<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1999
FILE NO. 333-88163
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. 1 [X]
POST-EFFECTIVE AMENDMENT NO. [ ]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. [ ]
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
1000 CHESTERBROOK BOULEVARD
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
---------------------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this Registration Statement
TITLE OF SECURITIES BEING OFFERED: Individual Flexible Premium Deferred
Variable Annuity Contracts.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
PURSUANT TO RULE 495
Showing Location in Part A (Prospectus) and Part B (Statement of Additional
Information) of Registration Statement of Information Required By Form N-4.
PART A
<TABLE>
<CAPTION>
ITEM OF FORM N-4 PROSPECTUS CAPTION
---------------- ------------------
<C> <S> <C>
1. Cover Page................................. Cover Page
2. Definitions................................ Definitions
3. Synopsis................................... Table of Expenses; Summary
4. Condensed Financial Information............ 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........................... Voting Rights
f. Administrators.......................... Administrative Charges
6. Deductions and Expenses.................... Charges and Deductions
a. General................................. Charges and Deductions
b. Sales Load %............................ Charges and Deductions
c. Special Purchase Plan................... N/A
d. Commissions............................. Distribution of Contracts
e. Expenses--Registrant.................... Charges and Deductions
f. Fund Expenses........................... Charges and Deductions
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--Cancellation
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
DECEMBER 30, 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 December 30, 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 40 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 24 funding choices -- one fixed account
(paying a guaranteed minimum fixed rate of interest) and 23 subaccounts of the
Providentmutual Variable Annuity Separate Account which invest in the following
portfolios:
MARKET STREET FUND, INC.
- - Money Market Portfolio
- - Equity 500 Index 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 III
- - VIP III Contrafund Portfolio
- - VIP III Growth Portfolio
- - VIP III Growth Opportunities Portfolio
- - VIP III Overseas Portfolio
OCC ACCUMULATION TRUST
- - Equity Portfolio
- - Managed Portfolio
PIMCO VARIABLE INSURANCE TRUST
- - PIMCO High Yield Bond Portfolio
- - PIMCO Total Return Bond 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........................................... 3
Summary..................................................... 8
The Contract........................................... 8
Charges and Deductions................................. 10
Annuity Provisions..................................... 11
Federal Tax Status..................................... 11
PLACA, the Variable Account and the Funds................... 12
Providentmutual Life and Annuity Company of America.... 12
Providentmutual Variable Annuity Separate Account...... 12
The Funds.............................................. 13
The Market Street Fund, Inc. ..................... 13
Variable Insurance Products Fund III.............. 15
OCC Accumulation Trust............................ 16
PIMCO Variable Insurance Trust.................... 16
Van Eck Worldwide Insurance Trust................. 16
Resolving Material Conflicts........................... 18
Addition, Deletion or Substitution of Investments...... 18
Description of Annuity Contract............................. 19
Issuance of a Contract................................. 19
Premiums............................................... 19
Cancellation Period.................................... 19
Allocation of Premiums................................. 19
Credit Amounts......................................... 20
Variable Account Value................................. 21
Transfer Privilege..................................... 22
Dollar Cost Averaging.................................. 23
Withdrawals and Surrender.............................. 23
Death Benefit Before Annuity Date...................... 25
The Annuity Date....................................... 27
Payments............................................... 27
Modification........................................... 28
Reports to Contract Owners............................. 28
Contract Inquiries..................................... 28
The Guaranteed Account...................................... 28
Minimum Guaranteed and Current Interest Rates.......... 28
Transfers from Guaranteed Account...................... 29
Payment Deferral....................................... 29
Charges and Deductions...................................... 29
Surrender Charge (Contingent Deferred Sales Charge).... 29
Death Benefit Charge................................... 30
Administrative Charges................................. 30
Daily Annuity Charge................................... 31
Investment Advisory Fees and Other Expenses of the
Funds................................................. 31
Charges For Optional Death Benefit Riders.............. 31
Premium Taxes.......................................... 31
Other Taxes............................................ 32
Charge Discounts For Sales to Certain Groups........... 32
Payment Options............................................. 32
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Election of Payment Options ........................... 32
Description of Payment Options......................... 32
Yields and Total Returns.................................... 33
Federal Tax Status.......................................... 35
Introduction........................................... 35
Tax Status of the Contracts............................ 35
The Treatment of Annuities............................. 36
Taxation of Non-Qualified Contracts.................... 36
Taxation of Qualified Contracts........................ 37
Withholding............................................ 38
Possible Changes in Taxation........................... 38
Other Tax Consequences................................. 38
Distribution of Contracts................................... 39
Preparing for Year 2000..................................... 39
Legal Proceedings........................................... 39
Voting Rights............................................... 39
Financial Statements........................................ 40
Statement of Additional Information--Table of Contents...... 40
Appendix A--Financial Highlights............................ A-1
</TABLE>
<PAGE> 8
DEFINITIONS
ACCUMULATION UNIT.......... A unit of measure used to calculate Subaccount
Value.
ANNUITANT.................. The person or persons upon whose life (or lives)
determines the annuity payments payable under the
Contract.
ANNUITY DATE............... The date as of which Surrender Value is applied to a
Payment Option.
BENEFICIARY................ The person to whom we pay the death benefit on the
death of the Owner (or the Annuitant if the Owner is
not a natural person). If the Contract has joint
Owners, then the surviving joint Owner is the
Beneficiary.
CANCELLATION PERIOD........ Period described in this prospectus during which the
Owner may return this Contract for a refund.
CODE....................... The Internal Revenue Code of 1986, as amended.
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 ANNIVERSARY....... The same date in each Contract Year as the Contract
Date.
CONTRACT DATE.............. The date as of which We issue the Contract and upon
which the Contract becomes effective. The Contract
Date is used to determine Contract Years and
Contract Anniversaries.
CONTRACT YEAR.............. A twelve-month period beginning on the Contract Date
or on a Contract Anniversary.
CREDIT AMOUNT.............. An additional amount that we add to Your Contract
Account Value when We apply Net Premium under a
Contract.
FUND....................... Any open-end management investment company in which
a Subaccount invests.
GENERAL ACCOUNT............ The assets of the Company other than those allocated
to the Variable Account or any other separate
account of the Company.
GUARANTEED ACCOUNT......... An account that is part of Our General Account and
not part of nor is it dependent upon the investment
performance of the Variable Account.
GUARANTEED ACCOUNT
OPTION..................... An allocation option under the Contract supported by
the General 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 last possible Annuity Date. In most states, it
is the later of the Contract Anniversary on or
following the Annuitant's age 90, or 10 years after
the Contract Date (unless We consent to a later
Maturity Date). Notwithstanding the Maturity Date,
Qualified Contracts may require that distributions
begin at an earlier date.
MONEY MARKET SUBACCOUNT.... The Subaccount that holds shares of the Money Market
Portfolio of Market Street Fund, Inc.
NET ASSET VALUE PER
SHARE...................... The value per share of any Fund on any Valuation
Day. The method of computing the Net Asset Value Per
Share is described in the prospectus for each Fund.
NET PREMIUM................ The premium paid less any premium tax deducted from
the premium.
NON-QUALIFIED CONTRACT..... A Contract that is not a "Qualified Contract."
NOTICE..................... A request or notice in writing or otherwise in a
form satisfactory to PLACA that is signed by the
Owner and received at the Service Center.
1
<PAGE> 9
OWNER...................... The person or persons who owns (or own) the Contract
and who is (are) entitled to exercise all rights and
privileges provided in the Contract. Provisions
relating to action by the Owner mean, in the case of
joint Owners, both Owners acting jointly. Joint
Owners must be spouses.
PAYEE...................... The person entitled to receive Annuity Payments
under the Contract. the Annuitant is the Payee
unless the Owner designates a different person as
Payee.
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 retirement
plans that qualify for special federal income tax
treatment under the Code.
RENEWAL CREDIT............. An additional amount that We may add to Your
Contract Account Value as of the 9th, 18th, 27th and
36th Contract Anniversaries and every 9th Contract
Anniversary thereafter until ten years prior to the
Maturity Date.
SEC........................ The U.S. Securities and Exchange Commission.
SERVICE CENTER............. Providentmutual's office at 300 Continental Drive,
Newark, Delaware 19713.
SUBACCOUNT................. A subdivision of the Variable Account.
SUBACCOUNT VALUE........... Before the Annuity Date, the amount equal to that
part of any Net Premium and associated Credits
Amounts allocated to the Subaccount plus any
Contract Account Value transferred to that
Subaccount as adjusted by any interest income,
dividends, net capital gains or losses, realized or
unrealized, and decreased by withdrawals (including
any applicable surrender charges and premium tax
charge), charges and any Contract Account Value
transferred out of that Subaccount.
SURRENDER VALUE............ The Contract Account Value less: (1) any applicable
surrender charge, (2) premium tax charges not
previously deducted, (3) the amount of any
applicable Renewal Credit subject to recapture and
(4) the annual contract maintenance fee.
VALUATION DAY.............. For each Subaccount, each day that the New York
Stock Exchange is open for business except for
certain holidays listed in this prospectus and days
that a Subaccount's corresponding Portfolio does not
value its shares.
VALUATION PERIOD........... The period that starts at the close of regular
trading on the New York Stock Exchange on any
Valuation Day and ends at the close of regular
trading on the next succeeding Valuation Day.
VARIABLE ACCOUNT........... Providentmutual Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE..... The sum of all Subaccount Values.
YOU OR YOUR................ The Owner.
2
<PAGE> 10
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 each
premium payment surrendered,
withdrawn or annuitized)(1)...... 8%
Death Benefit Charge (as a
percentage of each premium
payment)(2).................... 8% (up to the amount of Credit Amounts received during the prior
12 months)
Optional Death Benefit Rider
Charges (as a percentage of
Variable Account Value)
Step-Up Rider.................. 0.25%
Rising Floor Rider............. 0.40%
Transfer Processing Fee.......... No fee for first twelve transfers in Contract Year.
$25 fee for each transfer thereafter during Contract Year.
Annual Administration Fee(3)..... $40 per Contract Year
Variable Account Annual Expenses
(as a percentage of Variable
Account Value)
Annual Annuity Charge............ 1.40%
</TABLE>
<TABLE>
<CAPTION>
MONEY AGGRESSIVE
MARKET EQUITY 500 GROWTH BOND MANAGED GROWTH INTERNATIONAL
PORTFOLIO INDEX PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------------- ------------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND, INC.
ANNUAL EXPENSES
(as a percentage of
average net assets)
Management Fees
(Investment Advisory
Fees)................. 0.25% 0.24% 0.32% 0.35% 0.40% 0.41% 0.75%
Other Expenses.......... 0.17% 0.04%(4) 0.15% 0.20% 0.18% 0.21% 0.25%
---- ---- ---- ---- ---- ---- ----
Total Fund Annual
Expenses.............. 0.42% 0.28% 0.47% 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 (after
reimbursement)................. 0.22% 0.27% 0.35% 0.39%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(5).............. 0.92% 0.97% 1.25% 1.29%
</TABLE>
3
<PAGE> 11
<TABLE>
<CAPTION>
GROWTH
CONTRAFUND GROWTH OPPORTUNITIES OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS
FUND III
ANNUAL EXPENSES(6)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory
Fees)....................... 0.59% 0.59% 0.59% 0.74%
12B-1 Fee..................... 0.25% 0.25% 0.25% 0.25%
Other Expenses (after
reimbursement)(7)........... 0.07% 0.07% 0.11% 0.15%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(5).... 0.91% 0.91% 0.95% 1.14%
</TABLE>
<TABLE>
<CAPTION>
EQUITY MANAGED
PORTFOLIO PORTFOLIO
------------- -----------
<S> <C> <C> <C> <C> <C> <C>
OCC ACCUMULATION TRUST
ANNUAL EXPENSES(6)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory
Fees)....................... 0.80% 0.78%
Other Expenses (after
reimbursement).............. 0.14% 0.04%
---- ----
Total Fund Annual Expenses
(after reimbursement)(8).... 0.94% 0.82%
</TABLE>
<TABLE>
<CAPTION>
TOTAL
HIGH YIELD RETURN
BOND BOND
PORTFOLIO PORTFOLIO
------------- -----------
<S> <C> <C> <C> <C> <C> <C>
PIMCO VARIABLE INSURANCE TRUST
ANNUAL EXPENSES(6)
(as a percentage of average
net assets)
Management Fees
(Investment Advisory
Fees)....................... 0.50% 0.40%
Other Expenses (after
reimbursement).............. 0.25% 0.25%
---- ----
Total Fund Annual Expenses
(after reimbursement)(5).... 0.75% 0.65%
</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
TRUST
ANNUAL EXPENSES(6)
(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)(5).... 1.15% 1.16% 1.50% 1.50%
</TABLE>
Premium taxes may be applicable, depending on various state 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 and the Funds
for the 1998 calendar year. For a more complete description of the various costs
and expenses, see "Charges and Deductions" and the prospectus for each Fund.
- ---------------
(1) A surrender charge is deducted only if a premium payment is withdrawn or
surrendered or applied to a Payment Option within 9 years of its being made.
The maximum total surrender charge will not exceed 8 1/2% of the total
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 (10% of the initial premium payment during the first
Contract Year). (See "Surrender Charge.")
(2) The Death Benefit Charge is only deducted if a death benefit is paid and is
limited to the amount of Credit Amounts during the 12 months prior to the
owner's death.
(3) The Annual Administration Fee is waived where Contract Account Value is
$50,000 or more.
(4) Because the Equity 500 Index Portfolio was not in existence during 1998,
"Other Expenses" is based on estimated amounts for 2000. This estimate
anticipates an expense reimbursement or fee waiver arrangement for 2000.
Absent this arrangement, Total Annual Expenses would be estimated to be
0.39%.
(5) For certain portfolios, certain expenses were reimbursed or fees waived
during 1998. 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, 0.93% for the VIP III
Growth Portfolio, 0.95% for the VIP III Contrafund Portfolio, 0.75% for the
PIMCO Total Return Bond Portfolio, 0.81% for the PIMCO High Yield Bond
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 1998 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.
(6) The fee and expense information regarding the Funds was provided by those
Funds. The Variable Insurance Products Fund III, the OCC Accumulation Trust,
the PIMCO Variable Insurance Trust, and the Van Eck Worldwide Insurance
Trust are not affiliated with PLACA.
(7) Because the VIP III Contrafund Portfolio, VIP III Growth Portfolio, VIP III
Growth Opportunities Portfolio and the VIP III Overseas Portfolio Service
Class 2 shares were not in existence during 1998, "Other Expenses" is based
on estimated amounts for 2000.
(8) The Advisers of the OCC Accumulation Trust Equity 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
Portfolios to 1.00% of average net assets (net of expense offset) on an
annual basis.
EXAMPLES
An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets, assuming that no optional death benefit rider was
selected, and assuming the addition of a 3.0% Credit Amount added to the $1,000
investment for the purpose of determining asset-based expenses. These examples
do not show the offsetting effect of the Credit Amount on illustrated expenses.
The Credit Amount has the effect of offsetting some of the expenses reflected in
the illustrations.
1. If the Contract is surrendered or 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 Money Market..................................... $ 96.71 $142.67 $175.52 $227.55
MS Growth........................................... 97.19 144.11 177.97 232.94
MS Bond............................................. 97.95 146.41 181.89 241.50
</TABLE>
5
<PAGE> 13
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
MS Managed.......................................... $ 98.23 $147.27 $183.36 $244.70
MS Aggressive Growth................................ 98.61 148.42 185.31 248.95
MS International.................................... 102.21 159.28 203.71 288.49
MS All Pro Large Cap Growth......................... 101.45 157.00 199.86 280.28
MS All Pro Large Cap Value.......................... 101.93 158.42 202.27 285.42
MS All Pro Small Cap Growth......................... 104.58 166.37 215.65 313.72
MS All Pro Small Cap Value.......................... 104.96 167.51 217.55 317.70
MS Equity 500 Index................................. 95.39 138.63 168.61 212.32
Fidelity Growth Opportunities....................... 101.74 157.85 201.30 283.37
Fidelity Contrafund................................. 101.36 156.71 199.38 279.25
Fidelity Growth..................................... 101.36 156.71 199.38 279.25
Fidelity Overseas................................... 103.54 163.26 210.41 302.69
OCC Equity.......................................... 101.66 157.62 200.91 282.54
OCC Managed......................................... 100.49 154.10 194.95 269.77
PIMCO Total Return Bond............................. 98.89 149.28 186.78 252.12
PIMCO High Yield Bond............................... 99.84 152.14 191.64 262.64
Van Eck Worldwide Bond.............................. 103.63 163.54 210.89 303.70
Van Eck Worldwide Hard Assets....................... 103.73 163.82 211.37 304.71
Van Eck Worldwide Emerging Mkts..................... 106.95 173.44 227.48 338.35
Van Eck Worldwide Real Estate....................... 106.95 173.44 227.48 338.35
</TABLE>
2. If the Contract is not surrendered or 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 Money Market....................................... $19.78 $61.17 $105.16 $227.55
MS Growth............................................. 20.29 62.74 107.79 232.94
MS Bond............................................... 21.12 65.23 111.99 241.50
MS Managed............................................ 21.42 66.17 113.56 244.70
MS Aggressive Growth.................................. 21.84 67.41 115.65 248.95
MS International...................................... 25.75 79.20 135.35 288.49
MS All Pro Large Cap Growth........................... 24.93 76.72 131.23 280.28
MS All Pro Large Cap Value............................ 25.44 78.27 133.81 285.42
MS All Pro Small Cap Growth........................... 28.32 86.90 148.14 313.72
MS All Pro Small Cap Value............................ 28.74 88.13 150.18 317.70
MS Equity 500 Index................................... 18.33 56.79 97.77 212.32
Fidelity Growth Opportunities......................... 25.23 77.65 132.78 283.37
Fidelity Contrafund................................... 24.82 76.41 130.71 279.25
Fidelity Growth....................................... 24.82 76.41 130.71 279.25
Fidelity Overseas..................................... 27.19 83.52 142.53 302.69
OCC Equity............................................ 25.15 77.40 132.36 282.54
OCC Managed........................................... 23.88 73.58 125.98 269.77
PIMCO Total Return Bond............................... 22.14 68.35 117.22 252.12
PIMCO High Yield Bond................................. 23.18 71.45 122.43 262.64
Van Eck Worldwide Bond................................ 27.29 83.82 143.04 303.70
Van Eck Worldwide Hard Assets......................... 27.40 84.13 143.55 304.71
Van Eck Worldwide Emerging Mkts....................... 30.90 94.57 160.80 338.35
Van Eck Worldwide Real Estate......................... 30.90 94.57 160.80 338.35
</TABLE>
An Owner would pay the following expenses on a $1,000 investment, assuming
a 5% annual return on assets, assuming that the rising floor optional death
benefit rider was selected, and assuming the addition of a 3% Credit Amount
added to the $1,000 investment for the purpose of determining asset-based
expenses:
6
<PAGE> 14
3. If the Contract is surrendered or 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 Money Market..................................... $100.50 $154.14 $195.03 $269.94
MS Growth........................................... 100.98 155.57 197.45 275.12
MS Bond............................................. 101.74 157.85 201.30 283.37
MS Managed.......................................... 102.02 158.71 202.75 286.44
MS Aggressive Growth................................ 102.40 159.85 204.67 290.53
MS International.................................... 106.00 170.62 222.76 328.57
MS All Pro Large Cap Growth......................... 105.24 168.36 218.98 320.68
MS All Pro Large Cap Value.......................... 105.72 169.77 221.34 325.62
MS All Pro Small Cap Growth......................... 108.37 177.66 234.51 352.84
MS All Pro Small Cap Value.......................... 108.75 178.78 236.38 356.67
MS Equity 500 Index................................. 99.18 150.14 188.24 255.29
Fidelity Growth Opportunities....................... 105.53 169.20 220.40 323.64
Fidelity Contrafund................................. 105.15 168.07 218.50 319.68
Fidelity Growth..................................... 105.15 168.07 218.50 319.68
Fidelity Overseas................................... 107.33 174.56 229.36 342.23
OCC Equity.......................................... 105.45 168.97 220.01 322.84
OCC Managed......................................... 104.28 165.48 214.15 310.56
PIMCO Total Return Bond............................. 102.68 160.70 206.11 293.58
PIMCO High Yield Bond............................... 103.63 163.54 210.89 303.70
Van Eck Worldwide Bond.............................. 107.42 174.85 229.83 343.20
Van Eck Worldwide Hard Assets....................... 107.52 175.13 230.30 344.17
Van Eck Worldwide Emerging Mkts..................... 110.74 184.66 246.14 376.52
Van Eck Worldwide Real Estate....................... 110.74 184.66 246.14 376.52
</TABLE>
The Examples provided above assume that no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $40 and that the estimated average Contract Account Value
per Contract is $40,000, which translates the Annual Administration Fee into an
assumed .10% 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 LESS 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 LESS 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 do not begin to make annuity payments until the Annuity
Date.
Cancellation Period. You have the right to return the Contract within 10
days after you receive it. If you return the Contract within the Cancellation
Period, we will return a refund amount to you. In most states, the amount we
return is:
- the Contract Account Value as of the date that we receive the returned
Contract
minus
- any Credit Amounts applied to the Contract
plus
- any charges that we may have deducted from premium payments or Contract
Account Value
In states where required, we will return the premiums that you paid.
Premiums. We require a minimum initial premium of at least $10,000. You
may pay 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.
Credit Amounts. We credit Your Contract Account Value with an additional
amount in most circumstances when a Net Premium is applied to the Contract. The
Credit Amount is a percentage of the premium that You pay (ranging from 1.5% to
5.0%) and is determined by the total amount of premiums received under a
Contract less the total amount of all withdrawals (including surrender charges).
The amount of the Credit Amount is calculated by multiplying this percentage by
the excess of (a) over (b) where:
(a) is the total premiums paid under the Contract (including the
current premium payment) less the total withdrawals (including surrender
charges); and
(b) is the amount computed for (a) at the time that the most recent
previous Credit Amount calculation was made that resulted in a positive
Credit Amount.
On each of the first three Contract Anniversaries, We determine a
Calculated Credit Amount. To the extent that the Calculated Credit Amount
exceeds the amount of the actual Credit Amounts, we increase the Contract
Account Value by the amount of such excess.
Upon receipt of regulatory approval, We also may offer You a rider during
the 9th Contract Year through which You may elect an additional amount to be
added to Your Contract Account Value as of the 9th, 18th, 27th and 36th Contract
Anniversaries and every 9th Contract Anniversary thereafter until ten years
prior to the Maturity Date.
The Credit Amount, the Calculated Credit Amount and the Renewal Credit are
explained in more detail later in this prospectus.
Allocation of Net Premiums. We will allocate Net Premiums and associated
Credit Amounts under a Contract as designated by you to one or more of the
Subaccounts or to the Guaranteed Account, or to
8
<PAGE> 16
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 Cancellation
Period, all Net Premiums and associated Credit Amounts 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 Guaranteed Account Value) 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 at a higher current interest rate as we may
declare.
Transfers. On or before the Annuity 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.
Withdrawals. At any time before the earlier of the death of an Owner or
the Annuity Date, You may withdraw part of the Surrender Value, subject to
certain limitations.
Surrender. Upon Notice received at the Service Center which must include
the proper form on or before the earlier of the death of an Owner or the Annuity
Date, You may surrender the Contract in full and receive its Surrender Value.
Death Benefit. If any Owner dies before the Annuity Date, we will pay the
Beneficiary a death benefit. During the first nine Contract years, the death
benefit equals the greater of:
- Contract Account Value less the Death Benefit Charge, or
- aggregate premiums paid reduced by the amount of all withdrawals prior to
the date of death.
In Contract Years ten and later, the death benefit equals the greatest of:
- Contract Account Value less the Death Benefit Charge, or
- aggregate premiums paid as of the ninth Contract Anniversary reduced by
the amount of all withdrawals prior to the ninth Contract Anniversary
plus aggregate premium paid since that Anniversary reduced, for each
withdrawal since that Anniversary, by the Withdrawal Adjustment Amount.
- Contract Account Value on the ninth Contract Anniversary plus aggregate
premium paid since that Anniversary reduced, for each withdrawal since
that Anniversary, by the Withdrawal Adjustment Amount.
The Withdrawal Adjustment Amount is determined by multiplying the death benefit
prior to the withdrawal by the ratio of the amount of the withdrawal (including
any Surrender Charge) to the Contract Account Value immediately prior to the
withdrawal.
Notwithstanding the foregoing, if the Owner is 90 years old or older at the date
of death, the death benefit is the Contract Account Value less the Death Benefit
Charge.
If any Owner dies before the Annuity Date, we must generally distribute the
death benefit to the Beneficiary within five years after the date of 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 First Contract
Anniversary. We will reset or "step-up" the guaranteed minimum death benefit to
the Contract Account Value, if greater, on the next Contract Anniversary. This
"step-up" continues until the Contract Anniversary on or before the Annuitant's
85th birthday. We will also increase the proceeds upon death by an amount equal
to aggregate Net Premiums paid since the last Contract Anniversary. In the event
of a
9
<PAGE> 17
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 the Contract Account Value on
the date we receive due proof of the Owner's death.
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 5% 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 or more than 200% of premium payments less
200% of withdrawals (including any Surrender Charge).
CHARGES AND DEDUCTIONS
Surrender Charge (Contingent Deferred Sales Charge). We do not deduct any
charge for sales expenses from premiums. However, if you surrender or annuitize
your Contract or make certain withdrawals within nine years of making a premium
payment, we will deduct a Surrender Charge from the premium payment when it is
surrendered or withdrawn or applied to a Payment Option. The Surrender Charge is
a percentage of each such premium payment ranging from 8% to 2% during the first
nine years after the payment is made. The Surrender Charge applicable to each
premium payment diminishes as the payment ages. A premium payment ages by
Contract Year, such that it is in "year" 1 during the Contract Year in which it
is received and in "year" 2 throughout the subsequent Contract Year and in
"year" 3 throughout the Contract Year after that, etc.
Notwithstanding the foregoing, no Surrender Charge is applied to Contract
Account Value withdrawn or surrendered during any Contract Year up to an amount
equal to the Free Withdrawal Amount. During the first Contract Year, the Free
Withdrawal Amount is 10% of the premium payments. For all other Contract Years,
the Free Withdrawal Amount is 10% of the Contract Account Value at the start of
that Year. Also, no Surrender Charge applies if You annuitize Your Contract as
of the Maturity Date.
Death Benefit Charge. A Death Benefit Charge is deducted when computing
the death benefit upon the death of any Owner prior to the Annuity Date. The
Free Withdrawal Amount does not apply to the Death Benefit Charge. The Death
Benefit Charge is the same as the Surrender Charge except that it is capped at
an amount equal to the dollar amount of Credit Amounts granted under the
Contract during the twelve months preceding the Owner's death.
Annual Administration Fee. On each Contract Anniversary prior to and
including the Annuity Date, we deduct an Annual Administration Fee of $40 from
the Contract Account Value. We also deduct this charge on the Annuity Date if it
is not a Contract Anniversary and upon surrender if the surrender occurs at any
time other than on a Contract Anniversary. We currently do not charge this Fee
when Contract Account Value is $50,000 or more as of the date that the Fee would
have been charged.
Transfer Processing Fee. The first twelve transfers of amounts in the
Subaccounts and the Guaranteed Account during each Contract year are free. We
assess a $25 transfer charge for each additional transfer during such Contract
Year.
Daily Annuity Charge. We deduct a daily Annuity Charge to compensate us
for assuming certain mortality and expense risks and to cover some of the
expense of administering the Contracts. On or prior to the Annuity Date, we
deduct the charge from the assets of the Variable Account at an annual rate of
1.40%.
Premium Taxes. If state or other premium taxes apply to a Contract, we
deduct such taxes either:
- from premiums as they are received, or
- from the Contract Account Value, upon a withdrawal from or surrender of
the Contract, upon application of the Surrender Value to a Payment
Option, or upon payment of a death benefit.
10
<PAGE> 18
Investment Advisory Fees and Other Expenses of the Portfolios. The
investment experience of each Subaccount reflects that of the Portfolio whose
shares it holds. The investment experience of each Portfolio, in turn, reflects
its investment advisory fees and other operating expenses. Please read the
prospectus for each Fund for details.
Charges for Optional Death Benefit Riders. If You elect a Step-Up Rider or
Rising Floor Rider, We deduct a charge from Contract Account Value on the
Contract Date and on the same day of each month thereafter. The charge is a
percent of Contract Account Value and is deducted proportionately from
Subaccount Values and Guaranteed Account Value under the Contract. The charge is
equal to 1/12 of the following annual rates: Step-Up Rider, 0.25%; Rising Floor
Rider, 0.40%.
ANNUITY PROVISIONS
Annuity Date. We will apply the Surrender Value to a Payment Option on the
Annuity Date unless You elect to receive the 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.
OTHER VARIABLE ANNUITY CONTRACTS
In addition to the Contracts, we offer other variable annuity contracts
with different features. We offer variable annuity contracts that do not have
Credit Amounts or Renewal Credits, but have no death benefit charge, lower
surrender charges and shorter surrender charge periods. You should carefully
consider whether or not a Contract is the best product for you. Generally, a
Contract is most suited to owners who intend to hold it for a relatively long
time.
11
<PAGE> 19
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. 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 are not chargeable 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
12
<PAGE> 20
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 and losses, realized or unrealized, 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 of PLACA. 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 twenty-three of
which are available under the Contracts. They are: Growth; Equity 500 Index;
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 Contrafund; Fidelity Growth; Fidelity Growth Opportunities;
Fidelity Overseas; OCC Equity; OCC Managed; PIMCO High Yield Bond; PIMCO Total
Return Bond; 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 five series-type
mutual funds: Market Street Fund, Inc.; Variable Insurance Products Fund III;
OCC Accumulation Trust; PIMCO Variable Insurance Trust; and Van Eck Worldwide
Insurance Trust (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 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 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 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 Money Market, Equity 500 Index, Growth, 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 eleven "series" or
classes of shares, each of which represents an interest in a separate Portfolio
within the Fund: the Growth, Equity 500 Index, Money Market, Bond, Managed,
Aggressive Growth, International, All Pro Large Cap Growth, All Pro Small Cap
Growth, All Pro Large Cap Value and All Pro Small Cap Value Portfolios. Shares
of each Portfolio currently are purchased and redeemed by the corresponding
Subaccount.
13
<PAGE> 21
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. A
reasonable level of income is an important secondary objective.
The Equity 500 Index Portfolio. This Portfolio seeks to provide long-term
capital appreciation by investing primarily in common stocks included in the S&P
500 Composite Stock Price Index.
The Money Market Portfolio. This Portfolio seeks to provide maximum
current income consistent with capital preservation and liquidity by investing
in high-quality money market instruments.
The Bond Portfolio. This Portfolio seeks to generate a high level of
current income consistent with prudent investment risk. It seeks to achieve this
objective by investing in a diversified portfolio of marketable debt securities.
The Managed Portfolio. This Portfolio seeks to realize as high a level of
long-term total rate of return as is consistent with prudent investment risk. It
seeks to achieve this objective by investing in stocks, bonds, money market
instruments or a combination thereof.
The Aggressive Growth Portfolio. This Portfolio seeks to achieve a high
level of long-term capital appreciation. It seeks to achieve this objective by
investing primarily in securities of companies in new or emerging industries and
in securities of small capitalization and/or unseasoned companies.
The International Portfolio. This Portfolio seeks long-term growth of
capital principally through investments in a diversified portfolio of marketable
equity securities of established foreign issuer companies.
All Pro Large Cap Growth Portfolio. This 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 Portfolio's
advisers believe show potential for growth in future earnings.
All Pro Small Cap Growth Portfolio. This 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 Portfolio's
advisers believe show potential for growth in future earnings.
All Pro Large Cap Value Portfolio. This 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. This 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 Portfolio's 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 Equity 500 Index Portfolio and
the International Portfolio are advised by Providentmutual Investment Management
Company ("PIMC"). PIMC employs State Street Global Advisors to provide
investment advisory services in connection with the Equity 500 Index Portfolio,
and 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
14
<PAGE> 22
assets among one or more "specialist" 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 FUND III
The VIP III Contrafund Subaccount, the VIP III Growth Subaccount, the VIP
III Growth Opportunities Subaccount and the VIP III Overseas Subaccount invest
in shares of their corresponding portfolios of the Variable Insurance Products
Fund III ("VIP III"). VIP III offers insurance companies a selection of
investment vehicles for variable annuity contracts and variable life insurance
policies. VIP III issues a number of "series" or classes of shares, each of
which represents an interest in a separate portfolio within VIP III. Four of the
VIP III series are available for investment under the Contracts: the VIP III
Contrafund Portfolio, the VIP III Growth Portfolio, the VIP III Growth
Opportunities Portfolio and the VIP III Overseas Portfolio.
The investment objectives of the Portfolios of VIP III available with the
Contracts are set forth below.
VIP III Contrafund Portfolio. This Portfolio seeks long-term capital
appreciation by investing primarily in common stocks. Its investments may
include securities of companies whose value it believes is not fully recognized
by the public, securities of domestic and foreign issuers, growth stocks and
value stocks.
VIP III Growth Portfolio. This Portfolio seeks to achieve capital
appreciation by investing primarily in common stocks. Its investments may
include securities of companies it believes have above-average growth potential
and securities of domestic and foreign issuers.
VIP III Growth Opportunities Portfolio. This Portfolio seeks to provide
capital growth by investing primarily in common stocks, although its investments
may also include other types of securities, such as: bonds, which may be
lower-quality debt securities; securities of domestic and foreign issuers;
growth stocks; and value stocks.
VIP III Overseas Portfolio. This Portfolio seeks long-term growth of
capital by investing at least 65% of total assets in foreign securities and
investing primarily in common stocks. This Portfolio allocates its investments
across countries and regions considering the size of the market in each country
and region relative to the size of the international market as a whole.
The Portfolios of VIP III are managed by Fidelity Management & Research
Company ("FMR"). On behalf of the VIP III Contrafund Portfolio, VIP III Growth
Opportunities Portfolio, and VIP III Overseas 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.
15
<PAGE> 23
Fidelity International Investment Advisers (U.K.) and Fidelity International
Investment Advisers (FIIA) serve as subadvisers for the Overseas Portfolio.
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.
OCC ACCUMULATION TRUST
The OCC Equity 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, two of which are available
for investment under the Contracts. The investment objectives of the Portfolios
available with the Contracts are described below.
Equity Portfolio. This Portfolio seeks 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.
Managed Portfolio. This Portfolio seeks 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.
PIMCO VARIABLE INSURANCE TRUST
The PIMCO High Yield Bond Subaccount and the PIMCO Total Return Bond
Subaccount invest in shares of their corresponding portfolios of the PIMCO
Variable Insurance Trust ("PIMCO Trust"). PIMCO Trust currently has seventeen
portfolios, two of which are available for investment under the Contracts: PIMCO
High Yield Bond Portfolio and PIMCO Total Return Bond Portfolio.
The investment objectives of the Portfolios of PIMCO Trust available with
the Contracts are set forth below.
PIMCO High Yield Bond Portfolio. This Portfolio seeks to maximize total
return, consistent with preservation of capital and prudent investment
management.
PIMCO Total Return Bond Portfolio. This Portfolio seeks to maximize total
return, consistent with preservation of capital and prudent investment
management.
The investment adviser for the PIMCO High Yield Bond Portfolio and the
PIMCO Total Return Bond Portfolio is Pacific Investment Management Company
("PIMCO"), a registered investment adviser under the Investment Advisers Act of
1940.
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
16
<PAGE> 24
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, the Worldwide
Emerging Markets Portfolio, and Van Eck Worldwide Real Estate Portfolio are
purchased and redeemed by the Variable Account at net asset value without a
sales charge.
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.
Van Eck Worldwide Hard Assets Portfolio. This 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. This 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. This Portfolio seeks
long-term capital appreciation by investing primarily in equity securities in
emerging markets around the world.
Van Eck Worldwide Real Estate Portfolio. This 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
PORTFOLIOS WILL BE ACHIEVED.
More detailed information concerning the investment objectives, policies
and restrictions pertaining to the Funds and the expenses, investment advisory
services and charges and the risks attendant to investing in the Portfolios and
other aspects of their operations can be found in the current Prospectus for
each Fund which accompany this prospectus and the current Statement of
Additional Information for each Fund. The Fund prospectuses should be read
carefully before any decision is made concerning the allocation of premium
payments or transfers among the Subaccounts.
You should note that, except for the Portfolios of the Market Street Fund,
not all of the Portfolios described in the prospectuses for the Funds are
available with the Contract. Moreover, PLACA cannot guarantee that each Fund
will always be available for the 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.
17
<PAGE> 25
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.
PLACA 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 Market Street Fund, Inc., VIP III Fund, OCC Trust, PIMCO Trust 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 support 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 of the shares that are held in the Variable
Account or that the Variable Account may purchase. If the shares of any
Portfolio are no longer available for investment or for any other appropriate
reason, PLACA may redeem the shares, if any, of that Portfolio and substitute
shares of another registered open-end management company. PLACA will not
substitute any shares attributable to a Contract's interest in a Subaccount
without notice and prior approval of the SEC and state insurance authorities, to
the extent required by applicable law.
PLACA also reserves the right to establish additional Subaccounts, each of
which would invest in shares corresponding to existing or new Portfolios.
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 changes 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.
18
<PAGE> 26
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 as well as retirement plans that
qualify for special tax treatment under the Internal Revenue Code. 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 $10,000.
Subsequent premium payments may be paid under the Contract at any time during
the Owner's lifetime and before the Annuity Date and must be for at least $100
each for Non-Qualified Contracts and $50 each for Qualified Contracts.
Notwithstanding the foregoing, PLACA reserves the right to not accept subsequent
premium payments at any time for any reason.
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."
CANCELLATION PERIOD
The Contract provides for an initial cancellation or "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: (a) Contract Account Value as of the date that it receives
the returned Contract, minus (b) any Credit Amounts applied under the contract,
plus (c) any charges that it may have deducted from premium payments or Contract
Account Value. In states that require it, PLACA will refund the premiums paid.
ALLOCATION OF PREMIUMS
If the application for a Contract is properly completed and is accompanied
by all the information necessary to process it, including payment of the initial
premium, the initial Net Premium and any associated Credit Amounts are 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 may
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 return
the initial premium immediately, unless the applicant specifically consents to
PLACA retaining the premium until the application is complete.
The Owner designates in the application how the initial Net Premium and
associated Credit Amounts are 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 Cancellation Period, the
portion of the initial Net Premium which is to be allocated to the Subaccounts
is 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 is
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
19
<PAGE> 27
subsequent Net Premiums and associated Credit Amounts are 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 and
associated Credit Amounts are allocated in accordance with the allocation
schedule in effect at the time the premium payment is received.
Subaccount Values vary with the investment experience of the Subaccounts,
and the Owner bears the entire investment risk. Owners should periodically
review their allocation schedule for Net Premiums and associated Credit Amounts
in light of market conditions and the Owner's overall financial objectives.
CREDIT AMOUNTS
Credit Amounts. We credit your Contract Account Value with an additional
amount in most circumstances when a Net Premium is applied to the Contract. The
Credit Amount is a percentage of the premium that you pay as shown in the table
below. The percentage is determined by the total amount of premiums received
under a Contract less the total amount of all withdrawals (including any
Surrender Charges). The Credit Amount is calculated by multiplying the
percentage by the excess of (a) over (b), where:
(a) equals total premiums paid under the Contract (including the
current premium payment) less the total withdrawals (including Surrender
Charges);
(b) equals the amount computed for (a) at the time that the most
recent previous Credit Amount calculation was made that resulted in a
Credit Amount being applied.
<TABLE>
<CAPTION>
TOTAL PREMIUM (INCLUDING CURRENT PREMIUM PAYMENT)
LESS WITHDRAWALS (INCLUDING SURRENDER CHARGES) CREDIT AMOUNT
- ------------------------------------------------- -------------
<S> <C>
From $10,000 to $24,999..................................... 1.5%
From $25,000 to $99,999..................................... 3.0%
From $100,000 to $499,999................................... 4.0%
From $500,000 to $999,999................................... 4.5%
$1,000,000 or more.......................................... 5.0%
</TABLE>
The Credit Amount is allocated among the Subaccounts and the Guaranteed Account
Options based on the premium allocation in effect at the time of the Credit
Amount.
Look Back Provision. On each of the first three Contract Anniversaries, We
determine a Calculated Credit Amount. To the extent that the Calculated Credit
Amount exceeds the amount of actual Credit Amounts, We increase the Contract
Account Value by a Credit Amount for such excess. The excess Credit Amount is
allocated among the Subaccounts and the Guaranteed Account Options based on the
premium allocation in effect at the time of the Credit Amount.
The Calculated Credit Amount is determined by multiplying (1) by (2) where:
(1) the aggregate premiums paid under the Contract minus the amount of
withdrawals (including any Surrender Charges);
(2) The Credit Amount percentage for (1) as shown on the table.
In the event that You cancel the Contract during the Cancellation Period,
We recapture or retain the Credit Amount. (See "Cancellation Period.") Upon
receipt of regulatory approval, when computing the Death Benefit, any Credit
Amount applied within one year of the Owner's death is recaptured. (See "Death
Benefit Before Annuity Date.")
Renewal Credits. Upon receipt of regulatory approval, We may offer You a
rider during the 9th Contract Year through which You may elect an additional
amount to be added to Your Contract Account Value as of the 9th, 18th, 27th and
36th Contract Anniversaries and every 9th Contract Anniversary thereafter until
10 years prior to the Maturity Date.
20
<PAGE> 28
In the event that You withdraw part or all of Your Contract Account Value
on which a Renewal Credit is based within 9 Contract Years of the Renewal Credit
being applied, We intend to recapture some or all of the Renewal Credit.
VARIABLE ACCOUNT VALUE
The Variable Account Value reflects the investment experience of the
Subaccounts selected by the Owner, any Net Premiums Payments, any Credit
Amounts, 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 Day. The value is the aggregate of the values
attributable to the Contract in each of the Subaccounts, determined for each
Subaccount by multiplying the Subaccount's Accumulation Unit value on the
relevant Valuation Date by the number of Subaccount units allocated to the
Contract.
Accumulation Units. For each Subaccount, Net Premium and associated Credit
Amounts are allocated to a Subaccount or amounts of Contract Value transferred
to a Subaccount, are converted into Accumulation Units. The number of
Accumulation Units credited to a Contract is determined by dividing the dollar
amount directed to each Subaccount by the value of the Accumulation Unit for
that Subaccount for the Valuation Day as of which the allocation or transfer is
invested in the Subaccount. Allocations and transfers to a Subaccount increase
the number of Accumulation Units of that Subaccount credited to a Contract.
Certain events reduce the number of Accumulation Units of a Subaccount
credited to a Contract. Withdrawals or transfers of Subaccount Values from a
Subaccount result in the cancellation of an appropriate number of Accumulation
Units of that Subaccount as does surrender of the Contract, payment of a death
benefit, the application of Variable Account Value to an Payment Option on the
Annuity Date, and the deduction of the Annual Administration Fee or other
charges. Accumulation Units are canceled as of the end of the Valuation Period
in which PLACA receives Notice regarding the event.
Accumulation Unit Value. The Accumulation Unit value for each Subaccount
was arbitrarily set initially when the Subaccount began operations. Thereafter,
the Accumulation Unit value at the end of every Valuation Day is the
Accumulation Unit value at the end of the previous Valuation Day multiplied by
the net investment factor, as described below. The Subaccount Value for a
Contract is determined on any day by multiplying the number of Accumulation
Units of that Subaccount attributable to the Contract by the Accumulation Unit
value for that Subaccount.
Net Investment Factor. The net investment factor is an index applied to
measure the investment performance of a Subaccount from one Valuation Period to
the next. The net investment factor for any Subaccount for any Valuation Period
is determined by dividing (1) by (2) and subtracting (3) from the result, where:
(1) is the result of:
(a) the Net Asset Value Per Share of the Portfolio held in the
Subaccount, determined at the end of the current Valuation Period;
plus
(b) the per share amount of any dividend or capital gain distributions
made by the Portfolio held in the Subaccount, if the "ex-dividend"
date occurs during the current Valuation Period; plus or minus
(c) a per share charge or credit for any taxes reserved for, which is
determined by Us to have resulted from the operations of the
Subaccount.
(2) is the Net Asset Value Per Share of the Portfolio held in the
Subaccount, determined at the end of the last prior Valuation Period.
21
<PAGE> 29
(3) is a daily factor representing the Annual Annuity Charge deducted from
the Subaccount, adjusted for the number of days in the Valuation
Period.
TRANSFER PRIVILEGE
Before the Annuity Date, an Owner may transfer all or a part of a
Subaccount Value 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 is the lesser of $500 or the entire Subaccount Value or
the Guaranteed Account Value. A transfer request that would reduce the amount in
a Subaccount or the Guaranteed Account below $500 is treated as a transfer
request for the entire amount in that Subaccount or the Guaranteed Account.
Transfers are made as of the day Notice requesting such transfer is
received by PLACA. There is no limit on the number of transfers which can be
made between Subaccounts or from a Subaccount 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 request is considered to be one transfer, regardless
of the number of Subaccounts or the Guaranteed Account affected by the transfer.
The Transfer Processing Fee is 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 is
not 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 follows for telephone transfers include
requiring some form of personal identification prior to acting on instructions
received by telephone, providing written confirmation of the transaction and
making a tape-recording of the instructions given by telephone.
Automatic Asset Rebalancing. Automatic Asset Rebalancing is a feature
which, if elected, authorizes periodic transfers of Variable Account Values
among the Subaccounts in order to achieve a particular percentage allocation of
Variable Account Values among such Subaccounts. Such percentage allocations must
be in whole numbers and must allocate amounts only among the Subaccounts. No
amounts may be transferred to the Guaranteed Account as a part of Automatic
Asset Rebalancing. The percentage allocation of your Contract Account Value for
rebalancing is based on your premium allocation instructions in effect at the
time of rebalancing. Any premium allocation instructions that you give us that
differ from your then current premium allocation instructions are treated as a
request to change such premium allocation instructions.
Once elected Automatic Asset Rebalancing begins at the end of the next
calendar quarter or calendar year 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
Subaccount Values (other than the Money Market Subaccount) out of a 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 Subaccount Value to increase (or decrease) above (or below) the value as
of the Valuation Period next
22
<PAGE> 30
ended after receipt of the Advance Order at the Service Center. PLACA measures
the percentage change in such Subaccount Value by reference to the net
investment factor for the specified Subaccount as measured using the
Accumulation Unit value as of the Valuation Period next ended after receipt of
the Advance Order at the Service Center and executes the transfer when the
Accumulation Unit value for that Subaccount increases or decreases by at least
the percentage specified by the Owner.
Once received at the Service Center, an Advance Order remains in effect
until executed, canceled, 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 as an initial or subsequent investment or by transferring
amounts into the designated Subaccount from the other Subaccounts or from the
Guaranteed Account (which may be subject to certain restrictions). (See
"Transfers from Guaranteed Account.")
Election into this program may occur at the time of application by
completing the authorization on the application or at any time after the
Contract is issued by properly completing the election form and returning it to
the Company by the beginning of the month and ensuring that the required minimum
amount is in the designated Subaccount. Dollar Cost Averaging transfers may not
commence until the later of (a) 30 days after the Contract Date and (b) five
days after the end of the Cancellation Period.
Once elected, transfers from a Subaccount are 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 do not count toward
the twelve transfers permitted each Contract Year without the Transfer
Processing Fee. 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 an Owner or
the Annuity Date, an Owner may withdraw part of the Surrender Value. The minimum
amount which may be withdrawn is $500; the maximum amount is that which would
leave a Surrender Value of not less than $10,000. A withdrawal request which
would reduce the amount in a Subaccount or in the Guaranteed Account below $500
is treated as a request for full withdrawal of the amount in that Subaccount or
the Guaranteed Account. PLACA withdraws the amount requested from the Contract
Account Value as of the day Notice for the withdrawal is received at its Service
Center. Any applicable Surrender Charge is 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
23
<PAGE> 31
Subaccounts or Guaranteed Account is inadequate to comply with the request, the
withdrawal is made from each Subaccount and the Guaranteed Account based on the
proportion that the value in such account bears to the Contract Account Value
immediately prior to the withdrawal.
A withdrawal may have adverse federal income tax consequences. (See
"Federal Tax Status.")
Systematic Withdrawals. The Systematic Withdrawal Plan enables the Owner
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 adviser 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
begin on the next designated monthly or quarterly date following the receipt of
the request. The minimum distribution is $100 monthly or at least $300
quarterly. The maximum amount which may 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 premiums paid in the first year if
elected at the time of application. PLACA will notify the Owner if the total
amount to be withdrawn in a subsequent Contract Year exceeds 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 Contract
Account Value. (See "Surrender Charge.")
PLACA will pay the Owner the amount requested each month or quarter and
cancel Accumulation Units equal to the amount withdrawn from the Subaccounts
based on the proportion that the value in such Subaccount or Guaranteed Account
bears to the Contract Account Value immediately prior to the withdrawal.
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 Surrender Charge (see
"Surrender Charge") rules, any other withdrawal in a year when the Systematic
Withdrawal Plan has been utilized is 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
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 Owner or the
Annuity Date, the Owner may request a surrender of the Contract for its
Surrender Value. The surrender request must be on the proper form which can be
requested from the Service Center. The proceeds paid to the Owner will equal
24
<PAGE> 32
the Surrender Value less any withholding or premium taxes. (See "Surrender
Charge.") The Surrender Value is determined on the date Notice of surrender and
the Contract are received at PLACA's Service Center. The Surrender Value is paid
in a lump sum unless the Owner requests payment under a Payment Option. A
surrender may have adverse federal income tax consequences. (See "Federal Tax
Status.")
Restrictions on Distributions from Certain Contracts. There are certain
restrictions on surrenders of and withdrawals from Contracts used as funding
vehicles for Code Section 403(b) retirement plans. Section 403(b)(11) of the
Code 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.
In the case of other types of Qualified Contracts, federal tax law imposes
other restrictions on the form and manner in which benefits may be paid.
Likewise, the terms of employee benefit plans funded by Qualified Contracts also
may impose restrictions on ability of participants to take distributions from
the Contracts.
Contract Termination. PLACA may end this Contract and pay the Surrender
Value to the Owner if, before the Annuity 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 minimum additional amount required by
PLACA. (Termination of the Contract under this provision is not permitted in New
Jersey.)
DEATH BENEFIT BEFORE ANNUITY DATE
Death of Annuitant. If an Annuitant dies before the Annuity Date, the
Owner becomes the new Annuitant. If more than one individual owns the Contract,
the youngest Owner becomes the Annuitant. If any Owner is not an individual,
then the death of an Annuitant is treated as the death of an Owner (see below).
Death of Owner. If an Owner dies on or after the Annuity Date, any
surviving joint Owner becomes the sole Owner. If there is no surviving Owner,
the Beneficiary becomes the new Owner. If an Owner dies on or after the Annuity
Date, any remaining payments must be distributed at least as rapidly as under
the Payment Option in effect on the date of such death.
If an Owner dies before the Annuity Date, any surviving joint Owner becomes
the Beneficiary. We pay the Beneficiary a death benefit. Beneficiaries have the
following options with regard to the death benefit:
1. to receive the death benefit in a single lump sum within 5 years of the
deceased Owner's death; or
2. elect to have the death benefit paid under a Payment Option provided
that: (a) annuity payments begin within 1 year of the deceased Owner's
death, and (b) annuity payments are made in substantially equal
installments over the life of the Beneficiary or over a period not
greater than the life expectancy of the Beneficiary; or
3. if the Beneficiary is the spouse of the deceased Owner, he or she may
(by Notice within one year of the Owner's death), elect to continue the
Contract as the new Owner. If the spouse so elects,
25
<PAGE> 33
all his or her rights as a Beneficiary cease and if the deceased Owner
was also the sole Annuitant, he or she becomes the Annuitant. The
spouse is deemed to have made the election to continue the Contract if
he or she makes no election before the expiration of the one year
period or if he or she makes any premium payments under the Contract.
With regard to Beneficiaries who are not the spouse of the deceased Owner: (a)
options 1 and 2 apply even if the Annuitant is alive at the time of the deceased
Owner's death, (b) if the new Owner is not a natural person, only option 1 is
available, (c) if no election is made within 60 days of the deceased Owner's
death, option 1 is deemed to have been elected, and (d) if the Beneficiary dies
before the distributions required by options 1 or 2 are complete, the entire
remaining Contract Account Value is distributed in one sum immediately.
If there is more than one Beneficiary, the foregoing provisions apply
independently to each Beneficiary.
If the Owner is not an individual, the Annuitant, as determined in
accordance with Section 72(s) of the Code, is treated as Owner for purposes of
these distribution requirements, and any changes in the Annuitant are treated as
the death of the Owner.
Other rules may apply to a Qualified Contract.
Death Benefit. Upon the death of any Owner before the Annuity Date, we
will pay the Beneficiary a death benefit. During the first nine Contract Years,
the death benefit equals the greater of:
- Contract Account Value less the Death Benefit Charge, or
- aggregate premiums paid reduced by the amount of all withdrawals prior to
the date of death.
In Contract Years ten and later, the death benefit equals the greatest of:
- Contract Account Value less the Death Benefit Charge, or
- aggregate premiums paid as of the ninth Contract Anniversary reduced by
the amount of all withdrawals prior to the ninth Contract Anniversary
plus aggregate premium paid since that Anniversary reduced, for each
withdrawal since that Anniversary, by the Withdrawal Adjustment Amount.
- Contract Account Value on the ninth Contract Anniversary plus aggregate
premium paid since that Anniversary reduced, for each withdrawal since
that Anniversary, by the Withdrawal Adjustment Amount.
The Withdrawal Adjustment Amount is determined by multiplying the death benefit
prior to the withdrawal by the ratio of the amount of the withdrawal (including
any Surrender Charge) to the Contract Account Value immediately prior to the
withdrawal.
Notwithstanding the foregoing, if the Owner is 90 years old or older at the
date of death, the death benefit is the Contract Account Value less the Death
Benefit Charge.
If there are multiple Owners, then the age of the oldest Owner is used to
determine the death benefit. Also, if there are multiple Owners, then upon the
death of one such Owner, the surviving Owner becomes the Beneficiary. Where a
Contract has only one Owner, and either the designated Beneficiary has died
before that Owner or that Owner did not designate a Beneficiary, then the
Owner's estate is the Beneficiary.
The death benefit is computed as of the date on which we receive Notice and
proof of death and all necessary claim forms at the Service Center. Any excess
of the death benefit over the Contract Account Value is allocated among the
Subaccounts and the Guaranteed Account Options according to the premium
allocation schedule in effect until the Beneficiary elects option 1, 2, or 3
above.
Alternate Death Benefit Riders. In lieu of the death benefit described
above, for an additional charge, and Owner may, when the Contract is issued,
elect one of the following optional death benefit riders.
26
<PAGE> 34
Step Up Rider. A Contract Owner may elect the Step-up Rider for an Owner
who is age 0-70. The Step-up Rider provides a guaranteed minimum death benefit
equal to the Contract Account Value as of the Contract Anniversary and is reset
every year to the Contract Account Value on the next Contract Anniversary, if
greater. This reset continues until the Contract Anniversary on or before the
Owner's 85th birthday. Premiums paid since the last 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 Owner's death or the sum of premiums paid, less any
withdrawals, including applicable Surrender Charges.
Rising Floor Rider. A Contract Owner also may elect the Rising Floor Rider
for an Owner 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 5% interest until the contract anniversary prior to the Owner'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 or more than 200% of the
premium payments less 200% of any withdrawals, including any applicable
Surrender Charges.
THE ANNUITY DATE
Subject to PLACA's approval and state law You select the Annuity Date. You
may select any Annuity Date except that the latest Annuity Date is the Maturity
Date. If You do not select an Annuity Date, the Maturity Date is the Annuity
Date.
Surrender Value is applied to purchase a Payment Option as of the Annuity
Date. If, however, the Maturity Date is the Annuity Date, then Contract Account
Value is applied to purchase a Payment Option. In the event that You do not
select a Payment Option, Surrender Value is applied under the Life Annuity with
Ten Year Certain Payment Option.
You may change the Annuity Date subject to these limitations:
1. Notice is received at least 30 days before the Maturity Date;
2. The new Annuity Date is at least 30 days after We receive the change
request;
3. The new Annuity Date is not the 29th, 30th or 31st day of a month; and
4. The new Annuity Date is not later than the Maturity Date.
PAYMENTS
Any withdrawal, Surrender Value, or death benefit will usually be paid
within seven days of receipt of written request or receipt and filing of any
necessary 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, We have the right to defer
payment until such check or draft has been honored.
We have the right to defer payment of any withdrawal, surrender, or
transfer from the Guaranteed Account for up to six months from the date of
receipt of Notice for a withdrawal, surrender, or transfer.
27
<PAGE> 35
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 an annual rate of 3% or such higher rate required
for a particular state.
MODIFICATION
Upon notice to the Owner, We may modify the Contract if such modification:
1. is necessary to make the Contract or our operations or those of the
Variable Account comply with any law or regulation issued by a
government agency to which We, the Contract or the Variable Account is
subject; or
2. is necessary to assure continued qualification of the Contract under the
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 other Subaccounts and/or Guaranteed Account options.
In the event of any such modifications, we will make appropriate
endorsement to the Contract.
REPORTS TO CONTRACT OWNERS
At least quarterly, we will mail to each Contract Owner, at such Owner's
last known address of record, a report containing the Contract Account Value and
Surrender Value of the Contract and any further information required by and
applicable law or regulation.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to us at our Service
Center.
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 Options
and interests therein have not, and are 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 these laws. 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 may 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,
28
<PAGE> 36
anticipates changing the current interest rate from time to time, different
allocations to the Guaranteed Account Value are credited with different current
interest rates. The interest rate credited to each amount allocated or
transferred to the Guaranteed Account will apply to the end of the 12-month
period beginning on the day such amount is received or transferred. At the end
of the 12-month period, 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 12-month period is guaranteed for the subsequent 12-month
period. 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.
For purposes of crediting interest and deducting charges, all Guaranteed
Account Options use a last-in, first-out method of accounting for allocations of
Net Premium Payments and associated Credit Amounts and for transfers of Contract
Account Value.
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 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) may be deducted from the
Contract Account Value if a withdrawal is made or a Contract is surrendered
before the Annuity Date or if Contract Account Value is applied to a Payment
Option. 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 Withdrawal or Surrender. The Surrender Charge is equal to the
percentage of each premium payment surrendered or withdrawn (or applied to a
Payment Option on the Annuity Date) as specified in the table below. The
Surrender Charge is separately calculated and applied to each premium payment at
any time that the payment (or part of the payment) is surrendered or withdrawn
(or applied to a Payment Option on the Annuity Date). No Surrender Charge
applies to premium payments applied to a Payment Option on the Maturity Date. No
Surrender Charge applies to Contract Account Value representing the Free
Withdrawal Amount or to Contract Value in excess of aggregate premium payments
(less prior withdrawals of premium payments). The Surrender Charge is calculated
using the assumption that Contract Account Value is withdrawn in the following
order: (1) the Free Withdrawal Amount for that Contract Year, (2) a pro-rata
share of the amount of any remaining Renewal Credit, (3) premium
29
<PAGE> 37
payments, and (4) any remaining Contract Account Value. In addition, the
Surrender Charge is calculated using the assumption that premium payments are
withdrawn on a first-in, first-out basis.
The Surrender Charge applicable to each premium payment diminishes as the
payment ages. A premium payment ages by Contract Year, such that it is in "year"
1 during the Contract Year in which it is received and in "year" 2 throughout
the subsequent Contract Year and in "year" 3 throughout the Contract Year after
that etc.
<TABLE>
<CAPTION>
AGE OF EACH PREMIUM
PAYMENT IN CONTRACT YEARS CHARGE
------------------------- ------
<S> <C>
1 8.0%
2 8.0%
3 8.0%
4 8.0%
5 8.0%
6 6.5%
7 5.0%
8 3.5%
9 2.0%
10 and over 0.0%
</TABLE>
In no event will the total Surrender Charges assessed under a Contract
exceed 8 1/2% of the total gross premiums paid under that contract.
If the Contract is being surrendered, the Surrender Charge is deducted from
the Contract Account Value in determining the Cash Surrender Value. For a
withdrawal, the Surrender Charge is deducted from the Contract Account Value
remaining after the amount requested is withdrawn.
Free Withdrawal Amount. During the first Contract Year, the Free
Withdrawal Amount is 10% of the premium payments. For all other Contract Years,
the Free Withdrawal Amount is 10% of the Contract Account Value at the start of
that Year.
The Free Withdrawal Amount 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 applies to the amount of the
surrender up to 10% of the Contract Value as of the beginning of that Contract
Year. If a withdrawal is made during a Contract Year in which one or more
withdrawals have been made, the remaining Free Withdrawal Amount is equal to 10%
of the Contract 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.
DEATH BENEFIT CHARGE
A Death Benefit Charge is deducted when computing the death benefit upon
the death of any Owner prior to the Annuity Date. The Free Withdrawal Amount
does not apply to the Death Benefit Charge. The Death Benefit Charge is the same
as the Surrender Charge except that it is capped at an amount equal to the
dollar amount of Credit Amounts granted under the Contract during the twelve
months preceding the Owner's death.
ADMINISTRATIVE CHARGES
Annual Administration Fee. On each Contract Anniversary prior to and
including the Annuity Date, and upon surrender of the Contract or on the Annuity
Date (other than on a Contract Anniversary), PLACA deducts from the Contract
Account Value an Annual Administration Fee of $40 to reimburse it for
administrative expenses relating to the Contract. We currently do not charge
this Fee when Contract Account Value is $50,000 or more as of the date that the
Fee would have been charged. The charge will be deducted from each Subaccount
and the Guaranteed Account based on the proportion that the value in
30
<PAGE> 38
each such account bears to the total Contract Account Value. No Annual
Administration Fee is payable after the Annuity Date.
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 Notice of transfer is considered to be one transfer, regardless of the
number of Subaccounts or accounts affected by the transfer. The Transfer
Processing Fee will be deducted from the amount being transferred. PLACA does
not expect a profit from this fee.
DAILY ANNUITY CHARGE
To compensate PLACA for assuming mortality and expense risks and for
administering the Contracts, prior to the Annuity Date PLACA deducts a daily
Annuity Charge from the assets of the Variable Account. PLACA will impose a
charge in an amount that is equal to an annual rate of 1.40% (daily rate of
.003835616%).
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 an Owner
dies before the Annuity Date. The expense risk PLACA assumes is the risk that
the Surrender Charges, Administration Fees, and Transfer Processing 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 the Annuity Charge, such profits could be used to finance the
distribution of the Contracts.
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.
INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE FUNDS
Because the Variable Account purchases shares of the Funds, the net assets
of each Subaccount reflect the investment advisory fees and other operating
expense incurred by the Funds. For each Portfolio, an investment adviser is paid
a fee that is a percentage of a Portfolio's average daily net assets, and thus
the actual size of the fee paid depends on size of the Portfolio. Each Portfolio
also pays most or all of its operating expenses. See the accompanying current
Prospectuses for the Funds for further details.
CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS
PLACA deducts a monthly charge from Contract Account Value for both the
Step-Up Rider and the Rising Floor Rider. The charge is deducted on the Contract
Date and on the same day of each month thereafter. The charge is a percent of
Contract Account Value and is deducted proportionately from Subaccount Values,
by canceling Accumulation Units, and Guaranteed Account Value under the
Contract. The charge is equal to 1/12 of the following annual rates: Step-Up
Rider, 0.25%; Rising Floor Rider, 0.40%.
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, and
currently range from 0.0% to 4.0%. 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, (ii) application of the proceeds to a Payment
Option, or (iii) payment of a death benefit.
31
<PAGE> 39
OTHER TAXES
Currently, PLACA makes no charge against the Variable Account for any
federal, state or local taxes. PLACA may, however, make such a charge in the
future if income or gains within the Variable Account will result in any such
tax liability to PLACA.
CHARGE DISCOUNTS FOR SALES TO CERTAIN GROUPS
We may reduce or waive charges under Contracts sold to certain groups of
purchasers where such sales entail lower than normal expenses and/or fewer risks
to PLACA. Generally, We reduce or waive charges based on factor such as the
following:
- the size of the group of purchasers
- the total amount of premium anticipated from the group
- the nature of the group and/or the purpose for which the Contracts are
purchased (e.g., Contracts purchased by an employer to fund an employee
benefit plan, usually have fewer surrenders and are less expensive to
administer than individually sold Contracts)
We also may reduce or waive charges on Contracts sold to officers, directors and
employees of PLACA and its affiliates. Reductions or waivers of charges will not
discriminate unfairly among applicants. Contact Your sales representative for
more information about charge reductions or waivers.
PAYMENT OPTIONS
ELECTION OF PAYMENT OPTIONS
As of the Annuity Date, Surrender Value is applied to purchase a Payment
Option, unless You elect to receive the Surrender Value in a single sum. In the
event that You do not select a Payment Option, Surrender Value is applied to
Option B, described below. Beneficiaries also may elect to receive the Death
Benefit in the form of a Payment Option unless You have already selected an
Option for the Beneficiary.
Before beginning annuity payments under a Payment Option, We require that
You return the Contract to the Service Center. We will issue a supplementary
Contract stating the terms of payment under the Payment Option selected. We also
reserve the right to require satisfactory evidence of the identity, birth date
and sex of any Annuitant, and satisfactory evidence that any Annuitant is alive.
Before making each annuity payment under a life-contingent Payment Option, We
reserve the right to require satisfactory evidence that any Annuitant is still
alive.
An option may be elected, revoked, or changed at any time before the
Annuity Date while the Owner is living. If the Payee is other than the Owner,
the election of a Payment Option requires the consent of PLACA. An election of
option and any revocation or change must be made by Notice.
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.
The Payment Options available are described below. The Payment Options are
fixed, which means that each option has a fixed and guaranteed amount to be paid
during the annuity period that is not in any way dependent upon the investment
experience of the Variable Account.
DESCRIPTION OF PAYMENT OPTIONS
Option A -- Life Annuity Option. To have payments made in equal amounts
each month during the Annuitant's lifetime with payments ceasing with the last
payment prior to the death of the Annuitant. No amounts are payable after the
Annuitant dies. Therefore, if the Annuitant dies immediately following the date
of the first payment, the Payee will receive one monthly payment only.
32
<PAGE> 40
Option B -- Life Annuity Option with 10 Years Guaranteed. To have payments
made in equal amounts each month during the Annuitant'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 is determined from the tables in the Contract
which apply to the particular option using the Annuitant'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 Annuitant's age, only. Age is 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
Surrender Value or death benefit may be taken under an alternate income option
based on PLACA's single premium immediate annuity rates in effect at the time of
settlement. Such rates are adjusted so that the first payment can 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. These rates are 4%
greater than PLACA's standard immediate annuity rates.
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.
Effective yields and total returns for the Subaccounts are based on the
investment performance of the corresponding Portfolio. The Portfolios'
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 is
provided. For periods prior to the date that a Subaccount commenced operations,
performance information for Contracts funded by that Subaccount is calculated
based on the performance of the corresponding Portfolio and the assumption that
the Subaccount was in existence for the same periods as those indicated for the
Portfolio, with the current level of Contract charges.
33
<PAGE> 41
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 several different non-standard bases may be
used in advertisements and sales literature. Average annual total return
information may be presented, computed on the same basis as described above,
except deductions will not include the Surrender Charge. PLACA also may disclose
cumulative total return with and without deductions for the Surrender Charge. In
addition to the foregoing, PLACA may present average annual total returns and
cumulative total returns, with and without deductions for Surrender Charges,
computed to reflect the effect of a Credit Amount and Renewal Credit. In such
presentations, the Credit Amount and Renewal Credit may be of any percentage
currently available under the Contract.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of other performance data, please refer to
the Statement of Additional Information.
In advertising and sales literature, the performance of each Subaccount may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the Subaccounts. Lipper Analytical Services, Inc. ("Lipper") and the
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in each of the
major categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life insurance issuers as well as
variable annuity issuers. VARDS rankings compare only variable annuity issuers.
The performance analyses prepared by Lipper and VARDS each rank such issuers on
the basis of total return, assuming reinvestment of distributions, but do not
take sales charges, redemption fees, or certain expense deductions at the
separate account level into consideration. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking provides data as to which funds provide the
highest total return within various categories of funds defined by the degree of
risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as a source of performance comparison.
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.
34
<PAGE> 42
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.
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 Contracts.
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.
35
<PAGE> 43
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 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.
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 an Owner's or an 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
36
<PAGE> 44
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 under a Qualified Contract are generally
taxed in a manner similar to 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 relationship between 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 will generally be
zero unless nondeductible contributions have previously been made to the
relevant plan or employer contributions or investment earnings have previously
been includible in the income of the employee.
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(b) of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." There may be limitations on the
amount of the premiums under an IRA, the deductible amount of such premiums, 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
37
<PAGE> 45
incentive match plans for employees (SIMPLE), Plans which permit certain small
employers to make contributions to IRAs on behalf of their employees. Employers
may establish simplified employee pension (SEP) plans to make IRA contributions
on behalf of their employees. The Code may impose additional requirements on
sales of the Contract for use with IRAs.
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. Generally, income on undistributed amounts
accumulated under Roth IRAs is exempt from federal income tax. "Qualified
distributions" from a Roth IRA, as well as distributions which are the return of
the Owner's contribution to the Roth IRA, are also not subject to tax.
"Qualified distributions" are distributions made (1) on or after the Owner
reaches age 59 1/2, (2) to the beneficiary of the Owner after the Owner's death,
(3) on account of the Owner's disability, or (4) to pay for first-time
home-buying expenses. Federal income tax, as well as a 10% penalty tax, will
generally apply to distributions which are not "qualified distributions."
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, earnings on 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%. Generally, an eligible rollover distribution is the taxable
portion of any distribution from such a plan, except for certain distributions
such as minimum distributions required by the Code, distributions paid in the
form of an annuity, or hardship withdrawals. The 20% withholding does not apply,
however, if the Owner chooses a "direct rollover" from the plan to another
tax-qualified plan or IRA.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contracts could change by
legislation or other means. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax adviser
should be consulted with respect to legislative developments and their effect on
the Contract.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under the Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this prospectus. Further, the
federal income tax consequences discussed herein reflect 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
38
<PAGE> 46
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 or broker/dealers. 1717 is a wholly owned
indirect subsidiary of PMLIC 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 6% of
premiums plus 0.60% of the Contract Account Value beginning in the tenth
Contract Year. Alternative commission scales are available with a lower percent
of premiums and a percentage of Contract Account Value beginning in Contract
Year 2.
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 before December 31, 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.
LEGAL PROCEEDINGS
PLACA, 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, PLACA 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 PLACA.
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
39
<PAGE> 47
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 Annuity
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.
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (17-27)...................... 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 Average Annual Total Returns..................... S-7
Other Total Returns.................................... S-9
Effect of the Administration Fee on Performance Data... S-9
TERMINATION OF PARTICIPATION AGREEMENTS..................... S-10
SAFEKEEPING OF ACCOUNT ASSETS............................... S-11
STATE REGULATION (Appendix B)............................... S-11
RECORDS AND REPORTS......................................... S-12
</TABLE>
40
<PAGE> 48
<TABLE>
<S> <C>
LEGAL MATTERS (38).......................................... S-12
EXPERTS..................................................... S-12
OTHER INFORMATION........................................... S-12
FINANCIAL INFORMATION....................................... S-12
FINANCIAL STATEMENTS........................................ F-1
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the Prospectus.
41
<PAGE> 49
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. As of December 31, 1998, the PIMCO High Yield Bond
Subaccount, the PIMCO Total Return Bond Subaccount, the VIP III Contrafund
Subaccount, the VIP III Growth Subaccount, the VIP III Growth Opportunities
Subaccount and the VIP III Overseas Subaccount had not commenced operations.
Accordingly, condensed financial information is not available for these
Subaccounts.
<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
MS Equity 500 (formerly Fidelity Index 500)..... 1,377.32 61,689.14 1,088.42 48,054.18 831.78
OCC Equity...................................... 1,181.96 19,823.89 1,071.54 19,067.19 858.13
OCC Managed..................................... 1,117.54 53,641.58 1,057.94 54,119.40 877.27
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......................
MS Equity 500 (formerly Fidelity Index 500)..... 27,336.06 686.84 10,498.25 507.68
OCC Equity...................................... 12,563.72 572.66 11,392.30 515.26
OCC Managed..................................... 43,626.63 545.82 6,615.25
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......................
MS Equity 500 (formerly Fidelity Index 500)..... 3,571.24 509.51 818.51
OCC Equity...................................... 2,813.10 503.29 313.68
OCC Managed.....................................
Van Eck Worldwide Hard Assets...................
Van Eck Worldwide Bond..........................
Van Eck Worldwide Emerging Markets..............
Van Eck Worldwide Real Estate...................
</TABLE>
A-1
<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
PROVIDENTMUTUAL 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 individual flexible
premium deferred variable annuity contract (the "Contract") offered by
Providentmutual Life and Annuity Company of America ("PLACA"). 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 III, the OCC Accumulation Trust, the
PIMCO Variable Insurance Trust 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 DECEMBER 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (17-27)...................... 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 Average Annual Total Returns..................... S-7
Other Total Returns.................................... S-9
Effect of the Administration Fee on Performance Data... S-9
TERMINATION OF PARTICIPATION AGREEMENTS..................... S-10
SAFEKEEPING OF ACCOUNT ASSETS............................... S-12
STATE REGULATION (Appendix B)............................... S-12
RECORDS AND REPORTS......................................... S-13
LEGAL MATTERS (38).......................................... S-13
EXPERTS..................................................... S-13
OTHER INFORMATION........................................... S-13
FINANCIAL INFORMATION....................................... S-13
FINANCIAL STATEMENTS........................................ 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 any Annuitant, Owner or Beneficiary 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 SEC.
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 4.0% 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 and 2) the Annual
Annuity Charge. For purposes of calculating current yields for a Contract, an
average per unit administration fee is used based on the $40 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 and the Annual Annuity Charge. The yield
calculation assumes an administration fee of $40 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)
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 2% to 8% of premiums paid during the nine 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 in any Contract Year on an amount up to 10% of the Contract Account
Value as of the beginning of such Year (10% of the initial premium in the first
Contract 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 Annual Annuity
Charge, and the Annual Administration Fee. The calculation assumes that the
administration fee is $40 per year per contract deducted at the end of each
Contract Year. For purposes of calculating average annual total return, an
average per dollar administration fee attributable to the hypothetical account
for the period is used. The calculation also assumes surrender of the Contract
at
S-4
<PAGE> 54
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 nine 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.
ERV = the ending redeemable value (net of any Subaccount recurring charges
and applicable surrender charges) 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
or particular Subaccounts 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.
S-5
<PAGE> 55
Assuming no Credit Amount addition, such average annual total return
information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/98
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)......................... 4.01% 9.49% 13.59%
Money Market (December 12, 1985)................. (3.76%) (3.00%) 3.83%
Bond (December 12, 1985)......................... (1.11%) (1.32%) 6.64%
Managed (December 12, 1985)...................... 2.86% 5.13% 9.80%
Aggressive Growth (May 1, 1989).................. (1.32%) 4.30% 12.14%
International (November 1, 1991)................. 0.62% 0.86% 4.28%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 8.50% 8.50%
All Pro Large Cap Value (May 4, 1998)............ (9.22%) (9.22%)
All Pro Small Cap Growth (May 4, 1998)........... (10.21%) (10.21%)
All Pro Small Cap Value (May 4, 1998)............ (25.57%) (25.57%)
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 2.20% 12.07% 12.98%
Managed (August 1, 1988)......................... (2.11%) 10.95% 11.87%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... 3.09% (1.56%) 5.30%
Worldwide Hard Assets (September 1, 1989)........ (39.19%) (10.69%) 0.59%
Worldwide Emerging Markets (December 27, 1995)... (42.36%) (18.71%)
Worldwide Real Estate (June 23, 1997)............ (19.88%) (3.97%)
</TABLE>
S-6
<PAGE> 56
OTHER AVERAGE ANNUAL 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. Assuming no Credit
Amount addition, such information is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/98
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)......................... 12.01% 15.99% 13.59%
Money Market (December 12, 1985)................. 3.74% 3.50% 3.83%
Bond (December 12, 1985)......................... 6.62% 5.18% 6.64%
Managed (December 12, 1985)...................... 10.86% 11.63% 9.80%
Aggressive Growth (May 1, 1989).................. 6.39% 10.80% 12.14%
International (November 1, 1991)................. 8.50% 7.36% 7.78%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 16.50% 16.50%
All Pro Large Cap Value (May 4, 1998)............ (2.02%) (2.02%)
All Pro Small Cap Growth (May 4, 1998)........... (3.01%) (3.01%)
All Pro Small Cap Value (May 4, 1998)............ (18.37%) (18.37%)
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 10.20% 18.57% 17.98%
Managed (August 1, 1988)......................... 5.53% 17.45% 16.87%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... 11.09% 4.94% 5.30%
Worldwide Hard Assets (September 1, 1989)........ (31.99%) (4.73%) 0.59%
Worldwide Emerging Markets (December 27, 1995)... (35.16%) (11.26%)
Worldwide Real Estate (June 23, 1997)............ (12.68%) 3.83%
</TABLE>
S-7
<PAGE> 57
From time to time, sales literature or advertisements may also quote
average annual total returns that do reflect the impact of Credit Amounts and
Renewal Credit amounts at various percentage rates available at the time of
publication. These are calculated in exactly the same way as average annual
total returns described above (with and without Surrender Charges), except that
Credit Amounts are reflected as an increase in Contract Account Value
immediately after such amounts are applied. No Renewal Credit is reflected.
Assuming the addition of a 3% Credit Amount, such information is as follows
(with Surrender Charges):
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/98
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)....................... 7.37% 10.18% 13.92%
Money Market (December 12, 1985)................. (0.89%) (2.39%) 4.14%
Bond (December 12, 1985)......................... 1.84% (0.70%) 6.96%
Managed (December 12, 1985)...................... 6.19% 5.79% 10.13%
Aggressive Growth (May 1, 1989).................. 1.62% 4.96% 12.48%
International (November 1, 1991)................. 3.76% 1.50% 4.73%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 12.00% 12.00%
All Pro Large Cap Value (May 4, 1998)............ (6.35%) (6.35%)
All Pro Small Cap Growth (May 4, 1998)........... (7.30%) (7.30%)
All Pro Small Cap Value (May 4, 1998)............ (23.12%) (23.12%)
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 5.51% 12.77% 13.66%
Managed (August 1, 1988)......................... 0.81% 11.65% 12.54%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... 6.42% (0.94%) 5.64%
Worldwide Hard Assets (September 1, 1989)........ (37.15%) (10.11%) 0.91%
Worldwide Emerging Markets (December 27, 1995)... (40.42%) (17.81%)
Worldwide Real Estate (June 23, 1997)............ (17.26%) (2.13%)
</TABLE>
S-8
<PAGE> 58
Assuming the addition of a 3% Credit Amount, such average annual total
return information for the Subaccounts is as follows (without surrender
charges):
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/98
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (DATE OF FUND PORTFOLIO INCEPTION) 12/31/98 12/31/98 THAN 10 YEARS)
- --------------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
Growth (December 12, 1985)....................... 15.37% 16.68% 13.92%
Money Market (December 12, 1985)................. 6.85% 4.11% 4.14%
Bond (December 12, 1985)......................... 9.82% 5.80% 6.96%
Managed (December 12, 1985)...................... 14.19% 12.29% 10.13%
Aggressive Growth (May 1, 1989).................. 9.58% 11.46% 12.48%
International (November 1, 1991)................. 11.76% 8.00% 8.23%
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 20.00% 20.00%
All Pro Large Cap Value (May 4, 1998)............ 0.92% 0.92%
All Pro Small Cap Growth (May 4, 1998)........... (0.10%) (0.10%)
All Pro Small Cap Value (May 4, 1998)............ (15.92%) (15.92%)
OCC ACCUMULATION TRUST
Equity (August 1, 1988).......................... 13.51% 19.27% 18.66%
Managed (August 1, 1988)......................... 8.70% 18.15% 17.54%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... 14.42% 5.56% 5.64%
Worldwide Hard Assets (September 1, 1989)........ (29.95%) (4.16%) 0.91%
Worldwide Emerging Markets (December 27, 1995)... (33.22%) (10.39%)
Worldwide Real Estate (June 23, 1997)............ (10.06%) 5.87%
</TABLE>
OTHER TOTAL RETURNS
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 $40 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.
S-9
<PAGE> 59
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 receipt of regulatory approvals and/or
the 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
PLACA if PLACA has withdrawn the Account or Accounts investment in the Fund
because a particular state insurance regulator's decision applicable to the
PLACA conflicts with the majority of other state insurance regulators; (9) at
the option of the PLACA if the Fund ceases to qualify as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code of 1986, or under any
successor or similar provision, or if the PLACA reasonably believes that the
Fund may fail to so qualify; (10) at the option of the PLACA if the Fund fails
to meet the diversification requirements specified in Article VI hereof; or (11)
at the option of any party upon another party's material breach of any provision
of the agreement.
Variable Insurance Products Fund III. This agreement provides 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; (7) by PLACA by written notice to the Fund
and its principal underwriter with respect to any portfolio in the event that
such portfolio ceases to qualify as a regulated investment company under
Subchapter M of the Code of under any successor or similar provision, or if the
PLACA reasonably believes that the PLACA may fail to so qualify; (8) termination
by PLACA by written notice to the Fund and its principal underwriter with
respect to any portfolio in the event that such portfolio fails to meet
specified diversification requirements.
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.
PIMCO Variable Insurance Trust. The agreement provides for termination:
(1) by any party with three months' advance written notice; (2) by PLACA if
shares of PIMCO Variable Insurance Trust
S-10
<PAGE> 60
("PIMCO") are not reasonably available to meet the requirements of the
Contracts; (3) by PLACA if portfolio shares are not registered, issued or sold
in accordance with applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the Contracts; (4) by
PIMCO or PIMCO Funds Distributor LLC (the "Underwriter") if formal
administrative proceedings are instituted against PLACA by the NASD, the SEC,
the Insurance Commissioner or like official of any state or any other regulatory
body regarding PLACA's duties under the agreement or related to the sale of the
Contracts, the operation of any account, or the purchase of PIMCO's shares so
long as PIMCO or the Underwriter determines in its sole judgment exercised in
good faith that any such administrative proceedings will have a material adverse
effect upon the ability of PLACA to perform its obligations under the agreement;
(5) by PLACA if formal administrative proceedings are instituted against PIMCO
or the Underwriter by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body so long as PLACA determines in its sole
judgment exercised in good faith that any such administrative proceedings will
have a material adverse effect upon the ability of PIMCO or the Underwriter to
perform its obligations under the agreement; (6) by PLACA if a Portfolio ceases
to qualify as a Regulated Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification requirements specified in the
Code, or if PLACA reasonably believes that such Portfolio may fail to so qualify
or comply; (7) by PIMCO or the Underwriter if the Contracts fail to meet the
qualifications of annuity contracts specified in the Code; (8) by either PIMCO
or the Underwriter if either one or both determine, in their sole judgment
exercised in good faith, that PLACA has suffered a material adverse change in
its business, operations, financial condition, or prospects since the date of
the agreement or is the subject of material adverse publicity; (9) by PLACA if
PLACA determines, in its sole judgment exercised in good faith, that PIMCO,
PIMCO's investment adviser, or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of the agreement or is the subject of material adverse publicity; (10) by
PIMCO or the Underwriter if PLACA gives PIMCO and the Underwriter written notice
and at the time such notice was given there was no notice of termination
outstanding under any other provision of the agreement; provided, however, any
termination is effective forty-five days after the notice was given; (11) by
PLACA upon any substitution of the shares of another investment company or
series thereof for shares of a designated portfolio of PIMCO in accordance with
the terms of the Contracts, provided that PLACA has given at least 45 days prior
written notice to PIMCO and the Underwriter of the date of substitution; (12) by
any party if PIMCO's Board of Trustees determines that a material irreconcilable
conflict exists; (13) by PLACA if PIMCO or the Underwriter is in material breach
of a provision of the agreement, which breach has not been cured to the
satisfaction of PLACA within 10 days after written notice of such breach has
been delivered to PIMCO or the Underwriter; or (14) by PIMCO or the Underwriter
if PLACA is in material breach of a provision of the agreement, which breach has
not been cured to the satisfaction of PIMCO or the Underwriter within 10 days
after written notice of such breach has been delivered to PLACA.
S-11
<PAGE> 61
Van Eck Worldwide Insurance Trust. This agreement provides for
termination: (1) by PLACA, Van Eck Trust or Van Eck Trust's Distributor upon six
months prior written notice; (2) at the option of PLACA, if Fund shares are not
available for any reason to meet the requirements of Contracts as determined by
PLACA, reasonable advance notice of election to terminate shall be furnished by
PLACA; (3) at the option of PLACA, the Fund or its principal underwriter, upon
institution of formal proceedings against the broker-dealer marketing the
Contracts, the Variable Accounts, PLACA or the Fund by any regulatory body; (4)
upon a decision by PLACA, in accordance with regulations of the SEC, to
substitute Fund shares with the shares of Contracts for which the shares have
been selected to serve as the underlying investment medium PLACA on 60 days'
written notice replace Fund shares; (5) upon assignment of the agreement unless
made with the written consent of each other party; (6) in the event Fund shares
are not registered, issued or sold in conformance with Federal law or such law
precludes the use of Fund shares as an underlying investment medium of Contracts
issued or to be issued by PLACA; (7) at the option of PLACA by written notice to
the Fund and its principal underwriter with respect to any portfolio in the
event that such portfolio fails to meet specified diversification requirements
or if reasonably believes that the portfolio may fail to meet either of those
requirements; (8) at the option of PLACA by written notice to the Fund and its
principal underwriter, if PLACA shall determine, in its sole judgment exercised
in good faith, that the Fund or its principal underwriter has suffered a
material adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of material adverse
publicity; or (9) at the option of the Fund or its principal underwriter by
written notice to PLACA, if the Fund or its principal underwriter shall
determine, in its sole judgment exercised in good faith, that the Fund or
underwriter has suffered a material adverse change in its business operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity.
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.
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
insures 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
S-12
<PAGE> 62
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, Legal Officer of PMLIC, has provided advice
on certain matters relating to the laws of Delaware regarding the Contracts 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 Providentmutual 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.
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 INFORMATION
This Statement of Additional Information contains the audited statements of
assets and liabilities of the Providentmutual 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 Providentmutual 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 Providentmutual Variable Annuity Separate Account.
S-13
<PAGE> 63
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> 64
- --------------------------------------------------------------------------------
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> 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>
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> 66
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
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> 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>
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> 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>
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> 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>
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> 70
- --------------------------------------------------------------------------------
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> 71
- --------------------------------------------------------------------------------
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 77
- --------------------------------------------------------------------------------
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> 78
- --------------------------------------------------------------------------------
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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, 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> 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, 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> 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>
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> 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>
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> 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>
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> 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>
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> 90
- --------------------------------------------------------------------------------
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> 91
- --------------------------------------------------------------------------------
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> 92
- --------------------------------------------------------------------------------
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> 93
- --------------------------------------------------------------------------------
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> 94
- --------------------------------------------------------------------------------
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> 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>
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> 96
- --------------------------------------------------------------------------------
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> 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.
- -----------------------------------------------------------------------------------------------------------------------------
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> 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>
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> 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>
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> 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
- -----------------------------------------------------------------------------------------------------------------------------
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> 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
- -----------------------------------------------------------------------------------------------------------------------------
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 113
- --------------------------------------------------------------------------------
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> 114
- --------------------------------------------------------------------------------
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> 115
- --------------------------------------------------------------------------------
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> 116
(This page intentionally left blank)
F-54
<PAGE> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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 AMOUNT 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> 134
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> 135
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
<TABLE>
<S> <C> <C> <C>
(a) Financial Statements
All required financial statements are included in Part A and Part B of
this Registration Statement.
(b) (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)
(f) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
subaccounts of the Providentmutual Variable Annuity Separate
Account. To be filed by amendment.
(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).(3)
(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)
</TABLE>
C-1
<PAGE> 136
<TABLE>
<S> <C> <C> <C>
(k) Form of Endorsement Renewal Credit Rider (R2210).
(5) Form of Application and 1717 Capital Management Company
Suitability Statement.(1)
(a) Initial Allocation Schedule.(1)
(6) (a) Charter of Providentmutual Life and Annuity Company of
America.(1)
(b) By-Laws of Providentmutual Life and Annuity Company of
America.(1)
(7) Not applicable.
(8) (a) Participation Agreement 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 OCC Trust, OpCap
Advisors and Providentmutual Life and Annuity Company of
America.(1)
(e) Participation Agreement between Van Eck Investment Trust and
Providentmutual Life and Annuity Company of America.(1)
(f) Service Agreement between Providentmutual Life and Annuity
Company of America and Provident Mutual Life Insurance
Company of Philadelphia.(1)
(g) Support Agreement between Provident Mutual Life Insurance
Company and Providentmutual Life and Annuity Company of
America.(1)
(h) Form of Participation Agreement among Providentmutual Life
and Annuity Company of America, PIMCO Variable Insurance
Trust and PIMCO Funds Distributors LLC.
(i) Form of Services Agreement between Pacific Investment
Management Company and Providentmutual Life and Annuity
Company of America.
(9) Opinion and consent of James G. Potter, Jr., Esquire.
(10) (a) Consent of Sutherland Asbill & Brennan LLP.
(b) Consent of PricewaterhouseCoopers LLP.
(11) No financial statements are omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data. To be filed by
amendment.
(14) Powers of Attorney.(1)
</TABLE>
- ---------------
(1) Incorporated herein by reference to post-effective amendment number 5 to the
Form N-4 registration statement for Providentmutual Variable Annuity
Separate Account, 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.
(3) Incorporated herein by reference to this Registration Statement, filed on
September 30, 1999.
C-2
<PAGE> 137
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
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
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 1000 Chesterbrook Boulevard, 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
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
</TABLE>
C-3
<PAGE> 138
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
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 the date of this registration statement there were no Contracts
outstanding.
Item 28. Indemnification
The By-Laws of Providentmutual Life and Annuity Company of America provide,
in part in Article XII, as follows:
ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
Section 12.01. To the fullest extent permitted by law, the Company shall
indemnify any present, former, or future Director, officer,
or employee of the Company or any person who may serve or
has served at its request as officer or Director of another
corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including
attorneys' fees, necessarily incurred in connection with the
defense of any action, suit or other proceeding to which any
of them is made a party because of service as Director,
officer, or employee of the Company or such other
corporation, or in connection with any appeal therein, and
against any amounts paid by such Director, officer, or
employee in settlement of, or in satisfaction of a judgment
or fine in any
C-4
<PAGE> 139
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 Act of 1940. 1717 is also
principal underwriter for the Market Street Fund, Inc., for Providentmutual
Variable Life Separate Account and for various separate accounts of Provident
Mutual Life Insurance Company Separate Accounts.
C-5
<PAGE> 140
(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
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 1000 Chesterbrook Blvd., 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 1000 Chesterbrook Blvd.,
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> 141
(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 Contracts, 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> 142
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 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 16
DAY OF DECEMBER, 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 REQUIRED 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 December 16, 1999
- -------------------------------------- (Principal Executive Officer)
ROBERT W. KLOSS
/s/ STEPHEN L. WHITE Actuarial Officer December 16, 1999
- -------------------------------------- (Principal Financial Officer)
STEPHEN L. WHITE
/s/ TODD R. MILLER Financial Reporting Officer December 16, 1999
- -------------------------------------- (Principal Accounting Officer)
TODD R. MILLER
* Director December 16, 1999
- --------------------------------------
MARY LYNN FINELLI
* Director December 16, 1999
- --------------------------------------
ALAN F. HINKLE
* Director December 16, 1999
- --------------------------------------
JAMES D. KESTNER
* Director December 16, 1999
- --------------------------------------
SARAH C. LANGE
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ JAMES G. POTTER, JR. Director December 16, 1999
- --------------------------------------
JAMES G. POTTER, JR.
* Director December 16, 1999
- --------------------------------------
JOAN C. TUCKER
* Director December 16, 1999
- --------------------------------------
LINDA M. SPRINGER
* Director December 16, 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 (4)(k)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
A STOCK LIFE INSURANCE COMPANY
ENDORSEMENT
RENEWAL CREDIT
Contract Number: Owner:
:
Renewal Credit Amount: Date of Endorsement:
Date of Renewal Credit:
Renewal Credit Recapture Base:
RENEWAL CREDIT PERCENTAGES
AGE IN YEARS PERCENT
------------ -------
1 100%
2 100%
3 100%
4 100%
5 100%
6 80%
7 60%
8 40%
9 20%
10 & Up 0%
As more fully set forth herein:
1. Pursuant to this Endorsement, You are entitled to receive a Renewal Credit
Amount.
2. This amount is paid back to Us as part of the Surrender Charge if You
surrender or withdraw Your Contract Account Value during the next 9 Contract
Years.
The contract is amended as of the Date of Endorsement as follows:
IN SECTION 8: CREDITS, THE FOLLOWING PARAGRAPH IS ADDED:
RENEWAL CREDIT: A Renewal Credit Amount, shown above, is allocated as of the
Date of Renewal Credit, shown above. The Renewal Credit Amount is allocated
among the Subaccounts and Guaranteed Account Options according to the premium
allocation schedule in effect on the Date of Renewal Credit.
<PAGE> 2
IN SECTION 9: FEES AND CHARGES, THE FIRST PARAGRAPH IS REPLACED BY THE
FOLLOWING:
SURRENDER CHARGE: The Surrender Charge is equal to the Renewal Credit
Percentage, shown above, of the Renewal Credit Amount and to a percentage of
each premium payment that is surrendered or withdrawn. The percentages
applicable to a Renewal Credit Amount are shown above. The Surrender Charge is
separately calculated and applied to the Renewal Credit Amount and to each
premium payment at any time that a Renewal Credit Amount or premium payment is
surrendered or withdrawn. No Surrender Charge applies to that portion of the
Contract Account Value equal to the Free Withdrawal Amount or to the Contract
Account Value in excess of the sum of the Renewal Credit Amount and aggregate
premium payments as of the date of withdrawal or surrender, adjusted for prior
withdrawals of either Renewal Credit Amount or premium payments.
The Surrender Charge is calculated using the assumption that Contract Account
Value is withdrawn in the following order: (1) the Free Withdrawal Amount for
the Contract Year, (2) a pro-rata share of the Renewal Credit Amount, (3)
aggregate premium payments (assuming a first-in, first-out basis), and (4) any
remaining Contract Account Value. We determine the amount of the Renewal Credit
Amount that is being withdrawn as the product of (a) and (b) where:
a) equals a fraction where the numerator is the amount being
withdrawn in excess of any remaining Free Withdrawal Amount and
the denominator is the lessor of the Renewal Credit Recapture
Base or the Contract Account Value.
b) equals the amount of the Renewal Credit Amount that has not been
previously withdrawn.
IN SECTION 9: FEES AND CHARGES, THE FOLLOWING IS ADDED TO DEATH BENEFIT
CHARGE:
In determining the maximum amount of the Death Benefit Charge, the Renewal
Credit Amount shall not be counted as a Credit Amount granted under the Contract
during the 12 months preceding the Owner's death.
This Rider does not change any other provisions of the Contract except as stated
above.
Attached by the Company.
/s/ Robert W. Kloss
----------------------
Robert W. Kloss
President
R2210
Page 2
<PAGE> 1
EXHIBIT 8(h)
PARTICIPATION AGREEMENT
AMONG
PROVIDENTMUTUAL LIFE AND ANNUITY INSURANCE COMPANY OF AMERICA,
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the 1st day of December 1999 by and among
Providentmutual Life and Annuity Insurance Company of America, (the "Company"),
a mutual life insurance company organized under Pennsylvania law, on its own
behalf and on behalf of each segregated asset account of the Company set forth
on Schedule A hereto as may be amended from time to time (each account
hereinafter referred to as the "Account"), PIMCO Variable Insurance Trust (the
"Fund"), a Delaware business trust, and PIMCO Funds Distributors LLC (the
"Underwriter"), a Delaware limited liability company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided into
several series of shares, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order dated February 9, 1998, (File
No. 812-10822) from the Securities and Exchange Commission (the "SEC") granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (the
"1940 Act") and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the
extent necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (the "Mixed and Shared Funding Exemptive
Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the Investment Advisers Act of 1940, as amended;
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by the
Account (the "Contracts"), and said Contracts are listed in Schedule A hereto,
as it may be amended from time to time by mutual written agreement;
<PAGE> 2
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale and Redemption of Fund Shares
1.
1.1 The Fund has granted to the Underwriter exclusive authority to
distribute the Fund's shares, and has agreed to instruct, and has so instructed,
the Underwriter to make available to the Company for purchase on behalf of the
Account Fund shares of those Designated Portfolios selected by the Underwriter.
Pursuant to such authority and instructions, and subject to Article X hereof,
the Underwriter agrees to make available to the Company for purchase on behalf
of the Account, shares of those Designated Portfolios listed on Schedule A to
this Agreement, such purchases to be effected at net asset value in accordance
with Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) Fund
series (other than those listed on Schedule A) in existence now or that may be
established in the future will be made available to the Company only as the
Underwriter may so provide, and (ii) the Board of Trustees of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any Designated
Portfolio or class thereof, if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Board
acting in good faith and in light of its fiduciary duties under federal and any
applicable state laws, suspension or termination is necessary in the best
interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to be effected at net asset value in accordance with
Section 1.3 of this Agreement. Notwithstanding the foregoing, (i) the Company
shall not redeem Fund shares attributable to Contract owners except in the
circumstances permitted in Section 10.3 of this Agreement, and (ii) the Fund may
delay redemption of Fund shares of any Designated Portfolio to the extent
permitted by the 1940 Act, and any rules, regulations or orders thereunder.
Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of the
Fund for the limited purpose of receiving purchase and redemption
requests on behalf of the Account (but not with respect to any Fund
shares that may be held in the general account of the Company) for
-2-
<PAGE> 3
shares of those Designated Portfolios made available hereunder, based
on allocations of amounts to the Account or subaccounts thereof under
the Contracts and other transactions relating to the Contracts or the
Account. Receipt of any such request (or relevant transactional
information therefor) on any day the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value
pursuant to the rules of the SEC (a "Business Day") by the Company as
such limited agent of the Fund prior to the time that the Fund
ordinarily calculates its net asset value as described from time to
time in the Fund Prospectus (which as of the date of execution of this
Agreement is 4:00 p.m. Eastern Time) shall constitute receipt by the
Fund on that same Business Day, provided that the Fund receives notice
of such request by 9:30 a.m. Eastern Time on the next following
Business Day.
The Company shall pay for shares of each Designated Portfolio
on the same day that it notifies the Fund of a purchase request for
such shares. Payment for Designated Portfolio shares shall be made in
federal funds transmitted to the Fund by wire to be received by the
Fund by 4:00 p.m. Eastern Time on the day the Fund is notified of the
purchase request for Designated Portfolio shares (unless the Fund
determines and so advises the Company that sufficient proceeds are
available from redemption of shares of other Designated Portfolios
effected pursuant to redemption requests tendered by the Company on
behalf of the Account). If federal funds are not received on time, such
funds will be invested, and Designated Portfolio shares purchased
thereby will be issued, as soon as practicable and the Company shall
promptly, upon the Fund's request, reimburse the Fund for any charges,
costs, fees, interest or other expenses incurred by the Fund in
connection with any advances to, or borrowing or overdrafts by, the
Fund, or any similar expenses incurred by the Fund, as a result of
portfolio transactions effected by the Fund based upon such purchase
request. Upon receipt of federal funds so wired, such funds shall cease
to be the responsibility of the Company and shall become the
responsibility of the Fund.
Payment for Designated Portfolio shares redeemed by the
Account or the Company shall be made in federal funds transmitted by
wire to the Company or any other designated person on the next Business
Day after the Fund is properly notified of the redemption order of such
shares (unless redemption proceeds are to be applied to the purchase of
shares of other Designated Portfolios in accordance with Section 1.3(b)
of this Agreement), except that the Fund reserves the right to redeem
Designated Portfolio shares in assets other than cash and to delay
payment of redemption proceeds to the extent permitted under Section
22(e) of the 1940 Act and any Rules thereunder, and in accordance with
the procedures and policies of the Fund as described in the then
current prospectus. The Fund shall not bear any responsibility
whatsoever for the proper disbursement or crediting of redemption
proceeds by the Company; the Company alone shall be responsible for
such action.
Any purchase or redemption request for Designated Portfolio
shares held or to be held in the Company's general account shall be
effected at the net asset value per share next determined after the
Fund's receipt of such request, provided that, in the case of a
purchase request, payment for Fund shares so requested is received by
the Fund in federal funds by 9:00 a.m. Eastern Time on the next
following Business Day.
1.3. The Fund shall use its best efforts to make the net asset value
per share for each Designated Portfolio available to the Company by 7:00 p.m.
Eastern Time each Business Day, and in any event, as soon as reasonably
practicable after the net asset value per share for such Designated Portfolio is
calculated, and shall calculate such net asset value in accordance with the
Fund's Prospectus. Any
-3-
<PAGE> 4
material errors in the calculation of net asset value, dividends or capital gain
information shall be reported immediately upon discovery to the Company. An
error shall be deemed "material" based on the parties' interpretation of the
SEC's position and policy with regard to materiality, as it may be modified from
time to time. Neither the Fund, any Designated Portfolio, the Underwriter, nor
any of their affiliates shall be liable for any information provided to the
Company pursuant to this Agreement which information is based on incorrect
information supplied by the Company or any other Participating Insurance Company
to the Fund or the Underwriter.
The Fund shall furnish notice (by wire or telephone followed by written
confirmation) to the Company as soon as reasonably practicable of any income
dividends or capital gain distributions payable on any Designated Portfolio
shares. The Company, on its behalf and on behalf of the Account, hereby elects
to receive all such dividends and distributions as are payable on any Designated
Portfolio shares in the form of additional shares of that Designated Portfolio.
The Company reserves the right, on its behalf and on behalf of the Account, to
revoke this election and to receive all such dividends and capital gain
distributions in cash. The Fund shall notify the Company promptly of the number
of Designated Portfolio shares so issued as payment of such dividends and
distributions.
Issuance and transfer of Fund shares shall be by book entry only. Stock
certificates will not be issued to the Company or the Account. Purchase and
redemption orders for Fund shares shall be recorded in an appropriate ledger for
the Account or the appropriate subaccount of the Account.
(a) The parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.8 hereof) and the cash value of the
Contracts may be invested in other investment companies, provided, however, that
until this Agreement is terminated pursuant to Article X, the Company shall
promote the Designated Portfolios on the same basis as other funding vehicles
available under the Contracts. Funding vehicles other than those listed on
Schedule A to this Agreement may be available for the investment of the cash
value of the Contracts, provided, however, the Company gives the Fund and the
Underwriter 45 days written notice of its intention to make such other
investment vehicle available as a funding vehicle for the Contracts
(a)
(b) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), induce Contract
owners to change or modify the Fund or change the Fund's distributor or
investment adviser.
(d) The Company shall not, without prior notice to the Fund,
induce Contract owners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Board of
Trustees of the Fund.
1.3. The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that communicate to the Underwriter and the Fund
that they qualify to purchase shares of the Fund under Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
thereunder without
-4-
<PAGE> 5
impairing the ability of the Account to consider the portfolio investments of
the Fund as constituting investments of the Account for the purpose of
satisfying the diversification requirements of Section 817(h). The Underwriter
and the Fund shall not sell Fund shares to any insurance company or separate
account unless an agreement complying with Article VI of this Agreement is in
effect to govern such sales, to the extent required. The Company hereby
represents and warrants that it and the Account are Qualified Persons. The Fund
reserves the right to cease offering shares of any Designated Portfolio in the
discretion of the Fund.
ARTICLE II. Representations and Warranties
1
1.1 The Company represents and warrants that the Contracts (a) are, or
prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law, that it has legally and validly established
the Account prior to any issuance or sale thereof as a segregated asset account
under Pennsylvania insurance laws, and that it (a) has registered or, prior to
any issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act. The Company shall register and qualify the Contracts or
interests therein as securities in accordance with the laws of the various
states only if and to the extent deemed advisable by the Company.
The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with applicable state and federal securities laws and
that the Fund is and shall remain registered under and will comply in all
material respects with the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter. Upon request, the Fund shall inform the Company regarding the
jurisdictions in which shares of the Fund have been qualified or registered for
sale.
The Fund may make payments to finance distribution expenses pursuant to
Rule 12b-1 under the 1940 Act. Prior to financing distribution expenses pursuant
to Rule 12b-1, the Fund will have the Board, a majority of whom are not
interested persons of the Fund, formulate and approve a plan pursuant to Rule
12b-1 under the 1940 Act to finance distribution expenses.
The Fund makes no representations as to whether any aspect of its
operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states.
The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Delaware and that it does and will comply in all
material respects with the 1940 Act.
-5-
<PAGE> 6
The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC and in
accordance with applicable state securities laws. The Underwriter further
represents that it will sell and distribute the Fund shares in accordance with
any applicable state and federal securities laws.
The Fund and the Underwriter represent and warrant that all of their
trustees/directors, officers, employees, investment advisers, and other
individuals or entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
1.2. The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Account are covered
by a blanket fidelity bond or similar coverage for the benefit of the Account,
in an amount not less than $5 million. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company. The
Company agrees to hold for the benefit of the Fund and to pay to the Fund any
amounts lost from larceny, embezzlement or other events covered by the aforesaid
bond to the extent such amounts properly belong to the Fund pursuant to the
terms of this Agreement. The Company agrees to make all reasonable efforts to
see that this bond or another bond containing these provisions is always in
effect, and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies.
The Fund represents that is is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
ARTICLE III. Prospectuses and Proxy Statements; Voting
1.
1.1 The Underwriter shall provide the Company with as many copies of
the Fund's current prospectus (describing only the Designated Portfolios listed
on Schedule A) and statement of additional information or, to the extent
permitted, the Fund's profiles as the Company may reasonably request. The Fund
shall bear the expense of printing copies of the current prospectus and profiles
for the Contracts that will be distributed to existing Contract owners, and the
Company shall bear the expense of printing copies of the Fund's prospectus and
profiles that are used in connection with offering the Contracts issued by the
Company. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus on diskette at
the Fund's expense) and other assistance as is reasonably necessary in order for
the Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus or
profile printed together in one document (the payment of such printing costs to
be governed by the provisions of Section 5.3 of this Agreement)
The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available, and the Underwriter
(or the Fund), at its expense, shall provide a
-6-
<PAGE> 7
reasonable number of copies of such SAI free of charge to the Company for itself
and for any owner of a Contract who requests such SAI.
The Fund shall provide the Company with information regarding the
Fund's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use such information in
the form provided. The Company shall provide prior written notice of any
proposed modification of such information, which notice will describe in detail
the manner in which the Company proposes to modify the information, and agrees
that it may not modify such information in any way without the prior consent of
the Fund.
The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
1.2 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
vote Fund shares for which no instructions have been received
in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
1.2. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in a Designated
Portfolio calculates voting privileges as required by the Shared Funding
Exemptive Order and consistent with any reasonable standards that the Fund may
adopt and provide in writing.
3.7. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(a) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(a) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
1.
1.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops and in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named at least
-7-
<PAGE> 8
fifteen Business Days prior to its use. The Fund or its designee reserves the
right to reasonably object to the continued use of any such sales literature or
other promotional material in which the Fund (or a Designated Portfolio thereof)
or the Adviser or the Underwriter is named within fifteen Business Days after
receipt, and no such material shall be used if the Fund or its designee so
object.
The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund or the Adviser or the
Underwriter in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or
prospectus or SAI for the Fund shares, as such registration statement and
prospectus or SAI may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in sales literature or other
promotional material approved by the Fund or its designee or by the Underwriter,
except with the permission of the Fund or the Underwriter or the designee of
either.
The Fund and the Underwriter, or their designee, shall furnish, or
cause to be furnished, to the Company, each piece of sales literature or other
promotional material that it develops and in which the Company, and/or its
Account, is named at least fifteen Business Days prior to its use. The Company
reserves the right to reasonably object to the continued use of any such sales
literature or other promotional material in which the Company and/or its Account
is named within fifteen Business Days after receipt, and no such material shall
be used if the Company so objects.
The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus (which shall include an offering memorandum,
if any, if the Contracts issued by the Company or interests therein are not
registered under the 1933 Act), or SAI for the Contracts, as such registration
statement, prospectus, or SAI may be amended or supplemented from time to time,
or in published reports for the Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, promptly after the filing of such document(s)
with the SEC or other regulatory authorities.
1.1. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund and the Underwriter any complaints received from the
Contract owners pertaining to the Fund or the Designated Portfolio.
The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for any Designated Portfolio, and of any
material change in the Fund's registration statement, particularly any change
resulting in a change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from
-8-
<PAGE> 9
Contract owners, or to make changes to its prospectus or registration statement,
in an orderly manner. The Fund will make reasonable efforts to attempt to have
changes affecting Contract prospectuses become effective simultaneously with the
annual updates for such prospectuses.
For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
1.
1.1. The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Fund or Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing, and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. Currently, no such payments are
contemplated.
All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, and all taxes on the issuance
or transfer of the Fund's shares.
The Fund shall contribute a maximum of $5,000 annually in aggregate
towards the expenses of printing and distributing the Fund's prospectus to
owners of Contracts issued by the Company and of distributing the Fund's proxy
materials and reports to such Contract owners, and prospectus supplements to
prospective contract holders (unless determined by the Fund to also be
distributed to existing contract holders) with any additional expenses to be
borne by the Company.
ARTICLE VI. Diversification and Qualification; Regulatory Matters
1.
1.1. The Fund will invest its assets in such a manner as to ensure that
the Contracts will
-9-
<PAGE> 10
be treated as annuity or life insurance contracts, whichever is appropriate,
under the Code and the regulations issued thereunder (or any successor
provisions). Without limiting the scope of the foregoing, each Designated
Portfolio has complied and will continue to comply with Section 817(h) of the
Code and Treasury Regulation Section1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 1.817-5.
The Company represents that the Contracts are currently, and at the
time of issuance shall be, treated as life insurance or annuity insurance
contracts, under applicable provisions of the Code, and that it will make every
effort to maintain such treatment, and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not be so treated in
the future. The Company agrees that any prospectus offering a contract that is a
"modified endowment contract" as that term is defined in Section 7702A of the
Code (or any successor or similar provision), shall identify such contract as a
modified endowment contract.
6.3 (a) The Fund and/or the Underwriter shall immediately notify the
Company of : (i) the issuance by any court or regulatory body of any stop order,
cease and desist order, or other similar order (but not including an order of a
regulatory body exempting or approving a proposed transaction or arrangement)
with respect to the Fund's registration statement or the prospectus; (ii) any
request by the SEC for any amendment to the Fund's registration statement or the
prospectus of any series or class; (iii) the initiation of any proceedings for
that purpose or for any other purposes relating to the registration or offering
of the Fund shares; or (iv) any other action or circumstances that may prevent
the lawful offer or sale of Fund shares or any class or series in any state or
jurisdiction, including, without limitation, any circumstance in which (A) such
shares are not registered and, in all material respects, issued and sold in
accordance with applicable state and federal law or (B) such law precludes the
use of such shares as an underlying investment medium for the Contracts. The
Fund will make every reasonable effort to prevent the issuance of any such stop
order, cease and desist order or similar order and, if any such order is issued,
to obtain the lifting thereof at the earliest possible time.
(b) The Company shall immediately notify the Fund and the Underwriter
of: (i) the issuance by any court or regulatory body of any stop order, cease
and desist order, or other similar order (but not including an order of a
regulatory body exempting or approving a proposed transaction or arrangement)
with respect to the Contracts' registration statement or the Contracts'
prospectus; (ii) any request by the SEC for any amendment to the Contracts'
registration statement or prospectus; (iii) the initiation of any proceedings
for that purpose or for any other purposes relating to the registration or
offering of the Contracts; or (iv) any other action or circumstances that may
prevent the lawful offer or sale of the Contracts or any class of Contracts in
any state or jurisdiction, including, without limitation, any circumstance in
which such Contracts are not registered, qualified and approved, and, in all
material respects, issued and sold in accordance with applicable state and
federal laws. The Company will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
(c) Each party shall immediately notify the other parties when it
receives notice, or otherwise becomes aware of, the commencement of any
litigation proceeding against such party or a person affiliated therewith in
connection with the issuance or sale of Fund shares or the Contracts.
-10-
<PAGE> 11
6.4 Each party hereto shall cooperate with the other parties and all
appropriate government authorities (including without limitation the SEC, the
NASD and state securities and insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry by any such authority relating to the Agreement or the
transactions contemplated hereby. However, such access shall not extend to
attorney-client privileged information.
ARTICLE VII. Potential Conflicts
1.
The following provisions shall apply only upon issuance of the Mixed and Shared
Funding Order and the sale of shares of the Fund to variable life insurance
separate accounts, and then only to the extent required under the 1940 Act.
2.1. The Board of Directors/Trustees of the Fund (the "Board") will
monitor the Fund for the existence of any material irreconcilable conflict
between the interests of the Contract owners of all separate accounts investing
in the Fund. An irreconcilable material conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Mixed and Shared Funding Exemptive Order, by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This includes, but is not limited to, an obligation
by the Company to inform the Board whenever Contract owner voting instructions
are disregarded.
If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account.
-11-
<PAGE> 12
If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the Account's investment in
the Fund and terminate this Agreement with respect to each Account; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
2.2. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
If and to the extent the Mixed and Shared Funding Exemption Order or
any amendment thereto contains terms and conditions different from Sections 3.4,
3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the Fund and/or
the Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with the Mixed and Shared Funding Exemptive Order,
and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in the Mixed and Shared Funding
Exemptive Order or any amendment thereto. If and to the extent that Rule 6e-2
and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive
relief from any provision of the 1940 Act or the rules promulgated thereunder
with respect to mixed or shared funding (as defined in the Mixed and Shared
Funding Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical to
such Sections are contained in such Rule(s) as
-12-
<PAGE> 13
so amended or adopted.
ARTICLE VIII. Indemnification
2.
2.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and the Underwriter and each of its trustees/directors and
officers, and each person, if any, who controls or is
affiliated with the Fund or Underwriter within the meaning of
the 1933 Act or the 1940 Act or who is under common control
with the Underwriter (collectively, the "Indemnified Parties"
for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or
litigation (including reasonable legal and other expenses), to
which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement, prospectus (which shall include a
written description of a Contract that is not registered under
the 1933 Act), or SAI for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to
any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Company by or on
behalf of the Fund or the Underwriter for use in the
registration statement, prospectus or SAI for the Contracts or
in the Contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI, or sales literature of
the Fund not supplied by the Company or persons under its
control) or wrongful conduct of the Company or its agents or
persons under the Company's authorization or control, with
respect to the sale or distribution of the Contracts or Fund
Shares; or
arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, SAI, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in
reliance upon information furnished to the Fund by or on behalf
of the Company; or
-13-
<PAGE> 14
arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
qualification requirements specified in Section 2.9 of this
Agreement); or
arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company; or
(ii) as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the Company to such party of
the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
2.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls or is affiliated with the Company within the meaning of the 1933 Act or
the 1940 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.2) against any and all losses, claims, damages, liabilities (including
reasonable amounts paid in settlement with the written consent of the
Underwriter) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
-14-
<PAGE> 15
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales
literature of the Fund (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the registration statement,
prospectus or SAI for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature
for the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Fund shares; or
arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, SAI or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Fund or the Underwriter; or
(ii) arise as a result of any material failure by the Fund or
the Underwriter to provide the services and furnish the
materials under the terms of this Agreement (including a
failure of the Fund, whether unintentional or in good faith or
otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have
-15-
<PAGE> 16
notified the Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the Underwriter
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Party, the
Underwriter will be entitled to participate, at its own expense, in the defense
thereof. The Underwriter also shall be entitled to assume the defense thereof,
with counsel reasonably satisfactory to the party named in the action. After
notice from the Underwriter to such party of the Underwriter's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Underwriter will not
be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls or is affiliated with the Company within the meaning of the 1933 Act or
the 1940 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.3) against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the Fund) or
litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may be required to pay or may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, expenses, damages, liabilities or expenses (or actions in respect
thereof) or settlements, are related to the sale or acquisition of the Fund's
shares or the operations of the Fund and:
(i) arise our of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or SAI or sales
literature of the Fund (or any amendment of supplement to any
of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on
behalf of the Company for use in the registration statement,
prospectus or SAI for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, SAI or sales literature
for the Contracts not supplied by the Fund or persons under
its control) or wrongful conduct of the Fund or Underwriter or
persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares;
-16-
<PAGE> 17
or
arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus, SAI or sales literature covering the Contracts, or
any amendment thereof or supplement thereto, or the omission
or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of the Fund; or
(ii) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the terms
of this Agreement (including a failure of the Fund, whether
unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation an/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund.
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or the
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the party
named in the action. After notice from the Fund to such party of the Fund's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Fund will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to
notify the Fund of the commencement of any litigation or proceeding against it
or any of its respective officers or directors in connection with the Agreement,
the issuance or sale of the Contracts, the operation of the Account, or the sale
or acquisition of shares of the Fund.
-17-
<PAGE> 18
ARTICLE IX. Applicable Law
2.
2.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of California.
This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Mixed and Shared Funding Exemptive Order)
and the terms hereof shall be interpreted and construed in accordance therewith.
If, in the future, applicable law should render Article VII or the Mixed and
Shared Funding Exemptive Order no longer necessary , then Article VII shall no
longer apply.
ARTICLE X. Termination
2.
2.1. This Agreement shall continue in full force and effect until the
first to occur of:
termination by any party, for any reason with respect to some or all
Designated Portfolios, by three (3) months advance written
notice delivered to the other parties; or
termination by the Company by written notice to the Fund and the
Underwriter based upon the Company's determination that shares
of the Fund are not reasonably available to meet the
requirements of the Contracts; or
termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Designated Portfolio's
shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the
use of such shares as the underlying investment media of the
Contracts issued or to be issued by the Company; or
termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company
by the NASD, the SEC, the Insurance Commissioner or like
official of any state or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Contracts, the operation of any Account, or the
purchase of the Fund's shares; provided, however, that the Fund
or Underwriter determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have
a material adverse effect upon the ability of the Company to
perform its obligations under this Agreement; or
termination by the Company in the event that formal administrative
proceedings are instituted against the Fund or Underwriter by the NASD,
the SEC, or any state securities or insurance department or any other
regulatory body; provided, however, that the Company determines in its
sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the
Fund or Underwriter to perform its obligations
-18-
<PAGE> 19
under this Agreement; or
termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to comply with
the Section 817(h) diversification requirements specified in
Article VI hereof, or if the Company reasonably believes that
such Portfolio may fail to so qualify or comply; or
termination by the Fund or Underwriter by written notice to the Company
in the event that the Contracts fail to meet the qualifications
specified in Article 6.2 hereof; or
termination by either the Fund or the Underwriter by written notice to
the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company has suffered
a material adverse change in its business, operations,
financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that the Fund, Adviser, or
the Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material
adverse publicity; or
termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.7(a) hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however, any termination under this Section 10.1(j)
shall be effective forty-five days after the notice specified
in Section 1.7(a) was given; or
termination by the Company upon any substitution of the shares of
another investment company or series thereof for shares of a
Designated Portfolio of the Fund in accordance with the terms
of the Contracts, provided that the Company has given at least
45 days prior written notice to the Fund and Underwriter of the
date of substitution; or
termination by any party in the event that the Fund's Board of Trustees
determines that a material irreconcilable conflict exists as
provided in Article VII; or
termination by the Company if the Fund or Underwriter is in material
breach of a provision of this Agreement, which breach has not
been cured to the satisfaction of the Company within 10 days
after written notice of such breach has been delivered to the
Fund or the Underwriter, as the case may be.
termination by the Fund or Underwriter if the Company is in material
breach of a provision of this Agreement, which breach has not
been cured to the satisfaction
-19-
<PAGE> 20
of the Fund or Underwriter within 10 days after written notice
of such breach has been delivered to the Company, as the case
may be.
2.2. Notwithstanding any termination of this Agreement, the Fund and
the Underwriter shall, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts"), unless the
Underwriter requests that the Company seek an order pursuant to Section 26(b) of
the 1940 Act to permit the substitution of other securities for the shares of
the Designated Portfolios. The Underwriter agrees to pay the cost of seeking
such an order, and the Company agrees that it shall reasonably cooperate with
the Underwriter and seek such an order upon request. If the Company determines
that it will seek an order pursuant to Section 26(b) of the 1940 Act to permit
the substitution of other securities for the shares of the Designated
Portfolios, it will pay the cost of seeking the order. Specifically, the owners
of the Existing Contracts may be permitted to reallocate investments in the
Fund, redeem investments in the Fund and/or invest in the Fund upon the making
of additional purchase payments under the Existing Contracts (subject to any
such election by the Underwriter). The parties agree that this Section 10.2
shall not apply to any terminations under Article VII and the effect of such
Article VII terminations shall be governed by Article VII of this Agreement. The
parties further agree that this Section 10.2 shall not apply to any terminations
under Section 10.1(g) of this Agreement. The provisions of Article VIII and
Section 12.2 shall survive the termination of this Agreement.
The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45 days
prior written notice to the Fund and Underwriter, as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act, but only if a substitution of
other securities for the shares of the Designated Portfolios is consistent with
the terms of the Contracts, (iv) as permitted under the terms of the Contract,
or (v) at any time after six months of the date of this Agreement upon 60 days
notice. Upon request, the Company will promptly furnish to the Fund and the
Underwriter reasonable assurance that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
45 days notice of its intention to do so.
Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
2.
Any notice shall be sufficiently given when sent by registered
or certified mail to the other party at the address of such party set forth
below or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
-20-
<PAGE> 21
Newport Beach, CA 92660
If to the Company: Provident Mutual Life Insurance Company
1050 West Lakes Drive
Berwyn, PA 19312-2419
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
3.
3.1. All persons dealing with the Fund must look solely to the property
of the Fund, and in the case of a series company, the respective Designated
Portfolios listed on Schedule A hereto as though each such Designated Portfolio
had separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither the
Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of the
Fund.
Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information has come into the
public domain without the written consent of the affected party. Notwithstanding
anything here to the contrary, the names and addresses and other information
concerning the Contract owners are and shall remain the Company's sole property,
and neither the Fund nor the Underwriter or their affiliates shall use such
names, addresses or other information for any purpose except in connection with
the performance of their duties and responsibilities hereunder and except for
servicing and informational mailings relating to the Fund.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
-21-
<PAGE> 22
Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Pennsylvania Insurance Commissioner with any information
or reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Pennsylvania variable annuity laws and regulations and any other applicable law
or regulations.
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee copies of the following reports:
the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles) filed with any
state or federal regulatory body or otherwise made
available to the public, as soon as practicable and in any
event within 90 days after the end of each fiscal year;
and
any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulatory, as
soon as practicable after the filing thereof.
(Signatures located on following page)
-22-
<PAGE> 23
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
PROVIDENTMUTUAL LIFE AND ANNUITY INSURANCE COMPANY OF AMERICA:
By its authorized officer
By:
Name:
Title:
Date:
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By:
Name: Brent R. Harris
Title: Chairman
Date:
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By:
Name: Newton B. Schott, Jr.
Title: Executive Vice President
Date:
-23-
<PAGE> 24
Schedule A
PIMCO VARIABLE INSURANCE TRUST PORTFOLIOS:
1. High Yield Bond Portfolio
2. Total Return Bond Portfolio
SEGREGATED ASSET ACCOUNTS OF PROVIDENTMUTUAL LIFE AND ANNUITY INSURANCE COMPANY
OF AMERICA:
DATE ESTABLISHED:
CONTRACTS OF PROVIDENTMUTUAL LIFE AND ANNUITY INSURANCE COMPANY OF AMERICA:
DATE ESTABLISHED:
Dated _________________, 199___.
-24-
<PAGE> 1
EXHIBIT 8(i)
SERVICES AGREEMENT
The terms and conditions of this Services Agreement between Pacific
Investment Management Company ("PIMCO") and Providentmutual Life and Annuity
Insurance Company of America (the "Company") are effective as of December 1,
1999.
WHEREAS, the Company, PIMCO Funds Distributors LLC and PIMCO Variable
Insurance Trust (the "Trust") have entered into a Fund Participation Agreement
dated December 1, 1999, as may be amended from time to time (the "Participation
Agreement"), pursuant to which the Company, on behalf of certain of its separate
accounts (the "Separate Accounts"), purchases shares ("Shares") of certain
Portfolios of the Trust ("Portfolios") to serve as an investment vehicle under
certain variable annuity and/or variable life insurance contracts ("Variable
Contracts") offered by the Company, which Portfolios may be one of several
investment options available under the Variable Contracts; and
WHEREAS, PIMCO recognizes that it will derive substantial savings in
administrative expenses by virtue of having a sole shareholder rather than
multiple shareholders in connection with each Separate Account's investments in
the Portfolios, and that in the course of soliciting applications for Variable
Contracts issued by the Company and in servicing owners of such Variable
Contracts, the Company will provide information about the Trust and its
Portfolios from time to time, answer questions concerning the Trust and its
Portfolios, including questions respecting Variable Contract owners' interests
in one or more Portfolios, and provide services respecting investments in the
Portfolios; and
WHEREAS, PIMCO wishes to compensate the Company for the efforts of the
Company in providing written and oral information and services regarding the
Trust to Variable Contract owners; and
WHEREAS, the following represents the collective intention and
understanding of the service fee agreement between PIMCO and the Company.
NOW, THEREFORE, in consideration of their mutual promises, the Company
and PIMCO agree as follows:
1. Services. The Company and/or its affiliates agree to provide
services ("Services") to owners of Variable Contracts including, but not limited
to: teleservicing support in connection with the Portfolios; delivery of current
Trust prospectuses, reports, notices, proxies and proxy statements and other
informational materials; facilitation of the tabulation of Variable Contract
owners' votes in the event of a Trust shareholder vote; maintenance of Variable
Contract records reflecting Shares purchased and redeemed and Share balances,
and the conveyance of that information to the Trust or PIMCO as may be
reasonably requested; provision of support services, including providing
information about the Trust and its Portfolios and answering questions
concerning the Trust and its Portfolios, including questions respecting Variable
Contract owners' interests in one or more Portfolios; provision and
administration of Variable Contract features for the benefit of Variable
Contract owners in connection with the Portfolios,
<PAGE> 2
which may include fund transfers, dollar cost averaging, asset allocation,
portfolio rebalancing, earnings sweep, and pre-authorized deposits and
withdrawals; and provision of other services as may be agreed upon from time to
time.
2. Compensation. In consideration of the Services, PIMCO agrees to pay
to the Company a service fee at an annual rate equal to twenty-five (25) basis
points (0.25%) of the average daily value of the Shares held in the Separate
Accounts. Such payments will be made monthly in arrears. For purposes of
computing the payment to the Company under this paragraph 2, the average daily
value of Shares held in the Separate Accounts over a monthly period shall be
computed by totaling such Separate Accounts' aggregate investment (Share net
asset value multiplied by total number of Shares held by such Separate Accounts)
on each business day during the calendar month, and dividing by the total number
of business days during such month. The payment to the Company under this
paragraph 2 shall be calculated by PIMCO at the end of each calendar month and
will be paid to the Company within 30 days thereafter. Payment will be
accompanied by a statement showing the calculation of the monthly amounts
payable by PIMCO and such other supporting data as may be reasonably requested
by the Company.
3. Term. This Services Agreement shall remain in full force and effect
for an initial term of one year, and shall automatically renew for successive
one year periods. This Services Agreement may be terminated by either party
hereto upon 30 days written notice to the other. This Services Agreement shall
terminate automatically upon the redemption of all Shares held in the Separate
Accounts, upon termination of the Participation Agreement, upon a material,
unremedied breach of the Participation Agreement, as to a Portfolio upon
termination of the investment advisory agreement between the Trust, on behalf of
such Portfolio, and PIMCO, or upon assignment of the Participation Agreement by
either the Company or PIMCO. Notwithstanding the termination of this Services
Agreement, PIMCO will continue to pay the service fees in accordance with
paragraph 2 so long as net assets of the Separate Accounts remain in a
Portfolio, provided such continued payment is permitted in accordance with
applicable law and regulation.
4. Amendment. This Services Agreement may be amended only upon mutual
agreement of the parties hereto in writing.
5. Effect on Other Terms, Obligations and Covenants. Nothing herein
shall amend, modify or supersede any contractual terms, obligations or covenants
among or between any of the Company, PIMCO or the Trust previously or currently
in effect, including those contractual terms, obligations or covenants contained
in the Participation Agreement.
In witness whereof, the parties have caused their duly authorized
officers to execute this Services Agreement.
PACIFIC INVESTMENT MANAGEMENT COMPANY
-2-
<PAGE> 3
By:
Title:
Date:
PROVIDENTMUTUAL LIFE AND ANNUITY
INSURANCE COMPANY OF AMERICA
By:
Title:
Date:
-3-
<PAGE> 1
EXHIBIT 9
[PROVIDENTMUTAL LIFE AND ANNUITY COMPANY OF AMERICA LETTERHEAD]
December 20, 1999
Board of Directors
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, DE 19713
Directors:
I have acted as counsel to Providentmutual Life and Annuity Company of America
(the "Company"), a Delaware insurance company, and Providentmutual Variable
Annuity Separate Account (the "Account") in connection with the registration of
an indefinite amount of securities in the form of flexible premium variable
annuity contracts (the "Contracts") with the Securities and Exchange Commission
under the Securities Act of 1933, as amended. I have examined such documents
(including pre-effective amendment number one to the Form N-4 registration
statement (File No. 333-88163)) and reviewed such questions of law as I
considered necessary and appropriate, and on the basis of such examination and
review, it is my opinion that:
1. The Company is a corporation duly organized and validly
existing as a stock life insurance company under the laws of
the State of Delaware and is duly authorized to by the
Insurance Department of the State of Delaware to issue the
Contracts.
2. The Account is a duly authorized and existing separate account
established pursuant to the provisions of Section 2932 of
Title 18 of the Delaware Insurance Code.
3. To the extent so provided under the Contracts, that portion of
the assets of the Account equal to the reserves and other
contract liabilities with respect to the Account will not be
chargeable with liabilities arising out of any other business
that the Company may conduct.
4. The Contracts, when issued as contemplated by the Form N-4
registration statement, will constitute legal, validly issued
and binding obligations of the Company.
I hereby consent to the filing of this opinion as an exhibit to pre-effective
amendment number one to the Form N-4 registration statement for the Contracts
and the Account.
Sincerely,
/s/ James G. Potter, Jr.
- ------------------------
James G. Potter, Jr.
Executive Vice President,
General Counsel and Secretary
<PAGE> 1
EXHIBIT 10(a)
[SUTHERLAND ASBILL & BRENNAN LLP LETTERHEAD]
December 20, 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. 333-88163)
____________________________________________________
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
pre-effective amendment No. 1 to the Form N-4 registration statement filed by
Providentmutual Life and Annuity Company of America and Providentmutual
Variable Annuity Separate Account (File No. 333-88163). 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/ Stephen E. Roth
________________________________
Stephen E. Roth
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Pre-Effective Amendment No. 1
to the Registration Statement under the Securities Act of 1933, as amended,
filed on Form N-4 (File No. 333-88163) 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 ending 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 references to our Firm under the caption "Experts"
and "Financial Information".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
December 20, 1999
