<PAGE> 1
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE> 2
INTERESTS IN INDIVIDUAL FLEXIBLE PREMIUM
DEFERRED VARIABLE ANNUITY CONTRACTS
Issued by
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE
ACCOUNT
and
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
<TABLE>
<S> <C>
SERVICE CENTER CORPORATE HEADQUARTERS
300 CONTINENTAL DRIVE 1000 CHESTERBROOK BLVD.
NEWARK, DELAWARE 19713 BERWYN, PENNSYLVANIA 19312
</TABLE>
PHONE: 1-800-688-5177
PROSPECTUS
May 1, 2000
This prospectus describes an individual flexible premium deferred variable
annuity contract ("Contract") issued by Providentmutual Life and Annuity Company
of America. This prospectus provides information that a prospective owner should
know before investing in the Contract.
You can allocate your Contract's values to:
-- Providentmutual Variable Annuity Separate Account (the "Variable
Account"), which invests in the portfolios listed on this page; or
-- the Guaranteed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Variable Account
(the "Portfolios") must accompany this prospectus. Please read these documents
before investing and save them for future reference.
To learn more about the Contract, you should read the Statement of Additional
Information ("SAI") dated May 1, 2000. For a free copy of the SAI, please call
or write to us at our Service Center.
The SAI has been filed with the Securities and Exchange Commission ("SEC") and
is incorporated by reference into this prospectus. The Table of Contents for the
SAI appears on page 40 of this prospectus. The SEC maintains an Internet website
(http://www.sec.gov) that contains the SAI and other information.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE NOTE THAT THE CONTRACT AND THE PORTFOLIOS:
-- ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
-- ARE NOT FEDERALLY INSURED;
-- ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
-- ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
It may not be advantageous to replace existing insurance with the Contract.
The following Portfolios are available:
-- MARKET STREET FUND, INC.
All Pro Large Cap Growth Portfolio
All Pro Large Cap Value Portfolio
All Pro Small Cap Growth Portfolio
All Pro Small Cap Value Portfolio
Equity 500 Index Portfolio
International Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Managed Portfolio
Bond Portfolio
Money Market Portfolio
-- ALGER AMERICAN FUND
Small Capitalization Portfolio
-- NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
Limited Maturity Bond Portfolio
Partners Portfolio
-- STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II
-- STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II
-- VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Portfolio
Worldwide Emerging Markets Portfolio
Worldwide Hard Assets Portfolio
Worldwide Real Estate Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
Overseas Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Contrafund(R) Portfolio
Investment Grade Bond Portfolio
<PAGE> 3
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY.............................. 1
TABLE OF EXPENSES..................... 3
CONTRACT SUMMARY...................... 8
The Contract........................ 8
Charges and Deductions.............. 9
Annuity Provisions.................. 10
Federal Tax Status.................. 10
PLACA, THE VARIABLE ACCOUNT AND THE
PORTFOLIOS.......................... 11
Providentmutual Life and Annuity
Company of America (PLACA)....... 11
Providentmutual Variable Annuity
Separate Account (Variable
Account)......................... 11
The Funds........................... 12
Resolving Material Conflicts........ 18
Addition, Deletion or Substitution
of Investments................... 19
DESCRIPTION OF ANNUITY CONTRACT....... 19
Purchasing a Contract............... 19
Cancellation (Free-Look) Period..... 20
Premiums............................ 20
Allocation of Net Premiums.......... 20
Variable Account Value.............. 21
Transfer Privilege.................. 22
Dollar Cost Averaging............... 23
Withdrawals and Surrender........... 23
Death Benefit Before Maturity
Date............................. 25
Proceeds on Maturity Date........... 26
Payments............................ 26
Modification........................ 27
Reports to Contract Owners.......... 27
Contract Inquiries.................. 27
THE GUARANTEED ACCOUNT................ 27
Minimum Guaranteed and Current
Interest Rates................... 28
Calculation of Guaranteed Account
Value............................ 28
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Transfers from Guaranteed Account... 28
Payment Deferral.................... 28
CHARGES AND DEDUCTIONS................ 28
Surrender Charge (Contingent
Deferred Sales Charge)........... 28
Administrative Charges.............. 30
Mortality and Expense Risk Charge... 30
Investment Advisory Fees and Other
Expenses of the Portfolios....... 30
Premium Taxes....................... 30
Other Taxes......................... 31
PAYMENT OPTIONS....................... 31
Election of Payment Options......... 31
Description of Payment Options...... 31
YIELDS AND TOTAL RETURNS.............. 32
FEDERAL TAX STATUS.................... 33
Introduction........................ 33
Tax Status of the Contracts......... 34
Taxation of Annuities -- In
General.......................... 34
Taxation of Non-Qualified
Contracts........................ 35
Taxation of Qualified Contracts..... 35
Withholding......................... 37
Possible Changes in Taxation........ 37
Other Tax Consequences.............. 37
DISTRIBUTION OF CONTRACTS............. 37
LEGAL PROCEEDINGS..................... 38
VOTING PORTFOLIO SHARES............... 38
FINANCIAL STATEMENTS.................. 39
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS................... 40
APPENDIX A -- FINANCIAL HIGHLIGHTS.... A-1
</TABLE>
<PAGE> 4
GLOSSARY
- --------------------------------------------------------------------------------
ACCUMULATION UNIT
A unit of measure used to calculate Subaccount Value.
ANNUITANT
The person whose life determines the annuity payments payable under the Contract
and whose death determines the death benefit.
APPLICATION
The application you must complete to purchase a Contract plus all forms required
by us or applicable law.
BENEFICIARY
The person to whom we pay the death benefit upon the death of the Owner or the
Annuitant. If the Contract has joint Owners, then the surviving joint Owner is
the Beneficiary.
CANCELLATION (FREE-LOOK) PERIOD
The 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 us
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.
FUND
Any mutual fund in which a Subaccount invests.
GENERAL ACCOUNT
The assets that belong to us other than those assets allocated to the Variable
Account or any of our other separate accounts.
GUARANTEED ACCOUNT
An account that is part of our General Account and is not part of, or dependent
upon, the investment performance of the Variable Account.
GUARANTEED ACCOUNT VALUE
The Net Premiums allocated and amounts transferred to the Guaranteed Account,
plus interest credited to the Guaranteed Account, minus amounts deducted,
transferred, or withdrawn from the Guaranteed Account.
MATURITY DATE
The date as of which the Contract Account Value is applied to a Payment Option
(or, if you elect to receive a lump sum, the date as of which you will receive
the Surrender Value). The latest possible Maturity Date may not be later than
the first day of the month after the Annuitant's 90th birthday or any earlier
date required by law. 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 Portfolio on any Valuation Day. The method of
computing the Net Asset Value Per Share is described in the prospectus for a
Portfolio.
NET PREMIUM
The premium you pay 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 us that is
signed by you and received at our Service Center. You may obtain the necessary
form by calling us at (800) 688-5177.
1
<PAGE> 5
OWNER (YOU, YOUR)
The person who owns the Contract. The Owner is 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
designation of a Payee other than the Annuitant requires our consent.
PAYMENT OPTION
One of the 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.
RIDER
An amendment, addition, or endorsement to the Contract that changes the terms of
the Contract by: (1) expanding Contract benefits; (2) restricting Contract
benefits: or (3) excluding certain conditions from the Contract's coverage. A
Rider that is added to the Contract becomes part of the Contract.
SEC
The U.S. Securities and Exchange Commission.
SERVICE CENTER
Our technology and service office at 300 Continental Drive, Newark, Delaware
19713.
SUBACCOUNT
A subdivision of the Variable Account.
SUBACCOUNT VALUE
Before the Maturity Date, the amount equal to that part of any Net Premium
allocated to a Subaccount plus any amounts 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 charges), other charges and any amounts
transferred out of that Subaccount.
SURRENDER CHARGE
A charge that we deduct if a withdrawal or surrender occurs during the first
seven Contract Years. This charge is sometimes called a "contingent deferred
sales charge."
SURRENDER VALUE
The Contract Account Value less: (1) any applicable Surrender Charge, (2)
premium tax charges not previously deducted, and (3) the annual administration
fee, if applicable.
TRANSFER PROCESSING FEE
The fee we charge for additional Subaccount amounts transferred after the
twelfth transfer of Subaccount amounts within one Contract Year.
VALUATION DAY
For each Subaccount, each day that the New York Stock Exchange is open for
business and on days when trading of shares within a Subaccount is sufficient to
affect materially the value of the Subaccount.
VALUATION PERIOD
The period beginning at the close of business on one Valuation Day (usually 4:00
p.m. Eastern Time) and continuing to the close of business on the next Valuation
Day.
VARIABLE ACCOUNT
Providentmutual Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE
The sum of all Subaccount Values.
2
<PAGE> 6
TABLE OF EXPENSES
The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
<TABLE>
<S> <C> <C>
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Premiums............ None
Maximum Contingent Deferred Sales Charge
(as a percentage of amount surrendered
or withdrawn)(1)........................ 7%
ANNUAL ADMINISTRATION FEE................. $30 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a % of Variable Account Value)
Mortality and Expense Risk Charges........ 1.25%
Account Fees and Expenses(2).............. 0.15%
----
Total Variable Account
Annual Expenses......................... 1.40%
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO EQUITY
LARGE CAP LARGE CAP SMALL CAP SMALL CAP 500
GROWTH VALUE GROWTH VALUE INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
MARKET STREET FUND, INC. ("MARKET STREET
FUND") ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees).............. 0.70% 0.70% 0.90% 0.90% 0.24%
Other Expenses (after reimbursement)(3)... 0.19% 0.21% 0.21% 0.30% 0.04%
---- ---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(4)....................... 0.89% 0.91% 1.11% 1.20% 0.28%
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE MONEY
INTERNATIONAL GROWTH GROWTH MANAGED BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND, INC.
ANNUAL EXPENSE
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees).............. 0.75% 0.32% 0.41% 0.40% 0.35% 0.25%
Other Expenses (after reimbursement)...... 0.23% 0.16% 0.16% 0.17% 0.17% 0.15%
---- ---- ---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(4)....................... 0.98% 0.48% 0.57% 0.57% 0.52% 0.40%
</TABLE>
<TABLE>
<CAPTION>
SMALL
CAPITALIZATION
PORTFOLIO
--------------
<S> <C> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND ("ALGER AMERICAN")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees).............. 0.85%
Other Expenses............................ 0.05%
----
Total Fund Annual Expenses................ 0.90%
</TABLE>
3
<PAGE> 7
<TABLE>
<CAPTION>
LIMITED
MATURITY
BOND PARTNERS
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C> <C> <C>
NEUBERGER BERMAN ADVISERS MANAGEMENT
TRUST ("NEUBERGER BERMAN FUND")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.65% 0.80%
Other Expenses............................... 0.11% 0.07%
---- ----
Total Fund Annual Expenses................... 0.76% 0.87%
</TABLE>
<TABLE>
<CAPTION>
MID CAP
GROWTH
FUND II
PORTFOLIO
---------
<S> <C> <C> <C> <C>
STRONG VARIABLE INSURANCE FUND, INC.
("STRONG FUND") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 1.00%
Other Expenses
(after reimbursement)...................... 0.15%
----
Total Fund Annual Expenses
(after reimbursement)(4)................... 1.15%
</TABLE>
<TABLE>
<CAPTION>
OPPORTUNITY
FUND II
PORTFOLIO
-----------
<S> <C> <C> <C> <C>
STRONG OPPORTUNITY FUND II, INC.
("STRONG OPPORTUNITY FUND") ANNUAL
EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 1.00%
Other Expenses
(after reimbursement)...................... 0.14%
----
Total Fund Annual Expenses
(after reimbursement)(4)................... 1.14%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE EMERGING HARD REAL
BOND MARKETS ASSETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
("VAN ECK TRUST") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 1.00% 1.00% 1.00% 1.00%
Other Expenses
(after reimbursement)...................... 0.22% 0.34% 0.26% 0.44%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(4)................... 1.22% 1.34% 1.26% 1.44%
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
EQUITY- HIGH
INCOME GROWTH INCOME OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND ("VIP FUND")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.48% 0.58% 0.58% 0.73%
Other Expenses (after reimbursement)......... 0.08% 0.07% 0.11% 0.14%
---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(4).......................... 0.56% 0.65% 0.69% 0.87%
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
ASSET GRADE
MANAGER CONTRAFUND(R) BOND
PORTFOLIO PORTFOLIO PORTFOLIO
--------- ------------- ----------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND II ("VIP II
FUND") ANNUAL EXPENSES (5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)................. 0.53% 0.58% 0.43%
Other Expenses
(after reimbursement)...................... 0.09% 0.07% 0.11%
---- ----
Total Fund Annual Expenses
(after reimbursement)(4)................... 0.62% 0.65% 0.54%
</TABLE>
Premium taxes may be applicable, depending on the laws of your state.
The above Table of Expenses is intended to assist you in understanding the
costs and expenses that you will bear, directly or indirectly. Except as stated
in the footnotes below, the Table reflects expenses of the Variable Account and
the Funds for the 1999 calendar year. For a more complete description of costs
and expenses, see "Charges and Deductions."
- ---------------
(1) A Contingent Deferred Sales Charge (also called a Surrender Charge) is
deducted only if a withdrawal or surrender occurs during the first seven
Contract Years; no Surrender Charge is deducted for a withdrawal or
surrender in Contract Years eight and later. For the first Contract Year,
the maximum charge is 7% of the amount withdrawn or surrendered. Thereafter,
the Surrender Charge decreases by 1% each subsequent Contract Year until it
is zero in Contract Year eight. The maximum total Surrender Charge will not
exceed 8 1/2% of the total premiums received under the Contract. Subject to
certain restrictions, after the first Contract Year up to a specified
percentage of the Contract Account Value as of the beginning of a Contract
Year may be surrendered or withdrawn without charge in that Contract Year.
(See "Surrender Charge.")
(2) Asset-based administration charge.
(3) Since the Equity 500 Index Portfolio has recently commenced operations,
"Other Expenses" is based on estimated amounts the Portfolio expects to pay
during the current calendar year. This estimate anticipates an expense
reimbursement or fee waiver arrangement for year 2000. Absent this
arrangement, estimated Total Fund Annual Expenses would be 0.39%.
(4) For certain Portfolios, expenses were reimbursed or fees waived during 1999.
It is anticipated that expense reimbursement and fee waiver arrangements
will continue past the current year. Absent the expense reimbursement, the
Total Fund Annual Expenses would have been 1.21% for the Market Street All
Pro Small Cap Value Portfolio, 1.17% for the Strong Mid Cap Growth Fund II
Portfolio, 3.23% for the Van Eck Worldwide Real Estate Portfolio, 0.57% for
the VIP Fund Equity-Income Portfolio, 0.66% for the VIP Fund Growth
Portfolio, 0.91% for the VIP Fund Overseas Portfolio, 0.63% for the VIP II
Fund Asset Manager Portfolio, and 0.67% for the VIP II Fund Contrafund(R)
Portfolio. Similar expense reimbursement and fee waiver arrangements were
also in place for the other
5
<PAGE> 9
Portfolios and it is anticipated that such arrangements will continue past
the current year. However, no expenses were reimbursed or fees waived during
1999 for these Portfolios because the level of actual expenses and fees did
not exceed the thresholds at which the reimbursement and waiver arrangements
would have become operative.
(5) The fee and expense information regarding the Funds was provided by the
Funds and has not been independently verified by PLACA. The Market Street
Fund is affiliated with PLACA. None of the other funds is affiliated with
PLACA.
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
1. If you surrender your Contract at the end of the applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth.............. $ 97.59 $117.56 $153.19 $288.97
Market Street All Pro Large Cap Value............... 97.77 118.13 154.16 290.94
Market Street All Pro Small Cap Growth.............. 99.63 123.85 163.86 310.37
Market Street All Pro Small Cap Value............... 100.47 126.42 168.20 319.00
Market Street Equity 500 Index...................... 91.91 99.96 123.08 227.19
Market Street International......................... 98.42 120.14 157.57 297.78
Market Street Growth................................ 93.77 105.75 133.03 247.85
Market Street Aggressive Growth..................... 94.61 108.35 137.49 257.02
Market Street Managed............................... 94.61 108.35 137.49 257.02
Market Street Bond.................................. 94.15 106.91 135.02 251.93
Market Street Money Market.......................... 93.03 103.44 129.06 239.64
Alger American Small Cap............................ 97.68 117.85 153.68 289.95
Neuberger Berman Limited Maturity Bond.............. 96.38 113.83 146.83 276.11
Neuberger Berman Partners........................... 97.40 116.99 152.21 287.00
Strong Mid Cap Growth Fund II....................... 100.01 124.99 165.80 314.22
Strong Opportunity Fund II.......................... 99.91 124.71 165.31 313.26
Van Eck Worldwide Bond.............................. 100.66 126.99 169.17 320.90
Van Eck Worldwide Emerging Markets.................. 101.77 130.40 174.92 332.26
Van Eck Worldwide Hard Assets....................... 101.03 128.13 171.09 324.71
Van Eck Worldwide Real Estate....................... 102.70 133.24 179.70 341.63
Fidelity Equity-Income.............................. 94.52 108.07 136.99 256.00
Fidelity Growth..................................... 95.35 110.66 141.43 265.10
Fidelity High Income................................ 95.73 111.81 143.40 269.12
Fidelity Overseas................................... 97.40 116.99 152.21 287.00
Fidelity Asset Manager.............................. 95.08 109.80 139.95 262.08
Fidelity Contrafund(R).............................. 95.35 110.66 141.43 265.10
Fidelity Investment Grade Bond...................... 94.33 107.49 136.00 253.97
</TABLE>
2. If you do not surrender your Contract at the end of the applicable time
period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth................ $25.90 $79.59 $135.89 $288.97
Market Street All Pro Large Cap Value................. 26.10 80.19 136.89 290.94
Market Street All Pro Small Cap Growth................ 28.10 86.16 146.79 310.37
Market Street All Pro Small Cap Value................. 29.00 88.84 151.22 319.00
Market Street Equity 500 Index........................ 19.80 61.21 105.16 227.19
Market Street International........................... 26.80 82.28 140.36 297.78
Market Street Growth.................................. 21.80 67.26 115.32 247.85
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Market Street Aggressive Growth....................... $22.70 $69.98 $119.87 $257.02
Market Street Managed................................. 22.70 69.98 119.87 257.02
Market Street Bond.................................... 22.20 68.47 117.35 251.93
Market Street Money Market............................ 21.00 64.84 111.27 239.64
Alger American Small Cap.............................. 26.00 79.89 136.39 289.95
Neuberger Berman Limited Maturity Bond................ 24.60 75.69 129.41 276.11
Neuberger Berman Partners............................. 25.70 78.99 134.90 287.00
Strong Mid Cap Growth Fund II......................... 28.50 87.35 148.76 314.22
Strong Opportunity Fund II............................ 28.40 87.05 148.27 313.26
Van Eck Worldwide Bond................................ 29.20 89.43 152.20 320.90
Van Eck Worldwide Emerging Markets.................... 30.40 93.00 158.08 332.26
Van Eck Worldwide Hard Assets......................... 29.60 90.62 154.16 324.71
Van Eck Worldwide Real Estate......................... 31.40 95.96 162.95 341.63
Fidelity Equity-Income................................ 22.60 69.67 119.36 256.00
Fidelity Growth....................................... 23.50 72.38 123.89 265.10
Fidelity High Income.................................. 23.90 73.59 125.90 269.12
Fidelity Overseas..................................... 25.70 78.99 134.90 287.00
Fidelity Asset Manager................................ 23.20 71.48 122.39 262.08
Fidelity Contrafund(R)................................ 23.50 72.38 123.89 265.10
Fidelity Investment Grade Bond........................ 22.40 69.07 118.36 253.97
</TABLE>
The above Examples provided above assume no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $30 and that the estimated average Contract Account Value
per Contract is $10,000, which translates the Annual Administration Fee into an
assumed .30% charge for purposes of the Examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR 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 MORE OR LESS THAN THE ASSUMED
AMOUNT.
7
<PAGE> 11
CONTRACT SUMMARY
- --------------------------------------------------------------------------------
THIS SECTION IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING A CONTRACT. WE DISCUSS EACH OF THESE
TOPICS IN GREATER DETAIL LATER IN THIS PROSPECTUS.
THE CONTRACT
- - PURCHASING A CONTRACT. The Contract is an individual flexible premium
deferred variable annuity. The Contract allows you to invest on a tax-deferred
basis for your retirement or other long-term purposes. We may sell Contracts in
connection with retirement plans which qualify for special tax treatment
(Qualified Contracts), as well as Contracts 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 Maturity
Date. For more information about how to purchase a Contract, see "Description of
an Annuity Contract -- Purchasing a Contract."
- - CANCELLATION (FREE LOOK) PERIOD. You have the right to return the Contract
within 10 days (or any longer period required by the laws of your state) 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 amount of premiums you paid (including any Contract fees and
charges),
minus
-- any amounts allocated to the Variable Account
plus
-- the Variable Account Value on the date of termination.
In states where required, we will return the premiums that you paid.
- - PREMIUMS. We require a minimum initial premium of $2,000. For Qualified
Contracts, as an alternative to the minimum initial premium, you may commit to
pay premiums of $100 per month during the first Contract Year. 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.
- - ALLOCATION OF NET PREMIUMS. We will allocate Net Premiums under a Contract as
designated by you to one or more of the Subaccounts or to the Guaranteed
Account, or to both. (We do not offer the Guaranteed Account in Oregon.) In
states where you are guaranteed the return of your premium if you cancel during
the Cancellation Period, all Net Premiums allocated to the Variable Account 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.
Your Contract Account Value (except for the Guaranteed Account Value) will vary
according to the investment performance of the Portfolios in which your chosen
Subaccounts invest. We credit interest to amounts in the Guaranteed Account at a
guaranteed minimum rate of 3% per year or, if we choose, at a higher current
interest rate.
- - TRANSFERS. Before the Maturity Date, you may request a transfer of all or
part of the amount in a Subaccount or the Guaranteed Account to another
Subaccount or the Guaranteed Account, subject to certain restrictions. Each
transfer must be at least $500 or the entire amount in the Subaccount or
Guaranteed Account, if less. We allow only 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 to 25% or less of the Guaranteed Account Value on the date of
the transfer, unless the balance after transfer is less than $500, in which case
the entire amount will be transferred.
8
<PAGE> 12
- - WITHDRAWALS. At any time before the earlier of the death of the Annuitant or
the Maturity Date, you may withdraw part of the Surrender Value, subject to
certain limitations.
- - SURRENDER. Upon Notice received at our Service Center on or before the
earlier of the death of the Annuitant or the Maturity Date, you may surrender
the Contract in full and receive its Surrender Value. This Notice must include
the proper form which you may obtain by contacting our Service Center.
- - DEATH BENEFIT. If the Annuitant dies before the Maturity Date, we will pay
the Beneficiary a death benefit. During the first seven Contract Years, the
death benefit equals the greater of:
-- premiums paid less any amounts withdrawn (including applicable Surrender
Charges), or
-- the Contract Account Value on the date we receive due proof of the
Annuitant's death.
After the end of the seventh Contract Year, the death benefit equals the
greatest of:
-- the Contract Account Value as of the end of the seventh Contract Year
less subsequent amounts withdrawn, or
-- the Contract Account Value on the date we receive due proof of the
Annuitant's death, or
-- premiums paid less any amounts withdrawn (including applicable Surrender
Charges).
If an Owner dies before the Maturity Date, we must generally distribute the
Contract Account Value (or, if the deceased Owner is also the Annuitant, the
death benefit) to the Beneficiary within five years after the date of death.
If an Owner dies on or after the Maturity Date, any remaining payments must be
distributed at least as rapidly as under the Payment Option in effect on the
date of death.
- - STEP-UP RIDER. A Step-up Rider provides a guaranteed minimum death benefit if
the Annuitant dies before the Maturity Date. The Step-up Rider is automatically
included for Contracts issued in states that permit the Rider for these
Contracts with an Annuitant who is age 0-70. The guaranteed minimum death
benefit initially equals the Contract Account Value as of the sixth Contract
Anniversary. We will reset or "step-up" the guaranteed minimum death benefit to
the Contract Account Value, if greater, on the next six year Contract
Anniversary. This "step-up" continues until the six year Contract Anniversary on
or before the Annuitant's 85th birthday. We will also increase the proceeds upon
death by an amount equal to aggregate premiums paid since the last six year
Contract Anniversary. In the event of a withdrawal at any time, we reduce the
guaranteed minimum death benefit by the same percentage that the withdrawal
reduces the Contract Account Value. At no time will the death benefit proceeds
be less than either:
-- the Contract Account Value on the date we receive due proof of the
Annuitant's death, or
-- the sum of premiums paid, less any withdrawals (including applicable
Surrender Charges).
CHARGES AND DEDUCTIONS
$ SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). We do not deduct any
charge for sales expenses from premiums. However, if you surrender your Contract
or make certain withdrawals before the seventh Contract Anniversary, we will
deduct a Surrender Charge from the amount surrendered or withdrawn.
For the first Contract Year, the charge is 7% of the amount withdrawn or
surrendered. Thereafter, the Surrender Charge decreases by 1% each subsequent
Contract Year. In no event is the total Surrender Charge on any Contract in
excess of 8 1/2% of the total premiums received under the Contract.
During each Contract Year after the first Contract Year, you may, subject to
certain restrictions, make up to two withdrawals totaling a specified percentage
of the Contract Account Value (as of the beginning of a Contract Year) free of
the Surrender Charge. This percentage varies from 20% for the second Contract
Year to 70% for the seventh Contract Year.
9
<PAGE> 13
$ ANNUAL ADMINISTRATION FEE. On each Contract Anniversary prior to and
including the Maturity Date, we deduct an Annual Administration Fee of $30 from
the Contract Account Value. We also deduct this charge on the Maturity Date if
it is not a Contract Anniversary and upon surrender if the surrender occurs at
any time other than on a Contract Anniversary.
$ ASSET-BASED ADMINISTRATION CHARGE. We deduct a daily administration charge to
compensate us for certain expenses we incur in administration of the Contracts.
On or prior to the Maturity Date, we deduct the charge from the assets of the
Variable Account at an annual rate of 0.15%.
$ TRANSFER PROCESSING FEE. Transfers of amounts in the Subaccounts and the
Guaranteed Account are free.
$ MORTALITY AND EXPENSE RISK CHARGE. We deduct a daily Mortality and Expense
Risk Charge to compensate us for assuming certain mortality and expense risks.
On or prior to the Maturity Date, we deduct the charge from the assets of the
Variable Account at an annual rate of 1.25% (approximately 0.70% for mortality
risk and 0.55% for expense risks).
$ INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE PORTFOLIOS. The investment
experience of each Subaccount reflects the investment experience of the shares
of the Portfolio which it holds. The investment experience of each Portfolio, in
turn, reflects its investment advisory fees and other expenses. Please read the
prospectus for each Portfolio for details.
$ PREMIUM TAXES. If state or other premium taxes apply to a Contract, we deduct
these taxes either:
-- from premiums as they are received, or
-- from the Contract Account Value, upon a withdrawal from or surrender
of the Contract, or upon Application of the Contract Account Value to
a Payment Option or upon payment of a death benefit.
ANNUITY PROVISIONS
- - MATURITY DATE. We will apply the Contract Account Value to a Payment Option
on the Maturity Date. You may instead elect to receive the Surrender Value on
the Maturity Date.
- - 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.
In addition, instead of choosing one of the Payment Options listed above,
you may elect to receive payments in any other manner that is acceptable to us
and permissible under applicable law.
FEDERAL TAX STATUS
Generally, a distribution (including a surrender, withdrawal, or death
benefit payment) may result in federal income tax liability. In certain
circumstances, a penalty tax may apply.
WE OFFER OTHER VARIABLE ANNUITIES THAT HAVE DIFFERENT DEATH BENEFITS,
FEATURES, AND OPTIONAL PROGRAMS. THESE OTHER ANNUITIES HAVE DIFFERENT CHARGES
THAT WOULD AFFECT SUBACCOUNT PERFORMANCE AND CONTRACT ACCOUNT VALUE. PLEASE
CONTACT OUR SERVICE CENTER TO OBTAIN MORE INFORMATION ABOUT THESE ANNUITIES.
10
<PAGE> 14
PLACA, THE VARIABLE ACCOUNT AND THE PORTFOLIOS
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA (PLACA)
We are a stock life insurance company and the issuer of the Contract. We
were originally incorporated under Pennsylvania law in 1958 under the name
Washington Square Life Insurance Company. Our name was changed in 1991, and we
were redomiciled as a Delaware insurance company on October 28, 1992. The
address of our corporate headquarters is 1000 Chesterbrook Boulevard, Berwyn, PA
19312. We are currently licensed to transact life insurance business in 49
states and the District of Columbia. As of December 31, 1999, we had total
assets of approximately $1.7 billion.
We are 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 1999 had total assets of approximately $9.2 billion. On December
31, 1997, we entered into a Support Agreement with PMLIC. Under this agreement,
PMLIC agrees to ensure that our 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. PMLIC agrees to
contribute to us an amount of capital sufficient to attain this 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
their operations.
PMLIC also agrees to cause us 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 us. This agreement will remain in effect
provided we remain a subsidiary of PMLIC. Before any material modification or
termination of the agreement, a determination must be made that the modification
or termination will not have an adverse impact on our policyholders. This
determination is to be based on our ability at the time of the determination to
maintain our 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 us, nor is it in any way a guarantor of our contractual
obligations or obligations under the Contracts.
We are 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 we do business. We submit annual statements on our
operations and finances to insurance officials in these 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.
We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA members subscribe to a set of ethical standards involving the
sales and service of individually sold life insurance and annuities. As a member
of IMSA, we may use the IMSA logo and language in advertisements.
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT (VARIABLE ACCOUNT)
The Providentmutual Variable Annuity Separate Account is a separate
investment account that we maintain. The Variable Account was established by our
Board of Directors on May 9, 1991 under Pennsylvania law. We established the
Variable Account to support the investment options under the Contract and other
variable annuities. Because we later redomesticated as a Delaware insurance
company, the Variable Account is now subject to regulation by the Delaware
Insurance Department. We have caused the Variable Account to be registered with
the SEC as a unit investment trust under the Investment Company Act of 1940 (the
"1940 Act"). This registration does not involve supervision by the SEC of the
management or investment policies or practices of the Variable Account.
We own the assets of the Variable Account. These assets, however, are
legally separate from our other assets and are not part of our General Account.
The portion of the assets of the Variable Account equal to the reserves or other
Contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business we conduct. We may transfer to
our General Account any assets of the Variable Account which exceed the reserves
and the Contract liabilities of the Variable Account (which will always be at
least equal to the aggregate Contract Account Value allocated to the Variable
Account under the Contracts).
11
<PAGE> 15
The Variable Account currently has forty-eight Subaccounts, twenty-seven of
which are available under the Contracts. They are: All Pro Large Cap Growth; All
Pro Large Cap Value; All Pro Small Cap Growth; All Pro Small Cap Value; Equity
500 Index; International; Growth; Aggressive Growth; Managed; Bond; Money
Market; Alger Small Capitalization; Neuberger & Berman Limited Maturity Bond;
Neuberger & Berman Partners; Strong Mid Cap Growth; Strong Opportunity; Van Eck
Worldwide Bond; Van Eck Worldwide Emerging Markets; Van Eck Worldwide Hard
Assets; Van Eck Worldwide Real Estate; Fidelity Equity-Income; Fidelity Growth;
Fidelity High Income; Fidelity Overseas; Fidelity Asset Manager; Fidelity
Contrafund(R); and Fidelity Investment Grade Bond. The assets of each Subaccount
are invested exclusively in shares of a corresponding Portfolio of a designated
Fund.
The income, gains, or losses, realized or unrealized, on 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. The
assets of each Subaccount may not be charged with liabilities arising out of any
other business of PLACA. PLACA may accumulate in the Variable Account the charge
for mortality expense and expense risks, gains and losses, and investment
results applicable to those assets that are in excess of the net assets
supporting the Contracts.
THE FUNDS
The Variable Account currently invests in Portfolios of various series-type
Funds, eight of which are available under the Contracts: Market Street Fund;
Alger Fund; Neuberger Berman Fund; Strong Fund; Strong Opportunity Fund; Van Eck
Trust; VIP Fund; and VIP II Fund. Each of the Funds is registered with the SEC
under the 1940 Act as an open-end 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 the assets of the other
Portfolios, and each Portfolio has separate investment objectives and policies.
Each Portfolio therefore operates as a separate investment Portfolio and the
investment performance of one Portfolio has no effect on the investment
performance of any other Portfolio. 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 us. The
termination provisions of these agreements vary. A summary of the termination
provisions may be found in the SAI. If a participation agreement is terminated,
the Variable Account will no longer be able to purchase additional shares of
that Fund. In that event, you will not be able to allocate Contract Account
Values or premium payments to Subaccounts investing in Portfolios of that Fund.
In certain circumstances a Fund or a Portfolio may also refuse to sell its
shares to the Variable Account for other reasons. If a Fund or a Portfolio
refuses to sell its shares to the Variable Account, we will not be able to honor
your request to allocate your Contract Account Value 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. Before choosing Subaccounts, you should carefully
read the individual prospectuses for the Funds along with this prospectus.
Some of the Portfolios available under the Contract present greater
investment risks than other Portfolios because they invest in high yield
securities (commonly known as junk bonds), foreign securities, small company
stocks or other types of investments that present speculative risks. You should
read the risk disclosure in the prospectuses for the Portfolios and be sure that
your investment choice is appropriate in light of your investment goals.
MARKET STREET FUND
The All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap
Growth, All Pro Small Cap Value, Equity 500 Index, International, Growth,
Aggressive Growth, Managed, Bond, and Money
12
<PAGE> 16
Market Subaccounts invest in shares of the Market Street Fund. This Fund
currently issues eleven "series" or classes of shares, each of which represents
interests in a separate Portfolio that corresponds to a Subaccount. Shares of
each Portfolio currently are purchased and redeemed by the corresponding
Subaccount. Shares of the All Pro Portfolios may not be currently available for
sale in all states. If they are not yet available in your state, you may not
allocate premiums to them until such time as they are available.
The investment objectives/policies of the Market Street Fund Portfolios are
summarized below.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
ALL PRO LARGE CAP GROWTH - Seeks to achieve long-term capital appreciation by
investing primarily in equity securities of companies among
the 750 largest by market capitalization at the time of
purchase that the subadvisers believe show potential for
growth in future earnings.
ALL PRO LARGE CAP VALUE - Seeks to provide long-term capital appreciation by
investing primarily in undervalued equity securities of
companies among the 750 largest by market capitalization
at the time of purchase that the subadvisers believe offer
above-average potential for growth in future earnings.
ALL PRO SMALL CAP GROWTH - Seeks to achieve long-term capital appreciation by
investing primarily in equity securities of companies
included in the Wilshire 5,000 Equity Index at the time of
purchase that the subadvisers believe show potential for
growth in future earnings.
ALL PRO SMALL CAP VALUE - Seeks to provide long-term capital appreciation by
investing primarily in undervalued equity securities of
companies included in the Wilshire 5,000 Equity Index at
the time of purchase that the subadvisers believe offer
above-average potential for growth in future earnings.
EQUITY 500 INDEX - Seeks to provide long-term capital appreciation by
investing primarily in common stocks included in the
Standard & Poor's 500 Composite Stock Price Index.
INTERNATIONAL - Seeks long-term growth of capital primarily through
investments in a diversified portfolio of marketable equity
securities of established foreign companies.
GROWTH - Seeks intermediate and long-term growth of capital by
investing in common stocks of companies that the adviser
believes offer above-average intermediate and long-term
growth potential. Current income is a secondary
consideration.
AGGRESSIVE GROWTH - Seeks to achieve a high level of long-term capital
appreciation by investing in securities of a diverse group
of smaller emerging companies.
MANAGED - Seeks to realize as high a level of long-term total rate
of return as is consistent with prudent investment risk by
investing in stocks, bonds, money market instruments, or a
combination of these securities.
BOND - Seeks to generate a high level of current income
consistent with prudent investment risk by investing in a
diversified portfolio of marketable debt securities.
MONEY MARKET - Seeks to provide maximum current income consistent with
capital preservation and liquidity by investing in
high-quality money market instruments.
</TABLE>
Market Street Investment Management Company ("MSIM") serves as investment
adviser for the All Pro Portfolios. MSIM uses a "manager of managers" approach
for the All Pro Portfolios under which
13
<PAGE> 17
MSIM allocates each Portfolio's assets among one or more "specialist" investment
sub-advisers. The subadvisers for the All Pro Portfolios are as follows:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISERS
--------- -----------
<S> <C>
ALL PRO LARGE CAP GROWTH Cohen Klingenstein & Marks, Inc.
Geewax Terker & Co.
ALL PRO LARGE CAP VALUE Equinox Capital Management, Inc.
Mellon Equity Associates
Sanford C. Bernstein Company, Inc.
ALL PRO SMALL CAP GROWTH Standish Ayer & Wood
Husic Capital Management
ALL PRO SMALL CAP VALUE Reams Asset Management Company, LLC
Sterling Capital Management Company
</TABLE>
MSIM also serves as investment adviser for the Equity 500 Index Portfolio
and the International Portfolio. MSIM has employed State Street Global Advisers
("State Street") to provide investment sub-advisory services in connection with
the Equity 500 Index Portfolio. MSIM has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment sub-advisory services
in connection with the International Portfolio.
With respect to the Equity 500 Index Portfolio:
"Standard & Poor's(R)", "S&P(R)", "S&P 500(R)", "Standard & Poor's 500",
and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been
licensed for use by PMLIC and its affiliates and subsidiaries. The Contract
is not sponsored, endorsed, sold or promoted by Standard & Poor's, and
Standard & Poor's makes no representation regarding the advisability of
investing in the Contract. See "Standard & Poor's" in the SAI which sets
forth certain additional disclaimers and limitations of liabilities on
behalf of S&P.
The Growth, Aggressive Growth, Managed, Bond, and Money Market Portfolios
of Market Street Fund are advised by Sentinel Advisors Company (SAC).
In addition to the fee for the investment advisory services that is
described in the Market Street Fund prospectus, each Portfolio of the Market
Street pays its own expenses generally, including brokerage costs,
administrative costs, custodial costs, and legal, accounting and printing costs.
However, PMLIC has entered into an agreement with the Market Street Fund whereby
it will reimburse each Portfolio for all ordinary operating expenses, excluding
advisory fees in excess of an annual rate of 0.40% of the average daily net
assets of each Portfolio, except the Equity 500 Index Portfolio and the
International Portfolio. PMLIC will reimburse the Equity 500 Index Portfolio and
the International Portfolio for all ordinary operating expenses, excluding
advisory fees, in excess of an annual rate of 0.04% and 0.75%, respectively. It
is anticipated that this agreement will continue. If it is terminated, Fund
expenses may increase.
Each of the advisers and subsidiaries discussed above is registered with the SEC
as an investment adviser under the Investment Advisers Act.
THE ALGER AMERICAN FUND
The Alger American Small Capitalization Subaccount of the Variable Account
invests in shares of the Alger American Small Capitalization Portfolio of Alger
American. Alger American has other investment portfolios that are not offered to
the Variable Account or under the Contract.
14
<PAGE> 18
The investment objectives/policies of the Alger American Small
Capitalization Portfolio are summarized below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
SMALL CAPITALIZATION - Seeks long-term capital appreciation by focusing on small,
fast-growing companies that offer innovative products,
services or technologies to a rapidly expanding
marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small
capitalization companies. A small capitalization company
is one that has a market capitalization within the range
of the Russell 2000 Growth Index or the S&P SmallCap 600
Index.
</TABLE>
The investment adviser for the Portfolio is Fred Alger Management, Inc.
Fred Alger Management, Inc., is registered with the SEC as an investment adviser
under the Investment Advisers Act.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
The Neuberger Berman Limited Maturity Bond Subaccount and Neuberger Berman
Partners Subaccount of the Variable Account invest in corresponding Portfolios
of Neuberger Berman Fund. Neuberger Berman Fund has other investment portfolios
that are not offered to the Variable Account or under the Contract. Shares of
these Portfolios are purchased and redeemed by the Variable Account at net asset
value without a sales charge. Shares of the Neuberger Berman Partners Portfolio
may not be currently available for sale in all states. If they are not yet
available in your state, you may not allocate premiums to them until such time
as they are available.
Each Portfolio of Neuberger Berman Fund invests all of its net investable
assets in its corresponding Series (each, a "Series") of Advisers Managers Trust
("Managers Trust"), an open-end management investment company. Each Series
invests in securities in accordance with an investment objective, policies and
limitations identical to those of its corresponding Portfolio. This
"master/feeder fund" structure is different from that of many other investment
companies which directly acquire and manage their own portfolios of securities.
For more information regarding this structure, see the prospectus for Neuberger
Berman Fund.
The following describes the investment objective/policies of each Series
underlying the Portfolio of Neuberger Berman Fund in which the Subaccounts will
invest:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
LIMITED MATURITY BOND - Seeks the highest available current income consistent with
low risk to principal and liquidity and secondarily, total
return, through investment mainly in bonds, primarily
investment grade.
PARTNERS - Seeks capital growth through investment mainly in common
stocks of medium to large capitalization companies.
</TABLE>
The investment adviser for the Series of Managers Trust corresponding to
the Limited Maturity Bond and Partners Portfolios of AMT is Neuberger Berman
Management, Incorporated. The investment adviser retains Neuberger Berman,
without cost to Managers Trust, as sub-adviser to furnish it with investment
recommendations and research information.
STRONG VARIABLE INSURANCE FUNDS, INC.
The Strong Mid Cap Growth Fund II Subaccount invests in shares of a
corresponding Portfolio of the Strong Fund. Strong Fund offers insurance
companies a selection of investment vehicles for variable annuity contracts and
variable life insurance policies.
Strong Fund issues a number of "series" or classes of shares, each of which
represents an interest in a separate investment portfolio within a Strong Fund.
One of the series is available for investment under the Contract: Strong Mid Cap
Growth Fund II.
15
<PAGE> 19
The investment objectives/policies of this Portfolio are summarized below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
STRONG MID CAP GROWTH FUND II - Seeks capital growth by investing at least 65% of its
assets in stocks of medium-capitalization companies that
the Portfolio's managers believe have favorable prospects
for accelerating growth of earnings, but are selling at
reasonable valuations based on earnings, cash flow, or
asset value.
</TABLE>
Strong Mid Cap Growth Fund II is managed by Strong Capital Management, Inc.
This adviser is registered with the SEC as an investment adviser under the
Investment Advisers Act.
STRONG OPPORTUNITY FUND II, INC.
The Strong Opportunity Fund II Subaccount invests in shares of a
corresponding Portfolio of the Strong Opportunity Fund. Strong Opportunity Fund
offers insurance companies a selection of investment vehicles for variable
annuity contracts and variable life insurance policies.
The investment objectives/policies of the Strong Opportunity Fund II are
summarized below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
STRONG OPPORTUNITY FUND II - Seeks capital growth by investing primarily in stocks of
medium-capitalization companies that the Portfolio's
managers believe are underpriced, yet have attractive
growth prospects.
</TABLE>
Strong Opportunity Fund II is managed by Strong Capital Management, Inc.
VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, Van Eck Worldwide Emerging Markets, Van Eck
Worldwide Hard Assets, and Van Eck Worldwide Real Estate Subaccounts of the
Variable Account invest in shares of the corresponding Portfolios of the Van Eck
Trust.
The investment objectives/policies of the Portfolios of Van Eck Trust are
summarized below.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
WORLDWIDE BOND - Seeks high total return through a flexible policy of
investing globally, primarily in debt securities. Total
return consists of current income and capital
appreciation. This 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.
WORLDWIDE EMERGING - Seeks long-term capital appreciation by investing
MARKETS primarily in equity securities in emerging markets around
the world.
WORLDWIDE HARD ASSETS - 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): (a) precious metals,
(b) ferrous and non-ferrous metals, (c) gas, petroleum,
petrochemicals, or other hydrocarbons, (d) forest
products, (e) real estate, and (f) other basic
non-agricultural commodities. Income is a secondary
consideration.
</TABLE>
16
<PAGE> 20
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
WORLDWIDE REAL ESTATE - 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.
</TABLE>
The investment adviser for the Van Eck Worldwide Bond, 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. Each of these
advisers is registered with the SEC as an investment adviser under the
Investment Advisers Act.
VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Equity-Income Subaccount, Fidelity Growth Subaccount, Fidelity
High Income Subaccount, and Fidelity Overseas Subaccount invest in corresponding
Portfolios of the VIP Fund. The Fidelity Asset Manager Subaccount, Fidelity
Contrafund(R) Subaccount, and Fidelity Investment Grade Bond Subaccount invest
in corresponding Portfolios of the VIP II Fund. The VIP Fund and VIP II Fund
each offer insurance companies a selection of investment vehicles for variable
annuity contracts and variable life insurance policies.
The VIP Fund and the VIP II Fund issue a number of "series" or classes of
shares, each of which represents an interest in a separate Portfolio within the
VIP Fund or VIP II Fund. Four of the VIP Fund Series are available for
investment under the Contract: VIP Equity-Income Portfolio; VIP Growth
Portfolio; VIP High Income Portfolio; and VIP Overseas Portfolio. Three of the
VIP II Fund Series are available for investment under the Contract: VIP II Asset
Manager Portfolio; VIP II Contrafund(R) Portfolio; and VIP II Investment Grade
Bond Portfolio.
The investment objectives/policies of these Portfolios are summarized
below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
VIP EQUITY-INCOME - Seeks reasonable income by investing primarily in
income-producing equity securities. In choosing these
securities, the Portfolio considers the potential for
capital appreciation. The Portfolio's goal is to achieve a
yield which exceeds the composite yield of the securities
comprising the Standard & Poor's 500 Composite Stock Price
Index.
VIP GROWTH - Seeks to achieve capital appreciation. The Portfolio
normally purchases common stocks, although its investments
are not restricted to any one type of security. Capital
appreciation may also be found in other types of
securities, including bonds and preferred stocks.
VIP HIGH INCOME - Seeks to obtain a high level of current income by
investing primarily in high-yielding, lower-rated,
fixed-income securities, while also considering growth of
capital.
VIP OVERSEAS PORTFOLIO - Seeks long term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio
provides a means for diversification by participating in
companies and economies outside the United States.
VIP II ASSET MANAGER - Seeks to obtain high total return with reduced risk over
the long-term by allocating assets among stocks, bonds,
and short-term money market instruments.
VIP II CONTRAFUND(R) - Seeks capital appreciation by investing in securities of
companies where value is not fully recognized by the
public.
VIP II INVESTMENT GRADE BOND - Seeks as high a level of current income as is consistent
with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The
Portfolio is designed as a long-term investment option.
</TABLE>
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<PAGE> 21
The Portfolios of the VIP Fund and VIP II Fund are managed by Fidelity
Management & Research Company ("FMR"). On behalf of the Asset Manager Portfolio,
FMR has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far East) Inc.
("FMR Far East"). FMR (U.K.) and FMR Far East provide research and investment
recommendations with respect to companies based outside the United States. FMR
(U.K.) primarily focuses on companies based in Europe; FMR Far East focuses
primarily on companies based in Asia and the Pacific Basin.
Each of these advisers is registered with the SEC as an investment adviser
under the Investment Advisers Act.
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 of these Portfolios 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.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE.
You should read the prospectuses for the Portfolios carefully before
investing. You can find more detailed information about the Portfolios'
investment objectives, policies and restrictions, expenses, investment advisory
services, charges, and investment risks in the current prospectus for each Fund
which accompanies this prospectus and the current SAI for each Fund.
Certain Portfolios 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 may be higher or lower than
those of such other investment portfolios or mutual funds. We do 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.
Some of the investment portfolios described in the prospectuses for the
Funds are not available with the Contracts. We cannot guarantee that each
Portfolio will always be available for the Contracts. In the unlikely event that
a Portfolio is not available, we will do everything reasonably practicable to
secure the availability of a comparable Portfolio. Shares of each Portfolio are
purchased and redeemed at net asset value, without a sales charge.
We may receive compensation from the investment adviser or a Fund (or
affiliates thereof) in connection with administration, distribution, or other
services provided with respect to the Funds and their availability through the
Contracts. The amount of this compensation is based upon a percentage of the
assets of the Fund attributable to the Contracts and other contracts issued by
us. These percentages differ, and some advisers (or affiliates) may pay us more
than others.
RESOLVING MATERIAL CONFLICTS
The Funds are used as investment vehicles for variable life insurance
policies and variable annuity contracts issued by PLACA or PMLIC, as well as
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. As a result, there is
a possibility that a material conflict may arise between the interests of owners
of variable life or variable annuity contracts generally, or certain classes of
owners, and the interests of the retirement plans or participants in retirement
plans.
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<PAGE> 22
We currently do not foresee any disadvantages to Owners resulting from the
Funds selling shares in connection with products other than the Contracts or to
retirement plans. However, there is a possibility that a material conflict may
arise between Owners whose Contract Account Values are allocated to the Variable
Account and other investors in the Portfolios, including retirement plans and
the owners of variable life insurance policies and variable annuity contracts
issued by other insurance companies. In the event of a material conflict, we
will take any necessary steps, including removing the Portfolio as an investment
option within the Variable Account, to resolve the matter. The Funds' Boards of
Directors are also responsible for monitoring events in order to identify any
material conflicts that possibly may arise and determine what action, if any,
should be taken in response to any conflicts. You should see the Portfolios'
prospectuses for more information.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
We reserve the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the Portfolios available within the
Variable Account. If the shares of any Portfolio are no longer available for
investment, or for any other appropriate reason, we may redeem the shares, if
any, of that Portfolio and substitute shares of another registered open-end
management company. The substituted fund or portfolio may have different fees
and expenses. Substitution may be made with respect to existing investments or
the investment of future premiums, or both. We will not substitute any shares
attributable to a Contract's interest in a Subaccount of the Variable Account
without notice and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law.
Furthermore, we may close Subaccounts to allocations of premiums or
Contract Account Value, or both, at any time in our sole discretion. The Funds,
which sell their shares to the Subaccounts pursuant to participation agreements,
also may terminate these agreements and discontinue offering their shares to the
Subaccounts.
We also reserve the right to establish additional Subaccounts, each of
which would invest in shares corresponding to an existing or new Portfolio.
Subject to applicable law and any required SEC approval, we may, in our 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 Owners on a basis to be determined
by us.
If any of these substitutions or charges are made, we may by appropriate
endorsement change the Contract to reflect the substitution or change. If we
deem it to be in the best interest of Owners and Annuitants, 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, deregistered under the 1940
Act if registration is no longer required, or combined with our other separate
accounts.
DESCRIPTION OF ANNUITY CONTRACT
PURCHASING A CONTRACT
To purchase a Contract, you must submit a completed Application with an
initial premium payment to us at our Service Center. You may send the
Application and initial premium to us through any licensed representative who is
appointed by us and who is also a registered representative of 1717 Capital
Management Company ("1717"), the principal underwriter for the Contract (as well
as for other variable contracts). You may also send the Application and initial
premium to us through a broker-dealer that has a selling agreement with respect
to the Contract.
We may sell a Contract in connection with retirement plans. These
retirement plans may, or may not, qualify for special tax treatment under the
Code. See "Federal Tax Status -- Taxation of Qualified Contracts" for important
information about purchasing a Qualified Contract.
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<PAGE> 23
CANCELLATION (FREE-LOOK) PERIOD
The Contract provides for an initial Cancellation Period. You have the
right to return the Contract within 10 days (or any longer period required by
the laws of your state) after you receive it. When we receive the returned
Contract at our Service Center, it will be canceled and, in most states, we will
refund to the Owner an amount equal to the sum of: (1) the difference between
the premiums you paid, including any Contract fees and charges, and the amounts,
if any, allocated to the Variable Account under the Contract; and (2) the
Variable Account Value on the date of termination (or, in Pennsylvania, if there
is no Variable Account Value, the reserve for the Contract on the date the
Contract is cancelled attributable to the amounts allocated to the Variable
Account). In states that require it, we will refund the premiums paid.
PREMIUMS
We require a minimum initial premium of $2,000. For Qualified Contracts, as
an alternative to the minimum initial premium, you may commit to paying $100 per
month during the first Contract Year. You may pay subsequent premiums, under the
Contract at any time during the Annuitant's lifetime before the Maturity Date.
Any subsequent premium payment must be at least $100 each for Non-Qualified
Contracts and $50 each for Qualified Contracts.
In your Application, you may select a planned periodic premium schedule
based on a periodic billing mode of annual, semi-annual, or quarterly payment.
You will receive a premium reminder notice at the specified interval. You may
change the planned periodic premium frequency and amount. Also, under the
automatic payment plan, you may select a monthly payment schedule under which
premium payments will be automatically deducted from a bank account or other
source rather than being "billed."
ALLOCATION OF NET PREMIUMS
We must receive a complete Application with all relevant information and
payment of the initial premium in order to process the Application. If the
Application is complete, we will allocate the initial Net Premium among the
Subaccounts and Guaranteed Account in accordance with your instructions in the
Application as of a date not later than two business days after we receive the
completed Application at our Service Center. (This allocation may be delayed for
15 days in some cases as discussed below).
If we receive an incomplete Application, we may retain the initial premium
payment and contact you in order to complete the Application. If the Application
is not completed within five business days of our receipt, we will explain the
reason for the processing delay and the premium payment will be returned to you
unless you consent to our retaining the premium payment until the Application is
completed. When the Application is complete, we will allocate the initial Net
Premium within two business days.
You should designate in the Application how the initial Net Premium is to
be allocated among the Subaccounts and the Guaranteed Account. As described
above, in states where you are 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 will be allocated to the
Money Market Subaccount for a 15-day period. After the expiration of the 15-day
period, the amount in the Money Market Subaccount will be allocated to your
chosen Subaccounts based on the proportion that the allocation percentage for
such Subaccount bears to the sum of the Subaccount allocation percentages. Any
subsequent Net Premium is allocated at the end of the Valuation Period in which
the subsequent premium is received by us in the same manner, unless the
allocation percentages are changed. Premiums are allocated in accordance with
the allocation schedule in effect at the time the premium payment is received.
Subaccount values will vary with the investment experience of the
Subaccounts, and you bear the entire investment risk. You should periodically
review your allocation schedule for Net Premiums in light of market conditions
and your overall financial objectives.
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<PAGE> 24
VARIABLE ACCOUNT VALUE
The Variable Account Value reflects the investment experience of the
Subaccounts selected by you, any Net Premium payments, any withdrawals, any
surrenders, any transfers, and any charges relating to the Subaccounts. There is
no guaranteed minimum Variable Account Value, and, because the Variable Account
Value on any future date depends upon a number of variables, it cannot be
predicted.
Calculation of Variable Account Value. The Variable Account Value is
determined on each Valuation Day. This 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 Day by the number of Subaccount Accumulation Units allocated
to the Contract, as described below.
Accumulation Units. For each Subaccount, Net Premiums allocated to a
Subaccount and amounts 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 made. 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 from a Subaccount result in the
cancellation of an appropriate number of Accumulation Units of that Subaccount,
as do surrender of the Contract, payment of a death benefit, the Application of
Variable Account Value to a Payment Option on the Maturity 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 we receive Notice
regarding the event.
The Accumulation Unit value for each Subaccount was arbitrarily set 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 that measures
the investment performance of a Subaccount from one Valuation Period to the
next. Each Subaccount has its own net investment factor, which may be greater or
less than one. The net investment factor for each Subaccount for a Valuation
Period equals 1 plus the fraction obtained by dividing (a) by (b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited during the current Valuation Period; plus
2. any amount credited or released from reserves for taxes
attributable to the operation of the Subaccount; minus
3. the capital losses, realized or unrealized, charged during the
current Valuation Period; minus
4. any amount charged for taxes or any amount we set aside during
the Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Subaccount; minus
5. the amount charged for mortality and expense risk for that
Valuation Period; minus
6. the amount charged for administration for that Valuation Period;
and
(b) is the value of the assets in the Subaccount at the end of the
preceding Valuation Period, adjusted for allocations and transfers to and
withdrawals and transfers from the Subaccount occurring during that
preceding Valuation Period.
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<PAGE> 25
TRANSFER PRIVILEGE
Before the Maturity Date, you may request a transfer of all or a part of
the amount in a Subaccount to another Subaccount or to the Guaranteed Account,
or transfer a part of an amount in the Guaranteed Account to one or more
Subaccounts, subject to the restrictions below. The minimum transfer amount must
be 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 we receive Notice requesting the transfer.
There is no limit on the number of transfers which can be made between
Subaccounts or from a Subaccount to the Guaranteed Account. Only one transfer,
however, may be made from the Guaranteed Account each Contract Year. (See
"Transfers from Guaranteed Account.")
Telephone Transfers. We may accept telephone instructions from you or an
authorized third party regarding transfers, dollar cost averaging, and automatic
asset rebalancing, subject to the following conditions:
1. You must complete and sign our telephone request form and send it to us.
You also may authorize us in the Application or by Notice to act upon
transfer instructions given by telephone.
2. You may designate in the telephone request form a third party to act on
your behalf in making telephone requests.
We reserve the right to suspend telephone transfer privileges at any time,
for any class of Contracts, for any reason.
We will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The procedures we follow for telephone
transfers include requiring some form of personal identification prior to acting
on instructions received by telephone, providing written confirmation of the
transaction and making a tape-recording of the instructions given by telephone.
If we follow reasonable procedures, we will not be liable for any losses due to
unauthorized or fraudulent instructions. We may, however, be liable for losses
if we do not follow reasonable procedures.
Automatic Asset Rebalancing. You may elect Automatic Asset Rebalancing,
which authorizes periodic transfers of amounts among the Subaccounts in order to
achieve a particular percentage allocation among Subaccounts. The percentage
allocations must be in whole numbers and amounts may be allocated only among the
Subaccounts. No amounts will be transferred to or from the Guaranteed Account as
a part of Automatic Asset Rebalancing. For example, if your premium allocation
is 20% to the Guaranteed Account, 30% to Subaccount A, and 50% to Subaccount B,
the rebalancing will allocate the values in the Subaccounts as 37.5% to
Subaccount A and 62.5% to Subaccount B. 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 your premium
allocation instructions. You should note, however, that a request to transfer
amounts among Subaccounts by Notice or telephone as described above is not
treated as a new premium allocation instruction for these purposes, and will not
affect future allocations pursuant to Automatic Asset Rebalancing.
Once elected, Automatic Asset Rebalancing begins at the beginning of the
calendar quarter following the calendar quarter during which you make your
election. You may change or terminate Automatic Asset Rebalancing by written
instruction to us, or by telephone if you have previously authorized us to take
telephone instructions. We reserve 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. You may elect to request transfers of amounts
from a Subaccount to the Money Market Subaccount in advance of the time you want
the transfers executed. To make this election, you must submit a written Advance
Order form to our Service Center specifying a percentage amount of change in
Subaccount Value at which shares in the specified Subaccount should be sold and
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<PAGE> 26
the proceeds transferred to the Money Market Subaccount. After you have
submitted the written Advance Order form, you may place or cancel an Advance
Order by calling our Service Center. We measure the percentage change in a
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. We
execute the transfer when the Accumulation Unit value for that Subaccount
increases or decreases by at least the percentage specified by you.
Once received at the Service Center, an Advance Order remains in effect
until cancelled or superseded by a subsequent Advance Order for a transfer out
of the same Subaccount. We do not currently assess a charge for Advance Orders,
but reserve the right to charge for this service. In addition, we may terminate
the Advance Order privilege or change its terms at any time by providing written
notice to you at least 15 days in advance of the termination or modification.
DOLLAR COST AVERAGING
The Dollar Cost Averaging program enables you to systematically and
automatically transfer, on a monthly basis, specified dollar amounts from a
designated Subaccount to other Subaccounts. By allocating specified dollar
amounts periodically rather than at one time, you may be less susceptible to the
impact of market fluctuations. We, however, make no guarantee that Dollar Cost
Averaging will result in a profit or protect against loss.
You may elect Dollar Cost Averaging for a period from 6 to 36 months. To
qualify for Dollar Cost Averaging, the following minimum amount must be
allocated to your 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.")
You may participate in this program by completing the authorization on the
Application or at any time after the Contract is issued by properly completing
an election form and returning it to us by the beginning of the month. You must
also verify that the required minimum amount is in the designated Subaccount.
Dollar Cost Averaging transfers may not commence until the later of (1) 30 days
after the Contract Date and (2) five days after the end of the Cancellation
Period.
After you make the election, transfers from a Subaccount will be processed
monthly until the number of designated transfers have been completed, the value
of the Subaccount is completely depleted, or you instruct us in writing to
cancel the monthly transfers.
We reserve the right to discontinue offering automatic transfers upon 30
days' written notice to you.
WITHDRAWALS AND SURRENDER
Withdrawals. At any time before the earlier of the death of the Annuitant
or the Maturity Date, you may withdraw part of the Surrender Value. With
Qualified Contracts, the terms of the related retirement plan may impose
additional withdrawal restrictions on participants. For information regarding
these additional restrictions, you should consult your plan administrator.
The minimum amount which may be withdrawn under a Contract is $500; the
maximum amount is that which would leave a Surrender Value of not less than
$2,000. We will treat a withdrawal request which would reduce the amount in a
Subaccount or in the Guaranteed Account below $500 as a request for full
withdrawal of the amount in that Subaccount or the Guaranteed Account. We will
withdraw the amount requested by you from the Contract Account Value as of the
day Notice for the withdrawal is received at our Service Center. Any applicable
Surrender Charge is deducted from the remaining Contract Account Value. (See
"Surrender Charge.")
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<PAGE> 27
You may specify the amount to be withdrawn from certain Subaccounts or the
Guaranteed Account for the withdrawal. If you do not so specify or if the amount
in the designated 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 before the withdrawal.
A withdrawal may have adverse federal income tax consequences. (See
"Federal Tax Status.")
Systematic Withdrawals. Through the Systematic Withdrawal Plan, you may
pre-authorize a periodic exercise of the withdrawal right described in the
Contract. You may elect the plan at the time of your Application by completing
the authorization on the Application form and making a minimum initial premium
payment of $15,000. After the Contract is issued, you may elect the plan by
properly completing the election form if the Contract Account Value is at least
$15,000. Certain federal income tax consequences may apply to systematic
withdrawals from the Contract. You should, therefore, consult with your tax
adviser before participating in the Systematic Withdrawal Plan.
Under the Systemic Withdrawal Plan, you can instruct us to withdraw a level
dollar amount from the Contract on a monthly or quarterly basis. Withdrawals
begin on the monthly or quarterly date following our receipt of the request. The
minimum withdrawal is $100 monthly or $300 quarterly. The maximum amount which
you can withdraw under the plan in a Contract Year without a Surrender Charge
varies depending on the Contract Year in which a withdrawal is made as described
below under "Surrender Charge." During the first Contract Year this maximum
amount is 10% of the premiums paid in the first Contract Year if elected at the
time of Application. We will notify you if the total amount to be withdrawn in a
Contract Year exceeds the amount that may be withdrawn without a Surrender
Charge. Unless you instruct us to reduce the withdrawal amount for that year so
that it does not exceed the limit for free withdrawals, we will continue to
process withdrawals for the designated amount. Once the amount of the
withdrawals exceeds this limit, we will deduct the applicable Surrender Charge
from the remaining Contract Account Value. (See "Surrender Charge.")
We will pay you the amount requested each month or quarter and make
withdrawals from the Subaccounts and the Guaranteed Account based on the
proportion that the value in each Subaccount and Guaranteed Account bears to the
Contract Account Value immediately prior to the withdrawal.
Withdrawals under the Systematic Withdrawal Plan that do not exceed the
limits described above are not subject to a Surrender Charge. Notwithstanding
any other Surrender Charge rules (see "Surrender Charge"), any other withdrawal
in a year when the Systematic Withdrawal Plan has been utilized will be subject
to the Surrender Charge. If an additional withdrawal is made from a Contract
participating in the plan, systematic withdrawals will automatically terminate
and may only be reinstated on or after the beginning of the next Contract Year
pursuant to a new request.
You may discontinue systematic withdrawals at any time upon Notice to us.
We reserve the right to discontinue offering systematic withdrawals upon 30
days' notice to you.
Charitable Remainder Trust Rider. You may elect a Charitable Remainder
Trust Rider, which combines: (1) an extended Maturity Date to the Contract
Anniversary nearest the Annuitant's age 100, unless a lump sum payment of
Surrender Value is elected; and (2) a revised Surrender Charge/withdrawal
provision. A Charitable Remainder Trust Rider allows income to be distributed
and the payment of trustee fees and charges. The Rider only applies 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 is no limit on the number of withdrawals occurring in any
Contract Year.
Surrender. At any time before the earlier of the death of the Annuitant or
the Maturity Date, you may request a surrender of the Contract for its Surrender
Value. (See "Surrender Charge.") The surrender request must be on the proper
form, which you can request from our Service Center. The proceeds paid to you
will equal the Surrender Value less any withholding or premium taxes. The
Surrender Value will be determined on the date Notice of surrender and the
Contract are received at our Service
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<PAGE> 28
Center. The Surrender Value will be paid in a lump sum unless you request
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 section 403(b) retirement plans. Section 403(b)(11) of the Code
restricts the distribution under section 403(b) annuity contracts of: (1)
elective contributions made in years beginning after December 31, 1988; (2)
earnings on those contributions; and (3) earnings in those 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 described in (2) and (3) above 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 retirement plans funded by Qualified Contracts also may
impose restrictions on the ability of participants to take distributions from
the Contracts.
Contract Termination. We may end your Contract and pay the Surrender Value
to you if, before the Maturity Date, all of these events simultaneously exist;
1. no premiums have been paid for at least two years;
2. the Contract Account Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, is less than
$2,000.
We will mail you a notice of our intention to end your Contract at least
six months in advance. The Contract will automatically terminate on the date
specified in the notice, unless we receive an additional premium payment before
the termination date specified in the notice. This additional premium payment
must be equal to at least the minimum additional amount required by us.
(Termination of the Contract under this provision is not permitted in New
Jersey.)
DEATH BENEFIT BEFORE MATURITY DATE
Death of Annuitant. If the Annuitant dies before the Maturity Date, we
will pay the death benefit under the Contract to the Beneficiary. During the
first seven Contract Years, the death benefit is equal to the greater of: (1)
the premiums paid, less any withdrawals (including applicable Surrender
Charges); or (2) the Contract Account Value on the date we receive due proof of
Annuitant's death. After the end of the seventh Contract Year, the death benefit
is equal to the greatest of:
1. the Contract Account Value as of the end of the seventh Contract Year
plus subsequent premiums paid and less subsequent amounts withdrawn;
or
2. the Contract Account Value on the date we receive due proof of the
Annuitant's death; or
3. the premiums paid, less any withdrawals (including applicable
Surrender Charges).
The proceeds will be paid to the Beneficiary in a lump sum unless the Owner
or Beneficiary elects a Payment Option. If the Annuitant is the Owner, the
proceeds must be distributed in accordance with the rules set forth below in
"Death of Owner" for the death of an Owner before the Maturity Date.
There is no death benefit payable if the Annuitant dies after the Maturity
Date.
Death of Owner. If an Owner dies before the Maturity Date, federal tax law
requires (for a Non-Qualified Contract) that the Contract Account Value (or if
the Owner is the Annuitant, the proceeds payable upon the Annuitant's death) be
distributed to the Beneficiary within five years after the date of the Owner's
death. If an Owner dies on or after the Maturity Date, any remaining payments
must be distributed at least as rapidly as under the Payment Option in effect on
the date of the Owner's death.
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These distribution requirements will be considered satisfied as to any
portion of the proceeds payable to or for the benefit of a designated
Beneficiary, and which is distributed over the life (or a period not exceeding
the life expectancy) of that Beneficiary, provided that the distributions begin
within one year of the Owner's death. However, if the Owner's spouse is the
designated Beneficiary, the Contract may be continued with such surviving spouse
as the new Owner. If the Contract has joint Owners, the surviving joint Owner
will be the designated Beneficiary. Joint Owners must be husband and wife as of
the Contract Date.
If the Owner is not an individual, the Annuitant, as determined in
accordance with section 72(s) of the Code, will be treated as Owner for purposes
of these distribution requirements, and any changes in the Annuitant will be
treated as the death of the Owner.
Other rules may apply to a Qualified Contract.
Step-up Rider. The Step-up Rider is automatically included for Contracts
issued in states that permit the Rider for those Contracts with an Annuitant who
is age 0-70. The Step-up Rider provides a guaranteed minimum death benefit equal
to the Contract Account Value as of the six year Contract Anniversary and is
reset every six years to the Contract Account Value on the next six year
Contract Anniversary, if greater. This reset continues until the six year
Contract Anniversary on or before the Annuitant's 85th birthday. Premiums paid
between the six year Contract Anniversaries are also included in the death
benefit proceeds. A reduction in the guaranteed minimum death benefit for any
withdrawal will be based on the proportion of the withdrawal to the Contract
Account Value. At no time will the death benefit proceeds be less than either
the Contract Account Value on the date we receive due proof of the Annuitant's
death or the sum of premiums paid, less any withdrawals, including applicable
Surrender Charges.
PROCEEDS ON MATURITY DATE
Subject to our approval and state law you select the Maturity Date.
Contract Account Value is applied to purchase a Payment Option as of the
Maturity Date. If a lump sum payment is elected on the Maturity Date, the
proceeds will equal the Surrender Value on the Maturity Date. In the event that
you do not select a Payment Option, Contract Account Value is applied under the
Life Annuity with Ten Year Certain Payment Option. (See "Payment Options.")
You may change the Maturity Date subject to these limitations:
1. Notice is received at our Service Center at least 30 days before the
current Maturity Date;
2. The new Maturity Date is at least 30 days after we receive the change
request; and
3. The new Maturity Date is not later than the first day of the month after
the Annuitant's 90th birthday, or any earlier date required by law.
PAYMENTS
Any withdrawal, the Surrender Value, or the death benefit will usually be
paid within seven calendar days of receipt of written request or receipt and
filing of due proof of death. Payments may be postponed, however, 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;
2. the SEC permits by an order the postponement for the protection of
Owners; 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.
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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. If payment is not
made within 30 days after our receipt of documentation necessary to complete the
transaction, or any 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 you, we may modify the Contract, if a modification:
1. is necessary so that the Contract, our operations or the operations of
the Variable Account comply with applicable laws or regulations; or
2. is necessary to assure the 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 a modification, we will make appropriate endorsement to the
Contract.
REPORTS TO CONTRACT OWNERS
At least quarterly, we will mail to you, at your last known address of
record, a report containing the Contract Account Value and Surrender Value of
the Contract and any further information required by applicable law or
regulation.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to us at our Service
Center.
THE GUARANTEED ACCOUNT
You may allocate some or all of the Net Premiums and transfer some or all
of the amounts in the Subaccounts to the Guaranteed Account, which is part of
our General Account. The Guaranteed Account pays interest at declared rates that
are guaranteed for each calendar year and must be at least 3%. The principal,
after deductions, is also guaranteed. Our General Account supports our insurance
and annuity obligations. The Guaranteed Account has not, and is not required to
be, registered with the SEC under the Securities Act of 1933, and neither the
Guaranteed Account nor our General Account has been registered as an investment
company under the 1940 Act. Neither our 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. These
disclosures, however, 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 our General Account, we assume the risk of
investment gain or loss on this amount. All assets in the General Account are
subject to our general liabilities from business operations.
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MINIMUM GUARANTEED AND CURRENT INTEREST RATES
The Guaranteed Account Value is guaranteed to accumulate at a minimum
effective annual interest rate of 3%. We intend to credit the Guaranteed Account
Value with current rates in excess of this minimum guarantee but we are not
obligated to do so. These current interest rates are influenced by, but do not
necessarily correspond to, prevailing general market interest rates. Since we
anticipate changing the current interest rate in our discretion from time to
time, different allocations to the Guaranteed Account Value will be 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
calendar year in which an amount is received or transferred. At the end of the
calendar year, we will determine a new current interest rate on the amount and
any 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 this amount and any accrued interest thereon at
the end of each calendar year will be guaranteed for the following calendar
year. Any interest credited on the amounts in the Guaranteed Account in excess
of the minimum guaranteed effective annual interest rate of 3% will be
determined in our sole discretion. You assume the risk that interest credited
may not exceed the guaranteed minimum rate.
For purposes of crediting interest and deducting charges, the Guaranteed
Account uses a last-in, first-out method (i.e., LIFO) of accounting for
allocations of Net Premium Payments and for transfers of Contract Account Value.
We reserve the right to change the method of crediting interest from time
to time, provided that the changes do not have the effect of reducing the
minimum guaranteed effective annual interest rate below 3% or shorten the period
for which the interest rate applies to less than a calendar year (except for the
year in which an amount is received or transferred).
CALCULATION OF GUARANTEED ACCOUNT VALUE
The Guaranteed Account Value at any time is equal to amounts you allocate
or transfer to the Guaranteed Account plus interest credited on these amounts,
minus amounts deducted, transferred, or withdrawn from the Guaranteed Account.
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days before or after any Contract Anniversary, you may make one
transfer 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.
Subject to the next paragraph, if Notice for such transfer is received before a
Contract Anniversary, the transfer will be made as of the Contract Anniversary;
if Notice for a transfer is received within 30 days after the Contract
Anniversary, the transfer will be made as of the date we receive a Notice for a
transfer at our Service Center.
PAYMENT DEFERRAL
We may defer payment of any withdrawal, cash surrender, or transfer from
the Guaranteed Account for up to six months from the date of our receipt of the
Notice for withdrawal, surrender, or transfer.
CHARGES AND DEDUCTIONS
SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE)
General. We do not deduct a charge for sales expense from premiums at the
time they are paid. Within certain time limits described below, however, a
Surrender Charge (contingent deferred sales charge) is deducted from the
Contract Account Value if a withdrawal is made or a Contract is
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surrendered before annuity payments begin. If the Surrender Charge is
insufficient to cover sales expenses, the loss will be borne by us; conversely,
if the amount of the Surrender Charge is more than our sales expenses, the
excess will be retained by us. We do not currently believe that the Surrender
Charges will cover the expected costs of distributing the Contracts. Any
shortfall will be made up from our general assets, which may include proceeds
derived from mortality and expense risk charges.
Charges for Withdrawal or Surrender. If a withdrawal is made or a Contract
is surrendered, the applicable Surrender Charge will be as follows:
<TABLE>
<CAPTION>
CONTRACT YEAR IN WHICH CHARGES AS PERCENTAGE OF
WITHDRAWAL OR AMOUNT
SURRENDER OCCURS WITHDRAWN OR SURRENDERED
- ---------------------- ------------------------
<S> <C>
1 7%
2 6
3 5
4 4
5 3
6 2
7 1
8 and after 0
</TABLE>
We do not deduct a Surrender Charge if the withdrawal or surrender occurs
after seven full Contract Years. In addition, no Surrender Charge is deducted on
the Maturity Date if the Contract proceeds are applied under a Payment Option.
In no event will the total Surrender Charges assessed under a Contract
exceed 8 1/2% of the total premiums received under that Contract.
When a Contract is being surrendered, the Surrender Charge is deducted from
the Contract Account Value in determining the Surrender Value. For a withdrawal,
the Surrender Charge is deducted from the Contract Account Value remaining after
the amount requested is withdrawn.
Amounts Not Subject to Surrender Charge. During the first Contract Year,
the full amount of all withdrawals (and any surrender) will be subject to the
Surrender Charge. Starting in the second Contract Year, the Surrender Charge
will be applied to the portion of the withdrawal or surrender which is in excess
of the percentage listed in the table below for the applicable Contract Year:
<TABLE>
<CAPTION>
% OF CONTRACT
ACCOUNT VALUE
AT BEGINNING OF
CONTRACT YEAR CONTRACT YEAR
------------- ---------------
<S> <C>
1 0%
2 20%
3 30%
4 40%
5 50%
6 60%
7 70%
</TABLE>
Amounts up to the Contract Account Value percentage shown above are
available for withdrawal in the applicable Contract Year without the imposition
of a Surrender Charge. However, starting in Contract Year three, and in each
subsequent Contract Year listed above, the applicable percentage for each year
will be reduced by the total percentage withdrawn from the Contract Account
Value in prior years. There is no limit on the number of withdrawals occurring
in any Contract Year.
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ADMINISTRATIVE CHARGES
Annual Administration Fee. On each Contract Anniversary prior to and
including the Maturity Date, and upon surrender of a Contract or on the Maturity
Date (other than on a Contract Anniversary), we deduct from the Contract Account
Value an Annual Administration Fee of $30 for our administrative expenses
relating to the Contract. The charge is deducted from each Subaccount and the
Guaranteed Account based on the proportion that the value in each such account
bears to the total Contract Account Value. Some states may limit the amount of
the Annual Administration Fee. We reserve the right to increase this fee up to
$40. No Annual Administration Fee is payable during the annuity period.
Asset-Based Administration Charge. To compensate us for costs associated
with administration of the Contracts, prior to the Maturity Date we deduct a
daily asset-based administration charge from the assets of the Variable Account
equal to an annual rate of 0.15%. We reserve the right to increase this fee up
to 0.25%.
The Contracts are administered by PMLIC pursuant to a Service Agreement
between PMLIC and ourselves. Under the agreement, PMLIC also maintains records
of transactions relating to the Contracts and provides other services.
MORTALITY AND EXPENSE RISK CHARGE
To compensate us for assuming mortality and expense risks, prior to the
Maturity Date we deduct a daily Mortality and Expense Risk Charge from the
assets of the Variable Account. We will impose a charge in an amount that is
equal to an annual rate of 1.25% (daily rate of .00342466%) (approximately 0.70%
for mortality risk and 0.55% for expense risk).
The mortality risk we assume is that Annuitants may live for a longer
period of time than estimated when the guarantees in a Contract are 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 we assume
also includes a guarantee to pay a death benefit if the Annuitant dies before
the Maturity Date. The expense risk we assume is the risk that the Surrender
Charges and Administration Fees may be insufficient to cover our actual
expenses. If there are any profits from fees and charges deducted under the
Contract, including but not limited to mortality and expense risk charges, these
profits could be used to finance the distribution of the Contracts.
INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE PORTFOLIOS
Because the Variable Account purchases shares of the Portfolios, the
performance of each Subaccount reflects the deduction of investment advisory
fees and other expenses incurred by the Portfolios. 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 fee paid depends on the size of Portfolio.
Each Portfolio also pays most or all of its operating expenses. See the
accompanying current prospectuses for the Portfolios for further details.
PREMIUM TAXES
Various states and other governmental entities levy a premium tax on
annuity contracts issued by insurance companies. Premium tax rates are subject
to change from time to time by legislative and other governmental action and
currently range from 0.0% to 4.0%. In addition, other governmental units within
a state may levy these 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 the taxes are paid to the taxing authority, either (1) from premiums as
they are received, or (2) from the Contract proceeds upon withdrawal or
surrender, application of the proceeds to a Payment Option, or payment of death
benefit proceeds.
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OTHER TAXES
Currently, we do not make a charge against the Variable Account for
federal, state or local taxes. We may, however, make such a charge in the future
if income or gains within the Variable Account will result in any federal income
tax liability to us. Charges for other taxes attributable to the Variable
Account, if any, may also be made.
PAYMENT OPTIONS
The Contract ends on the Maturity Date. At that time the Contract Account
Value will be applied to purchase a Payment Option, unless you elect to receive
the Surrender Value in a single sum. If your election of a Payment Option has
not been filed at our Service Center by the Maturity Date, the proceeds will be
paid as a life annuity under Option B described below.
Before the Maturity Date, you can have the Surrender Value applied under a
Payment Option. In addition, a Beneficiary can have the death benefit applied
under a Payment Option, unless you have already selected a Payment Option for
the Beneficiary. Any premium tax applicable will be deducted from the Surrender
Value or the Contract Account Value at the time payments commence.
Your Contract must be surrendered so that the applicable amount can be paid
in a lump sum or a supplemental contract for the applicable Payment Option can
be issued. 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 still alive. Before making each annuity payment under a
life-contingent Payment Option, we reserve the right to require satisfactory
evidence that any Annuitant is alive.
The available Payment Options 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.
ELECTION OF PAYMENT OPTIONS
A Payment Option may be elected, revoked, or changed at any time before the
Maturity Date while the Annuitant is living. If the Payee is other than the
Owner, the election of a Payment Option requires our consent. If an election is
not in effect at the Annuitant's death, or if payment is to be made in one sum
under an existing election, the Beneficiary may elect one of the options after
the death of the Annuitant.
An election of option and any revocation or change must be made by Notice.
Notice must be filed with our Service Center.
An option may not be elected if any periodic payment under the election
would be less than $50. Subject to this condition, payments may be made
annually, semi-annually, quarterly, or monthly and are made at the beginning of
the period.
In addition, instead of choosing one of the Payment Options listed below,
you may elect to receive payments in any other manner that is acceptable to us
and permissible under applicable law.
DESCRIPTION OF PAYMENT OPTIONS
Option A -- Life Annuity Option. Under this Payment Option, payments are
made in equal amounts each month during the Payee's lifetime with payments
ceasing with the last payment prior to the death of the Payee. No amounts are
payable after the Payee dies. Therefore, if the Payee dies immediately following
the date of the first payment, the Payee will receive one monthly payment only.
Option B -- Life Annuity Option with 10 Years Guaranteed. Under this
Payment Option, payments are made in equal amounts each month during the Payee's
lifetime with the guarantee that payments will be made for a period of not less
than ten years. Under this option, if any Beneficiary dies while receiving
payment, the present value of the current dollar amount on the date of death of
any remaining guaranteed
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<PAGE> 35
payments will be paid in one sum to the executors or administrators of the
Beneficiary unless otherwise provided in writing. Calculation of this present
value will be at 3% which is the rate of interest assumed in computing the
amount of annuity payments.
The amount of each payment will be determined from the tables in the
Contract which apply to either Option A or Option B based upon Payee's age and
sex. If the Contract is sold in a group or employer-sponsored arrangement, the
amount of the payments will be based on the Payee's age, only. Age is determined
from the nearest birthday at the due date of the first payment.
Alternate Income Option. Instead of the above Payment Options, the
Contract Account Value, Surrender Value, or death benefit, as applicable, may be
settled under an Alternate Income Option based on our single premium immediate
annuity rates in effect at the time of settlement. These rates will be adjusted
so that the first payment will be made immediately (at the beginning of the
first month, rather than at the end of the month) which will result in receipt
of one additional payment. These rates are 4% higher than our standard immediate
annuity rates.
YIELDS AND TOTAL RETURNS
From time to time, we may advertise or include in sales literature
historical performance data, including yields, effective yields, standard annual
total returns, and non-standard 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 SAI.
Effective yields and total returns for a Subaccount are based on the
investment performance of the corresponding Portfolio. A Portfolio's performance
reflects the Portfolio's 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 returns for these periods are
provided. For periods prior to the date a Subaccount commenced operations,
performance information for Contracts funded by that Subaccount may also be
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.
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
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<PAGE> 36
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 versions described above, total return performance
information computed on other versions may be used in advertisements and sales
literature. Average total return information may be presented, computed on the
same basis as described above, except deductions will not include the Surrender
Charge. Total return information will be higher when the Surrender Charge is
excluded than when it is included. We also may disclose, with and without
deductions for the Surrender Charge, cumulative total return information.
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 performance data, please refer to the
SAI.
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
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in 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 these 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 Composite Index of 500 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 sources of performance comparison.
We may also report other information, including the effect of tax-deferred
compounding on a Subaccount's investment returns, or returns in general, which
may be illustrated by tables, graphs, or charts. All income and capital gains
derived from Subaccount investments are reinvested and can lead to substantial
long-term accumulation of assets, provided that the underlying Portfolio's
investment experience is positive.
FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
The following summary provides a general description of the federal income
tax considerations associated with the Contract and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. You should consult your tax adviser for more complete information. This
discussion is based upon our understanding of the present federal income tax
laws. No
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<PAGE> 37
representation is made as to the likelihood of continuation of the present
federal income tax laws or 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 consist 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 requirements 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 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 Contract to be
treated as an annuity contract 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 because of
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 we believe that the Contract
does not give Owners investment control over Variable Account assets, we reserve
the right to modify the Contract as necessary to prevent an Owner from being
treated as the owner of the Variable Account assets supporting the Contract.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any Non-Qualified Contract to
contain certain provisions specifying how the Owner's interest in the Contract
will be distributed in the event of the Owner's 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 these provisions and modify them if necessary
to assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES -- IN GENERAL
We believe that if an Owner is a natural person, the Owner 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 retirement, generally is treated as a
distribution.)
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TAXATION OF NON-QUALIFIED CONTRACTS
Non-Natural Person. The Owner of a 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 and Surrenders. 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 and Surrenders. 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.
Annuity Payments. Although tax consequences may vary depending on the
Payment Option elected under a Contract, a portion of each annuity payment is
generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a manner
that is designed to allow an Owner to recover his or her investment in the
Contract ratably on a tax-free basis over the expected stream of annuity
payments, as determined when annuity payments start. Once an investment in the
Contract has been fully recovered, however, the full amount of each annuity
payment is subject to tax as ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the Owner's or Annuitant's death. Generally, these amounts
are includible in the income of the recipient as follows: (1) if distributed in
a lump sum, the amounts are taxed in the same manner as a surrender of the
Contract; or (2) if distributed under a Payment Option, the amounts 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
tax consequences to an Owner that are not discussed here. An Owner contemplating
any transfer, assignment or exchange should consult a tax adviser as to these
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 the
Owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified
retirement 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
35
<PAGE> 39
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 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 we are not bound by the terms and conditions of any plan to the extent these
terms and conditions contradict the Contract.
The Owner may wish to consult a tax adviser regarding the use of the
Contract within a qualified retirement plan or in connection with other employee
benefit plans or arrangements that receive favorable tax treatment, since many
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, however, the investment in the Contracts will
generally be zero unless nondeductible contributions have previously been made
to the relevant qualified plan or employer contributions or investment earnings
have been previously includible in income of the employee.
Brief descriptions follow of different types of qualified retirement plans
that may be used in connection with a Contract. We will endorse the Contract as
necessary to conform it to the requirements of a 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 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 a Contract is assigned or transferred to any individual
as a means to provide benefit payments, unless the plan complies with all
applicable legal requirements 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 legal limitations on
the amount of the premiums or contributions under the IRA, the deductible amount
of the contribution, the persons who may be eligible, and the time when
distributions commence. Also, distributions from certain other types of
qualified retirement plans may be "rolled over" or transferred on a tax-deferred
basis into an IRA. There are significant restrictions on rollover or transfer
contributions from savings incentive match plans for employees (SIMPLE), which
allow certain small employers to make contributions to IRAs on behalf of their
employees. Employers may also establish simplified employee pension (SEP) plans
to make IRA contributions on behalf of their employees. The Code may impose
additional restrictions on IRAs.
Roth IRAs. Effective January 1, 1998, section 408A of the Code has
permitted 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 contributions to the Roth IRA, are also not
subject to tax. "Qualified distributions" are distributions that satisfy a five
year holding period and are made: (1) after the owner
36
<PAGE> 40
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 that 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 a Contract generally are subject to withholding for the
Owner's federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and section
403(b) tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. Generally, an eligible rollover distribution is the taxable
portion of any distribution from these plans, except for certain distributions
such as minimum distributions required by the Code, distributions paid in the
form of an annuity, and certain hardship withdrawals. The 20% withholding does
not apply, however, if the Owner chooses a "direct rollover" from the plan to
another section 401(a) or section 403(b) plan (as applicable) or to an IRA.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contract 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 Contract 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 our understanding of
current law, and the law may change. Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Owner or
recipient of the distribution. A tax adviser should be consulted for further
information.
DISTRIBUTION OF CONTRACTS
The Contracts are offered to the public on a continuous basis. Although we
do not anticipate discontinuing the offering of the Contracts, we reserve the
right to do so. Applications for Contracts are solicited by agents who are
licensed by applicable state insurance authorities and authorized by us to sell
the Contracts, and who are registered representatives of 1717 or other
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. 1717 is also a member of the National Association of Securities
Dealers, Inc.
1717 acts as the principal underwriter, as defined in the 1940 Act, of the
Contracts pursuant to an Underwriting Agreement between 1717 and ourselves. 1717
is not obligated to sell any specific number of
37
<PAGE> 41
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 that have a selling agreement with 1717 or have a selling agreement with
another broker-dealer that has a selling agreement with 1717. 1717 receives full
commissions on Contracts sold by its registered representatives. Nonaffiliated
broker-dealers receive full commissions on Contracts sold by their registered
representatives, less a nominal charge by 1717 for expenses incurred. The
commissions paid are no greater than 7% of premiums.
Compensation may be paid in the form of non-cash compensation, subject to
applicable regulatory requirements. In some circumstances and to the extent
permitted by applicable regulatory requirements, 1717 may reimburse certain
sales and marketing expenses or pay other forms of special compensation to
selling broker-dealers.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are from
time to time involved in lawsuits, including class action lawsuits. In some
lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC and PLACA believe that at
the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on either of them or the
Variable Account.
VOTING PORTFOLIO SHARES
Even though we are the legal owner of the Portfolio shares held in the
Subaccounts, and have the right to vote on all matters submitted to shareholders
of the Portfolios, we will vote the shares as Owners instruct, so long as
required by law.
We will calculate the number of votes you may vote separately for each
Subaccount. This amount may include fractional votes. The number of votes
attributable to a Subaccount will be determined by applying your percentage
interest, if any, in a particular Subaccount to the total number of votes
attributable to that Subaccount. You hold this voting interest in each
Subaccount to which your Variable Account Value is allocated. Your voting
interest terminates on the Maturity Date or surrender of the Contract.
The number of votes of a Portfolio you may vote will be determined as of
the record date. Before a vote of a Portfolio's shareholders occurs, you will
receive voting materials. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of Portfolio shares that corresponds to the amount of Contract
Account Value you have in that Portfolio (as of a date set by that Portfolio).
If we do not receive voting instructions from you on time, we will vote
your shares in the same proportion as the timely voting instructions we receive
from other Owners. Should federal securities laws, regulations, or
interpretations change, we may elect to vote Portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, under certain circumstances we may disregard certain Owner voting
instructions. If we disregard voting instructions, we will send you a summary in
the next annual report to Owners advising you of the action and the reasons we
took such action.
Portfolio shares held by us in a Subaccount as to which Owners do not have
a voting interest will be voted in proportion to the voting instructions we
receive from Owners with respect to the shares they do vote. If you instruct us
to abstain on any item to be voted upon, we will apply your abstention
instruction on a pro rata basis to reduce the votes eligible to be cast by us.
38
<PAGE> 42
FINANCIAL STATEMENTS
Our audited statements of financial condition as of December 31, 1999 and
1998, and the related statements of operations, equity, and cash flows for each
of the three years for the period ended December 31, 1999, as well as the Report
of Independent Accountants, are contained in the SAI. The audited statements of
assets and liabilities for the Variable Account as of December 31, 1999, 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
also included in the SAI.
39
<PAGE> 43
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Contract Provisions.............................. S-2
The Contract........................................... S-2
Incontestability....................................... S-2
Misstatement of Age or Sex............................. S-2
Non-Participation...................................... S-2
Calculation of Yields and Total Returns..................... S-2
Money Market Subaccount Yields......................... S-3
Other Subaccount Yields................................ S-4
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-7
Effect of the Administration Fee on Performance Data... S-10
Termination of Participation Agreements..................... S-10
Standard & Poor's........................................... S-12
Safekeeping of Account Assets............................... S-12
State Regulation............................................ S-13
Records and Reports......................................... S-13
Legal Matters............................................... S-13
Experts..................................................... S-13
Other Information........................................... S-13
Financial Statements........................................ S-13
</TABLE>
40
<PAGE> 44
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 SAI under the caption "Financial Statements."
The table below sets forth certain information regarding the Subaccounts as
of December 31, 1999. As of December 31, 1999, the Strong Mid Cap Growth Fund II
Subaccount and the Strong Opportunity Fund II 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 12/31/99 12/31/99 12/31/98 12/31/98 12/31/97
---------- ---------- ----------------- ---------- ----------------- ----------
<S> <C> <C> <C> <C> <C>
Market Street All Pro Large Cap
Growth............................... 721.62 16,594.64 583.02 3,398.61
Market Street All Pro Large Cap
Value................................ 490.76 10,251.06 490.39 3,752.20
Market Street All Pro Small Cap
Growth............................... 919.80 15,683.15 485.44 2,787.56
Market Street All Pro Small Cap
Value................................ 370.54 8,460.21 408.65 2,343.81
Market Street Equity 500 Index
(formerly Fidelity Index 500)........ 1,636.75 91,709.23 1,377.32 61,689.14 1,080.42
Market Street International........... 975.06 22,407.12 764.54 22,728.56 704.02
Market Street Growth.................. 1,082.22 36,535.03 1,065.67 34,680.05 950.55
Market Street Aggressive Growth....... 1,014.50 12,579.61 887.21 12,301.49 833.15
Market Street Managed................. 861.32 17,728.19 866.94 18,219.44 781.27
Market Street Bond.................... 608.19 21,753.98 637.92 18,437.76 597.74
Market Street Money Market............ 618.73 77,880.41 598.06 62,328.14 575.95
Alger Small Capitalization............ 875.61 6,828.28
Neuberger Berman AMT Bond............. 562.85 2,870.46 1,245.95 74,160.15 905.80
Neuberger Berman AMT Partners......... 490.99 2,977.32 743.43 26,474.33 788.02
Van Eck Worldwide Bond................ 535.14 3,677.74
Van Eck Worldwide Emerging Markets.... 587.10 11,368.57 1,127.92 46,442.16 879.99
Van Eck Worldwide Hard Assets......... 411.96 1,882.22 866.16 42,506.75 763.46
Van Eck Worldwide Real Estate......... 411.36 1,158.87
Fidelity -- Equity-Income............. 1,168.00 85,196.19
Fidelity -- Growth.................... 1,688.61 95,738.72 588.75 430.59
Fidelity -- High Income............... 792.88 28,780.47
Fidelity -- Overseas.................. 904.13 6,052.64 297.26 1,094.81
Fidelity -- Asset Manager............. 948.86 49,766.45 345.27 791.04
Fidelity -- Contrafund(R)............. 1,382.01 63,090.61 1,113.96 78,563.14 1,011.99
Fidelity -- Investment Grade Bond..... 594.26 5,808.14 425.72 396.85
<CAPTION>
NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS
OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF
SUBACCOUNT 12/31/97 12/31/96 12/31/96 12/31/95 12/31/95
---------- ----------------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
Market Street All Pro Large Cap
Growth...............................
Market Street All Pro Large Cap
Value................................
Market Street All Pro Small Cap
Growth...............................
Market Street All Pro Small Cap
Value................................
Market Street Equity 500 Index
(formerly Fidelity Index 500)........ 48,054.18 831.78 27,336.06 686.84 10,498.25
Market Street International........... 23,495.92 651.04 23,424.42 595.43 17,907.81
Market Street Growth.................. 32,051.38 775.34 26,301.47 657.63 18,875.42
Market Street Aggressive Growth....... 11,389.39 697.07 9,335.43 584.65 6,154.75
Market Street Managed................. 16,899.90 653.55 13,564.35 592.07 9,803.13
Market Street Bond.................... 10,217.64 553.59 7,672.67 545.35 4,938.33
Market Street Money Market............ 45,925.41 554.47 45,000.79 534.58 30,689.17
Alger Small Capitalization............
Neuberger Berman AMT Bond............. 67,965.10 743.89 59,854.74 657.74 34,695.62
Neuberger Berman AMT Partners......... 21,860.95 679.15 14,990.01 604.03 7,048.75
Van Eck Worldwide Bond................
Van Eck Worldwide Emerging Markets.... 38,683.95 718.85 23,454.47 601.00 7,495.00
Van Eck Worldwide Hard Assets......... 37,474.25 641.70 32,768.43 567.88 28,966.21
Van Eck Worldwide Real Estate.........
Fidelity -- Equity-Income.............
Fidelity -- Growth....................
Fidelity -- High Income...............
Fidelity -- Overseas..................
Fidelity -- Asset Manager.............
Fidelity -- Contrafund(R)............. 73,730.38 801.08 61,560.52 710.92 38,336.60
Fidelity -- Investment Grade Bond.....
<CAPTION>
UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS
AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF
SUBACCOUNT 12/31/94 12/31/94 12/31/93 12/31/93
---------- ---------- ----------------- ---------- -----------------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap
Growth...............................
Market Street All Pro Large Cap
Value................................
Market Street All Pro Small Cap
Growth...............................
Market Street All Pro Small Cap
Value................................
Market Street Equity 500 Index
(formerly Fidelity Index 500)........ 507.68 3,571.24 509.51 818.51
Market Street International........... 528.22 15,548.80 534.25 2,539.74
Market Street Growth.................. 511.45 12,476.41 506.46 3,168.61
Market Street Aggressive Growth....... 522.44 2,846.86 529.79 452.21
Market Street Managed................. 482.84 8,582.76 498.70 2,536.72
Market Street Bond.................... 459.55 3,487.30 493.74 1,656.64
Market Street Money Market............ 513.30 16,531.43 501.47 4,652.76
Alger Small Capitalization............
Neuberger Berman AMT Bond............. 492.73 19,272.81 499.75 2,368.98
Neuberger Berman AMT Partners......... 507.88 4,060.78 523.11 298.26
Van Eck Worldwide Bond................
Van Eck Worldwide Emerging Markets.... -- -- -- --
Van Eck Worldwide Hard Assets......... 492.38 28,637.01 531.69 2,806.80
Van Eck Worldwide Real Estate.........
Fidelity -- Equity-Income.............
Fidelity -- Growth....................
Fidelity -- High Income...............
Fidelity -- Overseas..................
Fidelity -- Asset Manager.............
Fidelity -- Contrafund(R)............. 533.64 16,111.04 505.43 2,674.86
Fidelity -- Investment Grade Bond.....
</TABLE>
A-1
<PAGE> 45
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT
(REGISTRANT)
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA,
(DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DELAWARE 19713
1-800-688-5177
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
This Statement of Additional Information ("SAI") contains additional
information regarding the individual flexible premium deferred variable annuity
contract (the "Contract") offered by Providentmutual Life and Annuity Company of
America ("PLACA"). This SAI is not a prospectus, and should be read together
with the prospectus for the Contract dated May 1, 2000 and the prospectuses for
Market Street Fund, Inc.; Alger American Fund; Neuberger Berman Advisers
Management Trust; Strong Variable Insurance Funds, Inc.; Strong Opportunity Fund
II, Inc., Van Eck Worldwide Insurance Trust; Variable Insurance Products Fund;
and Variable Insurance Products Fund II. You may obtain a copy of these
prospectuses by writing or calling us at our address or phone number shown
above. Capitalized terms in this SAI have the same meanings as in the prospectus
for the Contract.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 2000
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (19-32)...................... 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 (32-33)............. S-2
Money Market Subaccount Yields......................... S-3
Other Subaccount Yields................................ S-4
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-7
Effect of the Administration Fee on Performance Data... S-10
TERMINATION OF PARTICIPATION AGREEMENTS..................... S-10
STANDARD & POOR'S........................................... S-12
SAFEKEEPING OF ACCOUNT ASSETS............................... S-12
STATE REGULATION............................................ S-13
RECORDS AND REPORTS......................................... S-13
LEGAL MATTERS (38).......................................... S-13
EXPERTS..................................................... S-13
OTHER INFORMATION........................................... S-13
FINANCIAL STATEMENTS........................................ S-13
FINANCIAL STATEMENTS INDEX (Appendix A)..................... F-1
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the prospectus for the
Contract.
<PAGE> 46
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract between you and us is made up of the Contract and your
Application. The statements made in the Application are deemed representations
and not warranties. We cannot use any statement in defense of a claim or to void
a Contract unless it is contained in the Application and a copy of the
Application is attached to the Contract at issue.
INCONTESTABILITY
We will not contest the Contract after it has been in force during the
Annuitant's lifetime for two years from the Contract Date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, we will pay the
amount which the proceeds would have purchased at the correct age and sex.
If we make an overpayment because of an error in age or sex, the
overpayment plus interest at 3% compounded annually will be a debt against the
Contract. If the debt is not repaid, future payments will be reduced
accordingly.
If we make an underpayment because of an error in age or sex, any annuity
payments will be recalculated at the correct age and sex and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in our
divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, we may disclose historical performance data for the
Subaccounts including yields, effective yields, annual total returns, and other
measures of performance. This performance data will be computed, or accompanied
by performance data computed, in accordance with SEC standards.
Because of the charges and deductions imposed under a Contract, performance
data for the Subaccounts will be lower than performance data for their
corresponding Portfolios. The performance of a Subaccount will be affected by
expense reimbursements and fee waivers applicable to their corresponding
Portfolios. Without these reimbursements and waivers, performance could be
lower. In addition 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 the
premium depending on the state in which the Contract is sold.
The Funds have provided all performance information for the Portfolios,
including the Portfolio total return information used to calculate the total
returns of the Subaccounts for periods prior to the inception of the
Subaccounts. Market Street Fund is affiliated with PLACA. None of the other
Funds is affiliated with PLACA. While PLACA has no reason to doubt the accuracy
of the figures provided by these non-affiliated Funds, PLACA does not represent
that they are true and complete, and disclaims all responsibility for these
figures.
S-2
<PAGE> 47
PERFORMANCE FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR
REPRESENTATION OF FUTURE PERFORMANCE. THE PERFORMANCE OF EACH SUBACCOUNT WILL
FLUCTUATE ON A DAILY BASIS.
MONEY MARKET SUBACCOUNT YIELDS
From time to time, sales literature or advertisements 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 one Accumulation Unit in the Money
Market Subaccount at the beginning of the period, dividing the net change in
account value by the value of the hypothetical account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365-day basis. The net change in account value reflects: (1) net investment
income of the Portfolio attributable to the hypothetical account; and (2)
charges and deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: (1) the Annual Administration Fee; (2) the
Asset-Based Administration Charge; and (3) the Mortality and Expense Risk
Charge. For purposes of calculating current yields for a Contract, an average
per unit administration fee is used based on the $30 Annual 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 (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 one Accumulation Unit in the Money Market Subaccount.
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 (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 one Accumulation Unit in the Money Market Subaccount.
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 Money Market Subaccount's yield is affected by changes in interest
rates on money market securities, the 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.
S-3
<PAGE> 48
Yields on amounts held in the Money Market Subaccount may also be presented for
periods other than a seven-day period.
Yield calculations do not take into account the Surrender Charge under the
Contract, which ranges from 7% in the first Contract year to 1% during the
seventh Contract year on amounts surrendered or withdrawn under the Contract.
The current yield and effective yield for the Money Market Subaccount for
the seven days ended December 31, 1999 were 3.81% and 3.88%, respectively.
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 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 dividing: (1) the net investment income of the
Portfolio attributable to the Subaccount's Accumulation Units less Subaccount
expenses for the period; by (2) the maximum offering price per Accumulation Unit
on the last day of the period times the daily average number of Accumulation
Units outstanding for the period. This number is then compounded for a six-month
period and multiplied by 2. Expenses attributable to the Subaccount include the
Annual Administration Fee, the Asset-Based Administration Charge and the
Mortality and Expense Risk Charge. The yield calculation assumes an Annual
Administration Fee of $30 per year per Contract deducted at the end of each
Contract Year. For purposes of calculating the 30-day or one-month yield, an
average administration fee per dollar of the Variable Account Value is used to
determine the amount of the charge attributable to the Subaccount for the 30-day
or one-month period. The 30-day or one-month yield is calculated according to
the following formula:
Yield = 2 X (((NI - ES)/(U X UV)) + 1)(6)-1
Where:
NI = net investment income of the Portfolio for the 30-day or one-month
period attributable to the Subaccount's Accumulation Units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of Accumulation Units outstanding.
UV = the unit value at the close of the last day in the 30-day or
one-month period.
A Subaccount's yield is affected by changes in interest rates, the average
portfolio maturity of a Portfolio, the types and quality of portfolio securities
held by the Portfolio, and a Portfolio's operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract, which ranges from 7% in the first Contract Year to 1% during the
seventh Contract Year on amounts surrendered or withdrawn under the Contract.
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 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
S-4
<PAGE> 49
time, also be disclosed. Average annual total return for the Market Street Fund
International, Growth, Aggressive Growth, Managed, Bond, and Money Market
Subaccounts may include information for the period before any contracts were
registered under the Securities Act of 1933 from the inception of these
Subaccounts (April 4, 1992) to December 31, 1992, with the level of Contract
charges currently in effect.
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 normally be for the most recent calendar quarter, 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 based on the performance of the Subaccount's underlying Portfolio, the
deductions for the Mortality and Expense Risk Charge, the Asset-Based
Administration Charge, and the Annual Administration Fee. The calculation
assumes that the Annual Administration Fee is $30 per year per Contract deducted
at the end of each Contract Year. For purposes of calculating average annual
total return, an average administration fee per dollar of the Variable Account
Value is used to determine the amount of the charge attributable to the
Subaccount for the period. The calculation also assumes surrender of the
Contract at the end of the period for the return quotation. Total returns will
therefore reflect a deduction of the Surrender Charge for any period during the
first six Contract 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 Subaccount recurring charges and
any applicable Surrender Charge) of the hypothetical account at the
end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Based on the foregoing calculations, average annual total return
information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/99 12/31/99 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998)...... 14.83% 25.55%
All Pro Large Cap Value (May 22, 1998)....... (7.21)% (3.67)%
All Pro Small Cap Growth (May 29, 1998)...... 75.94% 48.20%
All Pro Small Cap Value (May 29, 1998)....... (15.95)% (17.25)%
Equity 500 Index(1) (October 1, 1993)........ 12.85% 26.06% 20.65%
International (April 14, 1992)............... 21.13% 12.68% 11.52%
Growth (April 14, 1992)...................... (3.61)% 15.82% 11.67%
Aggressive Growth (April 14, 1992)........... 8.57% 13.83% 9.62%
Managed (April 14, 1992)..................... (5.70)% 11.90% 9.68%
Bond (April 14, 1992)........................ (9.52)% 5.35% 4.34%
Money Market (April 14, 1992)................ (1.80)% 3.38% 2.82%
ALGER AMERICAN FUND
Small Capitalization (July 5, 1996).......... 34.35% 17.50%
</TABLE>
S-5
<PAGE> 50
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/99 12/31/99 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond (July 5, 1996)......... (5.02)% 3.89%
Partners (May 1, 1998)....................... 0.51% (3.91)%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996)................ (13.75)% 1.80%
Worldwide Emerging Markets (July 5, 1996).... 87.74% 3.84%
Worldwide Hard Assets (July 5, 1996)......... 13.30% (5.64)%
Worldwide Real Estate (May 1, 1998).......... (8.30)% (13.66)%
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 1, 1993).............. (0.47)% 16.61% 14.38%
Growth (October 1, 1993)..................... 28.74% 27.62% 21.42%
High Income (October 1, 1993)................ 1.25% 8.93% 7.53%
Overseas (July 5, 1996)...................... 33.61% 18.73%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (October 1, 1993).............. 4.00% 13.66% 10.60%
Contrafund(R) (May 8, 1995).................. 16.36% 23.77%
Investment Grade Bond (July 5, 1996)......... (7.39)% 5.05%
</TABLE>
- ---------------
(1) As of February 7, 2000, shares of the Market Street Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date a Subaccount
commenced operations. This 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.
Based on this method of calculation, average annual total return
information for the Subaccount is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/99 12/31/99 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998)........... 14.83% 20.90%
All Pro Large Cap Value (May 4, 1998)............ (7.21)% (4.31)%
All Pro Small Cap Growth (May 4, 1998)........... 75.94% 40.04%
All Pro Small Cap Value (May 4, 1998)............ (15.95)% (19.32)%
International (November 1, 1991)................. 21.13% 12.68% 9.93%
Growth (December 12, 1985)....................... (3.61)% 15.82% 10.84%
Aggressive Growth (May 1, 1989).................. 8.57% 13.83% 12.86%
Managed (December 12, 1985)...................... (5.70)% 11.90% 8.29%
Bond (December 12, 1985)......................... (9.52)% 5.35% 5.08%
Money Market (December 12, 1985)................. (1.80)% 3.38% 3.28%
ALGER AMERICAN FUND
Small Capitalization (September 21, 1988)........ 34.35% 20.61% 16.51%
</TABLE>
S-6
<PAGE> 51
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/99 12/31/99 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond (September 10, 1984)....... (5.02)% 3.63% 4.17%
Partners (March 22, 1994)........................ 0.51% 19.00% 41.09%
STRONG VARIABLE INSURANCE FUNDS, INC.
Mid Cap Growth Fund II (December 31, 1996)....... 80.14% 43.85%
STRONG OPPORTUNITY FUND II
Opportunity Fund II (May 8, 1992)................ 25.94% 21.23% 19.28%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... (13.75)% 3.17% 3.77%
Worldwide Emerging Markets (December 27, 1995)... 87.74% 7.80%
Worldwide Hard Assets (September 1, 1989)........ 13.30% (0.38)% 1.36%
Worldwide Real Estate (June 23, 1997)............ (8.30)% (0.70)%
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 9, 1986).................. (0.47)% 16.61% 12.80%
Growth (October 9, 1986)......................... 28.74% 27.62% 18.21%
High Income (September 19, 1985)................. 1.25% 8.93% 10.76%
Overseas (January 28, 1987)...................... 33.61% 15.39% 9.75%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (September 6, 1989)................ 4.00% 13.66% 11.46%
Contrafund(R) (January 3, 1995).................. 16.36% 25.48%
Investment Grade Bond (December 5, 1988)......... (7.39)% 5.40% 5.52%
</TABLE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account the Surrender Charge on amounts surrendered or withdrawn.
S-7
<PAGE> 52
Based on this method of calculation, average annual total return
information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/99 12/31/99 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998)........ 23.47% 29.51%
All Pro Large Cap Value (May 22, 1998)......... (0.22)% (0.66)%
All Pro Small Cap Growth (May 29, 1998)........ 89.18% 52.88%
All Pro Small Cap Value (May 29, 1998)......... (9.63)% (14.63)%
Equity 500 Index(1) (October 1, 1993).......... 18.54% 26.26% 20.69%
International (April 14, 1992)................. 27.24% 12.86% 11.52%
Growth (April 14, 1992)........................ 1.25% 16.01% 11.67%
Aggressive Growth (April 14, 1992)............. 14.05% 14.02% 9.62%
Managed (April 14, 1992)....................... (0.95)% 12.08% 9.68%
Bond (April 14, 1992).......................... (4.96)% 5.52% 4.34%
Money Market (April 14, 1992).................. 3.16% 3.55% 2.82%
ALGER AMERICAN FUND
Small Capitalization (July 5, 1996)............ 41.13% 17.23%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond (July 5, 1996)........... (0.23)% 3.18%
Partners (May 1, 1998)......................... 5.58% (1.39)%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996).................. (9.40)% 1.68%
Worldwide Emerging Markets (July 5, 1996)...... 97.21% 4.45%
Worldwide Hard Assets (July 5, 1996)........... 19.02% (5.75)%
Worldwide Real Estate (May 1, 1998)............ (3.67)% (11.39)%
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 1, 1993)................ 4.55% 16.80% 14.30%
Growth (October 1, 1993)....................... 35.23% 27.82% 21.34%
High Income (October 1, 1993).................. 6.35% 9.11% 7.44%
Overseas (July 5, 1996)........................ 40.35% 18.32%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (October 1, 1993)................ 9.25% 13.84% 10.59%
Contrafund(R) (May 8, 1995).................... 22.23% 24.17%
Investment Grade Bond (July 5, 1996)........... (2.73)% 4.81%
</TABLE>
- ---------------
(1) As of February 7, 2000, shares of the Market Street Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
S-8
<PAGE> 53
Based on the foregoing method of calculation, average annual total return
information is as follows assuming that the Subaccounts were in existence during
the same periods as those indicated for the Portfolios:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/99 12/31/99 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998)....... 23.47% 24.54%
All Pro Large Cap Value (May 4, 1998)........ (0.22)% (1.42)%
All Pro Small Cap Growth (May 4, 1998)....... 89.18% 44.26%
All Pro Small Cap Value (May 4, 1998)........ (9.63)% (16.89)%
International (November 1, 1991)............. 27.24% 12.86% 9.93%
Growth (December 12, 1985)................... 1.25% 16.01% 10.84%
Aggressive Growth (May 1, 1989).............. 14.05% 14.02% 12.86%
Managed (December 12, 1985).................. (0.95)% 12.08% 8.29%
Bond (December 12, 1985)..................... (4.96)% 5.52% 5.08%
Money Market (December 12, 1985)............. 3.16% 3.55% 3.28%
ALGER AMERICAN FUND
Small Capitalization (September 21, 1988).... 41.13% 20.81% 16.51%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Limited Maturity Bond (September 10, 1984)... (0.23)% 3.80% 4.17%
Partners (March 22, 1994).................... 5.58% 19.20% 43.10%
STRONG VARIABLE INSURANCE FUND II
Mid Cap Growth Fund II (December 31, 1996)... 87.14% 44.81%
STRONG OPPORTUNITY FUND II
Opportunity Fund II (May 8, 1992)............ 32.94% 21.60% 19.32%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)........... (9.40)% 3.34% 3.77%
Worldwide Emerging Markets
(December 27, 1995)....................... 97.21% 8.21%
Worldwide Hard Assets (September 1, 1989).... 19.02% (0.22)% 1.36%
Worldwide Real Estate (June 23, 1997)........ (3.67)% 0.59%
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 9, 1986).............. 4.55% 16.80% 12.80%
Growth (October 9, 1986)..................... 35.23% 27.82% 18.21%
High Income (September 19, 1985)............. 6.35% 9.11% 10.76%
Overseas (January 28, 1987).................. 40.35% 15.58% 9.75%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (September 6, 1989)............ 9.25% 13.84% 11.46%
Contrafund(R) (January 3, 1995).............. 22.23% 25.86%
Investment Grade Bond (December 5, 1988)..... (2.73)% 5.57% 5.52%
</TABLE>
We may also 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 for the period.
ERV = the ending redeemable value (net of Subaccount recurring charges) of
the hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
S-9
<PAGE> 54
EFFECT OF THE ADMINISTRATION FEE ON PERFORMANCE DATA
The Contract provides for a $30 Annual Administration Fee to be deducted
annually at the end of each Contract Year, from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each account bears
to the total Contract Account Value. For purposes of reflecting the Annual
Administration Fee in yield and total return quotations, this annual charge is
converted into a per-dollar per-day charge based on a Contract Account Value in
the Variable Account of $10,000 on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to the Variable Account contain varying provisions regarding termination. The
following summarizes those provisions:
Market Street Fund, Inc. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at our 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 us 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 our
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 the Fund or us 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 our option if we have withdrawn the Variable
Account's investment in the Fund; or (8) at the option of any party upon another
party's material breach of any provision of the agreement.
The Alger American Fund. This agreement provides for termination: (1) on
sixty (60) days advance written notice by any party; (2) at the option of the
Trust or its principal underwriter if the Contracts issued by us cease to
qualify as annuity contracts or life insurance contracts under the Code or if
the Contracts are not registered, issued, or sold in accordance with applicable
law; (3) at the option of any party upon a determination that a material
irreconcilable conflict exists; (4) at our option if certain enforcement
proceedings are instituted against the Trust or its principal underwriter
regarding the Trust's or its principal underwriter's duties under the agreement
as related to the sale of Trust shares or operation of the Trust; (5) at our
option if the Trust or a Portfolio fails to meet the diversification
requirements for variable annuity, endowment, or life insurance contracts set
forth in the Code; (6) at our option if shares of the Series are not reasonably
available to meet the requirements of the Variable Contracts issued by the
Company; (7) at our option if any of the shares of the Portfolio are not
registered, issued, or sold in accordance with applicable law, or such law
precludes the use of such shares as the underlying investment media of the
Variable Contracts issued or to be issued by us; (8) at our option if the
Portfolio fails to qualify as a regulated investment company under the Code; or
(9) at the option of the principal underwriter that we, and/or an affiliated
company, have suffered a material adverse change in our business, operations,
financial condition, or prospects since the date of the agreement or are subject
of material adverse publicity.
Neuberger & Berman Advisers Management Trust. This agreement provides for
termination: (1) on one hundred eighty (180) days notice by the Trust or us; (2)
at our option if the Trust's shares are not reasonably available to meet the
requirements of the Variable Contracts; (3) at our option or the Trust's option
if certain enforcement proceedings are instituted against the other; (4) in the
event the Trust's shares are not registered, issued, or sold in accordance with
applicable law or such law precludes the use of such shares as the underlying
investment medium of Variable Contracts issued or to be issued by us; (5) at the
Trust's option if the Variable Contracts cease to qualify as annuity contracts
or life insurance contracts, as applicable, under Code, or if the Trust
reasonably believes that the Variable Contracts may fail to so qualify; (6) at
the option of the Trust or us upon the other party's breach of any material
provision of the agreement; (7) at the option of the Trust if the Variable
Contracts are not registered,
S-10
<PAGE> 55
issued, or sold in accordance with applicable law; or (8) in the event the
agreement is assigned without the prior written consent of the other parties.
Strong Variable Insurance Funds, Inc and Strong Opportunity Fund II,
Inc. This agreement provides for termination during the initial one (1) year
term on thirty (30) days prior written notice by any party and, assuming
renewal, thereafter on six (6) months advance written notice by any party; (2)
at the Adviser's, Funds', or Distributor's option upon a determination that we
have suffered a material adverse change in our business, operations, financial
condition, or prospects or are the subject of material adverse publicity; (3) at
the Adviser's, Funds', or Distributor's option if any of the Contracts are not
registered, issued, or sold in accordance with applicable law or such law
precludes the use of Fund shares as the underlying investment media of the
Contracts issued or to be issued by us; (4) at our option if any of a Fund's
shares are not registered, issued, or sold in accordance with applicable law or
such law precludes the use of such shares as the underlying investment media of
the Contracts issued or to be issued; (5) at our option if the Funds cease to
qualify as regulated investment companies under the Code or if we reasonably
believe that the Funds may fail to so qualify; (6) at our option if a Fund fails
to meet the diversification requirements specified in the Code; (7) at our
party's option upon 30 days written notice in the event of a material breach of
the agreement; (8) at any party's option if certain enforcement proceedings are
instituted against another party; (9) at any party's option if the agreement is
assigned without the other parties' written consent; or (10) as is required by
law, order or instruction of a court, regulatory body, or self-regulatory
organization with jurisdiction over the terminating party.
Van Eck Worldwide Insurance Trust. This agreement provides for
termination: (1) by Van Eck Trust, Van Eck Trust's Distributor or us upon six
months prior written notice; (2) at our option if Fund shares are not available
for any reason to meet the requirements of Contracts as determined by us and
reasonable advance notice of election to terminate is furnished by us; (3) at
the option the Fund, its principal underwriter or us, upon institution of formal
proceedings against the broker-dealer marketing the Contracts, the Variable
Account, the Fund or us by any regulatory body; (4) upon our decision, in
accordance with regulations of the SEC, to substitute Fund shares with the
shares of another fund selected to serve as the underlying investment medium on
60 days' written notice; (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 Federal law
precludes the use of Fund shares as an underlying investment medium of Contracts
issued or to be issued by us; (7) at our option by written notice to the Fund
and its principal underwriter with respect to any Portfolio in the event that
the Portfolio fails to meet specified diversification requirements or if we
reasonably believe that the Portfolio may fail to meet those requirements; (8)
at our option by written notice to the Fund and its principal underwriter, if we
determine, in our 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 the 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 us, if the Fund or its
principal underwriter determines, in its sole judgment exercised in good faith,
that the Fund or its 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.
Variable Insurance Products Fund and Variable Insurance Products Fund
II. These agreements provide for termination: (1) on six months' advance notice
by any party; (2) at our option if shares of the Fund are not reasonably
available to meet the requirements of the Contracts; (3) at our 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 we have
suffered material adverse changes in our business or financial conditions or we
are the subject to material adverse publicity; (5) at our option 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 we decide to make another mutual fund available as
a funding vehicle for the Contracts.
S-11
<PAGE> 56
Should an agreement between a Fund and ourselves terminate, the Subaccounts
which invest in that Fund will not be able to purchase additional shares of that
Fund. In that event, Owners will no longer be able to allocate cash values or
Net Premiums to Subaccounts investing in Portfolios of that Fund.
Additionally, in certain circumstances, a Fund or a Portfolio may refuse to
sell its shares to a Subaccount even though its participation agreement with us
has not been terminated. Should a Fund or Portfolio decide not to sell its
shares to the Variable Account, we 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.
STANDARD & POOR'S
"Standard & Poor's(R)", "S&P(R)", "S&P 500", "Standard & Poor's 500", and
"500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed
for use by PMLIC and its affiliates and subsidiaries. The Contract is not
sponsored, endorsed, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing in the
Contract.
S&P makes no representation or warranty, express or implied, to the Owners
of the Contracts and the Equity 500 Index Portfolio or any member of the public
regarding the advisability of investing in securities generally, or in the
Contracts and the Equity 500 Index Portfolio particularly, or the ability of the
S&P 500 Index to track general stock market performance. S&P's only relationship
to PLACA and Market Street is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which is determined, composed, and
calculated by S&P without regard to PLACA, Market Street, the Owners of the
Contracts, or the Equity 500 Index Portfolio. S&P has no obligation to take the
needs of PLACA, Market Street, or the Owners of the Contracts or the Equity 500
Index Portfolio into consideration in determining, composing or calculating the
S&P 500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Contracts or the Equity 500 Index
Portfolio or the timing of the issuance or sale of the Contracts or the Equity
500 Index Portfolio in the determination or calculation of the equation by which
the Contracts or the Equity 500 Index Portfolio are to be converted into cash.
S&P has no obligation or liability in connection with the administration,
marketing, or trading of the Contracts or the Equity 500 Index Portfolio.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
INDEX OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY
ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY PLACA, MARKET STREET, OWNERS OF THE
CONTRACTS AND THE EQUITY 500 INDEX PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS). EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets in the
Variable Account are legally segregated from our 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.
Our officers and employees are covered by a financial institution bond
issued by Reliance Insurance Company to Provident Mutual Life Insurance Company
("PMLIC") with limits of $10 million per occurrence and $20 million in the
aggregate. The bond insures against dishonest and fraudulent acts of officers
and employees.
S-12
<PAGE> 57
STATE REGULATION
We are subject to regulation and supervision by the Insurance Department of
the State of Delaware, which periodically examines our affairs. We are 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. We are required to submit annual statements of our
operations, including financial statements, to the insurance departments of the
various jurisdictions in which we do business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
RECORDS AND REPORTS
We will maintain all records and accounts relating to the Variable Account.
As presently required by the 1940 Act and the regulations thereunder, reports
containing information required under the Act or any other applicable law or
regulation, will be sent to Owners semi-annually at their last known address.
LEGAL MATTERS
James G. Potter, Jr., Counsel of Provident Mutual Life Insurance Company,
has provided advice on certain matters relating to the laws of Delaware
regarding the Contracts and our issuance of the Contracts. Drinker Biddle &
Reath LLP of Philadelphia, PA has provided advice on certain matters relating to
the federal securities laws.
EXPERTS
The financial statements listed on page F-1 have been included in this SAI,
which is a part of the registration statement, in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that 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. Not all the information
set forth in the registration statement and the amendments and exhibits thereto
has been included in this SAI. Statements contained in the prospectus and this
SAI concerning the content of the Contracts and other legal instruments are
intended to be summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed with the SEC at 450
Fifth Street, N.W., Washington, DC 20549.
FINANCIAL STATEMENTS
This SAI contains the audited statements of assets and liabilities of the
Variable Account as of December 31, 1999 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,
2400 Eleven Penn Center, Philadelphia, PA 19103, serves as independent
accountant for the Variable Annuity Separate Account.
Our statements of financial condition as of December 31, 1999 and 1998 and
the related statements of operations, equity, and cash flows for each of the
three years in the period ended December 31, 1999, which are included in this
SAI, should be considered only as bearing on our ability to meet our obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
S-13
<PAGE> 58
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Providentmutual Variable Annuity Separate Account
Report of Independent Accountants...................... F-2
Statements of Assets and Liabilities, December 31,
1999.................................................. F-3
Statements of Operations for the Year Ended December
31, 1999.............................................. F-10
Statements of Changes in Net Assets for the Year Ended
December 31, 1999..................................... F-17
Statements of Changes in Net Assets for the Year Ended
December 31, 1998..................................... F-24
Notes to Financial Statements.......................... F-31
Providentmutual Life and Annuity Company of America
Report of Independent Accountants...................... F-56
Statements of Financial Condition as of December 31,
1999 and 1998......................................... F-57
Statements of Operations for the Years Ended December
31, 1999, 1998, and 1997.............................. F-58
Statements of Equity for the Years Ended December 31,
1999, 1998, and 1997.................................. F-59
Statements of Cash Flows for the Years Ended December
31, 1999, 1998, and 1997.............................. F-60
Notes to Financial Statements.......................... F-61
</TABLE>
F-1
<PAGE> 59
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Report of Independent Accountants
- --------------------------------------------------------------------------------
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 of changes in net assets present
fairly, in all material respects, the financial position of the Separate Account
at December 31, 1999, 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 accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the
United States, 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, 1999 by
correspondence with the transfer agents, provide a reasonable basis for the
opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
February 17, 2000
F-2
<PAGE> 60
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<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....................... $45,751,005
Money Market Portfolio................. $48,793,552
Bond Portfolio......................... $13,944,855
Managed Portfolio...................... $17,379,003
Aggressive Growth Portfolio............ $13,377,180
International Portfolio................ $22,627,853
Dividends receivable..................... 221,927
----------- ----------- ----------- ----------- ----------- -----------
Total Assets............................. 45,751,005 49,015,479 13,944,855 17,379,003 13,377,180 22,627,853
----------- ----------- ----------- ----------- ----------- -----------
Payable to Providentmutual Life and
Annuity Company of America............. 623,404
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS............................... $45,751,005 $48,392,075 $13,944,855 $17,379,003 $13,377,180 $22,627,853
=========== =========== =========== =========== =========== ===========
Held for the benefit of
contractholders........................ $45,677,108 $48,351,553 $13,902,252 $17,306,399 $13,297,710 $22,555,992
Attributable to Providentmutual Life and
Annuity Company of America............. 73,897 40,522 42,603 72,604 79,470 71,861
----------- ----------- ----------- ----------- ----------- -----------
$45,751,005 $48,392,075 $13,944,855 $17,379,003 $13,377,180 $22,627,853
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-3
<PAGE> 61
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Market Street Fund, Inc., at market
value:
All Pro Large Cap Growth Portfolio...................... $12,039,255
All Pro Large Cap Value Portfolio....................... $5,056,085
All Pro Small Cap Growth Portfolio...................... $14,471,364
All Pro Small Cap Value Portfolio....................... $3,154,907
----------- ---------- ----------- ----------
NET ASSETS................................................ $12,039,255 $5,056,085 $14,471,364 $3,154,907
=========== ========== =========== ==========
Held for the benefit of contractholders................... $11,974,966 $5,030,781 $14,425,338 $3,134,877
Attributable to Providentmutual Life and Annuity Company
of America.............................................. 64,289 25,304 46,026 20,030
----------- ---------- ----------- ----------
$12,039,255 $5,056,085 $14,471,364 $3,154,907
=========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-4
<PAGE> 62
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<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.................. $22,858,013
Equity-Income Portfolio................ $99,574,625
Growth Portfolio....................... $161,796,300
Overseas Portfolio..................... $5,520,010
Investment in the Variable Insurance
Products Fund II, at market value:
Asset Manager Portfolio................ $47,305,710
Index 500 Portfolio.................... $150,199,087
----------- ----------- ------------ ---------- ----------- ------------
NET ASSETS............................... $22,858,013 $99,574,625 $161,796,300 $5,520,010 $47,305,710 $150,199,087
=========== =========== ============ ========== =========== ============
Held for the benefit of
contractholders........................ $22,819,436 $99,509,281 $161,665,560 $5,472,342 $47,221,269 $150,104,904
Attributable to Providentmutual Life and
Annuity Company of America............. 38,577 65,344 130,740 47,668 84,441 94,183
----------- ----------- ------------ ---------- ----------- ------------
$22,858,013 $99,574,625 $161,796,300 $5,520,010 $47,305,710 $150,199,087
=========== =========== ============ ========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 63
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY INVESTMENT OCC OCC OCC
CONTRAFUND(R) 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(R) Portfolio............................ $87,293,722
Investment Grade Bond Portfolio.................... $3,456,559
Investment in the OCC Accumulation Trust, at market
value:
Equity Portfolio................................... $21,909,881
Small Cap Portfolio................................ $13,568,592
Managed Portfolio.................................. $49,802,452
----------- ---------- ----------- ----------- -----------
NET ASSETS........................................... $87,293,722 $3,456,559 $21,909,881 $13,568,592 $49,802,452
=========== ========== =========== =========== ===========
Held for the benefit of contractholders.............. $87,191,792 $3,451,561 $21,844,523 $13,524,512 $49,741,753
Attributable to Providentmutual Life and Annuity
Company of America................................. 101,930 4,998 65,358 44,080 60,699
----------- ---------- ----------- ----------- -----------
$87,293,722 $3,456,559 $21,909,881 $13,568,592 $49,802,452
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-6
<PAGE> 64
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCUDDER DREYFUS DREYFUS
SCUDDER GROWTH SCUDDER DREYFUS ZERO GROWTH SOCIALLY
BOND AND INCOME INTERNATIONAL COUPON 2000 AND INCOME RESPONSIBLE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in the Scudder Variable Life
Investment Fund, at market value:
Bond Portfolio........................ $11,739,293
Growth and Income Portfolio........... $22,065,318
International Portfolio............... $23,743,068
Investment in the Dreyfus Variable
Investment Fund, at market value:
Zero Coupon 2000 Portfolio............ $8,461,505
Growth and Income Portfolio........... $22,991,535
Investment in the Dreyfus Socially
Responsible Growth Fund, Inc., at
market value:
Socially Responsible Portfolio........ $23,174,948
----------- ----------- ----------- ---------- ----------- -----------
NET ASSETS.............................. $11,739,293 $22,065,318 $23,743,068 $8,461,505 $22,991,535 $23,174,948
=========== =========== =========== ========== =========== ===========
Held for the benefit of
contractholders......................... $11,705,037 $21,985,509 $23,653,718 $8,430,871 $22,924,304 $23,118,399
Attributable to Providentmutual Life and
Annuity Company of America............ 34,256 79,809 89,350 30,634 67,231 56,549
----------- ----------- ----------- ---------- ----------- -----------
$11,739,293 $22,065,318 $23,743,068 $8,461,505 $22,991,535 $23,174,948
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-7
<PAGE> 65
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEDERATED
FUND FOR FEDERATED NEUBERGER
U.S. GOVERNMENT UTILITY BERMAN LIMITED NEUBERGER
SECURITIES II FUND II MATURITY BOND BERMAN PARTNERS
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investment in the Federated Insurance Series, at
market value:
Fund for U.S. Government Securities II Portfolio... $10,781,314
Utility Fund II Portfolio.......................... $10,268,993
Investment in the Neuberger Berman Advisers
Management Trust, at market value:
Limited Maturity Bond Portfolio.................... $1,645,266
Partners Portfolio................................. $1,549,061
----------- ----------- ---------- ----------
NET ASSETS........................................... $10,781,314 $10,268,993 $1,645,266 $1,549,061
=========== =========== ========== ==========
Held for the benefit of contractholders............ $10,747,448 $10,232,769 $1,615,642 $1,461,893
Attributable to Providentmutual Life and Annuity
Company of America............................... 33,866 36,224 29,624 87,168
----------- ----------- ---------- ----------
$10,781,314 $10,268,993 $1,645,266 $1,549,061
=========== =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-8
<PAGE> 66
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Assets and Liabilities, December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK VAN ECK VAN ECK
VAN ECK WORLDWIDE WORLDWIDE WORLDWIDE ALGER AMERICAN
WORLDWIDE HARD EMERGING REAL SMALL
BOND ASSETS MARKETS ESTATE CAPITALIZATION
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Van Eck Worldwide Insurance Trust, at
market value:
Van Eck Worldwide Bond Portfolio................. $2,008,648
Van Eck Worldwide Hard Assets Portfolio.......... $815,121
Van Eck Worldwide Emerging Markets Portfolio..... $6,758,893
Van Eck Worldwide Real Estate Portfolio.......... $502,098
Investment in the Alger American Fund, at market
value:
Alger American Small Capitalization Portfolio.... $6,026,539
---------- -------- ---------- -------- ----------
NET ASSETS......................................... $2,008,648 $815,121 $6,758,893 $502,098 $6,026,539
========== ======== ========== ======== ==========
Held for the benefit of contractholders............ $1,968,109 $775,408 $6,674,506 $476,708 $5,978,890
Attributable to Providentmutual Life and Annuity
Company of America............................... 40,539 39,713 84,387 25,390 47,649
---------- -------- ---------- -------- ----------
$2,008,648 $815,121 $6,758,893 $502,098 $6,026,539
========== ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-9
<PAGE> 67
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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................................. $ 160,736 $2,107,714 $ 209,132 $ 143,178 $ 64,921 $ 224,550
EXPENSES
Mortality and expense risks............... 655,698 617,723 195,679 255,665 166,187 280,089
----------- ---------- --------- ----------- ---------- ----------
Net investment (loss) income.............. (494,962) 1,489,991 13,453 (112,487) (101,266) (55,539)
----------- ---------- --------- ----------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested.... 938,967 164,317 976,381 1,609,965 1,152,096
Net realized gain from redemption of
investment shares....................... 1,831,364 80,387 1,226,706 325,963 702,885
----------- ---------- --------- ----------- ---------- ----------
Net realized gain on investments.......... 2,770,331 244,704 2,203,087 1,935,928 1,854,981
----------- ---------- --------- ----------- ---------- ----------
Net unrealized appreciation (depreciation)
of investments:
Beginning of year....................... 6,880,781 501,349 3,311,102 1,843,257 1,759,586
End of year............................. 5,361,894 (429,944) 1,122,553 1,657,663 4,992,525
----------- ---------- --------- ----------- ---------- ----------
Net unrealized (depreciation) appreciation
during the year......................... (1,518,887) (931,293) (2,188,549) (185,594) 3,232,939
----------- ---------- --------- ----------- ---------- ----------
Net realized and unrealized gain (loss) on
investments............................. 1,251,444 (686,589) 14,538 1,750,334 5,087,920
----------- ---------- --------- ----------- ---------- ----------
Net increase (decrease) in net assets
resulting from operations............... $ 756,482 $1,489,991 $(673,136) $ (97,949) $1,649,068 $5,032,381
=========== ========== ========= =========== ========== ==========
</TABLE>
See accompanying notes to financial statements
F-10
<PAGE> 68
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................................. $ 498 $ 14,030 $ 2,776
EXPENSES
Mortality and expense risks............................... 97,784 51,611 $ 76,850 29,987
---------- -------- ---------- ---------
Net investment loss....................................... (97,286) (37,581) (76,850) (27,211)
---------- -------- ---------- ---------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Realized gain distributions reinvested
Net realized gain (loss) from redemption of investment
shares.................................................. 219,145 9,264 258,558 (54,731)
---------- -------- ---------- ---------
Net realized gain (loss) on investments................... 219,145 9,264 258,558 (54,731)
---------- -------- ---------- ---------
Net unrealized appreciation (depreciation) of investments:
Beginning of year....................................... 345,515 157,479 191,093 35,087
End of year............................................. 1,922,453 100,810 5,190,696 (9,099)
---------- -------- ---------- ---------
Net unrealized appreciation (depreciation) during the
year.................................................... 1,576,938 (56,669) 4,999,603 (44,186)
---------- -------- ---------- ---------
Net realized and unrealized gain (loss) on investments.... 1,796,083 (47,405) 5,258,161 (98,917)
---------- -------- ---------- ---------
Net increase (decrease) in net assets resulting from
operations.............................................. $1,698,797 $(84,986) $5,181,311 $(126,128)
========== ======== ========== =========
</TABLE>
See accompanying notes to financial statements
F-11
<PAGE> 69
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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.................................. $ 2,022,894 $ 1,426,752 $ 185,106 $ 55,743 $1,390,143 $ 1,035,452
EXPENSES
Mortality and expense risks................ 317,394 1,393,247 1,753,199 57,974 620,620 1,732,123
----------- ----------- ----------- ---------- ---------- -----------
Net investment income (loss)............... 1,705,500 33,505 (1,568,093) (2,231) 769,523 (696,671)
----------- ----------- ----------- ---------- ---------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested..... 75,622 3,153,873 11,638,599 89,908 1,760,849 702,628
Net realized (loss) gain from redemption of
investment shares........................ (316,875) 4,136,515 5,502,014 81,238 1,009,026 6,600,781
----------- ----------- ----------- ---------- ---------- -----------
Net realized (loss) gain on investments.... (241,253) 7,290,388 17,140,613 171,146 2,769,875 7,303,409
----------- ----------- ----------- ---------- ---------- -----------
Net unrealized (depreciation) appreciation
of investments:
Beginning of year...................... (1,322,566) 18,402,980 29,499,701 72,711 5,498,936 26,388,869
End of year............................ (1,334,978) 15,602,007 54,531,633 1,490,599 6,113,649 41,527,444
----------- ----------- ----------- ---------- ---------- -----------
Net unrealized (depreciation) appreciation
during the year.......................... (12,412) (2,800,973) 25,031,932 1,417,888 614,713 15,138,575
----------- ----------- ----------- ---------- ---------- -----------
Net realized and unrealized (loss) gain on
investments.............................. (253,665) 4,489,415 42,172,545 1,589,034 3,384,588 22,441,984
----------- ----------- ----------- ---------- ---------- -----------
Net increase in net assets resulting from
operations............................... $ 1,451,835 $ 4,522,920 $40,604,452 $1,586,803 $4,154,111 $21,745,313
=========== =========== =========== ========== ========== ===========
</TABLE>
See accompanying notes to financial statements
F-12
<PAGE> 70
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY INVESTMENT OCC OCC OCC
CONTRAFUND(R) GRADE BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................................ $ 302,333 $ 102,810 $ 215,256 $ 104,013 $ 854,698
EXPENSES
Mortality and expense risks.......................... 1,001,570 43,437 321,855 211,704 754,089
----------- --------- ----------- ----------- -----------
Net investment (loss) gain........................... (699,237) 59,373 (106,599) (107,691) 100,609
----------- --------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Realized gain distributions reinvested............... 2,217,107 32,254 980,262 1,917,911
Net realized gain from redemption of investment
shares............................................. 4,793,104 7,570 1,347,988 827,001 6,225,127
----------- --------- ----------- ----------- -----------
Net realized gain on investments..................... 7,010,211 39,824 2,328,250 827,001 8,143,038
----------- --------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) of
investments:
Beginning of year.................................. 16,048,820 110,611 3,483,399 661,747 12,739,481
End of year........................................ 24,980,687 (60,098) 1,509,357 (539,331) 6,495,052
----------- --------- ----------- ----------- -----------
Net unrealized appreciation (depreciation) during the
year............................................... 8,931,867 (170,709) (1,974,042) (1,201,078) (6,244,429)
----------- --------- ----------- ----------- -----------
Net realized and unrealized gain (loss) on
investments........................................ 15,942,078 (130,885) 354,208 (374,077) 1,898,609
----------- --------- ----------- ----------- -----------
Net increase (decrease) in net assets resulting from
operations......................................... $15,242,841 $ (71,512) $ 247,609 $ (481,768) $ 1,999,218
=========== ========= =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-13
<PAGE> 71
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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>
INVESTMENT INCOME
Dividends............................... $ 361,138 $ 255,583 $ 20,172 $ 434,204 $ 127,513 $ 2,875
EXPENSES
Mortality and expense risks............. 159,359 304,076 237,358 113,829 284,858 228,947
--------- ----------- ---------- --------- ---------- ----------
Net investment income (loss)............ 201,779 (48,493) (217,186) 320,375 (157,345) (226,072)
--------- ----------- ---------- --------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested............................ 184,777 1,646,855 1,502,806 696,762 773,984
Net realized (loss) gain from redemption
of investment shares.................. (62,579) 519,852 795,000 11,663 575,902 1,347,033
--------- ----------- ---------- --------- ---------- ----------
Net realized gain (loss) on
investments........................... 122,198 2,166,707 2,297,806 11,663 1,272,664 2,121,017
--------- ----------- ---------- --------- ---------- ----------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year..................... 169,689 559,240 1,001,546 98,289 1,610,492 1,746,511
End of year........................... (418,360) (502,929) 7,094,545 (129,864) 3,490,937 4,339,377
--------- ----------- ---------- --------- ---------- ----------
Net unrealized (depreciation)
appreciation during the year.......... (588,049) (1,062,169) 6,092,999 (228,153) 1,880,445 2,592,866
--------- ----------- ---------- --------- ---------- ----------
Net realized and unrealized (loss) gain
on investments........................ (465,851) 1,104,538 8,390,805 (216,490) 3,153,109 4,713,883
--------- ----------- ---------- --------- ---------- ----------
Net (decrease) increase in net assets
resulting from operations............. $(264,072) $1,056,045 $8,173,619 $ 103,885 $2,995,764 $4,487,811
========= =========== ========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements
F-14
<PAGE> 72
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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>
INVESTMENT INCOME
Dividends............................. $ 369,249 $ 244,619 $ 11,058 $ 85,156 $ 5,312
EXPENSES
Mortality and expense risks........... 138,018 141,314 3,202 $ 4,219 20,905 14,819
--------- ----------- -------- -------- -------- -------
Net investment income (loss).......... 231,231 103,305 7,856 (4,219) 64,251 (9,507)
--------- ----------- -------- -------- -------- -------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Realized gain distributions
reinvested.......................... 72,605 484,506 16,382 51,687 9,240
Net realized gain (loss) from
redemption of investment shares..... 149,709 604,756 (43,961) (94,151) (17,107) (123)
--------- ----------- -------- -------- -------- -------
Net realized gain (loss) on
investments......................... 222,314 1,089,262 (27,579) (42,464) (17,107) 9,117
--------- ----------- -------- -------- -------- -------
Net unrealized appreciation
(depreciation) of investments:
Beginning of year................... 380,998 1,407,591 (8,783) (24,306) 10,244 16,829
End of year......................... (254,388) 254,198 (35,609) 21,768
--------- ----------- -------- -------- -------- -------
Net unrealized (depreciation)
appreciation during the year........ (635,386) (1,153,393) 8,783 24,306 (45,853) 4,939
--------- ----------- -------- -------- -------- -------
Net realized and unrealized (loss)
gain on investments................. (413,072) (64,131) (18,796) (18,158) (62,960) 14,056
--------- ----------- -------- -------- -------- -------
Net (decrease) increase in net assets
resulting from operations........... $(181,841) $ 39,174 $(10,940) $(22,377) $ 1,291 $ 4,549
========= =========== ======== ======== ======== =======
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE> 73
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Operations for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMERICAN VAN ECK ALGER
CENTURY VP VAN ECK VAN ECK WORLDWIDE VAN ECK 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.............................. $ 64,992 $ 6,813 $ 6,029
EXPENSES
Mortality and expense risks............ $ 849 18,164 2,082 $ 18,882 1,424 $ 61,106
-------- --------- -------- ---------- -------- ----------
Net investment (loss) income........... (849) 46,828 4,731 (18,882) 4,605 (61,106)
-------- --------- -------- ---------- -------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain distributions
reinvested........................... 29,039 515,437
Net realized (loss) gain from
redemption of investment shares...... (39) 16,133 1,791 (13,734) (5,104) 88,820
-------- --------- -------- ---------- -------- ----------
Net realized (loss) gain on
investments.......................... (39) 45,172 1,791 (13,734) (5,104) 604,257
-------- --------- -------- ---------- -------- ----------
Net unrealized (depreciation)
appreciation of investments:
Beginning of year.................... (16,405) 134,095 (26,474) (374,273) 1,481 204,321
End of year.......................... (117,356) 77,203 2,239,966 (15,964) 1,418,349
-------- --------- -------- ---------- -------- ----------
Net unrealized appreciation
(depreciation) during the year....... 16,405 (251,451) 103,677 2,614,239 (17,445) 1,214,028
-------- --------- -------- ---------- -------- ----------
Net realized and unrealized gain (loss)
on investments....................... 16,366 (206,279) 105,468 2,600,505 (22,549) 1,818,285
-------- --------- -------- ---------- -------- ----------
Net increase (decrease) in net assets
resulting from operations............ $ 15,517 $(159,451) $110,199 $2,581,623 $(17,944) $1,757,179
======== ========= ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE> 74
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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 (loss) income............ $ (494,962) $ 1,489,991 $ 13,453 $ (112,487) $ (101,266) $ (55,539)
Net realized gain on investments........ 2,770,331 244,704 2,203,087 1,935,928 1,854,981
Net unrealized (depreciation)
appreciation of investments during the
year.................................. (1,518,887) (931,293) (2,188,549) (185,594) 3,232,939
----------- ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
from operations....................... 756,482 1,489,991 (673,136) (97,949) 1,649,068 5,032,381
----------- ------------ ----------- ----------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums........... 2,590,479 78,822,848 1,396,064 984,660 887,259 1,000,976
Administrative charges.................. (24,390) (15,274) (6,432) (9,310) (8,393) (12,125)
Surrenders and forfeitures.............. (5,316,142) (8,670,364) (1,508,623) (2,305,604) (1,469,240) (2,835,932)
Transfers between investment
portfolios............................ (29,593) (65,500,542) (362,780) (313,975) (115,580) (202,702)
Net (withdrawals) repayments due to
policy loans.......................... (4,024) 5,362 (10,917) (9,688) (3,519) (106)
Withdrawals due to death benefits....... (80,740) (197,400) (92,463) (298,990) (47,403) (52,653)
----------- ------------ ----------- ----------- ----------- -----------
Net (decrease) increase in net assets
derived from contract transactions.... (2,864,410) 4,444,630 (585,151) (1,952,907) (756,876) (2,102,542)
----------- ------------ ----------- ----------- ----------- -----------
Total (decrease) increase in net
assets................................ (2,107,928) 5,934,621 (1,258,287) (2,050,856) 892,192 2,929,839
NET ASSETS
Beginning of year..................... 47,858,933 42,457,454 15,203,142 19,429,859 12,484,988 19,698,014
----------- ------------ ----------- ----------- ----------- -----------
End of year........................... $45,751,005 $ 48,392,075 $13,944,855 $17,379,003 $13,377,180 $22,627,853
=========== ============ =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-17
<PAGE> 75
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALL PRO LARGE ALL PRO LARGE ALL PRO SMALL ALL PRO SMALL
CAP GROWTH CAP VALUE CAP GROWTH CAP VALUE
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment loss....................................... $ (97,286) $ (37,581) $ (76,850) $ (27,211)
Net realized gain (loss) on investments................... 219,145 9,264 258,558 (54,731)
Net unrealized appreciation (depreciation) of investments
during the year......................................... 1,576,938 (56,669) 4,999,603 (44,186)
----------- ---------- ----------- ----------
Net increase (decrease) in net assets from operations..... 1,698,797 (84,986) 5,181,311 (126,128)
----------- ---------- ----------- ----------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums............................. 2,295,679 997,126 2,031,084 827,857
Administrative charges.................................... (2,352) (1,264) (2,330) (733)
Surrenders and forfeitures................................ (329,579) (182,254) (421,459) (162,906)
Transfers between investment portfolios................... 6,079,986 2,254,512 6,015,262 1,303,456
Net withdrawals due to policy loans....................... (928) (323)
Withdrawals due to death benefits......................... (11,250) (997)
----------- ---------- ----------- ----------
Net increase in net assets derived from contract
transactions............................................ 8,043,734 3,056,870 7,621,629 1,966,354
----------- ---------- ----------- ----------
Total increase in net assets.............................. 9,742,531 2,971,884 12,802,940 1,840,226
NET ASSETS
Beginning of year....................................... 2,296,724 2,084,201 1,668,424 1,314,681
----------- ---------- ----------- ----------
End of year............................................. $12,039,255 $5,056,085 $14,471,364 $3,154,907
=========== ========== =========== ==========
</TABLE>
See accompanying notes to financial statements
F-18
<PAGE> 76
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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)............. $ 1,705,500 $ 33,505 $ (1,568,093) $ (2,231) $ 769,523 $ (696,671)
Net realized (loss) gain on
investments............................ (241,253) 7,290,388 17,140,613 171,146 2,769,875 7,303,409
Net unrealized (depreciation)
appreciation of investments during the
year................................... (12,412) (2,800,973) 25,031,932 1,417,888 614,713 15,138,575
----------- ----------- ------------ ---------- ----------- ------------
Net increase in net assets from
operations............................. 1,451,835 4,522,920 40,604,452 1,586,803 4,154,111 21,745,313
----------- ----------- ------------ ---------- ----------- ------------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums............ 1,740,203 7,793,623 14,703,880 409,413 3,411,027 16,701,500
Administrative charges................... (10,589) (50,745) (68,343) (1,795) (22,263) (67,520)
Surrenders and forfeitures............... (1,996,468) (8,468,841) (11,112,095) (281,158) (3,045,460) (9,161,461)
Transfers between investment
portfolios............................. (154,725) 284,030 16,639,479 364,091 1,713,067 21,749,042
Net repayments (withdrawals) due to
policy loans........................... 2,087 2,477 (32,663) (1,456) (2,846) (38,730)
Withdrawals due to death benefits........ (115,663) (503,787) (709,722) (15,191) (555,954) (458,677)
----------- ----------- ------------ ---------- ----------- ------------
Net (decrease) increase in net assets
derived from contract transactions..... (535,155) (943,243) 19,420,536 473,904 1,497,571 28,724,154
----------- ----------- ------------ ---------- ----------- ------------
Total increase in net assets............. 916,680 3,579,677 60,024,988 2,060,707 5,651,682 50,469,467
NET ASSETS
Beginning of year...................... 21,941,333 95,994,948 101,771,312 3,459,303 41,654,028 99,729,620
----------- ----------- ------------ ---------- ----------- ------------
End of year............................ $22,858,013 $99,574,625 $161,796,300 $5,520,010 $47,305,710 $150,199,087
=========== =========== ============ ========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-19
<PAGE> 77
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY INVESTMENT OCC OCC OCC
CONTRAFUND(R) GRADE BOND EQUITY SMALL CAP MANAGED
SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT SUBACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment (loss) income........................ $ (699,237) $ 59,373 $ (106,599) $ (107,691) $ 100,609
Net realized gain on investments.................... 7,010,211 39,824 2,328,250 827,001 8,143,038
Net unrealized appreciation (depreciation) of
investments during the year....................... 8,931,867 (170,709) (1,974,042) (1,201,078) (6,244,429)
----------- ---------- ----------- ----------- ------------
Net increase (decrease) in net assets from
operations........................................ 15,242,841 (71,512) 247,609 (481,768) 1,999,218
----------- ---------- ----------- ----------- ------------
FROM VARIABLE ANNUITY CONTRACT TRANSACTIONS
Contractholders' net premiums....................... 8,874,302 340,787 2,151,357 806,041 2,531,372
Administrative charges.............................. (37,729) (1,542) (11,945) (8,944) (29,428)
Surrenders and forfeitures.......................... (7,143,278) (141,957) (1,849,036) (1,150,907) (6,330,544)
Transfers between investment portfolios............. 11,057,492 808,229 (2,026,903) (2,116,577) (8,032,769)
Net (withdrawals) repayments due to policy loans.... (10,345) (826) (3,599) 5,402 3,440
Withdrawals due to death benefits................... (20,534) (6,713) (91,764) (64,207) (338,881)
----------- ---------- ----------- ----------- ------------
Net increase (decrease) in net assets derived from
contract transactions............................. 12,719,908 997,978 (1,831,890) (2,529,192) (12,196,810)
----------- ---------- ----------- ----------- ------------
Total increase (decrease) in net assets............. 27,962,749 926,466 (1,584,281) (3,010,960) (10,197,592)
NET ASSETS
Beginning of year................................. 59,330,973 2,530,093 23,494,162 16,579,552 60,000,044
----------- ---------- ----------- ----------- ------------
End of year....................................... $87,293,722 $3,456,559 $21,909,881 $13,568,592 $ 49,802,452
=========== ========== =========== =========== ============
</TABLE>
See accompanying notes to financial statements
F-20
<PAGE> 78
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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)............ $ 201,779 $ (48,493) $ (217,186) $ 320,375 $ (157,345) $ (226,072)
Net realized gain on investments........ 122,198 2,166,707 2,297,806 11,663 1,272,664 2,121,017
Net unrealized (depreciation)
appreciation of investments during the
year.................................. (588,049) (1,062,169) 6,092,999 (228,153) 1,880,445 2,592,866
----------- ----------- ----------- ---------- ----------- -----------
Net (decrease) increase in net assets
from operations....................... (264,072) 1,056,045 8,173,619 103,885 2,995,764 4,487,811
----------- ----------- ----------- ---------- ----------- -----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums........... 1,059,677 1,975,773 1,467,500 669,242 1,817,881 3,982,317
Administrative charges.................. (5,201) (11,674) (8,004) (3,128) (12,252) (9,240)
Surrenders and forfeitures.............. (801,092) (1,211,234) (1,454,363) (785,288) (1,587,925) (1,010,431)
Transfers between investment
portfolios............................ 987,964 (1,457,279) 1,090,597 1,057,189 275,465 4,774,389
Net withdrawals due to policy loans..... (5,348) (10,910) (5,072) (1,610) (8,128) (26,022)
Withdrawals due to death benefits....... (100,792) (78,315) (46,525) (29,581) (129,975) (34,060)
----------- ----------- ----------- ---------- ----------- -----------
Net increase (decrease) in net assets
derived from contract transactions.... 1,135,208 (793,639) 1,044,133 906,824 355,066 7,676,953
----------- ----------- ----------- ---------- ----------- -----------
Total increase in net assets............ 871,136 262,406 9,217,752 1,010,709 3,350,830 12,164,764
NET ASSETS
Beginning of year..................... 10,868,157 21,802,912 14,525,316 7,450,796 19,640,705 11,010,184
----------- ----------- ----------- ---------- ----------- -----------
End of year........................... $11,739,293 $22,065,318 $23,743,068 $8,461,505 $22,991,535 $23,174,948
=========== =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements
F-21
<PAGE> 79
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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>
FROM OPERATIONS
Net investment income (loss)............ $ 231,231 $ 103,305 $ 7,856 $ (4,219) $ 64,251 $ (9,507)
Net realized gain (loss) on
investments........................... 222,314 1,089,262 (27,579) (42,464) (17,107) 9,117
Net unrealized (depreciation)
appreciation of investments during the
year.................................. (635,386) (1,153,393) 8,783 24,306 (45,853) 4,939
----------- ----------- --------- --------- ---------- ----------
Net (decrease) increase in net assets
from operations....................... (181,841) 39,174 (10,940) (22,377) 1,291 4,549
----------- ----------- --------- --------- ---------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums........... 823,529 1,443,609 25,186 15,377 233,626 148,181
Administrative charges.................. (2,806) (4,180) (221) (343) (911) (1,007)
Surrenders and forfeitures.............. (406,791) (888,560) (8,975) (13,723) (123,687) (61,983)
Transfers between investment
portfolios............................ 1,258,289 (464,512) (780,760) (973,747) 131,846 1,075,905
Net (withdrawals) repayments due to
policy loans.......................... (6,813) (8,172) 72 74 (420) (579)
Withdrawals due to death benefits....... (20,689) (49,572) (30,406) (24,657)
----------- ----------- --------- --------- ---------- ----------
Net increase (decrease) in net assets
derived from contract transactions.... 1,644,719 28,613 (764,698) (972,362) 210,048 1,135,860
----------- ----------- --------- --------- ---------- ----------
Total increase (decrease) in net
assets................................ 1,462,878 67,787 (775,638) (994,739) 211,339 1,140,409
NET ASSETS
Beginning of year..................... 9,318,436 10,201,206 775,638 994,739 1,433,927 408,652
----------- ----------- --------- --------- ---------- ----------
End of year........................... $10,781,314 $10,268,993 -- -- $1,645,266 $1,549,061
=========== =========== ========= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements
F-22
<PAGE> 80
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
<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) income.......... $ (849) $ 46,828 $ 4,731 $ (18,882) $ 4,605 $ (61,106)
Net realized (loss) gain on
investments......................... (39) 45,172 1,791 (13,734) (5,104) 604,257
Net unrealized appreciation
(depreciation) of investments during
the year............................ 16,405 (251,451) 103,677 2,614,239 (17,445) 1,214,028
--------- ---------- -------- ---------- -------- ----------
Net increase (decrease) in net assets
from operations..................... 15,517 (159,451) 110,199 2,581,623 (17,944) 1,757,179
--------- ---------- -------- ---------- -------- ----------
FROM VARIABLE ANNUITY CONTRACT
TRANSACTIONS
Contractholders' net premiums......... 5,783 285,202 213,141 779,291 109,465 520,072
Administrative charges................ (108) (712) (263) (1,598) (185) (3,398)
Surrenders and forfeitures............ (6,711) (68,956) (61,426) (149,575) (16,959) (116,735)
Transfers between investment
portfolios.......................... (223,981) 292,466 124,653 2,176,507 147,966 118,274
Net withdrawals due to policy loans... (99) (589) (3) (1,659) (3,739)
Withdrawals due to death benefits..... (8,966) (27,638)
--------- ---------- -------- ---------- -------- ----------
Net (decrease) increase in net assets
derived from contract
transactions........................ (225,116) 498,445 276,102 2,802,966 240,287 486,836
--------- ---------- -------- ---------- -------- ----------
Total (decrease) increase in net
assets.............................. (209,599) 338,994 386,301 5,384,589 222,343 2,244,015
NET ASSETS
Beginning of year................... 209,599 1,669,654 428,820 1,374,304 279,755 3,782,524
--------- ---------- -------- ---------- -------- ----------
End of year......................... -- $2,008,648 $815,121 $6,758,893 $502,098 $6,026,539
========= ========== ======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements
F-23
<PAGE> 81
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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-24
<PAGE> 82
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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-25
<PAGE> 83
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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-26
<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>
FIDELITY
FIDELITY INVESTMENT OCC OCC OCC
CONTRAFUND(R) 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-27
<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>
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-28
<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, 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-29
<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, 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-30
<PAGE> 88
- --------------------------------------------------------------------------------
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 ("PLACA")
under the provisions of Pennsylvania law and commenced operations on April 14,
1992. In December 1992, PLACA redomesticated to the State of Delaware. PLACA 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.
PLACA 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-six
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(R) and Fidelity
Investment Grade Bond Subaccounts invest in the corresponding portfolios of the
Variable Insurance Products Fund II; the OCC Equity, OCC Small Cap and OCC
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 and Federated Utility Fund II Subaccounts invest in the
corresponding portfolios of the Federated Insurance Series; Neuberger Berman
Limited Maturity Bond and Neuberger Berman Partners Subaccounts invest in the
corresponding portfolios of the Neuberger Berman Advisers Management Trust; and
the Van Eck Worldwide Bond, Van Eck Worldwide Hard Assets, Van Eck Worldwide
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.
At the close of business on April 30, 1999, the Neuberger Berman Growth
Subaccount, Neuberger Berman Balanced Subaccount and American Century VP Capital
Appreciation Subaccount were terminated and the investments were transferred to
the Neuberger Berman Partners Subaccount, the Managed Subaccount and the All Pro
Large Cap Growth Subaccount, respectively.
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 PLACA.
Transfers between investment portfolios include transfers between the
Subaccounts and the Guaranteed Account (not shown), which is part of PLACA's
General Account.
F-31
<PAGE> 89
- --------------------------------------------------------------------------------
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 PLACA. Under the provisions of the Contracts, PLACA 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-32
<PAGE> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS
At December 31, 1999, 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..................................... 2,415,576 $40,389,111 $45,751,005
Money Market Portfolio............................... 48,793,552 $48,793,552 $48,793,552
Bond Portfolio....................................... 1,318,039 $14,374,799 $13,944,855
Managed Portfolio.................................... 1,035,081 $16,256,450 $17,379,003
Aggressive Growth Portfolio.......................... 608,884 $11,719,517 $13,377,180
International Portfolio.............................. 1,356,586 $17,635,328 $22,627,853
All Pro Large Cap Growth Portfolio................... 815,115 $10,116,802 $12,039,255
All Pro Large Cap Value Portfolio.................... 506,622 $4,955,275 $5,056,085
All Pro Small Cap Growth Portfolio................... 768,527 $9,280,668 $14,471,364
All Pro Small Cap Value Portfolio.................... 416,764 $3,164,006 $3,154,907
Variable Insurance Products Fund:
High Income Portfolio................................ 2,021,045 $24,192,991 $22,858,013
Equity-Income Portfolio.............................. 3,872,992 $83,972,618 $99,574,625
Growth Portfolio..................................... 2,945,500 $107,264,667 $161,796,300
Overseas Portfolio................................... 201,167 $4,029,411 $5,520,010
Variable Insurance Products Fund II:
Asset Manager Portfolio.............................. 2,533,782 $41,192,061 $47,305,710
Index 500 Portfolio.................................. 897,193 $108,671,643 $150,199,087
Contrafund(R) Portfolio.............................. 2,994,639 $62,313,035 $87,293,722
Investment Grade Bond Portfolio...................... 284,256 $3,516,657 $3,456,559
OCC Accumulation Trust:
Equity Portfolio..................................... 583,330 $20,400,524 $21,909,881
Small Cap Portfolio.................................. 602,513 $14,107,923 $13,568,592
Managed Portfolio.................................... 1,140,950 $43,307,400 $49,802,452
Scudder Variable Life Investment Fund:
Bond Portfolio....................................... 1,808,828 $12,157,653 $11,739,293
Growth and Income Portfolio.......................... 2,013,259 $22,568,247 $22,065,318
International Portfolio.............................. 1,167,309 $16,648,523 $23,743,068
Dreyfus Variable Investment Fund:
Zero Coupon 2000 Portfolio........................... 695,276 $8,591,369 $8,461,505
Growth and Income Portfolio.......................... 902,337 $19,500,598 $22,991,535
Dreyfus Socially Responsible Growth Fund, Inc.:
Socially Responsible Portfolio....................... 593,165 $18,835,571 $23,174,948
Federated Insurance Series:
Fund for U.S. Government Securities II Portfolio..... 1,020,958 $11,035,702 $10,781,314
Utility Fund II Portfolio............................ 715,609 $10,014,795 $10,268,993
Neuberger Berman Advisers Management Trust:
Limited Maturity Bond Portfolio...................... 124,265 $1,680,875 $1,645,266
Partners Portfolio................................... 78,873 $1,527,293 $1,549,061
Van Eck Worldwide Insurance Trust:
Van Eck Worldwide Bond Portfolio..................... 187,900 $2,126,004 $2,008,648
Van Eck Worldwide Hard Assets Portfolio.............. 74,372 $737,918 $815,121
Van Eck Worldwide Emerging Markets Portfolio......... 473,976 $4,518,927 $6,758,893
Van Eck Worldwide Real Estate Portfolio.............. 54,874 $518,062 $502,098
Alger American Fund:
Alger American Small Capitalization Portfolio........ 109,275 $4,608,190 $6,026,539
</TABLE>
F-33
<PAGE> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
During the years ended December 31, 1999, 1998 and 1997, transactions in
investment shares were as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO MONEY MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................ 189,567 346,424 388,406 72,119,301 70,268,727 49,458,951
Shares received from reinvestment of:
Dividends............................. 8,670 39,380 39,547 2,051,913 1,900,929 1,340,251
Capital gain distributions............ 50,645 324,556 197,982
---------- ----------- ----------- ------------ ------------ ------------
Total shares acquired................... 248,882 710,360 625,935 74,171,214 72,169,656 50,799,202
Total shares redeemed................... (376,289) (232,492) (62,876) (65,737,428) (61,368,156) (47,463,144)
---------- ----------- ----------- ------------ ------------ ------------
Net (decrease) increase in shares
owned................................. (127,407) 477,868 563,059 8,433,786 10,801,500 3,336,058
Shares owned, beginning of year......... 2,542,983 2,065,115 1,502,056 40,359,766 29,558,266 26,222,208
---------- ----------- ----------- ------------ ------------ ------------
Shares owned, end of year............... 2,415,576 2,542,983 2,065,115 48,793,552 40,359,766 29,558,266
========== =========== =========== ============ ============ ============
Cost of shares acquired................. $4,706,516 $12,151,370 $10,722,252 $ 74,171,214 $ 72,169,656 $ 50,799,202
========== =========== =========== ============ ============ ============
Cost of shares redeemed................. $5,295,557 $ 3,234,814 $ 850,640 $ 65,737,428 $ 61,368,156 $ 47,463,144
========== =========== =========== ============ ============ ============
</TABLE>
F-34
<PAGE> 92
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO MANAGED PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 341,433 705,303 299,562 155,180 185,440 239,027
Shares received from reinvestment of:
Dividends..................................... 19,222 51,084 26,180 8,563 33,989 29,247
Capital gain distributions.................... 15,102 113 58,396 49,259 6,347
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 375,757 756,500 325,742 222,139 268,688 274,621
Total shares redeemed........................... (412,722) (133,291) (84,040) (286,032) (130,324) (101,367)
---------- ---------- ---------- ---------- ---------- ----------
Net (decrease) increase in shares owned......... (36,965) 623,209 241,702 (63,893) 138,364 173,254
Shares owned, beginning of year................. 1,355,004 731,795 490,093 1,098,974 960,610 787,356
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 1,318,039 1,355,004 731,795 1,035,081 1,098,974 960,610
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $4,018,116 $8,359,990 $3,458,106 $3,743,159 $4,468,360 $4,306,753
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $4,345,110 $1,351,371 $ 907,232 $3,605,466 $1,596,263 $1,302,140
========== ========== ========== ========== ========== ==========
</TABLE>
F-35
<PAGE> 93
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ------------------------------------------------------------------------------------------------------------------------
AGGRESSIVE GROWTH PORTFOLIO INTERNATIONAL PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased.......................... 75,782 114,384 176,404 116,515 149,636 229,002
Shares received from reinvestment of:
Dividends............................... 3,455 4,364 3,772 17,142 10,431 11,165
Capital gain distributions.............. 85,682 41,664 748 87,946 101,929 87,406
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..................... 164,919 160,412 180,924 221,603 261,996 327,573
Total shares redeemed..................... (125,866) (81,878) (79,376) (287,256) (207,084) (184,734)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in shares owned... 39,053 78,534 101,548 (65,653) 54,912 142,839
Shares owned, beginning of year........... 569,831 491,297 389,749 1,422,239 1,367,327 1,224,488
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year................. 608,884 569,831 491,297 1,356,586 1,422,239 1,367,327
========== ========== ========== ========== ========== ==========
Cost of shares acquired................... $3,102,507 $3,283,291 $3,564,490 $3,053,743 $3,473,346 $4,278,967
========== ========== ========== ========== ========== ==========
Cost of shares redeemed................... $2,024,721 $1,306,200 $1,172,747 $3,356,843 $2,480,687 $2,178,170
========== ========== ========== ========== ========== ==========
</TABLE>
F-36
<PAGE> 94
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- ---------------------------------------------------------------------------------------------------------------------------------
ALL PRO LARGE CAP ALL PRO LARGE CAP ALL PRO SMALL CAP ALL PRO SMALL CAP
GROWTH PORTFOLIO VALUE PORTFOLIO GROWTH PORTFOLIO VALUE PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998 1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased.......... 691,692 213,913 344,968 249,960 640,176 192,921 357,150 176,132
Shares received from
reinvestment of:
Dividends............... 41 1,416 340
Capital gain
distributions.........
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired..... 691,733 213,913 346,384 249,960 640,176 192,921 357,490 176,132
Total shares redeemed..... (71,752) (18,779) (50,287) (39,435) (41,896) (22,674) (100,081) (16,777)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares
owned................... 619,981 195,134 296,097 210,525 598,280 170,247 257,409 159,355
Shares owned, beginning of
year.................... 195,134 210,525 170,247 159,355
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of
year.................... 815,115 195,134 506,622 210,525 768,527 170,247 416,764 159,355
========== ========== ========== ========== ========== ========== ========== ==========
Cost of shares acquired... $8,890,645 $2,139,394 $3,520,520 $2,312,547 $8,216,464 $1,703,306 $2,697,809 $1,436,512
========== ========== ========== ========== ========== ========== ========== ==========
Cost of shares redeemed... $ 725,052 $ 188,185 $ 491,967 $ 385,825 $ 413,127 $ 225,975 $ 813,397 $ 156,918
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
F-37
<PAGE> 95
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
HIGH INCOME PORTFOLIO EQUITY-INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 395,651 619,153 556,624 352,799 644,882 738,222
Shares received from reinvestment of:
Dividends.................................. 186,959 106,389 65,635 59,998 48,036 43,550
Capital gain distributions................. 6,989 67,602 8,112 132,627 170,951 218,961
---------- ---------- ---------- ----------- ----------- -----------
Total shares acquired........................ 589,599 793,144 630,371 545,424 863,869 1,000,733
Total shares redeemed........................ (471,532) (248,369) (109,047) (448,787) (337,142) (116,095)
---------- ---------- ---------- ----------- ----------- -----------
Net increase in shares owned................. 118,067 544,775 521,324 96,637 526,727 884,638
Shares owned, beginning of year.............. 1,902,978 1,358,203 836,879 3,776,355 3,249,628 2,364,990
---------- ---------- ---------- ----------- ----------- -----------
Shares owned, end of year.................... 2,021,045 1,902,978 1,358,203 3,872,992 3,776,355 3,249,628
========== ========== ========== =========== =========== ===========
Cost of shares acquired...................... $6,507,744 $9,653,161 $7,933,056 $13,652,563 $20,896,968 $21,544,493
========== ========== ========== =========== =========== ===========
Cost of shares redeemed...................... $5,578,652 $2,838,887 $1,173,099 $ 7,271,913 $ 5,134,531 $ 1,735,903
========== ========== ========== =========== =========== ===========
</TABLE>
F-38
<PAGE> 96
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO OVERSEAS PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................. 645,089 469,280 353,805 52,742 97,693 97,803
Shares received from reinvestment of:
Dividends.................................. 4,443 9,986 9,845 2,900 2,178 229
Capital gain distributions................. 279,371 261,224 44,069 4,678 6,419 908
----------- ----------- ----------- ---------- ---------- ----------
Total shares acquired........................ 928,903 740,490 407,719 60,320 106,290 98,940
Total shares redeemed........................ (251,540) (221,066) (104,758) (31,687) (34,347) (6,793)
----------- ----------- ----------- ---------- ---------- ----------
Net increase in shares owned................. 677,363 519,424 302,961 28,633 71,943 92,147
Shares owned, beginning of year.............. 2,268,137 1,748,713 1,445,752 172,534 100,591 8,444
----------- ----------- ----------- ---------- ---------- ----------
Shares owned, end of year.................... 2,945,500 2,268,137 1,748,713 201,167 172,534 100,591
=========== =========== =========== ========== ========== ==========
Cost of shares acquired...................... $41,021,861 $26,910,064 $13,852,376 $1,276,641 $2,078,757 $1,896,772
=========== =========== =========== ========== ========== ==========
Cost of shares redeemed...................... $ 6,028,805 $ 4,554,887 $ 2,350,230 $ 633,822 $ 619,562 $ 121,787
=========== =========== =========== ========== ========== ==========
</TABLE>
F-39
<PAGE> 97
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
ASSET MANAGER PORTFOLIO INDEX 500 PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................ 345,712 548,871 387,965 270,949 240,834 245,745
Shares received from reinvestment of:
Dividends................................. 82,354 60,098 48,526 7,396 6,162 3,170
Capital gain distributions................ 104,316 180,294 121,726 5,019 14,271 6,432
---------- ----------- ---------- ----------- ----------- -----------
Total shares acquired....................... 532,382 789,263 558,217 283,364 261,267 255,347
Total shares redeemed....................... (292,324) (169,820) (131,563) (92,221) (65,663) (5,997)
---------- ----------- ---------- ----------- ----------- -----------
Net increase in shares owned................ 240,058 619,443 426,654 191,143 195,604 249,350
Shares owned, beginning of year............. 2,293,724 1,674,281 1,247,627 706,050 510,446 261,096
---------- ----------- ---------- ----------- ----------- -----------
Shares owned, end of year................... 2,533,782 2,293,724 1,674,281 897,193 706,050 510,446
========== =========== ========== =========== =========== ===========
Cost of shares acquired..................... $9,166,519 $13,130,066 $9,113,810 $42,365,796 $32,318,011 $26,020,287
========== =========== ========== =========== =========== ===========
Cost of shares redeemed..................... $4,129,550 $ 2,379,351 $1,839,942 $ 7,034,904 $ 4,219,384 $ 327,595
========== =========== ========== =========== =========== ===========
</TABLE>
F-40
<PAGE> 98
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND II
- -----------------------------------------------------------------------------------------------------------------------------
CONTRAFUND(R) INVESTMENT GRADE
PORTFOLIO BOND PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 898,710 677,429 846,924 119,241 132,732 71,947
Shares received from reinvestment of:
Dividends.................................... 12,628 13,711 9,341 8,379 4,363 1,225
Capital gain distributions................... 92,611 100,874 24,687 2,629 518
----------- ----------- ----------- ---------- ---------- --------
Total shares acquired.......................... 1,003,949 792,014 880,952 130,249 137,613 73,172
Total shares redeemed.......................... (436,928) (233,767) (46,360) (41,216) (26,098) (3,410)
----------- ----------- ----------- ---------- ---------- --------
Net increase in shares owned................... 567,021 558,247 834,592 89,033 111,515 69,762
Shares owned, beginning of year................ 2,427,618 1,869,371 1,034,779 195,223 83,708 13,946
----------- ----------- ----------- ---------- ---------- --------
Shares owned, end of year...................... 2,994,639 2,427,618 1,869,371 284,256 195,223 83,708
=========== =========== =========== ========== ========== ========
Cost of shares acquired........................ $25,278,970 $16,415,814 $15,732,802 $1,592,717 $1,720,207 $883,549
=========== =========== =========== ========== ========== ========
Cost of shares redeemed........................ $ 6,248,088 $ 3,186,970 $ 598,941 $ 495,542 $ 310,931 $ 39,648
=========== =========== =========== ========== ========== ========
</TABLE>
F-41
<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>
OCC ACCUMULATION TRUST
- -----------------------------------------------------------------------------------------------------------------------------
EQUITY PORTFOLIO SMALL CAP PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 62,391 185,832 214,672 82,639 125,732 220,838
Shares received from reinvestment of:
Dividends..................................... 6,048 5,869 3,476 5,000 2,202 3,052
Capital gain distributions.................... 27,543 25,328 12,375 24,038 21,523
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 95,982 217,029 230,523 87,639 151,972 245,413
Total shares redeemed........................... (119,736) (170,856) (29,505) (202,856) (122,835) (33,520)
---------- ---------- ---------- ---------- ---------- ----------
Net (decrease) increase in shares owned......... (23,754) 46,173 201,018 (115,217) 29,137 211,893
Shares owned, beginning of year................. 607,084 560,911 359,893 717,730 688,593 476,700
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 583,330 607,084 560,911 602,513 717,730 688,593
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $3,584,113 $8,123,629 $7,519,820 $1,916,428 $3,833,541 $5,908,364
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $3,194,352 $3,697,900 $ 528,336 $3,726,310 $2,067,904 $ 564,212
========== ========== ========== ========== ========== ==========
</TABLE>
F-42
<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>
OCC ACCUMULATION TRUST
- ---------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO
- ---------------------------------------------------------------------------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 66,129 167,464 333,304
Shares received from reinvestment of:
Dividends................................................. 21,057 10,214 12,218
Capital gain distributions................................ 47,251 40,795 37,524
---------- ---------- -----------
Total shares acquired....................................... 134,437 218,473 383,046
Total shares redeemed....................................... (365,230) (199,208) (88,884)
---------- ---------- -----------
Net (decrease) increase in shares owned..................... (230,793) 19,265 294,162
Shares owned, beginning of year............................. 1,371,743 1,352,478 1,058,316
---------- ---------- -----------
Shares owned, end of year................................... 1,140,950 1,371,743 1,352,478
========== ========== ===========
Cost of shares acquired..................................... $5,628,749 $9,544,488 $14,890,450
========== ========== ===========
Cost of shares redeemed..................................... $9,581,912 $4,217,378 $ 1,874,842
========== ========== ===========
</TABLE>
F-43
<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>
SCUDDER VARIABLE LIFE INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
BOND PORTFOLIO GROWTH AND INCOME PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 404,130 540,773 385,038 669,834 793,097 901,830
Shares received from reinvestment of:
Dividends.................................... 53,898 77,487 58,342 23,087 40,016 20,474
Capital gain distributions................... 28,039 4,482 2,585 144,588 108,036 22,214
---------- ---------- ---------- ---------- ----------- ----------
Total shares acquired.......................... 486,067 622,742 445,965 837,509 941,149 944,518
Total shares redeemed.......................... (256,913) (199,829) (134,571) (767,469) (375,308) (52,203)
---------- ---------- ---------- ---------- ----------- ----------
Net increase in shares owned................... 229,154 422,913 311,394 70,040 565,841 892,315
Shares owned, beginning of year................ 1,579,674 1,156,761 845,367 1,943,219 1,377,378 485,063
---------- ---------- ---------- ---------- ----------- ----------
Shares owned, end of year...................... 1,808,828 1,579,674 1,156,761 2,013,259 1,943,219 1,377,378
========== ========== ========== ========== =========== ==========
Cost of shares acquired........................ $3,220,031 $4,262,079 $2,995,282 $9,161,525 $10,744,256 $9,963,127
========== ========== ========== ========== =========== ==========
Cost of shares redeemed........................ $1,760,846 $1,328,541 $ 888,200 $7,836,950 $ 3,167,047 $ 392,623
========== ========== ========== ========== =========== ==========
</TABLE>
F-44
<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>
SCUDDER VARIABLE DREYFUS VARIABLE
LIFE INVESTMENT FUND INVESTMENT FUND
- -----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO ZERO COUPON 2000 PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 249,705 243,337 362,848 326,266 160,739 178,897
Shares received from reinvestment of:
Dividends..................................... 1,417 15,137 7,622 35,346 27,581 21,457
Capital gain distributions.................... 105,534 99,556 3,992
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 356,656 358,030 374,462 361,612 188,320 200,354
Total shares redeemed........................... (186,965) (115,740) (40,903) (262,400) (67,815) (129,825)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 169,691 242,290 333,559 99,212 120,505 70,529
Shares owned, beginning of year................. 997,618 755,328 421,769 596,064 475,559 405,030
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 1,167,309 997,618 755,328 695,276 596,064 475,559
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $5,446,975 $4,962,915 $5,230,236 $4,454,728 $2,357,097 $2,451,313
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $2,322,222 $1,400,980 $ 474,635 $3,215,866 $ 858,337 $1,563,893
========== ========== ========== ========== ========== ==========
</TABLE>
F-45
<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>
DREYFUS VARIABLE DREYFUS SOCIALLY RESPONSIBLE
INVESTMENT FUND GROWTH FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO SOCIALLY RESPONSIBLE PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased............................... 229,248 164,633 277,054 346,687 189,664 135,060
Shares received from reinvestment of:
Dividends.................................... 5,411 8,039 10,424 74 551 788
Capital gain distributions................... 27,605 14,052 59,160 19,922 12,862 6,135
---------- ---------- ---------- ----------- ---------- ----------
Total shares acquired.......................... 262,264 186,724 346,638 366,683 203,077 141,983
Total shares redeemed.......................... (227,833) (138,714) (168,058) (127,771) (67,031) (12,434)
---------- ---------- ---------- ----------- ---------- ----------
Net increase in shares owned................... 34,431 48,010 178,580 238,912 136,046 129,549
Shares owned, beginning of year................ 867,906 819,896 641,316 354,253 218,207 88,658
---------- ---------- ---------- ----------- ---------- ----------
Shares owned, end of year...................... 902,337 867,906 819,896 593,165 354,253 218,207
========== ========== ========== =========== ========== ==========
Cost of shares acquired........................ $6,260,045 $3,998,110 $7,078,888 $12,499,529 $5,748,444 $3,325,662
========== ========== ========== =========== ========== ==========
Cost of shares redeemed........................ $4,789,660 $2,869,687 $3,122,555 $ 2,927,631 $1,300,009 $ 225,772
========== ========== ========== =========== ========== ==========
</TABLE>
F-46
<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>
FEDERATED INSURANCE SERIES
- -----------------------------------------------------------------------------------------------------------------------------
FUND FOR U.S. GOVERNMENT
SECURITIES II PORTFOLIO UTILITY FUND II PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased................................ 417,008 569,802 187,156 181,732 352,245 140,162
Shares received from reinvestment of:
Dividends..................................... 34,835 6,466 8,648 18,106 3,744 6,422
Capital gain distributions.................... 6,849 286 35,863 22,863 5,679
---------- ---------- ---------- ---------- ---------- ----------
Total shares acquired........................... 458,692 576,554 195,804 235,701 378,852 152,263
Total shares redeemed........................... (273,468) (82,504) (50,622) (188,147) (69,825) (28,608)
---------- ---------- ---------- ---------- ---------- ----------
Net increase in shares owned.................... 185,224 494,050 145,182 47,554 309,027 123,655
Shares owned, beginning of year................. 835,734 341,684 196,502 668,055 359,028 235,373
---------- ---------- ---------- ---------- ---------- ----------
Shares owned, end of year....................... 1,020,958 835,734 341,684 715,609 668,055 359,028
========== ========== ========== ========== ========== ==========
Cost of shares acquired......................... $4,889,548 $6,298,311 $2,003,403 $3,332,804 $5,378,724 $1,905,479
========== ========== ========== ========== ========== ==========
Cost of shares redeemed......................... $2,791,284 $ 823,154 $ 517,189 $2,111,624 $ 773,585 $ 305,915
========== ========== ========== ========== ========== ==========
</TABLE>
F-47
<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>
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
- ---------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO GROWTH PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased........................................ 1,850 20,340 37,500 1,319 15,238 26,907
Shares received from reinvestment of:
Dividends............................................. 738 1,208 114
Capital gain distributions............................ 1,093 8,487 294 2,232 11,970 871
-------- -------- -------- ---------- -------- --------
Total shares acquired................................... 3,681 30,035 37,908 3,551 27,208 27,778
Total shares redeemed................................... (51,150) (23,112) (1,645) (41,388) (19,990) (2,327)
-------- -------- -------- ---------- -------- --------
Net (decrease) increase in shares owned................. (47,469) 6,923 36,263 (37,837) 7,218 25,451
Shares owned, beginning of year......................... 47,469 40,546 4,283 37,837 30,619 5,168
-------- -------- -------- ---------- -------- --------
Shares owned, end of year............................... -- 47,469 40,546 -- 37,837 30,619
======== ======== ======== ========== ======== ========
Cost of shares acquired................................. $ 55,653 $475,889 $643,054 $ 83,796 $696,912 $781,196
======== ======== ======== ========== ======== ========
Cost of shares redeemed................................. $840,074 $376,517 $ 24,854 $1,102,841 $529,836 $ 55,238
======== ======== ======== ========== ======== ========
</TABLE>
F-48
<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>
NEUBERGER BERMAN ADVISERS
MANAGEMENT TRUST
- -------------------------------------------------------------------------------------------------------------
LIMITED MATURITY PARTNERS
BOND PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Shares purchased..................................... 42,160 60,226 62,507 66,085 22,371
Shares received from reinvestment of:
Dividends.......................................... 6,551 4,767 1,137 294
Capital gain distributions......................... 512
-------- -------- -------- ---------- --------
Total shares acquired................................ 48,711 64,993 63,644 66,891 22,371
Total shares redeemed................................ (28,203) (30,748) (1,353) (9,606) (783)
-------- -------- -------- ---------- --------
Net increase in shares owned......................... 20,508 34,245 62,291 57,285 21,588
Shares owned, beginning of year...................... 103,757 69,512 7,221 21,588
-------- -------- -------- ---------- --------
Shares owned, end of year............................ 124,265 103,757 69,512 78,873 21,588
======== ======== ======== ========== ========
Cost of shares acquired.............................. $644,471 $888,322 $877,259 $1,319,458 $407,672
======== ======== ======== ========== ========
Cost of shares redeemed.............................. $387,279 $424,355 $ 18,532 $ 183,988 $ 15,849
======== ======== ======== ========== ========
</TABLE>
F-49
<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>
AMERICAN CENTURY VAN ECK WORLDWIDE
VARIABLE PORTFOLIOS, INC. INSURANCE TRUST
- ---------------------------------------------------------------------------------------------------------------------------
AMERICAN CENTURY VP
CAPITAL APPRECIATION VAN ECK WORLDWIDE
PORTFOLIO BOND PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased......................................... 742 8,123 11,508 96,145 80,971 75,793
Shares received from reinvestment of:
Dividends.............................................. 5,627 786 468
Capital gain distributions............................. 961 266 2,514
-------- ------- -------- ---------- -------- --------
Total shares acquired.................................... 742 9,084 11,774 104,286 81,757 76,261
Total shares redeemed.................................... (23,979) (2,494) (3,195) (52,351) (29,810) (2,829)
-------- ------- -------- ---------- -------- --------
Net (decrease) increase in shares owned.................. (23,237) 6,590 8,579 51,935 51,947 73,432
Shares owned, beginning of year.......................... 23,237 16,647 8,068 135,965 84,018 10,586
-------- ------- -------- ---------- -------- --------
Shares owned, end of year................................ -- 23,237 16,647 187,900 135,965 84,018
======== ======= ======== ========== ======== ========
Cost of shares acquired.................................. $ 7,092 $85,444 $116,229 $1,149,856 $955,676 $812,049
======== ======= ======== ========== ======== ========
Cost of shares redeemed.................................. $233,096 $26,675 $ 33,569 $ 559,411 $318,147 $ 30,337
======== ======= ======== ========== ======== ========
</TABLE>
F-50
<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>
VAN ECK WORLDWIDE INSURANCE TRUST
- -------------------------------------------------------------------------------------------------------------------------------
VAN ECK WORLDWIDE VAN ECK WORLDWIDE VAN ECK WORLDWIDE
HARD ASSETS PORTFOLIO EMERGING MARKETS PORTFOLIO REAL ESTATE PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shares purchased............... 46,969 51,095 7,648 400,787 147,436 87,201 30,756 39,722
Shares received from
reinvestment of:
Dividends.................... 763 71 73 854 38 653
Capital gain distributions... 1,740 54 759
-------- -------- -------- ---------- ---------- ---------- -------- --------
Total shares acquired.......... 47,732 52,906 7,775 400,787 149,049 87,239 31,409 39,722
Total shares redeemed.......... (19,971) (16,271) (354) (119,831) (40,752) (10,248) (5,859) (10,398)
-------- -------- -------- ---------- ---------- ---------- -------- --------
Net increase in shares owned... 27,761 36,635 7,421 280,956 108,297 76,991 25,550 29,324
Shares owned, beginning of
year......................... 46,611 9,976 2,555 193,020 84,723 7,732 29,324
-------- -------- -------- ---------- ---------- ---------- -------- --------
Shares owned, end of year...... 74,372 46,611 9,976 473,976 193,020 84,723 54,874 29,324
======== ======== ======== ========== ========== ========== ======== ========
Cost of shares acquired........ $490,303 $536,561 $129,621 $4,023,833 $1,157,713 $1,212,177 $300,279 $390,669
======== ======== ======== ========== ========== ========== ======== ========
Cost of shares redeemed........ $207,679 $246,428 $ 5,619 $1,253,483 $ 588,929 $ 125,930 $ 60,491 $112,395
======== ======== ======== ========== ========== ========== ======== ========
</TABLE>
F-51
<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>
ALGER AMERICAN FUND
- --------------------------------------------------------------------------------------------------
ALGER AMERICAN
SMALL CAPITALIZATION
PORTFOLIO
- --------------------------------------------------------------------------------------------------
1999 1998 1997
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares purchased............................................ 22,690 37,437 40,894
Shares received from reinvestment of:
Dividends.................................................
Capital gain distributions................................ 13,016 9,723 1,128
---------- ---------- ----------
Total shares acquired....................................... 35,706 47,160 42,022
Total shares redeemed....................................... (12,456) (12,326) (2,609)
---------- ---------- ----------
Net increase in shares owned................................ 23,250 34,834 39,413
Shares owned, beginning of year............................. 86,025 51,191 11,778
---------- ---------- ----------
Shares owned, end of year................................... 109,275 86,025 51,191
========== ========== ==========
Cost of shares acquired..................................... $1,502,178 $1,968,028 $1,740,549
========== ========== ==========
Cost of shares redeemed..................................... $ 472,191 $ 502,525 $ 104,052
========== ========== ==========
</TABLE>
F-52
<PAGE> 110
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
4. RELATED PARTY TRANSACTIONS
Certain deductions are made from the Subaccounts and/or the premiums by
PLACA. The deductions may include (1) surrender charges, (2) administration
fees, (3) transfer processing fees, (4) mortality and expense risk charges and
(5) premium taxes. Premiums adjusted for these deductions are recorded as net
premiums in the statement of changes in net assets. See original policy
documents for specific charges assessed.
There are no sales expenses deducted from premiums at the time the premiums
are paid. If a contract has not been in force for six full years for Market
Street VIP and Market Street VIP/2 contracts and seven full years for an Options
VIP contract, upon surrender or for certain withdrawals, a surrender charge is
deducted from the proceeds. However, subject to certain restrictions, up to 10%
of the contract account value as of the beginning of a contract year may be
surrendered or withdrawn free of surrender charges. For Options VIP contracts,
the 10% is cumulative if unused.
An annual administrative fee of $30 is deducted from the contract account
value on each contract anniversary date beginning one year from the issue date
of the contract. In addition, to compensate for costs associated with
administration of the Market Street VIP/2 and Options VIP contracts, PLACA
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, 1999 and 1998.
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. PLACA 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> 111
[This Page Intentionally Left Blank]
<PAGE> 112
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, 1999, 1998 AND 1997
<PAGE> 113
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, of equity and of 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, 1999 and 1998, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 auditing standards generally
accepted in the United States, 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 7, 2000
F-56
<PAGE> 114
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at market (cost: 1999-$320,293;
1998-$352,107)........................................ $ 304,681 $ 359,442
Held to maturity, at amortized cost (market:
1999-$41,906; 1998-$57,419)........................... 42,263 54,671
Equity securities, at market (cost: 1999-$232;
1998-$1,278)........................................... 400 1,360
Mortgage loans............................................ 58,179 58,907
Real estate............................................... 1,794 484
Policy loans and premium notes............................ 11,168 8,454
Other invested assets..................................... 2,041 88
---------- ----------
Total investments.................................... 420,526 483,406
---------- ----------
Cash and cash equivalents................................... 6,010 5,581
Investment income due and accrued........................... 6,868 7,304
Deferred policy acquisition costs........................... 133,347 104,913
Reinsurance recoverable..................................... 3,515 3,054
Separate account assets..................................... 1,127,941 880,417
Other assets................................................ 1,179 1,312
---------- ----------
Total assets......................................... $1,699,386 $1,485,987
========== ==========
LIABILITIES
Policy liabilities:
Future policyholder benefits.............................. $ 482,673 $ 517,625
Other policy obligations.................................. 1,744 1,181
---------- ----------
Total policy liabilities............................. 484,417 518,806
---------- ----------
Payable to parent........................................... 917 --
Federal income taxes payable:
Current................................................... 2,676 6,281
Deferred.................................................. 1,246 2,474
Separate account liabilities................................ 1,124,803 877,713
Other liabilities........................................... 5,191 3,447
---------- ----------
Total liabilities.................................... 1,619,250 1,408,721
---------- ----------
COMMITMENTS AND CONTINGENCIES -- NOTE 10
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......................................... 37,306 28,346
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation on
securities............................................ (3,835) 2,255
---------- ----------
Total equity......................................... 80,136 77,266
---------- ----------
Total liabilities and equity......................... $1,699,386 $1,485,987
========== ==========
</TABLE>
See accompanying notes to financial statements
F-57
<PAGE> 115
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES
Premiums.................................................... $18,031 $13,269 $13,904
Policy and contract charges................................. 29,386 18,239 11,729
Net investment income....................................... 34,876 35,262 32,314
Other income................................................ 2,927 2,705 4,815
Net realized (losses) gains on investments.................. (1,887) 2,010 69
------- ------- -------
Total revenues............................................ 83,333 71,485 62,831
------- ------- -------
BENEFITS AND EXPENSES
Policy and contract benefits................................ 13,435 13,884 15,606
Change in future policyholder benefits...................... 32,415 24,791 19,254
Commissions and operating expenses.......................... 22,736 19,859 15,271
Policyholder dividends...................................... 1,090 958 773
------- ------- -------
Total benefits and expenses............................... 69,676 59,492 50,904
------- ------- -------
Income before income taxes............................. 13,657 11,993 11,927
Income tax expense:
Current................................................... 2,645 3,776 2,470
Deferred.................................................. 2,052 436 1,979
------- ------- -------
Total income tax expense............................... 4,697 4,212 4,449
------- ------- -------
Net Income........................................... $ 8,960 $ 7,781 $ 7,478
======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-58
<PAGE> 116
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
CONTRIBUTED UNREALIZED
COMMON CAPITAL APPRECIATION
STOCK COMMON IN EXCESS RETAINED (DEPRECIATION) TOTAL
SHARES STOCK OF PAR EARNINGS ON SECURITIES EQUITY
------ ------ ----------- -------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997.......... 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
(depreciation) on
securities................ -- -- -- -- 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
(depreciation) on
securities................ -- -- -- -- (604) (604)
-------
Total comprehensive income........ 7,177
----- ------ ------- ------- ------- -------
Balance at December 31, 1998........ 2,500 2,500 44,165 28,346 2,255 77,266
-------
Comprehensive income
Net income..................... -- -- -- 8,960 -- 8,960
Other comprehensive income, net
of tax:
Change in unrealized
appreciation
(depreciation) on
securities................ -- -- -- -- (6,090) (6,090)
-------
Total comprehensive income........ 2,870
----- ------ ------- ------- ------- -------
Balance at December 31, 1999........ 2,500 $2,500 $44,165 $37,306 $(3,835) $80,136
===== ====== ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements
F-59
<PAGE> 117
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY
OF AMERICA
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 8,960 $ 7,781 $ 7,478
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Interest credited to variable universal life and
investment products..................................... 24,461 21,927 15,076
Amortization of deferred policy acquisition costs......... 16,426 14,804 9,445
Capitalization of deferred policy acquisition costs....... (31,369) (35,985) (31,404)
Deferred Federal income taxes............................. 2,052 436 1,979
Depreciation, amortization and accretion.................. (371) 372 625
Net realized losses (gains) on investments................ 1,887 (2,010) (69)
Change in investment income due and accrued............... 436 (258) (437)
Change in reinsurance recoverable......................... (461) 71,620 5,672
Change in policy liabilities.............................. (894) (77,582) (12,255)
Change in other liabilities............................... 1,744 (3,444) 3,250
Change in current Federal income taxes payable............ (3,605) 2,353 (809)
Other, net................................................ 294 (2,236) (2,676)
--------- --------- ---------
Net cash provided by (used in) operating activities..... 19,560 (2,222) (4,125)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investments:
Available for sale securities............................. 27,345 21,681 21,382
Equity securities......................................... 652 370 100
Real estate............................................... -- 5,324 772
Other invested assets..................................... 566 248 333
Proceeds from maturities of investments:
Held to maturity securities............................... 13,801 10,128 19,184
Available for sale securities............................. 58,546 56,894 28,439
Mortgage loans............................................ 8,631 4,436 2,599
Purchases of investments:
Held to maturity securities............................... (1,080) (2,000) (2,029)
Available for sale securities............................. (55,525) (119,639) (72,520)
Equity securities......................................... -- (207) (609)
Mortgage loans............................................ (8,825) (17,166) (7,179)
Real estate............................................... (65) (195) (99)
Other invested assets..................................... (2,507) -- (302)
Contributions of separate account seed money................ -- (330) --
Withdrawals of separate account seed money.................. -- 265 --
Policy loans and premium notes, net......................... (2,714) (1,729) (373)
--------- --------- ---------
Net cash provided by (used in) investing activities..... 38,825 (41,920) (10,302)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Variable universal life and investment product deposits..... 212,196 302,071 232,307
Variable universal life and investment product
withdrawals............................................... (270,152) (252,348) (228,871)
Capital contribution from parent............................ -- -- 6,500
--------- --------- ---------
Net cash (used in) provided by financing activities..... (57,956) 49,723 9,936
--------- --------- ---------
Net change in cash and cash equivalents................. 429 5,581 (4,491)
Cash and cash equivalents, beginning of year................ 5,581 -- 4,491
--------- --------- ---------
Cash and cash equivalents, end of year...................... $ 6,010 $ 5,581 $ --
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for income taxes.................. $ 6,246 $ 1,434 $ 3,280
========= ========= =========
Foreclosure of mortgage loans............................... $ 1,245 $ 500 $ --
========= ========= =========
</TABLE>
See accompanying notes to financial statements
F-60
<PAGE> 118
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 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.
A Special Meeting of policyholders to consider and vote upon the Plan was
held on February 9, 1999. Approximately 90% of the voting policyholders approved
the Plan.
Subsequent to the Special Meeting, a group of dissident policyholders filed
a lawsuit to block the Plan. On February 11, 1999, a Philadelphia Common Pleas
Court judge issued an order granting a preliminary injunction blocking the Plan
until the Court conducted a hearing. Provident Mutual continued to provide
information to the Court at hearings held on March 16, 1999 and June 22, 1999.
On September 16, 1999, the judge issued a permanent injunction blocking the Plan
until certain additional disclosures were made.
On October 29, 1999, Provident Mutual announced that it was abandoning the
Plan due to practical barriers to completing all of the required steps before
the December 31, 1999 deadline mandated in the Pennsylvania Insurance
Department's order approving the Plan.
The Company sells life and annuity products principally through a personal
producing general agency (PPGA) and a brokerage sales force. The Company is
licensed to operate in 49 states and the District of Columbia, each of which has
regulatory oversight. Sales in 16 states accounted for 78% of the Company's
sales for the year ended December 31, 1999. 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, selected benefit elements and policy provisions are determined by
statutes and regulations in each of these states.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States (GAAP). Certain
prior year amounts have been reclassified to conform to the current year
presentation, including short-term investments reclassified as cash and cash
equivalents.
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 deferral and subsequent
amortization of policy acquisition costs, the valuation of policy reserves, the
accounting for deferred taxes, the inclusion 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.
F-61
<PAGE> 119
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statutory net income was $886, $1,702 and $1,792 for the years ended
December 31, 1999, 1998 and 1997, respectively. Statutory surplus was $44,161
and $44,730 as of December 31, 1999 and 1998, respectively.
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 of revenues and expenses. Actual
results could differ from those estimates.
The Company is subject to interest rate risk to the extent its investment
portfolio cash flows are not matched to its insurance liabilities. Management
believes it manages this risk through modeling of the cash flows under
reasonable scenarios.
INVESTED ASSETS
Fixed maturity securities (bonds) which may be sold are designated as
"available for sale" and are reported at market value. Unrealized
appreciation/depreciation on these securities is recorded directly in 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 credited (charged) to operations. Reserves totaled
$740 and $1,064 at December 31, 1999 and 1998, respectively.
Policy loans are reported at unpaid principal balances.
Foreclosed real estate is carried at lower of cost or fair value and is
held for sale.
Other invested assets consist of limited partnerships carried at the lower
of cost or market value.
Cash and cash equivalents include cash and all highly liquid investments
with a maturity of three months or less when purchased, reduced by the amount of
outstanding checks.
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
F-62
<PAGE> 120
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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. In June
1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of SFAS No. 133", which
changed the effective date of SFAS No. 133 to fiscal years beginning after June
15, 2000. The Company plans to adopt the provisions of SFAS No. 133 effective
January 1, 2001. The Company is currently reviewing SFAS No. 133 and has not yet
determined its impact on the financial statements.
Effective January 1, 1999, the Company adopted Statement of Position (SOP)
No. 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments." SOP 97-3 provides guidance for determining measurement and
recognition of a liability or an asset for insurance-related assessments. The
adoption of this statement did not have a material effect on the results of
operations or the financial position of the Company.
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 3.5% to 4.5%.
Variable Life and Investment-Type Products
Variable life products are 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.
F-63
<PAGE> 121
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 policies, the account balances were credited at interest rates which
ranged from 4.5% to 6.5% in 1999.
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 yields,
before realized capital gains and losses, in the calculation of expected gross
margins was 8.0% for 1999, 8.25% for 1998 and 8.0% for 1997.
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 lives of the
policies.
Deferred policy acquisition costs are subject to recoverability testing at
the time of policy issuance and loss recognition testing at the end of each
accounting period. The effect on the amortization of deferred policy acquisition
costs of revisions in estimated experience is reflected in earnings in the
period such estimates are revised. In addition, the effect on the deferred
policy acquisition cost asset that would result from the realization of
unrealized gains (losses) is recognized through an offset to Other Comprehensive
Income as of the balance sheet date.
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 to participating policyholders 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.
F-64
<PAGE> 122
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
SEPARATE ACCOUNTS
Separate account assets and liabilities reflect 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 guarantees 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.
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, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------ ------------------------
FAIR CARRYING FAIR CARRYING
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available for sale.............. $304,681 $304,681 $359,442 $359,442
Held to maturity................ $41,906 $42,263 $57,419 $54,671
Equity securities................. $400 $400 $1,360 $1,360
Mortgage loans.................... $57,261 $58,179 $64,225 $58,907
LIABILITIES FOR INVESTMENT-TYPE
INSURANCE CONTRACTS
Supplementary contracts without
life contingencies.............. $7,407 $7,428 $7,479 $7,142
Individual annuities.............. $1,346,732 $1,384,023 $1,181,520 $1,215,896
</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 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).
F-65
<PAGE> 123
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 ACCUMULATIONS
The policyholder dividend and 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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------
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.......... $ 1,714 $ 1 $ 67 $ 1,648
Obligations of states and political
subdivisions.................................. 952 37 -- 989
Corporate securities............................ 290,080 751 15,499 275,332
Mortgage-backed securities...................... 27,547 155 990 26,712
-------- ------ ------- --------
Subtotal -- fixed maturities.................. 320,293 944 16,556 304,681
Equity securities............................... 232 171 3 400
-------- ------ ------- --------
Total......................................... $320,525 $1,115 $16,559 $305,081
======== ====== ======= ========
</TABLE>
F-66
<PAGE> 124
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------
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........... $ 4,165 $182 $ 23 $ 4,324
Corporate securities............................. 36,770 99 653 36,216
Mortgage-backed securities....................... 1,328 38 -- 1,366
------- ---- ---- -------
Total.......................................... $42,263 $319 $676 $41,906
======= ==== ==== =======
</TABLE>
<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>
<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>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1999, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
AVAILABLE FOR SALE COST FAIR VALUE
------------------ --------- ----------
<S> <C> <C>
Due in one year or.......................................... $ 13,041 $ 13,064
Due after one year through five years....................... 117,657 115,895
Due after five years through ten years...................... 106,214 98,939
Due after ten years......................................... 83,381 76,783
-------- --------
Total..................................................... $320,293 $304,681
======== ========
</TABLE>
F-67
<PAGE> 125
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
HELD TO MATURITY COST FAIR VALUE
---------------- --------- ----------
<S> <C> <C>
Due in one year or less..................................... $ 5,416 $ 5,413
Due after one year through five years....................... 19,961 19,773
Due after five years through ten years...................... 13,993 13,984
Due after ten years......................................... 2,893 2,736
------- --------
Total..................................................... $42,263 $ 41,906
======= ========
</TABLE>
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. Mortgage-backed securities are included based on their
contractual maturity.
Realized (losses) gains on investments for the years ended December 31,
1999, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Fixed maturities....................................... $(1,506) $ (292) $ 1,135
Equity securities...................................... (393) (273) (1,360)
Mortgage loans......................................... -- (194) 104
Real estate............................................ -- 2,735 133
Other invested assets.................................. 12 34 57
------- ------ -------
$(1,887) $2,010 $ 69
======= ====== =======
</TABLE>
Net unrealized (depreciation) appreciation on available for sale securities
as of December 31, 1999 and 1998 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Net unrealized (depreciation) appreciation before
adjustments for the following:............................ $(15,444) $ 7,417
Amortization of deferred policy acquisition costs......... 9,545 (3,947)
Deferred Federal income taxes............................. 2,064 (1,215)
-------- -------
Net unrealized (depreciation) appreciation.................. $ (3,835) $ 2,255
======== =======
</TABLE>
F-68
<PAGE> 126
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Net investment income, by type of investment, is as follows for the years
ending December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Gross investment income:
Fixed maturities:
Available for sale.................................. $25,413 $25,294 $22,559
Held to maturity.................................... 4,126 4,686 5,692
Equity securities..................................... 2 66 92
Mortgage loans........................................ 5,099 4,485 3,924
Real estate........................................... 183 523 591
Policy loans.......................................... 427 299 214
Cash and cash equivalents............................. 255 431 258
Other, net............................................ 119 781 9
------- ------- -------
35,624 36,565 33,339
Less investment expenses.............................. (748) (1,303) (1,025)
------- ------- -------
Net investment income................................. $34,876 $35,262 $32,314
======= ======= =======
</TABLE>
4. MORTGAGE LOANS
The carrying value of impaired loans was $0 and $2,363, which were net of
reserves of $0 and $474 as of December 31, 1999 and 1998, respectively.
A reconciliation of the reserve balance, including general reserves, for
mortgage loans for 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Balance at January 1........................................ $1,064 $1,170
Provision, net of recoveries................................ (324) 124
Releases due to foreclosures................................ -- (230)
------ ------
Balance at December 31...................................... $ 740 $1,064
====== ======
</TABLE>
The average recorded investment in impaired loans was $1,418 and $2,624
during 1999 and 1998, respectively. Interest income recognized on impaired loans
during 1999, 1998 and 1997 was $124, $237 and $284, respectively. All interest
income on impaired loans was recognized on the cash basis.
5. REAL ESTATE
Real estate totaled $1,794 and $484 as of December 31, 1999 and 1998,
respectively. Depreciation expense was $0, $116 and $113 for the years ended
December 31, 1999, 1998 and 1997, respectively.
F-69
<PAGE> 127
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. DEFERRED POLICY ACQUISITION COSTS
A reconciliation of the deferred policy acquisition cost (DAC) asset for
1999, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Balance at January 1,............................... $104,913 $ 83,291 $62,520
Expenses deferred................................... 31,369 35,985 31,404
Amortization of DAC................................. (16,426) (14,804) (9,445)
Effect on DAC from unrealized losses (gains)........ 13,491 441 (1,188)
-------- -------- -------
Balance at December 31,............................. $133,347 $104,913 $83,291
======== ======== =======
</TABLE>
7. FEDERAL INCOME TAXES
The Company is included in a consolidated Federal income tax return with
Provident Mutual. The tax liability is accrued on a separate company basis,
adjusted for an allocation of an equity tax from Provident Mutual.
The provision for Federal income taxes from operations differs from the
normal relationship of Federal income tax to pretax income as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal income tax at statutory rate..................... $4,780 $4,198 $4,174
Current year equity tax................................ 817 664 900
True down of prior years' equity tax................... (900) (650) (625)
------ ------ ------
Provision for Federal income tax from operations......... $4,697 $4,212 $4,449
====== ====== ======
</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 are as follows at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
DEFERRED TAX LIABILITY
Deferred policy acquisition costs........................... $36,685 $32,648
Net unrealized gain on available for sale securities........ -- 1,215
------- -------
Total deferred tax liability.............................. 36,685 33,863
------- -------
DEFERRED TAX ASSET
Reserves.................................................... 32,505 30,671
Invested assets............................................. 422 353
Policyholder dividends...................................... 203 189
Net unrealized loss on available for sale securities........ 2,065 --
Other....................................................... 244 176
------- -------
Total deferred tax asset.................................. 35,439 31,389
------- -------
Net deferred tax liability.................................. $ 1,246 $ 2,474
======= =======
</TABLE>
Under current tax law, stock life insurance companies are taxed at current
rates on distributions from the special surplus account for the benefit of
policyholders designated "Policyholder Surplus" (the Account). The Tax Reform
Act of 1984 eliminated further additions to the Account after December 31,
F-70
<PAGE> 128
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1983. The aggregate accumulation at December 31, 1983 was $2,037. The Company
has no present plans to make any distributions which would subject the Account
to current taxation.
The Company's Federal income tax returns have been audited through 1995.
All years through 1985 are closed. Years 1986 through 1995 have been audited and
are closed with the exception of several issues for which claims for refund have
been filed. Years 1996 and subsequent remain open. In the opinion of management,
adequate provision has been made for the possible effect of potential
assessments related to prior years' taxes.
8. 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.
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, 1999
Life insurance in force..................... $3,304,015 $2,454,842 $25,319 $874,492
========== ========== ======= ========
Premiums.................................... $ 18,580 $ 639 $ 90 $ 18,031
========== ========== ======= ========
Future policyholder benefits................ $ 482,673 $ 3,515 $ 1,968 $481,126
========== ========== ======= ========
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................ $ 517,625 $ 3,054 $ 2,378 $516,949
========== ========== ======= ========
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
========== ========== ======= ========
</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.
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, 1999 and 1998. Deposits
ceded during 1999 and 1998 were $2,627 and $2,749, respectively.
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<PAGE> 129
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Approximately $1,668,604 and $1,481,828 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, 1999 and 1998, respectively.
Premiums and deposits ceded were $4,146 and $4,103 during 1999 and 1998,
respectively. Reinsurance recoverables at December 31, 1999 and 1998 were $132
and $134, respectively.
9. 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
$15,941, $16,581 and $13,964 for 1999, 1998 and 1997, 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, 1999 and 1998
approximated $73,957 and $81,050, respectively.
10. 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, 1999, the Company had outstanding mortgage loan and limited
partnership commitments of approximately $3,768. The mortgage loan commitments,
which expire through December 2000, totaled $3,275 and were issued during 1999
at interest rates consistent with rates applicable on December 31, 1999. 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 had no hedge activity in 1999. The
Company closed out hedge positions consisting of 226 treasury futures contracts
with a dollar value of $25,727 in 1998. The approximate net losses generated
from the hedge positions were $33 in 1998. There were no open hedge positions at
December 31, 1999 and 1998.
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, 1999 or 1998.
INVESTMENT PORTFOLIO CREDIT RISK
Bonds
The Company's bond investment portfolio is predominately comprised of
investment grade securities. At December 31, 1999 and 1998, approximately
$34,449 and $23,488, respectively, in debt security investments (9.5% and 5.8%,
respectively, of the total debt security portfolio) are considered "below
investment grade." During 1999, the Company increased its allocation of assets
to "below investment grade" securities. Securities are classified as "below
investment grade" primarily by utilizing rating criteria established by
independent bond rating agencies.
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NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Debt security investments with a carrying value at December 31, 1999 of
$600 were non-income producing for the year ended December 31, 1999.
The Company had debt security investments in the financial services
industry at both December 31, 1999 and 1998 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, 1999 and 1998, 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 results of operations.
Insurance companies are subject to assessments, up to statutory limits, by
state guaranty funds for losses of policyholders of insolvent insurance
companies. In the opinion of management, the outcome of the proceedings and
assessments will not have a material adverse effect on the financial statements.
Guaranty fund assessments totaled $79, $109 and $236 in 1999, 1998 and 1997,
respectively. Of those amounts, $76, $56 and $117 in 1999, 1998 and 1997,
respectively, are creditable against future years' premium taxes.
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NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
11. COMPREHENSIVE INCOME
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, 1999:
Unrealized (depreciation) appreciation on
securities.................................... $(11,256) $ 3,939 $(7,317)
Less: reclassification adjustment for losses
realized in net income........................ 1,887 (660) 1,227
-------- ------- -------
Net change in unrealized (depreciation)
appreciation on securities.................... $ (9,369) $ 3,279 $(6,090)
======== ======= =======
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 (depreciation)
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
(depreciation) on securities.................. $ 3,019 $(1,057) $ 1,962
======== ======= =======
</TABLE>
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