<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 MAIN ADMINISTRATIVE OFFICES
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 below; 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 45 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 under this Contract:
-- 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
-- MFS VARIABLE INSURANCE TRUST
MFS Emerging Growth Series
MFS Growth with Income Series
MFS New Discovery Series
MFS Research Series
-- OCC ACCUMULATION TRUST
Equity Portfolio
Managed Portfolio
-- PIMCO VARIABLE INSURANCE TRUST
PIMCO High Yield Bond Portfolio
PIMCO Total Return Bond Portfolio
<PAGE> 3
-- 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 III
VIP III Contrafund(R) Portfolio
VIP III Growth Portfolio
VIP III Growth Opportunities Portfolio
VIP III Overseas Portfolio
<PAGE> 4
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY.............................. 1
TABLE OF EXPENSES..................... 3
CONTRACT SUMMARY...................... 10
The Contract........................ 10
Charges and Deductions.............. 11
Annuity Provisions.................. 12
Federal Tax Status.................. 13
PLACA, THE VARIABLE ACCOUNT AND THE
PORTFOLIOS.......................... 14
Providentmutual Life and Annuity
Company of America (PLACA)....... 14
Providentmutual Variable Annuity
Separate Account................. 14
The Funds........................... 15
Resolving Material Conflicts........ 22
Addition, Deletion or Substitution
of Investments................... 22
DESCRIPTION OF ANNUITY CONTRACT....... 23
Purchasing a Contract............... 23
Cancellation (Free-Look) Period..... 23
Premiums............................ 23
Allocation of Net Premiums.......... 23
Variable Account Value.............. 24
Transfer Privilege.................. 25
Dollar Cost Averaging............... 26
Withdrawals and Surrender........... 27
Death Benefit Before Annuity Date... 29
Alternate Death Benefit Riders...... 30
The Annuity Date.................... 31
Payments............................ 31
Modification........................ 31
Reports to Contract Owners.......... 32
Contract Inquiries.................. 32
THE GUARANTEED ACCOUNT................ 32
Minimum Guaranteed and Current
Interest Rates................... 32
Transfers from Guaranteed Account... 33
Payment Deferral.................... 33
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CHARGES AND DEDUCTIONS................ 33
Surrender Charge (Contingent
Deferred Sales Charge)........... 33
Administrative Charges.............. 34
Daily Annuity Charge................ 35
Investment Advisory Fees and Other
Expenses of the Portfolios....... 35
Charges For Optional Death Benefit
Riders........................... 35
Premium Taxes....................... 35
Other Taxes......................... 36
Charge Discounts For Sales to
Certain Groups................... 36
PAYMENT OPTIONS....................... 36
Election of Payment Options......... 36
Description of Payment Options...... 37
YIELDS AND TOTAL RETURNS.............. 37
FEDERAL TAX STATUS.................... 39
Introduction........................ 39
Tax Status of the Contracts......... 39
Taxation of Annuities -- In
General.......................... 40
Taxation of Non-Qualified
Contracts........................ 40
Taxation of Qualified Contracts..... 41
Withholding......................... 42
Possible Changes in Taxation........ 43
Other Tax Consequences.............. 43
DISTRIBUTION OF CONTRACTS............. 43
LEGAL PROCEEDINGS..................... 43
VOTING PORTFOLIO SHARES............... 44
FINANCIAL STATEMENTS.................. 44
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS................... 45
APPENDIX A -- FINANCIAL HIGHLIGHTS.... A-1
</TABLE>
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[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 6
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.
ANNUITY CHARGE
The fee we charge for assuming mortality and risk expenses and administrative
fees and expenses.
ANNUITY DATE
The date as of which Surrender Value is applied to a Payment Option. The last
possible Annuity Date is the Maturity Date.
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 on 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.
FREE WITHDRAWAL AMOUNT
An amount of Contract Account Value that may be withdrawn each Contract Year
without a Surrender Charge.
FUND
Any mutual fund in which a Subaccount invests.
GENERAL ACCOUNT
The assets that belong to us other than those allocated to the Variable Account
or any of our other separate accounts.
GUARANTEED ACCOUNT
An account that is part of our General Account and not part of or dependent upon
the investment performance of the Variable Account.
GUARANTEED ACCOUNT OPTION
An allocation option under the Contract supported by the General Account.
GUARANTEED ACCOUNT VALUE
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. The Guaranteed Account
Value is calculated separately for each Guaranteed Account Option.
MATURITY DATE
The last date as of which the Contract Account Value may be applied to a Payment
Option. The latest possible Maturity Date, in most states, is the later of the
Contract Anniversary on or following the Annuitant's age 90 or 10 years after
the Contract Date (unless we consent to a later Maturity Date). 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 paid less any premium tax deducted from the premium.
NON-QUALIFIED CONTRACT
A Contract that is not a "Qualified Contract."
1
<PAGE> 7
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.
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
Annuitant is the Payee unless the Owner designates a different person as Payee.
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 Annuity 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 we deduct if a withdrawal or surrender occurs during the first eight
Contract Years after a premium payment is received. The Surrender Charge is
separately calculated and applied to each premium payment at the time a portion
of that premium payment is surrendered, withdrawn, or applied to a Payment
Option on the Annuity Date. 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 contract
maintenance fee.
TRANSFER PROCESSING FEE
The fee we charge for additional Subaccount amounts transferred after the
twelfth transfer of Subaccount amounts within one Contract Year. No fee will be
assessed for a systematic transfer.
VALUATION DAY
For each Subaccount, each day that the New York Stock Exchange is open for
business except for certain holidays listed in this prospectus and on days when
trading of shares within a Subaccount is sufficient to affect materially the
value of the Subaccount.
VALUATION PERIOD
The period that starts at the close of regular trading on the New York Stock
Exchange on any Valuation Day and ends at the close of regular trading on the
next succeeding Valuation Day.
VARIABLE ACCOUNT
Providentmutual Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE
The sum of all Subaccount Values.
2
<PAGE> 8
TABLE OF EXPENSES
The following information regarding expenses assumes that the entire
Contract Account Value is in the Variable Account.
CONTRACT OWNER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Premiums................. None
Maximum Contingent Deferred
Sales Charge (as a
percentage of each
premium payment
surrendered, withdrawn,
or annuitized)(1)........ 7%
Optional Death Benefit
Rider Charges (as a
percentage of Variable
Account Value)
Step-up Rider............ 0.25%
Rising Floor Rider....... 0.40%
Transfer Processing Fee.... No fee for first twelve transfers in Contract Year.
$25 fee for each transfer thereafter during Contract Year.
Annual Administrative
Fee(2)................... $40 per Contract Year
Variable Account Annual
Expenses (as a percentage
of Variable Account
Value)
Annual Annuity Charge...... 1.40% (the Annual Annuity Charge includes mortality and expense risk fees and
administrative fees and expenses)
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO
ALL PRO LARGE SMALL SMALL EQUITY
LARGE CAP CAP CAP CAP 500
GROWTH VALUE GROWTH VALUE INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO(4)
------------- --------- ---------- --------- ------------
<S> <C> <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)................... 0.19% 0.21% 0.21% 0.30% 0.04%
---- ---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(3)................ 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
ANNUAL EXPENSES
(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)(3)................ 0.98% 0.48% 0.57% 0.57% 0.52% 0.40%
</TABLE>
3
<PAGE> 9
<TABLE>
<CAPTION>
EMERGING GROWTH WITH NEW
GROWTH INCOME DISCOVERY RESEARCH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
MFS VARIABLE INSURANCE TRUST
("MFS TRUST")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)............................. 0.75% 0.75% 0.90% 0.75%
12b-1 Fee................................................ 0.20% 0.20% 0.20% 0.20%
Other Expenses (after reimbursement)..................... 0.08% 0.12% 0.15% 0.10%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(3)............................... 1.03% 1.07% 1.25% 1.05%
</TABLE>
<TABLE>
<CAPTION>
EQUITY MANAGED
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C> <C> <C>
OCC ACCUMULATION TRUST
("OCC TRUST")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)............................. 0.80% 0.77%
Other Expenses........................................... 0.11% 0.06%
---- ----
Total Fund Annual Expenses............................... 0.91% 0.83%
</TABLE>
<TABLE>
<CAPTION>
HIGH TOTAL
YIELD RETURN
BOND BOND
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C> <C> <C>
PIMCO VARIABLE INSURANCE TRUST
("PIMCO TRUST")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)............................. 0.25% 0.25%
Other Expenses (after reimbursement)..................... 0.50% 0.40%
---- ----
Total Fund Annual Expenses (after reimbursement)(3)...... 0.75% 0.65%
</TABLE>
<TABLE>
<CAPTION>
MID CAP
GROWTH
FUND II
PORTFOLIO
---------
<S> <C> <C> <C> <C>
STRONG VARIABLE INSURANCE FUNDS, 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)(3)...... 1.15%
</TABLE>
4
<PAGE> 10
<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)............................................ 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)(3)......... 1.22% 1.34% 1.26% 1.44%
</TABLE>
<TABLE>
<CAPTION>
GROWTH
CONTRAFUND(R) GROWTH OPPORTUNITIES OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND III
("VIP FUND III")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)............................. 0.58% 0.58% 0.58% 0.73%
12b-1 Fee................................................ 0.25% 0.25% 0.25% 0.25%
Other Expenses........................................... 0.12% 0.10% 0.13% 0.18%
---- ---- ---- ----
Total Fund Annual Expenses(6)............................ 0.95% 0.93% 0.96% 1.16%
</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 the expenses of the Variable Account
and the Funds for the 1999 calendar year. The Contract described in this
prospectus was first offered in year 2000. For a more complete description of
costs and expenses, see "Charges and Deductions" and the prospectus for each
Portfolio.
- ---------------
(1) A Contingent Deferred Sales Charge (also called a Surrender Charge) is
deducted only if a premium payment is withdrawn or surrendered or applied to
a Payment Option within 8 years of its being made. The maximum total
surrender charge will not exceed 8 1/2% of the total premiums paid under the
Contract. Subject to certain restrictions, after the first Contract Year,
the amount that can be surrendered or withdrawn without charge is a
percentage of the Contract Account Value at the start of the year less a
Reduction Factor, which reflects the usage of the Free Withdrawal Amount in
prior Contract Years (10% of the premium payments during the first Contract
Year). (See "Surrender Charge.")
(2) The Annual Administrative Fee is waived where Contract Account Value is
$50,000 or more.
5
<PAGE> 11
(3) For certain Portfolios, certain 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, Total Fund Annual Expenses would have been 1.21% for the
Market Street Fund All Pro Small Cap Value Portfolio, 1.04% for the MFS
Emerging Growth Portfolio, 1.08% for the MFS Growth with Income Portfolio,
2.49% for the MFS New Discovery Portfolio, 1.06% for the MFS Research
Portfolio, 0.69% for the PIMCO Total Return Bond Portfolio, 1.17% for the
Strong Mid Cap Growth Fund II Portfolio, and 3.23% for the Van Eck Worldwide
Real Estate Portfolio. Similar expense reimbursement and fee waiver
arrangements were also in place for the other Portfolios and it is
anticipated that such arrangements will continue past the current year.
However, no expenses were reimbursed or fees waived during 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.
(4) Since the Equity 500 Index Portfolio has recently commenced operations,
"Other Expenses" is based on estimated amounts the Portfolio expects to pay
past 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%.
(5) The fee and expense information regarding the Funds was provided by the
Funds and has not been independently verified by PLACA. Market Street Fund
is affiliated with PLACA. None of the other Funds is affiliated with PLACA.
(6) Because the VIP III Contrafund(R) Portfolio, VIP III Growth Portfolio, VIP
III Growth Opportunities Portfolio, and VIP III Overseas Portfolio Service
Class 2 shares were not in existence during 1999, expenses are based on
estimated expenses for the first year.
6
<PAGE> 12
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, assuming that no optional death benefit rider was
selected.
1. If you surrender or annuitize 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............... $88.73 $119.46 $149.23 $269.12
Market Street All Pro Large Cap Value................ 88.91 120.03 150.21 271.12
Market Street All Pro Small Cap Growth............... 90.77 125.72 159.92 290.94
Market Street All Pro Small Cap Value................ 91.61 128.28 164.27 299.73
Market Street Equity 500 Index....................... 83.05 101.94 119.08 206.14
Market Street International.......................... 89.56 122.02 153.62 278.10
Market Street Growth................................. 84.91 107.71 129.05 227.19
Market Street Aggressive Growth...................... 85.75 110.30 133.51 236.54
Market Street Managed................................ 85.75 110.30 133.51 236.54
Market Street Bond................................... 85.29 108.86 131.03 231.36
Market Street Money Market........................... 84.17 105.41 125.07 218.82
MFS Emerging Growth.................................. 90.03 123.45 156.05 283.06
MFS Growth with Income............................... 90.40 124.58 157.98 287.00
MFS New Discovery.................................... 92.07 129.69 166.67 304.58
MFS Research......................................... 90.21 124.02 157.02 285.03
OCC Equity........................................... 88.91 120.03 150.21 271.12
OCC Managed.......................................... 88.17 117.74 146.30 263.08
PIMCO High Yield Bond................................ 87.43 115.46 142.38 254.99
PIMCO Total Return Bond.............................. 86.49 112.59 137.46 244.78
Strong Mid Cap Growth Fund II........................ 91.14 126.86 161.85 294.85
Strong Opportunity Fund II........................... 91.05 126.57 161.37 293.88
Van Eck Worldwide Bond............................... 91.80 128.84 165.23 301.67
Van Eck Worldwide Emerging Markets................... 92.91 132.24 170.99 313.26
Van Eck Worldwide Hard Assets........................ 92.17 129.98 167.15 305.55
Van Eck Worldwide Real Estate........................ 93.84 135.07 175.78 322.81
VIP III Contrafund(R)................................ 89.29 121.17 152.16 275.11
VIP III Growth....................................... 89.10 120.60 151.18 273.12
VIP III Growth Opportunities......................... 89.38 121.45 152.64 276.11
VIP III Overseas..................................... 91.24 127.14 162.34 295.83
</TABLE>
7
<PAGE> 13
2. If you do not surrender or annuitize 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............... $23.90 $ 73.59 $125.90 $269.12
Market Street All Pro Large Cap Value................ 24.10 74.19 126.91 271.12
Market Street All Pro Small Cap Growth............... 26.10 80.19 136.89 290.94
Market Street All Pro Small Cap Value................ 27.00 82.88 141.35 299.73
Market Street Equity 500 Index....................... 17.80 55.14 94.92 206.14
Market Street International.......................... 24.80 76.29 130.41 278.10
Market Street Growth................................. 19.80 61.21 105.16 227.19
Market Street Aggressive Growth...................... 20.70 63.94 109.75 236.54
Market Street Managed................................ 20.70 63.94 109.75 236.54
Market Street Bond................................... 20.20 62.42 107.20 231.36
Market Street Money Market........................... 19.00 58.79 101.08 218.82
MFS Emerging Growth.................................. 25.30 77.79 132.91 283.06
MFS Growth with Income............................... 25.70 78.99 134.90 287.00
MFS New Discovery.................................... 27.50 84.37 143.83 304.58
MFS Research......................................... 25.50 78.39 133.90 285.03
OCC Equity........................................... 24.10 74.19 126.91 271.12
OCC Managed.......................................... 23.30 71.78 122.89 263.08
PIMCO High Yield Bond................................ 22.50 69.37 118.86 254.99
PIMCO Total Return Bond.............................. 21.50 66.36 113.80 244.78
Strong Mid Cap Growth Fund II........................ 26.50 81.38 138.88 294.85
Strong Opportunity Fund II........................... 26.40 81.08 138.38 293.88
Van Eck Worldwide Bond............................... 27.20 83.47 142.34 301.67
Van Eck Worldwide Emerging Markets................... 28.40 87.05 148.27 313.26
Van Eck Worldwide Hard Assets........................ 27.60 84.67 144.32 305.55
Van Eck Worldwide Real Estate........................ 29.40 90.03 153.18 322.81
VIP III Contrafund(R)................................ 24.50 75.39 128.91 275.11
VIP III Growth....................................... 24.30 74.79 127.91 273.12
VIP III Growth Opportunities......................... 24.60 75.69 129.41 276.11
VIP III Overseas..................................... 26.60 81.68 139.37 295.83
</TABLE>
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets, assuming that the rising floor optional death benefit
rider was selected.
8
<PAGE> 14
3. If you surrender or annuitize 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............... $92.45 $130.83 $168.60 $308.45
Market Street All Pro Large Cap Value................ 92.63 131.39 169.56 310.37
Market Street All Pro Small Cap Growth............... 94.49 137.04 179.11 329.44
Market Street All Pro Small Cap Value................ 95.33 139.57 183.39 337.89
Market Street Equity 500 Index....................... 86.77 113.45 138.94 247.85
Market Street International.......................... 93.28 133.37 172.91 317.09
Market Street Growth................................. 88.63 119.17 148.74 268.11
Market Street Aggressive Growth...................... 89.47 121.74 153.13 277.10
Market Street Managed................................ 89.47 121.74 153.13 277.10
Market Street Bond................................... 89.01 120.31 150.69 272.12
Market Street Money Market........................... 87.89 116.89 144.83 260.06
MFS Emerging Growth.................................. 93.75 134.78 175.30 321.86
MFS Growth with Income............................... 94.12 135.91 177.21 325.65
MFS New Discovery.................................... 95.79 140.98 185.75 342.56
MFS Research......................................... 93.93 135.35 176.25 323.76
OCC Equity........................................... 92.63 131.39 169.56 310.37
OCC Managed.......................................... 91.89 129.13 165.71 302.64
PIMCO High Yield Bond................................ 91.14 126.86 161.85 294.85
PIMCO Total Return Bond.............................. 90.21 124.02 157.02 285.03
Strong Mid Cap Growth Fund II........................ 94.86 138.17 181.01 333.20
Strong Opportunity Fund II........................... 94.77 137.88 180.54 332.26
Van Eck Worldwide Bond............................... 95.52 140.14 184.33 339.76
Van Eck Worldwide Emerging Markets................... 96.63 143.51 190.00 350.90
Van Eck Worldwide Hard Assets........................ 95.89 141.26 186.23 343.49
Van Eck Worldwide Real Estate........................ 97.56 146.31 194.71 360.09
VIP III Contrafund(R)................................ 93.00 132.52 171.47 314.22
VIP III Growth....................................... 92.82 131.96 170.51 312.30
VIP III Growth Opportunities......................... 93.10 132.81 171.95 315.17
VIP III Overseas..................................... 94.96 138.45 181.49 334.14
</TABLE>
The above Examples assume no transfer charges or premium taxes have been
assessed. The Examples also assume that the Annual Administrative Fee is $40 and
that the estimated average Contract Account Value per Contract is $40,000, which
translates the Annual Administrative Fee into an assumed 0.10% charge for
purposes of the Examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE MORE OR LESS THAN THE ASSUMED
AMOUNT.
9
<PAGE> 15
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 these topics
in greater detail later in this prospectus.
THE CONTRACT
- - PURCHASING A CONTRACT. The Contract is an individual flexible premium
deferred variable annuity issued. 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 Annuity
Date.
- - 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 Contract Account Value as of the date that we receive the returned
Contract
plus
-> any charges that we may have deducted from premium payments or Contract
Account Value.
In states where required, we will return the premiums that you paid.
- - PREMIUMS. We require a minimum initial premium of at least $10,000. You may
pay subsequent premiums at any time. For Non-Qualified Contracts, the minimum
subsequent premium is $100. For Qualified Contracts, the minimum subsequent
premium is $50. You may also select a planned periodic premium schedule, which
specifies each planned premium amount and payment frequency.
- - 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. 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. The
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 at a higher current interest rate as
we may declare.
- - TRANSFERS. Before the Annuity Date, you may request a transfer of all or part
of the amount in a Subaccount or the Guaranteed Account to another Subaccount or
the Guaranteed Account, subject to certain restrictions. Each transfer must be
at least $500 or the entire amount in the Subaccount or Guaranteed Account, if
less. After twelve transfers during a Contract Year, we deduct a transfer
processing fee of $25 for each additional transfer during that Contract Year. We
only allow one transfer out of the Guaranteed Account each Contract Year. You
must make this transfer within 30 days of the Contract Anniversary. We limit the
amount that you can transfer from the Guaranteed Account. Systematic transfers
do not count towards the number of transfers during a Contract Year.
- - WITHDRAWALS. At any time before the Annuity Date, you may withdraw part of
the Surrender Value, subject to certain limitations.
- - SURRENDER. Upon Notice received at our Service Center before the Annuity
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.
10
<PAGE> 16
- - DEATH BENEFIT. If an Owner dies before the Annuity Date, we will pay the
Beneficiary a death benefit. During the first eight Contract Years, the death
benefit equals the greater of:
-> Contract Account Value, or
-> aggregate premiums paid reduced by the amount of all withdrawals
(including Surrender Charges) prior to the date of death.
In Contract Years nine and later, the death benefit equals the greatest of:
-> Contract Account Value, or
-> aggregate premiums paid as of the eighth Contract Anniversary reduced by
the amount of all withdrawals prior to the eighth Contract Anniversary
plus aggregate premiums paid since that Anniversary reduced, for each
withdrawal since that Anniversary, by the Withdrawal Adjustment Amount
(as described below), or
-> Contract Account Value on the eighth Contract Anniversary plus aggregate
premiums paid since that Anniversary reduced, for each withdrawal since
that Anniversary, by the Withdrawal Adjustment Amount.
The Withdrawal Adjustment Amount is determined by multiplying the death benefit
prior to the withdrawal by the ratio of the amount of the withdrawal (including
any Surrender Charge) to the Contract Account Value immediately prior to the
withdrawal.
Notwithstanding the foregoing, if the Owner is 90 years old or older at the date
of death, the death benefit is the Contract Account Value.
If any Owner dies before the Annuity Date, we must generally distribute the
death benefit to the Beneficiary within five years after the date of death.
- - STEP-UP RIDER. You may also elect a Step-up Rider, which provides a
guaranteed minimum death benefit. The guaranteed minimum death benefit initially
equals the Contract Account Value as of the first Contract Anniversary. We will
reset or "step-up" the guaranteed minimum death benefit to the Contract Account
Value, if greater, on the next Contract Anniversary. This "step-up" continues
until the Contract Anniversary on or before the Owners' 85th birthday. We will
also increase the proceeds upon death by an amount equal to aggregate premiums
paid since the last 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 the Contract Account Value on the date we receive
due proof of the Owner's death.
- - RISING FLOOR RIDER. You may also elect a Rising Floor Rider, which provides a
guaranteed minimum death benefit. This guaranteed minimum death benefit equals
the sum of premiums paid less reductions for withdrawals, with interest
accumulating at an annual rate of 5% until the Contract Anniversary prior to the
Owners' 75th birthday. Thereafter, we add premiums to and deduct withdrawals
from the guaranteed death benefit. We reduce the guaranteed minimum death
benefit for a withdrawal by the same percentage that the withdrawal reduces
Contract Account Value. The guaranteed minimum death benefit proceeds will be an
amount equal to the Contract Account Value (less any Death Benefit Charge, as
discussed below). The guaranteed maximum death benefit proceeds will be an
amount equal to 200% of premium payments less 200% of withdrawals (including any
Surrender Charge).
CHARGES AND DEDUCTIONS
$ SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). We do not deduct any
charge for sales expenses from premiums. However, if you surrender or annuitize
your Contract or make certain withdrawals within eight years of making a premium
payment, we will deduct a Surrender Charge from the premium payment when it is
surrendered or withdrawn or applied to a Payment Option. The Surrender Charge is
a percentage of each such premium payment ranging from 7% to 1% during the first
eight years after the payment is made. The Surrender Charge applicable to each
premium payment diminishes as the payment ages. A premium payment ages by
Contract Year, such that it is in "year" 1 during the Contract
11
<PAGE> 17
Year in which it is received and in "year" 2 throughout the subsequent Contract
Year and in "year" 3 throughout the Contract Year after that, etc.
Notwithstanding the foregoing, no Surrender Charge is applied to Contract
Account Value withdrawn or surrendered during any Contract Year up to an amount
equal to the Free Withdrawal Amount. For the first Contract Year, the Free
Withdrawal Amount is 10% of the premium payments in the first Contract Year. For
all other Contract Years, the Free Withdrawal Amount is a percentage of the
Contract Account Value (ranging from 20% to 50%) at the start of that year less
a Reduction Factor, which reflects the withdrawal of portions of the Free
Withdrawal Amount in prior Contract Years. The Free Withdrawal Amount in any
Contract Year (except the first Contract Year) will not be less than 10% of the
Contract Account Value at the start of the Contract Year. Also, no Surrender
Charge applies if you annuitize your Contract as of the Maturity Date.
$ ANNUAL ADMINISTRATIVE FEE. On each Contract Anniversary prior to and
including the Annuity Date, we deduct an Annual Administrative Fee of $40 from
the Contract Account Value. We also deduct this charge on the Annuity Date if it
is not a Contract Anniversary and upon surrender if the surrender occurs at any
time other than on a Contract Anniversary. We currently do not charge this fee
when the Contract Account Value is $50,000 or more as of the date that the fee
would have been charged.
$ TRANSFER PROCESSING FEE. The first twelve transfers of amounts in the
Subaccounts and the Guaranteed Account during each Contract Year are free. We
assess a $25 transfer charge for each additional transfer during a Contract
Year.
$ DAILY ANNUITY CHARGE. We deduct a daily Annuity Charge to compensate us for
assuming certain mortality and expense risks and to cover some of the expense of
administering the Contracts. On or prior to the Annuity Date, we deduct the
charge from the assets of the Variable Account at an annual rate of 1.40%.
$ INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE PORTFOLIOS. The investment
experience of each Subaccount reflects the investment experience 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.
$ CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS. If You elect a Step-up Rider or
Rising Floor Rider, we deduct a charge from Contract Account Value on the
Contract Date and on the same day of each month thereafter. The charge is a
percent of Contract Account Value and is deducted proportionately from
Subaccount Values and Guaranteed Account Value under the Contract. The monthly
charge is equal to 1/12 of the following annual rates: Step-up Rider, 0.25%;
Rising Floor Rider, 0.40%.
- - PREMIUM TAXES. If state or other premium taxes apply to a Contract, we deduct
such taxes either:
-> from premiums as they are received, or
-> from the Contract Account Value, upon a withdrawal from or surrender of
the Contract, upon application of the Surrender Value to a Payment
Option, or upon payment of a death benefit.
ANNUITY PROVISIONS
- - ANNUITY DATE. We will apply the Surrender Value to a Payment Option on the
Annuity Date. You may instead elect to receive the Surrender Value on the
Annuity 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.
12
<PAGE> 18
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.
13
<PAGE> 19
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 such
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"). As a member of IMSA, we may use the IMSA logo and language in
advertisements. IMSA members subscribe to a set of ethical standards involving
the sales and service of individually sold life insurance and annuities.
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 are not 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).
14
<PAGE> 20
The Variable Account currently has forty-eight Subaccounts, twenty-nine 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; MFS Emerging Growth; MFS Growth with Income; MFS New Discovery; MFS
Research; OCC Equity; OCC Managed; PIMCO High Yield Bond; PIMCO Total Return
Bond; 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; VIP III Contrafund(R); VIP III Growth; VIP III Growth
Opportunities; and VIP III Overseas. The assets of each Subaccount are invested
exclusively in shares of a corresponding Portfolio of a designated Fund.
The income, gains, and 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; MFS
Trust; OCC Trust; PIMCO Trust; Strong Fund; Strong Opportunity Fund; Van Eck
Trust; and VIP Fund III (collectively, the "Funds"). Each of these 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 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.
THE MARKET STREET FUND, INC.
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 Market Subaccounts invest in shares
of the Market Street Fund. The 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
15
<PAGE> 21
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 5000 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 5000 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. The subadvisers for the All Pro Portfolios
are as follows:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISERS
--------- -----------
<S> <C>
ALL PRO LARGE CAP GROWTH - Cohen Klingenstein & Macks, Inc.
- Geewax Terker & Co.
ALL PRO LARGE CAP VALUE - Equinox Capital Management, Inc.
- Mellon Equity Associates
- Sanford C. Bernstein Company, Inc.
</TABLE>
16
<PAGE> 22
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISERS
--------- -----------
<S> <C>
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 uses a "manager of managers" approach for the All Pro Portfolios under
which MSIM allocates each Portfolio's assets among one or more "specialist"
investment subadvisers.
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 subadvisory services in connection with
the Equity 500 Index Portfolio. MSIM has employed The Boston Company Asset
Management, Inc. ("Boston Company") to provide investment subadvisory 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, each Portfolio
of the Market Street Fund 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, Portfolio expenses may increase.
Each of the advisers and subadvisers discussed above is registered with the SEC
as an investment adviser under the Investment Advisers Act of 1940 (the
"Investment Advisers Act").
MFS VARIABLE INSURANCE TRUST
The MFS Emerging Growth Series, MFS Growth with Income Series, MFS New
Discovery Series, and MFS Research Series Subaccounts invest in shares of
corresponding Portfolios of MFS Trust. MFS Trust offers insurance companies a
selection of investment vehicles for variable annuity contracts and variable
life insurance policies.
MFS Trust issues a number of "series" or classes of shares, each of which
represents an interest in a separate investment portfolio within MFS Trust. Four
of the series are available for investment under the Contract: MFS Emerging
Growth Series, MFS Growth with Income Series, MFS New Discovery Series, and MFS
Research Series.
17
<PAGE> 23
The investment objectives/policies of each of these Portfolios are
summarized below:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
MFS EMERGING GROWTH - Seeks to provide long-term growth of capital
by investing 65% of its total assets in
common stocks and related securities, such as
preferred stocks, convertible securities and
depositary receipts for those securities, of
emerging growth companies.
MFS GROWTH WITH INCOME - Seeks to provide reasonable current income
and long-term growth of capital and income by
investing at least 65% of its total assets in
common stocks and related securities, such as
preferred stocks, convertible securities and
depositary receipts for those securities,
focusing on companies with larger
capitalizations that have sustainable growth
prospects and attractive valuations based on
current and expected earnings or cash flow.
MFS NEW DISCOVERY - Seeks to provide capital appreciation by
investing at least 65% of its total assets in
equity securities of emerging growth
companies.
MFS RESEARCH - Seeks to provide long-term growth of capital
and future income by investing at least 80%
of its total assets in common stocks and
related securities, such as preferred stocks,
convertible securities, and depositary
receipts, focusing on companies that the
adviser believes have favorable prospects for
long-term growth, attractive valuations based
on current and expected earnings or cash
flow, dominant or growing market share, and
superior management.
The Portfolios of MFS Trust are managed by Massachusetts Financial Services
Company. This adviser is registered with the SEC as an investment adviser under
the Investment Advisers Act.
OCC ACCUMULATION TRUST
The OCC Equity Subaccount and the OCC Managed Subaccount invest in shares
of corresponding portfolios of OCC Trust. Shares of OCC Trust are sold to
separate accounts of life insurance companies established to fund variable
annuity contracts.
OCC Trust currently has seven investment portfolios, two of which are
available for investment under the Contracts. Their investment
objectives/policies are summarized below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
EQUITY - Seeks long-term capital appreciation through
investment in a diversified portfolio of
primarily equity securities selected on the
basis of a value-oriented approach to
investing.
MANAGED - Seeks growth of capital over time through
investment in a portfolio consisting of
common stocks, bonds, and cash equivalents,
the percentages of which will vary over time
based on the investment manager's assessments
of relative investment values.
OCC Trust receives investment advice with respect to each of these
Portfolios from OpCap Advisors, a subsidiary of Oppenheimer Capital. Oppenheimer
Capital is a subsidiary of PIMCO Advisors L.P. OpCap Advisors is registered as
an investment adviser under the Investment Advisers Act of 1940.
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PIMCO VARIABLE INSURANCE TRUST
The PIMCO High Yield Bond Subaccount and the PIMCO Total Return Bond
Subaccount invest in shares of corresponding Portfolios of PIMCO Trust. PIMCO
Trust currently has thirteen investment portfolios, two of which are available
for investment under the Contracts: High Yield Bond and Total Return Bond. Their
investment objectives/policies are summarized below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
HIGH YIELD BOND - Seeks to maximize total return, consistent
with preservation of capital and prudent
investment management.
TOTAL RETURN BOND - Seeks to maximize total return, consistent
with preservation of capital and prudent
investment management.
PIMCO Trust receives investment advice with respect to each of these
Portfolios from Pacific Investment Management Company ("PIMCO"). PIMCO is
registered as an investment adviser under the Investment Advisers Act.
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 the Strong
Fund. One of the series is available for investment under the Contract: Strong
Mid Cap Growth Fund II.
The investment objectives/policies of this Portfolio are summarized below:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
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.
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:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
STRONG OPPORTUNITY FUND II - Seeks capital growth by investing primarily
in stocks of medium-capitalization companies
that the fund's manager believes are
underpriced, yet have attractive growth
prospects.
Strong Opportunity Fund II is managed by Strong Capital Management, Inc.
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VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, Worldwide Emerging Markets, Worldwide Hard
Assets and Worldwide Real Estate Subaccounts of the Variable Account invest in
shares of corresponding Portfolios of the Van Eck Trust.
The investment objectives/policies of the Portfolios of Van Eck Trust are
summarized below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
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
MARKETS - Seeks long-term capital appreciation by
investing 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.
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.
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 III
The VIP III Contrafund(R) Subaccount, VIP III Growth Subaccount, VIP III
Growth Opportunities Subaccount, and VIP III Overseas Subaccount invest in
shares of corresponding Portfolios of the VIP III Fund. VIP III Fund offers
insurance companies a selection of investment vehicles for variable annuity
contracts and variable life insurance policies.
VIP III issues a number of "series" or classes of shares, each of which
represents an interest in a separate Portfolio within the VIP III Fund. Four of
the VIP III Fund series are available for investment under the Contracts: the
VIP III Contrafund(R) Portfolio, the VIP III Growth Portfolio, the VIP III
Growth Opportunities Portfolio, and the VIP III Overseas Portfolio.
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The investment objectives/policies of these Portfolios are summarized
below.
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
VIP III CONTRAFUND(R) - Seeks long-term capital appreciation by
investing primarily in common stocks. Its
investments may include securities of
companies whose value it believes are not
fully recognized by the public, securities of
domestic and foreign issuers, growth stocks,
and value stocks.
VIP III GROWTH - Seeks to achieve capital appreciation by
investing primarily in common stocks. Its
investments may include securities of
companies it believes have above-average
growth potential and securities of domestic
and foreign issuers, growth stocks, and value
stocks.
VIP III GROWTH OPPORTUNITIES - Seeks to provide capital growth by investing
primarily in common stocks, although its
investments may also include other types of
securities, such as: bonds, which may be
lower-quality debt securities; securities of
domestic and foreign issuers; growth stocks;
and value stocks.
VIP III OVERSEAS - Seeks long-term growth of capital by
investing at least 65% of total assets in
foreign securities and investing primarily in
common stocks. This Portfolio allocates its
investments across countries and regions,
considering the size of the market in each
country and region relative to the size of
the international market as a whole.
The Portfolios of VIP III are managed by Fidelity Management & Research
Company ("FMR"). On behalf of the VIP III Contrafund(R) Portfolio, VIP III
Growth Opportunities Portfolio, and VIP III Overseas Portfolio, FMR has entered
into sub-advisory agreements with Fidelity Management & Research (U.K.) Inc.
("FMR (U.K.)") and Fidelity Management & Research (Far East) Inc. ("FMR Far
East"). 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. Fidelity
International Investment Advisers (U.K.) and Fidelity International Investment
Advisers ("FIIA") serve as subadvisers for the Overseas Portfolio.
Each of these advisers is registered with the SEC as an investment adviser
under the Investment Advisers Act.
Each of these Portfolios utilizes Fidelity Investments Institutional
Operations Company ("FIIOC"), an affiliate of FMR, to maintain the master
accounts of the participating insurance companies. Under the transfer agent
agreement with FIIOC, each Portfolio pays fees based on the type, size, and
number of accounts in each Portfolio and the number of transactions made by
shareholders of each Portfolio.
Each Portfolio also has an agreement with Fidelity Service Co. ("Service"),
an affiliate of FMR, under which each Portfolio pays Service to calculate its
daily share prices and to maintain the portfolio and general accounting records
of each Portfolio and to administer each Portfolio's securities lending program.
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,
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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 may have investment objectives and policies similar to
other investment portfolios or mutual funds managed by the same investment
adviser or manager. The investment results of the Portfolios, however, may be
higher or lower than those of such other investment portfolios or mutual funds.
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 significant compensation from the investment adviser of a
Fund (or affiliates thereof) in connection with administrative 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.
Some of the Portfolios offered under the Contract also pay 12b-1 fees to
PLACA or its affiliates. (See "Table of Expenses.") These fees may be paid in
connection with the sale of shares of these Portfolios or in connection with the
provision of shareholder support services. The payment of 12b-1 fees will reduce
the Portfolio's performance. Additional information is provided in the Fund's
prospectuses.
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 retirement plans or participants in retirement
plans.
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 determining what action, if any,
should be taken in response to any conflicts. You should read 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 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 a Portfolio
and substitute shares of another registered open-end management company. The
substituted fund or portfolio may have different fees and expenses.
Substitutions 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 without notice and prior approval of the SEC
and state insurance authorities, to the extent required by the 1940 Act and
other applicable law.
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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 changes 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 the
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.
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: (1) your Contract Account Value as of
the date that we receive the returned Contract, plus (2) any charges that we may
have deducted from premium payments or your Contract Account Value. In states
that require it, we will refund the premiums paid.
PREMIUMS
We require a minimum initial premium of $10,000. You may pay subsequent
premiums under the Contract at any time during the Annuitant's lifetime and
before the Annuity Date. Any subsequent premium must be at least $100 for
Non-Qualified Contracts and $50 for Qualified Contracts. We reserve the right,
however, to not accept subsequent premium payments at any time for any reason.
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
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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 is allocated to the Money
Market Subaccount for a 15-day period. After the expiration of such 15-day
period, the amount in the Money Market Subaccount is allocated to 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 Premiums are 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. Net Premiums are allocated in accordance
with the allocation schedule in effect at the time the premium payment is
received.
Subaccount Values vary with the investment experience of the Subaccounts,
and 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.
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 Date 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 Annuity Date, and the
deduction of the Annual Administrative Fee or other charges. Accumulation Units
are canceled as of the end of the Valuation Period in which we receive Notice
regarding the event.
Accumulation Unit Value. 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
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by multiplying the number of Accumulation Units of that Subaccount attributable
to the Contract by the Accumulation Unit value for that Subaccount.
Net Investment Factor. The net investment factor is an index applied to
measure the investment performance of a Subaccount from one Valuation Period to
the next. Each Subaccount has its own net investment factor which may be greater
or less than one. The net investment factor for any Subaccount for any Valuation
Period is determined by dividing (1) by (2) and subtracting (3) from the result,
where:
(1) is the result of:
(a) the Net Asset Value Per Share of the Portfolio held in the
Subaccount, determined at the end of the current Valuation Period;
plus
(b) the per share amount of any dividend or capital gain distributions
made by the Portfolio held in the Subaccount, if the "ex-dividend"
date occurs during the current Valuation Period; plus or minus
(c) a per share charge or credit for any taxes reserved for, which is
determined by us to have resulted from the operations of the
Subaccount.
(2) is the Net Asset Value Per Share of the Portfolio held in the
Subaccount, determined at the end of the last prior Valuation Period.
(3) is a daily factor representing the Annual Annuity Charge deducted from
the Subaccount, adjusted for the number of days in the Valuation
Period.
TRANSFER PRIVILEGE
Before the Annuity Date, 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 is
the lesser of $500 or the entire Subaccount Value or the Guaranteed Account
Value. A transfer request that would reduce the amount in a Subaccount or the
Guaranteed Account below $500 is treated as a transfer request for the entire
amount in that Subaccount or the Guaranteed Account.
Transfers are made as of the day 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.") The first twelve transfers during each
Contract Year are free. Any unused free transfers do not carry over to the next
Contract Year. A $25 Transfer Processing Fee will be assessed for the thirteenth
and subsequent transfers during a Contract Year. For the purpose of assessing
the fee, each request is considered to be one transfer, regardless of the number
of Subaccounts or the Guaranteed Account affected by the transfer. The Transfer
Processing Fee will be deducted from the amount being transferred.
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
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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,
however, may 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 that 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 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 that you specify.
Once received at the Service Center, an Advance Order remains in effect
until canceled or superseded by a subsequent Advance Order for a transfer out of
the same Subaccount. We do not currently asses 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 (for IRA contracts:
$2,000); 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
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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 are 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.
Transfers made under the Dollar Cost Averaging program will not count
toward the twelve transfers permitted each Contract Year without the Transfer
Processing Fee. 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 Annuity 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
$10,000. 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 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.")
You may specify the amount to be withdrawn from certain Subaccounts or
Guaranteed Account Options for the withdrawal. If you do not so specify or if
the amount in the designated Subaccounts or Guaranteed Account Options is
inadequate to comply with the request, the withdrawal is made from each
Subaccount and the Guaranteed Account Option 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 Systematic 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 Free
Withdrawal Amount which may be withdrawn under the plan during the first
Contract Year is 10% of the premiums paid in the first Contract Year if elected
at the time of your Application. For subsequent years, the Free Withdrawal
Amount is a percentage of the Contract Account Value at the start of the year,
less a Reduction Factor. We will notify you if the total amount to be withdrawn
in a subsequent Contract Year exceeds the Free Withdrawal Amount for that
Contract Year. Unless you instruct us to reduce the withdrawal amount for that
year so that it does not exceed the Free Withdrawal Amount, we
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<PAGE> 33
will continue to process withdrawals for the designated amount. Once the amount
of the withdrawals exceeds the Free Withdrawal Amount for that Contract Year, 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.
As stated, withdrawals under the Systematic Withdrawal Plan that do not
exceed the Free Withdrawal Amount for the Contract Year 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 is subject to the Surrender Charge. If an
additional withdrawal is made from a Contract participating in the plan,
systematic withdrawals will automatically terminate and may only be reinstated
on or after the beginning of the next Contract Year pursuant to a new request.
You may discontinue systematic withdrawals at any time upon Notice to us.
We reserve the right to discontinue offering systematic withdrawals upon 30
days' written 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) the Free Withdrawal Amount for the Contract
Year; or (2) any amounts in excess of the total premiums paid. There will be no
limit on the number of withdrawals occurring in any Contract Year.
Surrender. At any time before the Annuity 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 can be requested from our Service
Center. The proceeds paid to you will equal the Surrender Value less any
withholding taxes. The Surrender Value will be determined on the date Notice of
surrender and the Contract are received at our Service 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 Annuity Date, all of these events simultaneously exist;
1. no premiums have been paid for at least two years;
2. the Contract Account Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, are less than
$2,000.
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<PAGE> 34
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 ANNUITY DATE
Death of Annuitant. If an Annuitant dies before the Annuity Date, the
Owner becomes the new Annuitant. If more than one individual owns the Contract,
the youngest Owner becomes the Annuitant. If any Owner is not an individual,
then the death of an Annuitant is treated as the death of an Owner (see below).
Death of Owner. If an Owner dies on or after the Annuity Date, any
surviving joint Owner becomes the sole Owner. If there is no surviving Owner,
the Beneficiary becomes the new Owner. If an Owner dies on or after the Annuity
Date, any remaining payments must be distributed at least as rapidly as under
the Payment Option in effect on the date of such death.
If an Owner dies before the Annuity Date, any surviving joint Owner becomes
the Beneficiary. We pay the Beneficiary a death benefit. Beneficiaries have the
following options with regard to the death benefit:
1. elect to receive the death benefit in a single lump sum within 5 years
of the deceased Owner's death; or
2. elect to have the death benefit paid under a Payment Option provided
that: (a) annuity payments begin within one year of the deceased
Owner's death, and (b) annuity payments are made in substantially equal
installments over the life of the Beneficiary or over a period not
greater than the life expectancy of the Beneficiary; or
3. if the Beneficiary is the spouse of the deceased Owner, he or she may
(by Notice within one year of the Owner's death), elect to continue the
Contract as the new Owner. If the spouse so elects, all his or her
rights as a Beneficiary cease and if the deceased Owner was also the
sole Annuitant, he or she becomes the Annuitant. The spouse is deemed
to have made the election to continue the Contract if he or she makes
no election before the expiration of the one year period or if he or
she makes any premium payments under the Contract.
If a Beneficiary is not the spouse of the deceased Owner: (1) options 1 and 2
above apply even if the Annuitant is alive at the time of the deceased Owner's
death; (2) if the new Owner is not a natural person, only option 1 is available;
(3) if no election is made within 60 days of the deceased Owner's death, option
1 above is deemed to have been elected; and (4) if the Beneficiary dies before
the payments required by options 1 or 2 above are complete, the entire remaining
Contract Account Value is distributed in one sum immediately.
If there is more than one Beneficiary, the foregoing provisions apply
independently to each Beneficiary.
If the Owner is not an individual, the Annuitant, as determined in
accordance with section 72(s) of the Code, is treated as Owner for purposes of
these distribution requirements, and any changes in the Annuitant are treated as
the death of the Owner.
Other rules may apply to a Qualified Contract.
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Death Benefit. Upon the death of any Owner before the Annuity Date, we
will pay the Beneficiary a death benefit. During the first eight Contract Years,
the death benefit equals the greater of:
- Contract Account Value; or
- aggregate premiums paid reduced by the amount of all withdrawals prior to
the date of death (including any applicable Surrender Charges).
In Contract Years nine and later, the death benefit equals the greatest of:
- Contract Account Value; or
- aggregate premiums paid as of the eighth Contract Anniversary reduced by
the amount of all withdrawals prior to the eighth Contract Anniversary
plus aggregate premiums paid since that Anniversary reduced, for each
withdrawal since that Anniversary, by the Withdrawal Adjustment Amount
(as described below); or
- Contract Account Value on the eighth Contract Anniversary plus aggregate
premiums paid since that Anniversary reduced, for each withdrawal since
that Anniversary, by the Withdrawal Adjustment Amount.
The Withdrawal Adjustment Amount is determined by multiplying the death benefit
prior to the withdrawal by the ratio of the amount of the withdrawal (including
any Surrender Charge) to the Contract Account Value immediately prior to the
withdrawal.
Notwithstanding the foregoing, if the Owner is 90 years old or older at the
date of death, the death benefit is the Contract Account Value.
If there are multiple Owners, then the age of the oldest Owner is used to
determine the death benefit. Also, if there are multiple Owners, then upon the
death of one Owner before the Annuity Date, the surviving Owner becomes the
Beneficiary. Where a Contract has only one Owner, and either the designated
Beneficiary has died before that Owner or that Owner did not designate a
Beneficiary, then the Owner's estate is the Beneficiary.
The death benefit is computed as of the date on which we receive Notice and
proof of death and all necessary claim forms at our Service Center. Any excess
of the death benefit over the Contract Account Value is allocated among the
Subaccounts and the Guaranteed Account Options according to the premium
allocation schedule in effect until the Beneficiary elects option 1, 2, or 3
above.
ALTERNATE DEATH BENEFIT RIDERS
In lieu of the death benefit described above, for an additional charge, an
Owner may, when the Contract is issued, elect one of the following optional
death benefit riders.
Step-up Rider. At the time a Contract is issued, you may elect the Step-up
Rider for an Annuitant who is age 0-70. The Step-up Rider provides a guaranteed
minimum death benefit equal to the Contract Account Value as of the Contract
Anniversary and is reset every year to the Contract Account Value on the next
Contract Anniversary, if greater. This reset continues until the Contract
Anniversary on or before the Owner's 85th birthday. Premiums paid since the last
Contract Anniversaries are also included in the death benefit proceeds. A
reduction in the guaranteed minimum death benefit for any withdrawal will be
based on the proportion of the withdrawal to the Contract Account Value. At no
time will the death benefit proceeds be less than either the Contract Account
Value on the date we receive due proof of the Owner's death or the sum of
premiums paid, less any withdrawals, including applicable Surrender Charges.
Rising Floor Rider. At the time a Contract is issued you also may elect
the Rising Floor Rider for an Annuitant who is age 0-70. The Rising Floor Rider
provides a guaranteed minimum death benefit equal to the sum of premiums paid
less reductions for withdrawals accumulating at an effective annual rate of
interest of 5% until the Contract Anniversary prior to the Owner's 75th
birthday. Thereafter, premiums are added to and reductions for withdrawals are
deducted from the guaranteed death benefit. A reduction in
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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
guaranteed death benefit proceeds be less than the Contract Account Value on the
date we receive due proof of the Owner's death or more than 200% of the premium
payments less 200% of any withdrawals, including any applicable Surrender
Charges.
THE ANNUITY DATE
Subject to our approval and state law you select the Annuity Date. You may
select any Annuity Date except that the latest Annuity Date is the Maturity
Date. If you do not select an Annuity Date, the Maturity Date is the Annuity
Date.
Surrender Value is applied to purchase a Payment Option as of the Annuity
Date. If, however, the Maturity Date is the Annuity Date, then Contract Account
Value is applied to purchase a Payment Option. In the event that you do not
select a Payment Option, Surrender Value (or the Contract Account Value, if the
Annuity Date is the Maturity Date) is applied under the Life Annuity with Ten
Year Certain Payment Option.
You may change the Annuity Date subject to these limitations:
1. Notice is received at least 30 days before the Maturity Date;
2. The new Annuity Date is at least 30 days after we receive the change
request;
3. The new Annuity Date is not the 29th, 30th, or 31st day of a month; and
4. The new Annuity Date is not later than the Maturity Date.
PAYMENTS
Any withdrawal, 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 any necessary 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; or
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.
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 any 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
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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 and applicable law or
regulation.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to us at our Service
Center.
THE GUARANTEED ACCOUNT
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.
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 are credited with
different current interest rates. The interest rate credited to each amount or
transferred to the Guaranteed Account will apply to the earlier of (1) the time
remaining for the Guaranteed Account Option selected, or (2) 12 months. At the
end of this period, 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 the period of a Guaranteed Account Option will be guaranteed for a
subsequent specified period. Any interest credited on the amounts in the
Guaranteed Account in excess of the minimum guaranteed effective annual interest
rate of 3% per year will be determined in our sole discretion. You assume the
risk that interest credited may not exceed the guaranteed minimum rate.
We may offer Guaranteed Account Options to be used solely for Dollar Cost
Averaging. The Options would only be available for the allocation of new Net
Premium payments at the time we receive them at our Service Center. Transfers of
any portion of the Contract Account Value into these options is not
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permitted. Use of these Options for Dollar Cost Averaging requires that the Net
Premium payments and associated interest be fully transferred by the end of a
specified period. If the Dollar Cost Averaging is canceled or the amount being
automatically transferred is reduced, the remaining balance will be transferred
to the Money Market Subaccount. You may transfer amounts allocated to these
Guaranteed Account Options to a Subaccount and any other permitted Guaranteed
Account Options at any time.
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.
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days before or after any Contract Anniversary, you may make one
transfer from the Guaranteed Account (except for Guaranteed Account Options used
for Dollar Cost Averaging) to any or all of the Subaccounts. The amount
transferred from the Guaranteed Account may not exceed 25% of the Guaranteed
Account Value (exclusive of the Guaranteed Account Value attributable to
Guaranteed Account Options used for Dollar Cost Averaging) 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 a 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 Notice 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 surrendered
before the Annuity Date or if Contract Account Value is applied to a Payment
Option. 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 Annuity Charges.
Charges For Withdrawal or Surrender. The Surrender Charge is equal to the
percentage of each premium payment surrendered or withdrawn (or applied to a
Payment Option on the Annuity Date) as specified in the table below. The
Surrender Charge is separately calculated and applied to each premium payment at
any time that the payment (or part of the payment) is surrendered or withdrawn
(or applied to a Payment Option on the Annuity Date). No Surrender Charge
applies to premium payments applied to a Payment Option on the Maturity Date. No
Surrender Charge applies to Contract Account Value representing the Free
Withdrawal Amount or to Contract Value in excess of aggregate premium payments
(less prior withdrawals of premium payments). The Surrender Charge is calculated
using the assumption that Contract Account Value is withdrawn in the following
order: (1) the Free Withdrawal Amount for that Contract Year, (2) premium
payments, and (3) any remaining Contract Account Value. In addition, the
Surrender Charge is calculated using the assumption that premium payments are
withdrawn on a first-in, first-out basis.
The Surrender Charge applicable to each premium payment diminishes as the
payment ages. A premium payment ages by Contract Year, such that it is in "year"
1 during the Contract Year in which it
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is received and in "year" 2 throughout the subsequent Contract Year and in
"year" 3 throughout the Contract Year after that etc.
<TABLE>
<CAPTION>
AGE OF EACH PREMIUM
PAYMENT IN CONTRACT YEARS CHARGE
------------------------- ------
<S> <C>
1 7.0%
2 7.0%
3 6.0%
4 5.0%
5 4.0%
6 3.0%
7 2.0%
8 1.0%
9 and over 0.0%
</TABLE>
In no event will the total Surrender Charges assessed under a Contract
exceed 8 1/2% of the total gross premiums received under the Contract.
When a Contract is 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.
Free Withdrawal Amount. During the first Contract Year, the Free
Withdrawal Amount is 10% of the premium payments made in the first Contract
Year. For all other Contract Years, the Free Withdrawal Amount is a percentage
of the Contract Account Value at the start of the year less a Reduction Factor,
which adjusts the Free Withdrawal Amount to take into account withdrawals of the
Free Withdrawal Amount in prior Contract Years. The percentage is 20% in the
second Contract Year and increases by 10% per year until it reaches a maximum of
50% in the fifth Contract Year. The Reduction Factor for the second Contract
Year is a ratio of the free withdrawals made in the first Contract Year to the
premium payments in that year expressed as a percentage. The Reduction Factor
for each subsequent Contract Year is the Reduction Factor for the prior Contract
Year plus the ratio of the free withdrawals made in the prior Contract Year to
the Contract Account Value at the beginning of the prior Contract Year expressed
as a percentage. The Free Withdrawal Amount in any year will not be less than
10% of the Contract Account Value at the start of the Contract Year.
The Free Withdrawal Amount is cumulative from Contract Year to Contract
Year. If the Contract is surrendered and there have been no prior withdrawals
during such Contract Year, no Surrender Charge applies to the amount of the
surrender up to the Free Withdrawal Amount as of the beginning of that Contract
Year. If a withdrawal is made during a Contract Year in which one or more
withdrawals have been made, the remaining Free Withdrawal Amount is equal the
total Free Withdrawal Amount available for that Contract Year (the Contract
Value at the start of that year less the Reduction Factor) less the total amount
previously withdrawn during that Contract Year without imposition of the
Surrender Charge.
ADMINISTRATIVE CHARGES
Annual Administrative Fee. On each Contract Anniversary prior to and
including the Annuity Date, and upon surrender of the Contract or on the Annuity
Date (other than on a Contract Anniversary), we deduct from the Contract Account
Value an Annual Administrative Fee of $40 for our administrative expenses
relating to the Contract. We currently do not charge this fee when Contract
Account Value is $50,000 or more as of the date that the fee would have been
charged. The charge is deducted from each Subaccount and Guaranteed Account
Option based on the proportion that the value in each Subaccount and the
Guaranteed Account bears to the total Contract Account Value. Some states may
limit the amount of the Annual Administrative Fee. No Annual Administrative Fee
is payable after the Annuity Date.
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Transfer Processing Fee. The first twelve transfers during each Contract
Year are free. A $25 Transfer Processing Fee will be assessed for each
additional transfer during such Contract Year. For the purpose of assessing the
fee, each Notice of transfer is considered to be one transfer, regardless of the
number of Subaccounts or accounts affected by the transfer. Transfers under the
Dollar Cost Averaging program or Automatic Asset Rebalancing do not count
towards the number of transfers during a Contract Year without a Transfer
Processing Fee. The Transfer Processing Fee will be deducted from the amount
being transferred. We do not expect a profit from this fee.
DAILY ANNUITY CHARGE
To compensate us for assuming mortality and expense risks and for
administering the Contracts, prior to the Annuity Date we deduct a daily Annuity
Charge from the assets of the Variable Account. We will impose a charge in an
amount that is equal to an annual rate of 1.40% (daily rate of .003835616%).
The mortality risk we assume is that Annuitants may live for a longer
period of time than estimated when the guarantees in the Contract were
established. Because of these guarantees, each Payee is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk we assume also includes a guarantee to pay a death benefit if an Owner dies
before the Annuity Date. The expense risk we assume is the risk that the
Surrender Charges, administrative fees, and Transfer Processing Fees may be
insufficient to cover actual future expenses. In the event that there are any
profits from fees and charges deducted under the Contract, including but not
limited to the Annuity Charge, such profits could be used to finance the
distribution of the Contracts.
The Contracts are administered by PMLIC pursuant to a service agreement
between PLACA and PMLIC. Under the agreement, PMLIC also maintains records of
transactions relating to the Contracts and provides other services.
INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE PORTFOLIOS
Because the Variable Account purchases shares of the Portfolios, the
performance of each Subaccount reflects the 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 size of the Portfolio. Each Portfolio
also pays most or all of its operating expenses. See the accompanying current
prospectuses for the Portfolios for further details.
CHARGES FOR OPTIONAL DEATH BENEFIT RIDERS
We deduct a monthly charge from Contract Account Value for both the Step-up
Rider and the Rising Floor Rider. The charge is deducted on the Contract Date
and on the same day of each month thereafter. The charge is a percent of
Contract Account Value and is deducted proportionately from the Subaccount
Values, by canceling Accumulation Units, and Guaranteed Account Value under the
Contract. The monthly charge is equal to 1/12 of the following annual rates:
Step-up Rider, 0.25%; Rising Floor Rider, 0.40%.
PREMIUM TAXES
Various states and other governmental entities levy a premium tax on
annuity contracts issued by insurance companies. Premium tax rates are subject
to change from time to time by legislative and other governmental action, and
currently range from 0.0% to 4.0%. In addition, other governmental units within
a state may levy 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 such taxes are paid to the taxing authority, either (1) from premiums as
they are received, or (2) from the Contract Account Value upon a withdrawal or
surrender, application of the proceeds to a Payment Option, or payment of a
death benefit.
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OTHER TAXES
Currently, we do not make a charge against the Variable Account for any
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
tax liability to us. Charges for other taxes attributable to the Variable
Account, if any, may also be made.
CHARGE DISCOUNTS FOR SALES TO CERTAIN GROUPS
We may reduce or waive charges under Contracts sold to certain groups of
purchasers where such sales entail lower than normal expenses and/or fewer risks
to us. Generally, we reduce or waive charges based on factors such as the
following:
- the size of the group of purchasers;
- the total amount of premium anticipated from the group; and/or
- the nature of the group and/or the purpose for which the Contracts are
purchased (e.g., Contracts purchased by an employer to fund an employee
benefit plan, usually have fewer surrenders and are less expensive to
administer than individually sold Contracts).
We also may reduce or waive charges on Contracts sold to officers, directors,
and employees of PLACA and its affiliates. Reductions or waivers of charges will
not discriminate unfairly among applicants. Contact your sales representative
for more information about charge reductions or waivers.
PAYMENT OPTIONS
ELECTION OF PAYMENT OPTIONS
Before the Annuity Date, you can have the Surrender Value applied under a
Payment Option, unless you elect to receive the Surrender Value in a single sum.
In the event that you do not select a Payment Option, Surrender Value is applied
to Option B, described below. In addition, a Beneficiary can have the death
benefit applied under a Payment Option unless you have already selected an
option for the Beneficiary.
Before beginning annuity payments under a Payment Option, we require that
you return the Contract to the Service Center. We will issue a supplementary
contract stating the terms of payment under the Payment Option selected. We also
reserve the right to require satisfactory evidence of the identity, birth date,
and sex of any Annuitant, and satisfactory evidence that any Annuitant is 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 still alive.
A Payment Option may be elected, revoked, or changed at any time before the
Annuity Date while the Owner is living. If the Payee is other than the Owner,
the election of a Payment Option requires our consent. An election of an 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.
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.
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.
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DESCRIPTION OF PAYMENT OPTIONS
Option A -- Life Annuity Option. Under this Payment Option, payments are
made in equal amounts each month during the Annuitant's lifetime with payments
ceasing with the last payment prior to the death of the Annuitant. No amounts
are payable after the Annuitant dies. Therefore, if the Annuitant dies
immediately following the date of the first payment, the Payee will receive one
monthly payment only.
Option B -- Life Annuity Option with 10 Years Guaranteed. Under this
Payment Option, payments are made in equal amounts each month during the
Annuitant's lifetime with the guarantee that payments will be made for a period
of not less than ten years. Under this option, if any Beneficiary dies while
receiving payment, the present value of the current dollar amount on the date of
death of any remaining guaranteed payments will be paid in one sum to the
executors or administrators of the Beneficiary unless otherwise provided in
writing. Calculation of 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 the Annuitant's
age and sex. If the Contract is sold in a group or employer-sponsored
arrangement, the amount of the payments will be based on the Annuitant's age
only. Age is determined from the nearest birthday at the due date of the first
payment.
Alternate Income Option. Instead of one of the above Payment Options, the
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 can 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
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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 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 annual 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 may also disclose cumulative
total return information with and without deductions for the Surrender Charge.
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 the
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in the major
categories of investment objectives on an industry-wide basis.
Lipper's rankings include variable life insurance issuers as well as
variable annuity issuers. VARDS rankings compare only variable annuity issuers.
The performance analyses prepared by Lipper and VARDS each rank 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.
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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 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 Contracts.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any Non-Qualified Contract to
contain certain provisions specifying how 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.
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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.)
TAXATION OF NON-QUALIFIED CONTRACTS
Non-Natural Person. The Owner of Contract who is not a natural person
generally must include in income any increase in the excess of the Contract
Account Value over the "investment in the Contract" (generally, the premiums or
other consideration paid for the Contract) during the taxable year. There are
some exceptions to this rule and a prospective Owner that is not a natural
person may wish to discuss these with a tax adviser. The following discussion
generally applies to Contracts owned by natural persons.
Withdrawals 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.
Other penalties may apply to Qualified Contracts.
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 an Owner's or an 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
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contemplating any transfer, assignment or exchange should consult a tax adviser
as to these tax consequences.
Multiple Contracts. All non-qualified deferred 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 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 should 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 previously been includible in the income of the employee.
Brief descriptions follow 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. The Contract
includes an enhanced death benefit that in some cases may exceed the greater of
the premium payments or the Contract Account Value. The death benefit could be
characterized as an incidental benefit, the amount of which is limited in any
pension or profit-sharing plan. 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
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deductible amount of such premiums, the persons who may be eligible, and the
time when distributions commence. Also, distributions from certain other types
of qualified retirement plans may be "rolled over" or transferred on a
tax-deferred basis into an IRA. There are significant restrictions on rollover
or transfer contributions from savings 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
Contract includes an enhanced death benefit that in some cases may exceed the
greater of the premium payments or the Contract Account Value. The IRS has not
reviewed the Contract for qualification as an IRA, and has not addressed in a
ruling of general applicability whether a death benefit provision such as the
death benefit provision in the Contract comports with IRA qualification
requirements. The Code may impose additional requirements on sales of the
Contract for use with IRAs.
Roth IRAs. Effective January 1, 1998, section 408A of the Code 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) on or after the owner reaches age 59 1/2;
(2) to the beneficiary of the owner after the owner's death; (3) on account of
the owner's disability; or (4) to pay for qualified first-time home-buying
expenses. Federal income tax, as well as a 10% penalty tax, will generally apply
to distributions which are not "qualified distributions."
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of
certain section 501(c)(3) organizations and public schools to exclude from their
gross income the premium payments made, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These premium
payments may be subject to FICA (social security) tax. The Contract includes an
enhanced death benefit that in some cases may exceed the greater of the premium
payments or the Contract Account Value. The death benefit could be characterized
as an incidental benefit, the amount of which is limited in any tax-sheltered
annuity under Code section 403(b). Because the death benefit may exceed this
limitation, employers using the Contract in connection with such plans should
consult their tax adviser.
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.
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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 also 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 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 the full commissions on
Contracts sold by its registered representatives. Nonaffiliated broker-dealers
receive full commissions on Contracts sold by their registered representatives,
less a nominal charge by 1717 for expenses incurred. The commissions paid are no
greater than 8.25% of premiums plus 0.60% of the Contract Account Value
beginning in the ninth Contract Year. Alternative commission scales are
available with a lower percent of premiums and a percentage of Contract Account
Value beginning in Contract Year 2.
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.
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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 Annuity 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 the 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
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.
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 in 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.
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STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<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 Revenues.................... S-2
Money Market Subaccount Yields............................ S-2
Other Subaccount Yields................................... S-4
Average Annual Total Returns.............................. S-4
Other Total Returns....................................... S-6
Effect of the Administration Fee on Performance Data...... S-8
Termination of Participation Agreements..................... S-8
Standard & Poor's........................................... S-11
Safekeeping of Account Assets............................... S-11
State Regulation............................................ S-12
Records and Reports......................................... S-12
Legal Matters............................................... S-12
Experts..................................................... S-12
Other Information........................................... S-12
Financial Information....................................... S-13
Financial Statements........................................ F-1
</TABLE>
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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 MFS Emerging Growth Series
Subaccount, MFS Growth with Income Series Subaccount, MFS New Discovery Series
Subaccount, MFS Research Series Subaccount, PIMCO High Yield Bond Portfolio
Subaccount, PIMCO Total Return Bond Portfolio Subaccount, Strong Mid Cap Growth
Fund II Subaccount, Strong Opportunity Fund II Subaccount, VIP III Contrafund(R)
Portfolio Subaccount, VIP III Growth Portfolio Subaccount, VIP III Growth
Opportunities Portfolio Subaccount, and VIP III Overseas Portfolio Subaccount
had not commenced operations. Accordingly, condensed financial information is
not available for these Subaccounts.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
UNITS UNITS UNITS
UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING
AS OF AS OF AS OF AS OF AS OF AS OF
SUBACCOUNT 12/31/99 12/31/99 12/31/98 12/31/98 12/31/97 12/31/97
---------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <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 91,709.23 764.54 22,728.56 704.02 23,495.92
Market Street International........................ 975.06 22,407.12 1,377.32 61,689.14 1,088.42 48,054.18
Market Street Growth............................... 1,082.22 36,535.03 1,065.67 34,680.05 950.55 32,051.38
Market Street Aggressive Growth.................... 1,014.50 12,579.61 887.21 12,301.49 833.15 11,389.39
Market Street Managed.............................. 861.32 17,728.19 866.94 18,219.44 781.27 16,899.90
Market Street Bond................................. 608.19 21,753.98 637.92 18,437.76 597.74 10,217.64
Market Street Money Market......................... 618.73 77,880.41 598.06 62,328.14 575.95 45,925.41
OCC Equity......................................... 1,195.14 18,277.71 1,181.96 19,823.89 1,071.54 19,067.19
OCC Managed........................................ 1,157.06 42,989.61 1,117.54 53,641.58 1,057.94 54,119.40
Van Eck Worldwide Bond............................. 535.14 3,677.74 345.27 791.04
Van Eck Worldwide Emerging Markets................. 587.10 11,368.57 297.26 1,094.81
Van Eck Worldwide Hard Assets...................... 411.96 1,882.22 388.75 430.59
Van Eck Worldwide Real Estate...................... 411.36 1,158.87 425.72 396.85
<CAPTION>
NUMBER OF NUMBER OF NUMBER OF
UNITS UNITS UNITS
UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING UNIT VALUE OUTSTANDING
AS OF AS OF AS OF AS OF AS OF AS OF
SUBACCOUNT 12/31/96 12/31/96 12/31/95 12/31/95 12/31/94 12/31/94
---------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <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)........................................ 651.04 23,424.42 595.43 17,907.81 528.22 15,548.80
Market Street International........................ 831.78 27,336.06 686.84 10,498.25 507.68 3,571.24
Market Street Growth............................... 775.34 26,301.47 657.63 18,875.42 511.45 12,476.41
Market Street Aggressive Growth.................... 697.07 9,335.43 584.65 6,154.75 522.44 2,846.86
Market Street Managed.............................. 653.55 13,564.35 592.07 9,803.13 482.84 8,582.76
Market Street Bond................................. 553.59 7,672.67 545.35 4,938.33 459.55 3,487.30
Market Street Money Market......................... 554.47 45,000.79 534.58 30,689.17 513.30 16,531.43
OCC Equity......................................... 858.13 12,563.72 572.66 11,392.30 515.26 2,813.10
OCC Managed........................................ 877.27 43,626.63 545.82 6,615.25
Van Eck Worldwide Bond.............................
Van Eck Worldwide Emerging Markets.................
Van Eck Worldwide Hard Assets......................
Van Eck Worldwide Real Estate......................
<CAPTION>
NUMBER OF
UNITS
UNIT VALUE OUTSTANDING
AS OF AS OF
SUBACCOUNT 12/31/93 12/31/93
---------- ---------- -----------
<S> <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)........................................ 534.25 2,539.74
Market Street International........................ 509.51 818.51
Market Street Growth............................... 506.46 3,168.61
Market Street Aggressive Growth.................... 529.79 452.21
Market Street Managed.............................. 498.70 2,536.72
Market Street Bond................................. 493.74 1,656.64
Market Street Money Market......................... 501.47 4,652.76
OCC Equity......................................... 503.29 313.68
OCC Managed........................................
Van Eck Worldwide Bond.............................
Van Eck Worldwide Emerging Markets.................
Van Eck Worldwide Hard Assets......................
Van Eck Worldwide Real Estate......................
</TABLE>
A-1
<PAGE> 52
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.; MFS Variable Insurance Trust; OCC Accumulation Trust;
PIMCO Variable Insurance Trust; Strong Variable Insurance Funds, Inc.; Strong
Opportunity Fund II, Inc.; Van Eck Worldwide Insurance Trust; and Variable
Insurance Products Fund III. You may obtain a copy of these prospectuses by
writing or calling us at our address or phone number shown above. Capitalized
terms in the 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 (10-30)...................... 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 (37)................ S-2
Money Market Subaccount Yields......................... S-2
Other Subaccount Yields................................ S-4
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-6
Effect of the Annual Administrative Fee on Performance
Data.................................................. S-8
TERMINATION OF PARTICIPATION AGREEMENTS..................... S-8
STANDARD & POOR'S........................................... S-11
SAFEKEEPING OF ACCOUNT ASSETS............................... S-11
STATE REGULATION............................................ S-12
RECORDS AND REPORTS......................................... S-12
LEGAL MATTERS (43).......................................... S-12
EXPERTS..................................................... S-12
OTHER INFORMATION........................................... S-12
FINANCIAL INFORMATION....................................... S-13
FINANCIAL STATEMENTS (Appendix A)........................... F-1
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the prospectus for the
Contract.
<PAGE> 53
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 any 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
PLACA's 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 the 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 would be
lower. In addition, the calculations of yields, total returns, and other
performance data do not reflect the effect of any premium tax that may be
applicable to a particular Contract. Premium taxes currently range from 0% to
4.0% of premium 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, Inc. ("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.
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.
S-2
<PAGE> 54
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 Administrative Fee and (2) the
Annual Annuity Charge. For purposes of calculating current yields for a
Contract, an average per unit administration fee is used based on the $40
administrative fee deducted at the end of each Contract Year. Current Yield will
be calculated according to the following formula:
Current Yield = ((NCS-ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Portfolio (exclusive of realized
gains or losses on the sale of securities and unrealized appreciation
and depreciation and exclusive of income other than investment
income) for the seven-day period attributable to a hypothetical
account having a balance of 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:
(365/7)
Effective Yield = (1+((NCS-ES)/UV)) -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. 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 equal to 1% to 7% of premiums paid during the eight years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
premiums surrendered or withdrawn under the Contract. A Surrender Charge will
not be imposed in any Contract Year on an amount up to the total Free Withdrawal
Amount available for that Contract Year.
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.
S-3
<PAGE> 55
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 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 Administrative Fee and the Annual Annuity Charge. The yield calculation
assumes an Annual Administrative Fee of $40 per year per Contract deducted at
the end of each Contract Year. For purposes of calculating the 30-day or one-
month yield, an average administrative 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:
(6)
Yield = 2 (((NI - ES)/(U X UV)) + 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, 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 equal to 1% to 7% of premiums paid during the eight years prior to the
surrender or withdrawal (including the year in which the surrender is made) on
premiums surrendered or withdrawn under the Contract. A Surrender Charge will
not be imposed in any Contract Year on an amount up to the total Free Withdrawal
Amount available for that Contract Year.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.
Until a Subaccount has been in operation for 10 years, PLACA will include
quotes of average annual total return for the period measured from the date of
the Subaccount's inception. When a Subaccount has been in operation for 1, 5,
and 10 years, respectively, the average annual total return for these periods
will be provided. Average annual total returns for other periods of time may,
from time to time, also be disclosed. Average annual total 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, as amended, from the inception
of these Subaccounts (April 14, 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.
S-4
<PAGE> 56
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 Annual Annuity Charge, and the Annual Administrative Fee. The
calculation assumes that the administrative fee is $40 per year per Contract
deducted at the end of each Contract Year. For purposes of calculating average
annual total return, an average administrative 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 during the first
eight Contract Years. The total returns will therefore reflect a deduction of
the Surrender Charge for any period less than eight years. The total return will
then be calculated according to the following formula:
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the average annual total return.
ERV = the ending redeemable value (net of Subaccount recurring charges and
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 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
All Pro Large Cap Growth (May 29, 1998).......... 16.67% 25.87%
All Pro Large Cap Value (May 22, 1998)........... (6.32)% (3.96)%
All Pro Small Cap Growth (May 29, 1998).......... 82.38% 49.58%
All Pro Small Cap Value (May 29, 1998)........... (15.07)% (17.38)%
Equity 500 Index (October 1, 1993)(1)............ 11.74% 26.03% 20.75%
International (April 14, 1992)................... 20.44% 12.49% 11.56%
Growth (April 14, 1992).......................... (4.95)% 15.67% 11.71%
Aggressive Growth (April 14, 1992)............... 7.25% 13.66% 9.65%
Managed (April 14, 1992)......................... (7.00)% 11.71% 9.72%
Bond (April 14, 1992)............................ (10.73)% 5.24% 4.42%
Money Market (April 14, 1992) (3.18)% 3.29% 2.91%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... (5.36)% 17.86% 16.35%
Managed (September 15, 1994)..................... (3.10)% 17.57% 15.58%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996).................... (14.86)% 0.98%
Worldwide Emerging Markets (July 5, 1996)........ 90.41% 3.70%
Worldwide Hard Assets (July 5, 1996)............. 12.22% (6.32)%
Worldwide Real Estate (May 1, 1998).............. (9.53)% (14.14)%
</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 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.
S-5
<PAGE> 57
Based on the performance of the Portfolios and these assumptions, 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 PORTFOLIO) 12/31/99 12/31/99 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND
All Pro Large Cap Growth (May 4, 1998)........... 16.67% 21.02%
All Pro Large Cap Value (May 4, 1998)............ (6.32)% (4.59)%
All Pro Small Cap Growth (May 4, 1998)........... 82.38% 41.07%
All Pro Small Cap Value (May 4, 1998)............ (15.07)% (19.42)%
International (November 1, 1991)................. 20.44% 12.49% 10.03%
Growth (December 12, 1985)....................... (4.95)% 15.67% 10.92%
Aggressive Growth (May 1, 1989).................. 7.25% 13.66% 12.93%
Managed (December 12, 1985)...................... (7.00)% 11.71% 8.38%
Bond (December 12, 1985)......................... (10.73)% 5.24% 5.21%
Money Market (December 12, 1985)................. (3.18)% 3.29% 3.42%
MFS VARIABLE INSURANCE TRUST
Emerging Growth (July 24, 1995).................. 67.16% 34.20%
Growth with Income (October 9, 1995)............. (1.55)% 18.85%
New Discovery (April 29, 1998)................... 63.91% 35.38%
Research (July 26, 1995)......................... 15.23% 20.64%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... (5.36)% 17.86% 16.35%
Managed (September 15, 1994)..................... (3.10)% 17.57% 15.58%
PIMCO VARIABLE INSURANCE TRUST
High Yield Bond (April 30, 1998)................. (4.93)% (2.10)%
Total Return Bond (December 31, 1997)............ (8.22)% (0.54)%
STRONG VARIABLE INSURANCE FUNDS, INC.
Mid Cap Growth Fund II (December 31, 1996)....... 80.14% 44.33%
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II (May 8, 1992)................ 25.94% 21.23% 19.28%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... (14.86)% 3.08% 3.91%
Worldwide Emerging Markets (December 27, 1995)... 90.41% 7.82%
Worldwide Hard Assets (September 1, 1989) 12.22% (0.42)% 1.54%
Worldwide Real Estate (June 23, 1997) (9.53)% (0.83)%
</TABLE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote 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.
Based on this method of calculation, average annual total return
information 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
All Pro Large Cap Growth (May 29, 1998).......... 23.67% 29.68%
All Pro Large Cap Value (May 22, 1998)........... (0.02)% (0.46)%
All Pro Small Cap Growth (May 29, 1998).......... 89.38% 53.03%
</TABLE>
S-6
<PAGE> 58
<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>
All Pro Small Cap Value (May 29, 1998)........... (9.43)% (14.41)%
Equity 500 Index (October 1, 1993)(1)............ 18.74% 26.34% 20.87%
International (April 14, 1992)................... 27.44% 12.98% 11.62%
Growth (April 14, 1992).......................... 1.45% 16.12% 11.77%
Aggressive Growth (April 14, 1992)............... 14.25% 14.14% 9.72%
Managed (April 14, 1992)......................... (0.75)% 12.21% 9.79%
Bond (April 14, 1992)............................ (4.76)% 5.68% 4.49%
Money Market (April 14, 1992).................... 3.36% 3.72% 2.98%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... 1.02% 18.28% 16.65%
Managed (September 15, 1994)..................... 3.44% 17.99% 15.88%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996).................... (9.20)% 1.87%
Worldwide Emerging Markets (July 5, 1996)........ 97.41% 4.62%
Worldwide Hard Assets (July 5, 1996)............. 19.22% (5.52)%
Worldwide Real Estate (May 1, 1998).............. (3.47)% (11.17)%
</TABLE>
- ---------------
(1) As of February 7, 2000, shares of the Market Street Fund Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
<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
All Pro Large Cap Growth (May 4, 1998)........... 23.67% 24.72%
All Pro Large Cap Value (May 4, 1998)............ (0.02)% (1.22)%
All Pro Small Cap Growth (May 4, 1998)........... 89.38% 44.42%
All Pro Small Cap Value (May 4, 1998)............ (9.43)% (16.66)%
Equity 500 Index (August 27, 1992)............... 18.74% 26.34% 19.38%
International (November 1, 1991)................. 27.44% 12.98% 10.03%
Growth (December 12, 1985)....................... 1.45% 16.12% 10.92%
Aggressive Growth (May 1, 1989).................. 14.25% 14.14% 12.93%
Managed (December 12, 1985)...................... (0.75)% 12.21% 8.38%
Bond (December 12, 1985)......................... (4.76)% 5.68% 5.21%
Money Market (December 12, 1985)................. 3.36% 3.72% 3.42%
MFS VARIABLE INSURANCE TRUST
Emerging Growth (July 24, 1995).................. 74.16% 34.53%
Growth with Income (October 9, 1995)............. 5.11% 19.39%
New Discovery (April 29, 1998)................... 70.91% 38.77%
Research (July 26, 1995)......................... 22.23% 21.12%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... 1.02% 18.28% 16.65%
Managed (September 15, 1994)..................... 3.44% 17.99% 15.88%
PIMCO VARIABLE INSURANCE TRUST
High Yield Bond (April 30, 1998)................. 1.47% 1.35%
Total Return Bond (December 31, 1997)............ (2.07)% 2.37%
STRONG VARIABLE INSURANCE FUNDS, INC.
Mid Cap Growth Fund II (December 31, 1996)....... 87.14% 44.81%
</TABLE>
S-7
<PAGE> 59
<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>
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund II (May 8, 1992)................ 32.94% 21.60% 19.32%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (September 1, 1989)............... (9.20)% 3.51% 3.91%
Worldwide Emerging Markets (December 27, 1995)... 97.41% 8.36%
Worldwide Hard Assets (September 1, 1989)........ 19.22% (0.02)% 1.54%
Worldwide Real Estate (June 23, 1997)............ (3.47)% 0.87%
</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 investment at the end of the period.
P = a hypothetical initial payment of $1,000.
EFFECT OF THE ANNUAL ADMINISTRATIVE FEE ON PERFORMANCE DATA
The Contract provides for a $40 Annual Administrative Fee to be deducted
annually at the end of each Contract Year from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each such account
bears to the total Contract Account Value. For purposes of reflecting the Annual
Administrative Fee in yield and total return quotations, the annual charge is
converted into a per-dollar per-day charge based on a Contract Account Value in
the Variable Account of $40,000 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.
MFS Variable Insurance Trust. This agreement provides for termination: (1)
on six (6) months' advance written notice by any party; (2) at our option if the
shares of Portfolios are not reasonably available to meet the requirements of
the Policies or are not appropriate funding vehicles for the Policies; (3) at
the option of any party if certain enforcement proceedings are instituted
against another party; (4) upon receipt of regulatory approvals and/or the vote
of the Policy owners to substitute shares of
S-8
<PAGE> 60
another mutual fund; (5) at the option of any party upon a determination that
another party has suffered a material adverse change in its business,
operations, financial condition, or prospects or is the subject of material
adverse publicity; (6) at the option of any party upon another party's material
breach of any provision of the agreement; or (7) upon assignment of the
agreement if made without the written consent of the other parties.
OCC Accumulation Trust. 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 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 it
has withdrawn the Variable Account's investment in the Fund; (8) at the option
of any party upon another party's material breach of any provision of the
agreement; or (9) at the Fund's or our option if it determines that the other
party has suffered a material adverse change in its business, operations or
financial condition or is the subject of material adverse publicity.
PIMCO Variable Insurance Trust. The agreement provides for termination:
(1) by any party with three months' advance written notice; (2) by us if shares
of PIMCO Variable Insurance Trust ("PIMCO") are not reasonably available to meet
the requirements of the Contracts; (3) by us if portfolio shares are not
registered, issued, or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts; (4) by PIMCO or PIMCO Funds Distributor LLC (the
"Underwriter") if formal administrative proceedings are instituted against PLACA
by the NASD, the SEC, the Insurance Commissioner, or like official of any state
or any other regulatory body regarding our duties under the agreement or related
to the sale of the Contracts, the operation of any account, or the purchase of
PIMCO's shares so long as PIMCO or the Underwriter determines in its sole
judgment exercised in good faith that any administrative proceedings will have a
material adverse effect upon the ability of PLACA to perform its obligations
under the agreement; (5) by us if formal administrative proceedings are
instituted against PIMCO or the Underwriter by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body so long as we
determine in our sole judgment exercised in good faith that any administrative
proceedings will have a material adverse effect upon the ability of PIMCO or the
Underwriter to perform its obligations under the agreement; (6) by us if a
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M
or fails to comply with the section 817(h) diversification requirements
specified in the Code, or if we reasonably believe that such Portfolio may fail
to so qualify or comply; (7) by PIMCO or the Underwriter if the Contracts fail
to meet the qualifications of annuity contracts specified in the Code; (8) by
either PIMCO or the Underwriter if either one or both determine, in their sole
judgment exercised in good faith, that we have suffered a material adverse
change in its business, operations, financial condition, or prospects since the
date of the agreement or is the subject of material adverse publicity; (9) by us
if we determine, in our sole judgment exercised in good faith, that PIMCO,
PIMCO's investment adviser, or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or prospects since the
date of the agreement or is the subject of material adverse publicity; (10) by
PIMCO or the Underwriter if we give PIMCO and the Underwriter written notice and
at the time such notice was given there was no notice of termination outstanding
under any other provision of the agreement; provided, however, any termination
is effective forty-five days after the notice was given; (11) by us upon any
substitution of the shares of another investment company or series thereof for
shares of a designated portfolio of PIMCO in accordance with the terms of the
Contracts, provided that we have given at least 45 days prior written notice to
PIMCO and the Underwriter of the date of substitution; (12) by any party if
PIMCO's Board of Trustees determines that a material irreconcilable conflict
exists; (13) by us if PIMCO or the Underwriter is in material breach of a
provision of the agreement, which breach has not been cured to our satisfaction
within 10 days after written notice of such breach has been delivered to PIMCO
or the Underwriter; or (14) by PIMCO or the Underwriter if we is in material
S-9
<PAGE> 61
breach of a provision of the agreement, which breach has not been cured to the
satisfaction of PIMCO or the Underwriter within 10 days after written notice of
such breach has been delivered to we.
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 or 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 PLACA,
reasonable advance notice of election to terminate shall be furnished by PLACA;
(3) at the option of the Fund, its principal underwriter, or us upon institution
of formal proceedings against the broker-dealer marketing the Contracts, the
Variable Accounts, PLACA or the Fund by any regulatory body; (4) upon 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 PLACA on 60 days' written notice replace Fund shares; (5) upon assignment
of the agreement unless made with the written consent of each other party; (6)
in the event Fund shares are not registered, issued or sold in conformance with
federal law or such law precludes the use of Fund shares as an underlying
investment medium of Contracts issued or to be issued by us; (7) at our option
by written notice to the Fund and its principal underwriter with respect to any
portfolio in the event that such portfolio fails to meet specified
diversification requirements or if reasonably believes that the portfolio may
fail to meet either of those requirements; (8) at our option by written notice
to the Fund and its principal underwriter, if we shall 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 this Agreement or is the subject of
material adverse publicity; or (9) at the option of the Fund or its principal
underwriter by written notice to us, if the Fund or its principal underwriter
shall determine, in its sole judgment exercised in good faith, that the Fund or
underwriter has suffered a material adverse change in its business operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity.
Variable Insurance Products Fund III. This agreement provides 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 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 its
Contracts; (7) by our written notice to the Fund and its principal underwriter
with respect to any portfolio in the event that such portfolio ceases to qualify
as a
S-10
<PAGE> 62
regulated investment company under Subchapter M of the Code of under any
successor or similar provision, or if we reasonably believe that we may fail to
so qualify; (8) termination by our written notice to the Fund and its principal
underwriter with respect to any portfolio in the event that such portfolio fails
to meet specified diversification requirements.
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(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.
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 the Market Street Fund 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, the Market Street Fund, the Contract,
or the Equity 500 Index Portfolio. S&P has no obligation to take the needs of
PLACA, the Market Street Fund, the Owners of the Contract 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 or 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, THE MARKET STREET FUND, 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.
S-11
<PAGE> 63
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.
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 subject
to the insurance laws and regulations of all jurisdictions where we are
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.
PLACA may contract with another party to maintain these records and accounts. As
presently required by the Investment Company Act of 1940, as amended (the "1940
Act") and the regulations thereunder, reports containing information required
under the 1940 Act or by any other applicable law or regulation, will be sent to
Owners semi-annually at their last known address.
LEGAL MATTERS
James G. Potter, Jr., Esquire, General Counsel and Secretary of PMLIC, 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.
S-12
<PAGE> 64
FINANCIAL INFORMATION
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
serves as independent accountants for the Providentmutual 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 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> 65
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> 66
- --------------------------------------------------------------------------------
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> 67
- --------------------------------------------------------------------------------
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> 68
- --------------------------------------------------------------------------------
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> 69
- --------------------------------------------------------------------------------
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> 70
- --------------------------------------------------------------------------------
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> 71
- --------------------------------------------------------------------------------
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> 72
- --------------------------------------------------------------------------------
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> 73
- --------------------------------------------------------------------------------
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> 74
- --------------------------------------------------------------------------------
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> 75
- --------------------------------------------------------------------------------
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> 76
- --------------------------------------------------------------------------------
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> 77
- --------------------------------------------------------------------------------
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> 78
- --------------------------------------------------------------------------------
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> 79
- --------------------------------------------------------------------------------
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> 80
- --------------------------------------------------------------------------------
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> 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, 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> 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, 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> 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, 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> 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, 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> 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, 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> 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, 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> 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, 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> 88
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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> 89
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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> 90
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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> 91
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Statements of Changes in Net Assets for the Year Ended December 31, 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> 92
- --------------------------------------------------------------------------------
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> 93
- --------------------------------------------------------------------------------
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> 94
- --------------------------------------------------------------------------------
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> 95
- --------------------------------------------------------------------------------
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> 96
- --------------------------------------------------------------------------------
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> 97
- --------------------------------------------------------------------------------
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> 98
- --------------------------------------------------------------------------------
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> 99
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARKET STREET FUND, INC.
- -----------------------------------------------------------------------------------------------------------------------------
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> 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>
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> 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>
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> 102
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
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> 103
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VARIABLE INSURANCE PRODUCTS FUND
- -----------------------------------------------------------------------------------------------------------------------------
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 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>
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> 110
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 111
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 112
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 113
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 114
- --------------------------------------------------------------------------------
The Providentmutual Variable Annuity Separate Account
of Providentmutual Life and Annuity Company of America
Notes to Financial Statements -- continued
- --------------------------------------------------------------------------------
3. INVESTMENTS, CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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> 115
- --------------------------------------------------------------------------------
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> 116
- --------------------------------------------------------------------------------
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> 117
- --------------------------------------------------------------------------------
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> 118
[This Page Intentionally Left Blank]
<PAGE> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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.
F-71
<PAGE> 136
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.
F-72
<PAGE> 137
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.
F-73
<PAGE> 138
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>
F-74
