564
Net unrealized appreciation (depreciation) of
investments during the year......................... 8,826,872 69,447 (1,416,053) (3,344,283) (2,645,069)
----------- ---------- ----------- ----------- -----------
Net increase (decrease) in net assets from
operations.......................................... 11,960,545 124,983 2,013,532 (2,002,845) 2,970,673
----------- ---------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums......................... 2,915,127 246,257 1,446,183 1,017,956 2,661,331
Administrative charges................................ (26,006) (820) (11,336) (10,338) (31,542)
Surrenders and forfeitures............................ (2,253,251) (84,172) (1,446,748) (1,391,872) (3,425,829)
Transfers between investment portfolios............... 9,479,438 1,204,799 1,059,190 848,987 752,512
Net withdrawals due to policy loans................... (6,313) (130) (1,906) (1,249) (2,506)
Withdrawals due to death benefits..................... (13,824) (12,194) (49,239) (39,285) (217,598)
----------- ---------- ----------- ----------- -----------
Net increase (decrease) in net assets derived from
contract transactions............................... 10,095,171 1,353,740 996,144 424,199 (263,632)
----------- ---------- ----------- ----------- -----------
Return of capital to Providentmutual Life and Annuity
Company of America.................................. (25,000)
----------- ---------- ----------- ----------- -----------
Total increase (decrease) in net assets............... 22,055,716 1,478,723 3,009,676 (1,578,646) 2,682,041
NET ASSETS
Beginning of year................................... 37,275,257 1,051,370 20,484,486 18,158,198 57,318,003
----------- ---------- ----------- ----------- -----------
End of year......................................... $59,330,973 $2,530,093 $23,494,162 $16,579,552 $60,000,044
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 81
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS
SCUDDER GROWTH AND SCUDDER DREYFUS ZERO GROWTH SOCIALLY
BOND INCOME INTERNATIONAL COUPON 2000 AND INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 397,516 $ 161,562 $ 23,875 $ 255,238 $ (75,776) $ (89,592)
Net realized gain (loss) on
investments........................... 68,752 2,126,666 1,520,221 (14,397) 308,152 941,436
Net unrealized appreciation
(depreciation) of investments during
the year.............................. (12,330) (1,586,597) 305,703 102,659 1,474,840 1,113,115
----------- ----------- ----------- ---------- ----------- -----------
Net increase in net assets from
operations............................ 453,938 701,631 1,849,799 343,500 1,707,216 1,964,959
----------- ----------- ----------- ---------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums........... 619,509 1,774,148 960,927 351,742 958,892 972,863
Administrative charges.................. (4,417) (10,484) (6,651) (2,835) (11,937) (5,327)
Surrenders and forfeitures.............. (633,359) (1,062,811) (733,868) (302,710) (1,266,515) (610,880)
Transfers between investment
portfolios............................ 2,537,821 4,646,658 1,838,952 1,221,208 1,288,013 3,271,958
Net repayments (withdrawals) due to
policy loans.......................... 122 (2,492) (6,428) 290 (4,690) (6,310)
Withdrawals due to death benefits....... (52,406) (56,038) (35,093) (9,776) (67,716) (713)
----------- ----------- ----------- ---------- ----------- -----------
Net increase in net assets derived from
contract transactions................. 2,467,270 5,288,981 2,017,839 1,257,919 896,047 3,621,591
----------- ----------- ----------- ---------- ----------- -----------
Return of capital to Providentmutual
Life and Annuity Company of America... (25,000)
----------- ----------- ----------- ---------- ----------- -----------
Total increase in net assets............ 2,921,208 5,990,612 3,867,638 1,601,419 2,603,263 5,561,550
NET ASSETS
Beginning of year..................... 7,946,949 15,812,300 10,657,678 5,849,377 17,037,442 5,448,634
----------- ----------- ----------- ---------- ----------- -----------
End of year........................... $10,868,157 $21,802,912 $14,525,316 $7,450,796 $19,640,705 $11,010,184
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 82
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER
FEDERATED & BERMAN
FUND FOR FEDERATED NEUBERGER NEUBERGER LIMITED NEUBERGER
U.S. GOVERNMENT UTILITY & BERMAN & BERMAN MATURITY & BERMAN
SECURITIES II FUND II BALANCED GROWTH BOND PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ (7,750) $ (43,203) $ 7,528 $ (14,057) $ 46,626 $ (1,906)
Net realized gain (loss) on
investments............................ 77,792 553,080 91,285 244,205 (1,093) (1,266)
Net unrealized appreciation
(depreciation) of investments during
the year............................... 241,932 465,560 (45,455) (107,447) (11,552) 16,829
---------- ----------- -------- --------- ---------- --------
Net increase in net assets from
operations............................. 311,974 975,437 53,358 122,701 33,981 13,657
---------- ----------- -------- --------- ---------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums............ 729,037 679,245 111,449 188,889 138,552 38,217
Administrative charges................... (1,713) (2,973) (520) (896) (592) (142)
Surrenders and forfeitures............... (293,653) (401,393) (14,147) (41,689) (48,180)
Transfers between investment
portfolios............................. 4,971,444 3,833,662 (94,768) (205,365) 357,208 331,920
Net withdrawals due to policy loans...... (506) (1,455) (1,766) (1,312)
Withdrawals due to death benefits........ (12,773) (2,245) (27,242)
---------- ----------- -------- --------- ---------- --------
Net increase (decrease) in net assets
derived from contract transactions..... 5,405,115 4,095,262 559 (63,072) 418,434 369,995
---------- ----------- -------- --------- ---------- --------
Capital contribution from Providentmutual
Life and Annuity Company of America.... 25,000
---------- ----------- -------- --------- ---------- --------
Total increase in net assets............. 5,717,089 5,070,699 53,917 59,629 452,415 408,652
NET ASSETS
Beginning of year...................... 3,601,347 5,130,507 721,721 935,110 981,512 --
---------- ----------- -------- --------- ---------- --------
End of year............................ $9,318,436 $10,201,206 $775,638 $ 994,739 $1,433,927 $408,652
========== =========== ======== ========= ========== ========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 83
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK
CENTURY VP VAN ECK VAN ECK WORLDWIDE WORLDWIDE ALGER AMERICAN
CAPITAL WORLDWIDE WORLDWIDE EMERGING REAL SMALL
APPRECIATION BOND HARD ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss......................... $ (2,380) $ (7,041) $ (1,391) $ (4,844) $ (420) $ (41,145)
Net realized gain (loss) on investments..... 4,165 35,727 (66,885) (258,421) (15,225) 383,403
Net unrealized appreciation (depreciation)
of investments during the year............ (10,309) 108,764 (18,132) (126,431) 1,481 77,431
-------- ---------- -------- ---------- -------- ----------
Net increase (decrease) in net assets from
operations................................ (8,524) 137,450 (86,408) (389,696) (14,164) 419,689
-------- ---------- -------- ---------- -------- ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums............... 18,644 230,038 183,369 312,514 22,350 323,718
Administrative charges...................... (147) (579) (146) (726) (17) (2,166)
Surrenders and forfeitures.................. (203) (49,548) (15,221) (30,831) (8,170) (62,414)
Transfers between investment portfolios..... 38,690 441,152 180,407 542,570 254,756 868,441
Net withdrawals due to policy loans......... (1,478) (4,334)
Withdrawals due to death benefits........... (12,220)
-------- ---------- -------- ---------- -------- ----------
Net increase in net assets derived from
contract transactions..................... 56,984 608,843 348,409 822,049 268,919 1,123,245
-------- ---------- -------- ---------- -------- ----------
Capital contribution from Providentmutual
Life and Annuity Company of America....... 10,000 10,000 25,000
-------- ---------- -------- ---------- -------- ----------
Total increase in net assets................ 48,460 746,293 272,001 442,353 279,755 1,542,934
NET ASSETS
Beginning of year......................... 161,139 923,361 156,819 931,951 -- 2,239,590
-------- ---------- -------- ---------- -------- ----------
End of year............................... $209,599 $1,669,654 $428,820 $1,374,304 $279,755 $3,782,524
======== ========== ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 84
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
GROWTH MARKET BOND MANAGED GROWTH INTERNATIONAL
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........... $ 231,616 $ 1,070,282 $ 276,466 $ 265,497 $ (59,766) $ (116,372)
Net realized gain (loss) on
investments.......................... 3,430,041 (15,685) 339,269 469,234 1,387,827
Net unrealized appreciation of
investments during the year.......... 3,128,313 254,938 1,825,018 1,291,981 88,130
----------- ------------- ---------- ----------- ----------- -----------
Net increase in net assets from
operations........................... 6,789,970 1,070,282 515,719 2,429,784 1,701,449 1,359,585
----------- ------------- ---------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums.......... 2,088,885 130,399,881 551,478 1,148,358 850,433 1,255,853
Administrative charges................. (17,605) (7,663) (3,214) (7,746) (6,581) (11,877)
Surrenders and forfeitures............. (1,365,373) (3,060,448) (279,782) (621,704) (484,756) (1,100,295)
Transfers between investment
portfolios........................... 5,570,307 (124,703,022) 2,062,898 1,923,797 1,707,222 787,778
Net withdrawals due to policy loans.... (5,569) (2,194) (406) (963) (5,084) (2,337)
Withdrawals due to death benefits...... (60,690) (66,875) (40,881) (41,895) (78,959) (99,780)
----------- ------------- ---------- ----------- ----------- -----------
Net increase in net assets derived from
contract transactions................ 6,209,955 2,559,679 2,290,093 2,399,847 1,982,275 829,342
----------- ------------- ---------- ----------- ----------- -----------
Total increase in net assets........... 12,999,925 3,629,961 2,805,812 4,829,631 3,683,724 2,188,927
NET ASSETS
Beginning of year.................... 27,187,220 26,243,173 5,229,293 11,558,384 7,218,147 16,420,391
----------- ------------- ---------- ----------- ----------- -----------
End of year.......................... $40,187,145 $ 29,873,134 $8,035,105 $16,388,015 $10,901,871 $18,609,318
=========== ============= ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-24
<PAGE> 85
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY
HIGH EQUITY- FIDELITY FIDELITY ASSET FIDELITY
INCOME INCOME GROWTH OVERSEAS MANAGER INDEX 500
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............ $ 579,334 $ (23,343) $ (459,452) $ (10,239) $ 393,553 $ (273,703)
Net realized gain on investments........ 290,009 5,128,306 2,640,756 26,647 2,218,250 907,824
Net unrealized appreciation
(depreciation) of investments during
the year.............................. 1,206,713 9,356,635 8,354,393 (2,729) 1,757,612 9,425,758
----------- ----------- ----------- ---------- ----------- -----------
Net increase in net assets from
operations............................ 2,076,056 14,461,598 10,535,697 13,679 4,369,415 10,059,879
----------- ----------- ----------- ---------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums........... 1,280,526 4,268,560 4,338,146 158,943 1,519,377 5,358,511
Administrative charges.................. (7,533) (35,464) (39,051) (395) (13,984) (20,920)
Surrenders and forfeitures.............. (747,010) (2,452,358) (1,961,173) (10,628) (1,204,262) (1,030,109)
Transfers between investment
portfolios............................ 5,414,722 13,589,788 7,419,053 1,610,770 4,483,284 20,918,768
Net repayments (withdrawals) due to
policy loans.......................... (33,050) (33,934) (14,356) 975 (20,224)
Withdrawals due to death benefits....... (17,041) (632,965) (421,777) (113) (123,325) (147,455)
----------- ----------- ----------- ---------- ----------- -----------
Net increase in net assets derived from
contract transactions................. 5,890,614 14,703,627 9,320,842 1,758,577 4,662,065 25,058,571
----------- ----------- ----------- ---------- ----------- -----------
Total increase in net assets............ 7,966,670 29,165,225 19,856,539 1,772,256 9,031,480 35,118,450
NET ASSETS
Beginning of year..................... 10,477,722 49,735,738 45,020,726 159,089 21,122,323 23,271,511
----------- ----------- ----------- ---------- ----------- -----------
End of year........................... $18,444,392 $78,900,963 $64,877,265 $1,931,345 $30,153,803 $58,389,961
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-25
<PAGE> 86
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
INVESTMENT
FIDELITY GRADE OCC OCC OCC
CONTRAFUND BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)........................... $ (226,894) $ 7,540 $ (106,315) $ (132,776) $ (243,966)
Net realized gain on investments....................... 655,572 1,806 796,084 683,587 3,034,796
Net unrealized appreciation of investments during the
year................................................. 5,005,461 36,765 2,671,007 2,035,846 5,980,771
----------- ---------- ----------- ----------- -----------
Net increase in net assets from operations............. 5,434,139 46,111 3,360,776 2,586,657 8,771,601
----------- ---------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums.......................... 2,843,886 54,796 1,602,917 1,130,432 3,738,480
Administrative charges................................. (16,030) (195) (8,166) (9,057) (26,367)
Surrenders and forfeitures............................. (1,027,236) (3,478) (774,950) (504,489) (1,990,422)
Transfers between investment portfolios................ 12,918,442 783,432 5,613,117 4,233,814 8,848,392
Net withdrawals due to policy loans.................... (13,879) (688) (11,287) (31,626)
Withdrawals due to death benefits...................... (130,515) (46,072) (313,679)
----------- ---------- ----------- ----------- -----------
Net increase in net assets derived from contract
transactions......................................... 14,705,183 834,555 6,301,715 4,793,341 10,224,778
----------- ---------- ----------- ----------- -----------
Total increase in net assets........................... 20,139,322 880,666 9,662,491 7,379,998 18,996,379
NET ASSETS
Beginning of year.................................... 17,135,935 170,704 10,821,995 10,778,200 38,321,624
----------- ---------- ----------- ----------- -----------
End of year.......................................... $37,275,257 $1,051,370 $20,484,486 $18,158,198 $57,318,003
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-26
<PAGE> 87
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS DREYFUS
SCUDDER GROWTH SCUDDER ZERO GROWTH SOCIALLY
BOND AND INCOME INTERNATIONAL COUPON 2000 AND INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).......... $ 298,360 $ 78,639 $ (17,618) $ 212,746 $ (2,395) $ (29,930)
Net realized gain on investments...... 31,252 365,297 145,634 73,994 1,516,556 227,055
Net unrealized appreciation
(depreciation) of investments during
the year............................ 150,547 1,696,758 313,641 (15,866) 543,377 567,606
---------- ----------- ----------- ---------- ----------- ----------
Net increase in net assets from
operations.......................... 480,159 2,140,694 441,657 270,874 2,057,538 764,731
---------- ----------- ----------- ---------- ----------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums......... 291,718 1,186,505 1,046,437 509,829 1,412,748 505,234
Administrative charges................ (3,726) (4,669) (4,407) (2,535) (11,090) (2,482)
Surrenders and forfeitures............ (191,865) (301,213) (175,614) (703,664) (574,271) (134,940)
Transfers between investment
portfolios.......................... 1,707,689 8,319,936 3,778,824 805,262 1,705,003 2,541,677
Net withdrawals due to policy loans... (4,218) (8,156) (7,520) (2,358) (14,113) (4,931)
Withdrawals due to death benefits..... (22,128) (65,835) (10,135) (5,854) (76,105) (1,793)
---------- ----------- ----------- ---------- ----------- ----------
Net increase in net assets derived
from contract transactions.......... 1,777,470 9,126,568 4,627,585 600,680 2,442,172 2,902,765
---------- ----------- ----------- ---------- ----------- ----------
Total increase in net assets.......... 2,257,629 11,267,262 5,069,242 871,554 4,499,710 3,667,496
NET ASSETS
Beginning of year................... 5,689,320 4,545,038 5,588,436 4,977,823 12,537,732 1,781,138
---------- ----------- ----------- ---------- ----------- ----------
End of year......................... $7,946,949 $15,812,300 $10,657,678 $5,849,377 $17,037,442 $5,448,634
========== =========== =========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-27
<PAGE> 88
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
FUND FOR NEUBERGER NEUBERGER NEUBERGER &
U.S. GOVERNMENT FEDERATED & BERMAN & BERMAN BERMAN LIMITED
SECURITIES II UTILITY FUND II BALANCED GROWTH MATURITY BOND
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............. $ 51,799 $ 27,148 $ (2,356) $ (7,191) $ 7,707
Net realized gain (loss) on
investments............................ (1,435) 108,561 7,618 34,742 520
Net unrealized appreciation of
investments during the year............ 132,431 751,192 35,334 75,929 21,333
---------- ---------- -------- -------- --------
Net increase in net assets from
operations............................. 182,795 886,901 40,596 103,480 29,560
---------- ---------- -------- -------- --------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums............ 208,631 521,063 22,838 80,259 68,951
Administrative charges................... (1,031) (1,719) (65) (252) (98)
Surrenders and forfeitures............... (62,558) (89,033) (10,471) (1,022) (1,686)
Transfers between investment
portfolios............................. 1,295,645 1,039,150 600,636 619,422 783,333
Net withdrawals due to policy loans...... (324)
Withdrawals due to death benefits........ (4,837) (5,282)
---------- ---------- -------- -------- --------
Net increase in net assets derived from
contract transactions.................. 1,435,850 1,463,855 612,938 698,407 850,500
---------- ---------- -------- -------- --------
Total increase in net assets............. 1,618,645 2,350,756 653,534 801,887 880,060
NET ASSETS
Beginning of year...................... 1,982,702 2,779,751 68,187 133,223 101,452
---------- ---------- -------- -------- --------
End of year............................ $3,601,347 $5,130,507 $721,721 $935,110 $981,512
========== ========== ======== ======== ========
</TABLE>
See accompanying notes to financial statements
F-28
<PAGE> 89
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK VAN ECK ALGER
CENTURY VP VAN ECK WORLDWIDE WORLDWIDE AMERICAN
CAPITAL WORLDWIDE HARD EMERGING SMALL
APPRECIATION BOND ASSETS MARKETS CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment gain (loss).......................... $ (1,534) $ (2,124) $ 200 $ (6,889) $ (18,151)
Net realized gain (loss) on investments............. (471) 150 662 11,001 46,098
Net unrealized appreciation (depreciation) of
investments during the year....................... (4,139) 24,146 (9,908) (250,868) 121,237
-------- -------- -------- ---------- ----------
Net increase (decrease) in net assets from
operations........................................ (6,144) 22,172 (9,046) (246,756) 149,184
-------- -------- -------- ---------- ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums....................... 17,286 80,140 7,900 143,354 180,116
Administrative charges.............................. (92) (96) (42) (148) (595)
Surrenders and forfeitures.......................... (345) (3,711) (4,908) (5,167)
Transfers between investment portfolios............. 67,816 707,353 115,282 943,837 1,434,196
-------- -------- -------- ---------- ----------
Net increase in net assets derived from contract
transactions...................................... 84,665 783,686 123,140 1,082,135 1,608,550
-------- -------- -------- ---------- ----------
Total increase in net assets........................ 78,521 805,858 114,094 835,379 1,757,734
NET ASSETS
Beginning of year................................. 82,618 117,503 42,725 96,572 481,856
-------- -------- -------- ---------- ----------
End of year....................................... $161,139 $923,361 $156,819 $ 931,951 $2,239,590
======== ======== ======== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-29
<PAGE> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. ORGANIZATION
The Providentmutual Variable Annuity Separate Account (Separate Account)
was established by Providentmutual Life and Annuity Company of America
(Providentmutual) under the provisions of Pennsylvania law and commenced
operations on April 14, 1992. In December 1992, Providentmutual redomesticated
to the State of Delaware. Providentmutual is a wholly-owned subsidiary of
Provident Mutual Life Insurance Company (Provident Mutual). The Separate Account
is an investment account to which net proceeds from individual flexible premium
deferred variable annuity contracts (the Contracts) are allocated until maturity
or termination of the Contracts.
The Contracts are distributed through career agents, brokers and personal
producing general agents.
Providentmutual has structured the Separate Account as a unit investment
trust registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
thirty-nine Subaccounts: the Growth, Money Market, Bond, Managed, Aggressive
Growth, International, All Pro Large Cap Growth, All Pro Large Cap Value, All
Pro Small Cap Growth and All Pro Small Cap Value Subaccounts invest in the
corresponding portfolios of the Market Street Fund, Inc.; the Fidelity High
Income, Fidelity Equity-Income, Fidelity Growth and Fidelity Overseas
Subaccounts invest in the corresponding portfolios of the Variable Insurance
Products Fund; the Fidelity Asset Manager, Fidelity Index 500, Fidelity
Contrafund and Fidelity Investment Grade Bond Subaccounts invest in the
corresponding portfolios of the Variable Insurance Products Fund II; the OCC
Equity (formerly Quest for Value Equity), OCC Small Cap (formerly Quest for
Value Small Cap) and OCC Managed (formerly Quest for Value Managed) Subaccounts
invest in the corresponding portfolios of the OCC Accumulation Trust; the
Scudder Bond, Scudder Growth and Income and Scudder International Subaccounts
invest in the corresponding portfolios of the Scudder Variable Life Investment
Fund; the Dreyfus Zero Coupon 2000 and Dreyfus Growth and Income Subaccounts
invest in the corresponding portfolios of the Dreyfus Variable Investment Fund;
the Dreyfus Socially Responsible Subaccount invests in the Dreyfus Socially
Responsible Growth Fund, Inc.; the Federated Fund for U.S. Government Securities
II (formerly Federated U.S. Government Bond Fund) and Federated Utility Fund II
(formerly Federated Utility Fund) Subaccounts invest in the corresponding
portfolios of the Federated Insurance Series (formerly Insurance Management
Series); the Neuberger & Berman Balanced, Neuberger & Berman Growth, Neuberger &
Berman Limited Maturity Bond and Neuberger & Berman Partners Subaccounts invest
in the corresponding portfolios of the Neuberger & Berman Advisers Management
Trust; the American Century VP Capital Appreciation (formerly TCI Growth)
Subaccount invests in the corresponding portfolio of the American Century
Variable Portfolios, Inc. (formerly TCI Portfolios, Inc.); the Van Eck Worldwide
Bond, Van Eck Worldwide Hard Assets (formerly Van Eck Worldwide Gold and Natural
Resources), Van Eck Worldwide Emerging Markets (formerly Van Eck Emerging
Markets) and the Van Eck Worldwide Real Estate Subaccounts invest in the
corresponding portfolios of the Van Eck Worldwide Insurance Trust; and the Alger
American Small Capitalization Subaccount invests in the corresponding portfolio
of the Alger American Fund. See original contract documents for availability of
Subaccounts as investment options for a particular variable annuity contract.
Net premiums from the Contracts are allocated to the Subaccounts in
accordance with contractholder instructions and are recorded as variable annuity
contract transactions in the statements of changes in net assets. Such amounts
are used to provide money to pay contract values under the Contracts. The
Separate Account's assets are the property of Providentmutual.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of
Providentmutual's General Account.
F-30
<PAGE> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed
by the Separate Account in the financial statements.
Investment Valuation:
Investment shares are valued at the net asset values of the respective
Portfolios. Transactions are recorded on the trade date. Dividend income is
recorded on the ex-dividend date.
Realized Gains and Losses:
Realized gains and losses on sales of investment shares are determined
using the specific identification basis for financial reporting and income tax
purposes.
Federal Income Taxes:
The operations of the Separate Account are included in the Federal income
tax return of Providentmutual. Under the provisions of the Contracts,
Providentmutual has the right to charge the Separate Account for Federal income
tax attributable to the Separate Account. No charge is currently being made
against the Separate Account for such tax.
Estimates:
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the reported values of
assets and liabilities and the reported amounts from operations and contract
transactions during the period. Actual results could differ from those
estimates.
F-31
<PAGE> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1998, the investments of the respective Subaccounts are as
follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Market Street Fund, Inc.:
Growth Portfolio...................................... 2,542,983 $40,978,152 $47,858,933
Money Market Portfolio................................ 40,359,766 $40,359,766 $40,359,766
Bond Portfolio........................................ 1,355,004 $14,701,793 $15,203,142
Managed Portfolio..................................... 1,098,974 $16,118,757 $19,429,859
Aggressive Growth Portfolio........................... 569,831 $10,641,731 $12,484,988
International Portfolio............................... 1,422,239 $17,938,428 $19,698,014
All Pro Large Cap Growth Portfolio.................... 195,134 $1,951,209 $2,296,724
All Pro Large Cap Value Portfolio..................... 210,525 $1,926,722 $2,084,201
All Pro Small Cap Growth Portfolio.................... 170,247 $1,477,331 $1,668,424
All Pro Small Cap Value Portfolio..................... 159,355 $1,279,594 $1,314,681
Variable Insurance Products Fund:
High Income Portfolio................................. 1,902,978 $23,263,899 $21,941,333
Equity-Income Portfolio............................... 3,776,355 $77,591,968 $95,994,948
Growth Portfolio...................................... 2,268,137 $72,271,611 $101,771,312
Overseas Portfolio.................................... 172,534 $3,386,592 $3,459,303
Variable Insurance Products Fund II:
Asset Manager Portfolio............................... 2,293,724 $36,155,092 $41,654,028
Index 500 Portfolio................................... 706,050 $73,340,751 $99,729,620
Contrafund Portfolio.................................. 2,427,618 $43,282,153 $59,330,973
Investment Grade Bond Portfolio....................... 195,223 $2,419,482 $2,530,093
OCC Accumulation Trust:
Equity Portfolio...................................... 607,084 $20,010,763 $23,494,162
Small Cap Portfolio................................... 717,730 $15,917,805 $16,579,552
Managed Portfolio..................................... 1,371,743 $47,260,563 $60,000,044
Scudder Variable Life Investment Fund:
Bond Portfolio........................................ 1,579,674 $10,698,468 $10,868,157
Growth and Income Portfolio........................... 1,943,219 $21,243,672 $21,802,912
International Portfolio............................... 997,618 $13,523,770 $14,525,316
</TABLE>
F-32
<PAGE> 93
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COST MARKET VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio............................... 596,064 $7,352,507 $7,450,796
Growth and Income Portfolio.............................. 867,906 $18,030,213 $19,640,705
Dreyfus Socially Responsible Growth Fund, Inc.:
Socially Responsible Portfolio........................... 354,253 $9,263,673 $11,010,184
Federated Insurance Series:
Fund for U.S. Government Securities II Portfolio......... 835,734 $8,937,438 $9,318,436
Utility Fund II Portfolio................................ 668,055 $8,793,615 $10,201,206
Neuberger & Berman Advisers Management Trust:
Balanced Portfolio....................................... 47,469 $784,421 $775,638
Growth Portfolio......................................... 37,837 $1,019,045 $994,739
Limited Maturity Bond Portfolio.......................... 103,757 $1,423,683 $1,433,927
Partners Portfolio....................................... 21,588 $391,823 $408,652
American Century Variable Portfolios, Inc.:
American Century VP Capital Appreciation Portfolio....... 23,237 $226,004 $209,599
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio......................... 135,965 $1,535,559 $1,669,654
Van Eck Worldwide Hard Assets Portfolio.................. 46,611 $455,294 $428,820
Van Eck Worldwide Emerging Markets Portfolio............. 193,020 $1,748,577 $1,374,304
Van Eck Worldwide Real Estate Portfolio.................. 29,324 $278,274 $279,755
Alger American Fund:
Alger American Small Capitalization Portfolio............ 86,025 $3,578,203 $3,782,524
</TABLE>
F-33
<PAGE> 94
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1998, 1997 and 1996, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................ 346,424 388,406 353,660 70,268,727 49,458,951 48,257,103
Shares received from reinvestment of:
Dividends............................. 39,380 39,547 38,004 1,900,929 1,340,251 1,086,441
Capital gain distributions............ 324,556 197,982 56,193
----------- ----------- ---------- ------------ ------------ ------------
Total shares acquired................... 710,360 625,935 447,857 72,169,656 50,799,202 49,343,544
Total shares redeemed................... (232,492) (62,876) (65,428) (61,368,156) (47,463,144) (38,849,836)
----------- ----------- ---------- ------------ ------------ ------------
Net increase in shares owned............ 477,868 563,059 382,429 10,801,500 3,336,058 10,493,708
Shares owned, beginning of year......... 2,065,115 1,502,056 1,119,627 29,558,266 26,222,208 15,728,500
----------- ----------- ---------- ------------ ------------ ------------
Shares owned, end of year............... 2,542,983 2,065,115 1,502,056 40,359,766 29,558,266 26,222,208
=========== =========== ========== ============ ============ ============
Cost of shares acquired................. $12,151,370 $10,722,252 $7,269,012 $ 72,169,656 $ 50,799,202 $ 49,343,544
=========== =========== ========== ============ ============ ============
Cost of shares redeemed................. $ 3,234,814 $ 850,640 $ 883,404 $ 61,368,156 $ 47,463,144 $ 38,849,836
=========== =========== ========== ============ ============ ============
</TABLE>
F-34
<PAGE> 95
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 705,303 299,562 176,063 185,440 239,027 217,165
Shares received from reinvestment of:
Dividends..................................... 51,084 26,180 23,197 33,989 29,247 25,583
Capital gain distributions.................... 113 49,259 6,347 26,337
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 756,500 325,742 199,260 268,688 274,621 269,085
Total shares redeemed........................... (133,291) (84,040) (41,198) (130,324) (101,367) (94,568)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 623,209 241,702 158,062 138,364 173,254 174,517
Shares owned, beginning of year................. 731,795 490,093 332,031 960,610 787,356 612,839
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 1,355,004 731,795 490,093 1,098,974 960,610 787,356
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $8,359,990 $3,458,106 $2,101,906 $4,468,360 $4,306,753 $3,730,420
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $1,351,371 $ 907,232 $ 460,127 $1,596,263 $1,302,140 $1,258,679
========== ========== ========== ========== ========== ==========
</TABLE>
F-35
<PAGE> 96
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 114,384 176,404 143,742 149,636 229,002 338,046
Shares received from reinvestment of:
Dividends..................................... 4,364 3,772 2,905 10,431 11,165 11,412
Capital gain distributions.................... 41,664 748 29,259 101,929 87,406 46,267
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 160,412 180,924 175,906 261,996 327,573 395,725
Total shares redeemed........................... (81,878) (79,376) (23,509) (207,084) (184,734) (80,224)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 78,534 101,548 152,397 54,912 142,839 315,501
Shares owned, beginning of year................. 491,297 389,749 237,352 1,367,327 1,224,488 908,987
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 569,831 491,297 389,749 1,422,239 1,367,327 1,224,488
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $3,283,291 $3,564,490 $2,907,441 $3,473,346 $4,278,967 $4,989,324
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $1,306,200 $1,172,747 $ 355,445 $2,480,687 $2,178,170 $ 953,471
========== ========== ========== ========== ========== ==========
</TABLE>
F-36
<PAGE> 97
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------
ALL PRO ALL PRO ALL PRO ALL PRO
LARGE LARGE SMALL SMALL
CAP CAP CAP CAP
GROWTH VALUE GROWTH VALUE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------
1998 1998 1998 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 213,913 249,960 192,921 176,132
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................
---------- ---------- ---------- ----------
Total shares acquired....................................... 213,913 249,960 192,921 176,132
Total shares redeemed....................................... (18,779) (39,435) (22,674) (16,777)
---------- ---------- ---------- ----------
Net increase in shares owned................................ 195,134 210,525 170,247 159,355
Shares owned, beginning of year.............................
---------- ---------- ---------- ----------
Shares owned, end of year................................... 195,134 210,525 170,247 159,355
========== ========== ========== ==========
Cost of shares acquired..................................... $2,139,394 $2,312,547 $1,703,306 $1,436,512
========== ========== ========== ==========
Cost of shares redeemed..................................... $ 188,185 $ 385,825 $ 225,975 $ 156,918
========== ========== ========== ==========
</TABLE>
F-37
<PAGE> 98
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO EQUITY-INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 619,153 556,624 497,171 644,882 738,222 948,858
Shares received from reinvestment of:
Dividends.................................. 106,389 65,635 31,527 48,036 43,550 2,439
Capital gain distributions................. 67,602 8,112 6,168 170,951 218,961 69,930
---------- ---------- ---------- ----------- ----------- -----------
Total shares acquired........................ 793,144 630,371 534,866 863,869 1,000,733 1,021,227
Total shares redeemed........................ (248,369) (109,047) (53,745) (337,142) (116,095) (72,484)
---------- ---------- ---------- ----------- ----------- -----------
Net increase in shares owned................. 544,775 521,324 481,121 526,727 884,638 948,743
Shares owned, beginning of year.............. 1,358,203 836,879 355,758 3,249,628 2,364,990 1,416,247
---------- ---------- ---------- ----------- ----------- -----------
Shares owned, end of year.................... 1,902,978 1,358,203 836,879 3,776,355 3,249,628 2,364,990
========== ========== ========== =========== =========== ===========
Cost of shares acquired...................... $9,653,161 $7,933,056 $6,332,243 $20,896,968 $21,544,493 $19,840,748
========== ========== ========== =========== =========== ===========
Cost of shares redeemed...................... $2,838,887 $1,173,099 $ 581,561 $ 5,134,531 $ 1,735,903 $ 1,117,224
========== ========== ========== =========== =========== ===========
</TABLE>
F-38
<PAGE> 99
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO OVERSEAS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 469,280 353,805 625,760 97,693 97,803 9,008
Shares received from reinvestment of:
Dividends.................................... 9,986 9,845 2,459 2,178 229
Capital gain distributions................... 261,224 44,069 62,080 6,419 908
----------- ----------- ----------- ---------- ---------- --------
Total shares acquired.......................... 740,490 407,719 690,299 106,290 98,940 9,008
Total shares redeemed.......................... (221,066) (104,758) (27,427) (34,347) (6,793) (564)
----------- ----------- ----------- ---------- ---------- --------
Net increase in shares owned................... 519,424 302,961 662,872 71,943 92,147 8,444
Shares owned, beginning of year................ 1,748,713 1,445,752 782,880 100,591 8,444
----------- ----------- ----------- ---------- ---------- --------
Shares owned, end of year...................... 2,268,137 1,748,713 1,445,752 172,534 100,591 8,444
=========== =========== =========== ========== ========== ========
Cost of shares acquired........................ $26,910,064 $13,852,376 $20,153,196 $2,078,757 $1,896,772 $162,451
=========== =========== =========== ========== ========== ========
Cost of shares redeemed........................ $ 4,554,887 $ 2,350,230 $ 641,881 $ 619,562 $ 121,787 $ 10,039
=========== =========== =========== ========== ========== ========
</TABLE>
F-39
<PAGE> 100
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO INDEX 500 PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 548,871 387,965 278,005 240,834 245,745 166,250
Shares received from reinvestment of:
Dividends................................. 60,098 48,526 39,874 6,162 3,170 1,306
Capital gain distributions................ 180,294 121,726 32,878 14,271 6,432 3,358
----------- ---------- ---------- ----------- ----------- -----------
Total shares acquired....................... 789,263 558,217 350,757 261,267 255,347 170,914
Total shares redeemed....................... (169,820) (131,563) (146,266) (65,663) (5,997) (5,528)
----------- ---------- ---------- ----------- ----------- -----------
Net increase in shares owned................ 619,443 426,654 204,491 195,604 249,350 165,386
Shares owned, beginning of year............. 1,674,281 1,247,627 1,043,136 510,446 261,096 95,710
----------- ---------- ---------- ----------- ----------- -----------
Shares owned, end of year................... 2,293,724 1,674,281 1,247,627 706,050 510,446 261,096
=========== ========== ========== =========== =========== ===========
Cost of shares acquired..................... $13,130,066 $9,113,810 $5,494,521 $32,318,011 $26,020,287 $13,621,230
=========== ========== ========== =========== =========== ===========
Cost of shares redeemed..................... $ 2,379,351 $1,839,942 $2,124,398 $ 4,219,384 $ 327,595 $ 311,911
=========== ========== ========== =========== =========== ===========
</TABLE>
F-40
<PAGE> 101
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- ----------------------------------------------------------------------------------------------------------------------------
CONTRAFUND INVESTMENT GRADE
PORTFOLIO BOND PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 677,429 846,924 724,270 132,732 71,947 14,613
Shares received from reinvestment of:
Dividends..................................... 13,711 9,341 4,363 1,225
Capital gain distributions.................... 100,874 24,687 3,706 518
----------- ----------- ----------- ---------- -------- --------
Total shares acquired........................... 792,014 880,952 727,976 137,613 73,172 14,613
Total shares redeemed........................... (233,767) (46,360) (22,255) (26,098) (3,410) (667)
----------- ----------- ----------- ---------- -------- --------
Net increase in shares owned.................... 558,247 834,592 705,721 111,515 69,762 13,946
Shares owned, beginning of year................. 1,869,371 1,034,779 329,058 83,708 13,946
----------- ----------- ----------- ---------- -------- --------
Shares owned, end of year....................... 2,427,618 1,869,371 1,034,779 195,223 83,708 13,946
=========== =========== =========== ========== ======== ========
Cost of shares acquired......................... $16,415,814 $15,732,802 $10,770,383 $1,720,207 $883,549 $173,988
=========== =========== =========== ========== ======== ========
Cost of shares redeemed......................... $ 3,186,970 $ 598,941 $ 266,200 $ 310,931 $ 39,648 $ 7,683
=========== =========== =========== ========== ======== ========
</TABLE>
F-41
<PAGE> 102
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO SMALL CAP PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 185,832 214,672 162,103 125,732 220,838 162,087
Shares received from reinvestment of:
Dividends..................................... 5,869 3,476 2,142 2,202 3,052 4,346
Capital gain distributions.................... 25,328 12,375 4,293 24,038 21,523 11,176
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 217,029 230,523 168,538 151,972 245,413 177,609
Total shares redeemed........................... (170,856) (29,505) (14,069) (122,835) (33,520) (30,188)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 46,173 201,018 154,469 29,137 211,893 147,421
Shares owned, beginning of year................. 560,911 359,893 205,424 688,593 476,700 329,279
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 607,084 560,911 359,893 717,730 688,593 476,700
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $8,123,629 $7,519,820 $4,592,764 $3,833,541 $5,908,364 $3,646,820
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $3,697,900 $ 528,336 $ 250,929 $2,067,904 $ 564,212 $ 529,972
========== ========== ========== ========== ========== ==========
</TABLE>
F-42
<PAGE> 103
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OCC ACCUMULATION TRUST
- ----------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO
- ----------------------------------------------------------------------------------------------------
1998 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 167,464 333,304 413,755
Shares received from reinvestment of:
Dividends................................................. 10,214 12,218 9,660
Capital gain distributions................................ 40,795 37,524 6,160
---------- ----------- -----------
Total shares acquired....................................... 218,473 383,046 429,575
Total shares redeemed....................................... (199,208) (88,884) (29,711)
---------- ----------- -----------
Net increase in shares owned................................ 19,265 294,162 399,864
Shares owned, beginning of year............................. 1,352,478 1,058,316 658,452
---------- ----------- -----------
Shares owned, end of year................................... 1,371,743 1,352,478 1,058,316
========== =========== ===========
Cost of shares acquired..................................... $9,544,488 $14,890,450 $13,972,601
========== =========== ===========
Cost of shares redeemed..................................... $4,217,378 $ 1,874,842 $ 630,417
========== =========== ===========
</TABLE>
F-43
<PAGE> 104
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER VARIABLE LIFE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO GROWTH AND INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 540,773 385,038 367,411 793,097 901,830 420,073
Shares received from reinvestment of:
Dividends.................................... 77,487 58,342 58,022 40,016 20,474 6,977
Capital gain distributions................... 4,482 2,585 108,036 22,214 1,768
---------- ---------- ---------- ----------- ---------- ----------
Total shares acquired.......................... 622,742 445,965 425,433 941,149 944,518 428,818
Total shares redeemed.......................... (199,829) (134,571) (86,886) (375,308) (52,203) (19,789)
---------- ---------- ---------- ----------- ---------- ----------
Net increase in shares owned................... 422,913 311,394 338,547 565,841 892,315 409,029
Shares owned, beginning of year................ 1,156,761 845,367 506,820 1,377,378 485,063 76,034
---------- ---------- ---------- ----------- ---------- ----------
Shares owned, end of year...................... 1,579,674 1,156,761 845,367 1,943,219 1,377,378 485,063
========== ========== ========== =========== ========== ==========
Cost of shares acquired........................ $4,262,079 $2,995,282 $2,843,858 $10,744,256 $9,963,127 $3,671,539
========== ========== ========== =========== ========== ==========
Cost of shares redeemed........................ $1,328,541 $ 888,200 $ 589,564 $ 3,167,047 $ 392,623 $ 139,882
========== ========== ========== =========== ========== ==========
</TABLE>
F-44
<PAGE> 105
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER VARIABLE DREYFUS VARIABLE
LIFE INVESTMENT FUND INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO ZERO COUPON 2000 PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 243,337 362,848 367,511 160,739 178,897 228,907
Shares received from reinvestment of:
Dividends..................................... 15,137 7,622 2,055 27,581 21,457 18,860
Capital gain distributions.................... 99,556 3,992 1,345
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 358,030 374,462 369,566 188,320 200,354 249,112
Total shares redeemed........................... (115,740) (40,903) (2,168) (67,815) (129,825) (66,959)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 242,290 333,559 367,398 120,505 70,529 182,153
Shares owned, beginning of year................. 755,328 421,769 54,371 475,559 405,030 222,877
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 997,618 755,328 421,769 596,064 475,559 405,030
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $4,962,915 $5,230,236 $4,599,283 $2,357,097 $2,451,313 $3,073,171
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $1,400,980 $ 474,635 $ 24,108 $ 858,337 $1,563,893 $ 791,662
========== ========== ========== ========== ========== ==========
</TABLE>
F-45
<PAGE> 106
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DREYFUS VARIABLE DREYFUS SOCIALLY RESPONSIBLE
INVESTMENT FUND GROWTH FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO SOCIALLY RESPONSIBLE PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 164,633 277,054 477,085 189,664 135,060 81,633
Shares received from reinvestment of:
Dividends.................................... 8,039 10,424 6,707 551 788 186
Capital gain distributions................... 14,052 59,160 65,140 12,862 6,135 3,323
---------- ---------- ----------- ---------- ---------- ----------
Total shares acquired.......................... 186,724 346,638 548,932 203,077 141,983 85,142
Total shares redeemed.......................... (138,714) (168,058) (34,778) (67,031) (12,434) (5,663)
---------- ---------- ----------- ---------- ---------- ----------
Net increase in shares owned................... 48,010 178,580 514,154 136,046 129,549 79,479
Shares owned, beginning of year................ 819,896 641,316 127,162 218,207 88,658 9,179
---------- ---------- ----------- ---------- ---------- ----------
Shares owned, end of year...................... 867,906 819,896 641,316 354,253 218,207 88,658
========== ========== =========== ========== ========== ==========
Cost of shares acquired........................ $3,998,110 $7,078,888 $11,274,699 $5,748,444 $3,325,662 $1,653,499
========== ========== =========== ========== ========== ==========
Cost of shares redeemed........................ $2,869,687 $3,122,555 $ 583,074 $1,300,009 $ 225,772 $ 92,804
========== ========== =========== ========== ========== ==========
</TABLE>
F-46
<PAGE> 107
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES
- -----------------------------------------------------------------------------------------------------------------------------
FUND FOR U.S. GOVERNMENT
SECURITIES II PORTFOLIO UTILITY FUND II PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 569,802 187,156 155,414 352,245 140,162 189,045
Shares received from reinvestment of:
Dividends..................................... 6,466 8,648 7,430 3,744 6,422 5,693
Capital gain distributions.................... 286 332 22,863 5,679 525
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 576,554 195,804 163,176 378,852 152,263 195,263
Total shares redeemed........................... (82,504) (50,622) (14,996) (69,825) (28,608) (18,587)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 494,050 145,182 148,180 309,027 123,655 176,676
Shares owned, beginning of year................. 341,684 196,502 48,322 359,028 235,373 58,697
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 835,734 341,684 196,502 668,055 359,028 235,373
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $6,298,311 $2,003,403 $1,637,184 $5,378,724 $1,905,479 $2,157,050
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $ 823,154 $ 517,189 $ 150,038 $ 773,585 $ 305,915 $ 187,545
========== ========== ========== ========== ========== ==========
</TABLE>
F-47
<PAGE> 108
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................................... 20,340 37,500 4,283 15,238 26,907 5,195
Shares received from reinvestment of:
Dividends............................................... 1,208 114
Capital gain distributions.............................. 8,487 294 11,970 871
-------- -------- ------- -------- -------- --------
Total shares acquired..................................... 30,035 37,908 4,283 27,208 27,778 5,195
Total shares redeemed..................................... (23,112) (1,645) (19,990) (2,327) (27)
-------- -------- ------- -------- -------- --------
Net increase in shares owned.............................. 6,923 36,263 4,283 7,218 25,451 5,168
Shares owned, beginning of year........................... 40,546 4,283 30,619 5,168
-------- -------- ------- -------- -------- --------
Shares owned, end of year................................. 47,469 40,546 4,283 37,837 30,619 5,168
======== ======== ======= ======== ======== ========
Cost of shares acquired................................... $475,889 $643,054 $66,858 $696,912 $781,196 $126,671
======== ======== ======= ======== ======== ========
Cost of shares redeemed................................... $376,517 $ 24,854 $ 9 $529,836 $ 55,238 $ 660
======== ======== ======= ======== ======== ========
</TABLE>
F-48
<PAGE> 109
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST
- --------------------------------------------------------------------------------------------------------
LIMITED MATURITY PARTNERS
BOND PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------
1998 1997 1996 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares purchased............................................ 60,226 62,507 11,388 22,371
Shares received from reinvestment of:
Dividends................................................. 4,767 1,137
Capital gain distributions................................
-------- -------- -------- --------
Total shares acquired....................................... 64,993 63,644 11,388 22,371
Total shares redeemed....................................... (30,748) (1,353) (4,167) (783)
-------- -------- -------- --------
Net increase in shares owned................................ 34,245 62,291 7,221 21,588
Shares owned, beginning of year............................. 69,512 7,221
-------- -------- -------- --------
Shares owned, end of year................................... 103,757 69,512 7,221 21,588
======== ======== ======== ========
Cost of shares acquired..................................... $888,322 $877,259 $157,410 $407,672
======== ======== ======== ========
Cost of shares redeemed..................................... $424,355 $ 18,532 $ 56,421 $ 15,849
======== ======== ======== ========
</TABLE>
F-49
<PAGE> 110
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN CENTURY VAN ECK WORLDWIDE
VARIABLE PORTFOLIOS, INC. INSURANCE TRUST
- --------------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY VP
CAPITAL APPRECIATION VAN ECK WORLDWIDE
PORTFOLIO BOND PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................................... 8,123 11,508 8,077 80,971 75,793 15,517
Shares received from reinvestment of:
Dividends................................................ 786 468
Capital gain distributions............................... 961 266
------- -------- ------- -------- -------- --------
Total shares acquired...................................... 9,084 11,774 8,077 81,757 76,261 15,517
Total shares redeemed...................................... (2,494) (3,195) (9) (29,810) (2,829) (4,931)
------- -------- ------- -------- -------- --------
Net increase in shares owned............................... 6,590 8,579 8,068 51,947 73,432 10,586
Shares owned, beginning of year............................ 16,647 8,068 84,018 10,586
------- -------- ------- -------- -------- --------
Shares owned, end of year.................................. 23,237 16,647 8,068 135,965 84,018 10,586
======= ======== ======= ======== ======== ========
Cost of shares acquired.................................... $85,444 $116,229 $84,678 $955,676 $812,049 $168,730
======= ======== ======= ======== ======== ========
Cost of shares redeemed.................................... $26,675 $ 33,569 $ 103 $318,147 $ 30,337 $ 52,412
======= ======== ======= ======== ======== ========
</TABLE>
F-50
<PAGE> 111
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE INSURANCE TRUST
- -----------------------------------------------------------------------------------------------------------------------------
VAN ECK
WORLDWIDE
VAN ECK WORLDWIDE VAN ECK WORLDWIDE REAL ESTATE
HARD ASSETS PORTFOLIO EMERGING MARKETS PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 51,095 7,648 2,662 147,436 87,201 7,735 39,722
Shares received from reinvestment of:
Dividends................................. 71 73 854 38
Capital gain distributions................ 1,740 54 759
-------- -------- ------- ---------- ---------- ------- --------
Total shares acquired....................... 52,906 7,775 2,662 149,049 87,239 7,735 39,722
Total shares redeemed....................... (16,271) (354) (107) (40,752) (10,248) (3) (10,398)
-------- -------- ------- ---------- ---------- ------- --------
Net increase in shares owned................ 36,635 7,421 2,555 108,297 76,991 7,732 29,324
Shares owned, beginning of year............. 9,976 2,555 84,723 7,732
-------- -------- ------- ---------- ---------- ------- --------
Shares owned, end of year................... 46,611 9,976 2,555 193,020 84,723 7,732 29,324
======== ======== ======= ========== ========== ======= ========
Cost of shares acquired..................... $536,561 $129,621 $42,864 $1,157,713 $1,212,177 $93,586 $390,669
======== ======== ======= ========== ========== ======= ========
Cost of shares redeemed..................... $246,428 $ 5,619 $ 1,705 $ 588,929 $ 125,930 $ 40 $112,395
======== ======== ======= ========== ========== ======= ========
</TABLE>
F-51
<PAGE> 112
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER AMERICAN FUND
- ------------------------------------------------------------------------------------------------
ALGER AMERICAN
SMALL CAPITALIZATION
PORTFOLIO
- ------------------------------------------------------------------------------------------------
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 37,437 40,894 11,790
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 9,723 1,128
---------- ---------- --------
Total shares acquired....................................... 47,160 42,022 11,790
Total shares redeemed....................................... (12,326) (2,609) (12)
---------- ---------- --------
Net increase in shares owned................................ 34,834 39,413 11,778
Shares owned, beginning of year............................. 51,191 11,778
---------- ---------- --------
Shares owned, end of year................................... 86,025 51,191 11,778
========== ========== ========
Cost of shares acquired..................................... $1,968,028 $1,740,549 $476,692
========== ========== ========
Cost of shares redeemed..................................... $ 502,525 $ 104,052 $ 489
========== ========== ========
</TABLE>
F-52
<PAGE> 113
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Providentmutual makes certain deductions from premiums before amounts are
allocated to each separate account selected by the contractholder. The
deductions may include (1) surrender charges, (2) administration fees, (3)
transfer processing fees, (4) mortality and expense risk charges and (5) premium
taxes. Premiums adjusted for these deductions are recorded as net premiums in
the statement of changes in net assets. See original contract documents for
specific charges assessed.
There are no sales expenses deducted from premiums at the time the premiums
are paid. If a contract has not been in force for six full years for Market
Street VIP and Market Street VIP/2 contracts and seven full years for an Options
VIP contract, upon surrender or for certain withdrawals, a surrender charge is
deducted from the proceeds. However, subject to certain restrictions, up to 10%
of the contract account value as of the beginning of a contract year may be
surrendered or withdrawn free of surrender charges. For Options VIP contracts,
the 10% is cumulative if unused.
An annual administrative fee of $30 is deducted from the contract account
value on each contract anniversary date beginning one year from the issue date
of the contract. In addition, to compensate for costs associated with
administration of the Market Street VIP/2 and Options VIP contracts,
Providentmutual deducts a daily asset-based administration charge from the
assets of the Separate Account equal to an annual rate of .15%. This daily
asset-based administration charge is reported in the mortality and expense risk
charges in the statements of operations.
During any given contract year, the first four transfers by Market Street
VIP contractholders and the first twelve transfers by Market Street VIP/2 and
Options VIP contractholders of amounts in the Subaccounts are free of charge. A
fee of $25 is assessed for each additional transfer. No transfer fees were
incurred during the years ended December 31, 1998 and 1997.
The Contracts provide for an initial free-look period. If a contract is
cancelled within certain time constraints, the contractholder will receive a
refund equal to the contract account value plus certain deductions made under
the contract. Where state law requires a minimum refund equal to gross premiums
paid, the refund will instead equal the gross premiums paid on the contract and
will not reflect investment experience.
The Separate Account is charged a daily mortality and expense risk charge
at an annual rate of 1.20% for the Market Street VIP contracts and 1.25% for the
Market Street VIP/2 and Options VIP contracts. Providentmutual reserves the
right to increase this charge for the Market Street VIP contracts, but in no
event will it be greater than 1.25%.
State premium taxes, when applicable, will be deducted depending upon when
such taxes are paid to the taxing authority. The premium taxes are deducted
either from premiums as they are received or from the proceeds upon withdrawal
from or surrender of the contract or upon application of the proceeds to a
payment option.
F-53
<PAGE> 114
PROVIDENTMUTUAL
LIFE AND ANNUITY COMPANY
OF AMERICA
(A WHOLLY-OWNED SUBSIDIARY OF PROVIDENT MUTUAL LIFE INSURANCE COMPANY)
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<PAGE> 115
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Providentmutual Life and Annuity
Company of America
In our opinion, the accompanying statements of financial condition and the
related statements of operations, equity, and cash flows present fairly, in all
material respects, the financial position of Providentmutual Life and Annuity
Company of America (a wholly-owned stock life insurance subsidiary of Provident
Mutual Life Insurance Company), at December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 5, 1999
F-56
<PAGE> 116
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1998 -- $352,107;
1997 -- $311,637).................................... $ 359,442 $ 320,363
Held to maturity, at amortized cost (market:
1998 -- $57,419; 1997 -- $65,305)..................... 54,671 62,753
Equity securities, at market (cost: 1998 -- $1,278;
1997 -- $1,714)........................................ 1,360 1,776
Mortgage loans............................................ 58,907 46,871
Real estate............................................... 484 2,494
Policy loans and premium notes............................ 8,454 6,725
Other invested assets..................................... 88 302
Short-term investments.................................... 7,151 552
---------- ----------
Total investments................................. 490,557 441,836
---------- ----------
Cash........................................................ 3,107 1,063
Investment income due and accrued........................... 7,304 7,046
Deferred policy acquisition costs........................... 104,913 83,291
Reinsurance recoverable..................................... 3,054 74,674
Separate account assets..................................... 880,417 627,081
Other assets................................................ 1,312 1,342
---------- ----------
Total assets...................................... $1,490,664 $1,236,333
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $ 510,560 $ 516,591
Other policy obligations.................................. 8,246 8,147
---------- ----------
Total policy liabilities.......................... 518,806 524,738
---------- ----------
Payable to parent........................................... -- 1,837
Federal income taxes payable:
Current................................................... 6,281 3,928
Deferred.................................................. 2,474 2,363
Separate account liabilities................................ 877,713 624,872
Other liabilities........................................... 8,124 8,506
---------- ----------
Total liabilities................................. 1,413,398 1,166,244
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 9
EQUITY
Common stock, $10 par value; authorized 500,000 shares;
issued and outstanding 250,000 shares..................... 2,500 2,500
Contributed capital in excess of par........................ 44,165 44,165
Retained earnings........................................... 28,346 20,565
Accumulated other comprehensive income:
Net unrealized appreciation on securities................. 2,255 2,859
---------- ----------
Total equity...................................... 77,266 70,089
---------- ----------
Total liabilities and equity...................... $1,490,664 $1,236,333
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-57
<PAGE> 117
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $13,269 $13,904 $13,541
Policy and contract charges................................. 18,239 11,729 6,068
Net investment income....................................... 35,262 32,314 32,213
Other income................................................ 2,705 4,815 2,994
Net realized gains on investments........................... 2,010 69 112
------- ------- -------
Total revenues.................................... 71,485 62,831 54,928
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 13,884 15,606 12,861
Change in future policyholder benefits...................... 24,791 19,254 24,092
Commissions and operating expenses.......................... 19,859 15,271 8,564
Policyholder dividends...................................... 958 773 541
------- ------- -------
Total benefits and expenses....................... 59,492 50,904 46,058
------- ------- -------
Income before income taxes........................ 11,993 11,927 8,870
Income tax expense:
Current................................................... 3,776 2,470 2,612
Deferred.................................................. 436 1,979 988
------- ------- -------
Total income tax expense.......................... 4,212 4,449 3,600
------- ------- -------
Net income........................................ $ 7,781 $ 7,478 $ 5,270
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-58
<PAGE> 118
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONTRIBUTED NET
COMMON CAPITAL UNREALIZED
STOCK COMMON IN EXCESS RETAINED APPRECIATION TOTAL
SHARES STOCK OF PAR EARNINGS ON SECURITIES EQUITY
------ ------ ----------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996............ 2,500 $2,500 $29,665 $ 7,817 $ 2,754 $42,736
-------
Comprehensive income
Net income............................ -- -- -- 5,270 -- 5,270
Other comprehensive income, net of
tax:
Change in unrealized
appreciation.................... -- -- -- -- (1,857) (1,857)
-------
Total comprehensive income............ 3,413
Capital contribution from parent.... -- -- 8,000 -- -- 8,000
----- ------ ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1996.......... 2,500 2,500 37,665 13,087 897 54,149
-------
Comprehensive income
Net income............................ -- -- -- 7,478 -- 7,478
Other comprehensive income, net of
tax:
Change in unrealized
appreciation.................... -- -- -- -- 1,962 1,962
-------
Total comprehensive income............ 9,440
Capital contribution from parent.... -- -- 6,500 -- -- 6,500
----- ------ ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1997.......... 2,500 2,500 44,165 20,565 2,859 70,089
-------
Comprehensive income
Net income............................ -- -- -- 7,781 -- 7,781
Other comprehensive income, net of
tax:
Change in unrealized
appreciation.................... -- -- -- -- (604) (604)
-------
Total comprehensive income............ 7,177
----- ------ ------- ------- ------- -------
BALANCE AT DECEMBER 31, 1998.......... 2,500 $2,500 $44,165 $28,346 $ 2,255 $77,266
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-59
<PAGE> 119
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 7,781 $ 7,478 $ 5,270
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Interest credited to variable universal life and
investment products..................................... 21,927 15,076 19,684
Amortization of deferred policy acquisition costs......... 14,804 9,445 5,433
Capitalization of deferred policy acquisition costs....... (35,985) (31,404) (25,182)
Deferred Federal income taxes............................. 436 1,979 988
Depreciation, amortization and accretion.................. 372 625 798
Net realized gains on investments......................... (2,010) (69) (112)
Change in investment income due and accrued............... (258) (437) 66
Change in reinsurance recoverable......................... 71,620 5,672 772
Change in policy liabilities and other policyholder
funds................................................... (77,582) (12,255) (2,124)
Change in other liabilities............................... (382) 431 (210)
Change in current Federal income taxes payable............ 2,353 (809) (928)
Other, net................................................ (2,236) (2,676) 3,756
--------- --------- ---------
Net cash provided by (used in) operating activities..... 840 (6,944) 8,211
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 21,681 21,382 6,956
Equity securities......................................... 370 100 200
Real estate............................................... 5,324 772 --
Other invested assets..................................... 248 333 158
Proceeds from maturities of investments:
Held to maturity securities............................... 10,128 19,184 17,323
Available for sale securities............................. 56,894 28,439 21,467
Mortgage loans............................................ 4,436 2,599 7,873
Purchases of investments:
Held to maturity securities............................... (2,000) (2,029) (15,887)
Available for sale securities............................. (119,639) (72,520) (38,542)
Equity securities......................................... (207) (609) (157)
Mortgage loans............................................ (17,166) (7,179) (11,342)
Real estate............................................... (195) (99) (36)
Other invested assets..................................... -- (302) --
Contributions of separate account seed money................ (330) -- (335)
Withdrawals of separate account seed money.................. 265 -- --
Policy loans and premium notes, net......................... (1,729) (373) (906)
Net (purchases) sales of short-term investments............. (6,599) 7,901 4,203
--------- --------- ---------
Net cash used in investing activities................... (48,519) (2,401) (9,025)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 302,071 232,307 185,984
Variable universal life and investment product
withdrawals............................................... (252,348) (228,871) (192,698)
Capital contribution from parent............................ -- 6,500 8,000
--------- --------- ---------
Net cash provided by financing activities............... 49,723 9,936 1,286
--------- --------- ---------
Net change in cash...................................... 2,044 591 472
Cash, beginning of year..................................... 1,063 472 --
--------- --------- ---------
Cash, end of year........................................... $ 3,107 $ 1,063 $ 472
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes................ $ 1,434 $ 3,280 $ 3,540
========= ========= =========
Foreclosure of mortgage loans............................. $ 500 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-60
<PAGE> 120
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Providentmutual Life and Annuity Company of America (the Company) is a
stock life insurance company and a wholly-owned subsidiary of Provident Mutual
Life Insurance Company (Provident Mutual).
On October 13, 1998, the Board of Directors of Provident Mutual unanimously
approved and adopted a Plan of Conversion (Plan) to reorganize Provident Mutual
Life Insurance Company, utilizing a mutual holding company structure. The Plan
amended and replaced the proposed plan of conversion adopted January 5, 1998.
The Plan would result in Provident Mutual converting to a stock life insurance
company and being renamed Provfirst America Life Insurance Company (Provfirst
America). Provfirst America will have a newly created parent company, Provfirst
America Corporation, a stock holding company. Additionally, Provfirst America
Corporation will have a newly created parent company, Provident Mutual Holding
Company, a mutual holding company. The Company will be renamed Provfirst America
Life and Annuity Company.
The Insurance Department of the Commonwealth of Pennsylvania reviewed the
Plan and rendered its Decision and Order approving the Plan, subject to certain
conditions, on November 6, 1998.
The Plan requires the approval of at least two-thirds of the votes cast by
voting policyholders. A Special Meeting of policyholders to consider and vote
upon the Plan has been scheduled for February 9, 1999.
The Company sells life and annuity products principally through a personal
producing general agency (PPGA) and brokerage sales force. The Company is
licensed to operate in 48 states, which are responsible for product regulation.
Sales in 16 states accounted for 78% of the Company's sales for the year ended
December 31, 1998. For many of the life and annuity products, the insurance
departments of the states in which the Company conducts business must approve
products and policy forms in advance of sales. In addition, benefits are
determined by statutes and regulations in each of these states.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP). Certain prior year amounts have
been reclassified to conform with the current year presentation.
The Company prepares financial statements for filing with regulatory
authorities in conformity with the accounting practices prescribed or permitted
by the Insurance Department of the State of Delaware (SAP). Practices under SAP
vary from GAAP primarily with respect to the initial deferral of acquisition
costs, the valuation of policy reserves, the accounting for deferred taxes, the
elimination of statutory asset valuation and interest maintenance reserves and
the establishment of investment valuation allowances.
Amounts disclosed in the footnotes are denoted in thousands of dollars.
Statutory net income was $1,702, $1,792 and $1,448 for the years ended
December 31, 1998, 1997 and 1996, respectively. Statutory surplus was $44,730
and $47,225 as of December 31, 1998 and 1997, respectively.
The preparation of the accompanying financial statements required
management to make estimates and assumptions that affect the report values of
assets and liabilities and the reported amounts of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
INVESTED ASSETS
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and
F-61
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are reported at market value. Unrealized appreciation/depreciation on these
securities is recorded directly in equity, net of related Federal income taxes
and amortization of deferred policy acquisition costs. Fixed maturity securities
that the Company has the intent and ability to hold to maturity are designated
as "held to maturity" and are reported at amortized cost.
Equity securities (common and preferred stocks) are reported at market
value. Unrealized appreciation/depreciation on these securities is recorded
directly in equity, net of related Federal income taxes and amortization of
deferred policy acquisition costs.
Fixed maturity and equity securities that have experienced an other than
temporary decline in value are written down to fair value by a charge to
realized losses. This fair value becomes the new cost basis of the particular
security.
Mortgage loans are carried at unpaid principal balances, less impairment
reserves. For mortgage loans considered impaired, a specific reserve is
established. A general reserve is also established for probable losses arising
from the portfolio but not attributable to specific loans. Mortgage loans are
considered impaired when it is probable that the Company will be unable to
collect amounts due according to the contractual terms of the loan agreement.
Upon impairment, a reserve is established for the difference between the unpaid
principal of the mortgage loan and its fair value. Fair value is based on either
the present value of expected future cash flows discounted at the mortgage
loan's effective interest rate or the fair value of the underlying collateral.
Changes in the reserve are charged to realized capital losses. Reserves totaled
$1,064 and $1,170 at December 31, 1998 and 1997, respectively.
Policy loans are reported at unpaid principal balances.
Real estate is carried at lower of cost or fair value less accumulated
depreciation from the date of foreclosure. The straight-line method of
depreciation is used for real estate.
Other invested assets consist of limited partnerships carried at the lower
of cost or market value.
Cash includes demand deposits and cash on hand.
Short-term investments include money market funds, certificates of deposit
and short-term investments whose maturities at the time of acquisition were one
year or less. These investments are carried at amortized cost, which
approximates fair market value.
It is the Company's policy to use derivatives (exchange-traded or
over-the-counter financial instruments whose value is based upon or derived from
a specific underlying index or commodity) for the purpose of reducing exposure
to interest rate fluctuations, but not for income generation or speculative
purposes. Derivatives utilized by the Company are long and short positions on
United States Treasury notes and bond futures and certain interest rate swaps.
The net interest effect of futures transactions is settled on a daily
basis. Cash paid or received is recorded daily, along with a receivable/payable,
to settle the futures contract prior to the contract termination. The
receivable/payable is carried until the contract is terminated and the remaining
balance is included in either net investment income or realized gain or loss.
Upon termination of a futures contract that is identified to a specific
security, any gain or loss is deferred and amortized to net investment income
over the expected remaining life of the hedged security. If the futures contract
is not identified to a specific security, any gain or loss on termination is
reported as a realized gain or loss.
Interest rate swaps are settled on the contract date. Cash paid or received
is reported as an adjustment to net investment income.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement requires that all
derivatives be recorded at fair value in the statement of financial condition as
either assets or liabilities. The accounting for changes in the fair value of a
derivative depends on its intended use and its resulting designation. This
Statement is effective for fiscal years beginning after June 15, 1999. The
Company is currently reviewing this
F-62
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statement and has not yet determined its impact on the financial statements.
In December 1997, the American Institute of Certified Public Accountants
issued Statement of Position No. 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." The adoption of this statement,
which is effective for fiscal years beginning after December 15, 1998, is not
expected to have a material effect on the Company's financial statements.
BENEFIT RESERVES AND POLICYHOLDER CONTRACT DEPOSITS
Traditional Life Insurance Products
Traditional life insurance products include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and term
insurance policies, limited-payment life insurance policies and certain
annuities with life contingencies. Most traditional life insurance policies are
participating. In addition to guaranteeing benefits, they pay dividends, as
declared annually by the Company based on its experience. Reserves on
traditional life insurance products are calculated by using the net level
premium method. For participating traditional life insurance policies, reserve
assumptions are based on mortality rates consistent with those underlying the
cash values and investment rates consistent with the Company's dividend
practices. For most policies, reserves are based on the 1958 or 1980
Commissioners' Standard Ordinary (CSO) mortality table at interest rates ranging
from 2.5% to 5.0%.
Variable Life and Investment-Type Products
Variable life products are all flexible premium variable universal life.
Investment-type products consist primarily of single premium and flexible
premium annuity contracts.
Benefit reserves and policyholder contract deposits on these products are
determined following the retrospective deposit method and consist of policy
values that accrue to the benefit of the policyholder, before deduction of
surrender charges.
PREMIUMS, CHARGES AND BENEFITS
Traditional Life Insurance
Premiums for individual life policies are recognized when due.
Benefit claims (including an estimated provision for claims incurred but
not reported), benefit reserve changes, and expenses (except those deferred) are
charged to income as incurred.
Variable Life and Investment-Type Products
Revenues for variable life and investment-type products consist of policy
charges for the cost of insurance, policy initiation, administration and
surrenders during the period. Premiums received and the accumulated value
portion of benefits paid are excluded from the amounts reported in the
statements of operations. Expenses include interest credited to policy account
balances and benefit payments made in excess of policy account balances. Many of
these policies are variable life or variable annuity policies, in which
investment performance credited to the account balance is based on the
investment performance of separate accounts chosen by the policyholder. For
other account balances, credited interest rates ranged from 3.47% to 7.5% in
1998.
Deferred Policy Acquisition Costs
The costs that vary with and are directly related to the production of new
business, have been deferred to the extent deemed recoverable. Such costs
include commissions and certain costs of underwriting, policy issue and
marketing.
Deferred policy acquisition costs on traditional participating life
insurance policies are amortized in proportion to the present value of expected
gross margins. Gross margins include margins from mortality, investments and
expenses, net of policyholder dividends. Expected gross margins are redetermined
regularly, based on actual experience and current assumptions of mortality,
persistency, expenses, and investment experience. The average investment yield,
before realized capital gains and losses, in the calculation of expected gross
margins was 8.25% for 1998, 8.0% for 1997 and 8.46% for 1996.
F-63
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Deferred policy acquisition costs for variable life and investment-type
products are amortized in relation to the incidence of expected gross profits,
including realized investment gains and losses, over the expected life of the
policies.
The costs deferred during 1998, 1997 and 1996 were $35,985, $31,404 and
$25,182, respectively. Amortization of deferred policy acquisition costs was
$14,804, $9,445 and $5,433 during 1998, 1997 and 1996, respectively.
CAPITAL GAINS AND LOSSES
Realized capital gains and losses on sales of investments are based upon
specific identification of the investments sold. A realized capital loss is
recorded at the time a decline in the value of an investment is determined to be
other than temporary.
POLICYHOLDER DIVIDENDS
Annually, the Board of Directors declares the amount of dividends to be
paid in the following calendar year. Dividends are earned by the policyholders
ratably over the policy year. Dividends are included in the accompanying
financial statements as a liability and as a charge to operations.
REINSURANCE
Premiums, benefits and expenses are recorded net of experience refunds,
reserve adjustments and amounts assumed from or ceded to reinsurers, including
commission and expense allowances.
SEPARATE ACCOUNTS
Separate account assets and liabilities represent segregated funds
administered and invested by the Company for the benefit of variable annuity
contractholders and variable life insurance policyholders.
The contractholders/policyholders bear the investment risk on separate
account assets except in instances where the Company generates a fixed return
and on the Company's seed money. The separate account assets are carried at fair
value.
FEDERAL INCOME TAXES
Deferred income tax assets and liabilities have been recorded for temporary
differences between the reported amounts of assets and liabilities in the
accompanying financial statements and those in the Company's income tax returns.
COMPREHENSIVE INCOME
During 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for the reporting and presentation
of comprehensive income and its components.
Comprehensive income encompasses all changes in equity, excluding
transactions with owners, and includes net income and the change in unrealized
appreciation/depreciation on securities. This new standard requires additional
disclosures in the financial statements and does not affect results of
operations or financial condition.
F-64
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
TAX
BEFORE TAX (EXPENSE) NET OF TAX
AMOUNT BENEFIT AMOUNT
---------- --------- ----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998:
Unrealized appreciation (depreciation) on
securities.................................... $ 1,081 $ (378) $ 703
Less: reclassification adjustment for gains
realized in net income........................ (2,010) 703 (1,307)
------- ------- -------
Net change in unrealized appreciation on
securities.................................... $ (929) $ 325 $ (604)
======= ======= =======
YEAR ENDED DECEMBER 31, 1997:
Unrealized appreciation (depreciation) on
securities.................................... $ 3,088 $(1,081) $ 2,007
Less: reclassification adjustment for gains
realized in net income........................ (69) 24 (45)
------- ------- -------
Net change in unrealized appreciation on
securities.................................... $ 3,019 $(1,057) $ 1,962
======= ======= =======
YEAR ENDED DECEMBER 31, 1996:
Unrealized appreciation (depreciation) on
securities.................................... $(2,745) $ 961 $(1,784)
Less: reclassification adjustment for gains
realized in net income........................ (112) 39 (73)
------- ------- -------
Net change in unrealized appreciation on
securities.................................... $(2,857) $ 1,000 $(1,857)
======= ======= =======
</TABLE>
2. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the fair values and carrying values of the
Company's financial instruments at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------ ----------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale............... $359,442 $359,442 $320,363 $320,363
Held to maturity................. $57,419 $54,671 $65,305 $62,753
Equity securities.................. $1,360 $1,360 $1,776 $1,776
Mortgage loans..................... $64,225 $58,907 $49,379 $46,871
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Supplementary contracts without
life contingencies............... $7,479 $7,142 $7,304 $7,185
Individual annuities............... $1,181,520 $1,215,896 $977,658 $1,012,040
</TABLE>
The underlying investment risk of the Company's variable life and variable
annuity contracts is assumed by the policyholder. These reserve liabilities are
primarily reported in the separate accounts. The liabilities in the separate
accounts are recorded at amounts equal to the related assets at fair value.
Fair values for the Company's insurance contracts other than
investment-type contracts are not required to be disclosed under Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments." However, the estimated fair value and future cash flows
of liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment
F-65
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
maturities with amounts due under insurance contracts. The estimated fair value
of all assets without a corresponding revaluation of all liabilities associated
with insurance contracts can be misinterpreted.
The following notes summarize the major methods and assumptions used in
estimating the fair values of financial instruments:
INVESTMENT SECURITIES
Bonds, common stocks and preferred stocks are valued based upon quoted
market prices, where available. If quoted market prices are not available, as in
the case of private placements, fair values are based on quoted market prices of
comparable instruments (see Note 3).
MORTGAGE LOANS
Mortgage loans are valued using discounted cash flow analyses, using
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. For mortgage loans classified as nonperforming, the
fair value was set equal to the lesser of the unpaid principal balance or the
market value of the underlying property.
POLICY LOANS
Policy loans are issued with either fixed or variable interest rates,
depending upon the terms of the policies. For those loans with fixed interest
rates, the interest rates range from 5% to 8%. For loans with variable interest
rates, the interest rates are primarily adjusted quarterly based upon changes in
a corporate bond index. Future cash flows of policy loans are uncertain and
difficult to predict. As a result, management deems it impractical to calculate
the fair value of policy loans.
INDIVIDUAL ANNUITIES AND SUPPLEMENTARY CONTRACTS
The fair value of individual annuities and supplementary contracts without
life contingencies is based primarily on surrender values. For those individual
annuities and supplementary contracts that are not surrenderable, discounted
future cash flows are used for calculating fair value.
POLICYHOLDER DIVIDENDS AND COUPON ACCUMULATIONS
The policyholders' dividend and coupon accumulation liabilities will
ultimately be settled in cash, applied toward the payment of premiums, or left
on deposit with the Company at interest. Management deems it impractical to
calculate the fair value of these liabilities due to valuation difficulties
involving the uncertainties of final settlement.
3. MARKETABLE SECURITIES
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturity securities and equity
securities as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 562 $ 38 $ -- $ 600
Obligations of states and political
subdivisions.................................. 3,416 215 -- 3,631
Corporate securities............................ 317,068 9,330 3,340 323,058
Mortgage-backed securities...................... 31,061 1,121 29 32,153
-------- ------- ------ --------
Subtotal -- fixed maturities.................... 352,107 10,704 3,369 359,442
Equity securities............................... 1,278 495 413 1,360
-------- ------- ------ --------
Total...................................... $353,385 $11,199 $3,782 $360,802
======== ======= ====== ========
</TABLE>
F-66
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 4,655 $ 594 $ -- $ 5,249
Corporate securities............................ 46,618 1,849 1 48,466
Mortgage-backed securities...................... 3,398 306 -- 3,704
-------- ------- ------ --------
Total...................................... $ 54,671 $ 2,749 $ 1 $ 57,419
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE FOR SALE COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 563 $ 12 $ 2 $ 573
Obligations of states and political
subdivisions.................................. 4,083 187 -- 4,270
Corporate securities............................ 274,262 8,651 1,076 281,837
Mortgage-backed securities...................... 32,729 958 4 33,683
-------- ------- ------ --------
Subtotal -- fixed maturities.................... 311,637 9,808 1,082 320,363
Equity securities............................... 1,714 487 425 1,776
-------- ------- ------ --------
Total...................................... $313,351 $10,295 $1,507 $322,139
======== ======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
- ---------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies.......... $ 4,704 $ 417 $ 10 $ 5,111
Corporate securities............................ 54,563 1,899 28 56,434
Mortgage-backed securities...................... 3,486 274 -- 3,760
-------- ------- ------ --------
Total...................................... $ 62,753 $ 2,590 $ 38 $ 65,305
======== ======= ====== ========
</TABLE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1998, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE
- ------------------ --------- ----------
<S> <C> <C>
Due in one year or less... $ 33,082 $ 33,398
Due after one year through
five years.............. 120,727 123,164
Due after five years
through ten years....... 105,291 108,028
Due after ten years....... 93,007 94,852
-------- --------
Total................ $352,107 $359,442
======== ========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
- ---------------- --------- ----------
<S> <C> <C>
Due in one year or less... $ 2,257 $ 2,262
Due after one year through
five years.............. 21,467 22,155
Due after five years
through ten years....... 28,040 29,818
Due after ten years....... 2,907 3,184
------- -------
Total................ $54,671 $57,419
======= =======
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
F-67
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Realized gains (losses) on investments for the years ended December 31,
1998, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ----
<S> <C> <C> <C>
Fixed maturities...... $ (292) $ 1,135 $ 71
Equity securities..... (273) (1,360) 6
Mortgage loans........ (194) 104 35
Real estate........... 2,735 133 --
Other invested
assets.............. 34 57 --
------- ------- ----
$ 2,010 $ 69 $112
======= ======= ====
</TABLE>
Net unrealized appreciation on available for sale securities as of December
31, 1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Net unrealized appreciation
before adjustments for the
following:................ $ 7,417 $ 8,788
Amortization of deferred
policy acquisition
costs.................. (3,947) (4,389)
Deferred Federal income
taxes.................. (1,215) (1,540)
------- -------
Net unrealized
appreciation.............. $ 2,255 $ 2,859
======= =======
</TABLE>
Net investment income, by type of investment, is as follows for the years
ending December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Gross investment
income:
Fixed maturities:
Available for
sale............ $25,294 $22,559 $21,379
Held to maturity... 4,686 5,692 6,699
Equity securities.... 66 92 87
Mortgage loans....... 4,485 3,924 3,750
Real estate.......... 523 591 759
Policy loans and
premium notes...... 299 214 158
Short-term
investments........ 431 258 363
Other, net........... 781 9 27
------- ------- -------
36,565 33,339 33,222
Less investment
expenses........... (1,303) (1,025) (1,009)
------- ------- -------
Net investment
income............. $35,262 $32,314 $32,213
======= ======= =======
</TABLE>
4. MORTGAGE LOANS
The carrying value of impaired loans was $2,363 and $2,951, which were net
of reserves of $474 and $704 as of December 31, 1998 and 1997, respectively.
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Balance at January 1.......... $1,170 $1,274
Recoveries.................... 124 (104)
Releases due to
foreclosures................ (230) --
------ ------
Balance at December 31........ $1,064 $1,170
====== ======
</TABLE>
The average recorded investment in impaired loans was $2,624 and $3,767
during 1998 and 1997, respectively. Interest income recognized on impaired loans
during 1998, 1997 and 1996 was $237, $284 and $405, respectively. All interest
income on impaired loans was recognized on the cash basis.
5. REAL ESTATE
Real estate totaled $484 and $2,494 as of December 31, 1998 and 1997,
respectively. Depreciation expense was $116, $113 and $112 for the years ended
December 31, 1998, 1997 and 1996, respectively. Accumulated depreciation for
real estate totaled $34 and $435 at December 31, 1998 and 1997, respectively.
6. FEDERAL INCOME TAXES
The Company files a consolidated Federal income tax return with Provident
Mutual. The tax liability is accrued on a separate company basis which includes
an allocation of an equity tax from Provident Mutual.
F-68
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Federal income tax at
statutory rate..... $4,198 $4,174 $3,105
Current year equity
tax............. 664 900 800
True down of prior
years' equity
tax............. (650) (625) (305)
------ ------ ------
Provision for Federal
income tax from
operations......... $4,212 $4,449 $3,600
====== ====== ======
</TABLE>
Deferred income tax assets and liabilities reflect the income tax effects
of cumulative temporary differences between the reported values of assets and
liabilities for financial statement purposes and income tax return purposes.
Components of the Company's net deferred income tax liability is as follows at
December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition
costs.................... 32,648 26,550
Net unrealized gain on
available for sale
securities............... 1,215 1,540
------- -------
Total deferred tax
liability........... 33,863 28,090
------- -------
DEFERRED TAX ASSET
Reserves................... $30,671 $26,650
Invested assets............ 353 409
Policyholder dividends..... 189 159
Other...................... 176 (1,491)
------- -------
Total deferred tax
asset............... 31,389 25,727
------- -------
Net deferred tax
liability................ $ 2,474 $ 2,363
======= =======
</TABLE>
Under current tax law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31, 1983.
The aggregate accumulation at December 31, 1983 was $2,037. The Company has no
present plans to make any distributions which would subject the Account to
current taxation.
The Company's Federal income tax returns have been audited through 1994.
All years through 1985 are closed. Years 1986 through 1994 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1995 through the present remain open. In the opinion of
management, adequate provision has been made for the possible effect of
potential assessments related to prior years' taxes.
7. REINSURANCE
In the normal course of business, the Company assumes risks from and cedes
certain parts of its risks to other insurance companies. The primary purpose of
ceded reinsurance is to limit losses from large exposures. For life insurance,
the Company retains no more than $1,500 on any single life.
Reinsurance contracts do not relieve the Company of its obligations to
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company would be liable for these
obligations. The Company evaluates the financial condition of its reinsurers and
limits its exposure to any one reinsurer.
F-69
<PAGE> 129
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The tables below highlight the amounts shown in the accompanying financial
statements which are net of reinsurance activity:
<TABLE>
<CAPTION>
CEDED TO ASSUMED
GROSS OTHER FROM OTHER NET
AMOUNT COMPANIES COMPANIES AMOUNT
---------- ---------- ---------- --------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Life insurance in force............. $2,763,532 $1,980,669 $34,968 $817,831
========== ========== ======= ========
Premiums............................ $ 13,771 $ 666 $ 164 $ 13,269
========== ========== ======= ========
Future policyholder benefits........ $ 510,560 $ 3,054 $ 2,378 $509,884
========== ========== ======= ========
DECEMBER 31, 1997:
Life insurance in force............. $2,153,084 $1,591,141 $50,233 $612,176
========== ========== ======= ========
Premiums............................ $ 14,367 $ 614 $ 151 $ 13,904
========== ========== ======= ========
Future policyholder benefits........ $ 516,591 $ 74,674 $ 3,102 $445,019
========== ========== ======= ========
DECEMBER 31, 1996:
Life insurance in force............. $1,591,685 $1,282,667 $42,330 $351,348
========== ========== ======= ========
Premiums............................ $ 14,240 $ 801 $ 102 $ 13,541
========== ========== ======= ========
Future policyholder benefits........ $ 511,447 $ 80,346 $ 4,332 $435,433
========== ========== ======= ========
</TABLE>
On January 1, 1998, the Company terminated its reinsurance agreement with
Metropolitan Life Insurance Company (Metropolitan). Prior to 1998, the Company
had ceded 65 percent of the premiums and reserves related to its single premium
deferred annuity (SPDA) product to Metropolitan. The Company recaptured $71,995
in reserves and received cash totaling $70,140. The $1,855 cost of recapturing
the contracts has been deferred and will be amortized in relation to the
incidence of expected gross profits over the expected life of the contracts.
A coinsurance agreement exists between Provident Mutual and the Company
with respect to annuities. Prior to 1992, the agreement covered SPDA's issued
after 1984. The agreement was amended in 1992 to include single premium
immediate annuities and supplementary contracts. Pursuant to this agreement, the
Company has no reinsurance recoverables at December 31, 1998 and 1997. Deposits
ceded during 1998 and 1997 were $2,749 and $2,351, respectively.
Approximately $1,481,828 and $1,169,702 of the Company's life insurance in
force is ceded to Provident Mutual under two reinsurance agreements and a
modified coinsurance agreement at December 31, 1998 and 1997, respectively.
Premiums ceded were $4,182 and $3,889 during 1998 and 1997, respectively.
Reinsurance recoverables at December 31, 1998 and 1997 were $134 and $74,
respectively.
8. RELATED PARTY TRANSACTIONS
Provident Mutual and its subsidiaries provide certain investment and
administrative services to the Company. Generally, fees for these services are
based on an allocation of costs upon either a specific identification basis or a
proportional cost allocation basis which management believes to be reasonable.
These costs include direct salaries and related benefits, including pension and
other postretirement benefits, as well as overhead costs. These costs were
$16,581, $13,964 and $10,013 for 1998, 1997 and 1996, respectively.
The contractual obligations under the Company's SPDA contracts in force and
issued before September 1, 1988 are guaranteed by Provident Mutual. Total SPDA
contracts affected by this guarantee in force at December 31, 1998 and 1997
approximated $81,050 and $90,995, respectively.
F-70
<PAGE> 130
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its borrowers
and to reduce its own exposure to fluctuations in interest rates. These
financial instruments include investment commitments related to its interests in
mortgage loans, marketable securities lending and interest rate futures
contracts. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the statements of
financial condition.
At December 31, 1998, the Company had outstanding mortgage loan and limited
partnership commitments of approximately $4,650. The mortgage loan commitments,
which expire through February 1999, totaled $1,650 and were issued during 1998
at interest rates consistent with rates applicable on December 31, 1998. As a
result, the fair value of these commitments approximates the face amount.
Derivatives are used for hedging existing bonds (including cash reserves)
against adverse price or interest rate movements and for fixing liability costs
at the time of product sales. The Company closed out hedge positions consisting
of 226 treasury futures contracts with a dollar value of $25,727 in 1998 and the
approximate net losses generated from the hedge positions were $33. There were
no open hedge positions at December 31, 1998. There was no hedge position
activity for the year ended December 31, 1997.
Periodically, the Company enters securities lending agreements to earn
additional investment income on its securities. The borrower must provide cash
collateral prior to or at the inception of the loan. There were no securities
lending positions at December 31, 1998.
INVESTMENT PORTFOLIO CREDIT RISK
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade se-
curities. At December 31, 1998 and 1997, approximately $23,488 and $14,771,
respectively, in debt security investments (5.8% and 3.9%, respectively, of the
total debt security portfolio) are considered "below investment grade."
Securities are classified as "below investment grade" primarily by utilizing
rating criteria established by independent bond rating agencies.
Debt security investments with a carrying value at December 31, 1998 of $.7
million were non-income producing for the year ended December 31, 1998.
The Company had debt security investments in the financial services
industry at both December 31, 1998 and 1997 that exceeded 5% of total assets.
Mortgage Loans
The Company originates mortgage loans either directly or through mortgage
correspondents and brokers throughout the country. Loans are primarily related
to underlying real property investments in office and apartment buildings and
retail/commercial and industrial facilities. Mortgage loans are collateralized
by the related properties and such collateral generally approximates a minimum
133% of the original loan value at the time the loan is made.
At December 31, 1998 and 1997, there were no delinquent mortgage loans
(i.e., loans where payments on principal and/or interest are over 90 days past
due).
The Company had no loans in any state where principal balances in the
aggregate exceeded 20% of the Company's equity.
Litigation and Unasserted Claims
The Company is involved in various litigation, as both plaintiff and
defendant, which has arisen in the ordinary course of business, which, in the
opinion of management and legal counsel, will not have a material effect on the
Company's financial position or its operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of manage-
F-71
<PAGE> 131
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
ment, the outcome of the proceedings and assessments will not have a material
adverse effect on the financial statements. Guaranty fund assessments totaled
$109, $236 and $82 in 1998, 1997 and 1996, respectively. Of those amounts, $56,
$117 and $58 in 1998, 1997 and 1996, respectively, are creditable against future
years' premium taxes.
F-72
<PAGE> 132
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 Providentmutual Variable Annuity Separate Account.(1)
(b) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account.(1)
(c) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account.(1)
(d) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account.(1)
(e) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account.(1)
(2) Not applicable.
(3) (a) Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and the
Providentmutual Variable Annuity Separate Account.(1)
(b) Form of Selling Agreement between PML Securities, Inc. and
Sentinel Financial Services Company.(1)
(4) Form of Flexible Premium Deferred Variable Annuity Contract
(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> 133
<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.
(10) (a) Consent of Sutherland Asbill & Brennan LLP.
(b) Consent of PricewaterhouseCoopers LLP.
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data.
(14) Powers of Attorney.(1)
</TABLE>
- ---------------
(1) Incorporated herein by reference to post-effective amendment No. 5, filed on
May 1, 1998, File No. 33-65512.
(2) Incorporated herein by reference to post-effective amendment 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> 134
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
Rosanne Gatta**........................................ Treasurer
Anthony Giampietro**................................... Assistant Treasurer
Deborah Thiel Hall**................................... Compliance Officer
Timothy P. Henry**..................................... Vice President and Investment Officer
Joseph T. Laudadio..................................... Underwriting Officer
Todd R. Miller**....................................... Financial Reporting 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> 135
<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>
Item 27. Number of Policyowners
As of December 31, 1998 there were a total of 13,750 individual flexible
premium deferred variable annuity contracts (File No. 33-65512)
outstanding -- 5,400 non-qualified and 8,350 qualified.
Item 28. Indemnification
The By-Laws of Providentmutual Life and Annuity Company of America provide,
in part in Article XII, as follows:
ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
Section 12.01. To the fullest extent permitted by law, the Company shall
indemnify any present, former, or future Director, officer,
or employee of the Company or any person who
C-4
<PAGE> 136
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 Providentmutual Variable Life Separate
Account and for the Provident Mutual Variable Life and Annuity Separate
Accounts.
C-5
<PAGE> 137
(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 PLACA
at 300 Continental Drive, Newark, DE 19713 or at 1050 Westlakes Drive, Berwyn,
PA 19312.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
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> 138
(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
Providentmutual Life and Annuity Company of America hereby represents that
the fees and charges deducted under the Contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Providentmutual Life and Annuity Company of
America.
C-7
<PAGE> 139
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 CERTIFIES THAT
IT MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS OF THIS POST-EFFECTIVE
AMENDMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT OF 1933, AND HAS
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 28TH DAY OF APRIL, 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 April 28, 1999
- ------------------------------------------- (Principal Executive Officer)
ROBERT W. KLOSS
/s/ STEPHEN L. WHITE Actuarial Officer April 28, 1999
- ------------------------------------------- (Principal Financial Officer)
STEPHEN L. WHITE
/s/ TODD R. MILLER Financial Reporting Officer April 28, 1999
- ------------------------------------------- (Principal Accounting Officer)
TODD R. MILLER
* Director April 28, 1999
- -------------------------------------------
MARY LYNN FINELLI
* Director April 28, 1999
- -------------------------------------------
ALAN F. HINKLE
* Director April 28, 1999
- -------------------------------------------
JAMES D. KESTNER
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director April 28, 1999
- -------------------------------------------
SARAH C. LANGE
* Director April 28, 1999
- -------------------------------------------
J. KEVIN MCCARTHY
* Director April 28, 1999
- -------------------------------------------
JAMES G. POTTER, JR.
* Director April 28, 1999
- -------------------------------------------
JOAN C. TUCKER
* Director April 28, 1999
- -------------------------------------------
LINDA M. SPRINGER
* Director April 28, 1999
- -------------------------------------------
MEHRAN ASSADI
*By: /s/ JAMES G. POTTER, JR.
- -------------------------------------------
JAMES G. POTTER, JR.
Attorney-in-Fact
Pursuant to Power of Attorney
</TABLE>
<PAGE> 1
Exhibit 9
April 29, 1999
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
Directors:
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Statement of Additional Information filed as part of the Post-Effective
Amendment No. 7 of the Registration Statement on Form N-4 (File No.33-65512) for
the Providentmutual Variable Annuity Separate Account.
Sincerely,
--------------------------------
James G. Potter, Jr.
<PAGE> 1
Exhibit 10(a)
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
April 28, 1999
Board of Directors
Providentmutual Life and Annuity
Company of America
300 Continental Drive
Newark, DE 19713
RE: PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
(FILE NO. 33-65512)
Directors:
We hereby consent to the reference of our name under the caption "Legal
Matters" in the statement of additional information filed as part of the
post-effective amendment No. 7 to the Form N-4 registration statement filed by
Providentmutual Life and Annuity Company of America and Providentmutual Variable
Annuity Separate Account (File No. 33-65512). In giving this consent, we do not
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ David S. Goldstein
--------------------------------
David S. Goldstein
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment
No. 6 to the Registration Statement under the Securities Act of 1933, as
amended, filed on Form N-4 (File No. 33-65512) for the Providentmutual Variable
Annuity Separate Account, of the following reports:
1. Our report dated February 5, 1999 on our audits of the financial
statements of Providentmutual Life and Annuity Company of America
as of December 31, 1998 and 1997 and for each of the three years
in the period ended December 31, 1998.
2. Our report dated February 26, 1999 on our audits of the financial
statements of the Providentmutual Variable Annuity Separate
Account (comprising thirty-nine subaccounts) 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.
We also consent to the reference to our Firm under the caption
"Experts".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
April 29, 1999
<PAGE> 1
EXHIBIT 13
Total Return (TR) Calculation for the period 12/31/93 to 12/31/98
Market Street Growth
Without Surrender Charges
<TABLE>
<S> <C>
TR = ((ERV/P)1/N)-1; the average annual total return net of Subaccount recurring charges.
given:
P = $1,000; a hypothetical initial payment of $1,000.
ERV = $2,089.50; the ending redeemable value of the hypothetical account at the end of the period.
N = 5; the number of years in the period.
calculate:
ERV/P = $2,089.50 / $1,000.00 = 2.0895
(ERV / P)1/N = (2.0895)1/5 = 1.1588
(ERV / P)1/N - 1 = 1.1588 - 1 = .1588
convert to percentage
TR = 15.88%
</TABLE>
Total Return (TR) Calculation for the period 12/31/93 to 12/31/98
Market Street Growth
With Surrender Charges
<TABLE>
<S> <C>
TR = ((ERV/P)1/N)-1; the average annual total return net of Subaccount recurring charges.
given:
P = $1,000; a hypothetical initial payment of $1,000.
ERV = $2,070.64; the ending redeemable value (net of any applicable surrender charge)
of the hypothetical account at the end of the period.
N = 5; the number of years in the period.
calculate:
ERV/P = $2,070.64 / $1,000.00 = 2.07064
(ERV / P)1/N = (2.07064)1/5 = 1.1567
(ERV / P)1/N - 1 = 1.1567 - 1 = .1567
convert to percentage
TR = 15.67%
</TABLE>
