<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 25, 2000
FILE NO. 33-65512
811-6484
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [ ]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 8 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [ ]
AMENDMENT NO. 13 [X]
PROVIDENTMUTUAL VARIABLE
ANNUITY SEPARATE ACCOUNT
(EXACT NAME OF REGISTRANT)
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
(NAME OF DEPOSITOR)
300 CONTINENTAL DRIVE
NEWARK, DE 19713
(ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES)
DEPOSITOR'S TELEPHONE NUMBER, INCLUDING AREA CODE: (302) 454-5260
---------------------
JAMES G. POTTER, JR., ESQ.,
PROVIDENT MUTUAL
LIFE INSURANCE COMPANY
1000 CHESTERBROOK BOULEVARD
BERWYN, PA 19312-1181
(NAME AND ADDRESS OF AGENT FOR SERVICE)
---------------------
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 2000 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a) of Rule 485
Title of Securities Being Registered:
Interests in Individual Flexible Premium Deferred Variable Annuity Contracts.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART A
INFORMATION REQUIRED TO BE IN THE PROSPECTUS
<PAGE> 3
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
300 CONTINENTAL DRIVE OFFICES
NEWARK, DELAWARE 19713 1000 CHESTERBROOK BLVD.
BERWYN, PENNSYLVANIA 19312
</TABLE>
PHONE: 1-800-688-5177
PROSPECTUS
May 1, 2000
This prospectus describes an individual flexible premium deferred variable
annuity contract ("Contract") issued by Providentmutual Life and Annuity Company
of America. This prospectus provides information that a prospective owner should
know before investing in the Contract.
You can allocate your Contract's values to:
-- Providentmutual Variable Annuity Separate Account (the "Variable
Account"), which invests in the portfolios listed on this page; or
-- the Guaranteed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Variable Account
(the "Portfolios") must accompany this prospectus. Please read these documents
before investing and save them for future reference.
To learn more about the Contract, you should read the Statement of Additional
Information ("SAI") dated May 1, 2000. For a free copy of the SAI, please call
or write to us at our Service Center.
The SAI has been filed with the Securities and Exchange Commission ("SEC") and
is incorporated by reference into this prospectus. The Table of Contents for the
SAI appears on page 43 of this prospectus. The SEC maintains an Internet website
(http://www.sec.gov) that contains the SAI, and other information.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PLEASE NOTE THAT THE CONTRACT AND THE PORTFOLIOS:
-- ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
-- ARE NOT FEDERALLY INSURED;
-- ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
-- ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
It may not be advantageous to replace existing insurance with the Contract.
The following Portfolios are available:
-- MARKET STREET FUND, INC.
All Pro Large Cap Growth Portfolio
All Pro Large Cap Value Portfolio
All Pro Small Cap Growth Portfolio
All Pro Small Cap Value Portfolio
Equity 500 Index Portfolio
International Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Managed Portfolio
Bond Portfolio
Money Market Portfolio
-- SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond Portfolio
Growth and Income Portfolio
International Portfolio
-- OCC ACCUMULATION TRUST
Equity Portfolio
Managed Portfolio
Small Cap Portfolio
-- DREYFUS VARIABLE INVESTMENT FUND
Growth and Income Portfolio
Zero Coupon 2000 Portfolio
<PAGE> 4
-- THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Socially Responsible Portfolio
-- FEDERATED INSURANCE SERIES
Fund for U.S. Government Securities II
Portfolio
Utility Fund II Portfolio
-- STRONG VARIABLE INSURANCE FUNDS, INC.
Strong Mid Cap Growth Fund II
-- STRONG OPPORTUNITY FUND II, INC.
Strong Opportunity Fund II
-- VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Portfolio
Worldwide Emerging Markets Portfolio
Worldwide Hard Assets Portfolio
Worldwide Real Estate Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND
Equity-Income Portfolio
Growth Portfolio
High Income Portfolio
-- VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager Portfolio
Contrafund(R) Portfolio
<PAGE> 5
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GLOSSARY.............................. 1
TABLE OF EXPENSES..................... 3
CONTRACT SUMMARY...................... 9
The Contract........................ 9
Charges and Deductions.............. 11
Annuity Provisions.................. 12
Federal Tax Status.................. 12
PLACA, THE VARIABLE ACCOUNT AND THE
PORTFOLIOS.......................... 13
Providentmutual Life and Annuity
Company of America (PLACA)....... 13
Providentmutual Variable Annuity
Separate Account (Variable
Account)......................... 13
The Funds........................... 14
Resolving Material Conflicts........ 22
Addition, Deletion or Substitution
of Investments................... 22
DESCRIPTION OF ANNUITY CONTRACT....... 22
Purchasing a Contract............... 22
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 Maturity
Date............................. 28
Proceeds on Maturity Date........... 29
Payments............................ 30
Modification........................ 30
Reports to Contract Owners.......... 30
Contract Inquiries.................. 30
THE GUARANTEED ACCOUNT................ 30
Minimum Guaranteed and Current
Interest Rates................... 31
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Calculation of Guaranteed Account
Value............................ 31
Transfers from Guaranteed Account... 31
Payment Deferral.................... 32
CHARGES AND DEDUCTIONS................ 32
Surrender Charge (Contingent
Deferred Sales Charge)........... 32
Administrative Charges.............. 33
Mortality and Expense Risk Charge... 33
Investment Advisory Fees and Other
Expenses of the Portfolios....... 33
Premium Taxes....................... 33
Other Taxes......................... 34
PAYMENT OPTIONS....................... 34
Election of Payment Options......... 34
Description of Payment Options...... 34
YIELDS AND TOTAL RETURNS.............. 35
FEDERAL TAX STATUS.................... 37
Introduction........................ 37
Tax Status of the Contracts......... 37
Taxation of Annuities -- In
General.......................... 38
Taxation of Non-Qualified
Contracts........................ 38
Taxation of Qualified Contracts..... 39
Withholding......................... 40
Possible Changes in Taxation........ 40
Other Tax Consequences.............. 40
DISTRIBUTION OF CONTRACTS............. 41
LEGAL PROCEEDINGS..................... 41
VOTING PORTFOLIO SHARES............... 41
FINANCIAL STATEMENTS.................. 42
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS................... 43
APPENDIX A -- FINANCIAL HIGHLIGHTS.... A-1
</TABLE>
<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
and whose death determines the death benefit.
APPLICATION
The application you must complete to purchase a Contract plus all forms required
by us or applicable law.
BENEFICIARY
The person to whom we pay the death benefit upon the death of the Owner or the
Annuitant. If the Contract has joint Owners, then the surviving joint Owner is
the Beneficiary.
CANCELLATION (FREE-LOOK) PERIOD
The period described in this prospectus during which the Owner may return this
Contract for a refund.
CODE
The Internal Revenue Code of 1986, as amended.
CONTRACT
The individual flexible premium deferred variable annuity contract issued by us
and offered in this prospectus.
CONTRACT ACCOUNT VALUE
The sum of the Variable Account Value and the Guaranteed Account Value.
CONTRACT ANNIVERSARY
The same date in each Contract Year as the Contract Date.
CONTRACT DATE
The date as of which we issue the Contract and upon which the Contract becomes
effective. The Contract Date is used to determine Contract Years and Contract
Anniversaries.
CONTRACT YEAR
A twelve-month period beginning on the Contract Date or on a Contract
Anniversary.
FUND
Any mutual fund in which a Subaccount invests.
GENERAL ACCOUNT
The assets that belong to us other than those assets allocated to the Variable
Account or any of our other separate accounts.
GUARANTEED ACCOUNT
An account that is part of our General Account and is not part of, or dependent
upon, the investment performance of the Variable Account.
GUARANTEED ACCOUNT VALUE
The Net Premiums allocated and amounts transferred to the Guaranteed Account,
plus interest credited to the Guaranteed Account, minus amounts deducted,
transferred, or withdrawn from the Guaranteed Account.
MATURITY DATE
The date as of which the Contract Account Value is applied to a Payment Option
(or, if you elect to receive a lump sum, the date as of which you will receive
the Surrender Value). The latest possible Maturity Date is normally the later of
the Contract Anniversary nearest the Annuitant's age 85, or 10 years after the
Contract Date. Notwithstanding the Maturity Date, Qualified Contracts may
require that distributions begin at an earlier date.
MONEY MARKET SUBACCOUNT
The Subaccount that holds shares of the Money Market Portfolio of Market Street
Fund, Inc.
NET ASSET VALUE PER SHARE
The value per share of any Portfolio on any Valuation Day. The method of
computing the Net Asset Value Per Share is described in the prospectus for a
Portfolio.
NET PREMIUM
The premium you pay less any premium tax deducted from the premium.
NON-QUALIFIED CONTRACT
A Contract that is not a Qualified Contract.
NOTICE
A request or notice in writing or otherwise in a form satisfactory to us that is
signed by you and received at our Service Center. You may obtain the necessary
form by calling us at (800) 688-5177.
1
<PAGE> 7
OWNER (YOU, YOUR)
The person who owns the Contract. The Owner is entitled to exercise all rights
and privileges provided in the Contract. Provisions relating to action by the
Owner mean, in the case of joint Owners, both Owners acting jointly. Joint
Owners must be spouses.
PAYEE
The person entitled to receive annuity payments under the Contract. The
designation of a Payee other than the Annuitant requires our consent.
PAYMENT OPTION
One of the annuity payment options available under the Contract.
PORTFOLIO
An investment portfolio of a Fund.
PLACA (WE, OUR, US)
Providentmutual Life and Annuity Company of America.
QUALIFIED CONTRACT
A Contract issued in connection with retirement plans that qualify for special
federal income tax treatment under the Code.
RIDER
An amendment, addition, or endorsement to the Contract that changes the terms of
the Contract by: (1) expanding Contract benefits; (2) restricting Contract
benefits: or (3) excluding certain conditions from the Contract's coverage. A
Rider that is added to the Contract becomes part of the Contract.
SEC
The U.S. Securities and Exchange Commission.
SERVICE CENTER
Our technology and service office at
300 Continental Drive, Newark, Delaware 19713.
SUBACCOUNT
A subdivision of the Variable Account.
SUBACCOUNT VALUE
Before the Maturity Date, the amount equal to that part of any Net Premium
allocated to a Subaccount plus any amounts transferred to that Subaccount as
adjusted by any interest income, dividends, net capital gains or losses,
realized or unrealized, and decreased by withdrawals (including any applicable
Surrender Charges and premium tax charges), other charges and any amounts
transferred out of that Subaccount.
SURRENDER CHARGE
A charge that we deduct if a withdrawal or surrender occurs during the first six
Contract Years. This charge is sometimes called a "contingent deferred sales
charge."
SURRENDER VALUE
The Contract Account Value less: (1) any applicable Surrender Charge, (2)
premium tax charges not previously deducted, and (3) the annual administration
fee, if applicable.
TRANSFER PROCESSING FEE
The fee we charge for additional Subaccount amounts transferred after the
twelfth transfer of Subaccount amounts within one Contract Year.
VALUATION DAY
For each Subaccount, each day that the New York Stock Exchange is open for
business and on days when trading of shares within a Subaccount is sufficient to
materially affect the value of the Subaccount.
VALUATION PERIOD
The period beginning at the close of business on one Valuation Day (usually 4:00
p.m. Eastern time) and continuing to the close of business on the next Valuation
Day.
VARIABLE ACCOUNT
Providentmutual Variable Annuity Separate Account.
VARIABLE ACCOUNT VALUE
The sum of all Subaccount Values.
2
<PAGE> 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>
Sales Load Imposed on Premiums.... None
Maximum Contingent Deferred Sales
Charge (as a percentage of
amount surrendered or
withdrawn)(1)................... 6%
Transfer Processing Fee........... No fee for first twelve transfers in Contract Year.
$25 fee for each transfer thereafter during Contract Year.
ANNUAL ADMINISTRATION FEE......... $30 per Contract Year
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of Variable
Account Value)
Mortality and Expense Risk
Charges......................... 1.25%
Account Fees and Expenses(2)...... 0.15%
---------
Total Variable Account Annual
Expenses........................ 1.40%
</TABLE>
<TABLE>
<CAPTION>
ALL PRO ALL PRO ALL PRO ALL PRO EQUITY
LARGE CAP LARGE CAP SMALL CAP SMALL CAP 500
GROWTH VALUE GROWTH VALUE INDEX
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND, INC.
("MARKET STREET FUND")
ANNUAL EXPENSES
(as a percentage of average net
assets)
Management Fees
(Investment Advisory Fees)......... 0.70% 0.70% 0.90% 0.90% 0.24%
Other Expenses (after
reimbursement)(3).................. 0.19% 0.21% 0.21% 0.30% 0.04%
---- ---- ---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(4).................. 0.89% 0.91% 1.11% 1.20% 0.28%
</TABLE>
<TABLE>
<CAPTION>
AGGRESSIVE MONEY
INTERNATIONAL GROWTH GROWTH MANAGED BOND MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
MARKET STREET FUND, INC.
ANNUAL 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)(4).................. 0.98% 0.48% 0.57% 0.57% 0.52% 0.40%
</TABLE>
3
<PAGE> 9
<TABLE>
<CAPTION>
GROWTH AND
BOND INCOME INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------- ---------- -------------
<S> <C> <C> <C>
SCUDDER VARIABLE LIFE INVESTMENT FUND
("SCUDDER FUND") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.48% 0.48% 0.85%
Other Expenses....................................... 0.09% 0.07% 0.18%
---- ---- ----
Total Fund Annual Expenses........................... 0.57% 0.55% 1.03%
</TABLE>
<TABLE>
<CAPTION>
SMALL
EQUITY MANAGED CAP
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- -------------
<S> <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% 0.80%
Other Expenses....................................... 0.11% 0.06% 0.09%
---- ---- ----
Total Fund Annual Expenses........................... 0.91% 0.83% 0.89%
</TABLE>
<TABLE>
<CAPTION>
ZERO
GROWTH AND COUPON
INCOME 2000
PORTFOLIO PORTFOLIO
---------- ---------
<S> <C> <C>
DREYFUS VARIABLE INVESTMENT FUND
("DREYFUS FUND") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.75% 0.45%
Other Expenses....................................... 0.04% 0.19%
---- ----
Total Fund Annual Expenses........................... 0.79% 0.64%
</TABLE>
<TABLE>
<CAPTION>
SOCIALLY
RESPONSIBLE
PORTFOLIO
-------------
<S> <C>
THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
("DREYFUS SOCIALLY RESPONSIBLE FUND")
ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.75%
Other Expenses....................................... 0.04%
----
Total Fund Annual Expenses........................... 0.79%
</TABLE>
<TABLE>
<CAPTION>
FUND FOR
U.S.
GOVERNMENT UTILITY
SECURITIES II FUND II
PORTFOLIO PORTFOLIO
------------- ---------
<S> <C> <C> <C>
FEDERATED INSURANCE SERIES
("FEDERATED SERIES") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.60% 0.75%
Other Expenses....................................... 0.24% 0.19%
---- ----
Total Fund Annual Expenses........................... 0.84% 0.94%
</TABLE>
4
<PAGE> 10
<TABLE>
<CAPTION>
MID CAP
GROWTH
FUND II
PORTFOLIO
---------
<S> <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)................. 0.14%
----
Total Fund Annual Expenses (after reimbursement)..... 1.14%
</TABLE>
<TABLE>
<CAPTION>
OPPORTUNITY
FUND II
PORTFOLIO
-----------
<S> <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)................. 0.10%
----
Total Fund Annual Expenses (after
reimbursement)(4).................................. 1.10%
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE WORLDWIDE WORLDWIDE
WORLDWIDE EMERGING HARD REAL
BOND MARKETS ASSETS ESTATE
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
VAN ECK WORLDWIDE INSURANCE TRUST
("VAN ECK TRUST") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 1.00% 1.00% 1.00% 1.00%
Other Expenses (after reimbursement)................. 0.22% 0.34% 0.26% 0.44%
---- ---- ---- ----
Total Fund Annual Expenses
(after reimbursement)(4)........................... 1.22% 1.34% 1.26% 1.44%
</TABLE>
<TABLE>
<CAPTION>
EQUITY- HIGH
INCOME GROWTH INCOME
PORTFOLIO PORTFOLIO PORTFOLIO
--------- ----------- ---------
<S> <C> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND
("VIP FUND") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.48% 0.58% 0.58%
Other Expenses (after reimbursement)................. 0.08% 0.07% 0.11%
---- ---- ----
Total Fund Annual Expenses (after
reimbursement)(4).................................. 0.56% 0.65% 0.69%
</TABLE>
5
<PAGE> 11
<TABLE>
<CAPTION>
ASSET
MANAGER CONTRAFUND(R)
PORTFOLIO PORTFOLIO
--------- -------------
<S> <C> <C>
VARIABLE INSURANCE PRODUCTS FUND II
("VIP II FUND") ANNUAL EXPENSES(5)
(as a percentage of average net assets)
Management Fees
(Investment Advisory Fees)......................... 0.53% 0.58%
Other Expenses (after reimbursement)................. 0.09% 0.07%
---- ----
Total Fund Annual Expenses
(after reimbursement)(4)........................... 0.62% 0.65%
</TABLE>
Premium taxes may be applicable, depending on the laws of your state.
The above Table of Expenses is intended to assist you in understanding the
costs and expenses that you will bear, directly or indirectly. Except as stated
in the footnotes below, the Table reflects expenses of the Variable Account and
the Funds for the 1999 calendar year. For a more complete description of costs
and expenses, see "Charges and Deductions" and the prospectus for each
Portfolio.
- ---------------
(1) A Contingent Deferred Sales Charge (also called a Surrender Charge) is
deducted only if a withdrawal or surrender occurs during the first six
Contract Years; no Surrender Charge is deducted for a withdrawal or
surrender in Contract Years seven and later. For the first Contract Year,
the maximum charge is 6% of the amount withdrawn or surrendered. Thereafter,
the Surrender Charge decreases by 1% each subsequent Contract Year until it
is zero in Contract Year seven. The maximum total Surrender Charge will not
exceed 8 1/2% of the total premiums received under the Contract. Subject to
certain restrictions, after the first Contract Year up to 10% of the
Contract Account Value as of the beginning of a Contract Year may be
surrendered or withdrawn without charge in that Contract Year. (See
"Surrender Charge.")
(2) Asset-based administration charge.
(3) Since the Equity 500 Index Portfolio has recently commenced operations,
"Other Expenses" is based on estimated amounts the Portfolio expects to pay
during the current calendar year. This estimate anticipates an expense
reimbursement or fee waiver arrangement for year 2000. Absent this
arrangement, estimated Total Fund Annual Expenses would be 0.39%.
(4) For certain Portfolios, expenses were reimbursed or fees waived during 1999.
It is anticipated that expense reimbursement and fee waiver arrangements
will continue past the current year. Absent the expense reimbursement, Total
Fund Annual Expenses would have been 1.21% for the Market Street All Pro
Small Cap Value Portfolio, 1.17% for the Strong Mid Cap Growth Fund II
Portfolio, 3.23% for the Van Eck Worldwide Real Estate Portfolio, 0.57% for
the VIP Fund Equity-Income Portfolio, 0.66% for the VIP Fund Growth
Portfolio, 0.63% for the VIP II Fund Asset Manager Portfolio, and 0.67% for
the VIP II Fund Contrafund(R) Portfolio. Similar expense reimbursement and
fee waiver arrangements were also in place for the other Portfolios and it
is anticipated that such arrangements will continue past the current year.
However, no expenses were reimbursed or fees waived during 1999 for these
Portfolios because the level of actual expenses and fees did not exceed the
thresholds at which the reimbursement and waiver arrangements would have
become operative.
(5) The fee and expense information regarding the Funds was provided by the
Funds and has not been independently verified by PLACA. The Market Street
Fund is affiliated with PLACA. None of the other Funds is affiliated with
PLACA.
6
<PAGE> 12
EXAMPLES
You would pay the following expenses on a $1,000 investment, assuming a 5%
annual return on assets:
1. If you surrender your Contract at the end of the applicable time period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth............... $87.35 $118.35 $156.22 $288.97
Market Street All Pro Large Cap Value................ 87.53 118.93 157.20 290.94
Market Street All Pro Small Cap Growth............... 89.41 124.67 166.90 310.37
Market Street All Pro Small Cap Value................ 90.26 127.24 171.24 319.00
Market Street Equity 500 Index....................... 81.61 100.70 126.12 227.19
Market Street International.......................... 88.19 120.94 160.60 297.78
Market Street Growth................................. 83.49 106.51 136.07 247.85
Market Street Aggressive Growth...................... 84.34 109.12 140.52 257.02
Market Street Managed................................ 84.34 109.12 140.52 257.02
Market Street Bond................................... 83.87 107.67 138.05 251.93
Market Street Money Market........................... 82.74 104.19 132.10 239.64
Scudder Bond......................................... 84.34 109.12 140.52 257.02
Scudder Growth and Income............................ 84.15 108.54 139.54 254.99
Scudder International................................ 88.66 122.38 163.03 302.64
OCC Equity........................................... 87.53 118.93 157.20 290.94
OCC Managed.......................................... 86.78 116.63 153.30 283.06
OCC Small Cap........................................ 87.35 118.35 156.22 288.97
Dreyfus Growth and Income............................ 86.41 115.48 151.34 279.09
Dreyfus Zero Coupon 2000............................. 85.00 111.15 143.98 264.09
Dreyfus Socially Responsible ........................ 86.41 115.48 151.34 279.09
Federated Fund for U.S. Government Securities II..... 86.88 116.92 153.78 284.04
Federated Utility Fund II............................ 87.82 119.79 158.66 293.88
Strong Mid Cap Growth Fund II........................ 89.79 125.81 168.83 314.22
Strong Opportunity Fund II........................... 89.70 125.53 168.35 313.26
Van Eck Worldwide Bond............................... 90.45 127.81 172.20 320.90
Van Eck Worldwide Emerging Markets................... 91.58 131.24 177.95 332.26
Van Eck Worldwide Hard Assets........................ 90.82 128.96 174.12 324.71
Van Eck Worldwide Real Estate........................ 92.52 134.09 182.73 341.63
Fidelity Equity-Income............................... 84.24 108.83 140.03 256.00
Fidelity Growth...................................... 85.09 111.43 144.47 265.10
Fidelity High Income................................. 85.47 112.59 146.44 269.12
Fidelity Asset Manager............................... 84.81 110.57 142.99 262.08
Fidelity Contrafund(R)............................... 85.09 111.43 144.47 265.10
</TABLE>
2. If you do not surrender your Contract at the end of the applicable time
period:
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Market Street All Pro Large Cap Growth............... $25.90 $ 79.59 $135.89 $288.97
Market Street All Pro Large Cap Value................ 26.10 80.19 136.89 290.94
Market Street All Pro Small Cap Growth............... 28.10 86.16 146.79 310.37
Market Street All Pro Small Cap Value................ 29.00 88.84 151.22 319.00
Market Street Equity 500 Index....................... 19.80 61.21 105.16 227.19
Market Street International.......................... 26.80 82.28 140.36 297.78
Market Street Growth................................. 21.80 67.26 115.32 247.85
Market Street Aggressive Growth...................... 22.70 69.98 119.87 257.02
Market Street Managed................................ 22.70 69.98 119.87 257.02
</TABLE>
7
<PAGE> 13
<TABLE>
<CAPTION>
SUBACCOUNT 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Market Street Bond................................... $22.20 $ 68.47 $117.35 $251.93
Market Street Money Market........................... 21.00 64.84 111.27 239.64
Scudder Bond......................................... 22.70 69.98 119.87 257.02
Scudder Growth and Income............................ 22.50 69.37 118.86 254.99
Scudder International................................ 27.30 83.77 142.84 302.64
OCC Equity........................................... 26.10 80.19 136.89 290.94
OCC Managed.......................................... 25.30 77.79 132.91 283.06
OCC Small Cap........................................ 25.90 79.59 135.89 288.97
Dreyfus Growth and Income............................ 24.90 76.59 130.91 279.09
Dreyfus Zero Coupon 2000............................. 23.40 72.08 123.39 264.09
Dreyfus Socially Responsible ........................ 24.90 76.59 130.91 279.09
Federated Fund for U.S. Government Securities II..... 25.40 78.09 133.40 284.04
Federated Utility Fund II............................ 26.40 81.08 138.38 293.88
Strong Mid Cap Growth Fund II........................ 28.50 87.35 148.76 314.22
Strong Opportunity Fund II........................... 28.40 87.05 148.27 313.26
Van Eck Worldwide Bond............................... 29.20 89.43 152.20 320.90
Van Eck Worldwide Emerging Markets................... 30.40 93.00 158.08 332.26
Van Eck Worldwide Hard Assets........................ 29.60 90.62 154.16 324.71
Van Eck Worldwide Real Estate........................ 31.40 95.96 162.95 341.63
Fidelity Equity-Income............................... 22.60 69.67 119.36 256.00
Fidelity Growth...................................... 23.50 72.38 123.89 265.10
Fidelity High Income................................. 23.90 73.59 125.90 269.12
Fidelity Asset Manager............................... 23.20 71.48 122.39 262.08
Fidelity Contrafund(R)............................... 23.50 72.38 123.89 265.10
</TABLE>
The above Examples provided above assume no transfer charges or premium
taxes have been assessed. The Examples also assume that the Annual
Administration Fee is $30 and that the estimated average Contract Account Value
per Contract is $10,000, which translates the Annual Administration Fee into an
assumed .30% charge for purposes of the Examples based on a $1,000 investment.
THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE ASSUMED
5% ANNUAL RETURN IS HYPOTHETICAL AND SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE ANNUAL RETURNS, WHICH MAY BE MORE OR LESS THAN THE ASSUMED
AMOUNT.
8
<PAGE> 14
CONTRACT SUMMARY
- --------------------------------------------------------------------------------
THIS SECTION IS A SUMMARY OF SOME OF THE MORE IMPORTANT POINTS THAT YOU
SHOULD KNOW AND CONSIDER BEFORE PURCHASING A CONTRACT. WE DISCUSS EACH OF THESE
TOPICS IN GREATER DETAIL LATER IN THIS PROSPECTUS.
THE CONTRACT
- - PURCHASING A CONTRACT. The Contract is an individual flexible premium
deferred variable annuity. The Contract allows you to invest on a tax-deferred
basis for your retirement or other long-term purposes. We may sell Contracts in
connection with retirement plans which qualify for special tax treatment
(Qualified Contracts), as well as Contracts which do not qualify for special tax
treatment (Non-Qualified Contracts).
To purchase a Contract, you must submit an Application and pay the minimum
initial premium. We do not begin to make annuity payments until the Maturity
Date or the date that you surrender the Contract. For more information about how
to purchase a Contract, see "Description of an Annuity Contract -- Purchasing a
Contract."
- - CANCELLATION (FREE LOOK) PERIOD. You have the right to return the Contract
within 10 days (or any longer period required by the laws of your state) after
you receive it. If you return the Contract within the Cancellation Period, we
will return a refund amount to you. In most states, the amount we return is:
-- the amount of premiums you paid (including any Contract fees and
charges),
minus
-- any amounts allocated to the Variable Account
plus
-- the Variable Account Value on the date of termination.
In states where required, we will return the premiums that you paid.
- - PREMIUMS. We require a minimum initial premium of $2,000. For Qualified
Contracts, as an alternative to the minimum initial premium, you may commit to
pay premiums of $100 per month during the first Contract Year. You may pay
subsequent premiums at any time. For Non-Qualified Contracts, the minimum
subsequent premium is $100. For Qualified Contracts, the minimum subsequent
premium is $50. You may also select a planned periodic premium schedule, which
specifies each planned premium amount and payment frequency.
- - ALLOCATION OF NET PREMIUMS. We will allocate Net Premiums under a Contract as
designated by you to one or more of the Subaccounts or to the Guaranteed
Account, or to both. (We do not offer the Guaranteed Account in Oregon.) In
states where you are guaranteed the return of your premium if you cancel during
the Cancellation Period, all Net Premiums allocated to the Variable Account will
be initially allocated to the Money Market Subaccount for a 15-day period. At
the end of that period, we will allocate the amount in the Money Market
Subaccount to your designated Subaccounts.
We invest the assets of each Subaccount solely in a corresponding Portfolio.
Your Contract Account Value (except for the Guaranteed Account Value) will vary
according to the investment performance of the Portfolios in which your chosen
Subaccounts invest. We credit interest to amounts in the Guaranteed Account at a
guaranteed minimum rate of 3% per year or, if we choose, at a higher current
interest rate.
- - TRANSFERS. Before the Maturity Date, you may request a transfer of all or
part of the amount in a Subaccount or the Guaranteed Account to another
Subaccount or the Guaranteed Account, subject to certain restrictions. Each
transfer must be at least $500 or the entire amount in the Subaccount or
Guaranteed Account, if less. After twelve transfers during a Contract Year, we
deduct a Transfer Processing Fee of $25 for each additional transfer during that
Contract Year. We allow only one transfer out of the Guaranteed Account each
Contract Year. You must make this transfer within 30 days of the Contract
Anniversary. We limit the amount that you can transfer from the Guaranteed
Account to 25% or
9
<PAGE> 15
less of the Guaranteed Account Value on the date of the transfer, unless the
balance after transfer is less than $500, in which case the entire amount will
be transferred.
- - WITHDRAWALS. At any time before the earlier of the death of the Annuitant or
the Maturity Date, you may withdraw part of the Surrender Value, subject to
certain limitations.
- - SURRENDER. Upon Notice received at our Service Center on or before the
earlier of the death of the Annuitant or the Maturity Date, you may surrender
the Contract in full and receive its Surrender Value. This Notice must include
the proper form which you may obtain by contacting our Service Center.
- - DEATH BENEFIT. If the Annuitant dies before the Maturity Date, we will pay
the Beneficiary a death benefit. During the first six Contract Years, the death
benefit equals the greater of:
-- premiums paid less any amounts withdrawn (including applicable Surrender
Charges), or
-- the Contract Account Value on the date we receive due proof of the
Annuitant's death.
After the end of the sixth Contract Year, the death benefit equals the greatest
of:
-- the Contract Account Value as of the end of the sixth Contract Year less
subsequent amounts withdrawn, or
-- the Contract Account Value on the date we receive due proof of the
Annuitant's death, or
-- premiums paid less any amounts withdrawn (including applicable Surrender
Charges).
If an Owner dies before the Maturity Date, we must generally distribute the
Contract Account Value (or, if the deceased Owner is also the Annuitant, the
death benefit) to the Beneficiary within five years after the date of death.
If an Owner dies on or after the Maturity Date, any remaining payments must be
distributed at least as rapidly as under the Payment Option in effect on the
date of death.
- - STEP-UP RIDER. A Step-up Rider provides a guaranteed minimum death benefit if
the Annuitant dies before the Maturity Date. The Step-up Rider is automatically
included for Contracts issued in states that permit the Rider for those
Contracts with an Annuitant who is age 0-70. The guaranteed minimum death
benefit initially equals the Contract Account Value as of the sixth Contract
Anniversary. We will reset or "step-up" the guaranteed minimum death benefit to
the Contract Account Value, if greater, on the next six year Contract
Anniversary. This "step-up" continues until the Contract Anniversary on or
before the Annuitant's 85th birthday. We will also increase the proceeds upon
death by an amount equal to aggregate premiums paid since the last Contract
Anniversary. In the event of a withdrawal at any time, we reduce the guaranteed
minimum death benefit by the same percentage that the withdrawal reduces the
Contract Account Value. At no time will the death benefit proceeds be less than
either:
-- the Contract Account Value on the date we receive due proof of the
Annuitant's death, or
-- the sum of premiums paid, less any withdrawals (including applicable
Surrender Charges).
10
<PAGE> 16
CHARGES AND DEDUCTIONS
$ SURRENDER CHARGE (CONTINGENT DEFERRED SALES CHARGE). We do not deduct any
charge for sales expenses from premiums. However, if you surrender your Contract
or make certain withdrawals before the sixth Contract Anniversary, we will
deduct a Surrender Charge from the amount surrendered or withdrawn.
For the first Contract Year, the charge is 6% of the amount withdrawn or
surrendered. Thereafter, the Surrender Charge decreases by 1% each subsequent
Contract Year. In no event is the total Surrender Charge on any Contract in
excess of 8 1/2% of the total premiums received under the Contract.
During each Contract Year after the first Contract Year, you may, subject to
certain restrictions, make up to two withdrawals totalling not more than 10% of
the Contract Account Value (as of the beginning of a Contract Year) free of the
Surrender Charge.
$ ANNUAL ADMINISTRATION FEE. On each Contract Anniversary prior to and
including the Maturity Date, we deduct an Annual Administration Fee of $30 from
the Contract Account Value. We also deduct this charge on the Maturity Date if
it is not a Contract Anniversary and upon surrender if the surrender occurs at
any time other than on a Contract Anniversary.
$ ASSET-BASED ADMINISTRATION CHARGE. We deduct a daily administration charge to
compensate us for certain expenses we incur in administration of the Contracts.
On or prior to the Maturity Date, we deduct the charge from the assets of the
Variable Account at an annual rate of 0.15%.
$ TRANSFER PROCESSING FEE. The first twelve transfers of amounts in the
Subaccounts each Contract Year are free. We assess a $25 transfer charge for
each additional transfer during a Contract Year.
$ MORTALITY AND EXPENSE RISK CHARGE. We deduct a daily Mortality and Expense
Risk Charge to compensate us for assuming certain mortality and expense risks.
On or prior to the Maturity Date, we deduct the charge from the assets of the
Variable Account at an annual rate of 1.25% (approximately 0.70% for mortality
risk and 0.55% for expense risks).
$ INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE PORTFOLIOS. The investment
experience of each Subaccount reflects the investment experience of the shares
of the Portfolio which it holds. The investment experience of each Portfolio, in
turn, reflects its investment advisory fees and other expenses. Please read the
prospectus for each Portfolio for details.
$ PREMIUM TAXES. If state or other premium taxes apply to a Contract, we deduct
these taxes either:
-- from premiums as they are received, or
-- from the Contract Account Value, upon a withdrawal from or surrender
of the Contract, upon application of the Contract Account Value to a
Payment Option or upon payment of a death benefit.
11
<PAGE> 17
ANNUITY PROVISIONS
- - MATURITY DATE. We will apply the Contract Account Value to a Payment Option
on the Maturity Date. You may instead elect to receive the Surrender Value on
the Maturity Date.
- - PAYMENT OPTIONS. The Contract offers three Payment Options. The amount of the
payments under them does not vary with the Variable Account's performance. They
are:
-- Life Annuity,
-- Life Annuity with 10 Years Guaranteed, and
-- Alternate Income Option.
In addition, instead of choosing one of the Payment Options listed above,
you may elect to receive payments in any other manner that is acceptable to us
and permissible under applicable law.
FEDERAL TAX STATUS
Generally, a distribution (including a surrender, withdrawal, or death
benefit payment) may result in federal income tax liability. In certain
circumstances, a penalty tax may apply.
WE OFFER OTHER VARIABLE ANNUITIES THAT HAVE DIFFERENT DEATH BENEFITS,
FEATURES, AND OPTIONAL PROGRAMS. THESE OTHER ANNUITIES HAVE DIFFERENT CHARGES
THAT WOULD AFFECT SUBACCOUNT PERFORMANCE AND CONTRACT ACCOUNT VALUE. PLEASE
CONTACT OUR SERVICE CENTER TO OBTAIN MORE INFORMATION ABOUT THESE ANNUITIES.
12
<PAGE> 18
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 48
states and the District of Columbia. As of December 31, 1999, we had total
assets of approximately $1.7 billion.
We are a wholly-owned subsidiary of Provident Mutual Life Insurance Company
("PMLIC"). PMLIC was chartered by the Commonwealth of Pennsylvania in 1865 and
at the end of 1999 had total assets of approximately $9.2 billion. On December
31, 1997, we entered into a Support Agreement with PMLIC. Under this agreement,
PMLIC agrees to ensure that our total adjusted capital will remain at the level
of 200% of the company action level for risk-based capital ("RBC") at the end of
each calendar quarter during the term of the agreement. PMLIC agrees to
contribute to us an amount of capital sufficient to attain this level of total
adjusted capital. RBC requirements are used to monitor sufficient capitalization
of insurance companies based upon the types and mixtures of risk inherent in
their operations.
PMLIC also agrees to cause us to maintain cash or cash equivalents from
time to time as may be necessary during the term of the agreement in an amount
sufficient for the payment of benefits and other contractual claims pursuant to
policies and other contracts issued by us. This agreement will remain in effect
provided we remain a subsidiary of PMLIC. Before any material modification or
termination of the agreement, a determination must be made that the modification
or termination will not have an adverse impact on our policyholders. This
determination is to be based on our ability at the time of the determination to
maintain our own financial stability according to the standards contained in the
agreement. Other than this Support Agreement, PMLIC is under no obligation to
invest money in us, nor is it in any way a guarantor of our contractual
obligations or obligations under the Contracts.
We are subject to regulation by the Insurance Department of the State of
Delaware as well as by the insurance departments of all other states and
jurisdictions in which we do business. We submit annual statements on our
operations and finances to insurance officials in these states and
jurisdictions. The forms for the Contract described in this prospectus are filed
with and (where required) approved by insurance officials in each state and
jurisdiction in which Contracts are sold.
We are a member of the Insurance Marketplace Standards Association
("IMSA"). IMSA members subscribe to a set of ethical standards involving the
sales and service of individually sold life insurance and annuities. As a member
of IMSA, we may use the IMSA logo and language in advertisements.
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT (VARIABLE ACCOUNT)
The Providentmutual Variable Annuity Separate Account is a separate
investment account that we maintain. The Variable Account was established by our
Board of Directors on May 9, 1991 under Pennsylvania law. We established the
Variable Account to support the investment options under the Contract and other
variable annuities. Because we later redomesticated as a Delaware insurance
company, the Variable Account is now subject to regulation by the Delaware
Insurance Department. We have caused the Variable Account to be registered with
the SEC as a unit investment trust under the Investment Company Act of 1940 (the
"1940 Act"). This registration does not involve supervision by the SEC of the
management or investment policies or practices of the Variable Account.
We own the assets of the Variable Account. These assets, however, are
legally separate from our other assets and are not part of our General Account.
The portion of the assets of the Variable Account equal to the reserves or other
Contract liabilities of the Variable Account will not be charged with
liabilities that arise from any other business we conduct. We may transfer to
our General Account any assets of the Variable Account which exceed the reserves
and the Contract liabilities of the Variable Account (which will always be at
least equal to the aggregate Contract Account Value allocated to the Variable
Account under the Contracts).
13
<PAGE> 19
The Variable Account currently has forty-eight Subaccounts, thirty-three 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
Index 500; International; Growth; Aggressive Growth; Managed; Bond; Money
Market; Scudder Bond; Scudder Growth and Income; Scudder International; OCC
Equity; OCC Small Cap; OCC Managed; Dreyfus Growth and Income; Dreyfus Zero
Coupon 2000; Dreyfus Socially Responsible; Federated Fund for U.S. Government
Securities II; Federated Utility Fund II; Strong Mid Cap Growth Fund II; Strong
Opportunity Fund II; Van Eck Worldwide Bond; Van Eck Worldwide Emerging Markets;
Van Eck Worldwide Hard Assets; Van Eck Worldwide Real Estate; Fidelity
Equity-Income; Fidelity Growth; Fidelity High Income; Fidelity Asset Manager,
and Fidelity Contrafund(R). The assets of each Subaccount are invested
exclusively in shares of a corresponding Portfolio of a designated Fund.
The income, gains, or losses, realized or unrealized, on the assets of each
Subaccount of the Variable Account are credited to or charged against that
Subaccount without regard to any other income, gains, or losses of PLACA. The
assets of each Subaccount may not be charged with liabilities arising out of any
other business of PLACA. PLACA may accumulate in the Variable Account the charge
for mortality expense and expense risks, gains and losses, and investment
results applicable to those assets that are in excess of the net assets
supporting the Contracts.
THE FUNDS
The Variable Account currently invests in Portfolios of various series-type
Funds, eleven of which are available under the Contracts: Market Street Fund;
Scudder Fund; OCC Trust; Dreyfus Fund; Dreyfus Socially Responsible Fund, Inc.;
Federated Series; Strong Fund; Strong Opportunity Fund; Van Eck Trust; VIP Fund;
and VIP II Fund. Each of the Funds is registered with the SEC under the 1940 Act
as an open-end investment company. The SEC does not, however, supervise the
management or the investment practices and policies of the Funds.
The assets of each Portfolio are separate from the assets of the other
Portfolios, and each Portfolio has separate investment objectives and policies.
Each Portfolio therefore operates as a separate investment Portfolio and the
investment performance of one Portfolio has no effect on the investment
performance of any other Portfolio. The investment experience of each of the
Subaccounts of the Variable Account depends on the investment performance of its
corresponding Portfolio.
Each of the Funds sells its shares to the Variable Account in accordance
with the terms of a participation agreement between the Fund and us. The
termination provisions of these agreements vary. A summary of the termination
provisions may be found in the SAI. If a participation agreement is terminated,
the Variable Account will no longer be able to purchase additional shares of
that Fund. In that event, you will not be able to allocate Contract Account
Values or premium payments to Subaccounts investing in Portfolios of that Fund.
In certain circumstances a Fund or a Portfolio may also refuse to sell its
shares to the Variable Account for other reasons. If a Fund or a Portfolio
refuses to sell its shares to the Variable Account, we will not be able to honor
your request to allocate your Contract Account Value or premium payments to
Subaccounts investing in shares of that Fund or Portfolio.
Certain Subaccounts invest in Portfolios that have similar investment
objectives and/or policies. Before choosing Subaccounts, you should carefully
read the individual prospectuses for the Funds along with this prospectus.
Some of the Portfolios available under the Contract present greater
investment risks than other Portfolios because they invest in high yield
securities (commonly known as junk bonds), foreign securities, small company
stocks or other types of investments that present speculative risks. You should
read the risk disclosure in the prospectuses for the Portfolios and be sure that
your investment choice is appropriate in light of your investment goals.
14
<PAGE> 20
MARKET STREET FUND
The All Pro Large Cap Growth, All Pro Large Cap Value, All Pro Small Cap
Growth, All Pro Small Cap Value, Equity 500 Index, International, Growth,
Aggressive Growth, Managed, Bond, and Money Market Subaccounts invest in shares
of the Market Street Fund. This Fund currently issues eleven "series" or classes
of shares, each of which represents interests in a separate Portfolio that
corresponds to a Subaccount. Shares of each Portfolio currently are purchased
and redeemed by the corresponding Subaccount. Shares of the All Pro Portfolios
may not be currently available for sale in all states. If they are not yet
available in your state, you may not allocate premiums to them until such time
as they are available.
The investment objectives/policies of the Market Street Fund Portfolios are
summarized below.
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
ALL PRO LARGE CAP GROWTH - Seeks to achieve long-term capital appreciation by
investing primarily in equity securities of companies among
the 750 largest by market capitalization at the time of
purchase that the subadvisers believe show potential for
growth in future earnings.
ALL PRO LARGE CAP VALUE - Seeks to provide long-term capital appreciation by
investing primarily in undervalued equity securities of
companies among the 750 largest by market capitalization
at the time of purchase that the subadvisers believe offer
above-average potential for growth in future earnings.
ALL PRO SMALL CAP GROWTH - Seeks to achieve long-term capital appreciation by
investing primarily in equity securities of companies
included in the Wilshire 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. MSIM uses a "manager of managers" approach
for the All Pro Portfolios under which
15
<PAGE> 21
MSIM allocates each Portfolio's assets among one or more "specialist" investment
subadvisers. The subadvisers for the All Pro Portfolios are as follows:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISERS
--------- -----------
<S> <C>
ALL PRO LARGE CAP GROWTH - Cohen Klingenstein & Marks, Inc.
- Geewax Terker & Co.
ALL PRO LARGE CAP VALUE - Equinox Capital Management, Inc.
- Mellon Equity Associates
- Sanford C. Bernstein Company, Inc.
ALL PRO SMALL CAP GROWTH - Standish Ayer & Wood
Husic Capital Management
ALL PRO SMALL CAP VALUE - Reams Asset Management Company, LLC
Sterling Capital Management Company
</TABLE>
MSIM also serves as investment adviser for the Equity 500 Index Portfolio
and the International Portfolio. MSIM has employed State Street Global Advisers
("State Street") to provide investment 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 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 Policy 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 Policy. See "Additional
Information -- Standard & Poor's," below which sets forth certain
additional disclaimers and limitations of liabilities on behalf of S &
P.
The Growth, Aggressive Growth, Managed, Bond, and Money Market Portfolios
of Market Street Fund are advised by Sentinel Advisors Company (SAC).
In addition to the fee for the investment advisory services that is
described in the Market Street Fund prospectus, each Portfolio of the Market
Street 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").
SCUDDER VARIABLE LIFE INVESTMENT FUND
The Scudder Bond Subaccount, Scudder Growth and Income Subaccount, and
Scudder International Subaccount invest in shares of corresponding Portfolios of
the Scudder Fund. The Scudder Fund is designed to provide an investment vehicle
for variable annuity contracts and variable life insurance policies.
16
<PAGE> 22
The Scudder Fund has seven Portfolios. Only the Bond Portfolio, Growth and
Income Portfolio, and International Portfolio are available under the Contracts.
Their investment objectives/policies are summarized below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
BOND - Seeks to provide a high-level income consistent with a
high quality portfolio of debt securities. It does this
by using a flexible investment program that emphasizes
high-grade bonds.
GROWTH AND INCOME - Seeks long-term growth of capital, current income, and
growth of income. This Portfolio primarily invests in
common stocks, preferred stocks, and securities
convertible to common stocks.
INTERNATIONAL - Seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity
investments. The Portfolio invests in common stocks of
established companies, listed on foreign exchanges.
</TABLE>
Scudder Kemper Investments, Inc., an investment adviser registered with the
SEC under the Investment Advisers Act, manages daily investments and business
affairs of the Scudder Fund.
OCC ACCUMULATION TRUST
The OCC Equity Subaccount, OCC Managed Subaccount, and OCC Small Cap
Subaccount invest in shares of corresponding portfolios of the OCC Trust. Shares
of the OCC Trust are sold to separate accounts of life insurance companies
established to fund variable annuity contracts.
The OCC Trust currently has seven Portfolios. Only the Equity Portfolio,
Managed Portfolio, and Small Cap Portfolio are available for investment under
the Contracts. Their investment objectives/policies are summarized below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
EQUITY - Seeks long-term capital appreciation through investment
in a diversified portfolio consisting primarily of 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.
SMALL CAP - Seeks capital appreciation through investment in a
diversified portfolio consisting primarily of equity
securities of companies with market capitalizations of
under $1 billion.
</TABLE>
The OCC Trust receives investment advice with respect to each of its
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.
DREYFUS VARIABLE INVESTMENT FUND AND THE DREYFUS SOCIALLY RESPONSIBLE GROWTH
FUND, INC.
The Dreyfus Growth and Income Subaccount and Dreyfus Zero Coupon 2000
Subaccount invest in shares of corresponding Portfolios of the Dreyfus Fund. The
Dreyfus Socially Responsible Subaccount invests in shares of the Dreyfus
Socially Responsible Fund. These Funds are intended to be funding vehicles for
variable annuity contracts and variable life insurance policies offered by the
separate accounts of various life insurance companies.
17
<PAGE> 23
The investment objectives/policies of these Funds are summarized below:
<TABLE>
<CAPTION>
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
--------- ------------------------------
<S> <C>
GROWTH AND INCOME - Seeks long-term capital growth, current income and growth
of income consistent with reasonable investment risk. To
pursue this goal, it invests in stocks, bonds and money
market instruments of domestic and foreign issuers.
ZERO COUPON 2000 - Seeks as high an investment return as is consistent with
the preservation of capital. This Portfolio invests
primarily in debt obligations issued by the U.S.
government and its agencies and instrumentalities that
have been stripped of their unmatured interest coupons,
and interest coupons that have been stripped from these
debt obligations. This Portfolio will invest at least 65%
of its assets in zero coupon securities which will mature
on or about December 31, 2000.
SOCIALLY - The Fund seeks to provide capital growth, with current
RESPONSIBLE income as a secondary goal. To pursue these goals, the
Fund invests primarily in the common stock of companies
that, in the opinion of the Fund's management, meet
traditional investment standards and conduct their
business in a manner that contributes to the enhancement
of the quality of life in America.
</TABLE>
The Dreyfus Corporation ("Dreyfus") serves as adviser to these Portfolios
and Fund. NCM Capital Management Group, Inc. ("NCM"), serves as subadviser to
the Dreyfus Socially Responsible Portfolio and provides day-to-day management of
its securities holdings. Dreyfus and NCM are registered as investment advisers
under the Investment Advisers Act.
FEDERATED INSURANCE SERIES
The Federated Fund for U.S. Government Securities II Subaccount and the
Federated Utility Fund II Subaccount invest in shares of corresponding
Portfolios of the Federated Series. The Federated Series is intended to be a
funding vehicle for variable annuity contracts and variable life insurance
policies offered by the separate accounts of various life insurance.
The Federated Series currently consists of twelve Portfolios. The Fund for
U.S. Government Securities II Portfolio and Utility Fund II Portfolio are
available under the Contracts. Their investment objectives/policies are
summarized below:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
FUND FOR U.S. GOVERNMENT - Seeks to provide current income. This
SECURITIES II Portfolio invests primarily in securities
which are guaranteed as to payment of
principal and interest by the U.S.
Government, its agencies, or
instrumentalities.
UTILITY FUND II - Seeks to achieve high current income and
moderate capital appreciation. This Portfolio
invests primarily in equity and debt
securities of utility companies.
Federated Investment Management Company ("Federated") serves as adviser to
these Portfolios. Federated Global Investment Management Corp. ("Federated
Global") serves as subadviser to the Utility Fund II. Federated and Federated
Global are registered investment advisers under the Investment Advisers Act.
18
<PAGE> 24
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 Portfolio's managers believe are
underpriced, yet have attractive growth
prospects.
Strong Opportunity Fund II is managed by Strong Capital Management, Inc.
VAN ECK WORLDWIDE INSURANCE TRUST
The Van Eck Worldwide Bond, Van Eck Worldwide Emerging Markets, Van Eck
Worldwide Hard Assets, and Van Eck Worldwide Real Estate Subaccounts of the
Variable Account invest in shares of the corresponding Portfolios of the Van Eck
Trust.
The investment objectives/policies of the Portfolios of Van Eck Trust are
summarized below:
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.
19
<PAGE> 25
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 AND VARIABLE INSURANCE PRODUCTS FUND II
The Fidelity Equity-Income Subaccount, Fidelity Growth Subaccount, and
Fidelity High Income Subaccount invest in shares of corresponding Portfolios of
the VIP Fund. The Fidelity Asset Manager Subaccount and Fidelity Contrafund(R)
Subaccount invest in shares of corresponding Portfolios of the VIP II Fund. The
VIP Fund and the VIP II Fund each offer insurance companies a selection of
investment vehicles for variable annuity contracts and variable life insurance
policies.
The VIP Fund and the VIP II Fund issue a number of "series" or classes of
shares, each of which represents an interest in a separate Portfolio within the
VIP Fund or VIP II Fund. Three of the VIP Fund series are available for
investment under the Contract: VIP Equity-Income Portfolio; VIP Growth
Portfolio; and VIP High Income Portfolio. Two of the VIP II Fund Series are
available for investment under the Contract: VIP II Asset Manager Portfolio and
VIP II Contrafund(R) Portfolio.
The investment objectives/policies of these Portfolios are summarized
below:
PORTFOLIO INVESTMENT OBJECTIVES/POLICIES
VIP EQUITY-INCOME - Seeks reasonable income by investing
primarily in income-producing equity
securities. In choosing these securities, the
Portfolio considers the potential for capital
appreciation. The Portfolio's goal is to
achieve a yield which exceeds the composite
yield of the securities comprising the
Standard & Poor's 500 Composite Stock Price
Index.
VIP GROWTH - Seeks to achieve capital appreciation. The
Portfolio normally purchases common stocks,
although its investments are not restricted
to any one type of security. Capital
appreciation may also be found in other types
of securities, including bonds, and preferred
stocks.
20
<PAGE> 26
VIP HIGH INCOME - Seeks to obtain a high level of current
income by investing primarily in
high-yielding, lower-rated, fixed-income
securities, while also considering growth of
capital.
VIP II ASSET MANAGER - Seeks to obtain high total return with
reduced risk over the long-term by allocating
assets among stocks, bonds, and short-term
money market instruments.
VIP II CONTRAFUND(R) - Seeks capital appreciation by investing in
securities of companies where value is not
fully recognized by the public.
The Portfolios of the VIP Fund and VIP II Fund are managed by Fidelity
Management & Research Company ("FMR"). On behalf of the Asset Manager Portfolio,
FMR has entered into sub-advisory agreements with Fidelity Management & Research
(U.K.) Inc. ("FMR (U.K.)") and Fidelity Management & Research (Far East) Inc.
("FMR Far East"). FMR (U.K.) and FMR Far East provide research and investment
recommendations with respect to companies based outside the United States. FMR
(U.K.) primarily focuses on companies based in Europe; FMR Far East focuses
primarily on companies based in Asia and the Pacific Basin.
Each of these advisers is registered with the SEC as an investment adviser
under the Investment Advisers Act.
Each Portfolio utilizes Fidelity Investments Institutional Operations
Company ("FIIOC"), an affiliate of FMR, to maintain the master accounts of the
participating insurance companies. Under the transfer agent agreement with
FIIOC, each Portfolio pays fees based on the type, size, and number of accounts
in each Portfolio and the number of transactions made by shareholders of each
Portfolio.
Each of these Portfolios also has an agreement with Fidelity Service Co.
("Service"), an affiliate of FMR, under which each Portfolio pays Service to
calculate its daily share prices and to maintain the portfolio and general
accounting records of each Portfolio and to administer each Portfolio's
securities lending program.
THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED
OBJECTIVE.
You should read the prospectuses for the Portfolios carefully before
investing. You can find more detailed information about the Portfolios'
investment objectives, policies and restrictions, expenses, investment advisory
services, charges, and investment risks in the current prospectus for each Fund
which accompanies this prospectus and the current SAI for each Fund.
Certain Portfolios have investment objectives and policies similar to other
investment portfolios or mutual funds managed by the same investment adviser or
manager. The investment results of the Portfolios may be higher or lower than
those of such other investment portfolios or mutual funds. We do not guarantee
or make any representation that the investment results of any Portfolio will be
comparable to that of any other investment portfolio or mutual fund, even those
with the same investment adviser or manager.
Some of the investment portfolios described in the prospectuses for the
Funds are not available with the Contracts. We cannot guarantee that each
Portfolio will always be available for the Contracts. In the unlikely event that
a Portfolio is not available, we will do everything reasonably practicable to
secure the availability of a comparable Portfolio. Shares of each Portfolio are
purchased and redeemed at net asset value, without a sales charge.
We may receive compensation from the investment adviser of a Fund (or
affiliates thereof) in connection with administration, distribution, or other
services provided with respect to the Funds and their availability through the
Contracts. The amount of this compensation is based upon a percentage of the
assets of the Fund attributable to the Contracts and other contracts issued by
us. These percentages differ, and some advisers (or affiliates) may pay us more
than others.
21
<PAGE> 27
RESOLVING MATERIAL CONFLICTS
The Funds are used as investment vehicles for variable life insurance
policies and variable annuity contracts issued by PLACA or PMLIC, as well as
other insurance companies offering variable life and annuity contracts. In
addition, certain Funds available with the Contract may sell shares to
retirement plans qualifying under section 401 of the Code. As a result, there is
a possibility that a material conflict may arise between the interests of owners
of variable life or variable annuity contracts, generally, or certain classes of
owners, and the interests of the retirement plans or participants in retirement
plans.
We currently do not foresee any disadvantages to Owners resulting from the
Funds selling shares in connection with products other than the Contracts or to
retirement plans. However, there is a possibility that a material conflict may
arise between Owners whose Contract Account Values are allocated to the Variable
Account and other investors in the Portfolios, including retirement plans and
the owners of variable life insurance policies and variable annuity contracts
issued by other insurance companies. In the event of a material conflict, we
will take any necessary steps, including removing the Portfolio as an investment
option within the Variable Account, to resolve the matter. The Funds' Boards of
Directors are also responsible for monitoring events in order to identify any
material conflicts that possibly may arise and determine what action, if any,
should be taken in response to any conflicts. You should 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 available within the
Variable Account. If the shares of any Portfolio are no longer available for
investment, or for any other appropriate reason, we may redeem the shares, if
any, of that Portfolio and substitute shares of another registered open-end
management company. The substituted fund or portfolio may have different fees
and expenses. Substitution may be made with respect to existing investments or
the investment of future premiums, or both. We will not substitute any shares
attributable to a Contract's interest in a Subaccount of the Variable Account
without notice and prior approval of the SEC and state insurance authorities, to
the extent required by the 1940 Act or other applicable law.
Furthermore, we may close Subaccounts to allocations of premiums or
Contract Account Value, or both, at any time in our sole discretion. The Funds,
which sell their shares to the Subaccounts pursuant to participation agreements,
also may terminate these agreements and discontinue offering their shares to the
Subaccounts.
We also reserve the right to establish additional Subaccounts, each of
which would invest in shares corresponding to an existing or new Portfolio.
Subject to applicable law and any required SEC approval, we may, in our sole
discretion, establish new Subaccounts or eliminate one or more Subaccounts if
marketing needs, tax considerations, or investment conditions warrant. Any new
Subaccounts may be made available to existing Owners on a basis to be determined
by us.
If any of these substitutions or 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
22
<PAGE> 28
contracts). You may also send the Application and initial premium to us through
a broker-dealer that has a selling agreement with respect to the Contract.
We may sell a Contract in connection with retirement plans. These
retirement plans may, or may not, qualify for special tax treatment under the
Code. See "Federal Tax Status -- Taxation of Qualified Contracts" for important
information about purchasing a Qualified Contract.
CANCELLATION (FREE-LOOK) PERIOD
The Contract provides for an initial Cancellation Period. You have the
right to return the Contract within 10 days (or any longer period required by
the laws of your state) after you receive it. When we receive the returned
Contract at our Service Center, it will be canceled and, in most states, we will
refund to the Owner an amount equal to the sum of: (1) the difference between
the premiums you paid, including any Contract fees and charges, and the amounts,
if any, allocated to the Variable Account under the Contract; and (2) the
Variable Account Value on the date of termination (or, in Pennsylvania, if there
is no Variable Account Value, the reserve for the Contract on the date the
Contract is cancelled attributable to the amounts allocated to the Variable
Account). In states that require it, we will refund the premiums paid.
PREMIUMS
We require a minimum initial premium of $2,000. For Qualified Contracts, as
an alternative to the minimum initial premium, you may commit to paying $100 per
month during the first Contract Year. You may pay subsequent premiums under the
Contract at any time during the Annuitant's lifetime before the Maturity Date.
Any subsequent premium payment must be at least $100 each for Non-Qualified
Contracts and $50 each for Qualified Contracts.
In your Application, you may select a planned periodic premium schedule
based on a periodic billing mode of annual, semi-annual, or quarterly payment.
You will receive a premium reminder notice at the specified interval. You may
change the planned periodic premium frequency and amount. Also, under the
automatic payment plan, you may select a monthly payment schedule under which
premium payments will be automatically deducted from a bank account or other
source rather than being "billed."
ALLOCATION OF NET PREMIUMS
We must receive a complete Application with all relevant information and
payment of the initial premium in order to process the Application. If the
Application is complete, we will allocate the initial Net Premium among the
Subaccounts and Guaranteed Account in accordance with your instructions in the
Application as of a date not later than two business days after we receive the
completed Application at our Service Center. (This allocation may be delayed for
15 days in some cases as discussed below.)
If we receive an incomplete Application, we may retain the initial premium
payment and contact you in order to complete the Application. If the Application
is not completed within five business days of our receipt, we will explain the
reason for the processing delay and the premium payment will be returned to you
unless you consent to our retaining the premium payment until the Application is
completed. When the Application is complete, we will allocate the initial Net
Premium within two business days.
You should designate in the Application how the initial Net Premium is to
be allocated among the Subaccounts and the Guaranteed Account. As described
above, in states where you are guaranteed a refund of premiums paid for
cancellation during the Cancellation Period, the portion of the initial Net
Premium which is to be allocated to the Subaccounts will be allocated to the
Money Market Subaccount for a 15-day period. After the expiration of the 15-day
period, the amount in the Money Market Subaccount will be allocated to your
chosen Subaccounts based on the proportion that the allocation percentage for
such Subaccount bears to the sum of the Subaccount allocation percentages. Any
subsequent Net Premium is allocated at the end of the Valuation Period in which
the subsequent premium is received by us in the same manner, unless the
allocation percentages are changed. Premiums are
23
<PAGE> 29
allocated in accordance with the allocation schedule in effect at the time the
premium payment is received.
Subaccount Values will vary with the investment experience of the
Subaccounts, and you bear the entire investment risk. You should periodically
review your allocation schedule for Net Premiums in light of market conditions
and your overall financial objectives.
VARIABLE ACCOUNT VALUE
The Variable Account Value reflects the investment experience of the
Subaccounts selected by you, any Net Premium payments, any withdrawals, any
surrenders, any transfers, and any charges relating to the Subaccounts. There is
no guaranteed minimum Variable Account Value, and, because the Variable Account
Value on any future date depends upon a number of variables, it cannot be
predicted.
Calculation of Variable Account Value. The Variable Account Value is
determined on each Valuation Day. This value is the aggregate of the values
attributable to the Contract in each of the Subaccounts, determined for each
Subaccount by multiplying the Subaccount's Accumulation Unit value on the
relevant Valuation Day by the number of Subaccount Accumulation Units allocated
to the Contract, as described below.
Accumulation Units. For each Subaccount, Net Premiums allocated to a
Subaccount and amounts transferred to a Subaccount are converted into
Accumulation Units. The number of Accumulation Units credited to a Contract is
determined by dividing the dollar amount directed to each Subaccount by the
value of the Accumulation Unit for that Subaccount for the Valuation Day as of
which the allocation or transfer is made. Allocations and transfers to a
Subaccount increase the number of Accumulation Units of that Subaccount credited
to a Contract.
Certain events reduce the number of Accumulation Units of a Subaccount
credited to a Contract. Withdrawals or transfers from a Subaccount result in the
cancellation of an appropriate number of Accumulation Units of that Subaccount,
as do surrender of the Contract, payment of a death benefit, the Application of
Variable Account Value to a Payment Option on the Maturity Date, and the
deduction of the annual administration fee or other charges. Accumulation Units
are canceled as of the end of the Valuation Period in which we receive Notice
regarding the event.
The Accumulation Unit value for each Subaccount was arbitrarily set when
the Subaccount began operations. Thereafter, the Accumulation Unit value at the
end of every Valuation Day is the Accumulation Unit value at the end of the
previous Valuation Day multiplied by the net investment factor, as described
below. The Subaccount Value for a Contract is determined on any day by
multiplying the number of Accumulation Units of that Subaccount attributable to
the Contract by the Accumulation Unit value for that Subaccount.
Net Investment Factor. The net investment factor is an index that measures
the investment performance of a Subaccount from one Valuation Period to the
next. Each Subaccount has its own net investment factor, which may be greater or
less than one. The net investment factor for each Subaccount for a Valuation
Period equals 1 plus the fraction obtained by dividing (a) by (b) where:
(a) is the net result of:
1. the investment income, dividends, and capital gains, realized or
unrealized, credited during the current Valuation Period; plus
2. any amount credited or released from reserves for taxes
attributable to the operation of the Subaccount; minus
3. the capital losses, realized or unrealized, charged during the
current Valuation Period; minus
4. any amount charged for taxes or any amount we set aside during
the Valuation Period as a reserve for taxes attributable to the
operation or maintenance of the Subaccount; minus
24
<PAGE> 30
5. the amount charged for mortality and expense risk for that
Valuation Period; minus
6. the amount charged for administration for that Valuation Period;
and
(b) is the value of the assets in the Subaccount at the end of the
preceding Valuation Period, adjusted for allocations and transfers to and
withdrawals and transfers from the Subaccount occurring during that
preceding Valuation Period.
TRANSFER PRIVILEGE
Before the Maturity Date, you may request a transfer of all or a part of
the amount in a Subaccount to another Subaccount or to the Guaranteed Account,
or transfer a part of an amount in the Guaranteed Account to one or more
Subaccounts, subject to the restrictions below. The minimum transfer amount must
be the lesser of $500 or the entire Subaccount Value or the Guaranteed Account
Value. A transfer request that would reduce the amount in a Subaccount or the
Guaranteed Account below $500 is treated as a transfer request for the entire
amount in that Subaccount or the Guaranteed Account.
Transfers are made as of the day we receive Notice requesting the transfer.
There is no limit on the number of transfers which can be made between
Subaccounts or from a Subaccount to the Guaranteed Account. Only one transfer,
however, may be made from the Guaranteed Account each Contract Year. (See
"Transfers from Guaranteed Account.") 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 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
25
<PAGE> 31
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. Automatic Asset Rebalancing transfers do not count as
one of the 12 free transfers available during any Contract Year. We reserve the
right to suspend Automatic Asset Rebalancing at any time for any class of
Contracts for any reason upon written notice to you.
Advance Orders of Transfers. You may elect to request transfers of amounts
from a Subaccount to the Money Market Subaccount in advance of the time you want
the transfers executed. To make this election, you must submit a written Advance
Order form to our Service Center specifying a percentage amount of change in
Subaccount Value at which shares in the specified Subaccount should be sold and
the proceeds transferred to the Money Market Subaccount. After you have
submitted the written Advance Order form, you may place or cancel an Advance
Order by calling our Service Center. We measure the percentage change in a
Subaccount Value by reference to the net investment factor for the specified
Subaccount, as measured using the Accumulation Unit value as of the Valuation
Period next ended after receipt of the Advance Order at the Service Center. We
execute the transfer when the Accumulation Unit value for that Subaccount
increases or decreases by at least the percentage specified by you.
Once received at the Service Center, an Advance Order remains in effect
until cancelled or superseded by a subsequent Advance Order for a transfer out
of the same Subaccount. We do not currently assess a charge for Advance Orders,
but reserve the right to charge for this service. In addition, we may terminate
the Advance Order privilege or change its terms at any time by providing written
notice to you at least 15 days in advance of the termination or modification.
DOLLAR COST AVERAGING
The Dollar Cost Averaging program enables you to systematically and
automatically transfer, on a monthly basis, specified dollar amounts from a
designated Subaccount to other Subaccounts. By allocating specified dollar
amounts periodically rather than at one time, you may be less susceptible to the
impact of market fluctuations. We, however, make no guarantee that Dollar Cost
Averaging will result in a profit or protect against loss.
You may elect Dollar Cost Averaging for a period from 6 to 36 months. To
qualify for Dollar Cost Averaging, the following minimum amount must be
allocated to your designated Subaccount: 6 months -- $3,000; 12
months -- $6,000; 18 months -- $9,000; 24 months -- $12,000; 30
months -- $15,000; 36 months -- $18,000. At least $500 must be transferred from
the designated Subaccount each month. The amount required to be allocated to the
designated Subaccount can be made as an initial or subsequent investment or by
transferring amounts into the designated Subaccount from the other Subaccounts
or from the Guaranteed Account (which may be subject to certain restrictions).
(See "Transfers from Guaranteed Account.")
You may participate in this program by completing the authorization on the
Application or at any time after the Contract is issued by properly completing
an election form and returning it to us by the beginning of the month. You must
also verify that the required minimum amount is in the designated Subaccount.
Dollar Cost Averaging transfers may not commence until the later of (1) 30 days
after the Contract Date and (2) five days after the end of the Cancellation
Period.
After you make the election, transfers from a Subaccount will be processed
monthly until the number of designated transfers have been completed, the value
of the Subaccount is completely depleted, or you instruct us in writing to
cancel the monthly transfers.
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.
26
<PAGE> 32
WITHDRAWALS AND SURRENDER
Withdrawals. At any time before the earlier of the death of the Annuitant
or the Maturity Date, you may withdraw part of the Surrender Value. With
Qualified Contracts, the terms of the related retirement plan may impose
additional withdrawal restrictions on participants. For information regarding
these additional restrictions, you should contact your plan administrator.
The minimum amount which may be withdrawn under a Contract is $500; the
maximum amount is that which would leave a Surrender Value of not less than
$2,000. We will treat a withdrawal request which would reduce the amount in a
Subaccount or in the Guaranteed Account below $500 as a request for full
withdrawal of the amount in that Subaccount or the Guaranteed Account. We will
withdraw the amount requested by you from the Contract Account Value as of the
day Notice for the withdrawal is received at our Service Center. Any applicable
Surrender Charge is deducted from the remaining Contract Account Value. (See
"Surrender Charge.")
You may specify the amount to be withdrawn from certain Subaccounts or the
Guaranteed Account for the withdrawal. If you do not so specify or if the amount
in the designated Subaccounts or Guaranteed Account is inadequate to comply with
the request, the withdrawal is made from each Subaccount and the Guaranteed
Account based on the proportion that the value in such account bears to the
Contract Account Value immediately before the withdrawal.
A withdrawal may have adverse federal income tax consequences. (See
"Federal Tax Status.")
Systematic Withdrawals. Through the Systematic Withdrawal Plan, you may
pre-authorize a periodic exercise of the withdrawal right described in the
Contract. You may elect the plan at the time of your Application by completing
the authorization on the Application form and making a minimum initial premium
payment of $15,000. After the Contract is issued, you may elect the plan by
properly completing the election form if the Contract Account Value is at least
$15,000. Certain federal income tax consequences may apply to systematic
withdrawals from the Contract. You should, therefore, consult with your tax
adviser before participating in the Systematic Withdrawal Plan.
Under the 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 maximum
amount which you can withdraw under the plan in a Contract Year without a
Surrender Charge is 10% of the Contract Account Value as of the beginning of the
year or 10% of the premiums paid in the first Contract year if elected at the
time of Application. We will notify you if the total amount to be withdrawn in a
Contract Year exceeds 10% of the Contract Account Value as of the beginning of
that year. Unless you instruct us to reduce the withdrawal amount for that year
so that it does not exceed the 10% limit, we will continue to process
withdrawals for the designated amount. Once the amount of the withdrawals
exceeds the 10% limit, we will deduct the applicable Surrender Charge from the
remaining Contract Account Value. (See "Surrender Charge.")
We will pay you the amount requested each month or quarter and make
withdrawals from the Subaccounts and the Guaranteed Account based on the
proportion that the value in each Subaccount and Guaranteed Account bears to the
Contract Account Value immediately prior to the withdrawal.
As stated, withdrawals under the Systematic Withdrawal Plan that do not
exceed 10% of the Contract Account Value as of the beginning of such 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 will be subject to the Surrender
Charge. If an additional withdrawal is made from a Contract participating in the
plan, systematic withdrawals will automatically terminate and may only be
reinstated on or after the beginning of the next Contract Year pursuant to a new
request.
You may discontinue systematic withdrawals at any time upon Notice to us.
We reserve the right to discontinue offering systematic withdrawals upon 30
days' notice to you.
27
<PAGE> 33
Charitable Remainder Trust Rider. You may elect a Charitable Remainder
Trust Rider, which combines: (1) an extended Maturity Date to the Contract
Anniversary nearest the Annuitant's age 100, unless a lump sum payment of
Surrender Value is elected; and (2) a revised Surrender Charge/ withdrawal
provision. A Charitable Remainder Trust Rider allows income to be distributed
and the payment of trustee fees and charges. The Rider only applies the
appropriate Surrender Charge to withdrawals or surrenders during a Contract Year
that exceed the greater of: (1) 10% of the Contract Account Value as of the
beginning of the Contract Year; or (2) any amounts in excess of the total
premiums paid. There is no limit on the number of withdrawals occurring in any
Contract Year.
Surrender. At any time before the earlier of the death of the Annuitant or
the Maturity Date, you may request a surrender of the Contract for its Surrender
Value. (See "Surrender Charge.") The surrender request must be on the proper
form which you can request from our Service Center. The proceeds paid to you
will equal the Surrender Value less any withholding or premium taxes. The
Surrender Value will be determined on the date Notice of surrender and the
Contract are received at our Service Center. The Surrender Value will be paid in
a lump sum unless you request payment under a Payment Option. A surrender may
have adverse federal income tax consequences. (See "Federal Tax Status.")
Restrictions on Distributions from Certain Contracts. There are certain
restrictions on surrenders of and withdrawals from Contracts used as funding
vehicles for Section 403(b) retirement plans. Section 403(b)(11) of the Code
restricts the distribution under Section 403(b) annuity contracts of: (1)
elective contributions made in years beginning after December 31, 1988; (2)
earnings on those contributions; and (3) earnings in those years on amounts held
as of the last year beginning before January 1, 1989. Distributions of those
amounts may only occur upon the death of the employee, attainment of age 59 1/2,
separation from service, disability or financial hardship. In addition, income
attributable to elective contributions described in (2) and (3) above may not be
distributed in the case of hardship.
In the case of other types of Qualified Contracts, federal tax law imposes
other restrictions on the form and manner in which benefits may be paid.
Likewise, the terms of retirement plans funded by Qualified Contracts also may
impose restrictions on the ability of participants to take distributions from
the Contracts.
Contract Termination. We may end your Contract and pay the Surrender Value
to you if, before the Maturity Date, all of these events simultaneously exist;
1. no premiums have been paid for at least two years;
2. the Contract Account Value is less than $2,000; and
3. the total premiums paid, less any partial withdrawals, are less than
$2,000.
We will mail you a notice of our intention to end your Contract at least
six months in advance. The Contract will automatically terminate on the date
specified in the notice, unless we receive an additional premium payment before
the termination date specified in the notice. This additional premium payment
must be equal to at least the minimum additional amount required by us.
(Termination of the Contract under this provision is not permitted in New
Jersey.)
DEATH BENEFIT BEFORE MATURITY DATE
We will deduct any applicable premium tax from the proceeds described
below, unless we have already deducted the tax from the premiums when paid.
Death of Annuitant. If the Annuitant dies before the Maturity Date, we
will pay the death benefit under the Contract to the Beneficiary. During the
first six Contract Years, the death benefit is equal to the greater of: (1) the
premiums paid, less any withdrawals (including applicable Surrender Charges); or
28
<PAGE> 34
(2) the Contract Account Value on the date we receive due proof of Annuitant's
death. After the end of the sixth Contract Year, the death benefit is equal to
the greatest of:
1. the Contract Account Value as of the end of the sixth Contract Year
less subsequent amounts withdrawn; or
2. the Contract Account Value on the date we receive due proof of the
Annuitant's death; or
3. the premiums paid, less any withdrawals (including applicable
Surrender Charges).
The proceeds will be paid to the Beneficiary in a lump sum unless the Owner or
Beneficiary elects a Payment Option. If the Annuitant is the Owner, the proceeds
must be distributed in accordance with the rules set forth below in "Death of
Owner" for the death of an Owner before the Maturity Date.
There is no death benefit payable if the Annuitant dies after the Maturity
Date.
Death of Owner. If an Owner dies before the Maturity Date, federal tax law
requires (for a Non-Qualified Contract) that the Contract Account Value (or if
the Owner is the Annuitant, the proceeds payable upon the Annuitant's death) be
distributed to the Beneficiary within five years after the date of the Owner's
death. If an Owner dies on or after the Maturity Date, any remaining payments
must be distributed at least as rapidly as under the Payment Option in effect on
the date of the Owner's death.
These distribution requirements will be considered satisfied as to any
portion of the proceeds payable to or for the benefit of a designated
Beneficiary, and which is distributed over the life (or a period not exceeding
the life expectancy) of that Beneficiary, provided that the distributions begin
within one year of the Owner's death. However, if the Owner's spouse is the
designated Beneficiary, the Contract may be continued with such surviving spouse
as the new Owner. If the Contract has joint Owners, the surviving joint Owner
will be the designated Beneficiary. Joint Owners must be husband and wife as of
the Contract Date.
If the Owner is not an individual, the Annuitant, as determined in
accordance with section 72(s) of the Code, will be treated as Owner for purposes
of these distribution requirements, and any changes in the Annuitant will be
treated as the death of the Owner.
Other rules may apply to a Qualified Contract.
Step-up Rider. The Step-up Rider is automatically included for Contracts
issued in states that permit the Rider for those Contracts with an Annuitant who
is age 0-70. The Step-up Rider provides a guaranteed minimum death benefit equal
to the Contract Account Value as of the six year Contract Anniversary and is
reset every six years to the Contract Account Value on the next six year
Contract Anniversary, if greater. This reset continues until the six year
Contract Anniversary on or before the Annuitant's 85th birthday. Premiums paid
between the six year Contract Anniversaries are also included in the death
benefit proceeds. A reduction in the guaranteed minimum death benefit for any
withdrawal will be based on the proportion of the withdrawal to the Contract
Account Value. At no time will the death benefit proceeds be less than either
the Contract Account Value on the date we receive due proof of the Annuitant's
death or the sum of premiums paid, less any withdrawals, including applicable
Surrender Charges.
PROCEEDS ON MATURITY DATE
Subject to our approval and state law you select the Maturity Date.
Contract Account Value is applied to purchase a Payment Option as of the
Maturity Date. If a lump sum payment is elected on the Maturity Date, the
proceeds will equal the Surrender Value on the Maturity Date. In the event that
you do not select a Payment Option, Contract Account Value is applied under the
Life Annuity with Ten Year Certain Payment Option. (See "Payment Options.")
You may change the Maturity Date subject to these limitations:
1. Notice is received at our Service Center at least 30 days before the
current Maturity Date;
29
<PAGE> 35
2. The new Maturity Date is at least 30 days after we receive the change
request; and
3. The new Maturity Date is not later than the first day of the month after
the Annuitant's 90th birthday, or any earlier date required by law.
PAYMENTS
Any withdrawal, the Surrender Value, or the death benefit will usually be
paid within seven calendar days of receipt of written request or receipt and
filing of due proof of death. Payments may be postponed, however, if:
1. the New York Stock Exchange is closed, other than customary weekend and
holiday closings, or trading on the exchange is restricted as determined
by the SEC;
2. the SEC permits by an order the postponement for the protection of
Owners; or
3. the SEC determines that an emergency exists that would make the disposal
of securities held in the Variable Account or the determination of the
value of the Variable Account's net assets not reasonably practicable.
If a recent check or draft has been submitted, we have the right to defer
payment until such check or draft has been honored.
We have the right to defer payment of any withdrawal, surrender, or
transfer from the Guaranteed Account for up to six months from the date of
receipt of Notice for a withdrawal, surrender, or transfer. If payment is not
made within 30 days after our receipt of documentation necessary to complete the
transaction, or any shorter period required by a particular jurisdiction,
interest will be added to the amount paid from the date of receipt of
documentation at an annual rate of 3% or such higher rate required for a
particular state.
MODIFICATION
Upon notice to you, we may modify the Contract, if a modification:
1. is necessary so that the Contract, our operations, or the operations of
the Variable Account comply with applicable laws or regulations; or
2. is necessary to assure the continued qualification of the Contract under
the Code or other federal or state laws relating to retirement annuities
or variable annuity contracts; or
3. is necessary to reflect a change in the operation of the Variable
Account; or
4. provides other Subaccounts and/or Guaranteed Account options.
In the event of a modification, we will make appropriate endorsement to the
Contract.
REPORTS TO CONTRACT OWNERS
At least quarterly, we will mail to you, at your last known address of
record, a report containing the Contract Account Value and Surrender Value of
the Contract and any further information required by applicable law or
regulation.
CONTRACT INQUIRIES
Inquiries regarding a Contract may be made by writing to us at our Service
Center.
THE GUARANTEED ACCOUNT
You may allocate some or all of the Net Premiums and transfer some or all
of the amounts in the Subaccounts to the Guaranteed Account, which is part of
our General Account. The Guaranteed Account pays interest at declared rates that
are guaranteed for each calendar year and must be at least 3%. The
30
<PAGE> 36
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 will be credited
with different current interest rates. The interest rate credited to each amount
allocated or transferred to the Guaranteed Account will apply to the end of the
calendar year in which an amount is received or transferred. At the end of the
calendar year, we will determine a new current interest rate on the amount and
any accrued interest thereon (which may be a different current interest rate
from the current interest rate on new allocations to the Guaranteed Account on
that date). The rate declared on this amount and any accrued interest thereon at
the end of each calendar year will be guaranteed for the following calendar
year. Any interest credited on the amounts in the Guaranteed Account in excess
of the minimum guaranteed effective annual interest rate of 3% will be
determined in our sole discretion. You assume the risk that interest credited
may not exceed the guaranteed minimum rate.
For purposes of crediting interest and deducting charges, the Guaranteed
Account uses a last-in, first-out method (i.e., LIFO) of accounting for
allocations of Net Premium Payments and for transfers of Contract Account Value.
We reserve the right to change the method of crediting interest from time
to time, provided that the changes do not have the effect of reducing the
minimum guaranteed effective annual interest rate below 3% or shorten the period
for which the interest rate applies to less than a calendar year (except for the
year in which an amount is received or transferred).
CALCULATION OF GUARANTEED ACCOUNT VALUE
The Guaranteed Account Value at any time is equal to amounts you allocate
or transfer to the Guaranteed Account plus interest credited on these amounts,
minus amounts deducted, transferred, or withdrawn from the Guaranteed Account.
TRANSFERS FROM GUARANTEED ACCOUNT
Within 30 days before or after any Contract Anniversary, you may make one
transfer from the Guaranteed Account to any or all of the Subaccounts. The
amount transferred from the Guaranteed Account may not exceed 25% of the
Guaranteed Account Value on the date of transfer, unless the balance after the
transfer is less than $500, in which case the entire amount will be transferred.
Subject to the next paragraph, if Notice for 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.
31
<PAGE> 37
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 annuity payments begin. If the Surrender Charge is insufficient to cover
sales expenses, the loss will be borne by us; conversely, if the amount of the
Surrender Charge is more than our sales expenses, the excess will be retained by
us. We do not currently believe that the Surrender Charges will cover the
expected costs of distributing the Contracts. Any shortfall will be made up from
our general assets, which may include proceeds derived from mortality and
expense risk charges.
Charges for Withdrawal or Surrender. If a withdrawal is made or a Contract
is surrendered, the applicable Surrender Charge will be as follows:
<TABLE>
<CAPTION>
CONTRACT YEAR IN WHICH CHARGES AS PERCENTAGE OF
WITHDRAWAL OR AMOUNT
SURRENDER OCCURS WITHDRAWN OR SURRENDERED
- ---------------------- ------------------------
<S> <C>
1 6%
2 5
3 4
4 3
5 2
6 1
7 and after 0
</TABLE>
We do not deduct a Surrender Charge if the withdrawal or surrender occurs
after six full Contract Years. In addition, no Surrender Charge is deducted on
the Maturity Date if the Contract proceeds are applied under a Payment Option.
In no event will the total Surrender Charges assessed under a Contract
exceed 8 1/2% of the total premiums received under that 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 Charge. Subject to certain restrictions, you may
withdraw or surrender up to 10% of the Contract Account Value as of the
beginning of a Contract Year within that Contract Year without a Surrender
Charge. During the first Contract Year, the full amount of all withdrawals (and
any surrender) will be subject to the Surrender Charge. After the first Contract
Year, the otherwise applicable Surrender Charge will not be applied to the first
and second withdrawals during a Contract Year to the extent that the amount
withdrawn is not in excess of 10% of the Contract Account Value as of the
beginning of that Contract Year. This right is not cumulative from Contract Year
to Contract Year. If the Contract is surrendered and there have been no prior
withdrawals during that Contract Year, no Surrender Charge will apply to the
amount of the surrender up to 10% of the Contract Account Value as of the
beginning of that Contract Year.
After the first Contract Year, any amounts withdrawn in excess of 10% or
subsequent to the second withdrawal in a Contract Year will be assessed a
Surrender Charge. If a surrender is made during a Contract Year in which one or
no withdrawals have been made, you may surrender free of charge an
32
<PAGE> 38
amount equal to 10% of the Contract Account Value as of the beginning of the
Contract Year less the total amount previously withdrawn during that Contract
Year without imposition of the Surrender Charge. Only the excess amount will be
subject to the Surrender Charge.
ADMINISTRATIVE CHARGES
Annual Administration Fee. On each Contract Anniversary prior to and
including the Maturity Date, and upon surrender of a Contract or on the Maturity
Date (other than on a Contract Anniversary), we deduct from the Contract Account
Value an Annual Administration Fee of $30 for our administrative expenses
relating to the Contract. The charge is deducted from each Subaccount and the
Guaranteed Account based on the proportion that the value in each account bears
to the total Contract Account Value. Some states may limit the amount of the
Annual Administration Fee. No Annual Administration Fee is payable during the
annuity period.
Asset-Based Administration Charge. To compensate us for costs associated
with administration of the Contracts, prior to the Maturity Date we deduct a
daily asset-based administration charge from the assets of the Variable Account
equal to an annual rate of 0.15%.
The Contracts are administered by PMLIC pursuant to a Service Agreement
between PMLIC and ourselves. Under the agreement, PMLIC also maintains records
of transactions relating to the Contracts and provides other services.
Transfer Processing Fee. The first twelve transfers during each Contract
Year are free. A $25 Transfer Processing Fee will be assessed for each
additional transfer during such Contract Year. For the purpose of assessing the
fee, each Notice of transfer is considered to be one transfer, regardless of the
number of Subaccounts or accounts affected by the transfer. The Transfer
Processing Fee will be deducted from the amount being transferred. We do not
expect a profit from this fee.
MORTALITY AND EXPENSE RISK CHARGE
To compensate us for assuming mortality and expense risks, prior to the
Maturity Date we deduct a daily Mortality and Expense Risk Charge from the
assets of the Variable Account. We will impose a charge in an amount that is
equal to an annual rate of 1.25% (daily rate of .00342466%) (approximately 0.70%
for mortality risk and 0.55% for expense risk).
The mortality risk we assume is that Annuitants may live for a longer
period of time than estimated when the guarantees in a Contract are established.
Because of these guarantees, each Payee is assured that longevity will not have
an adverse effect on the annuity payments received. The mortality risk we assume
also includes a guarantee to pay a death benefit if the Annuitant dies before
the Maturity Date. The expense risk we assume is the risk that the Surrender
Charges, Administration Fees, and Transfer Processing Fees may be insufficient
to cover our actual expenses. If there are any profits from fees and charges
deducted under the Contract, including but not limited to mortality and expense
risk charges, these profits could be used to finance the distribution of the
Contracts.
INVESTMENT ADVISORY FEES AND OTHER EXPENSES OF THE PORTFOLIOS
Because the Variable Account purchases shares of the Portfolios, the
performance of each Subaccount reflects the deduction of investment advisory
fees and other expenses incurred by the Portfolios. For each Portfolio, an
investment adviser is paid a fee that is a percentage of a Portfolio's average
daily net assets, and thus the actual fee paid depends on the size of the
Portfolio. Each Portfolio also pays most or all of its operating expenses. See
the accompanying current prospectuses for the Portfolios for further details.
PREMIUM TAXES
Various states and other governmental entities levy a premium tax on
annuity contracts issued by insurance companies. Premium tax rates are subject
to change from time to time by legislative and other
33
<PAGE> 39
governmental action and currently range from 0.0% to 4.0%. In addition, other
governmental units within a state may levy these taxes.
The timing of tax levies varies from one taxing authority to another. If
premium taxes are applicable to a Contract, they will be deducted, depending on
when the taxes are paid to the taxing authority, either (1) from premiums as
they are received or (2) from the Contract proceeds upon withdrawal or
surrender, application of the proceeds to a Payment Option, or payment of death
benefit proceeds.
OTHER TAXES
Currently, we do not make a charge against the Variable Account for
federal, state or local taxes. We may, however, make such a charge in the future
if income or gains within the Variable Account will result in any federal income
tax liability to us. Charges for other taxes attributable to the Variable
Account, if any, may also be made.
PAYMENT OPTIONS
The Contract ends on the Maturity Date. At that time the Contract Account
Value will be applied to purchase a Payment Option, unless you elect to receive
the Surrender Value in a single sum. If your election of a Payment Option has
not been filed at our Service Center by the Maturity Date, the proceeds will be
paid as a life annuity under Option B, described below.
Before the Maturity Date, you can have the Surrender Value applied under a
Payment Option. In addition, a Beneficiary can have the death benefit applied
under a Payment Option, unless you have already selected a Payment Option for
the Beneficiary. Any premium tax applicable will be deducted from the Surrender
Value or the Contract Account Value at the time payments commence.
Your Contract must be surrendered so that the applicable amount can be paid
in a lump sum or a supplemental contract for the applicable Payment Option can
be issued. We also reserve the right to require satisfactory evidence of the
identity, birth date, and sex of any Annuitant, and satisfactory evidence that
any Annuitant is still alive. Before making each annuity payment under a
life-contingent Payment Option, we reserve the right to require satisfactory
evidence that any Annuitant is still alive.
The available Payment Options are described below. The Payment Options are
fixed, which means that each option has a fixed and guaranteed amount to be paid
during the annuity period that is not in any way dependent upon the investment
experience of the Variable Account.
ELECTION OF PAYMENT OPTIONS
A Payment Option may be elected, revoked, or changed at any time before the
Maturity Date while the Annuitant is living. If the Payee is other than the
Owner, the election of a Payment Option requires our consent. If an election is
not in effect at the Annuitant's death, or if payment is to be made in one sum
under an existing election, the Beneficiary may elect one of the options after
the death of the Annuitant.
An election of option and any revocation or change must be made by Notice.
Notice must be filed with our Service Center.
An option may not be elected if any periodic payment under the election
would be less than $50. Subject to this condition, payments may be made
annually, semi-annually, quarterly, or monthly and are made at the beginning of
the period.
In addition, instead of choosing one of the Payment Options listed below,
you may elect to receive payments in any other manner that is acceptable to us
and permissible under applicable law.
DESCRIPTION OF PAYMENT OPTIONS
Option A -- Life Annuity Option. Under this Payment Option, payments are
made in equal amounts each month during the Payee's lifetime with payments
ceasing with the last payment prior to the death of the Payee. No amounts are
payable after the Payee dies. Therefore, if the Payee dies immediately following
the date of the first payment, the Payee will receive one monthly payment only.
34
<PAGE> 40
Option B -- Life Annuity Option with 10 Years Guaranteed. Under this
Payment Option, payments are made in equal amounts each month during the Payee's
lifetime with the guarantee that payments will be made for a period of not less
than ten years. Under this option, if any Beneficiary dies while receiving
payment, the present value of the current dollar amount on the date of death of
any remaining guaranteed 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 Payee's age
and sex. If the Contract is sold in a group or employer-sponsored arrangement,
the amount of the payments will be based on the Payee's age, only. Age is
determined from the nearest birthday at the due date of the first payment.
Alternate Income Option. Instead of the above Payment Options, the
Contract Account Value, Surrender Value, or death benefit, as applicable, may be
settled under an Alternate Income Option based on our single premium immediate
annuity rates in effect at the time of settlement. These rates will be adjusted
so that the first payment will be made immediately (at the beginning of the
first month, rather than at the end of the month) which will result in receipt
of one additional payment. These rates are 4% higher than our standard immediate
annuity rates.
YIELDS AND TOTAL RETURNS
From time to time, we may advertise or include in sales literature
historical performance data, including yields, effective yields, standard annual
total returns and non-standard measures of performance for the Subaccounts.
These figures are based on historical earnings and do not indicate or project
future performance. Each Subaccount may, from time to time, advertise or include
in sales literature performance relative to certain performance rankings and
indices compiled by independent organizations. More detailed information as to
the calculation of performance information, as well as comparisons with
unmanaged market indices, appears in the SAI.
Effective yields and total returns for a Subaccount are based on the
investment performance of the corresponding Portfolio. A Portfolio's performance
reflects the Portfolio's expenses. See the prospectuses for the Funds.
The yield of the Money Market Subaccount refers to the annualized
investment income generated by an investment in the Subaccount over a specified
seven-day period. The yield is calculated by assuming that the income generated
for that seven-day period is generated each seven-day period over a 52-week
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by an investment in
the Subaccount is assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this assumed
reinvestment.
The yield of a Subaccount (except the Money Market Subaccount) refers to
the annualized income generated by an investment in the Subaccount over a
specified 30-day or one-month period. The yield is calculated by assuming that
the income generated by the investment during that 30-day or one-month period is
generated each period over a 12-month period and is shown as a percentage of the
investment.
The total return of a Subaccount refers to return quotations assuming an
investment under a Contract has been held in the Subaccount for various periods
of time including, but not limited to, a period measured from the date the
Subaccount commenced operations. When a Subaccount has been in operation for
one, five and ten years, respectively, the total returns for these periods are
provided. For periods prior to the date a Subaccount commenced operations,
performance information for Contracts funded by that Subaccount may also be
calculated based on the performance of the corresponding Portfolio and the
assumption that the Subaccount was in existence for the same periods as those
indicated for the Portfolio, with the current level of Contract charges.
35
<PAGE> 41
The average annual total return quotations represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods for which total return quotations are provided. Average
annual total return information shows the average percentage change in the value
of an investment in the Subaccount from the beginning date of the measuring
period to the end of that period. This standardized version of average annual
total return reflects all historical investment results, less all charges and
deductions applied against the Subaccount (including any Surrender Charge that
would apply if an Owner terminated the Contract at the end of each period
indicated, but excluding any deductions for premium taxes).
In addition to the versions described above, total return performance
information computed on other versions may be used in advertisements and sales
literature. Average total return information may be presented, computed on the
same basis as described above, except deductions will not include the Surrender
Charge. Total return information will be higher when the Surrender Charge is
excluded than when it is included.
Non-standard performance data will only be disclosed if the standard
performance data for the required periods is also disclosed. For additional
information regarding the calculation of performance data, please refer to the
SAI.
In advertising and sales literature, the performance of each Subaccount may
be compared to the performance of other variable annuity issuers in general or
to the performance of particular types of variable annuities investing in mutual
funds, or investment series of mutual funds with investment objectives similar
to each of the Subaccounts. Lipper Analytical Services, Inc. ("Lipper") and
Variable Annuity Research Data Service ("VARDS") are independent services which
monitor and rank the performance of variable annuity issuers in major categories
of investment objectives on an industry-wide basis.
Lipper's rankings include variable life insurance issuers as well as
variable annuity issuers. VARDS rankings compare only variable annuity issuers.
The performance analyses prepared by Lipper and VARDS each rank these issuers on
the basis of total return, assuming reinvestment of distributions, but do not
take sales charges, redemption fees, or certain expense deductions at the
separate account level into consideration. In addition, VARDS prepares risk
adjusted rankings, which consider the effects of market risk on total return
performance. This type of ranking provides data as to which funds provide the
highest total return within various categories of funds defined by the degree of
risk inherent in their investment objectives.
Advertising and sales literature may also compare the performance of each
Subaccount to the Standard & Poor's Composite Index of 500 stocks, a widely used
measure of stock performance. This unmanaged index assumes the reinvestment of
dividends but does not reflect any "deduction" for the expense of operating or
managing an investment portfolio. Other independent ranking services and indices
may also be used as sources of performance comparison.
We may also report other information, including the effect of tax-deferred
compounding on a Subaccount's investment returns, or returns in general, which
may be illustrated by tables, graphs, or charts. All income and capital gains
derived from Subaccount investments are reinvested and can lead to substantial
long-term accumulation of assets, provided that the underlying Portfolio's
investment experience is positive.
36
<PAGE> 42
FEDERAL TAX STATUS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
The following summary provides a general description of the federal income
tax considerations associated with the Contract and does not purport to be
complete or to cover all tax situations. This discussion is not intended as tax
advice. 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 Contract.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, the Code requires any Non-Qualified Contract to
contain certain provisions specifying how the Owner's interest in the Contract
will be distributed in the event of the Owner's death. The Non-Qualified
Contracts contain provisions that are intended to comply with these Code
requirements, although no regulations interpreting these requirements have yet
been issued. We intend to review these provisions and modify them if necessary
to assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
37
<PAGE> 43
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 a Contract who is not a natural person
generally must include in income any increase in the excess of the Contract
Account Value over the "investment in the Contract" (generally, the premiums or
other consideration paid for the Contract) during the taxable year. There are
some exceptions to this rule and a prospective Owner that is not a natural
person may wish to discuss these with a tax adviser. The following discussion
generally applies to Contracts owned by natural persons.
Withdrawals and Surrenders. When a withdrawal from a Non-Qualified
Contract occurs, the amount received will be treated as ordinary income subject
to tax up to an amount equal to the excess (if any) of the Contract Account
Value immediately before the distribution over the Owner's investment in the
Contract at that time. In the case of a surrender under a Non-Qualified
Contract, the amount received generally will be taxable only to the extent it
exceeds the Owner's investment in the Contract.
Penalty Tax on Certain Withdrawals and Surrenders. In the case of a
distribution from a Non-Qualified Contract, there may be imposed a federal tax
penalty equal to ten percent of the amount treated as income. In general,
however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic payments for the
life (or life expectancy) of the taxpayer.
Other exceptions may be applicable under certain circumstances and special
rules may be applicable in connection with the exceptions enumerated above. A
tax adviser should be consulted with regard to exceptions from the penalty tax.
Annuity Payments. Although tax consequences may vary depending on the
Payment Option elected under a Contract, a portion of each annuity payment is
generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a manner
that is designed to allow an Owner to recover his or her investment in the
Contract ratably on a tax-free basis over the expected stream of annuity
payments, as determined when annuity payments start. Once an investment in the
Contract has been fully recovered, however, the full amount of each annuity
payment is subject to tax as ordinary income.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a
Contract because of the Owner's or Annuitant's death. Generally, these amounts
are includible in the income of the recipient as follows: (1) if distributed in
a lump sum, the amounts are taxed in the same manner as a surrender of the
Contract; or (2) if distributed under a Payment Option, the amounts are taxed in
the same way as annuity payments.
Transfers, Assignments or Exchanges of a Contract. A transfer or
assignment of ownership of a Contract, the designation of an Annuitant, the
selection of certain Maturity Dates, or the exchange of a Contract may result in
tax consequences to an Owner that are not discussed here. An Owner
38
<PAGE> 44
contemplating any transfer, assignment, or exchange should consult a tax adviser
as to these tax consequences.
Multiple Contracts. All annuity contracts that are issued by PLACA (or its
affiliates) to the same Owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in the
Owner's income when a taxable distribution occurs.
TAXATION OF QUALIFIED CONTRACTS
The Contracts are designed for use with several types of qualified
retirement plans. The tax rules applicable to participants in these qualified
plans vary according to the type of plan and the terms and conditions of the
plan itself. Special favorable tax treatment may be available for certain types
of contributions and distributions. Adverse tax consequences may result from
contributions in excess of specified limits; distributions prior to age 59 1/2
(subject to certain exceptions); distributions that do not conform to specified
commencement and minimum distribution rules; and in other specified
circumstances. Therefore, no attempt is made to provide more than general
information about the use of the Contracts with qualified retirement plans.
Owners, Annuitants, Beneficiaries, and Payees are cautioned that the rights of
any person to any benefits under these qualified retirement plans may be subject
to the terms and conditions of the plans themselves, regardless of the terms and
conditions of the Contract, but we are not bound by the terms and conditions of
any plan to the extent these terms and conditions contradict the Contract.
The Owner may wish to consult a tax adviser regarding the use of the
Contract within a qualified retirement plan or in connection with other employee
benefit plans or arrangements that receive favorable tax treatment, since many
plans or arrangements provide the same type of tax deferral as provided by the
Contract. The Contract provides a number of extra benefits and features not
provided by employee benefit plans or arrangements alone, although there are
costs and expenses under the Contract related to these benefits and features.
Owners should carefully consider these benefits and features in relation to
their costs as they apply to the Owner's particular situation.
Distributions. Annuity payments under a Qualified Contract are generally
taxed in a manner similar to a Non-Qualified Contract. When a withdrawal from a
Qualified Contract occurs, a pro rata portion of the amount received is taxable,
generally based on the relationship between the Owner's investment in the
Contract to the participant's total accrued benefit balance under the retirement
plan. For Qualified Contracts, however, the investment in the Contracts will
generally be zero unless nondeductible contributions have previously been made
to the relevant qualified plan or employer contributions or investment earnings
have been previously includible in income of the employee.
Brief descriptions follow of different types of qualified retirement plans
that may be used in connection with a Contract. We will endorse the Contract as
necessary to conform it to the requirements of a plan.
Corporate and Self-Employed Pension and Profit Sharing Plans. Section
401(a) of the Code permits corporate employers to establish various types of
retirement plans for employees, and permits self-employed individuals to
establish these plans for themselves and their employees. These retirement plans
may permit the purchase of Contracts to accumulate retirement savings under the
plans. Adverse tax or other legal consequences to the plan, to the participant,
or to both may result if a Contract is assigned or transferred to any individual
as a means to provide benefit payments, unless the plan complies with all
applicable legal requirements prior to transfer of the Contract. Employers
intending to use the Contract with such plans should seek competent tax advice.
Individual Retirement Annuities. Section 408(b) of the Code permits
eligible individuals to contribute to an individual retirement program known as
an "Individual Retirement Annuity" or "IRA." There may be legal limitations on
the amount of the premiums or contributions under the IRA, the deductible amount
of the contribution, the persons who may be eligible, and the time when
distributions commence. Also, distributions from certain other types of
qualified retirement plans may be "rolled over"
39
<PAGE> 45
or transferred on a tax-deferred basis into an IRA. There are significant
restrictions on rollover or transfer contributions from savings incentive match
plans for employees (SIMPLE), which allow certain small employers to make
contributions to IRAs on behalf of their employees. Employers may also establish
simplified employee pension (SEP) plans to make IRA contributions on behalf of
their employees. The Code may impose additional restrictions on IRAs.
Roth IRAs. Effective January 1, 1998, section 408A of the Code has
permitted certain eligible individuals to contribute to a Roth IRA.
Contributions to a Roth IRA, which are subject to certain limitations, are not
deductible, and must be made in cash or as a rollover or transfer from another
Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA may
be subject to tax, and other special rules may apply. Generally, income on
undistributed amounts accumulated under Roth IRAs is exempt from federal income
tax. "Qualified distributions" from a Roth IRA, as well as distributions which
are the return of the owner's contributions to the Roth IRA, are also not
subject to tax. "Qualified distributions" are distributions that satisfy a
five-year holding period and are made: (1) after the owner reaches age 59 1/2;
(2) to the beneficiary of the owner after the owner's death; (3) on account of
the owner's disability; or (4) to pay for first-time home-buying expenses.
Federal income tax, as well as a 10% penalty tax, will generally apply to
distributions that are not "qualified distributions."
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of
certain section 501(c)(3) organizations and public schools to exclude from their
gross income the premium payments made, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These premium
payments may be subject to FICA (social security ) tax.
The following amounts may not be distributed from Code section 403(b)
annuity contracts prior to the employee's death, attainment of age 59 1/2,
separation from service, disability, or financial hardship: (1) elective
contributions made in years beginning after December 31, 1988; (2) earnings on
those contributions; and (3) earnings in such years on amounts held as of the
last year beginning before January 1, 1989. In addition, earnings on elective
contributions may not be distributed in the case of hardship.
WITHHOLDING
Distributions from a Contract generally are subject to withholding for the
Owner's federal income tax liability. The withholding rate varies according to
the type of distribution and the Owner's tax status. The Owner will be provided
the opportunity to elect not to have tax withheld from distributions.
"Eligible rollover distributions" from section 401(a) plans and section
403(b) tax-sheltered annuities are subject to a mandatory federal income tax
withholding of 20%. Generally, an eligible rollover distribution is the taxable
portion of any distribution from these plans, except for certain distributions
such as minimum distributions required by the Code, distributions paid in the
form of an annuity, and certain hardship withdrawals. The 20% withholding does
not apply, however, if the Owner chooses a "direct rollover" from the plan to
another section 401(a) or section 403(b) plan (as applicable) or to an IRA.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always
the possibility that the tax treatment of the Contract could change by
legislation or other means. It is also possible that any change could be
retroactive (that is, effective prior to the date of the change). A tax adviser
should be consulted with respect to legislative developments and their effect on
the Contract.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the federal tax consequences
under the Contract are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in this prospectus. Further, the
federal income tax consequences discussed herein reflect our understanding of
current law, and the law may change. Federal estate and state and local estate,
inheritance, and other tax
40
<PAGE> 46
consequences of ownership or receipt of distributions under a Contract depend on
the individual circumstances of each Owner or recipient of the distribution. A
tax adviser should be consulted for further information.
DISTRIBUTION OF CONTRACTS
The Contracts are offered to the public on a continuous basis. Although we
do not anticipate discontinuing the offering of the Contracts, we reserve the
right to do so. Applications for Contracts are solicited by agents who are
licensed by applicable state insurance authorities and authorized by us to sell
the Contracts, and who are registered representatives of 1717 or other
broker/dealers. 1717 is a wholly-owned indirect subsidiary of PMLIC and is
registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer. 1717 is also a member of the National Association of Securities
Dealers, Inc.
1717 acts as the principal underwriter, as defined in the 1940 Act, of the
Contracts pursuant to an Underwriting Agreement between 1717 and ourselves. 1717
is not obligated to sell any specific number of 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 7% of premiums.
Compensation may be paid in the form of non-cash compensation, subject to
applicable regulatory requirements. In some circumstances and to the extent
permitted by applicable regulatory requirements, 1717 may reimburse certain
sales and marketing expenses or pay other forms of special compensation to
selling broker-dealers.
LEGAL PROCEEDINGS
PMLIC and its subsidiaries, like other life insurance companies, are from
time to time involved in lawsuits, including class action lawsuits. In some
lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, PMLIC and PLACA believe that at
the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on either of them or the
Variable Account.
VOTING PORTFOLIO SHARES
Even though we are the legal owner of the Portfolio shares held in the
Subaccounts, and have the right to vote on all matters submitted to shareholders
of the Portfolios, we will vote the shares as Owners instruct, so long as
required by law.
We will calculate the number of votes you may vote separately for each
Subaccount. This amount may include fractional votes. The number of votes
attributable to a Subaccount will be determined by applying your percentage
interest, if any, in a particular Subaccount to the total number of votes
attributable to that Subaccount. You hold this voting interest in each
Subaccount to which your Variable Account Value is allocated. Your voting
interest terminates on the Maturity Date or surrender of the Contract.
The number of votes of a Portfolio you may vote will be determined as of
the record date. Before a vote of a Portfolio's shareholders occurs, you will
receive voting materials. We will ask you to instruct us on how to vote and to
return your proxy to us in a timely manner. You will have the right to instruct
us on the number of Portfolio shares that corresponds to the amount of Contract
Account Value you have in that Portfolio (as of a date set by the Portfolio).
41
<PAGE> 47
If we do not receive voting instructions from you on time, we will vote
your shares in the same proportion as the timely voting instructions we receive
from other Owners. Should federal securities laws, regulations, or
interpretations change, we may elect to vote Portfolio shares in our own right.
If required by state insurance officials, or if permitted under federal
regulation, under certain circumstances we may disregard certain Owner voting
instructions. If we disregard voting instructions, we will send you a summary in
the next annual report to Owners advising you of the action and the reasons we
took such action.
Portfolio shares held by us in a Subaccount as to which Owners do not have
a voting interest will be voted in proportion to the voting instructions we
receive from Owners with respect to the shares they do vote. If you instruct us
to abstain on any item to be voted upon, we will apply your abstention
instruction on a pro rata basis to reduce the votes eligible to be cast by us.
FINANCIAL STATEMENTS
Our audited statements of financial condition as of December 31, 1999 and
1998, and the related statements of operations, changes in 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.
42
<PAGE> 48
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Contract Provisions.............................. S-2
The Contract........................................... S-2
Incontestability....................................... S-2
Misstatement of Age or Sex............................. S-2
Non-Participation...................................... S-2
Calculation of Yields and Total Returns..................... S-2
Money Market Subaccount Yields......................... S-3
Other Subaccount Yields................................ S-4
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-8
Effect of the Administration Fee on Performance Data... S-10
Termination of Participation Agreements..................... S-10
Standard & Poor's........................................... S-13
Safekeeping of Account Assets............................... S-13
State Regulation............................................ S-14
Records and Reports......................................... S-14
Legal Matters............................................... S-14
Experts..................................................... S-14
Other Information........................................... S-14
Financial Statements........................................ S-14
</TABLE>
43
<PAGE> 49
APPENDIX A
FINANCIAL HIGHLIGHTS
The following condensed financial information is derived from the financial
statements of the Variable Account. The data should be read in conjunction with
the financial statements, related notes, and other financial information
included in the SAI under the caption "Financial Statements."
The table below sets forth certain information regarding the Subaccounts as
of December 31, 1999. As of December 31, 1999, the Strong Mid Cap Growth Fund II
Subaccount and the Strong Opportunity Fund II Subaccount had not commenced
operations. Accordingly, condensed financial information was not available for
these Subaccounts.
<TABLE>
<CAPTION>
UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS
AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF OUTSTANDING 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
(formerly Fidelity Index
500).................... 1,636.75 91,709.23 1,377.32 61,689.14 1,080.42 48,054.18
Market Street
International........... 975.06 22,407.12 764.54 22,728.56 704.02 23,495.92
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
Scudder Bond............. 610.50 19,173.00 1,181.96 19,823.89 1,071.54 19,067.19
Scudder Growth and
Income.................. 1,006.14 21,851.23 724.89 22,809.77 808.05 22,411.36
Scudder International.... 1,140.30 20,743.49 1,117.54 53,641.58 1,057.94 54,119.40
OCC Equity............... 1,195.14 18,277.71 625.13 17,333.39 594.92 13,308.44
OCC Managed.............. 1,157.06 42,989.61 748.08 19,335.69 641.18 16,570.16
OCC Small Cap............ 701.71 19,273.71 962.07 22,590.73 913.35 17,259.20
Dreyfus Growth and
Income.................. 1,124.52 20,385.92 975.63 20,073.85 884.85 19,203.03
Dreyfus Zero Coupon
2000.................... 621.94 13,555.84 614.21 12,081.33 580.67 10,024.98
Dreyfus Socially
Responsible............. 1,503.98 15,371.49 1,172.49 9,357.48 918.99 5,878.19
Federated U.S. Government
Securities II........... 606.11 17,731.89 618.36 15,015.43 582.47 6,129.09
Federated Utility Fund
II...................... 890.32 11,493.39 886.67 11,449.65 789.26 6,448.18
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 1,882.22 588.75 430.59
Van Eck Worldwide Real
Estate.................. 411.36 1,158.87 425.72 396.85
Fidelity -- Equity-Income... 1,168.00 85,196.19 1,113.96 78,563.14 1,011.99 73,730.38
Fidelity -- Growth....... 1,688.61 95,738.72 1,245.95 74,160.15 905.80 67,965.10
Fidelity -- High
Income.................. 792.88 28,780.47 743.43 26,474.33 788.02 21,860.95
Fidelity -- Asset
Manager................. 948.86 49,766.45 866.16 42,506.75 763.46 37,474.25
Fidelity -- Contrafund(R)... 1,382.01 63,090.61 1,127.92 46,442.16 879.99 38,683.95
<CAPTION>
UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS UNIT VALUE NUMBER OF UNITS
AS OF OUTSTANDING AS OF AS OF OUTSTANDING AS OF AS OF OUTSTANDING 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
(formerly Fidelity Index
500).................... 831.78 27,336.86 686.64 10,496.23 507.68 3,571.24
Market Street
International........... 651.04 23,424.42 595.43 17,907.81 528.22 15,548.80
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
Scudder Bond............. 858.13 12,563.72 572.66 11,392.30 515.26 2,813.10
Scudder Growth and
Income.................. 670.35 16,021.07 724.69 27,336.42 503.97 8,553.37
Scudder International.... 877.27 43,626.63 545.82 6,615.25
OCC Equity............... 553.18 10,238.78 705.50 7,248.38 468.40 4,419.73
OCC Managed.............. 596.09 9,325.04 526.65 1,170.05 -- --
OCC Small Cap............ 709.94 6,349.82 589.44 978.99 504.88 15,233.99
Dreyfus Growth and
Income.................. 772.15 16,123.15 648.54 3,543.50 -- --
Dreyfus Zero Coupon
2000.................... 550.29 8,998.27 544.02 5,157.10 467.73 3,101.11
Dreyfus Socially
Responsible............. 725.61 2,403.71 607.04 211.32 -- --
Federated U.S. Government
Securities II........... 544.01 3,591.63 529.49 888.69 -- --
Federated Utility Fund
II...................... 632.04 4,346.85 574.58 1,076.36 -- --
Van Eck Worldwide Bond...
Van Eck Worldwide
Emerging Markets........
Van Eck Worldwide Hard
Assets..................
Van Eck Worldwide Real
Estate..................
Fidelity -- Equity-Income 801.08 61,560.52 710.92 38,336.60 533.64 16,111.04
Fidelity -- Growth....... 743.89 59,854.74 657.74 34,695.62 492.73 19,272.81
Fidelity -- High
Income.................. 679.15 14,990.01 604.03 7,048.75 507.88 4,060.78
Fidelity -- Asset
Manager................. 641.70 32,768.43 567.88 28,966.21 492.38 28,637.01
Fidelity -- Contrafund(R) 718.85 23,454.47 601.00 7,495.00 -- --
<CAPTION>
UNIT VALUE NUMBER OF UNITS
AS OF OUTSTANDING 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
(formerly Fidelity Index
500).................... 509.51 818.51
Market Street
International........... 534.25 2,539.74
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
Scudder Bond............. 503.29 313.68
Scudder Growth and
Income.................. 516.26 842.45
Scudder International....
OCC Equity............... 498.86 726.58
OCC Managed.............. -- --
OCC Small Cap............ 498.94 2,723.17
Dreyfus Growth and
Income.................. -- --
Dreyfus Zero Coupon
2000.................... 493.62 113.90
Dreyfus Socially
Responsible............. -- --
Federated U.S. Government
Securities II........... -- --
Federated Utility Fund
II...................... -- --
Van Eck Worldwide Bond...
Van Eck Worldwide
Emerging Markets........
Van Eck Worldwide Hard
Assets..................
Van Eck Worldwide Real
Estate..................
Fidelity -- Equity-Income 505.43 2,674.86
Fidelity -- Growth....... 499.75 2,368.98
Fidelity -- High
Income.................. 523.11 298.26
Fidelity -- Asset
Manager................. 531.69 2,806.80
Fidelity -- Contrafund(R) -- --
</TABLE>
A-1
<PAGE> 50
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.; Scudder Variable Life Investment Fund; OCC
Accumulation Trust; Dreyfus Variable Investment Fund; The Dreyfus Socially
Responsible Growth Fund, Inc.; Federated Insurance Series; Strong Variable
Insurance Funds, Inc.; Strong Opportunity Fund II, Inc.; Van Eck Worldwide
Insurance Trust; Variable Insurance Products Fund; and Variable Insurance
Products Fund II. You may obtain a copy of these prospectuses by writing or
calling us at our address or phone number shown above. Capitalized terms in this
SAI have the same meanings as in the prospectus for the Contract.
THE DATE OF THIS STATEMENT OF ADDITIONAL INFORMATION IS MAY 1, 2000
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS*
<TABLE>
<S> <C>
ADDITIONAL CONTRACT PROVISIONS (22-35)...................... 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 (35-36)............. S-2
Money Market Subaccount Yields......................... S-3
Other Subaccount Yields................................ S-4
Average Annual Total Returns........................... S-4
Other Total Returns.................................... S-8
Effect of the Administration Fee on Performance Data... S-10
TERMINATION OF PARTICIPATION AGREEMENTS..................... S-10
STANDARD & POOR'S........................................... S-13
SAFEKEEPING OF ACCOUNT ASSETS............................... S-13
STATE REGULATION............................................ S-14
RECORDS AND REPORTS......................................... S-14
LEGAL MATTERS (41).......................................... S-14
EXPERTS..................................................... S-14
OTHER INFORMATION........................................... S-14
FINANCIAL STATEMENTS (42)................................... S-14
FINANCIAL STATEMENTS INDEX (Appendix A)..................... F-1
</TABLE>
- ---------------
* Numbers in parentheses refer to corresponding pages of the prospectus for the
Contract.
<PAGE> 51
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract between you and us is made up of the Contract and your
Application. The statements made in the Application are deemed representations
and not warranties. We cannot use any statement in defense of a claim or to void
a Contract unless it is contained in the Application and a copy of the
Application is attached to the Contract at issue.
INCONTESTABILITY
We will not contest the Contract after it has been in force during the
Annuitant's lifetime for two years from the Contract Date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been misstated, we will pay the
amount which the proceeds would have purchased at the correct age and sex.
If we make an overpayment because of an error in age or sex, the
overpayment plus interest at 3% compounded annually will be a debt against the
Contract. If the debt is not repaid, future payments will be reduced
accordingly.
If we make an underpayment because of an error in age or sex, any annuity
payments will be recalculated at the correct age and sex and future payments
will be adjusted. The underpayment with interest at 3% compounded annually will
be paid in a single sum.
NON-PARTICIPATION
The Contract is not eligible for dividends and will not participate in our
divisible surplus.
CALCULATION OF YIELDS AND TOTAL RETURNS
From time to time, we may disclose historical performance data for the
Subaccounts including yields, effective yields, annual total returns, and other
measures of performance. This performance data will be computed, or accompanied
by performance data computed, in accordance with SEC standards.
Because of the charges and deductions imposed under a Contract, performance
data for the Subaccounts will be lower than performance data for their
corresponding Portfolios. The performance of a Subaccount will be affected by
expense reimbursements and fee waivers applicable to their corresponding
Portfolios. Without these reimbursements and waivers, performance would be
lower. In addition, calculations of yields, total returns, and other performance
data do not reflect the effect of any premium tax that may be applicable to a
particular Contract. Premium taxes currently range from 0% to 4.0% of the
premium depending on the state in which the Contract is sold.
The Funds have provided all performance information for the Portfolios,
including the Portfolio total value information used to calculate the total
returns of the Subaccounts for periods prior to the inception of the
Subaccounts. Market Street Fund is affiliated with PLACA. None of the other
Funds is affiliated with PLACA. While PLACA has no reason to doubt the accuracy
of the figures provided by these non-affiliated Funds, PLACA does not represent
that they are true and complete, and disclaims all responsibility for these
figures.
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.
S-2
<PAGE> 52
MONEY MARKET SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of the Money Market Subaccount for a seven-day period in a
manner which does not take into consideration any realized or unrealized gains
or losses or income other than investment income on shares of the Money Market
Portfolio or on its portfolio securities.
This current annualized yield is computed by determining the net change
(exclusive of realized gains and losses on the sale of securities and unrealized
appreciation and depreciation and exclusive of income other than investment
income) at the end of the seven-day period in the value of a hypothetical
account under a Contract having a balance of one Accumulation Unit in the Money
Market Subaccount at the beginning of the period, dividing the net change in
account value by the value of the hypothetical account at the beginning of the
period to determine the base period return, and annualizing this quotient on a
365-day basis. The net change in account value reflects: (1) net investment
income of the Portfolio attributable to the hypothetical account; and (2)
charges and deductions imposed under the Contract which are attributable to the
hypothetical account. The charges and deductions include the per unit charges
for the hypothetical account for: (1) the Annual Administration Fee; (2) the
Asset-Based Administration Charge; and (3) the Mortality and Expense Risk
Charge. For purposes of calculating current yields for a Contract, an average
per unit administration fee is used based on the $30 Annual Administration Fee
deducted at the end of each Contract Year. Current yield will be calculated
according to the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value (exclusive of realized gains or losses on
the sale of securities and unrealized appreciation and depreciation
and exclusive of income other than investment income) for the
seven-day period attributable to a hypothetical account having a
balance of one Accumulation Unit in the Money Market Subaccount.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = the unit value on the first day of the seven-day period.
The effective yield of the Money Market Subaccount determined on a
compounded basis for the same seven-day period may also be quoted.
The effective yield is calculated by compounding the unannualized base
period return according to the following formula:
Effective Yield = (1 + ((NCS - ES)/UV))365/7 - 1
Where:
NCS = the net change in the value (exclusive of realized gains or losses on
the sale of securities and unrealized appreciation and depreciation
and exclusive of income other than investment income) for the
seven-day period attributable to a hypothetical account having a
balance of one Accumulation Unit in the Money Market Subaccount.
ES = per unit expenses attributable to the hypothetical account for the
seven-day period.
UV = the unit value on the first day of the seven-day period.
The Money Market Subaccount's yield is affected by changes in interest
rates on money market securities, the average portfolio maturity of the Money
Market Portfolio, the types of quality of portfolio securities held by the Money
Market Portfolio and the Money Market Portfolio's operating expenses. Yields on
amounts held in the Money Market Subaccount may also be presented for periods
other than a seven-day period.
S-3
<PAGE> 53
Yield calculations do not take into account the Surrender Charge under the
Contract, which ranges from 6% during the first Contract Year to 1% during the
sixth Contract Year on amounts surrendered or withdrawn under the Contract.
The current yield and effective yield for the Money Market Subaccount for
the seven days ended December 31, 1999 were 3.81% and 3.88%, respectively.
OTHER SUBACCOUNT YIELDS
From time to time, sales literature or advertisements may quote the current
annualized yield of one or more of the Subaccounts (except the Money Market
Subaccount) for 30-day or one-month periods. The annualized yield of a
Subaccount refers to income generated by the Subaccount over a specific 30-day
or one-month period. Because the yield is annualized, the yield generated by a
Subaccount during a 30-day or one-month period is assumed to be generated each
period over a 12-month period.
The yield is computed by dividing: (1) the net investment income of the
Portfolio attributable to the Subaccount's Accumulation Units less Subaccount
expenses for the period; by (2) the maximum offering price per Accumulation Unit
on the last day of the period times the daily average number of Accumulation
Units outstanding for the period. This number is then compounded for a six-month
period and multiplied by 2. Expenses attributable to the Subaccount include the
Annual Administration Fee, the Asset-Based Administration Charge and the
Mortality and Expense Risk Charge. The yield calculation assumes an Annual
Administration Fee of $30 per year per Contract deducted at the end of each
Contract Year. For purposes of calculating the 30-day or one-month yield, an
average administration fee per dollar of the Variable Account Value is used to
determine the amount of the charge attributable to the Subaccount for the 30-day
or one-month period. The 30-day or one-month yield is calculated according to
the following formula:
Yield = 2 (((NI - ES)/(U X UV)) + 1)(6) - 1
Where:
NI = net investment income of the Portfolio for the 30-day or one-month
period attributable to the Subaccount's Accumulation Units.
ES = expenses of the Subaccount for the 30-day or one-month period.
U = the average number of Accumulation Units outstanding.
UV = the unit value at the close of the last day in the 30-day or
one-month period.
A Subaccount's yield is affected by changes in interest rates, the average
portfolio maturity of a Portfolio, the types and quality of portfolio securities
held by the Portfolio, and a Portfolio's operating expenses.
Yield calculations do not take into account the Surrender Charge under the
Contract, which ranges from 6% during the first Contract Year to 1% during the
sixth Contract Year on amounts surrendered or withdrawn under the Contract.
AVERAGE ANNUAL TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns for one or more of the Subaccounts for various
periods of time.
Until a Subaccount has been in operation for 10 years, PLACA will include
quotes of average annual total return for the period measured from the date the
Contracts were first offered for sale. When a Subaccount has been in operation
for 1, 5, and 10 years, respectively, the average annual total return for these
periods will be provided. Average annual total returns for other periods of time
may, from time to 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
S-4
<PAGE> 54
period before any contracts were registered under the Securities Act of 1933
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.
Average annual total returns will be calculated using Subaccount unit
values based on the performance of the Subaccount's underlying Portfolio, the
deductions for the Mortality and Expense Risk Charge, the Asset-Based
Administration Charge, and the Annual Administration Fee. The calculation
assumes that the Annual Administration Fee is $30 per year per Contract deducted
at the end of each Contract Year. For purposes of calculating average annual
total return, an average administration fee per ]dollar of the Variable Account
Value is used to determine the amount of the charge attributable to the
Subaccount for the period. The calculation also assumes surrender of the
Contract at the end of the period for the return quotation. Total returns will
therefore reflect a deduction of the Surrender Charge for any period during the
first six Contract Years. The total return will then be calculated according to
the following formula:
TR = ((ERV/P)1/N) - 1
Where:
TR = the average annual total return
ERV = the ending redeemable value (net of Subaccount recurring charges and
any applicable Surrender Charge) of the hypothetical account at the
end of the period.
P = a hypothetical initial payment of $1,000.
N = the number of years in the period.
Based on the foregoing calculations, average annual total return
information for the Subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/99 12/31/99 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998)...... 16.06% 25.80%
All Pro Large Cap Value (May 22, 1998)....... (6.21)% (3.48)%
All Pro Small Cap Growth (May 29, 1998)...... 77.83% 48.50%
All Pro Small Cap Value (May 29, 1998)....... (15.05)% (17.08)%
Equity 500 Index(1) (October 1, 1993)........ 13.20% 26.03% 14.73%
International (April 14, 1992)............... 21.51% 12.65% 11.52%
Growth (April 14, 1992)...................... (3.30)% 15.80% 11.67%
Aggressive Growth (April 14, 1992)........... 8.92% 13.81% 9.62%
Managed (April 14, 1992)..................... (5.41)% 11.88% 9.68%
Bond (April 14, 1992)........................ (9.24)% 5.33% 4.34%
Money Market (April 14, 1992)................ (1.49)% 3.36% 2.82%
</TABLE>
S-5
<PAGE> 55
<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>
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (October 1, 1993)....................... (7.02)% 5.01% 2.93%
Growth and Income (May 8, 1995).............. (0.41)% 15.51%
International (May 8, 1995).................. 45.28% 18.66%
OCC ACCUMULATION TRUST
Equity (September 15, 1994).................. (3.72)% 17.96% 16.34%
Managed (September 15, 1994)................. (1.41)% 17.67% 15.58%
Small Cap (September 15, 1994)............... (7.84)% 6.42% 6.01%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income (May 8, 1995).............. 9.79% 18.28%
Zero Coupon 2000 (October 1, 1993)........... (3.58)% 5.43% 3.30%
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Socially Responsible (May 8, 1995)........... 22.21% 25.98%
FEDERATED INSURANCE SERIES
Fund for U.S. Government Securities II (May
8, 1995).................................. (6.68)% 3.56%
Utility Fund II (May 8, 1995)................ (4.39)% 12.57%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996)................ (13.48)% 0.88%
Worldwide Emerging Markets (July 5, 1996).... 88.33% 3.62%
Worldwide Hard Assets (July 5, 1996)......... 13.66% (6.50)%
Worldwide Real Estate (May 1, 1998).......... (8.01)% (13.82)%
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 1, 1993).............. (0.15)% 16.59% 14.30%
Growth (October 1, 1993)..................... 29.14% 27.59% 21.34%
High Income (October 1, 1993)................ 1.57% 8.91% 7.44%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (October 1, 1993).............. 4.33% 13.64% 10.59%
Contrafund(R) (May 8, 1995).................. 16.73% 23.68%
</TABLE>
- ---------------
(1) As of February 7, 2000, shares of the Market Street Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date a Subaccount
commenced operations. This performance information for the Subaccounts will be
calculated based on the performance of the Portfolios and the assumption that
the Subaccounts were in existence for the same periods as those indicated for
the Portfolios, with the level of Contract charges currently in effect.
S-6
<PAGE> 56
Based on the performance of the Portfolios and these assumptions, 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 PORTFOLIO) 12/31/99 12/31/99 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998)....... 16.06% 21.13%
All Pro Large Cap Value (May 4, 1998)........ (6.21)% (4.13)%
All Pro Small Cap Growth (May 4, 1998)....... 77.83% 40.31%
All Pro Small Cap Value (May 4, 1998)........ (15.05)% (19.17)%
International (November 1, 1991)............. 21.51% 12.65% 9.93%
Growth (December 12, 1985)................... (3.30)% 15.80% 10.84%
Aggressive Growth (May 1, 1989).............. 8.92% 13.81% 12.86%
Managed (December 12, 1985).................. (5.41)% 11.88% 8.29%
Bond (December 12, 1985)..................... (9.24)% 5.33% 5.47%
Money Market (December 12, 1985)............. (1.49)% 3.36% 3.28%
SCUDDER VARIABLE LIFE INSURANCE FUND
Bond (July 17, 1985)......................... (7.02)% 5.01% 5.69%
Growth and Income (May 2, 1994).............. (0.41)% 16.90% 15.56%
International (May 1, 1987).................. 45.28% 18.50% 11.56%
OCC ACCUMULATION TRUST
Equity (September 15, 1994).................. (3.72)% 17.96% 16.34%
Managed (September 15, 1994)................. (1.41)% 17.67% 15.58%
Small Cap (September 15, 1994)............... (7.84)% 6.42% 6.01%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income (May 2, 1994).............. 9.79% 22.24% 18.93%
Zero Coupon 2000 (August 31, 1990)........... (3.58)% 5.43% 7.11%
DREYFUS SOCIALLY RESPONSIBLE FUND, INC.
Socially Responsible (October 7, 1993)....... 22.21% 26.53% 22.29%
FEDERATED INSURANCE SERIES
Fund for U.S. Government Securities II (March
29, 1994)................................. (6.68)% 3.75% 3.48%
Utility Fund II (February 10, 1994).......... (4.39)% 13.29% 10.26%
STRONG VARIABLE INSURANCE FUNDS, INC.
Mid Cap Growth Fund II (December 31, 1996)... 80.14% 43.85%
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)........... (13.48)% 3.15% 3.77%
Worldwide Emerging Markets (December 27,
1995)..................................... 88.33% 7.24%
Worldwide Hard Assets (September 1, 1989).... 13.66% (0.40)% 1.36%
Worldwide Real Estate (June 23, 1997)........ (8.01)% (0.78)%
</TABLE>
S-7
<PAGE> 57
<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>
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 9, 1986).............. (0.15)% 16.59% 12.80%
Growth (October 9, 1986)..................... 29.14% 27.59% 18.21%
High Income (September 19, 1985)............. 1.57% 8.91% 10.76%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (September 6, 1989)............ 4.33% 13.64% 11.46%
Contrafund(R) (January 3, 1995).............. 16.73% 25.40%
</TABLE>
OTHER TOTAL RETURNS
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account the Surrender Charge on amounts surrendered or withdrawn.
Based on this method of calculation, average annual total return
information for the subaccounts is as follows:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF SUBACCOUNT) 12/31/99 12/31/99 THAN 10 YEARS)
- ----------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 29, 1998).......... 23.47% 29.51%
All Pro Large Cap Value (May 22, 1998)........... (0.22)% (0.66)%
All Pro Small Cap Growth (May 29, 1998).......... 89.18% 52.88%
All Pro Small Cap Value (May 29, 1998)........... (9.63)% (14.63)%
Equity 500 Index(1) (October 1, 1993)............ 18.54% 26.26% 14.73%
International (April 14, 1992)................... 27.24% 12.86% 11.52%
Growth (April 14, 1992).......................... 1.25% 16.01% 11.67%
Aggressive Growth (April 14, 1992)............... 14.05% 14.02% 9.62%
Managed (April 14, 1992)......................... (0.95)% 12.08% 9.68%
Bond (April 14, 1992)............................ (4.96)% 5.52% 4.34%
Money Market (April 14, 1992).................... 3.16% 3.55% 2.82%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond (October 1, 1993)........................... (2.64)% 5.20% 2.93%
Growth and Income (May 8, 1995).................. 4.28% 15.96%
International (May 8, 1995)...................... 52.13% 19.13%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... 0.82% 18.17% 16.54%
Managed (September 15, 1994)..................... 3.24% 17.89% 15.78%
Small Cap (September 15, 1994)................... (3.50)% 6.61% 6.19%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income (May 8, 1995).................. 14.96% 18.75%
Zero Coupon 2000 (October 1, 1993)............... 0.96% 5.62% 3.30%
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC.
Socially Responsible (May 8, 1995)............... 27.97% 26.48%
</TABLE>
S-8
<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>
FEDERATED INSURANCE SERIES
Fund for U.S. Government Securities II
(May 8, 1995)................................. (2.28)% 3.97%
Utility Fund II (May 8, 1995).................... 0.11% 13.01%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond (July 5, 1996).................... (9.40)% 1.68%
Worldwide Emerging Markets (July 5, 1996)........ 97.21% 4.45%
Worldwide Hard Assets (July 5, 1996)............. 19.02% (5.75)%
Worldwide Real Estate (May 1, 1998).............. (3.67)% (11.39)%
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 1, 1993).................. 4.55% 16.80% 14.30%
Growth (October 1, 1993)......................... 35.23% 27.82% 21.34%
High Income (October 1, 1993).................... 6.35% 9.11% 7.44%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (October 1, 1993).................. 9.25% 13.84% 10.59%
Contrafund(R) (May 8, 1995)...................... 22.23% 24.17%
</TABLE>
- ---------------
(1) As of February 7, 2000, shares of the Market Street Equity 500 Index
Portfolio were substituted for shares of the Variable Insurance Products
Fund II Index 500 Portfolio.
Based on the foregoing method of calculation, average annual total return
information is as follows assuming that the Subaccounts were in existence during
the same periods as those above stated for the Portfolios:
<TABLE>
<CAPTION>
FOR THE 10-YEAR PERIOD
ENDED 12/31/99
FOR THE 1-YEAR FOR THE 5-YEAR (OR DATE OF
PERIOD ENDED PERIOD ENDED INCEPTION IF LESS
SUBACCOUNT (INCEPTION DATE OF PORTFOLIO) 12/31/99 12/31/99 THAN 10 YEARS)
- ---------------------------------------- -------------- -------------- ----------------------
<S> <C> <C> <C>
MARKET STREET FUND, INC.
All Pro Large Cap Growth (May 4, 1998)........... 23.47% 24.54%
All Pro Large Cap Value (May 4, 1998)............ (0.22)% (1.42)%
All Pro Small Cap Growth (May 4, 1998)........... 89.18% 44.26%
All Pro Small Cap Value (May 4, 1998)............ (9.63)% (16.89)%
International (November 1, 1991)................. 27.24% 12.86% 9.93%
Growth (December 12, 1985)....................... 1.25% 16.01% 10.84%
Aggressive Growth (May 1, 1989).................. 14.05% 14.02% 12.86%
Managed (December 12, 1985)...................... (0.95)% 12.08% 8.29%
Bond (December 12, 1985)......................... (4.96)% 5.52% 5.08%
Money Market (December 12, 1985)................. 3.16% 3.55% 3.28%
SCUDDER VARIABLE LIFE INSURANCE FUND
Bond (July 17, 1985)............................. (2.64)% 5.20% 5.69%
Growth and Income (May 2, 1994).................. 4.28% 17.11% 15.75%
International (May 1, 1987)...................... 52.13% 18.71% 11.56%
OCC ACCUMULATION TRUST
Equity (September 15, 1994)...................... 0.82% 18.17% 16.54%
Managed (September 15, 1994)..................... 3.24% 17.89% 15.78%
Small Cap (September 15, 1994)................... (3.50)% 6.61% 6.19%
DREYFUS VARIABLE INVESTMENT FUND
Growth and Income (May 2, 1994).................. 14.96% 19.12%
Zero Coupon 2000 (August 31, 1990)............... 0.96% 5.62% 7.11%
</TABLE>
S-9
<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>
DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. FUND
Socially Responsible (October 7, 1993)........... 27.97% 26.76% 22.29%
FEDERATED INSURANCE SERIES
Fund for U.S. Government Securities II
(March 29, 1994).............................. (2.28)% 3.94% 3.64%
Utility Fund II (February 10, 1994).............. 0.11% 13.49% 10.43%
STRONG VARIABLE INSURANCE FUNDS, INC.
Mid Cap Growth Fund II (December 31, 1996)....... 87.14% 44.81%
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)............... (9.40)% 3.34% 3.77%
Worldwide Emerging Markets (December 27, 1995)... 97.21% 7.69%
Worldwide Hard Assets (September 1, 1989)........ 19.02% (0.22)% 1.36%
Worldwide Real Estate (June 23, 1997)............ (3.67)% 0.67%
VARIABLE INSURANCE PRODUCTS FUND
Equity-Income (October 9, 1986).................. 4.55% 16.80% 12.80%
Growth (October 9, 1986)......................... 35.23% 27.82% 18.21%
High Income (September 19, 1985)................. 6.35% 9.11% 10.76%
VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (September 6, 1989)................ 9.25% 13.84% 11.46%
Contrafund(R) (January 3, 1995).................. 22.23% 25.86%
</TABLE>
We may also disclose cumulative total returns in conjunction with the
standard formats described above. The cumulative total returns will be
calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = the Cumulative Total Return for the period.
ERV = the ending redeemable value (net of Subaccount recurring charges) of
the hypothetical account at the end of the period.
P = a hypothetical initial payment of $1,000.
EFFECT OF THE ADMINISTRATION FEE ON PERFORMANCE DATA
The Contract provides for a $30 Annual Administration Fee to be deducted
annually at the end of each Contract Year, from the Subaccounts and the
Guaranteed Account based on the proportion that the value of each account bears
to the total Contract Account Value. For purposes of reflecting the Annual
Administration Fee in yield and total return quotations, this annual charge is
converted into a per-dollar per-day charge based on a Contract Account Value in
the Variable Account of $10,000 on the last day of the period for which
quotations are provided. The per-dollar per-day average charge will then be
adjusted to reflect the basis upon which the particular quotation is calculated.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares
to the Variable Account contain varying provisions regarding termination. The
following summarizes those provisions:
Market Street Fund, Inc. This agreement provides for termination: (1) on
one year's advance notice by any party; (2) at our option if shares of the Fund
are not reasonably available to meet the requirements
S-10
<PAGE> 60
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.
Scudder Variable Life Investment Fund. This agreement provides for
termination: (1) one hundred twenty (120) days after the renegotiation date if
the Fund and we fail, within sixty (60) days after the renegotiation date, to
agree to continue or amend the agreement; (2) at our option or the Fund's option
if no shares of the Fund are owned by us, the Variable Account, an affiliated
insurance company or a separate account of an affiliated insurance company; or
(3) upon determination that an irreconcilable conflicts exists between the
interest of owners of the Contracts and variable insurance products of all
separate accounts or the interests of participating insurance companies
investing in the Fund.
OCC Accumulation Trust. This agreement provides for termination: (1) on
one (1) year's advance written notice by any party; (2) at our option if shares
of the Portfolios 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) at the option of the Fund or
us upon receipt of any necessary regulatory approvals and/or the vote of
contract owners to substitute shares of another mutual fund; (5) at the option
of the Fund or us upon a determination that an irreconcilable material conflict
exists between all contract owners of variable products of all separate accounts
or the interest of participating insurance companies investing in the Fund; (6)
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; (7)
at our option if the Fund is unable to adjust its investments to comply with
applicable state insurance laws or regulations; (8) at the option of any party
upon another party's material breach of any provision of the agreement; (9) at
our option or the Fund's option upon determination 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; or (10) at the Fund's
option in the event any of the Contracts are not issued or sold in accordance
with applicable law.
Dreyfus Variable Investment Fund. This agreement provides for termination:
(1) on 180 days' notice by the Fund or us; (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) at the option of the Fund if it determines
that we have suffered a material adverse change in our business or financial
condition or we are the subject of material adverse publicity; (5) upon
termination of the Investment Advisory Agreement between the Fund and Dreyfus;
(6) in the event the Fund's shares are not registered, issued or sold in
accordance with applicable laws; (7) at the option of the Fund upon a
determination that it is no longer advisable and in the interests of
shareholders to continue the agreement; (8) at the option of the Fund if the
Contracts cease to qualify as annuity contracts under the Code; (9) at the
option of either party upon the other's breach of any material provision of the
agreement; (10) at the option of the Fund, if the Contracts are not registered,
issued or sold in accordance with applicable law; or (11) upon assignment of the
agreement.
Federated Insurance Management Series. This agreement provides for
termination (1) on one hundred eighty (180) days notice by any party; (2) at our
option if shares of the Portfolios are not reasonably available to meet the
requirements of the Variable Contracts; (3) at the option of the Fund or us if
certain enforcement proceedings are instituted against the other; (4) upon the
vote of the Variable Contract owners having an interest in the Separate Accounts
to substitute shares of another investment company for corresponding shares of
the Fund or Portfolio; (5) in the event the shares of a Portfolio are not
registered, issued, or sold in accordance with applicable law, or such law
precludes the use of such shares as the underlying investment media of the
Variable Contracts issued or to be issued; (6) at any
S-11
<PAGE> 61
party's option upon a determination that an irreconcilable conflict between
owners of Variable Contracts and the interests of owners of Variable Contracts
issued by different participating life insurance companies that invest in the
Fund; and (7) at our option if the Fund or Portfolio ceases to qualify as a
regulated investment company under the Code or fails to meet the diversification
requirement thereunder.
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 Investment Trust. This agreement provides for termination: (1) on
six (6) months's prior written notice by any party; (2) at our option if Trust
shares are not available for any reason to meet the requirements of Contracts as
determined by us; (3) at the option of the Trust, its principal underwriter or
us, upon institution of formal proceedings against the broker-dealer(s)
marketing the Contracts, the Variable Accounts, the Trust or us by any
regulatory body; (4) upon a decision by us in accordance with regulations of the
SEC, to substitute Trust shares with the shares of another investment company
for Contracts for which the Trust shares have been selected to serve as the
underlying investment medium; (5) upon assignment of the agreement unless made
with the written consent of each other party; (6) in the event Trust shares are
not registered, issued, or sold in conformance with federal law or such law
precludes the use of Trust shares as an underlying investment medium of
Contracts issued or to be issued by us; (7) at our option by written notice to
the Trust and its principal underwriter with respect to any Portfolio in the
event that the Portfolio fails to meet specified diversification requirements or
if we reasonably believe that the Portfolio may fail to meet those requirements;
(8) at our option by written notice to the Trust and its principal underwriter
if we determine that the Trust or its principal underwriter has suffered a
material adverse change in its business, operations, financial condition, or
prospects since the date of the agreement; or (9) at the option of the Trust or
its principal underwriter by written notice to us, if the Trust or its principal
underwriter has suffered a material adverse change in its business, operations,
financial condition, or prospects since the date of the agreement or is the
subject of material adverse publicity.
Variable Insurance Products Fund and Variable Insurance Products Fund
II. These agreements provide for termination: (1) on six months' advance notice
by any party; (2) at our option if shares of the Fund are not reasonably
available to meet the requirements of the Contracts; (3) at our option if shares
of the Fund are not registered, issued or sold in accordance with applicable
laws, if the Fund ceases to qualify as a regulated investment company under the
Code or fails to meet the diversification requirements thereunder; (4) at the
option of the Fund or its principal underwriter if it determines that we have
suffered material adverse changes in our business or financial conditions or we
are the subject to material adverse publicity; (5) at our option if the Fund has
suffered material adverse changes in its business or financial condition or is
the subject of material adverse publicity; or (6) at the option of the Fund or
its principal underwriter if we decide to make another mutual fund available as
a funding vehicle for the Contracts.
S-12
<PAGE> 62
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 500(R), Standard & Poor's 500 and 500 are
trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by
PLACA and the Market Street Fund, Inc. ("Market Street"). Neither the Contract
nor the Equity 500 Index Portfolio is sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P").
S&P makes no representation or warranty, express or implied, to the Owners
of the Contracts and the Equity 500 Index Portfolio or any member of the public
regarding the advisability of investing in securities generally, or in the
Contracts and the Equity 500 Index Portfolio particularly, or the ability of the
S&P 500 Index to track general stock market performance. S&P's only relationship
to PLACA and Market Street is the licensing of certain trademarks and trade
names of S&P and of the S&P 500 Index which is determined, composed, and
calculated by S&P without regard to PLACA, Market Street, Owners of the
Contracts, or the Equity 500 Index Portfolio. S&P has no obligation to take the
needs of PLACA, Market Street, the Owners of the Contracts or the Equity 500
Index Portfolio into consideration in determining, composing or calculating the
S&P 500 Index. S&P is not responsible for and has not participated in the
determination of the prices and amount of the Contracts or the Equity 500 Index
Portfolio or the timing of the issuance or sale of the Contracts or the Equity
500 Index Portfolio 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, MARKET STREET, OWNERS OF THE
CONTRACTS AND THE EQUITY 500 INDEX PORTFOLIO, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS
OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500 INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
SAFEKEEPING OF ACCOUNT ASSETS
We hold the title to the assets of the Variable Account. The assets in the
Variable Account are legally segregated from our General Account assets and from
the assets in any other separate account.
Records are maintained of all purchases and redemptions of Portfolio shares
held by each of the Subaccounts.
S-13
<PAGE> 63
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 also
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 1940 Act and the regulations thereunder, reports
containing information required under the Act or any other applicable law or
regulation, will be sent to Owners semi-annually at their last known address.
LEGAL MATTERS
James G. Potter, Jr., 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.
FINANCIAL STATEMENTS
This SAI contains the audited statements of assets and liabilities of the
Variable Account as of December 31, 1999 and the related statements of
operations for the year then ended and the statements of changes in net assets
for each of the two years in the period then ended. PricewaterhouseCoopers LLP,
S-14
<PAGE> 64
2400 Eleven Penn Center, Philadelphia, PA, 19103, serves as independent
accountant for the Variable Annuity Separate Account.
Our statements of financial condition as of December 31, 1999 and 1998 and
the related statements of operations, equity, and cash flows for each of the
three years in the period ended December 31, 1999, which are included in this
SAI, should be considered only as bearing on our ability to meet our obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Variable Account.
S-15
<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
<PAGE> 139
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
<TABLE>
<S> <C> <C> <C>
(a) Financial Statements
All required financial statements are included in Part A and Part B of
this Registration Statement.
(1) (a) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Annuity Separate Account and
subaccounts (the Growth; Money Market; Bond; Managed;
Aggressive Growth; and International subaccounts) dated
November 20, 1991.(1)
(b) Unanimous Consent of the Board of Directors of
Providentmutual Life and Annuity Company of America
authorizing additional Subaccounts of the Providentmutual
Variable Annuity Separate Account dated June 7, 1993
(authorizing the establishment of the Fidelity Growth;
Fidelity Equity-Income; Fidelity High Income Bond; Fidelity
Asset Manager; Scudder Bond and Dreyfus Zero Coupon 2000
Bond subaccounts).(1)
(c) Resolution of the Executive Committee of the Board of
Directors of Providentmutual Life and Annuity Company of
America authorizing additional Subaccounts of the
Providentmutual Variable Annuity Separate Account dated
April 13, 1995 (authorizing the establishment of the
Fidelity Contrafund(R); Scudder Growth and Income; Scudder
International; Dreyfus Growth and Income; Dreyfus Socially
Responsible; Federated U.S. Government Bond Fund and
Federated Utility subaccounts).(2)
(d) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account (authorizing the establishment of the Van Eck
Worldwide Emerging Markets subaccount).(2)
(e) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing additional
Subaccounts of the Providentmutual Variable Annuity Separate
Account (authorizing the establishment of the All Pro Large
Cap Value; All Pro Large Cap Growth; All Pro Small Cap Value
and All Pro Small Cap Growth subaccounts).(2)
(2) Not applicable.
(3) (a) Form of Underwriting Agreement among Providentmutual Life
and Annuity Company of America, PML Securities, Inc. and the
Providentmutual Variable Annuity Separate Account.(2)
(b) Form of Selling Agreement between PML Securities, Inc. and
Sentinel Financial Services Company.(2)
(4) (a) Form of Individual Flexible Premium Deferred Variable
Annuity Contract (PL512).(2)
(b) Amendment of Contract Provisions Rider (for Unisex
Contracts) (PL470.13A).(2)
(c) Qualified Plan Rider (PL471).(2)
(d) 403(b) Annuity Loan Rider (PL515).(2)
(e) Death Benefit Rider "Step Up" (PL547).(2)
</TABLE>
C-1
<PAGE> 140
<TABLE>
<S> <C> <C> <C>
(f) Simple IRA Rider (PL549).(2)
(g) SEP IRA Rider (PL550).(2)
(h) Amendment to Qualify Deferred Annuity Contract as an IRA
Rider (PL553).(2)
(i) Amendment to Qualify Deferred Annuity Contract as a TSA
Under 403(b) Rider (PL554).(2)
(j) Amendment for a Charitable Remainder Trust Rider (PL558).(2)
(k) Systematic Withdraw Plan Rider (PL600).(2)
(5) Form of Application and 1717 Capital Management Company
Suitability Statement.(2)
(6) (a) Restated Certificate of Incorporation of Providentmutual
Life and Annuity Company of America.(2)
(b) By-Laws of Providentmutual Life and Annuity Company of
America.(2)
(7) Not applicable.
(8) (a) Participation Agreement among Market Street Fund, Inc.,
Providentmutual Life and Annuity Company of America and PML
Securities, Inc.(2)
(b) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Providentmutual
Life and Annuity Company of America.(3)
(c) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and
Providentmutual Life and Annuity Company of America.(3)
(d) Participation Agreement between Van Eck Investment Trust and
Providentmutual Life and Annuity Company of America.(2)
(e) Participation Agreement among OCC Accumulation Trust,
Providentmutual Life and Annuity Company of America and OCC
Distributors.(1)
(f) Participation Agreement among Scudder Variable Life
Investment Fund, Providentmutual Life and Annuity Company of
America and Scudder Investor Services, Inc.(1)
(g) Participation Agreement among Dreyfus Variable Investment
Fund, Providentmutual Life and Annuity Company of America
and Premier Mutual Fund Services, Inc.(1)
(h) Participation Agreement among Insurance Management Series,
Providentmutual Life and Annuity Company of America and
Federated Securities Corp.(1)
(i) Form of Fund Participation Agreement among Strong Variable
Insurance Funds, Inc., Providentmutual Life and Annuity
Company of America and Strong Investments, Inc.(1)
(j) Service Agreement between Providentmutual Life and Annuity
Company of America and Provident Mutual Life Insurance
Company of Philadelphia.(2)
(k) Support Agreement between Provident Mutual Life Insurance
Company and Providentmutual Life and Annuity Company of
America.(2)
(9) Consent of James G. Potter, Jr., Esquire.
(10) (a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of PricewaterhouseCoopers LLP.
</TABLE>
C-2
<PAGE> 141
<TABLE>
<S> <C> <C> <C>
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule for computation of performance data.(4)
</TABLE>
- ---------------
(1) Filed herewith.
(2) Incorporated herein by reference to post-effective amendment No. 5, filed on
May 1, 1998, File No. 33-65512.
(3) Incorporated herein by reference to post-effective amendment No. 18 to the
Form S-6 registration statement for Provident Mutual Variable Growth
Separate Account, et al., filed on May 1, 1998, File No. 33-2625.
(4) Incorporated herein by reference to post-effective amendment No. 7, filed on
April 30, 1999, File No. 33-65512.
Item 25. Directors and Officers of the Depositor
<TABLE>
<CAPTION>
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITION AND OFFICES WITH DEPOSITOR
------------------------------------ -----------------------------------
<S> <C>
Robert W. Kloss**...................................... President and Director
Mary Lynn Finelli**.................................... Director
Alan F. Hinkle**....................................... Director, Vice President and Actuary
James D. Kestner**..................................... Director
Sarah C. Lange**....................................... Director
Mehran Assadi.......................................... Director
James G. Potter, Jr.**................................. Director, Secretary and Legal Officer
Linda M. Springer**.................................... Director
Joan C. Tucker......................................... Director and Vice President
Michael Funck**........................................ Financial Reporting Officer
Scott V. Carney**...................................... Vice President and Actuary
Rosanne Gatta**........................................ Treasurer
Anthony Giampietro**................................... Assistant Treasurer
Deborah Thiel Hall**................................... Compliance Officer
Timothy P. Henry**..................................... Vice President and Investment Officer
Joseph T. Laudadio..................................... Underwriting Officer
Todd R. Miller**....................................... Assistant Financial Reporting Officer
Stephen L. White**..................................... Vice President and Actuary
</TABLE>
- ---------------
* Unless otherwise indicated, the principal business address is 300
Continental Drive, Newark, DE 19713.
** Principal business address is 1000 Chesterbrook Boulevard, Berwyn, PA
19312-1181.
C-3
<PAGE> 142
Item 26. Persons Controlled by or Under Common Control With the Depositor or
Registrant
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
Provident Mutual Pennsylvania Mutual Company Life & Health Insurance
Life Insurance Company
Providentmutual Life and Delaware Ownership of all Life & Health Insurance
Annuity Company voting securities
of America by Provident Mutual
Provident Mutual International Delaware Ownership of all Life & Health Insurance
Life Insurance Company voting securities
by Provident Mutual
Providentmutual Pennsylvania Ownership of all Holding Company
Holding Company (PHC) voting securities
by Provident Mutual
1717 Capital Management Pennsylvania Ownership of all Broker/Dealer
Company voting securities by
PHC
1717 Brokerage Services, Inc. Pennsylvania Ownership of all voting Insurance Agency
securities by PHC
Market Street Investment Pennsylvania Ownership of all Investment Adviser
Management Company voting securities
by PHC
Washington Square Pennsylvania Ownership of all Administrative Services
Administrative Services, voting securities
Inc. by PHC
Institutional Concepts, Inc. New York Ownership of all Insurance Agency
voting securities
by PHC
Provestco, Inc. Delaware Ownership of all Real Estate Investment
voting securities
by PHC
PNAM, Inc. Delaware Ownership of all Holding Company
voting securities
by PHC
Sigma American Delaware Ownership of 80.2% Investment Management
Corporation voting securities by and Advisory Services
PHC and 19.8% voting
securities by Provident
Mutual
Provident Mutual Delaware Ownership of all Investment Management
Management Co., Inc. voting securities and Advisory Services
by Sigma American
Software Development Pennsylvania Ownership of 100% Development and
Corporation voting securities Marketing of Computer
by PHC Software
Market Street Fund, Inc. Maryland Mutual Fund
</TABLE>
C-4
<PAGE> 143
<TABLE>
<CAPTION>
PERCENT OF VOTING
NAME JURISDICTION SECURITIES OWNED PRINCIPAL BUSINESS
---- ------------ ----------------- ------------------
<S> <C> <C> <C>
Four P Finance Company Pennsylvania Ownership of all
voting securities
by PHC
Covenant Financial Delaware Ownership of all
Services, Inc. voting securities
by PHC
1717 Advisory Services, Inc. Pennsylvania Ownership of all
voting securities
by Covenant Financial
Services
Providentmutual Pennsylvania Ownership of all
Distributors, Inc. voting securities
by Sigma American
Corporation
RF Advisers, Inc. Pennsylvania Ownership of all
voting securities
by Sigma American
Corporation
Delfi Realty Corporation Pennsylvania Ownership of all
voting securities
by Sigma American
Corporation
Providentmutual Pennsylvania Ownership of all
Financial Services, Inc. voting securities
by Providentmutual
Financial Services,
Inc.
</TABLE>
Item 27. Number of Policyowners
As of December 31, 1999 there were a total of 15,401 individual flexible
premium deferred variable annuity contracts (File No. 33-65512)
outstanding -- 5,979 non-qualified and 9,422 qualified.
Item 28. Indemnification
The By-Laws of Providentmutual Life and Annuity Company of America provide,
in part in Article XII, as follows:
ARTICLE XII
INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER PERSONS
Section 12.01. To the fullest extent permitted by law, the Company shall
indemnify any present, former, or future Director, officer,
or employee of the Company or any person who may serve or
has served at its request as officer or Director of another
corporation of which the Company is a creditor or
stockholder, against the reasonable expenses, including
attorneys' fees, necessarily incurred in connection with the
defense of any action, suit or other proceeding to which any
of them is made a party because of service as Director,
officer, or employee of the Company or such other
corporation, or in connection with any appeal therein, and
against any amounts paid by such Director, officer, or
employee in settlement of, or in satisfaction of a judgment
or fine in any
C-5
<PAGE> 144
such action, suit or proceeding, except expenses incurred in
defense of or amounts paid in connection with any action,
suit or other proceeding in which such Director, officer or
employee shall be adjudged to be liable for negligence or
misconduct in the performance of his duty. A judgment
entered in connection with a compromise or dismissal or
settlement of any such action, suit or other proceeding
shall not of itself be deemed an adjudication of negligence
or misconduct. The indemnification herein provided shall not
be exclusive of any other rights to which the persons
indemnified may be entitled.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any such action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 29. Principal Underwriter
(a) 1717 Capital Management Company (1717) is the principal underwriter of
the Contracts as defined in the Investment Company Act of 1940. 1717 is also
principal underwriter for the Market Street Fund, for Providentmutual Variable
Life Separate Account and for the Provident Mutual Variable Life and Annuity
Separate Accounts.
(b) The following information is furnished with respect to the officers and
directors of 1717:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH 1717 WITH DEPOSITOR
------------------ --------------------- ---------------------
<S> <C> <C>
Mary Lynn Finelli**....................... Director Director
Alan F. Hinkle**.......................... Director Director, Vice President and
Actuary
Robert W. Kloss**......................... Director President and Director
James G. Potter, Jr.**.................... Director Director, Secretary and
Legal Officer
Joan C. Tucker............................ Director Director and Vice President
Lance Reihl............................... President None
Louis A. Aviola, Jr. ..................... Vice President and Manager of None
Operations
Rosanne Gatta**........................... Treasurer Treasurer
Anthony Giampietro**...................... Assistant Treasurer Assistant Treasurer
Deborah Thiel Hall**...................... Insurance Compliance Officer Compliance Officer
Anthony Mastrangelo**..................... Assistant Financial Reporting None
Officer
Todd R. Miller**.......................... Assistant Financial Reporting Assistant Financial
Officer Reporting Officer
</TABLE>
C-6
<PAGE> 145
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS ADDRESS* WITH 1717 WITH DEPOSITOR
------------------ --------------------- ---------------------
<S> <C> <C>
Alison Naylor............................. Compliance Officer None
Linda M. Springer**....................... Financial Reporting Officer Director
</TABLE>
- ---------------
* Unless otherwise indicated, principal business address is 300 Continental
Drive, Newark, DE 19713.
** Principal business address is 1000 Chesterbrook Boulevard, Berwyn, PA
19312-1181.
(c) The following commissions and other compensation were received by each
principal underwriter, directly or indirectly, from the Registrant during the
Registrant's last fiscal year:
<TABLE>
<CAPTION>
(1) (2) (5)
NAME OF NET UNDERWRITING (3) (4)
PRINCIPAL DISCOUNTS AND COMPENSATION ON BROKERAGE
UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMPENSATION
- ----------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
1717 N/A None N/A N/A
</TABLE>
Item 30. Location of Accounts and Records
All accounts and records required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder are maintained by PLACA
at 300 Continental Drive, Newark, DE 19713 or at 1000 Chesterbrook Boulevard,
Berwyn, PA 19312-1181.
Item 31. Management Services
All management contracts are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant hereby undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than sixteen
(16) months old for so long as payments under the variable annuity contracts may
be accepted.
(b) Registrant hereby undertakes to include either (1) as part of any
Application to purchase a contract offered by the Prospectus, a space that an
applicant can check to request a Statement of Additional Information, or (2) a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement of Additional
Information; and
(c) Registrant hereby undertakes to deliver any Statement of Additional
Information and any financial statement required to be made available under this
Form promptly upon written or oral request.
(d) Reliance on No-Action Letter Regarding Section 403(b) Retirement Plan.
PLACA and the Variable Account rely on a no-action letter issued by the Division
of Investment Management to the American Council of Life Insurance on November
28, 1988 and represent that the conditions enumerated therein have been or will
be complied with.
REPRESENTATION OF REASONABLENESS
Providentmutual Life and Annuity Company of America hereby represents that
the fees and charges deducted under the Contract, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to be
incurred, and the risks assumed by Providentmutual Life and Annuity Company of
America.
C-7
<PAGE> 146
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE
ACCOUNT CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR EFFECTIVENESS OF
THIS POST-EFFECTIVE AMENDMENT PURSUANT TO RULE 485(B) UNDER THE SECURITIES ACT
OF 1933, AND PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT AND
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA HAVE CAUSED THIS
POST-EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON THEIR
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN NEW CASTLE COUNTY,
STATE OF DELAWARE ON THIS 25 DAY OF APRIL, 2000.
PROVIDENTMUTUAL VARIABLE ANNUITY
SEPARATE ACCOUNT (REGISTRANT)
<TABLE>
<S> <C>
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
---------------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President
</TABLE>
By: PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA (DEPOSITOR)
<TABLE>
<C> <S>
Attest: /s/ JAMES G. POTTER, JR. By: /s/ ROBERT W. KLOSS
-------------------------------------- -------------------------------------------------
ROBERT W. KLOSS
President
</TABLE>
AS REQUESTED BY THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ROBERT W. KLOSS President and Director April 25, 2000
- ------------------------------------------- (Principal Executive Officer)
ROBERT W. KLOSS
/s/ STEPHEN L. WHITE Actuarial Officer April 25, 2000
- ------------------------------------------- (Principal Financial Officer)
STEPHEN L. WHITE
/s/ MICHAEL FUNCK Financial Reporting Officer April 25, 2000
- ------------------------------------------- (Principal Accounting Officer)
MICHAEL FUNCK
* Director April 25, 2000
- -------------------------------------------
MARY LYNN FINELLI
* Director April 25, 2000
- -------------------------------------------
ALAN F. HINKLE
* Director April 25, 2000
- -------------------------------------------
JAMES D. KESTNER
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
* Director April 25, 2000
- -------------------------------------------
SARAH C. LANGE
* Director April 25, 2000
- -------------------------------------------
MEHRAN ASSADI
/s/ JAMES G. POTTER, JR. Director April 25, 2000
- -------------------------------------------
JAMES G. POTTER, JR.
* Director April 25, 2000
- -------------------------------------------
JOAN C. TUCKER
* Director April 25, 2000
- -------------------------------------------
LINDA M. SPRINGER
*By: /s/ JAMES G. POTTER, JR.
- -------------------------------------------
JAMES G. POTTER, JR.
Attorney-in-Fact
Pursuant to Power of Attorney
</TABLE>
<PAGE> 148
POWER OF ATTORNEY
Know all men by these presents:
That I, a member of the Board of Directors of PROVIDENTMUTUAL LIFE &
ANNUITY COMPANY OF AMERICA, do hereby make, constitute and appoint as my true
and lawful attorney in fact, James G. Potter, Jr., for me and in my name, place
and stead to sign the following registration statements and any and all
amendments thereto on behalf of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT filed with the
Securities and Exchange Commission:
Registration Statements for the registration under the Securities Act of
1933 and/or the Investment Company Act of 1940 of certain variable annuity
contracts and variable life insurance policies for the appropriate Separate
Accounts.
Such appointment shall remain valid and in effect for so long as I shall be
a member of the Board of Directors of PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF
AMERICA and for so long as James G. Potter, Jr., shall be an officer of
PROVIDENTMUTUAL LIFE & ANNUITY COMPANY OF AMERICA.
IN WITNESS WHEREOF, I have hereunto set my hand this 21st day of April,
2000.
/s/ MARY LYNN FINELLI
--------------------------------------
Mary Lynn Finelli
/s/ ALAN F. HINKLE
--------------------------------------
Alan F. Hinkle
/s/ JAMES D. KESTNER
--------------------------------------
James D. Kestner
/s/ SARAH C. LANGE
--------------------------------------
Sarah C. Lange
/s/ JOAN C. TUCKER
--------------------------------------
Joan C. Tucker
<PAGE> 149
/s/ LINDA M. SPRINGER
--------------------------------------
Linda M. Springer
/s/ MEHRAN ASSADI
--------------------------------------
Mehran Assadi
<PAGE> 150
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<S> <C> <C>
(1)(a) Resolution of the Board of Directors of Providentmutual Life
and Annuity Company of America authorizing establishment of
the Providentmutual Variable Annuity Separate Account and
subaccounts (the Growth; Money Market; Bond; Managed;
Aggressive Growth and International subaccounts) dated
November 20, 1991.
(b) Unanimous Consent of the Board of Directors of
Providentmutual Life and Annuity Company of America
authorizing additional Subaccounts of the Providentmutual
Variable Annuity Separate Account dated June 7, 1993
(authorizing the establishment of the Fidelity Growth;
Fidelity Equity-Income; Fidelity High Income Bond; Fidelity
Asset Manager; Scudder Bond and Dreyfus Zero Coupon 2000
Bond subaccounts).
(8)(e) Participation Agreement among OCC Accumulation Trust,
Providentmutual Life and Annuity Company of America and OCC
Distributors.
(f) Participation Agreement among Scudder Variable Life
Investment Fund, Providentmutual Life and Annuity Company of
America and Scudder Investor Services, Inc.
(g) Participation Agreement among Dreyfus Variable Investment
Fund, Providentmutual Life and Annuity Company of America
and Premier Mutual Fund Services, Inc.
(h) Participation Agreement among Insurance Management Series,
Providentmutual Life and Annuity Company of America and
Federated Securities Corp.
(i) Form of Fund Participation Agreement among Strong Variable
Insurance Funds, Inc., Providentmutual Life and Annuity
Company of America and Strong Investments, Inc.
(9) Consent of James G. Potter, Jr., Esquire.
(10)(a) Consent of Drinker Biddle & Reath LLP.
(b) Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
</TABLE>
<PAGE> 1
Exhibit (1)(a)
RESOLUTIONS FROM THE PLACA BOARD OF DIRECTORS MEETING ESTABLISHING THE
PROVIDENTMUTUAL VARIABLE ANNUITY SEPARATE ACCOUNT ON NOVEMBER 20, 1991
1. BE IT RESOLVED, that Providentmutual Life and Annuity Company of
America, pursuant to the provisions of Section 406.2 of the
Pennsylvania Insurance Code hereby establishes a separate account
designated as the Providentmutual Variable Annuity Separate Account
(Separate Account) with the following investment divisions: Growth,
Money Market, Bond, Managed, Aggressive Growth and International;
FURTHER RESOLVED, that the President, a Vice President, Secretary,
Treasurer, Assistant Secretary, Legal Officer, or Assistant Legal
Officer each be authorized to take all necessary and appropriate action
to accomplish the registration of the Separate Account as an investment
company under the Investment Company Act of 1940 and the registration
of the variable annuity contracts issued in connection with the
Separate Account as securities under the Securities Act of 1933, and to
take all action necessary to comply with the Acts, including but not
limited to the execution and filing of registration statements and
amendments thereto, applications for exemptions from the provisions of
the Acts as may be necessary or desirable, and agreements for the
management of the Separate Account and for the distribution of variable
annuity contracts carrying an interest in the Separate Account assets;
FURTHER RESOLVED, that the President or a Vice President be and hereby
are authorized to adopt Rules and Regulations for the administration of
the Separate Account;
FURTHER RESOLVED, that the President or a Vice President be, and hereby
are, authorized to take all necessary and appropriate action to effect
an agreement with the Market Street Fund, Inc., for the provision of
services to the Separate Account.
2. BE IT RESOLVED, that the following Standards of Conduct with respect to
investments of the above Separate Account and variable annuity
operations are hereby adopted:
Unless otherwise approved in writing by the insurance commissioner of
the applicable state in advance of the transaction, with respect to the
Separate Account, the Company shall not:
1. Sell to, or purchase from, any such Separate Account
established by the company any securities or other property,
other than variable annuity contracts.
2. Purchase, or allow to be purchased, for such Separate Account,
any securities of which the Company or an affiliate is the
issuer.
<PAGE> 2
3. Accept any compensation, other than a regular salary or wages
from the Company or affiliate, for the sale or purchase of
securities to or from any such Separate Account other than as
provided by law.
4. Engage in any joint transaction, participation or common
undertaking whereby the Company or an affiliate participates
with such Separate Account in any transaction in which the
Company or any of its affiliates obtain an advantage in the
price or quality of the item purchased, in the service
received, or in the cost of such service or is disadvantaged
in any of these respects by the same transaction.
5. Borrow money or securities from such Separate Account other
than under a policy loan provision.
3. BE IT RESOLVED, that the following Standards of Suitability shall apply
to Providentmutual Life and Annuity Company of America, its officers,
directors, employees, affiliates and agents with respect to the
suitability of a variable annuity contract for an applicant for such
contract:
No recommendation shall be made to an applicant to purchase a variable
annuity contract, and no variable annuity contract shall be issued, in
the absence of reasonable grounds to believe that the purchase of such
a contract is not unsuitable for such applicant on the basis of
information furnished after reasonable inquiry into the following
subjects of concern to the applicant:
1) the applicant's insurance and investment objectives;
2) the applicant's financial situation and needs; and
3) other relevant information known to Providentmutual
Life and Annuity Company of America or the agent
making the recommendation.
A copy of this resolution shall be distributed to the officers,
employees, affiliates and agents of this Company.
AND BE IT FURTHER RESOLVED, that the President, a Vice President,
Secretary or other appropriate officer of the Company are hereby
authorized and directed to carry into full force and effect the
purposes and provisions of this resolution.
RESOLVED, that the Certificate of Authority for Providentmutual Life
and Annuity Company of America be amended, where required, to enable
the Company to sell variable annuity contracts;
FURTHER RESOLVED, that the President, Vice-President, Secretary,
Assistant Secretary, Legal Officer or Assistant Legal Officer of the
Company each be and are hereby authorized to take all necessary and
appropriate action to effectuate such amendment.
<PAGE> 1
Exhibit (1)(b)
UNANIMOUS CONSENT OF THE BOARD OF DIRECTORS OF
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
In accordance with Section 141(F) of the Delaware General Corporation
Law, the undersigned Directors of Providentmutual Life and Annuity Company of
America do hereby consent as set forth below:
WHEREAS, the Board of Directors of Providentmutual Life and
Annuity Company of America ("PLACA") established the PROVIDENTMUTUAL
VARIABLE ANNUITY SEPARATE ACCOUNT ("Annuity Account") on May 9, 1991
pursuant to the provisions of Section 406.2 of the Pennsylvania
Insurance Code; and
WHEREAS, PLACA has redomesticated as a Delaware Insurance
Company and is now subject to regulation by the Delaware Insurance
Department; and
WHEREAS, the Annuity Account is now subject to and conforms
with the provisions of Section 2932 of the Delaware Insurance Code; and
WHEREAS, the Annuity Account has six subaccounts - Growth;
Money Market; Bond; Managed; Aggressive Growth and International; and
WHEREAS, PLACA now desires to establish additional
subaccounts, each of which will invest in shares of a designated mutual
fund portfolio and to which net premiums under the contracts shall be
allocated in accordance with instructions received from owners of the
contracts;
NOW, BE IT RESOLVED, that Providentmutual Life and Annuity
Company of America pursuant to the provisions of Section 2932 of the
Delaware Insurance Code hereby does establish and create the following
additional investment Subaccounts of the Annuity Account: FIDELITY
GROWTH SUBACCOUNT; FIDELITY EQUITY-INCOME SUBACCOUNT; FIDELITY INDEX
500 SUBACCOUNT; FIDELITY HIGH INCOME BOND SUBACCOUNT; FIDELITY ASSET
MANAGER SUBACCOUNT; SCUDDER BOND SUBACCOUNT; QUEST FOR VALUE EQUITY
SUBACCOUNT; QUEST FOR VALUE MANAGED SUBACCOUNT; QUEST FOR VALUE SMALL
CAP SUBACCOUNT; AND DREYFUS ZERO COUPON 2000 SUBACCOUNT;
FURTHER RESOLVED that the President or a Vice President be,
and hereby are authorized to take all necessary and appropriate action
to enter into agreements for the sale of shares and to take such other
actions and execute such other agreements as they deem necessary or
desirable to carry out the foregoing resolutions and the intent and
purposes thereof.
<PAGE> 1
Exhibit 8(e)
PARTICIPATION AGREEMENT
By and Among
OCC ACCUMULATION TRUST
And
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA
And
PROVIDENT MUTUAL LIFE INSURANCE COMPANY
And
OCC DISTRIBUTORS
THIS AGREEMENT, effective the 16th day of September, 1994, by
and among PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA ("PLACA"), a
Delaware Corporation, on its own behalf and on behalf of each separate account
of PLACA named in Schedule 1 to this Agreement, as may be amended from time to
time, PROVIDENT MUTUAL LIFE INSURANCE COMPANY ("Provident Mutual"; PLACA and
Provident Mutual hereinafter collectively referred to as the "Company"), a
Pennsylvania Corporation, on its own behalf and on behalf of each separate
account of Provident Mutual named in Schedule 1 to this Agreement (PLACA and
Provident Mutual separate accounts named in Schedule 1 hereinafter individually
referred to as the "PLACA Account" and the "Provident Mutual Account" and
collectively referred to as the "Account"), OCC ACCUMULATION TRUST (formerly
known as Quest for Value Accumulation Trust), an open-end diversified management
investment company organized under the laws of the State of Massachusetts
(hereinafter the
<PAGE> 2
"Fund") and OCC DISTRIBUTORS (formerly known as Quest for Value Distributors), a
Delaware general partnership (hereinafter the "Underwriter").
WHEREAS, the Fund engages in business as an open-end
diversified, management investment company and was established for the purpose
of serving as the investment vehicle for separate accounts established for
variable life insurance contracts and variable annuity contracts to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement (hereinafter "Participating Insurance
Companies"); and
WHEREAS, beneficial interests in the Fund are divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has obtained an order from the Securities &
Exchange Commission (alternatively referred to as the "SEC" or the
"Commission"), dated February 22, 1995 (File No. 812-9290), granting
Participating Insurance Companies and variable annuity separate accounts and
variable life insurance separate accounts relief from the provisions of Sections
9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b)(15) and 6e-3 (T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity separate accounts and variable life insurance
separate accounts of both affiliated and unaffiliated Participating Insurance
Companies and qualified pension and retirement plans (hereinafter the "Mixed and
Shared Funding Exemptive Order"); and
2
<PAGE> 3
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act'); and
WHEREAS, the Company has registered or will register certain
variable annuity contracts (the "Contracts") under the 1933 Act; and
WHEREAS, the PLACA Account and Provident Mutual Account are a
duly organized, validly existing segregated asset accounts, established by
resolution of the Board of Directors of PLACA and Provident Mutual,
respectively, under the insurance laws of the State of Delaware and
Pennsylvania, respectively, to set aside and invest assets attributable to the
Contracts; and
WHEREAS, the Company has registered the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker-dealer with
the SEC under the Securities Exchange Act of 1934, as amended (hereinafter the
"1934 Act'), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios named
in Schedule 2 on behalf of the Account to fund the Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as the Account
at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
3
<PAGE> 4
ARTICLE I. SALE OF FUND SHARES
1.1 The Underwriter agrees to sell to the Company those shares of the
Fund which the Company orders on behalf of the Account, executing such orders on
a daily basis at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company shall be the designee of the Fund for receipt
of such orders from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such order by
10:00 a.m. Eastern Time on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Fund calculates its net asset value pursuant to the rules of the SEC.
1.2 The Company shall pay for Fund shares on the next Business Day
after it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire.
1.3 The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by Participating Insurance
Companies and their separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the SEC; provided, however, that the
Board of Trustees of the Fund (hereinafter the "Directors") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Directors,
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of any Portfolio.
4
<PAGE> 5
1.4 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts,
qualified pension and retirement plans or such other persons as are permitted
under applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"), and regulations promulgated thereunder, the sale
to which will not impair the tax treatment currently afforded the contracts. No
shares of any Portfolio will be sold to the general public.
1.5 The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, and VII of this Agreement are in
effect to govern such sales. The Fund shall make available upon written request
from the Company (i) a list of all other Participating Insurance Companies and
(ii) a copy of the Participation Agreement executed by any other Participating
Insurance Company.
1.6 The Fund agrees to redeem for cash, upon the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For purposes
of this Section 1.6, the Company shall be the designee of the Fund for receipt
of requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided the Fund receives notice of request for
redemption by 10:00 a.m. Eastern Time on the next following Business Day.
Payment shall be in federal funds transmitted by wire to the Company's account
as designated by the Company in writing from time to time, on the same Business
Day the Fund receives notice of the redemption order from the Company except
that the Fund reserves the right to delay payment of redemption
5
<PAGE> 6
proceeds, but in no event may such payment be delayed longer than the period
permitted under Section 22(e) of the 1940 Act. Neither the Fund nor the
Underwriter shall bear any responsibility whatsoever for the proper disbursement
or crediting of redemption proceeds; the Company alone shall be responsible for
such action. If notification of redemption is received after 10:00 a.m. Eastern
Time, payment for redeemed shares will be made on the next following Business
Day.
1.7 The Company agrees to purchase and redeem the shares of the
Portfolios named in Schedule 2 offered by the then current prospectus of the
Fund in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, or in the Company's general account; provided that such amounts may also
be invested in an investment company other than the Fund if (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios of the Fund named in Schedule 2; or (b) the Company gives the
Fund and the Underwriter 45 days written notice of its intention to make such
other investment company available as a funding vehicle for the Contracts; or
(c) such other investment company was available as a funding vehicle for the
Contracts prior to the date of this Agreement and the Company so informs the
Fund and Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents in writing to the use of such other investment company.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Purchase and redemption
6
<PAGE> 7
orders for Fund shares will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish notice as soon as reasonably practicable to
the Company of any income, dividends or capital gain distributions payable on
the Fund's shares. The Company hereby elects to receive all such dividends and
distributions as are payable on the Portfolio shares in the form of additional
shares of that Portfolio. The Company reserves the right to revoke this election
and to receive all such dividends and distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make such net asset value per share available by 5:30 p.m.,
Eastern Time, each business day.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1 The Company represents and warrants that the Contracts are or will
be registered under the 1933 Act and that the Contracts will be issued and sold
in compliance with all applicable federal and state laws. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account as a segregated asset account under applicable state
law and has registered each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as segregated investment accounts
for the Contracts, and that it will maintain such registration for so long as
any Contracts are outstanding. The Company shall
7
<PAGE> 8
amend the registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time as
required in order to effect the continuous offering of the Contracts or as may
otherwise be required by applicable law. The Company shall register and qualify
the Contracts for sale in accordance with the securities laws of the various
states only if and to the extent deemed necessary by the Company.
2.2 The Company represents that it believes that the Contracts are
currently and at the time of issuance will be treated as annuity contracts under
applicable provisions of the Internal Revenue Code and that it will make every
effort to maintain such treatment and that it will notify the Fund and the
Underwriter immediately upon having a reasonable basis for believing that the
Contracts have ceased to be so treated or that they might not be so treated in
the future.
2.3 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is and shall remain
registered under the 1940 Act for as long as the Fund shares are sold. The Fund
shall amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund shall register and qualify the shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Fund or the Underwriter.
2.4 The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and that it
will make every effort to maintain such qualification (under Subchapter M or any
successor or similar
8
<PAGE> 9
provision) and that it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it might
not so qualify in the future.
2.5 The Fund represents that its investment objectives, policies and
restrictions comply with applicable state investment laws as they may apply to
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws and regulations of any state. The
Company alone shall be responsible for informing the Fund of any insurance
restrictions imposed by state insurance laws which are applicable to the Fund.
To the extent feasible and consistent with market conditions, the Fund will
adjust its investments to comply with the aforementioned state insurance laws
upon written notice from the Company of such requirements and proposed
adjustments, it being agreed and understood that in any such case the Fund shall
be allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustment.
2.6 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have its Board of Trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7 The Underwriter represents and warrants that it is a member in good
standing of the National Association of Securities Dealers, Inc., ("NASD") and
is registered as a broker-dealer with the SEC. The Underwriter further
represents that it will sell and distribute the
9
<PAGE> 10
Fund shares in accordance with all applicable federal and state securities laws,
including without limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8 The Fund represents that it is lawfully organized and validly
existing under the laws of Massachusetts and that it does and will comply with
applicable provisions of the 1940 Act.
2.9 The Underwriter represents and warrants that the Fund's Adviser,
OpCap Advisers (formerly known as Quest for Value Advisors), is and shall remain
duly registered under all applicable federal and state securities laws and that
the Adviser will perform its obligations to the Fund in accordance with the laws
of Massachusetts and any applicable state and federal securities laws.
2.10 The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of the Fund
are and continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
includes coverage for larceny and embezzlement and is issued by a reputable
bonding company.
2.11 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, in an amount not less than
$5 million. The aforesaid includes coverage for larceny and embezzlement and is
issued by a reputable bonding company. The Company agrees to make all
10
<PAGE> 11
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING
3.1 The Underwriter shall provide the Company, at the Company's
expense, with as many copies of the Fund's current prospectus as the Company may
reasonably request for use with prospective contractowners and applicants. The
Underwriter shall print and distribute, at the Fund's or Underwriter's expense,
as many copies of said prospectus as necessary for distribution to existing
contractowners or participants. If requested by the Company in lieu thereof, the
Fund shall provide such documentation including a final copy of a current
prospectus set in type at the Fund's expense and other assistance as is
reasonably necessary in order for the Company at least annually (or more
frequently if the Fund prospectus is amended more frequently) to have the new
prospectus for the Contracts and the Fund's new prospectus printed together in
one document. In such case the Fund shall bear its share of expenses as
described above.
In the event the Fund's prospectus is amended or a supplement to the
Fund's current prospectus in the form of a sticker is prepared to reflect a
material change in Fund disclosure due to the actions, activities or affairs of
the Underwriter or Fund investment manager, the cost of reflecting such changes
in the Fund's current prospectus will be borne by the Underwriter.
3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or alternatively from
the Company
11
<PAGE> 12
(or, in the Fund's discretion, the Prospectus shall state that such Statement is
available from the Fund), and the Underwriter (or the Fund) shall provide such
Statement, at its expense, to the Company and to any owner of or participant
under a Contract who requests such Statement or, at the Company's expense, to
any prospective contractowner and applicant who requests such statement.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, if any, reports to shareholders and other communications to
shareholders in such quantity as the Company shall reasonably require and shall
bear the costs of distributing them to existing contractowners, or participants.
3.4 If and to the extent required by law the Company shall:
(i) solicit voting instructions from contractowners or
participants;
(ii) vote the Fund shares held in the Account in
accordance with instructions received from
contractowners or participants; and
(iii) vote Fund shares held in the Account for which no
timely instructions have been received, in the same
proportion as Fund shares of such Portfolio for which
instructions have been received from the Company's
contractowners or participants;
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass through voting privileges for variable contractowners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. Participating Insurance Companies
shall be responsible for assuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with other Participating Insurance Companies.
12
<PAGE> 13
3.5 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular as required, the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further,
the Fund will act in accordance with the SEC interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or the Underwriter, each piece of sales literature or other promotional
material in which the Fund or the Fund's adviser or the Underwriter is named, at
least fifteen business days prior to its use. No such material shall be used if
the Fund or the Underwriter reasonably objects in writing to such use within
fifteen business days after receipt of such material.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or by
the Underwriter, except with the permission of the Fund or the Underwriter. The
Fund and the Underwriter agree to respond to any request for approval on a
prompt and timely basis.
13
<PAGE> 14
4.3 The Fund or the Underwriter shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material in which the Company or its separate account is
named, at least fifteen business days prior to its use. No such material shall
be used if the Company reasonably objects in writing to such use within fifteen
business days after receipt of such material.
4.4 The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to contractowners or participants,
or in sales literature or other promotional material approved by the Company,
except with the permission of the Company. The Company agrees to respond to any
request for approval on a prompt and timely basis.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations
14
<PAGE> 15
for voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or each Account,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE V. FEES AND EXPENSES
5.1 The Fund and Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then, subject to obtaining any required exemptive orders or other
regulatory approvals, the Underwriter may make payments to
15
<PAGE> 16
the Company or to the underwriter for the Contracts if and in amounts agreed to
by the Underwriter in writing. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund of this Agreement
shall be paid by the Fund to the extent permitted by law. All Fund shares will
be duly authorized for issuance and registered in accordance with applicable
federal law and to the extent deemed advisable by the Fund, in accordance with
applicable state law, prior to sale. The Fund shall bear the expenses for the
cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, Fund proxy materials
and reports, setting in type, printing and distributing the prospectuses, the
proxy materials and reports to existing shareholders and contractowners, the
preparation of all statements and notices required by any federal or state law,
all taxes on the issuance or transfer of the Fund's shares, and any expenses
permitted to be paid or assumed by the Fund pursuant to a plan, if any, under
Rule 12b-1 under the 1940 Act.
ARTICLE VI. DIVERSIFICATION
6.1 The Fund will at all times invest money from the Contracts in such
a manner as to ensure that the Contracts will be treated as variable contracts
under the Internal Revenue Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will comply with Section 817(h) of
the Internal Revenue Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations in accordance with guidelines provided by the Company prior to the
execution of this Agreement and as necessary thereafter. In the event of a
breach of this Article VI by the
16
<PAGE> 17
Fund, it will take all reasonable steps (a) to notify the Company of such breach
and (b) to adequately diversify the Fund so as to achieve compliance with the
grace period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1 The Board of Trustees of the Fund (the "Fund Board") will monitor
the Fund for the existence of any material irreconcilable conflict among the
interests of the contractowners of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity contract and variable
life insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof. A majority of the Fund Board shall consist of persons who
are not "interested" persons of the Fund.
7.2 The Company has reviewed a copy of the Mixed and Shared Funding
Exemptive Order, and in particular, has reviewed the conditions to the requested
relief set forth therein. As set forth in the Mixed and Shared Funding Exemptive
Order, the Company will report any potential or existing conflicts of which it
is aware to the Fund Board. The Company
17
<PAGE> 18
agrees to assist the Fund Board in carrying out its responsibilities under the
Mixed and Shared Funding Exemptive Order, by providing the Fund Board with all
information reasonably necessary for the Fund Board to consider any issues
raised. This includes, but is not limited to, an obligation by the Company to
inform the Fund Board whenever contractowner voting instructions are
disregarded. The Fund Board shall record in its minutes or other appropriate
records, all reports received by it and all action with regard to a conflict.
7.3 If it is determined by a majority of the Fund Board, or a majority
of its disinterested Directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contractowners and, as appropriate, segregating the assets of
any appropriate group (i.e., variable annuity contractowners or variable life
insurance contractowners, of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account.
7.4 If the Company's disregard of voting instructions could conflict
with the majority of contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote, the
Company may be required, at the
18
<PAGE> 19
Fund's election, to withdraw the Account's investment in the Fund and terminate
this Agreement with respect to such Account. Any such withdrawal and termination
must take place within 60 days after the Fund gives written notice to the
Company that this provision is being implemented. Until the end of such 60 day
period the Underwriter and Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a particular state insurance regulator's decision applicable to
the Company conflicts with the majority of other state insurance regulators,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement with respect to such Account. Any such withdrawal and
termination must take place within 60 days after the Fund gives written notice
to the Company that this provision is being implemented. Until the end of such
60 day period the Underwriter and Fund shall continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the Fund.
In the event the Fund gives such notice to the Company, the Company may
within 10 days thereof notify the Fund that it has taken action to appeal or
challenge such regulator's decision and that in the opinion of counsel to the
Company there is a reasonable likelihood that the Company will get the relief
sought. Such Company action will toll the 60 day period until the Company
notifies the Fund of the final disposition of its appeal or challenge.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Fund Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or OpCap Advisors be required to establish a new
funding medium for the Contracts. The Company shall
19
<PAGE> 20
not be required by Section 7.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
contractowners materially adversely affected by the irreconcilable material
conflict.
7.7 The Company shall at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so that the
Fund Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and data
shall be submitted more frequently if deemed appropriate by the Fund Board.
7.8 If and to the extent that Rule 6e-2 and Rule 6e-3 (T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Mixed and Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3 (T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4,
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
20
<PAGE> 21
ARTICLE VIII. INDEMNIFICATION
8.1 Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter, and each of the Fund's or the Underwriter's directors, officers,
employees or agents and each person, if any, who controls or is associated with
the Fund or the Underwriter within the meaning of such terms under the federal
securities laws (collectively, the "indemnified parties" for purposes of this
Section 8. 1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or litigation (including reasonable legal and other expenses), to which the
indemnified parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made; provided that this agreement to
indemnify shall not apply as to any indemnified party
if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the
Company by or on behalf of the Fund for use in the
registration statement, prospectus or statement of
additional information for the Contracts or in the
Contracts or sales literature or other promotional
material for the Contracts (or any amendment or
supplement) or otherwise for use in connection with
the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations by or on behalf of the Company (other
than statements or representations contained in the
Fund registration statement, Fund prospectus,
21
<PAGE> 22
Fund statement of additional information or sales
literature or other promotional material of the Fund
not supplied by the Company or persons under its
control) or wrongful conduct of the Company or
persons under its control, with respect to the sale
or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, Fund prospectus, statement of
additional information or sales literature or other
promotional material of the Fund or any amendment
thereof or supplement thereto or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statements therein not misleading in light of the
circumstances in which they were made, if such a
statement or omission was made in reliance upon and
in conformity with information furnished to the Fund
by or on behalf of the Company or persons under its
control; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials or to
make any payments under the terms of this Agreement;
or
(v) arise out of any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any
other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Company may
otherwise have.
(b) No party shall be entitled to indemnification if such loss, claim,
damage, liability or litigation is due to the willful misfeasance, bad faith,
gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
22
<PAGE> 23
8.2 Indemnification By the Underwriter
(a) The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors, officers, employees or agents and each person, if
any, who controls or is associated with the Company within the meaning of such
terms under the federal securities laws (collectively, the "indemnified parties"
for purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Underwriter) or litigation (including reasonable legal and other expenses)
to which the indemnified parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material of
the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made; provided that this agreement to
indemnify shall not apply as to any indemnified party
if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company
for use in the registration statement, prospectus or
statement of additional information for the Fund or
in sales literature or other promotional material of
the Fund (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or in the
Contract or Fund registration statement, the Contract
or Fund prospectus, statement of additional
information, or sales literature or other promotional
material for the Contracts or of the Fund not
23
<PAGE> 24
supplied by the Underwriter or persons under the
control of the Underwriter) or wrongful conduct of
the Underwriter or persons under the control of the
Underwriter, with respect to the sale or distribution
of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material covering the Contracts (or any
amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading in light of the circumstances in which
they were made, if such statement or omission was
made in reliance upon and in conformity with
information furnished to the Company by or on behalf
of the Underwriter or persons under the control of
the Underwriter; or
(iv) arise as a result of any failure by the Underwriter
to provide the services and furnish the materials
under the terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Underwriter;
except to the extent provided in Sections 8.2(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Underwriter may
otherwise have.
(b) No party shall be entitled to indemnification if such loss, claim,
damage, liability or litigation is due to the willful misfeasance, bad faith,
gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Underwriter of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Contracts or the operation of the Account.
24
<PAGE> 25
8.3 Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees or agents and each person, if any,
who controls or is associated with the Company within the meaning of such terms
under the federal securities laws (collectively, the "indemnified parties" for
purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including reasonable legal and other expenses) to which
the indemnified parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material of
the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made; provided that this agreement to
indemnify shall not apply as to any indemnified party
if such statement or omission or such alleged
statement or omission was made in reliance upon and
in conformity with information furnished to the Fund
by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Fund or in sales
literature or other promotional material of the Fund
(or any amendment or supplement thereto) or otherwise
for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Contracts or in the
Contract or Fund registration statement, the Contract
or Fund prospectus, statement of additional
information, or sales literature or other promotional
material for the Contracts or of the Fund not
25
<PAGE> 26
supplied by the Fund or persons under the control of
the Fund) or wrongful conduct of the Fund or persons
under the control of the Fund, with respect to the
sale or distribution of the Contracts or Fund shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material covering the Contracts (or any
amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading in light of the circumstances in which
they were made, if such statement or omission was
made in reliance upon and in conformity with
information furnished to the Company by or on behalf
of the Fund or persons under the control of the Fund,
or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise,
to comply with the diversification requirements and
procedures related thereto specified in Article VI of
this Agreement except if such failure is a result of
the Company's failure to comply with the notification
procedures specified in Article VI); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
except to the extent provided in Sections 8.3(b) and 8.4 hereof. This
indemnification shall be in addition to any liability which the Fund may
otherwise have.
(b) No party shall be entitled to indemnification if such loss, claim,
damage, liability or litigation is due to the willful misfeasance, bad faith,
gross negligence or reckless disregard of duty by the party seeking
indemnification.
(c) The indemnified parties will promptly notify the Fund of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
26
<PAGE> 27
8.4 Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("indemnifying party" for the purpose of this Section 8.4) shall not be liable
under the indemnification provisions of this Article VIII with respect to any
claim made against a party entitled to indemnification under this Article VIII
("indemnified party" for the purpose of this Section 8.4) unless such
indemnified party shall have notified the indemnifying party in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
indemnified party (or after such party shall have received notice of such
service on any designated agent), but failure to notify the indemnifying party
of any such claim shall not relieve the indemnifying party from any liability
which it may have to the indemnified party against whom such action is brought
under the indemnification provision of this Article VIII, except to the extent
that the failure to notify results in the failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
failure to give such notice. In case any such action is brought against the
indemnified party, the indemnifying party will be entitled to participate, at
its own expense, in the defense thereof. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the indemnifying party to the indemnified
party of the indemnifying party's election to assume the defense thereof, the
indemnified party shall bear the fees and expenses of any additional counsel
retained by it, and the indemnifying party will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation, unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii)
27
<PAGE> 28
the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its written consent
but if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or judgment.
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
8.5 Contribution
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Article VIII is
due in accordance with its terms but for any reason is held to be unenforceable
with respect to a party entitled to indemnification ("indemnified party" for
purposes of this Article VIII, Section 8.5) pursuant to the terms of this
Article VIII, then each party obligated to indemnify pursuant to the terms of
this Article VIII shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities and
litigations in such proportion as is appropriate to reflect the relative
benefits received by the parties to this Agreement in connection with the
offering of Fund shares to the Account and the acquisition, holding or sale of
Fund shares by the Account, or if such allocation is not permitted by applicable
law, in such proportions as is appropriate to reflect the relative net benefits
referred to above but also the relative fault of the parties to this
28
<PAGE> 29
Agreement in connection with any actions that lead to such losses, claims,
damages, liabilities or litigations, as well as any other relevant equitable
considerations.
Any person obligated in contribution under this Article VIII
("contributing party" for purpose of this Section 8.5) will not be liable under
the contribution provisions of this Article VIII with respect to any claim made
against a party entitled to such contribution unless the party seeking
contribution shall have notified the party from whom contribution is sought, and
that party will have the same rights, obligations and protection as if that
party was an indemnifying party under Section 8.4, hereof.
ARTICLE IX. APPLICABLE LAW
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2 This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. TERMINATION
10.1 This Agreement shall terminate:
(a) at the option of any party upon one-year advance written notice to
the other parties unless otherwise agreed in a separate written agreement among
the parties; or
29
<PAGE> 30
(b) at the option of the Company if shares of the Portfolios
delineated in Schedule 2 are not reasonably available to meet the requirements
of the Contracts as determined by the Company, or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of any state
or any other regulatory body regarding the Company's duties under this Agreement
or related to the sale of the Contracts, the administration of the Contracts,
the operation of the Account, or the purchase of the Fund shares, which would
have a material adverse effect on the Company's ability to perform its
obligations under this Agreement; or
(d) at the option of the Company upon institution of formal
proceedings against the Fund or the Underwriter by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body, which
would have a material adverse effect on the Fund's or the Underwriter's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of another
investment company for the corresponding Portfolio shares of the Fund in
accordance with the terms of the Contracts for which those Portfolio shares had
been selected to serve as the underlying investment media. The Company will give
30 days prior written notice to the Fund of the date of any proposed vote or
other action taken to replace the Fund's shares; or
(f) at the option of the Company or the Fund upon a determination by a
majority of the Fund Board, or a majority of the disinterested Fund Board
members, that an
30
<PAGE> 31
irreconcilable material conflict exists among the interests of (i) all
contractowners of variable insurance products of all separate accounts or (ii)
the interests of the Participating Insurance Companies investing in the Fund as
delineated in Article VII of this Agreement; or
(g) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code, or
under any successor or similar provision, or if the Company reasonably believes
that the Fund may fail to so qualify; or
(h) at the option of the Company if the Fund is unable to adjust its
investments to comply with the state insurance laws or regulations which are
applicable to the Fund.
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof, or
(j) at the option of any party to this Agreement, upon another party's
material breach of any provision of this Agreement; or
(k) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Company; or
(l) at the option of the Fund or Underwriter, if the Fund or
Underwriter respectively, shall determine in its sole judgment exercised in good
faith, that the Company has
31
<PAGE> 32
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material adverse
publicity which is likely to have a material adverse impact upon the business
and operations of the Fund or Underwriter; or
(m) at the option of the Fund in the event any of the Contracts are
not issued or sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence without notice.
10.2 Notice Requirement
(a) In the event that any termination of this Agreement is based upon
the provisions of Article VII, such prior written notice shall be given in
advance of the effective date of termination as required by such provisions.
(b) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(b) - (d) or 10.1(g) - (j), prompt written notice
of the election to terminate this Agreement for cause shall be furnished by the
party terminating the Agreement to the non-terminating parties, with said
termination to be effective upon receipt of such notice by the non-terminating
parties.
(c) In the event that any termination of this Agreement is based upon
the provisions of Sections 10.1(k) or 10.1(l), prior written notice of the
election to terminate this Agreement for cause shall be furnished by the party
terminating this Agreement to the non-terminating parties. Such prior written
notice shall be given by the party terminating this Agreement to the
non-terminating parties at least 30 days before the effective date of
termination.
32
<PAGE> 33
10.3 It is understood and agreed that the right to terminate this
Agreement pursuant to Section 10.1(a) may be exercised for any reason or for no
reason.
10.4 Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant to
Section 10.1 of this Agreement, and subject to Section 1.3 of this Agreement,
the Company may require the Fund and the Underwriter to, continue to make
available additional shares of the Fund for so long after the termination of
this Agreement as the Company desires pursuant to the terms and conditions of
this Agreement as provided in paragraph (b) below, for all Contracts in effect
on the effective date of termination of this Agreement (hereinafter referred to
as "Existing Contracts"). Specifically, without limitation, the owners of the
Existing Contracts shall be permitted to reallocate investments in the Fund,
redeem investments in the Fund and/or invest in the Fund upon the making of
additional purchase payments under the Existing Contracts. The parties agree
that this Section 10.4 shall not apply to any terminations under Article VII and
the effect of such Article VII terminations shall be governed by Article VII of
this Agreement.
(b) If shares of the Fund continue to be made available after
termination of this Agreement pursuant to this Section 10.4, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and thereafter
the Fund, the Underwriter, or the Company may terminate the Agreement, as so
continued pursuant to this Section 10.4, upon written notice to the other party,
such notice to be for a period that is reasonable under the circumstances but,
if given by the Fund or Underwriter, need not be for more than 90 days.
10.5 Except as necessary to implement contractowner initiated or
approved transactions, or as required by state insurance laws or regulations,
the Company shall not redeem
33
<PAGE> 34
Fund shares attributable to the Contracts (as opposed to Fund shares
attributable to the Company's assets held in the Account), and the Company shall
not prevent contractowners from allocating payments to a Portfolio that was
otherwise available under the Contracts, until 90 days after the Company shall
have notified the Fund or Underwriter of its intention to do so.
ARTICLE XI. NOTICES
Any notice shall be deemed duly given only if sent by hand, evidenced
by written receipt or by certified mail, return receipt requested, to the other
party at the address of such party set forth below or at such other address as
such party may from time to time specify in writing to the other party. All
notices shall be deemed given three business days after the date received or
rejected by the addressee.
If to the Fund:
Mr. Bernard H. Garil
President
OpCap Advisors
200 Liberty Street
New York, NY 10281
If to the Company:
Mr. Adam Scaramella
Counsel
Provident Mutual Life Insurance Company
1600 Market Street
Philadelphia, PA 19103
If to the Underwriter:
Mr. Thomas E. Duggan
Secretary
OCC Distributors
200 Liberty Street
New York, NY 10281
34
<PAGE> 35
ARTICLE XII. MISCELLANEOUS
12.1 All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Directors, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to law and regulatory authority, each party hereto shall
treat as confidential all information reasonably identified as such in writing
by any other party hereto (including without limitation the names and addresses
of the owners of the Contracts) and, except as contemplated by this Agreement,
shall not disclose, disseminate or utilize such confidential information until
such time as it may come into the public domain without the express prior
written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 This Agreement shall not be assigned by any party hereto without
the prior written consent of all the parties.
35
<PAGE> 36
12.7 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit each other and such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.8 Each party represents that the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or trust action, as applicable, by
such party and when so executed and delivered this Agreement will be the valid
and binding obligation of such party enforceable in accordance with its terms.
12.9 The parties to this Agreement may amend the schedules to this
Agreement from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date and year first written above.
Company:
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
SEAL By: /s/ Illegible
-----------------------------
36
<PAGE> 37
PROVIDENTMUTUAL LIFE INSURANCE
COMPANY
SEAL By: /s/ Illegible
-----------------------------
Fund:
OCC ACCUMULATION TRUST
SEAL By: /s/ Thomas E. Duggan
-----------------------------
Thomas E. Duggan
Underwriter:
OCC DISTRIBUTORS
SEAL By: /s/ Illegible
-----------------------------
37
<PAGE> 38
SCHEDULE 1
Participation Agreement
Among
OCC Accumulation Trust,
Providentmutual Life and Annuity Company of America,
Provident Mutual Life Insurance Company
and
OCC Distributors
The following separate accounts of Providentmutual Life and Annuity
Company of America and Provident Mutual Life Insurance Company, respectively,
are permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
(i) Providentmutual Life And Annuity Company of America:
- Providentmutual Variable Annuity Separate Account
(ii) Provident Mutual Life Insurance Company:
- Provident Mutual Variable Annuity Separate Account
September 16, 1994
<PAGE> 39
SCHEDULE 2
Participation Agreement
Among
OCC Accumulation Trust,
Providentmutual Life and Annuity Company of America,
Provident Mutual Life Insurance Company
and
OCC Distributors
The Separate Account(s) shown on Schedule 1 may invest in the following
Portfolios of OCC Accumulation Trust:
Equity Portfolio
Managed Portfolio
Small Cap Portfolio
September 16, 1994
<PAGE> 1
Exhibit 8(f)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts, PROVIDENT MUTUAL LIFE
INSURANCE COMPANY OF PHILADELPHIA ("PMLIC"), a Pennsylvania corporation, with a
principal place of business in Philadelphia, Pennsylvania, and PROVIDENTMUTUAL
LIFE AND ANNUITY COMPANY OF AMERICA ("PLACA"), a Delaware corporation, with a
principal place of business in Newark, Delaware (together, the "Company"), on
behalf of the Provident Mutual Variable Annuity Separate Account, a separate
account of PMLIC, and Providentmutual Variable Annuity Separate Account, a
separate account of PLACA, and any other separate account of the Company as
designated by the Company from time to time, upon written notice to the Fund in
accordance with Section 10 herein (the "Account").
WHEREAS, PLACA is a wholly-owned subsidiary of PMLIC; and
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable annuity
contracts (collectively referred to herein as "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies") and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series of
Shares may be established, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities; and
<PAGE> 2
WHEREAS, it is in the best interest of Participating Insurance
companies to make capital contributions if required so that the annual expenses
of each Portfolio of the Fund in which a Participating Insurance Company is a
shareholder will not exceed a fixed percentage of the Portfolio's average annual
net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall
mean the expenses for such fiscal year as shown in the Statement of Operations
(or similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the year
for the purpose of determining net asset value per Share, divided by the number
of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of the
Account in respect of a Portfolio for any fiscal year shall mean an amount equal
to the expenses of that Portfolio for such year minus the below-indicated
percentage of that Portfolio's average daily net assets for the year:
<TABLE>
<S> <C>
International Portfolio......................... 1.50%
Each other Portfolio............................ 0.75%
</TABLE>
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily net
asset value of the Shares of that Portfolio owned by the Account (referred to
herein as a "Participating Shareholder"). The Company's
-2-
<PAGE> 3
Required Contribution in respect of a Portfolio shall be pro-rated based on the
number of business days on which this Agreement is in effect for periods of less
than a fiscal year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean the
greater of (i) $500,000 or (ii) the sum of the aggregate net asset values of the
Shares so owned determined during the fiscal year, as of each determination of
the net asset value per Share, divided by the total number of determinations of
net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of the Account shall, within sixty days after the
end of each fiscal year of the Fund, make a capital contribution to the Fund in
respect of each Portfolio equal to the Required Contribution for that Portfolio
for such year; provided, however, that in the event that both clauses (i) and
(ii) of paragraph (d) of Section 1 of this Agreement or similar agreements are
applicable to different Participating Insurance Companies during the same fiscal
year, there shall be a proportionate reduction of the Required Contribution of
each Participating Insurance Company to which said clause (ii) is applicable so
that the total of all required capital contributions to the Fund on behalf of
any Portfolio is not greater than the excess of the expenses of that Portfolio
for that fiscal year less the percentage of that Portfolio's total expenses set
forth in paragraph (c) of Section 1 of this Agreement for such fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the applicable
net asset value per Share by Participating Insurance Companies and their
affiliates and separate accounts on those
-3-
<PAGE> 4
days on which the Fund calculates its net asset value pursuant to rules of the
Securities and Exchange Commission; provided, however, that the Trustees of the
Fund may refuse to sell Shares of any Portfolio to any person, or suspend or
terminate the offering of Shares of any Portfolio, if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees, necessary in the best interest of the shareholders
of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to each
Participating Insurance Company which has executed an Agreement and which
Agreement has not been terminated pursuant to Paragraph 8(i) a list of all other
Participating Insurance Companies, and (ii) a copy of the Agreement as executed
by any other Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8, the net asset value of any Portfolio of
the Fund as of any date upon which the Fund calculates the net asset value of
its Portfolios for the purpose of purchase and redemption of Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund
and each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages,
-4-
<PAGE> 5
liabilities or litigation (including legal and other expenses), arising out of
the acquisition of any Shares by any person, to which the Fund or such Trustees,
officers or controlling person may become subject under the Act, under any other
statute, at common law or otherwise, which (i) may be based upon any wrongful
act by the Company, any of its employees or representatives, any affiliate of or
any person acting on behalf of the Company or a principal underwriter of its
insurance products, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement or
prospectus covering Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or any
insurance company which is an affiliate thereof, or any amendments or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, unless such statement or omission was made in reliance
upon information furnished to the Company or such affiliate by or on behalf of
the Fund; provided, however, that in no case (i) is the Company's indemnity in
favor of a Trustee or officer or any other person deemed to protect such Trustee
or officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of obligations and duties under this Agreement or (ii) is the Company
to be liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claim made against the Fund or any
-5-
<PAGE> 6
person indemnified unless the Fund or such person, as the case may be, shall
have notified the Company in writing pursuant to Paragraph 10 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund or
upon such person (or after the Fund or such person shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it has to the
Fund or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall be
entitled to participate, at its own expense, in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such liability,
but, if it elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Fund, to its officers and Trustees,
or to any controlling person or persons, defendant or defendants in the suit. In
the event that the Company elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Trustees or controlling person
or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Company
does not elect to assume the defense of any such suit, the Company will
reimburse the Fund, such officers and Trustees or controlling person or persons,
defendant or defendants in such suit, for the reasonable fees and expenses of
any counsel retained by them. The Company agrees promptly to notify the Fund
pursuant to Paragraph 10 of the commencement of any litigation or proceedings
against it in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all losses,
claims, damages, liabilities or
-6-
<PAGE> 7
litigation (including legal and other expenses) to which it or such directors,
officers or controlling person may become subject under the Act, under any other
statute, at common law or otherwise, arising out of the acquisition of any
Shares by any person which (i) may be based upon any wrongful act by the Fund,
any of its employees or representatives or a principal underwriter of the Fund,
or (ii) may be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless such statement or
omission was made in reliance upon information furnished to the Fund by the
Company or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering insurance products sold by the Company, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Fund; provided,
however, that in no case (i) is the Fund's indemnity in favor of a director or
officer or any other person deemed to protect such director or officer or other
person against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is the Fund to be liable under its
indemnity agreement contained in this Paragraph 5 with respect to any claims
made against the Company or any such director, officer or controlling person
unless it or such director, officer or controlling person, as the case may be,
shall have notified the Fund in writing pursuant to
-7-
<PAGE> 8
Paragraph 10 within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon it or upon such director, officer or controlling person (or after the
Company or such director, officer or controlling person shall have received
notice of such service on any designated agent), but failure to notify the Fund
of any claim shall not relieve it from any liability which it may have to the
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this Paragraph. The Fund will be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the Fund
elects to assume the defense of any such suit and retain such counsel, the
Company, its directors, officers or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Fund does not elect to assume the
defense of any such suit, it will reimburse the Company or such directors,
officers or controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The Fund
agrees promptly to notify the Company pursuant to Paragraph 10 of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any Shares.
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of
the Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable Insurance
Products (the "Participants") of all separate accounts
-8-
<PAGE> 9
investing in the Fund. An irreconcilable material conflict may arise, among
other things, from: (a) an action by any state insurance regulatory authority;
(b) a change in applicable insurance laws or regulations; (c) a tax ruling or
provision of the Internal Revenue Code or the regulations thereunder; (d) any
other development relating to the tax treatment of insurers, contract holders or
policy owners or beneficiaries of Variable Insurance Products; (e) the manner in
which the investments of any Portfolio are being managed; (f) a difference in
voting instructions given by variable annuity contract holders, on the one
hand,. and variable life insurance policy owners, on the other hand, or by the
contract holders or policy owners of different participating insurance
companies; or (g) a decision by an insurer to override the voting instructions
of Participants.
(b) The Company will be responsible for reporting any
potential or existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their responsibilities
under this Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with all
information reasonably necessary for the Trustees to consider the issues raised.
The Fund will also request its investment adviser to report to the Trustees any
such conflict which comes to the attention of the adviser.
(c) If it is determined by a majority of the Trustees of the
Fund, or a majority of its disinterested Trustees, that a material
irreconcilable conflict exists involving the Company, the Fund shall promptly
inform the Company that a material irreconcilable conflict exists. The Company
shall, at its expense, and to the extent reasonably practicable (as determined
by a majority of the disinterested Trustees), take whatever steps are necessary
to eliminate the irreconcilable material conflict, including withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected Participants
-9-
<PAGE> 10
the option of making such a change or establishing a new funding medium
including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict. In the event of a determination of the
existence of an irreconcilable material conflict, the Trustees shall cause the
Fund to take such action, such as the establishment of one or more additional
Portfolios, as they in their sole discretion determine to be in the interest of
all shareholders and Participants in view of all applicable factors, such as
cost, feasibility, tax, regulatory and other considerations. In no event will
the Fund be required by this Paragraph 6(c) to establish a new funding medium
for any variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish a
new funding medium for any variable contract or policy if an offer to do so has
been declined by a vote of a majority of the Participants materially adversely
affected by the material irreconcilable conflict. The Company will recommend to
its Participants that they decline an offer to establish a new funding medium
only if the Company believes it is in the best interest of the Participants.
(d) The Trustees' determination of the existence of an
irreconcilable material conflict and its implications promptly shall be
communicated to all Participating Insurance Companies by written notice thereof
delivered or mailed, first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate account
or accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants permitted
to give instructions and the number of Shares for which instructions may be
given will be determined as of the record date for the Fund
-10-
<PAGE> 11
shareholders' meeting, which shall not be more than 60 days before the date of
the meeting. Whether or not voting instructions are actually given by a
particular Participant, all Fund shares held in any separate account or
sub-account thereof and attributable to policies will be voted for, against, or
withheld from voting on any proposition in the same proportion as (i) the
aggregate record date cash value held in such sub-account for policies giving
instructions, respectively, to vote for, against, or withhold votes on such
proposition, bears to (ii) the aggregate record date cash value held in the
sub-account for all policies for which voting instructions are received.
Participants continued in effect under lapse options will not be permitted to
give voting instructions. Shares held in any other insurance company general or
separate account or sub-account thereof will be voted in the proportion
specified in the second preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date being
hereinafter called a "Renegotiation Date"), and from year to year thereafter
provided that neither the Company nor the Fund shall have given written notice
to the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice"). If a Renegotiation Notice is properly given as
aforesaid and the Fund and the Company shall fail, within sixty (60) days after
the Renegotiation Date, either to enter into an amendment to this Agreement or a
written acknowledgment that the Agreement shall continue in effect, this
Agreement shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at any
time thereafter, redeem the Shares of any Portfolio held by a Participating
Shareholder. The Fund agrees that it
-11-
<PAGE> 12
will not effect such redemption during the period following the Company's filing
of a notice with the Securities and Exchange Commission (the "SEC") to obtain
approval to make a substitution for the Shares provided, however, the Company
has filed such notice with the SEC promptly following the sixtieth day after the
Renegotiation Date. This Agreement may be terminated at any time, at the option
of either of the Company or the Fund, when neither the company, any insurance
company nor the separate account or accounts of such insurance company which is
an affiliate thereof which is not a Participating Insurance Company own any
Shares of the Fund or may be terminated by either party to the Agreement upon a
determination by a majority of the Trustees of the Fund, or a majority of its
disinterested Trustees, following certification thereof by a Participating
Insurance Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and
policyholders of Variable Insurance Products of all separate accounts or (ii)
the interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding anything to the contrary in this Agreement or its termination as
provided herein, the Company's obligation to make a capital contribution to the
Fund in accordance with this Agreement at the time in effect shall continue (i)
following a properly given Renegotiation Notice, in the absence of agreement
otherwise, until termination of this Agreement, and (ii) (except termination due
to the existence of an irreconcilable conflict), following termination of this
Agreement, until the later of the fifth anniversary of the date of this
Agreement or the date on which the company, its separate account(s) or the
separate account(s) of any affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
-12-
<PAGE> 13
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in Section
817(h)(2) of the Code, or (iii) the diversification requirement of Section
817(h)(1) of the Code by having all or part of its assets invested in U.S.
Treasury securities which qualify for the "Special Rule for Investments in
United States Obligations" specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended,
applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Provident Mutual Life Insurance Company of Philadelphia
P.O. Box 7378
Philadelphia, Pennsylvania 19109
Attn:
-13-
<PAGE> 14
and
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1989, as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio shall
be liable for any obligations properly attributable to any other Portfolio.
The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
13. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings and
agreements between the parties hereto with respect to the subject matter hereof.
-14-
<PAGE> 15
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the 21st day of
July, 1993.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/ David B. Watts
---------------------------------
President
SEAL PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
By: /s/ Illegible
---------------------------------
Its: Chairman, President & CEO
--------------------------------
SEAL PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
By: /s/ Alfred F. Wilmouth
---------------------------------
Its: President
--------------------------------
-15-
<PAGE> 16
Scudder Investor Services, Inc.
175 Federal Street
Boston, Massachusetts 02110
PARTICIPATING CONTRACT AND POLICY AGREEMENT
Ladies and Gentlemen:
We (sometimes hereinafter referred to as "Investor Services") are the
Principal Underwriter of shares of Scudder Variable Life Investment Fund (the
"Fund"), a no-load, open-end, diversified registered management investment
company established in 1985 as a Massachusetts business trust. The Fund is a
series fund consisting of the Money Market Portfolio, Bond Portfolio, Capital
Growth Portfolio, Balanced Portfolio and the International Portfolio
(individually or collectively hereinafter referred to as the "Portfolio" or the
"Portfolios"). Additional Portfolios may be created from time to time. The Fund
is the funding vehicle for variable annuity contracts and variable life
insurance policies ("Participating Contracts and Policies") to be offered to the
separate accounts (the "Accounts") of certain life insurance companies
("Participating Insurance Companies"). Owners of Participating Contracts and
Policies will designate a portion of their premium to be invested in insurance
company separate accounts or sub-accounts which invest in, or represent an
investment in, directly or indirectly, shares of beneficial interest ("Shares")
of the Portfolios of the Fund. You are a registered broker-dealer which intends
to offer and sell Participating Contracts and Policies. In connection with such
offer and sale you will be obligated to deliver the prospectuses of such
Participating Contracts and Policies and, contemporaneously therewith, the
prospectus of the Fund. Sales of Shares to Participating Insurance Companies or
their affiliates or the separate accounts of either shall be effected solely by
us as principal underwriter of the Fund, and not by you; provided, however, that
you shall be our agent in connection with the receipt of purchase
<PAGE> 17
orders for Fund Shares and not in connection with their offer and sale. The
relationship between us shall be further governed by the following terms and
conditions:
1. To the extent, if any, that your activities or the activities
of the Participating Insurance Companies in connection with
the sale of Participating Contracts and Policies may
constitute the sale of Shares, you and we agree that (i) we
are the sole "principal underwriter" of the Fund and the sole
"underwriter" of the Shares as those terms are defined in the
Investment Company Act of 1940 (the "1940 Act") and the
Securities Act of 1933 (the "1933 Act"), respectively, and
(ii) neither you nor the Participating Insurance Companies or
the Accounts shall be deemed to be "principal underwriters" of
the Fund or "underwriters" of the Fund within the meaning of
the 1940 Act and the 1933 Act, respectively.
2. You hereby represent and warrant to us as follows:
(a) You are a corporation duly organized and validly
existing in good standing under the laws of the State
of Pennsylvania and have full power and authority to
enter into this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by you and is a valid and binding
obligation enforceable against you in accordance with
its terms.
(c) Your compliance with the provisions of this Agreement
will not conflict with or result in a violation of
the provisions of your charter or by-laws, or any
statute or any judgment, decree, order, rule or
regulation of any court or governmental agency or
body having jurisdiction.
3. We hereby represent and warrant to you as follows:
(a) A registration statement (File No. 2-96461) on Form
N-1A with respect to the Shares (x) has been prepared
by the Fund in conformity with the requirements of
the 1940 Act and the 1933 Act and all applicable
published instructions, rules and regulations (the
"Rules and Regulations") of the securities and
Exchange Commission (the "Commission"), (y) has been
filed with the Commission, and (z) is currently
effective. The registration statement, including
financial statements and exhibits, and the final
prospectus, including the statement of additional
information, as subsequently amended and
supplemented, are herein respectively referred to as
the "Registration Statement" and the "Prospectus."
(b) The Registration Statement and the Prospectus and any
amendment or supplement thereto will contain all
statements required to be stated therein and will
comply in all material respects with the requirements
of the 1940 Act, the 1933 Act and the Rules and
Regulations, and the Registration
-2-
<PAGE> 18
Statement and any post-effective amendment thereto
will not contain or incorporate by reference any
untrue statement of a material fact or omit to state
any material fact required to be stated therein or
necessary to make the statements therein, in light of
the circumstances under which they were made, not
misleading, and the Prospectus and any amendment or
supplement thereto will not contain or incorporate by
reference any untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary in order to make the statements
therein, in light of the circumstances under which
they were made, not misleading.
(c) We are a corporation duly organized and validly
existing in good standing under the laws of The
Commonwealth of Massachusetts and have full power and
authority to enter into this Agreement.
(d) This Agreement has been duly authorized, executed and
delivered by us and is a valid and binding obligation
enforceable against us in accordance with its terms.
(e) Our compliance with all of the provisions of this
Agreement will not conflict with or result in a
violation of the provisions of our charter or
by-laws, or any statute or any judgment, decree,
order, rule or regulation of any court or
governmental agency or body having jurisdiction over
us.
4. You hereby covenant and agree with us as follows:
(a) You shall be an independent contractor and neither
you nor any of your directors, partners, officers or
employees as such, is or shall be an employee of us
or of the Fund. You are responsible for your own
conduct and the employment, control and conduct of
your agents and employees and for injury to such
agents or employees or to others through your agents
or employees.
(b) You or one or more Participating Insurance Companies
will be responsible for insuring compliance with all
applicable laws and regulations of any regulatory
body having jurisdiction over you or Participating
Contracts and Policies.
(c) No person is authorized to make any representations
concerning Shares except those contained in the
prospectus and statement of additional information
relating thereto and in such printed information as
issued by us for use as information supplemental to
the prospectus. In offering Participating Contracts
and Policies you shall, with respect to the Fund and
the shares, rely solely on the representations
contained in the prospectus and statement of
additional information and in the above-mentioned
supplemental information.
-3-
<PAGE> 19
(d) You are not entitled to any compensation whatsoever
from us or the Fund with respect to offers of
Participating Contracts and Policies.
5. We hereby covenant and agree with you as follows:
(a) If, at any time when a prospectus relating to the
Shares is required to be delivered under the 1940
Act, the 1933 Act or the Rules and Regulations, we
become aware of the occurrence of any event as a
result of which the Prospectus as then amended or
supplemented would include any untrue statement of a
material fact, or omit to state a material fact
necessary to make the statements therein, in light of
the circumstances under which made, not misleading,
or if we become aware that it has become necessary at
any time to amend or supplement the Prospectus to
comply with the 1940 Act, the 1933 Act or the Rules
and Regulations, we will promptly notify you and
promptly request the Fund to prepare and to file with
the Commission an amendment to the Registration
Statement or supplement to the Prospectus which will
correct such statement or omission or an amendment or
supplement which will effect such compliance, and
deliver to you copies of any such amendment or
supplement.
(b) We will cooperate with you in taking such action as
may be necessary to qualify the Shares for offering
and sale under the securities or Blue Sky laws of any
state or jurisdiction as you may request and will
continue such qualification in effect so long as is
required by applicable law in connection with the
distribution of Shares.
6. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Shares entirely, as
to any person or generally. We reserve the right to amend this
agreement at any time and you agree that the sale of
Participating Contracts and Policies, after notice of any such
amendment has been sent to you, shall constitute your
agreement to any such amendment.
7. If we elect to provide to you for the purpose of your offering
Participating Contracts and Policies copies of any prospectus
and statement of additional information relating to the Shares
and printed information supplemental thereto, we shall furnish
you with such copies as you reasonably request upon the
payment of reasonable charges therefor by you or one or more
Participating Insurance Companies. If we elect not to provide
such copies of such documents, you or one or more
Participating Insurance companies shall bear the entire cost
of printing copies for your use. You shall not use such copies
of such documents printed by you or one or more Participating
Insurance Companies until you shall have furnished us with a
copy thereof and we either have given you written approval for
use or twenty days shall have elapsed following our receipt
thereof and we have not objected thereto in writing. We agree
not to favor one Participating Insurance Company over another,
and will have a reasonable basis for treating Participating
Insurance Companies in a different manner.
-4-
<PAGE> 20
8. (a) You will indemnify and hold harmless Investor
Services and each of its directors and officers and
each person, if any, who controls Investor Services
within the meaning of Section 15 of the 1933 Act,
against any loss, liability, damages, claim or
expense (including the reasonable cost of
investigating or defending any alleged loss,
liability, damages, claim or expense and reasonable
counsel fees incurred in connection therewith),
arising by reason of any person's acquiring any
Shares, which may be based upon the 1933 Act or any
other statute or common law, and which (i) may be
based upon any wrongful act by you, any of your
employees or representatives, any affiliate of or any
person acting on behalf of you, or (ii) may be based
upon any untrue statement or alleged untrue statement
of a material fact contained in a registration
statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading if such a statement or omission was made
in reliance upon information furnished to us or the
Fund by you, or (iii) may be based on any untrue
statement or alleged untrue statement of a material
fact contained in a registration statement or
prospectus covering insurance products sold by you,
or any amendments or supplement thereto, or the
omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statement or statements therein
not misleading, unless such statement or omission was
made in reliance upon information furnished to you or
a Participating Insurance Company by or on behalf of
Investor Services or the Fund; provided, however,
that in no case (i) is the indemnity by you in favor
of any person indemnified to be deemed to protect
Investor Services or any such person against any
liability to which Investor Services or any such
person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in
the performance of its or his duties or by reason of
its or his reckless disregard of its obligations and
duties under this Agreement, or (ii) are you to be
liable under your indemnity agreement contained in
this paragraph with respect to any claim made against
Investor Services or any person indemnified unless
Investor Services or such person, as the case may be,
shall have notified you in writing within a
reasonable time after the summons or other first
legal process giving information of the nature of the
claim shall have been served upon Investor Services
or upon such person (or after Investor Services or
such person shall have received notice of such
service on any designated agent), but failure to
notify you of any such claim shall not relieve you
from any liability which you may have to Investor
Services or any person against whom such action is
brought otherwise than on account of your indemnity
agreement contained in this paragraph. You shall be
entitled to participate, at your own expense, in the
defense, or, if you so elect, to assume the defense
of any suit brought to enforce any such liability,
but, if you elect to assume the defense, such defense
shall be
-5-
<PAGE> 21
conducted by counsel chosen by you and satisfactory
to Investor Services, or to its officers or
directors, or to any controlling person or persons,
defendant or defendants in the suit. In the event
that you assume the defense of any such suit and
retain such counsel, Investor Services or such
officers or directors or controlling person or
persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel
retained by them, but, in case you do not elect to
assume the defense or any such suit, you shall
reimburse Investor Services and such officers,
directors or controlling person or persons, defendant
of defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. You
agree promptly to notify Investor Services of the
commencement of any litigation or proceedings against
it in connection with the offer, issue and sale of
any shares.
(b) Investor Services will indemnify and hold harmless
you and each of your directors and officers and each
person, if any, who controls you within the meaning
of Section 15 of the 1933 Act, against any loss,
liability, damages, claim or expense (including the
reasonable cost of investigating or defending any
alleged loss, liability, damages, claim or expense
and reasonable counsel fees incurred in connection
therewith), arising by reason of any person's
acquiring any Shares, which may be based upon the
1933 Act or any other statute or common law, and
which (i) may be based upon any wrongful act by
Investor Services, any of its employees or
representatives, or (ii) maybe based upon any untrue
statement or alleged untrue statement of a material
fact contained in a registration statement or
prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading unless such statement or
omission was made in reliance upon information
furnished to Investor Services or the Fund by you or
(iii) may be based on any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement or prospectus covering
insurance products sold by you, or any amendment or
supplement thereto, or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statement
or statements therein not misleading, if such
statement or omission was made in reliance upon
information furnished to you by or on behalf of
Investor Services or the Fund; provided, however,
that in no case (i) is the indemnity by Investor
Services in favor of any person indemnified to be
deemed to protect you or any such person against any
liability to which you or any such person would
otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
performance of your or his duties by reason of your
or his reckless disregard of your or his obligations
and duties under this Agreement, or (ii) is Investor
Services to be liable under its indemnity agreement
contained in this paragraph with respect to any claim
made against you or any person indemnified unless you
or such
-6-
<PAGE> 22
person, as the case may be, shall have notified
Investor Services in writing within a reasonable time
after the summons or other first legal process giving
information of the nature of the claim shall have
been served upon you or upon such person (or after
you or such person shall have received notice of such
service on any designated agent), but failure to
notify Investor Services of any such claim shall not
relieve Investor Services from any liability to which
Investor Services may have to you or any person
against whom such action is brought otherwise than on
account of its indemnity agreement contained in this
paragraph. Investor Services shall be entitled to
participate, at its own expense, in the defense, or,
if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if it
elects to assume the defense, such defense shall be
conducted by counsel chosen by Investor Services and
satisfactory to you, or to your officers or
directors, or to any controlling person or persons,
defendant or defendants in the suit. In the event
that Investor Services assumes the defense of any
such suit and retains such counsel, you or such
officers or directors or controlling person or
persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel
retained by it, but, in case Investor Services does
not elect to assume the defense of any such suit,
Investor Services shall reimburse you and such
officers, directors or controlling person or persons,
defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained
by it. Investor Services agrees promptly to notify
you of the commencement of any litigation or
proceedings against it in connection with the offer,
issue and sale of any Shares.
9. The indemnities, representations, warranties, covenants and
agreements of each party to this Agreement as set forth in
this Agreement will remain in full force and effect regardless
of any investigation made by or on behalf of either of such
parties or any of their respective officers, directors,
partners or any controlling person, and will survive delivery
of and payment for the Shares.
10. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, each
party hereto waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.
11. This Agreement constitutes the entire agreement among the
parties concerning the subject matter hereof, and supersedes
any and all prior understandings.
12. This Agreement shall automatically terminate in the event of
its assignment. This Agreement may be terminated at any time
by either party by written notice given
-7-
<PAGE> 23
to the other party, provided that the obligation of each party
to indemnify the other party pursuant to paragraph 8 hereof
shall apply with respect to any Shares sold before or after
such termination.
13. Any notice hereunder shall be duly given if mailed or
telegraphed to the other party hereto at the address specified
below. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts.
14. This Agreement may be executed in any number of counterparts
which, taken together shall constitute one and the same
instrument. This Agreement shall become effective upon receipt
by us of your acceptance hereof.
15. This Agreement may not be modified or amended except by a
written instrument duly executed by the parties hereto.
SCUDDER INVESTOR SERVICES, INC.
By: /s/ David S. Lee
---------------------------------
Authorized Officer
175 Federal Street
Boston, Massachusetts 02110
The undersigned hereby accepts the
offer set forth in the above letter.
PML SECURITIES COMPANY
Dated: July 21, 1993 By: /s/ Illegible
---------------------------------
Authorized Representative
300 Continental Drive
Newark, Delaware 19713
-8-
<PAGE> 24
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (the "Agreement") made by and between SCUDDER,
STEVENS & CLARK, INC., a Delaware corporation ("SS&C"), with a principal place
of business in Boston, Massachusetts, PROVIDENT MUTUAL LIFE INSURANCE COMPANY OF
PHILADELPHIA ("PMLIC"), a Pennsylvania corporation, with a principal place of
business in Philadelphia, Pennsylvania, and PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA ("PLACA"), a Delaware corporation, with a principal place of
business in Newark, Delaware (together, the "Company"), on behalf of the
Provident Mutual Variable Annuity Separate Account, a separate account of PMLIC,
and Providentmutual Variable Annuity Separate Account, a separate account of
PLACA, and any other separate account of the Company as designated by the
Company from time to time, upon written notice to the Fund in accordance with
Section 9 herein (the "Account").
WHEREAS, PLACA is a wholly-owned subsidiary of PMLIC and
WHEREAS, SS&C has caused to be organized Scudder Variable Life
Investment Fund (the "Fund"), a Massachusetts business trust created under a
Declaration of Trust dated March 15, 1985, as amended, the beneficial interest
in which is divided into several series, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle
for the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into reimbursement agreements substantially identical to this Agreement
("Participating Insurance Companies"); and
<PAGE> 25
WHEREAS, it is in the best interest of the parties hereto for
Participating Insurance Companies, including the Company, to assume a portion of
the organization and other expenses incurred by SS&C in connection with the Fund
during the term of this agreement; and
WHEREAS, the parties desire to express their agreement as to certain
other matters;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For purposes of this Agreement, the following definitions shall apply:
(a) The "average annual net asset value of the Shares of
each Portfolio of the Fund" shall mean the sum of the
aggregate net asset values of the Shares of such
Portfolio owned by the Account (referred to herein as
the "Participating Shareholder") determined as of
each determination of the net asset value per Share
of the Fund during the fiscal year, divided by the
number of such determinations during such year.
(b) "Shares" means shares of beneficial interest, without
par value, of any Portfolio, now or hereafter
created, of the Fund.
2. Initial Reimbursement Fee.
Simultaneously with the execution of this Agreement, the Company on
behalf of the Account has paid to SS&C a fee ("Reimbursement Fee") in the amount
of $10,000 in order partially to defray expenses incurred by SS&C in connection
with the organization of the Fund.
3. Access to Other Products.
SS&C shall permit a Participating Shareholder to participate in any
registered investment company other than the Fund which is intended as the
funding vehicle for insurance products and
-2-
<PAGE> 26
for which SS&C or an affiliate of SS&C acts as investment adviser, on the same
basis as other insurance companies are permitted to participate in such a
registered investment company. This provision shall not require SS&C to make
available to the Company shares of any investment company which is organized
solely as the funding vehicle for insurance products offered by a single
insurance company or a group of affiliated insurance companies.
4. Right to Review and Approve Sales Materials.
The Company shall furnish, or shall cause to be furnished, to SS&C or
its designee, at least twenty days prior to its intended use, each piece of
promotional material in which SS&C or the Fund is named. No such material shall
be used unless SS&C or its designee shall have approved such use in writing, or
twenty days shall have elapsed without approval, rejection or objection since
receipt by SS&C or its designee of such material.
SS&C shall furnish, or shall cause to be furnished, to the Company or
its designee, at least twenty days prior to its intended use, each piece of
promotional material in which the Company or its separate account(s) is named.
No such material shall be used unless the Company or its designee shall have
approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by the Company or its designee of
such material.
5. Sales Organization Meetings.
Representatives of SS&C or its designee shall meet with the sales
organizations of the Company at such reasonable times and places as may be
agreed upon by the Company and SS&C or its designee for the purpose of educating
sales personnel about the Fund.
6. Duration.
-3-
<PAGE> 27
This Agreement shall continue in effect as long as the Company owns
shares of any Portfolio, except that the obligation of each party hereto to
indemnify the other party hereto shall continue with respect to all losses,
claims, damages, liabilities or litigation based upon the acquisition of Shares
purchased as the funding vehicle for any variable life insurance policy or
variable annuity contract issued by the Company or any affiliated insurance
company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless
SS&C and each of its Directors and officers and each
person, if any, who controls SS&C within the meaning
of Section 15 of the Securities Act of 1933 (the
"Act") or any person, controlled by or under common
control with SS&C ("affiliate") against any and all
losses, claims, damages, liabilities or litigation
(including legal and other expenses) to which SS&C or
such Directors, officers or controlling person may
become subject under the Act, under any other
statute, at common law or otherwise, arising out of
the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by the Company,
any of its employees or representatives, any
affiliate of or any person acting on behalf of the
Company or a principal underwriter of its insurance
products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material
fact contained in a registration statement or
prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged
omission to state therein a material fact required to
be stated therein or necessary to make the statements
therein not misleading if such a
-4-
<PAGE> 28
statement or omission was made in reliance upon
information furnished to SS&C or the Fund by the
Company, provided, however, that in no case (i) is
the Company's indemnity in favor of a Director or
officer or any other person deemed to protect such
Director or officer or other person against any
liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties
or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is the
Company to be liable under its indemnity agreement
contained in this Paragraph 7 with respect to any
claim made against SS&C or any person indemnified
unless SS&C or such person, as the case may be, shall
have notified the Company in writing pursuant to
Paragraph 9 within a reasonable time after the
summons or other first legal process giving
information of the nature of the claims shall have
been served upon SS&C or upon such person (or after
SS&C or such person shall have received notice of
such service on any designated agent), but failure to
notify the Company of any such claim shall not
relieve the Company from any liability which it has
to SS&C or any person against whom such action is
brought otherwise than on account of the indemnity
agreement contained in this Paragraph 7. The Company
shall be entitled to participate, at its own expense,
in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense,
such defense shall be conducted by counsel chosen by
it and satisfactory to SS&C, to its officers
-5-
<PAGE> 29
and Directors, or to any controlling person or
persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense
of any such suit and retain such counsel, SS&C, such
officers and Directors or controlling person or
persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel
retained by them, but, in case the Company does not
elect to assume the defense of any such suit, the
Company will reimburse SS&C, such officers and
Directors or controlling person or persons, defendant
or defendants in such suit, for the reasonable fees
and expenses of any counsel retained by them. The
Company agrees promptly to notify SS&C pursuant to
Paragraph 9 of the commencement of any litigation or
proceedings against it in connection with the issue
and sale of any Shares.
(b) SS&C agrees to indemnify and hold harmless the
Company and each of its directors and officers and
each person, if any, who controls the Company within
the meaning of Section 15 of the Act against any and
all losses, claims, damages, liabilities or
litigation (including legal and other expenses) to
which it or such directors, officers or controlling
persons may become subject under the Act, under any
other statute, at common law or otherwise, arising
out of the acquisition of any Shares by any person
which may be based upon any wrongful act by SS&C, any
of its employees or representatives or a principal
underwriter of the Fund, or (ii) may be based upon
any untrue statement or alleged untrue statement of a
material fact contained in a registration statement
or prospectus covering
-6-
<PAGE> 30
Shares or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein
a material fact required to be stated therein or
necessary to make the statements therein not
misleading if such statement or omission was made in
reliance upon information furnished to the Company by
SS&C; provided, however, that in no case (i) is
SS&C's indemnity in favor of a director or officer or
any other person deemed to protect such director or
officer or other person against any liability to
which any such person would otherwise be subject by
reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by
reason of his reckless disregard of obligations and
duties under this Agreement or (ii) is SS&C to be
liable under its indemnity agreement contained in
this Paragraph 7 with respect to any claims made
against the Company or any such director, officer or
controlling person unless it or such director,
officer or controlling person, as the case may be,
shall have notified SS&C in writing pursuant to
Paragraph 9 within a reasonable time after the
summons or other first legal process giving
information of the nature of the claim shall have
been served upon it or upon such director, officer or
controlling person (or after the Company or such
director, officer or controlling person shall have
received notice of such service on any designated
agent), but failure to notify SS&C of any claim shall
not relieve it from any liability which it may have
to the person against whom such action is brought
otherwise than on account of its indemnity agreement
contained in this Paragraph 7. SS&C will be entitled
-7-
<PAGE> 31
to participate at its own expense in the defense, or,
if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if SS&C
elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to
the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the
suit. In the event SS&C elects to assume the defense
of any such suit and retain such counsel, the
Company, its directors, officers or controlling
person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any
additional counsel retained by them, but, in case
SS&C does not elect to assume the defense of any such
suit, it will reimburse the Company or such
directors, officers or controlling person or persons,
defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained
by them. SS&C agrees promptly to notify the Company
pursuant to Paragraph 9 of the commencement of any
litigation or proceedings against it or any of its
officers or Directors in connection with the issuance
or sale of any Shares.
8. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
9. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
-8-
<PAGE> 32
If to SS&C:
Scudder, Stevens & Clark, Inc.
175 Federal Street
Boston, Massachusetts 02110
(617) 482-3990
Attn: David B. Watts
If to the Company:
Provident Mutual Life Insurance Company of Philadelphia
P.O. Box 7378
Philadelphia, Pennsylvania 19109
Attn:
and
Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713
Attn:
10. Miscellaneous.
The captions in the Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
-9-
<PAGE> 33
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the 21 day of July, 1993.
SEAL SCUDDER, STEVENS & CLARK, INC.
By /s/David B. Watts
---------------------------------
Managing Director
SEAL PROVIDENT MUTUAL LIFE INSURANCE
COMPANY OF PHILADELPHIA
By /s/Illegible
---------------------------------
Its Chairman, President & CEO
--------------------------------
SEAL PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
By /s/Alfred F. Wilmouth
---------------------------------
Its President
--------------------------------
-10-
<PAGE> 1
Exhibit 8(g)
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 30th day of September, 1993, between
PROVIDENTMUTUAL LIFE AND ANNUITY COMPANY OF AMERICA ("Insurance Company"), a
life insurance company organized under the laws of the State of Delaware, and
DREYFUS VARIABLE INVESTMENT FUND ("Fund"), an unincorporated business trust
organized under the laws of the Commonwealth of Massachusetts.
ARTICLE I
DEFINITIONS
1.1 "Act" shall mean the Investment Company Act of 1940, as amended.
1.2 "Board" shall mean the Board of Trustees of the Fund having the
responsibility for management and control of the Fund.
1.3 "Business Day" shall mean any day for which the Fund calculates net
asset value per share as described in the Fund's Prospectus.
1.4 "Commission" shall mean the Securities and Exchange Commission.
1.5 "Contract" shall mean a variable annuity contract that uses the Fund as
an underlying investment medium. Individuals who participate under a
group Contract are "Participants."
1.6 "Contractholder" shall mean any entity that is a party to a Contract
with a Participating Company.
1.7 "Disinterested Board Members" shall mean those members of the Board
that are not deemed to be "interested persons" of the Fund, as defined
by the Act.
1.8 "Dreyfus" shall mean The Dreyfus Corporation and its affiliates,
including Dreyfus Service Corporation.
1.9 "Participating Companies" shall mean any insurance company (including
Insurance Company), which offers variable annuity and/or variable life
insurance contracts to the public and which has entered into an
agreement with the Fund for the purpose of making Fund shares available
to serve as the underlying investment medium for the aforesaid
Contracts.
<PAGE> 2
1.10 "Prospectus" shall mean the Fund's current prospectus and statement of
additional information, as most recently filed with the Commission.
1.11 "Separate Account" shall mean the Providentmutual Variable Annuity
Separate Account, a separate account established by Insurance Company
in accordance with the laws of the State of Delaware.
1.12 "Software Program" shall mean the software program used by the Fund for
providing Fund and account balance information including net asset
value per share. Such Program may include the Lion System. In
situations where the Lion System or any other Software Program used by
the Fund is not available, such information may be provided by
telephone. The Lion System shall be provided to Insurance Company at no
charge.
1.13 "Insurance Company's General Account(s)" shall mean the general
account(s) of Insurance Company and its affiliates which invest in the
Fund.
ARTICLE II
REPRESENTATIONS
2.1 Insurance Company represents and warrants that (a) it is an insurance
company duly organized and in good standing under applicable law; (b)
it has legally and validly established the Separate Account pursuant to
the Delaware Insurance Code for the purpose of offering to the public
certain individual variable annuity contracts; and (c) it has
registered the Separate Account as a unit investment trust under the
Act to serve as the segregated investment account for the Contracts.
2.2 Insurance Company represents and warrants that (a) the Contracts will
be described in a registration statement filed under the Securities Act
of 1933, as amended ("1933 Act"); (b) the Contracts will be issued and
sold in compliance in all material respects with all applicable federal
and state laws; and (c) the sale of the Contracts shall comply in all
material respects with state insurance law requirements. Insurance
Company agrees to inform the Fund promptly of any investment
restrictions imposed by state insurance law and applicable to the Fund.
2.3 Insurance Company represents and warrants that the income, gains and
losses, whether or not realized, from assets allocated to the Separate
Account are, in accordance with the applicable Contracts, to be
credited to or charged against such Separate Account without regard to
other income, gains or losses from assets allocated to any other
accounts of Insurance Company. Insurance Company represents and
warrants that the assets of the Separate Account are and will be kept
separate from Insurance Company's General Account and any other
separate accounts Insurance Company may have, and will not be charged
with liabilities from any business that Insurance Company may conduct
or the liabilities of any companies affiliated with Insurance Company.
-2-
<PAGE> 3
2.4 Fund represents that the Fund is registered with the Commission under
the Act as an open-end, diversified management investment company and
possesses, and shall maintain, all legal and regulatory licenses,
approvals, consents and/or exemptions required for Fund to operate and
offer its shares as an underlying investment medium for Participating
Companies. The Fund has established six series of shares (each, a
"Series") and may in the future establish other series of shares.
2.5 Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and that it will make every effort to
maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify Insurance Company
immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
2.6 Insurance Company represents and agrees that the Contracts are
currently, and at the time of issuance will be, treated as life
insurance policies or annuity contracts, whichever is appropriate,
under applicable provisions of the Code, and that it will make every
effort to maintain such treatment and that it will notify the Fund and
Dreyfus immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so
treated in the future. Insurance Company agrees that any prospectus
offering a Contract that is a "modified endowment contract," as that
term is defined in Section 7702A of the Code, will identify such
Contract as a modified endowment contract (or policy).
2.7 Fund agrees that the Fund's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h) of the
Code.
2.8 Insurance Company agrees that the Fund shall be permitted (subject to
the other terms of this Agreement) to make Series' shares available to
other Participating Companies and contractholders.
2.9 Fund represents and warrants that any of its trustees, officers,
employees, investment advisers, and other individuals/entities who deal
with the money and/or securities of the Fund are and shall continue to
be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Fund in an amount not less than that required by
Rule 17g-1 under the Act. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
2.10 Insurance Company represents and warrants that all of its employees and
agents who deal with the money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or
similar coverage in an amount not less than the coverage required to be
maintained by the Fund. The aforesaid Bond shall include coverage for
larceny and embezzlement and shall be issued by a reputable bonding
company.
-3-
<PAGE> 4
2.11 Insurance Company agrees that Dreyfus shall be deemed a third party
beneficiary under this Agreement and may enforce any and all rights
conferred by virtue of this Agreement.
ARTICLE III
FUND SHARES
3.1 The Contracts funded through the Separate Account will provide for the
investment of certain amounts in the Series' shares.
3.2 Fund agrees to make the shares of its Series available for purchase at
the then applicable net asset value per share by Insurance Company and
the Separate Account on each Business Day pursuant to rules of the
Commission. Notwithstanding the foregoing, the Fund may refuse to sell
the shares of any Series to any person, or suspend or terminate the
offering of the shares of any Series if such action is required by law
or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Board, acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, necessary
and in the best interests of the shareholders of such Series.
3.3 Fund agrees that shares of the Fund will be sold only to Participating
Companies and their separate accounts and to the general accounts of
those Participating Companies and their affiliates. No shares of any
Series will be sold to the general public.
3.4 Fund shall use its best efforts to provide closing net asset value,
dividend and capital gain information for each Series available on a
per-share and Series basis to Insurance Company by 6:00 p.m. Eastern
Time on each Business Day. Any material errors in the calculation of
net asset value, dividend and capital gain information shall be
reported immediately upon discovery to Insurance Company. Nonmaterial
errors will be corrected in the next Business Day's net asset value per
share for the Series in question.
3.5 At the end of each Business Day, Insurance Company will use the
information described in Sections 3.2 and 3.4 to calculate the Separate
Account unit values for the day. Using this unit value, Insurance
Company will process the day's Separate Account transactions received
by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. Eastern time) to determine the net dollar
amount of Series shares which will be purchased or redeemed at that
day's closing net asset value per share for such Series. The net
purchase or redemption orders will be transmitted to the Fund by
Insurance Company by 11:00 a.m. Eastern Time on the Business Day next
following Insurance Company's receipt of that information. Subject to
Sections 3.6 and 3.8, all purchase and redemption orders for Insurance
Company's General Accounts shall be effected at the net asset value per
share of the relevant Series next calculated after receipt of the order
by the Fund or its Transfer Agent.
-4-
<PAGE> 5
3.6 Fund appoints Insurance Company as its agent for the limited purpose of
accepting orders for the purchase and redemption of shares of each
Series for the Separate Account. Fund will execute orders for any
Series at the applicable net asset value per share determined as of the
close of trading on the day of receipt of such orders by Insurance
Company acting as agent ("effective trade date"), provided that the
Fund receives notice of such orders by 11:00 a.m. Eastern Time on the
next following Business Day and, if such orders request the purchase of
Series shares, the conditions specified in Section 3.8, as applicable,
are satisfied. A redemption or purchase request for any Series that
does not satisfy the conditions specified above and in Section 3.8, as
applicable, will be effected at the net asset value computed for such
Series on the Business Day immediately preceding the next following
Business Day upon which such conditions have been satisfied.
3.7 Insurance Company will make its best efforts to notify Fund in advance
of any unusually large purchase or redemption orders.
3.8 If Insurance Company's order requests the purchase of Series shares,
Insurance Company will pay for such purchases by wiring Federal Funds
to Fund or its designated custodial account on the day the order is
transmitted. Insurance Company shall make all reasonable efforts to
transmit to the Fund payment in Federal Funds by 12:00 noon Eastern
Time on the Business Day the Fund receives the notice of the order
pursuant to Section 3.5. Fund will execute such orders at the
applicable net asset value per share determined as of the close of
trading on the effective trade date if Fund receives payment in Federal
Funds by 12:00 midnight Eastern Time on the Business Day the Fund
receives the notice of the order pursuant to Section 3.5. If payment in
Federal Funds for any purchase is not received or is received by the
Fund after 12:00 noon Eastern Time on such Business Day, Insurance
Company shall promptly upon the Fund's request, reimburse the Fund for
any charges, costs, fees, interest or other expenses incurred by the
Fund in connection with any advances to, or borrowings or overdrafts
by, the Fund, or any similar expenses incurred by the Fund, as a result
of portfolio transactions effected by the Fund based upon such purchase
request. If Insurance Company's order requests the redemption of Series
shares valued at or greater than $1 million dollars, the Fund will wire
such amount to Insurance Company within seven days of the order.
3.9 Fund has the obligation to ensure that Series shares are registered
with applicable federal agencies at all times.
3.10 Fund will confirm each purchase or redemption order made by Insurance
Company. Transfer of Series shares will be by book entry only. No share
certificates will be issued to Insurance Company. Insurance Company
will record shares ordered from Fund in an appropriate title for the
corresponding account.
3.11 Fund shall credit Insurance Company with the appropriate number of
shares.
-5-
<PAGE> 6
3.12 On each ex-dividend date of the Fund or, if not a Business Day, on the
first Business Day thereafter, Fund shall communicate to Insurance
Company the amount of dividend and capital gain, if any, per share of
each Series. All dividends and capital gains of any Series shall be
automatically reinvested in additional shares of the relevant Series at
the applicable net asset value per share of such Series on the payable
date. Fund shall, on the day after the payable date or, if not a
Business Day, on the first Business Day thereafter, notify Insurance
Company of the number of shares so issued.
ARTICLE IV
STATEMENTS AND REPORTS
4.1 Fund shall provide monthly statements of account as of the end of each
month for all of Insurance Company's accounts by the fifteenth (15th)
Business Day of the following month.
4.2 Fund shall distribute to Insurance Company copies of the Fund's
Prospectuses, proxy materials, notices, periodic reports and other
printed materials (which the Fund customarily provides to its
shareholders) in quantities as Insurance Company may reasonably request
for distribution to each Contractholder and Participant.
4.3 Fund will provide to Insurance Company at least one complete copy of
all registration statements, Prospectuses, reports, proxy statements,
sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Commission or other
regulatory authorities.
4.4 Insurance Company will provide to the Fund at least one copy of all
registration statements, Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or the Separate Account,
contemporaneously with the filing of such document with the Commission.
ARTICLE V
EXPENSES
5.1 The charge to the Fund for all expenses and costs of the Series,
including but not limited to management fees, administrative expenses
and legal and regulatory costs, will be made in the determination of
the relevant Series' daily net asset value per share so as to
accumulate to an annual charge at the rate set forth in the Fund's
Prospectus. Excluded from the expense limitation described herein shall
be brokerage commissions and transaction fees and extraordinary
expenses.
-6-
<PAGE> 7
5.2 Except as provided in this Article V and, in particular in the next
sentence, Insurance Company shall not be required to pay directly any
expenses of the Fund or expenses relating to the distribution of its
shares. Insurance Company shall pay the following expenses or costs:
a. Such amount of the production expenses of any Fund materials,
including the cost of printing the Fund's Prospectus, or
marketing materials for prospective Insurance Company
Contractholders and Participants as Dreyfus and Insurance
Company shall agree from time to time.
b. Distribution expenses of any Fund materials or marketing
materials for prospective Insurance Company Contractholders
and Participants.
c. Distribution expenses of Fund materials or marketing materials
for Insurance Company Contractholders and Participants.
Except as provided herein, all other Fund expenses shall not be borne
by Insurance Company.
ARTICLE VI
EXEMPTIVE RELIEF
6.1 Insurance Company has reviewed a copy of the order dated December 23,
1987 of the Securities and Exchange Commission under Section 6(c) of
the Act and, in particular, has reviewed the conditions to the relief
set forth in the related Notice. As set forth therein, Insurance
Company agrees to report any potential or existing conflicts promptly
to the Board, and in particular whenever contract voting instructions
are disregarded, and recognizes that it will be responsible for
assisting the Board in carrying out its responsibilities under such
application. Insurance Company agrees to carry out such
responsibilities with a view to the interests of existing
Contractholders.
6.2 If a majority of the Board, or a majority of Disinterested Board
Members, determines that a material irreconcilable conflict exists with
regard to Contractholder investments in the Fund, the Board shall give
prompt notice to all Participating Companies. If the Board determines
that Insurance Company is responsible for causing or creating said
conflict, Insurance Company shall at its sole cost and expense, and to
the extent reasonably practicable (as determined by a majority of the
Disinterested Board Members), take such action as is necessary to
remedy or eliminate the irreconcilable material conflict. Such
necessary action may include, but shall not be limited to:
a. Withdrawing the assets allocable to the Separate Account from
the Series and reinvesting such assets in a different
investment medium, or submitting the
-7-
<PAGE> 8
question of whether such segregation should be implemented to
a vote or all affected Contractholders; and/or
b. Establishing a new registered management investment company.
6.3 If a material irreconcilable conflict arises as a result of a decision
by Insurance Company to disregard Contractholder voting instructions
and said decision represents a minority position or would preclude a
majority vote by all Contractholders having an interest in the Fund,
Insurance Company may be required, at the Board's election, to withdraw
the Separate Account's investment in the Fund.
6.4 For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict, but in no event will the
Fund be required to bear the expense of establishing a new funding
medium for any Contract. Insurance Company shall not be required by
this Article to establish a new funding medium for any Contract if an
offer to do so has been declined by vote of a majority of the
Contractholders materially adversely affected by the irreconcilable
material conflict.
6.5 No action by Insurance Company taken or omitted, and no action by the
Separate Account or the Fund taken or omitted as a result of any act or
failure to act by Insurance Company pursuant to this Article VI shall
relieve Insurance Company of its obligations under, or otherwise affect
the operation of, Article V.
ARTICLE VII
VOTING OF FUND SHARES
7.1 Fund shall provide Insurance Company with copies at no cost to
Insurance Company, of the Fund's proxy material, reports to
shareholders and other communications to shareholders in such quantity
as Insurance Company shall reasonably require for distributing to
Contractholders or Participants.
Insurance Company shall:
a. solicit voting instructions from Contractholders or
Participants on a timely basis and in accordance with
applicable law;
b. vote the Series shares in accordance with instructions
received from Contractholders or Participants; and
c. vote Series shares for which no instructions have been
received in the same proportion as Series shares for which
instructions have been received.
-8-
<PAGE> 9
Insurance Company agrees at all times to votes its General Account
shares in the same proportion as Series shares for which instructions
have been received from Contractholders or Participants. Insurance
Company further agrees to be responsible for assuring that voting Fund
shares for the Separate Account is conducted in a manner consistent
with other Participating Companies.
7.2 Insurance Company agrees that it shall not, without the prior written
consent of the Fund and Dreyfus, solicit, induce or encourage
Contractholders to (a) change or supplement the Fund's current
investment adviser or (b) change, modify, substitute, add to or delete
the Fund from the current investment media for the Contracts.
ARTICLE VIII
MARKETING AND REPRESENTATIONS
8.1 The Fund or its underwriter shall periodically furnish Insurance
Company with the following documents, in quantities as Insurance
Company may reasonably request:
a. Current Prospectus and any supplements thereto;
b. other marketing materials.
Expenses for the production of such documents shall be borne by
Insurance Company in accordance with Section 5.2 of this Agreement.
8.2 Insurance Company shall designate certain persons or entities which
shall have the requisite licenses to solicit applications for the sale
of Contracts. No representation is made as to the number or amount of
Contracts that are to be sold by Insurance Company. Insurance Company
shall make reasonable efforts to market the Contracts and shall comply
with all applicable federal and state laws in connection therewith.
8.3 Insurance Company shall furnish, or shall cause to be furnished, to the
Fund, each piece of sales literature or other promotional material in
which the Fund, its investment adviser or the administrator is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless the Fund approves such material. Such approval (if
given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material. The
Fund shall use all reasonable efforts to respond within ten days of
receipt.
8.4 Insurance Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the
Fund or any Series in connection with the sale of the Contracts other
than the information or representations contained in the registration
statement or Prospectus, as may be amended or supplemented from time to
-9-
<PAGE> 10
time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund.
8.5 Fund shall furnish, or shall cause to be furnished, to Insurance
Company, each piece of the Fund's sales literature or other promotional
material in which Insurance Company or the Separate Account is named,
at least fifteen Business Days prior to its use. No such material shall
be used unless Insurance Company approves such material. Such approval
(if given) must be in writing and shall be presumed not given if not
received within ten Business Days after receipt of such material.
Insurance Company shall use all reasonable efforts to respond within
ten days of receipt.
8.6 Fund shall not, in connection with the sale of Series shares, give any
information or make any representations on behalf of Insurance Company
or concerning Insurance Company, the Separate Account, or the Contracts
other than the information or representations contained in a
registration statement or prospectus for the Contracts, as may be
amended or supplemented from time to time, or in published reports for
the Separate Account which are in the public domain or approved by
Insurance Company for distribution to Contractholders or Participants,
or in sales literature or other promotional material approved by
Insurance Company.
8.7 For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications
distributed or made generally available to some or all agents or
employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and
any other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the Act or the
1933 Act.
ARTICLE IX
INDEMNIFICATION
9.1 Insurance Company agrees to indemnify and hold harmless the Fund,
Dreyfus, any sub-investment adviser of a Series, and their affiliates,
and each of their directors, trustees, officers, employees, agents and
each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of Section 9.1),
against any and all losses, claims, damages or liabilities joint or
several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in
settlement of,
-10-
<PAGE> 11
any action, suit or proceeding or any claim asserted) for which the
Indemnified Parties may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect to thereof) (i) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in information furnished by Insurance Company for use in the
registration statement or Prospectus or sales literature or
advertisements of the Fund or with respect to the Separate Account or
Contracts, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
(ii) arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the Prospectus and sales literature or advertisements of the Fund) of
Insurance Company or its agents, with respect to the sale and
distribution of Contracts for which Series' shares are an underlying
investment; (iii) arise out of the wrongful conduct of Insurance
Company or persons under its control with respect to the sale or
distribution of the Contracts or Series' shares; (iv) arise out of
Insurance Company's incorrect calculation and/or untimely reporting of
net purchase or redemption orders; or (v) arise out of any breach by
Insurance Company of a material term of this Agreement or as a result
of any failure by Insurance Company to provide the services and furnish
the materials or to make any payments provided for in this Agreement.
Insurance Company will reimburse any Indemnified Party in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that with respect to clauses (i) and (ii)
above Insurance Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or omission or alleged omission made
in such registration statement, prospectus, sales literature, or
advertisement in conformity with written information furnished to
Insurance Company by the Fund specifically for use therein. This
indemnity agreement will be in addition to any liability which
Insurance Company may otherwise have.
9.2 The Fund agrees to indemnify and hold harmless Insurance Company, PML
Securities Company ("PML") (an affiliate of Insurance Company) and each
of their directors, officers, employees, agents and each person, if
any, who controls Insurance Company or PML within the meaning of the
1933 Act against any losses, claims, damages or liabilities to which
Insurance Company, PML or any such director, officer, employee, agent
or controlling person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) (1) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales
literature or advertisements of the Fund; (2) arise out of or are based
upon the omission to state in the registration statement or Prospectus
or sales literature or advertisements of the Fund any material fact
required to be stated therein or necessary to make the statements
therein not misleading; or (3) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement or Prospectus or sales
literature or advertisements with respect to the Separate Account or
the Contracts and such statements were based on information provided to
Insurance Company or PML by the Fund; and the Fund will reimburse any
legal or other expenses reasonably incurred by Insurance Company, PML
or any such director, officer, employee, agent or controlling
-11-
<PAGE> 12
person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Fund
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue
statement or omission or alleged omission made in such Registration
Statement, Prospectus, sales literature or advertisements in conformity
with written information furnished to the Fund by Insurance Company or
PML specifically for use therein. This indemnity agreement will be in
addition to any liability which the Fund may otherwise have.
9.3 The Fund shall indemnify and hold Insurance Company and PML harmless
against any and all liability, loss, damages, costs or expenses which
Insurance Company or PML may incur, suffer or be required to pay due to
the Fund's (1) incorrect calculation of the daily net asset value,
dividend rate or capital gain distribution rate of a Series; (2)
incorrect reporting of the daily net asset value, dividend rate or
capital gain distribution rate; and (3) untimely reporting of the net
asset value, dividend rate or capital gain distribution rate; provided
that the Fund shall have no obligation to indemnify and hold harmless
Insurance Company or PML if the incorrect calculation or incorrect or
untimely reporting was the result of incorrect information furnished by
Insurance Company or PML or information furnished untimely by Insurance
Company or PML or otherwise as a result of or relating to a breach of
this Agreement by Insurance Company.
9.4 Promptly after receipt by an indemnified party under this Article of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against the indemnifying
party under this Article, notify the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in a failure
of actual notice to the indemnifying party and such indemnifying party
is damaged solely as a result of the failure to give such notice. In
case any such action is brought against any indemnified party, and it
notified the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such indemnified party, and to the extent that the
indemnifying party has given notice to such effect to the indemnified
party and is performing its obligations under this Article, the
indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of investigation.
Notwithstanding the foregoing, in any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (ii) the named
parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and
representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between
them. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent.
-12-
<PAGE> 13
A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX.
9.5 Insurance Company shall indemnify and hold the Fund, Dreyfus and any
sub-investment adviser of a Series harmless against any tax liability
incurred by the Fund under Section 851 of the Code arising from
purchases or redemptions by Insurance Company's General Accounts or the
account of its affiliates.
ARTICLE X
COMMENCEMENT AND TERMINATION
10.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions
herein.
10.2 This Agreement shall terminate without penalty as to one or more Series
at the option of the terminating party:
a. At the option of Insurance Company or the Fund at any time
from the date hereof upon 180 days' notice, unless a shorter
time is agreed to by the parties;
b. At the option of Insurance Company, if shares of any Series
are not reasonably available to meet the requirements of the
Contracts as determined by Insurance Company. Prompt notice of
election to terminate shall be furnished by Insurance Company,
said termination to be effective ten days after receipt of
notice unless the Fund makes available a sufficient number of
shares to meet the requirements of the Contracts within said
ten-day period;
c. At the option of Insurance Company, upon the institution of
formal proceedings against the Fund by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in Insurance Company's reasonable
judgment, materially impair the Fund's ability to meet and
perform the Fund's obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Insurance Company with said termination to be effective upon
receipt of notice;
d. At the option of the Fund, upon the institution of formal
proceedings against Insurance Company by the Commission,
National Association of Securities Dealers or any other
regulatory body, the expected or anticipated ruling, judgment
or outcome of which would, in the Fund's reasonable judgment,
materially impair Insurance Company's ability to meet and
perform Insurance Company's obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by
the Fund with said termination to be effective upon receipt of
notice;
-13-
<PAGE> 14
e. At the option of the Fund, if the Fund shall determine, in its
sole judgment reasonably exercised in good faith, that
Insurance Company has suffered a material adverse change in
its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material
adverse impact upon the business and operation of the Fund or
Dreyfus, the Fund shall notify Insurance Company in writing of
such determination and its intent to terminate this Agreement,
and after considering the actions taken by Insurance Company
and any other changes in circumstances since the giving of
such notice, such determination of the Fund shall continue to
apply on the sixtieth (60th) day following the giving of such
notice, which sixtieth day shall be the effective date of
termination;
f. Upon termination of the Investment Advisory Agreement between
the Fund and Dreyfus or its successors unless Insurance
Company specifically approves the selection of a new Fund
investment adviser. The Fund shall promptly furnish notice of
such termination to Insurance Company;
g. In the event the Fund's shares are not registered, issued or
sold in accordance with applicable federal law, or such law
precludes the use of such shares as the underlying investment
medium of Contracts issued or to be issued by Insurance
Company. Termination shall be effective immediately upon such
occurrence without notice;
h. At the option of the Fund upon a determination by the Board in
good faith that it is no longer advisable and in the best
interests of shareholders for the Fund to continue to operate
pursuant to this Agreement. Termination pursuant to this
Subsection (h) shall be effective upon notice by the Fund to
Insurance Company of such termination;
i. At the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable,
under the Code, or if the Fund reasonably believes that the
Contracts may fail to so qualify;
j. At the option of either party to this Agreement, upon another
party's breach of any material provision of this Agreement;
k. At the option of the Fund, if the Contracts are not
registered, issued or sold in accordance with applicable
federal and/or state law; or
l. Upon assignment of this Agreement, unless made with the
written consent of the non-assigning party.
-14-
<PAGE> 15
Any such termination pursuant to Section 10.2a, 10.2d, 10.2e, 10.2f or
10.2k herein shall not affect the operation of Article V of this
Agreement. Any termination of this Agreement shall not affect the
operation of Article IX of this Agreement.
10.3 Notwithstanding any termination of this Agreement pursuant to Section
10.2 hereof, the Fund and Dreyfus may, at the option of the Fund,
continue to make available additional Series shares for so long as the
Fund desires pursuant to the terms and conditions of this Agreement as
provided below, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Fund or Dreyfus
so elects to make additional Series shares available, the owners of the
Existing Contracts or Insurance Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in the
Series, redeem investments in the Fund and/or invest in the Fund upon
the making of additional purchase payments under the Existing
Contracts. In the event of a termination of this Agreement pursuant to
Section 10.2 hereof, the Fund and Dreyfus, as promptly as is
practicable under the circumstances, shall notify Insurance Company
whether Dreyfus and the Fund will continue to make Series shares
available after such termination. If Series shares continue to be made
available after such termination, the provisions of this Agreement
shall remain in effect and thereafter either the Fund or Insurance
Company may terminate the Agreement, as so continued pursuant to this
Section 10.3, upon prior written notice to the other party, such notice
to be for a period that is reasonable under the circumstances but, if
given by the Fund, need not be for more than six months.
ARTICLE XI
AMENDMENTS
11.1 Any other changes in the terms of this Agreement shall be made by
agreement in writing between Insurance Company and Fund.
ARTICLE XII
NOTICE
12.1 Each notice required by this Agreement shall be given by certified
mail, return receipt requested, to the appropriate parties at the
following addresses:
Insurance Company: Providentmutual Life and Annuity Company of America
300 Continental Drive
Newark, Delaware 19713
Attn: David N. Ingram
Fund: Dreyfus Variable Investment Fund
200 Park Avenue
New York, New York 10166
-15-
<PAGE> 16
Attn: Daniel C. Maclean, Secretary
with copies to: Stroock & Stroock & Lavan
7 Hanover Square
New York, New York 10004-2696
Attn: Lewis G. Cole, Esq.
Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII
MISCELLANEOUS
13.1 This Agreement has been executed on behalf of the Fund by the
undersigned officer of the Fund in his capacity as an officer of the
Fund. The obligations of this Agreement shall only be binding upon the
assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
ARTICLE XIV
LAW
14.1 This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be duly
executed and attested as of the date first above written.
PROVIDENTMUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
By: /s/Illegible
--------------------------------------
Its: Vice President & Actuary - Annuities
-------------------------------------
Attest: /s/Illegible
-------------------------
DREYFUS VARIABLE INVESTMENT FUND
By: /s/Daniel C. Maclean
--------------------------------------
Its: Secretary
-------------------------------------
Attest: /s/Illegible
-------------------------
Assistant Secretary
-------------------------
-16-
<PAGE> 1
Exhibit 8(h)
FUND PARTICIPATION AGREEMENT
This AGREEMENT is made this 1st day of May, 1995, by and between
Providentmutual Life and Annuity Company of America (the "Insurer"), a life
insurance company domiciled in Delaware, on its behalf and on behalf of the
segregated asset accounts of the Insurer listed on Exhibit A to this Agreement
(the "Separate Accounts"); Insurance Management Series (the "Fund"), a
Massachusetts business trust; and Federated Securities Corp. (the
"Distributor"), a Pennsylvania corporation.
WITNESSETH
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act") and the Fund is
authorized to issue separate classes of shares of beneficial interest
("shares"), each representing an interest in a separate portfolio of assets
known as a "portfolio" and each portfolio has its own investment objective,
policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to separate accounts of insurance companies that fund variable
annuity contracts ("Variable Contracts") and to serve as an investment medium
for Variable Contracts offered by insurance companies that have entered into
participation agreements substantially similar to this agreement ("Participating
Insurance Companies"), and the Fund will be made available in the future
<PAGE> 2
to offer shares of one or more of its portfolios to separate accounts of
insurance companies that fund variable life insurance policies (at which time
such policies would also be "Variable Contracts" hereunder), and
WHEREAS, the Fund is currently comprised of five separate portfolios,
and other portfolios may be established in the future; and
WHEREAS, the Fund has obtained an order from the SEC dated December 29,
1993 (File No. 812-8620), granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of life insurance companies that may
or may not be affiliated with one another (hereinafter the "Mixed and Shared
Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
portfolios on behalf of
-2-
<PAGE> 3
its Separate Accounts to serve as an investment medium for Variable Contracts
funded by the Separate Accounts, and the Distributor is authorized to sell
shares of the Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants hereinafter set forth, the parties hereby agree as
follows:
Article I. Sale of Fund Shares
1.1 The Distributor agrees to sell to the Insurer those shares of the
portfolios offered and made available by the Fund and identified on Exhibit B
("Portfolios") that the Insurer orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its agent of the order
for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares of
the Portfolios for purchase at the applicable net asset value per share by the
Insurer on behalf of its Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Portfolio.
-3-
<PAGE> 4
1.3 The Fund and the Distributor agree that shares of the Portfolios of
the Fund will be sold only to Participating Insurance Companies, their separate
accounts, and other persons consistent with each Portfolio being adequately
diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code"), and the regulations thereunder. No shares of any Portfolio
will be sold directly to the general public to the extent not permitted by
applicable tax law.
1.4 The Fund and the Distributor will not sell shares of the Portfolios
to any insurance company or separate account unless an agreement containing
provisions substantially the same as the provisions in Article IV of this
Agreement is in effect to govern such sales.
1.5 Upon receipt of a request for redemption in proper form from the
Insurer, the Fund agrees to redeem any full or fractional shares of the
Portfolios held by the Insurer, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid
consistent with applicable rules of the SEC and procedures and policies of the
Fund as described in the current prospectus.
1.6 For purposes of Sections 1.2 and 1.5, the Insurer shall be the
agent of the Fund for the limited purpose of receiving and accepting purchase
and redemption orders from each Separate Account and receipt of such orders by
4:00 p.m. Eastern time by the Insurer shall be deemed to be receipt by the Fund
for purposes of Rule 22c-1 of the 1940 Act; provided that the Fund receives
notice of such orders on the next following business day prior to 4:00 p.m.
Eastern
-4-
<PAGE> 5
time on such day, although the Insurer will use its best efforts to provide such
notice by 12:00 noon Eastern time.
1.7 The Insurer agrees to purchase and redeem the shares of each
Portfolio in accordance with the provisions of the current prospectus for the
Fund.
1.8 The Insurer shall pay for shares of the Portfolio on the next
business day after it places an order to purchase shares of the Portfolio.
Payment shall be in federal funds transmitted by wire.
1.9 Issuance and transfer of shares of the Portfolios will be by book
entry only unless otherwise agreed by the Fund. Stock certificates will not be
issued to the Insurer or the Separate Accounts unless otherwise agreed by the
Fund. Shares ordered from the Fund will be recorded in an appropriate title for
the Separate Accounts or the appropriate subaccounts of the Separate Accounts.
1.10 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurer of any income dividends or
capital gain distributions payable on the shares of the Portfolios. The Insurer
hereby elects to reinvest in the Portfolio all such dividends and distributions
as are payable on a Portfolio's shares and to receive such dividends and
distributions in additional shares of that Portfolio. The Insurer reserves the
right to revoke this election in writing and to receive all such dividends and
distributions in cash. The Fund shall notify the Insurer of the number of shares
so issued as payment of such dividends and distributions.
-5-
<PAGE> 6
1.11 The Fund shall instruct its recordkeeping agent to advise the
Insurer on each business day of the net asset value per share for each Portfolio
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value per share
available by 7:00 p.m. Eastern time.
Article II. Representations and Warranties
2.1 The Insurer represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it is taxed as
an insurance company under Subchapter L of the Code.
2.2 The Insurer represents and warrants that it has legally and validly
established each of the Separate Accounts as a segregated asset account under
the Delaware Insurance Code, and that each of the Separate Accounts is a validly
existing segregated asset account under applicable federal and state law.
2.3 The Insurer represents and warrants that the Variable Contracts
issued by the Insurer or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively, (2) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act.
2.4 The Insurer represents and warrants that each of the Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or,
-6-
<PAGE> 7
alternatively, (2) has not been registered in proper reliance upon an exclusion
from registration under the 1940 Act.
2.5 The Insurer represents that it believes, in good faith, that the
Variable Contracts issued by the Insurer are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.7 The Fund represents and warrants that the shares of the Portfolios
are duly authorized for issuance in accordance with applicable law and that the
Fund is registered as an open-end management investment company under the 1940
Act.
2.8 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance policies and variable
annuity contracts.
2.9 The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC.
Article III. General Duties
-7-
<PAGE> 8
3.1 The Fund shall take all such actions as are necessary to permit the
sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify the shares for
sale in accordance with the laws of the various states to the extent deemed
necessary by the Fund or the Distributor.
3.2 The Fund shall make every effort to maintain qualification of each
Portfolio as a Regulated Investment Company under Subchapter M of the Code (or
any successor or similar provision) and shall notify the Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
3.3 The Fund shall make every effort to ensure that each Portfolio
complies with the diversification provisions of Section 817(h) of the Code and
the regulations issued thereunder relating to the diversification requirements
for variable life insurance policies and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Insurer immediately upon having a reasonable
basis for believing that any Portfolio has ceased to comply.
3.4 The Insurer shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Insurer, including registering each Separate Account as a unit
investment trust to the extent required under the 1940 Act, and registering the
Variable Contracts or interests in the Separate Accounts under the
-8-
<PAGE> 9
Variable Contracts to the extent required under the 1933 Act, and obtaining all
necessary approvals to offer the Variable Contracts from state insurance
commissioners.
3.5 The Insurer shall make every effort to maintain the treatment of
the Variable Contracts issued by the Insurer as annuity contracts or life
insurance policies, whichever is appropriate, under applicable provisions of the
Code, and shall notify the Fund and the Distributor immediately upon having a
reasonable basis for believing that such Variable Contracts have ceased to be so
treated or that they might not be so treated in the future.
3.6 The Insurer shall offer and sell the Variable Contracts issued by
the Insurer in accordance with applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law respecting the
offering of variable life insurance policies and variable annuity contracts.
3.7 The Distributor shall sell and distribute the shares of the
Portfolios of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.8 During such time as the Fund engages in Mixed Funding or Shared
Funding, a majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by Section 2(a)(19) of the 1940 Act and the rules thereunder, and as
modified by any applicable orders of the SEC, except that if this provision of
this Section 3.8 is not met by reason of the death, disqualification, or bona
fide resignation of any Trustee or Trustees, then the operation of this
provision shall be suspended (a) for a period of 45 days if the vacancy or
vacancies may be filled by the Fund's Board; (b) for a
-9-
<PAGE> 10
period of 60 days if a vote of shareholders is required to fill the vacancy or
vacancies; or (c) for such longer period as the SEC may prescribe by order upon
application.
3.9 The Insurer and its agents will not in any way recommend any
proposal or oppose or interfere with any proposal submitted by the Fund at a
meeting of owners of Variable Contracts or shareholders of the Fund, and will in
no way recommend, oppose, or interfere with the solicitation of proxies for Fund
shares held by Contract Owners, without the prior written consent of the Fund,
which consent may be withheld in the Fund's sole discretion.
3.10 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
Article IV. Potential Conflicts
4.1 During such time as the Fund engages in Mixed Funding or Shared
Funding, the parties hereto shall comply with the conditions in this Article IV.
4.2 The Fund's Board of Trustees shall monitor the Fund for the
existence of any material irreconcilable conflict between (1) the interests of
owners of variable annuity contracts and variable life insurance policies, and
(2) the interests of owners of Variable Contracts ("Variable Contract Owners")
issued by different Participating Life Insurance Companies that invest in the
Fund. A material irreconcilable conflict may arise for a variety of reasons,
-10-
<PAGE> 11
including: (a) an action by any state insurance regulatory authority; (b) a
change in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Variable Contract Owners.
4.3 The Insurer agrees that it shall report any potential or existing
conflicts of which it is aware to the Fund's Board of Trustees. The Insurer will
be responsible for assisting the Board of Trustees of the Fund in carrying out
its responsibilities under the Mixed and Shared Funding Exemptive Order or, if
the Fund is engaged in Mixed Funding or Shared Funding in reliance on Rule 6e-2,
6e-3(T), or any other regulation under the 1940 Act, the Insurer will be
responsible for assisting the Board of Trustees of the Fund in carrying out its
responsibilities under such regulation, by providing the Board with all
information reasonably necessary for the Board to consider any issues raised.
This includes, but is not limited to, an obligation by the Insurer to inform the
Board whenever Variable Contract Owner voting instructions are disregarded. The
Insurer shall carry out its responsibility Linder this Section 4.3 with a view
only to the interests of the Variable Contract Owners.
4.4 The Insurer agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Insurer shall, at its expense and to the extent reasonably
-11-
<PAGE> 12
practicable (as determined by a majority of the disinterested Trustees of the
Board of the Fund), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another portfolio of the Fund, or submitting the question as to
whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners or life insurance contract
owners of contracts issued by one or more Participating Insurance Companies),
that votes in favor of such segregation, or offering to the affected Variable
Contract Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of the Insurer's decision to
disregard Variable Contract Owners' voting instructions and that decision
represents a minority position or would preclude a majority vote, the Insurer
shall be required, at the Fund's election, to withdraw the Separate Accounts'
investment in the Fund, provided, however, that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees, and no
charge or penalty will be imposed as a result of such withdrawal. These
responsibilities shall be carried out with a view only to the interests of the
Variable Contract Owners. A majority of the disinterested Trustees of the Fund
shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict, but in no event will the Fund or its
investment adviser or the Distributor be required to establish a new funding
medium for any Variable Contract. The Insurer shall not be required by this
Section 4.4 to establish a new funding medium for any Variable Contract if any
offer to do so has been declined by vote of
-12-
<PAGE> 13
a majority of Variable Contract Owners materially adversely affected by the
material irreconcilable conflict.
4.5 The Insurer, at least annually, shall submit to the Fund's Board of
Trustees such reports, materials, or data as the Board reasonably may request so
that the Trustees of the Fund may fully carry out the obligations imposed upon
the Board by the conditions contained in the application for the Mixed and
Shared Funding Exemptive Order and said reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
4.6 All reports of potential or existing conflicts received by the
Fund's Board of Trustees, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies of a
conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board of Trustees of
the Fund or other appropriate records, and such minutes or other records shall
be made available to the SEC upon request.
4.7 The Board of Trustees of the Fund shall promptly notify the Insurer
in writing of its determination of the existence of an irreconcilable material
conflict and its implications.
Article V. Prospectuses and Proxy Statements; Voting
5.1 The Insurer shall distribute such prospectuses, proxy statements
and periodic reports of the Fund to the owners of Variable Contracts issued by
the Insurer as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
-13-
<PAGE> 14
5.2 The Distributor shall provide the Insurer with as many copies of
the current prospectus of the Fund as the Insurer may reasonably request. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Insurer to either print a stand-alone document or print together in one
document the current prospectus for the Variable Contracts issued by the Insurer
and the current prospectus for the Fund, or a document combining the Fund
prospectus with prospectuses of other funds in which the Variable Contracts may
be invested. The Fund shall bear the expense of providing or printing copies of
its current prospectus that will be distributed to existing Variable Contract
Owners that are invested in the Fund, and the Insurer shall bear the expense of
printing copies of the Fund's prospectus that are used in connection with
offering the Variable Contracts issued by the Insurer.
5.3 The Fund and the Distributor shall provide, at the Fund's expense,
such copies of the Fund's current Statement of Additional Information ("SAI") as
may reasonably be requested, to the Insurer and to any owner of a Variable
Contract issued by the Insurer who requests such SAI.
5.4 The Fund, at its expense, shall provide the Insurer with copies of
its proxy materials, periodic reports to shareholders, and other communications
to shareholders in such quantity as the Insurer shall reasonably require for
purposes of distributing to owners of Variable Contracts that are invested in
the Fund. The Fund, at the Insurer's expense, shall provide the Insurer with
copies of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Insurer shall reasonably request for use in
connection with
-14-
<PAGE> 15
offering the Variable Contracts issued by the Insurer. If requested by the
Insurer in lieu thereof, the Fund shall provide such documentation (including a
final copy of the Fund's proxy materials, periodic reports to shareholders, and
other communications to shareholders, as set in type or in camera-ready copy)
and other assistance as reasonably necessary in order for the Insurer to print
such shareholder communications for distribution to owners of Variable Contracts
issued by the Insurer. The Fund shall bear the expense of printing and
distributing shareholder communications to owners of Variable Contracts invested
in the Fund.
5.5 For so long as the SEC interprets the 1940 Act to require
passthrough voting by Participating Insurance Companies whose Separate Accounts
are registered as investment companies under the 1940 Act, the Insurer shall
vote shares of each Portfolio of the Fund held in a Separate Account or a
subaccount thereof, whether or not registered under the 1940 Act, at regular and
special meetings of the Fund in accordance with instructions timely received by
the Insurer (or its designated agent) from owners of Variable Contracts funded
by such Separate Account or subaccount thereof having a voting interest in the
Portfolio. The Insurer shall vote shares of a Portfolio of the Fund held in a
Separate Account or a subaccount thereof that are attributable to the Variable
Contracts as to which no timely instructions are received, as well as shares
held in such Separate Account or subaccount thereof that are not attributable to
the Variable Contracts and owned beneficially by the Insurer (resulting from
charges against the Variable Contracts or otherwise), in the same proportion as
the votes cast by owners of the Variable Contracts funded by that Separate
Account or subaccount thereof having a voting interest in the Portfolio from
whom instructions have been timely received. The Insurer shall vote shares of
each Portfolio of the Fund held in its general account, if any, in the same
-15-
<PAGE> 16
proportion as the votes cast with respect to shares of the Portfolio held in all
Separate Accounts of the Insurer or subaccounts thereof, in the aggregate.
5.6 During such time as the Fund engages in Mixed Funding or Shared
Funding, the Fund shall disclose in its prospectus that (1) the Fund is intended
to be a funding vehicle for variable annuity and variable life insurance
contracts offered by various insurance companies, (2) material irreconcilable
conflicts possibly may arise, and (3) the Board of Trustees of the Fund will
monitor events in order to identify the existence of any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict. The Fund hereby notifies the Insurer that prospectus
disclosure may be appropriate regarding potential risks of offering shares of
the Fund to separate accounts funding both variable annuity contracts and
variable life insurance policies and to separate accounts funding Variable
Contracts of unaffiliated life insurance companies.
Article VI. Sales Material and Information
6.1 The Insurer shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund (or any Portfolio thereof) or its investment adviser
or the Distributor is named at least 15 days prior to the anticipated use of
such material, and no such sales literature or other promotional material shall
be used unless the Fund and the Distributor or the designee of either approve
the material or do not respond with comments on the material within 10 days from
receipt of the material.
-16-
<PAGE> 17
6.2 The Insurer agrees that neither it nor any of its affiliates or
agents shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund other than the, information or
representations contained in the Registration Statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee and by the Distributor or its designee, except with the permission of
the Fund or its designee and the Distributor or its designee.
6.3 The Fund or the Distributor or the designee of either shall furnish
to the Insurer or its designee, each piece of sales literature or other
promotional material in which the Insurer or its Separate Accounts are named at
least 15 days prior to the anticipated use of such material, and no such
material shall be used unless the Insurer or its designee approves the material
or does not respond with comments on the material within 10 days from receipt of
the material.
6.4 The Fund and the Distributor agree that each and the affiliates and
agents of each shall not give any information or make any representations on
behalf of the Insurer or concerning the Insurer, the Separate Accounts, or the
Variable Contracts issued by the Insurer, other than the information or
representations contained in a registration statement or prospectus for such
Variable Contracts, as such registration statement and prospectus may be amended
or supplemented from time to time, or in reports for the Separate Accounts or
prepared for distribution to owners of such Variable Contracts, or in sales
literature or other promotional material approved by the Insurer or its
designee, except with the permission of the Insurer.
-17-
<PAGE> 18
6.5 The Fund will provide to the Insurer at least one complete copy of
the Mixed and Shared Funding Exemptive Application and any amendments thereto,
all prospectuses, Statements of Additional Information, reports, proxy
statements and other voting solicitation materials, and all amendments and
supplements to any of the above, that relate to the Fund or its shares, promptly
after the filing of such document with the SEC or other regulatory authorities.
6.6 The Insurer will provide to the Fund all prospectuses (which shall
include an offering memorandum if the Variable Contracts issued by the Insurer
or interests therein are not registered under the 1933 Act), Statements of
Additional Information, reports, solicitations for voting instructions relating
to the Fund, and all amendments or supplements to any of the above that relate
to the Variable Contracts issued by the Insurer or the Separate Accounts which
utilize the Fund as an underlying investment medium, promptly after the filing
of such document with the SEC or other regulatory authority.
6.7 For purposes of this Article VI, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, computerized media, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees.
Article VII. Indemnification
-18-
<PAGE> 19
7.1 Indemnification by the Insurer
7.1(a) The Insurer agrees to indemnify and hold harmless the Fund, each
of its Trustees and officers, any affiliated person of the Fund within the
meaning of Section 2(a)(3) of the 1940 Act, and the Distributor (collectively,
the "Indemnified Parties" for purposes of this Section 7.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Insurer) or litigation expenses (including legal and
other expenses), to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus (which shall include an offering
memorandum) for the Variable Contracts issued by the Insurer or sales
literature for such Variable Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to the Insurer by or on behalf of
the Fund for use in the registration statement or
-19-
<PAGE> 20
prospectus for the Variable Contracts issued by the Insurer or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations contained in
the registration statement, prospectus or sales literature of the Fund
not supplied by the Insurer or persons under its control) or wrongful
conduct of the Insurer or any of its affiliates, employees or agents
with respect to the sale or distribution of the Variable Contracts
issued by the Insurer or the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon information furnished to the Fund by or on behalf
of the Insurer; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Insurer in this Agreement or
arise out of or result from any other material breach of this Agreement
by the Insurer;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
-20-
<PAGE> 21
7.1(b) The Insurer shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Fund.
7.1(c) The Insurer shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Insurer in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Insurer of any such claim shall not relieve the Insurer
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the Insurer
shall be entitled to participate, at its own expense, in the defense of such
action. The Insurer also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Insurer to such party of the Insurer's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Insurer will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.1(d) The Indemnified Parties shall promptly notify the Insurer of the
commencement of any litigation or proceedings against them in connection with
the issuance or
-21-
<PAGE> 22
sale of the Fund shares or the Variable Contracts issued by the Insurer or the
operation of the Fund.
7.2 Indemnification By the Distributor
7.2(a) The Distributor agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable Contracts, and
each of their directors and officers and any affiliated person of the Insurer
within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Distributor) or litigation expenses (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to
the Distributor or the Fund or the designee of either by or on behalf
of the Insurer for use in the registration
-22-
<PAGE> 23
statement or prospectus for the Fund or in sales literature
(or any amendment or supplement) or otherwise for use in the
registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Variable Contracts
issued by the Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representations (other than statements or representations contained in
the registration statement, prospectus or sales literature for the
Variable Contracts not supplied by the Distributor or any employees or
agents thereof) or wrongful conduct of the Fund or Distributor, or the
affiliates, employees, or agents of the Fund or the Distributor with
respect to the sale or distribution of the Variable Contracts issued by
the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts issued
by the Insurer, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Insurer by or on behalf of
the Fund; or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor in this
Agreement or arise
-23-
<PAGE> 24
out of or result from any other material breach of this
Agreement by the Distributor;
except to the extent provided in Sections 7.2(b) and 7-2(c) hereof.
7.2(b) The Distributor shall not be liable tinder this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
7.2(c) The Distributor shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Party shall have notified the Distributor in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Party shall have received notice of such service on any designated agent),
but failure to notify the Distributor of any such claim shall not relieve the
Distributor from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Distributor will be entitled to participate, at is own
expense, in the defense thereof. The Distributor also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Distributor to such party of the Distributor's
election to assume the defense thereof, the
-24-
<PAGE> 25
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party under this
Agreement for any legal or other expense subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2(d) The Insurer shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the operation of the Separate Accounts.
7.3 Indemnification by the Fund
7.3(a) The Fund agrees to indemnify and hold harmless the Insurer, its
affiliated principal underwriter of the Variable Contracts, and each of their
directors and officers and any affiliated person of the Insurer within the
meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified
Parties" for purposes of this Section 7.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Fund) or litigation expenses (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses are related to the sale or acquisition of the
Fund's shares or the Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the Fund
(or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged
-25-
<PAGE> 26
omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Distributor or the Fund or the designee of either by or on
behalf of the Insurer for use in the registration statement or
prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection
with the sale of the Variable Contracts issued by the Insurer
or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the Variable Contracts not supplied by the
Distributor or any employees or agents thereof) or wrongful
conduct of the Fund, or the affiliates, employees, or agents
of the Fund, with respect to the sale or distribution of the
Variable Contracts issued by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
registration statement, prospectus or sales literature
covering the Variable Contracts issued by the Insurer, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Insurer by or on behalf of the Fund; or
-26-
<PAGE> 27
(iv) arise out of or result from any material breach
of any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
7.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such party shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense thereof. The Fund
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense
-27-
<PAGE> 28
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
7.3(d) The Insurer shall promptly notify the Fund of the commencement
of any litigation or proceedings against it or any of its officers or directors
in connection with the issuance or sale of the Variable Contracts issued by the
Insurer or the sale of the Fund's shares.
Article VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Pennsylvania.
8.2 This Agreement shall be subject to the provisions of the 1933,
1934, and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order), and the terms hereof shall be interpreted and construed in accordance
therewith.
Article IX. Termination
9.1 This Agreement shall terminate:
-28-
<PAGE> 29
(a) at the option of any party upon 180 days advance written notice to
the other parties; or
(b) at the option of the Insurer if shares of the Portfolios are not
reasonably available to meet the requirements of the Variable Contracts issued
by the Insurer, as determined by the Insurer, and upon prompt notice by the
Insurer to the other parties; or
(c) at the option of the Fund or the Distributor upon institution of
formal proceedings against the Insurer or its agent by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body regarding
the Insurer's duties under this Agreement or related to the sale of the Variable
Contracts issued by the Insurer, the operation of the Separate Accounts, or the
purchase of the Fund shares; or
(d) at the option of the Insurer upon institution of formal proceedings
against the Fund or the Distributor by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body; or
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to substitute the
shares of another investment company for the corresponding shares of the Fund or
a Portfolio in accordance with the terms of the Variable Contracts for which
those shares had been selected or serve as the underlying investment media; or
(f) in the event any of the shares of a Portfolio are not registered,
issued or sold in accordance with applicable state and/or federal law, or such
law precludes the use of such shares
-29-
<PAGE> 30
as the underlying investment media of the Variable Contracts issued or to be
issued by the Insurer; or
(g) by any party to the Agreement upon a determination by a majority of
the Trustees of the Fund, or a majority of its disinterested Trustees, that an
irreconcilable conflict, as described in Article IV hereof, exists; or
(h) at the option of the Insurer if the Fund or a Portfolio fails to
meet the requirements under Subchapter M of the Code for qualification as a
Regulated Investment Company specified in Section 3.2 hereof or the
diversification requirements specified in Section 3.3 hereof.
9.2 Each party to this Agreement shall promptly notify the other
parties to the Agreement of the institution against such party of any such
formal proceedings as described in Sections 9.1(c) and (d) hereof. The Insurer
shall give 60 days prior written notice to the Fund of the date of any proposed
vote of Variable Contract Owners to replace the Fund's shares as described in
Section 9.1(e) hereof.
9.3 Except as necessary to implement Variable Contract Owner initiated
transactions, or as required by state insurance laws or regulations, the Insurer
shall not redeem Fund shares attributable to the Variable Contracts issued by
the Insurer (as opposed to Fund shares attributable to the Insurer's assets held
in the Separate Accounts), and the Insurer shall not prevent Variable Contract
Owners from allocating payments to a Portfolio, until 60 days after the Insurer
shall have notified the Fund or Distributor of its intention to do so.
-30-
<PAGE> 31
9.4 Notwithstanding any termination of this Agreement, the Fund and the
Distributor shall at the option of the Insurer continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, based upon instructions from the owners of the
Existing Contracts, the Separate Accounts shall be permitted to reallocate
investments in the Portfolios of the Fund and redeem investments in the
Portfolios, and shall be permitted to invest in the Portfolios in the event that
owners of the Existing Contracts make additional purchase payments under the
Existing Contracts. If this Agreement terminates, the parties agree that
Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or a
portion of the assets of the Separate Accounts continue to be invested in the
Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and
5.6 will remain in effect after termination.
Article X. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Insurance Management Series
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
-31-
<PAGE> 32
If to the Distributor:
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Insurer:
Providentmutual Life and Annuity Company of America
1600 Market Street
Philadelphia, PA 19103
Attn.: David N. Ingram
Article XI. Miscellaneous
11.1 The Fund and the Insurer agree that if and to the extent Rule 6e-2
or Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in
final form, to the extent applicable, the Fund and the Insurer shall each take
such steps as may be necessary to comply with the Rule as amended or adopted in
final form.
11.2 A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that any agreements that are executed on behalf of the Fund by any Trustee
or officer of the Fund are executed in his or her capacity as Trustee or officer
and not individually. The obligations of this Agreement shall only be binding
upon the assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
11.3 Nothing in this Agreement shall impede the Fund's Trustees or
shareholders of the shares of the Fund's Portfolios from exercising any of the
rights provided to such Trustees or
-32-
<PAGE> 33
shareholders in the Fund's Agreement and Declaration of Trust, as amended, a
copy of which will be provided to the Insurer upon request.
11.4 Administrative services to Variable Contract Owners shall be the
responsibility of Insurer. Insurer, on behalf of its separate accounts will be
the sole shareholder of record of Fund shares. Fund and Distributor recognize
that they will derive a substantial savings in administrative expense by virtue
of having a sole shareholder rather than multiple shareholders. In consideration
of the administrative savings resulting from having a sole shareholder rather
than multiple shareholders, Distributor agrees to pay to Insurer an amount
computed at an annual rate of .25 of 1%, of the average daily net asset value of
shares held in subaccounts for which Insurer provides administrative services.
Distributor's payments to Insurer are for administrative services only and do
not constitute payment in any manner for investment advisory services.
11.5 It is understood that the name "Federated" or any derivative
thereof or logo associated with that name is the valuable property of the
Distributor and its affiliates, and that the Insurer has the right to use such
name (or derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Insurer shall forthwith cease to use such name
(or derivative or logo).
11.6 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
-33-
<PAGE> 34
11.8 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
11.9 This Agreement may not be assigned by any party to the Agreement
except with the written consent of the other parties to the Agreement.
-34-
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
INSURANCE MANAGEMENT
SERIES
ATTEST:/s/ G. Andrew Bonnewll BY: /s/ John W. McGonigle
--------------------- ----------------------------
Name: G. Andrew Bonnewll Name:John W. McGonigle
Title: Assistant Secretary Title:Executive Vice President
FEDERATED SECURITIES CORP.
ATTEST:/s/ Byron F. Bowman BY:/s/ Richard B. Fisher
--------------------- ----------------------------
Name: Byron F. Bowman Name: Richard B. Fisher
Title: Secretary Title: Chairman, CEO, COO
PROVIDENTMUTUAL LIFE AND
ANNUITY COMPANY OF AMERICA
ATTEST: /s/ Linda E. Senker BY: /s/ David N. Ingram
--------------------- ----------------------------
Name: Linda E. Senker Name: David N. Ingram
Title: Legal Officer Title: Executive Vice President
-35-
<PAGE> 36
EXHIBIT A
Providentmutual Variable Annuity Separate Account
-36-
<PAGE> 37
EXHIBIT B
U.S. Government Bond Fund
Utility Fund
-37-
<PAGE> 1
Exhibit (8)(i)
PARTICIPATION AGREEMENT
THIS AGREEMENT, is made as of ____________, 2000, by and among
Provident Mutual Life and Annuity Company of America ("Company"), on its own
behalf and on behalf of ______________________ Separate Account, a segregated
asset account of the Company ("Account"), Strong Variable Insurance Funds, Inc.
("Strong Variable") on behalf of the Portfolios of Strong Variable listed on the
attached Exhibit A as such Exhibit may be amended from time to time (the
"Designated Portfolios"), Strong Opportunity Fund II, Inc. ("Opportunity Fund
II"), Strong Capital Management, Inc. (the "Adviser"), the investment adviser
and transfer agent for the Opportunity Fund II and Strong Variable, and Strong
Investments, Inc. ("Distributors"), the distributor for Strong Variable and the
Opportunity Fund II (each, a "Party" and collectively, the "Parties").
PRELIMINARY STATEMENTS
A. Beneficial interests in Strong Variable are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (each, a "Portfolio").
B. To the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of Opportunity Fund II and
the Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each
Designated Portfolio and to the Opportunity Fund II to the extent the context
requires), on behalf of the Account to fund the variable annuity contracts that
use the Funds as an underlying investment medium (the "Contracts").
C. The Company, Adviser and Distributors desire to facilitate the
purchase and redemption of shares of the Funds by the Company for the Account
through one or more accounts, which number shall be as mutually agreed upon by
the parties, in each Fund (each an "Omnibus Account"), to be maintained of
record by the Company, subject to the terms and conditions of this Agreement.
D. The Company desires to provide administrative services and functions
(the "Services") for purchasers of Contracts ("Owners") who are beneficial
owners of shares of the Funds on the terms and conditions set forth in this
Agreement.
AGREEMENTS
The parties to this Agreement agree as follows:
1. Performance of Services. Company agrees to perform the administrative
functions and services specified in Exhibit B attached to this Agreement with
respect to the shares of the Funds beneficially owned by the Owners and included
in the Account. Nothing in this Agreement shall limit Company's right to engage
one or more of its wholly owned subsidiaries (each, a "Designee") to provide all
or any portion of the Services, but no such engagement shall relieve Company of
its duties, responsibilities or liabilities under this Agreement.
<PAGE> 2
2. The Omnibus Accounts.
2.1 Each Omnibus Account will be opened based upon the information
contained in Exhibit C to this Agreement. In connection with each Omnibus
Account, Company represents and warrants that it is authorized to act on behalf
of each Owner effecting transactions in the Omnibus Account and that the
information specified on Exhibit C to this Agreement is correct.
2.2 Each Fund shall designate each Omnibus Account with an account
number. These account numbers will be the means of identification when the
Parties are transacting in the Omnibus Accounts. The assets in the Accounts are
segregated from the Company's own assets. The Adviser agrees to cause the
Omnibus Accounts to be kept open on each Fund's books, as applicable, regardless
of a lack of activity or small position size except to the extent the Company
takes specific action to close an Omnibus Account or to the extent a Fund's
prospectus reserves the right to close accounts which are inactive or of a small
position size. In the latter two cases, the Adviser will give prior notice to
the Company before closing and Omnibus Account.
2.3 The Company agrees to provide Adviser such information as Adviser
or Distributors may reasonably request concerning Owners as may be necessary or
advisable to enable Adviser and Distributors to comply with applicable laws,
including state "Blue Sky" laws relating to the sales of shares of the Funds to
the Accounts.
3. Fund Shares Transactions.
3.1 In General. Shares of the Funds shall be sold on behalf of the
Funds by Distributors and purchased by Company for the Account and, indirectly
for the appropriate subaccount thereof at the net asset value next computed
after receipt by Distributors of each order of the Company or its Designee, in
accordance with the provisions of this Agreement, the then current prospectuses
of the Funds, and the Contracts. Company may purchase shares of the Funds for
its own account subject to (a) receipt of prior written approval by
Distributors; and (b) such purchases being in accordance with the then current
prospectuses of the Fund and the Contracts. The Board of Directors of each Fund
("Directors") may refuse to sell shares of the applicable Fund to any person, or
suspend or terminate the offering of shares of the Fund if such action is
required by law or by regulatory authorities having jurisdiction. Company agrees
to purchase and redeem the shares of the Funds in accordance with the provisions
of this Agreement, of the Contracts and of the then current prospectuses for the
Contracts and Funds. Except as necessary to implement transactions initiated by
Owners, or as otherwise permitted by state or federal laws or regulations,
Company shall not redeem shares of Funds attributable to the Contracts.
3.2 Purchase and Redemption Orders. On each day that a Fund is open for
business (a "Business Day"), the Company or its Designee shall aggregate and
calculate the net purchase or redemption order it receives for the Account from
the Owners for shares of the Fund that it received prior to the close of trading
on the New York Stock Exchange (the "NYSE") (i.e. 3:00 p.m., Central time,
unless the NYSE closes at an earlier time in which case such earlier time shall
apply) and communicate to Distributors, by telephone or facsimile (or by such
other means as the
2
<PAGE> 3
Parties to this Agreement may agree to in writing), the net aggregate purchase
or redemption order (if any) for the Omnibus Account for such Business Day (such
Business Day is sometimes referred to herein as the "Trade Date"). The Company
or its Designee will communicate such orders to Distributors prior to 9:00 a.m.,
Central time, on the next Business Day following the Trade Date. All trades
communicated to Distributors by the foregoing deadline shall be treated by
Distributors as if they were received by Distributors prior to the close of the
trading on the Trade Date.
3.3 Settlement of Transactions.
(a) Purchases. Company or its Designee will wire, or arrange
for the wire of, the purchase price of each purchase order to the custodian for
the Fund in accordance with written instructions provided by Distributors to the
Company so that either (i) such funds are received by the custodian for the Fund
prior to 10:30 a.m., Central time, on the next Business Day following the Trade
Date, or (ii) Distributors is provided with a Federal Funds wire system
reference number prior to such 10:30 a.m. deadline evidencing the entry of the
wire transfer of the purchase price to the applicable custodian into the Federal
Funds wire system prior to such time. Company agrees that if it fails to provide
funds to the Fund's custodian by the close of business on the next Business Day
following the Trade Date, then, at the option of Distributors, (A) the
transaction may be canceled, or (B) the transaction may be processed at the
next-determined net asset value for the applicable Fund after purchase order
funds are received. In such event, the Company shall indemnify and hold harmless
Distributors, Adviser and the Funds from any liabilities, costs and damages
either may suffer as a result of such failure.
(b) Redemptions. The Adviser will use its best efforts to
cause to be transmitted to such custodian account as Company shall direct in
writing, the proceeds of all redemption orders placed by Company or its Designee
by 9:00 a.m., Central time, on the Business Day immediately following the Trade
Date, by wire transfer on that Business Day. Should Adviser need to extend the
settlement on a trade, it will contact Company to discuss the extension. For
purposes of determining the length of settlement, Adviser agrees to treat the
Account no less favorably than order shareholders of the Funds. Each wire
transfer of redemption proceeds shall indicate, on the Federal Funds wire
system, the amount thereof attributable to each Fund; provided, however, that if
the number of entries would be too great to be transmitted through the Federal
Funds wire system, the Adviser shall, on the day the wire is sent, fax such
entries to Company or if possible, send via direct or indirect systems access
until otherwise directed by the Company in writing.
3.4 Book Entry Only. Issuance and transfer of shares of a Fund will be
by book entry only. Stock certificates will not be issued to the Company or the
Account. Shares of the Funds ordered from Distributors will be recorded in the
appropriate book entry title for the Account.
3.5 Distribution Information. The Adviser or Distributors shall provide
the Company with all distribution announcement information as soon as it is
announced by the Funds. The distribution information shall set forth, as
applicable, ex-dates, record date, payable date, distribution rate per share,
record date share balances, cash and reinvested payment amounts and all other
information reasonably requested by the Company. Where possible, the Adviser or
3
<PAGE> 4
Distributors shall provide the Company with direct or indirect systems access to
the Adviser's systems for obtaining such distribution information.
3.6 Reinvestment. All dividends and capital gains distributions will be
automatically reinvested on the payable date in additional shares of the
applicable Fund at net asset value in accordance with each Fund's then current
prospectus.
3.7 Pricing Information. Distributors shall use its best efforts to
furnish to the Company prior to 6:00 p.m., Central time, on each Business Day
each Fund's closing net asset value for that day, and for those Funds for which
such information is calculated, the daily accrual for interest rate factor (mil
rate). Such information shall be communicated via fax, or indirect or direct
systems access acceptable to the Company.
3.8 Price Errors.
(a) Notification. If an adjustment is required in accordance
with a Fund's then current policies on reimbursement ("Fund Reimbursement
Policies") to correct any error in the computation of the net asset value of
Fund shares ("Prices Error"), Adviser or Distributors shall notify Company as
soon as practicable after discovering the Price Error. Notice may be made via
facsimile or via direct or indirect systems access and shall state the incorrect
price, the correct price, the correct price and, to the extent communicated to
the Fund's shareholders, the reason for the price change.
(b) Underpayments. If a Price Error causes an Account to
receive less than the amount to which it otherwise would have been entitled,
Adviser shall make all necessary adjustments (subject to the Fund Reimbursement
Policies) so that the Account receives the amount to which it would have been
entitled.
(c) Overpayments. If a Price Error causes an Account to
receive more than the amount to which it otherwise would have been entitled,
Company, when requested by Adviser (in accordance with the Fund Reimbursement
Policies), will use its best efforts to collect such excess amounts from the
applicable Owners.
(d) Fund Reimbursement Policies. Adviser agrees to treat
Company's customers no less favorably than Adviser treats its retail
shareholders in applying the provisions of paragraphs 3.8(b) and 3.8(c).
(e) Expenses. Adviser shall reimburse Company for all
reasonable and necessary out-of-pocket expenses incurred by Company for payroll
overtime, stationery and postage in adjusting Owner accounts affected by a Price
Error described in paragraphs 3.8(b) and 3.8(c). Company shall use its best
efforts to mitigate all expenses which may be reimbursable under this section
3.8(e) and agrees that payroll overtime shall not include any time spent
programming computers or otherwise customizing Company's recordkeeping system.
Upon requesting reimbursement, Company shall present an itemized bill to Adviser
detailing the costs for which it seeks reimbursement.
4
<PAGE> 5
3.9 Agency. Distributors hereby appoints the Company or its Designee as
its agents for the limited purpose of accepting purchase and redemption
instructions from the Owners for the purchase and redemption of shares of the
Funds by the Company on behalf of Account.
3.10 Quarterly Reports. Adviser agrees to provide Company a statement
of Fund assets as soon as practicable and in any event within 30 days after the
end of each fiscal quarter, and a statement certifying the compliance by the
Funds during that fiscal quarter with the diversification requirements and
qualification as a regulated investment company. In the event of a breach of
Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of
such breach and (b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation 1.817-5.
4. Proxy Solicitations and Voting. The Company shall, at its expense,
distribute or arrange for the distribution of all proxy materials furnished by
the Funds to the Account and shall: (a) solicit voting instructions from Owners:
(b) vote the Funds shares in accordance with instructions received from Owners;
and (c) vote the Fund shares for which no instructions have been received, as
well as shares attributable to it, in the same proportion as Fund shares for
which instructions have been received from Owners, so long as and to the extent
that the Securities and Exchange Commission (the "SEC") continues to interpret
the Investment Company Act of 1940, as amended (the "1940 Act"), to require
pass-through voting privileges for various contract owners. The Company and its
Designees will not recommend action in connection with, or oppose or interfere
with, the solicitation of proxies for the Fund shares held for Owners.
5. Customer Communications.
5.1 Prospectus. The Adviser or Distributors, at its expense, will
provide the Company with as many copies of the current prospectus for the Funds
as the Company may reasonably request for distribution, at the Company's
expense, to existing or prospective Owners.
5.2 Shareholder Materials. The Adviser and Distributors shall, as
applicable, provide in bulk to the Company or its authorized representative, at
a single address and at no expense to the Company, the following shareholder
communications materials prepared for circulation to Owners in quantities
requested by the Company which are sufficient to allow mailing thereof by the
Company and, to the extent required by applicable law, to all Owners: proxy or
information statements, annual reports, semi-annual reports, and all initial and
updated prospectuses, supplements and amendments thereof. None of the Funds, the
Adviser or Distributors shall responsible for the cost of distributing such
materials to Owners.
6. Representations and Warranties.
6.1 The Company represents and warrants that:
(a) It is an insurance company duly organized and in good
standing under the laws of the State of Delaware and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account and that the Company has and will maintain the capacity
to issue all Contracts that may be sold; and that it is and will remain duly
5
<PAGE> 6
registered, licensed, qualified and in good standing to sell the Contracts in
all the jurisdictions in which such Contracts are to be offered or sold;
(b) It and each of its Designees is and will remain duly
registered and licensed in all material respects under all applicable federal
and state securities and insurance laws and shall perform its obligations under
this Agreement in compliance in all materials respects with any applicable state
and federal laws;
(c) The Contracts are and will be registered under the
Securities Act of 1933, as amended (the "1933 Act"), and are and will be
registered and qualified for sale in the states where so required; and the
Account is and will be registered as a unit investment trust in accordance with
the 1940 Act and shall be a segregated investment account for the Contracts;
(d) The Contracts are currently treated as annuity contracts,
under applicable provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), and the Company will maintain such treatment and will notify
Adviser, Distributors and Funds promptly upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might not
be so treated in the future;
(e) It and each of its Designees is registered as a transfer
agent pursuant to Section 17A of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), or is not required to be registered as such;
(f) The arrangements provided for in this Agreement will be
disclosed to the Owners; and
(g) It is registered as a broker-dealer under the 1934 Act and
any applicable state securities laws, including as a result of entering into and
performing the Services set forth in this Agreement, or is not required to be
registered as such.
6.2 The Funds each represent and warrant that Fund shares sold pursuant
to this Agreement are and will be registered under the 1933 Act and the Fund is
and will be registered as a registered investment company under the Investment
Company Act of 1940, in each case, except to the extent the Company is so
notified in writing;
6.3 Distributors represents and warrants that:
(a) It is and will be a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and is and will be
registered as a broker-dealer with the SEC; and
(b) It will sell and distribute Fund shares in accordance with
all applicable state and federal laws and regulations.
6.4 Adviser represents and warrants that:
(a) It will cause each Fund to invest money from the Contracts
in such a manner as to ensure that the Contracts will be treated as variable
annuity contracts under the
6
<PAGE> 7
Code and the regulations issued thereunder, and that each Fund will comply with
Section 817(h) of the Code as amended from time to time and with all applicable
regulations promulgated thereunder; and
(b) It is and will remain duly registered and licensed in all
material respects under all applicable federal and state securities and
insurance laws and shall perform its obligations under this Agreement in
compliance in all material respects with any applicable state and federal laws.
6.5 Each of the Parties to this Agreement represents and warrants to
the others that:
(a) It has full power and authority under applicable law, and
has taken all action necessary, to enter into and perform this Agreement and the
person executing this Agreement on its behalf is duly authorized and empowered
to execute and deliver this Agreement;
(b) This Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms and it shall
comply in all material respects with all laws, rules and regulations applicable
to it by virtue of entering into this Agreement;
(c) No consent or authorization of, filing with, or other act
by or in respect of any governmental authority, is required in connection with
the execution, delivery, performance, validity or enforceability of this
Agreement;
(d) The execution, performance and delivery of this Agreement
will not result in it violating any applicable law or breaching or otherwise
impairing any of its contractual obligations;
(e) Each Party to this Agreement is entitled to rely on any
written records or instructions provided to it by another Party; and
(f) Its directors, officers, employees, and investment
advisers, and other individuals/entities dealing with the money or securities of
a Fund are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less than
the amount required by the applicable rules of the NASD and the federal
securities laws, which bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company.
7. Sales Material and Information
7.1 NASD Filings. The Company shall promptly inform Distributors as to
the status of all sales literature filings pertaining to the Funds and shall
promptly notify Distributors of all approvals or disapprovals of sales
literature filings with the NASD. For purposes of this Section 7, the phrase
"sales literature or other promotional material" shall be construed in
accordance with all applicable securities laws and regulations.
7.2 Company Representations. Neither the Company nor any of its
Designees shall make any material representations concerning the Adviser, the
Distributors, or a Fund other than
7
<PAGE> 8
the information or representations contained in: (a) a registration statement of
the Fund or prospectus of a Fund, as amended or supplemented from time to time;
(b) published reports or statements of the Funds which are in the public domain
or are approved by Distributors or the Funds; or (c) sales literature or other
promotional material of the Funds.
7.3 Adviser, Distributors and Fund Representations. None of Adviser,
Distributors or any Fund shall make any material representations concerning the
Company or its Designees other than the information or representations contained
in: (a) a registration statement or prospectus for the Contracts, as amended or
supplemented from time to time; (b) published reports or statements of the
Contracts or the Account which are in the public domain or are approved by the
Company; or (c) sales literature or other promotional material of the Company.
7.4 Trademarks, etc. Except to the extent required by applicable law,
no Party shall use any other Party's names, logos, trademarks or service marks,
whether registered or unregistered, without the prior consent of such Party.
7.5 Information From Distributors and Adviser. Upon request,
Distributors or Adviser will provide to Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, solicitations for voting instructions, applications
for exemptions, requests for no action letters, and all amendments to any of the
above, that relate to the Funds, in final form as filed with the SEC, NASD and
other regulatory authorities.
7.6 Information From Company. Company will provide to Distributors at
least one complete copy of all registration statements, prospectuses, Statements
of Additional Information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters and all amendments to any of the above, that
relate to a Fund and the Contracts, in final form as filed with the SEC, NASD
and other regulatory authorities.
7.7 Review of Marketing Materials. If so requested by Company, the
Adviser or Distributors will use its best efforts to review sales literature and
other marketing materials prepared by Company which relate to the Funds, the
Adviser or Distributors for factual accuracy as to such entities, provided that
the Adviser or Distributors is provided at least five (5) Business Days to
review such materials. Neither the Adviser nor Distributors will review such
materials for compliance with applicable laws. Company shall provide the Adviser
with copies of all sales literature and other marketing materials which refer to
the Funds, the Adviser or Distributors within five (5) Business Days after their
first use, regardless of whether the Adviser or Distributors has previously
reviewed such materials. If so requested by the Adviser or Distributors, Company
shall cease to use any sales literature or marketing materials which refer to
the Funds, the Adviser or Distributors that the Adviser or Distributors
determines to be inaccurate, misleading or otherwise unacceptable.
8. Fees and Expenses.
8.1 Fund Registration Expenses. Fund or Distributors shall bear the
cost of registration and qualification of Fund shares; preparation and filing of
Fund prospectuses and
8
<PAGE> 9
registration statements, proxy materials and reports; preparation of all other
statements and notices relating to the Fund or Distributors required by any
federal or state law; payment of all applicable fees, including, without
limitation, any fees due under Rule 24f-2 of the 1940 Act, relating to a Fund;
and all taxes on the issuance or transfer of Fund shares on the Fund's records.
8.2 Contract Registration Expenses. The Company shall bear the expenses
for the costs of preparation and filing of the Company's prospectus and
registration statement with respect to the Contracts; preparation of all other
statements and notices relating to the Account or the Contracts required by any
federal or state law; expenses for the solicitation and sale of the Contracts
including all costs of printing and distributing all copies of advertisements,
prospectuses, Statements of Additional Information, proxy materials, and reports
to Owners or potential purchasers of the Contracts as required by applicable
state and federal law; payment of all applicable fees relating to the Contracts;
all costs of drafting, filing and obtaining approvals of the Contracts in the
various states under applicable insurance laws; filing of annual reports on form
N-SAR, and all other costs associated with ongoing compliance with all such laws
and its obligations under this Agreement.
9. Indemnification.
9.1 Indemnification By Company.
(a) Company agrees to indemnify and hold harmless the Funds,
Adviser and Distributors and each of their directors, officers, employees and
agents, and each person, if any, who controls any of them within the meaning of
Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively, the
"Indemnified Parties" for purposes of this Section 9.1) from and against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of Company), and expenses including reasonable legal
fees and expenses, (collectively, hereinafter "Losses"), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise insofar as such Losses:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in the registration
statement, prospectus or sales literature for the Contracts or contained in the
Contracts (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this paragraph 9.1(a) shall not apply as
to any Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with written information
furnished to Company by or on behalf of a Fund, Distributors or Adviser for use
in the registration statement or prospectus for the Contracts or in the
Contracts (or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Company, its Designees or its agents,
with respect to the sale or distribution of the Contracts or Fund shares; or
9
<PAGE> 10
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering a Fund or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, if such a statement or omission was made in reliance
upon written information furnished to a Fund, Adviser or Distributors by or on
behalf of Company; or
(iv) arise out of, or as a result of, any failure by
Company, its Designees or persons under the Company's or Designees' control to
provide the Services and furnish the materials contemplated under the terms of
this Agreement; or
(v) arise out of, or result from, any material breach of
any representation or warranty made by Company, its Designees or persons under
the Company's or Designees' control in this Agreement or arise out of or result
from any other material breach of this Agreement by Company, its Designees or
persons under the Company's or Designees' control; as limited by and in
accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or
(vi) arise out of, or as a result of, adherence by
Adviser or Distributors to instructions that it reasonably believes were
originated by authorized agents of Company.
This indemnification provision is in addition to any liability
which the Company or its Designees may otherwise have.
(b) Company shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful misfeasance,
bad faith, or gross negligence in the performance of such Indemnified Party's
duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement.
(c) Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Company of any such
claim shall not relieve Company from any liability which it may have to the
Indemnified Party otherwise than on account of this indemnification provision.
In case any such action is brought against any Indemnified Party, and it
notified the indemnifying Party of the commencement thereof, the indemnifying
Party will be entitled to participate therein and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such Indemnified
Party. After notice from the indemnifying Party of its intention to assume the
defense of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying Party shall not be
liable to such Indemnified Party under this Section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation. The Indemnified
Party may not settle any action without the written consent of the indemnifying
Party. The indemnifying Party may not settle
10
<PAGE> 11
any action without the written consent of the Indemnified Party unless such
settlement completely and finally releases the Indemnified Party from any and
all liability. In either event, consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Company of
the commencement of any litigation or proceedings against the Indemnified
Parties in connection with the issuance or sale of Fund shares or the Contracts
or the operation of a Fund.
9.2 Indemnification by Adviser and Distributors.
(a) Adviser and Distributors agrees to indemnify and hold
harmless Company and each of its directors, officers, employees and agents and
each person, if any, who controls Company within the meaning of Section 15 of
the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified
Parties" for purposes of this Section 9.2) from and against any and all Losses
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such Losses:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of a Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this Section 9.2(a) shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with written information furnished to a Fund,
Adviser or Distributors by or on behalf of Company for use in the registration
statement or prospectus for a Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of, or as a result of, statements or
representations or wrongful conduct of Adviser or Distributors or persons under
its control, with respect to the sale or distribution of Fund shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment thereof
or supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, if such statement or omission was made in reliance upon
written information furnished to Company by or on behalf of Adviser or
Distributors; or
(iv) arise out of, or as a result of, any failure by
Adviser or Distributors or persons under its control to provide the services and
furnish the materials contemplated under the terms of this Agreement; or
(v) arise out of or result from any material breach of
any representation or warranty made by Adviser or Distributors or persons under
its control in this Agreement or arise out of or result from any other material
breach of this Agreement by Adviser
11
<PAGE> 12
or Distributors or persons under its control; as limited by and in accordance
with the provisions of Sections 9.2(b) and 9.2(c) hereof.
This indemnification provision is in addition to any liability
which Adviser and Distributors may otherwise have.
(b) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any Losses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
(c) Adviser and Distributors shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified Adviser and Distributors
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify Adviser
and Distributors of any such claim shall not relieve Adviser and Distributors
from any liability which it may have to the Indemnified Party otherwise than on
account of this indemnification provision. In case any such action is brought
against any Indemnified Party, and it notified the indemnifying Party of the
commencement thereof, the indemnifying Party will be entitled to participate
therein and, to the extent that it may wish, assume the defense thereof, with
counsel satisfactory to such Indemnified Party. After notice from the
indemnifying Party of its intention to assume the defense of an action, the
Indemnified Party shall bear the expenses of any additional counsel obtained by
it, and the indemnifying Party shall not be liable to such Indemnified Party
under this Section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than reasonable
costs of investigation. The Indemnified Party may not settle any action without
the written consent of the indemnifying Party. The indemnifying Party may not
settle any action without the written consent of the Indemnified Party unless
such settlement completely and finally releases the Indemnified Party from any
and all liability. In either event, consent shall not be unreasonably withheld.
(d) The Indemnified Parties will promptly notify Adviser and
Distributors of the commencement of any litigation or proceedings against the
Indemnified Parties in connection with the issuance or sale of the Contracts or
the operation of the Account.
10. Potential Conflicts.
10.1 Monitoring by Directors for Conflicts of Interest. The Directors
of each Fund will monitor the Fund for any potential or existing material
irreconcilable conflict of interest between the interests of the contract owners
of all separate accounts investing in the Fund, including such conflict of
interest with any other separate account of any other insurance company
investing in the Fund. An irreconcilable material conflict may arise for a
variety of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretive letter, or any similar action by insurance, tax or
securities regulatory authorities;
12
<PAGE> 13
(c) an administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of the Fund are being managed; (e) a difference
in voting instructions given by variable annuity contract owners and variable
life insurance contract owners or by contract owners of different life insurance
companies utilizing the Fund; or (f) a decision by Company to disregard the
voting instructions of Owners. The Directors shall promptly inform the Company,
in writing, if they determine that an irreconcilable material conflict exists
and the implications thereof.
10.2 Monitoring by the Company for Conflicts of Interest. The Company
will promptly notify the Directors, in writing, of any potential or existing
material irreconcilable conflicts of interest, as described in Section 10.1
above, of which it is aware. The Company will assist the Directors in carrying
out their responsibilities under any applicable provisions of the federal
securities laws and any exemptive orders granted by the SEC ("Exemptive Order"),
by providing the Directors, in a timely manner, with all information reasonably
necessary for the Directors to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Directors whenever
Owner voting instructions are disregarded.
10.3 Remedies. If it is determined by a majority of the Directors, or a
majority of disinterested Directors, that a material irreconcilable conflict
exists, as described in Section 10.1 above, the Company shall, at its own
expense take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including, but not limited to: (a)
withdrawing the assets allocable to some or all of the separate accounts from
the applicable Fund and reinvesting such assets in a different investment
medium, including (but not limited to) another fund managed by the Adviser, or
submitting the question whether such segregation should be implemented to a vote
of all affected Owners and, as appropriate, segregating the assets of any
particular group that votes in favor of such segregation, or offering to the
affected owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
10.4 Causes of Conflicts of Interest.
(a) State Insurance Regulators. If a material irreconcilable
conflict arises because a particular state insurance regulator's decision
applicable to the Company conflicts with the majority of other state regulators,
then the Company will withdraw the affected Account's investment in the
applicable Fund and terminate this Agreement with respect to such Account within
the period of time permitted by such decision, but in no event later than six
months after the Directors inform the Company in writing that it has determined
that such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Directors. Until the end of the foregoing period,
the Distributors and Funds shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund to the extent
such actions do not violate applicable law.
(b) Disregard of Owner Voting. If a material irreconcilable
conflict arises because of Company's decision to disregard Owner voting
instructions and that decision represents a minority position or would preclude
a majority vote, Company may be required, at
13
<PAGE> 14
the applicable Fund's election, to withdraw the Account's investment in said
Fund. No charge or penalty will be imposed against the Account as a result of
such withdrawal.
10.5 Limitations on Consequences. For purposes of Sections 10.3 through
10.5 of this Agreement, a majority of the disinterested Directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict. In no event will a Fund, the Adviser or the Distributors be
required to establish a new funding medium for any of the Contracts. The Company
shall not be required by Section 10.3 to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of Owners
affected by the irreconcilable material conflict. In the event that the
Directors determine that any proposed action does not adequately remedy any
irreconcilable material conflict, then the Company will withdraw the Account's
investment in the applicable Fund and terminate this Agreement as quickly as may
be required to comply with applicable law, but in no event later than six (6)
months after the Directors inform the Company in writing of the foregoing
determination, provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict.
10.6 Changes in Laws. If and to the extent that Rule 6e-2 and Rule
6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from
any provision of the Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Funds' Exemptive Order) on terms and
conditions materially different from those contained in the Funds' Exemptive
Order, then (a) the Funds and/or the Adviser, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect only to the
extent that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
11. Maintenance of Records.
(a) Recordkeeping and other administrative services to Owners
shall be the responsibility of the Company and shall not be the responsibility
of the Funds, Adviser or Distributors. None of the Funds, the Adviser or
Distributors shall maintain separate accounts or records for Owners. Company
shall maintain and preserve all records as required by law to be maintained and
preserved in connection with providing the Services and in making shares of the
Funds available to the Account.
(b) Upon the request of the Adviser or Distributors, the
Company shall provide copies of all the historical records relating to
transactions between the Funds and the Account, written communications regarding
the Funds to or from the Account and other materials, in each case (1) as are
maintained by the Company in the ordinary course of its business and in
compliance with applicable law, and (2) as may reasonably be requested to enable
the Adviser and Distributors, or its representatives, including without
limitation its auditors or legal counsel, to (A) monitor and review the
Services, (B) comply with any request of a governmental body or self-regulatory
organization or the Owners, (C) verify compliance by the Company with the terms
of this Agreement, (D) make required regulatory reports, (E) verify to Advisor's
reasonable satisfaction that all purchase and redemption orders aggregated for
each Trade Date were received by Company prior to the, close of trading on the
NYSE on such Trade
14
<PAGE> 15
Date, or (F) perform general customer supervision. The Company agrees that it
will permit the Adviser and Distributors or such representatives of either to
have reasonable access to its personnel and records in order to facilitate the
monitoring of the quality of the Services.
(c) Upon the request of the Company, the Adviser and
Distributors shall provide copies of all the historical records relating to
transactions between the Funds and the Account, written communications regarding
the Funds to or from the Account and other materials, in each case (1) as are
maintained by the Adviser and Distributors, as the case may be, in the ordinary
course of its business and in compliance with applicable law, and (2) as may
reasonably be requested to enable the Company, or its representatives, including
without limitation its auditors or legal counsel, to (A) comply with any request
of a governmental body or self-regulatory organization or the Owners, (B) verify
compliance by the Adviser and Distributors with the terms of this Agreement, (C)
make required regulatory reports, or (D) perform general customer supervision.
(d) The Parties agree to cooperate in good faith in providing
records to one another pursuant to this Section 11.
12. Term and Termination.
12.1 Term and Termination Without Cause. The initial term of this
Agreement shall be for a period of one year from the date hereof. Unless
terminated as to any Fund upon not less than thirty (30) days prior written
notice to the other Parties, this Agreement shall thereafter automatically renew
for the remaining Funds from year to year, subject to termination at the next
applicable renewal date upon not less than 30 days prior written notice. Any
Party may terminate this Agreement as to any Fund following the initial term
upon six (6) months advance written notice to the other Parties.
12.2 Termination by Fund, Distributors or Adviser for Cause. Adviser,
Fund or Distributors may terminate this Agreement by written notice to the
Company, if any of them shall determine, in its sole judgment exercised in good
faith, that (a) the Company has suffered a material adverse change in its
business, operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or (b) any of the
Contracts are not registered, issued or sold in accordance with applicable state
and federal law or such law precludes the use of Fund shares as the underlying
investment media of the Contracts issued or to be issued by the Company.
12.3 Termination by Company for Cause. Company may terminate this
Agreement by written notice to the Adviser, Funds and Distributors in the event
that (a) any of the Fund shares are not registered, issued or sold in accordance
with applicable state or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued or to be
issued by the Company; (b) the Funds cease to qualify as Regulated Investment
Companies under Subchapter M of the Code or under any successor or similar
provision, or if the Company reasonably believes that the Funds may fail to so
qualify; or (c) a Fund fails to meet the diversification requirements specified
in Section 6.4(a).
15
<PAGE> 16
12.4 Termination by any Party. This Agreement may be terminated as to
any Fund by any Party at any time (a) by giving 30 days' written notice to the
other Parties in the event of a material breach of this Agreement by the other
Party or Parties that is not cured during such 30-day period, and (b) (i) upon
institution of formal proceedings relating to the legality of the terms and
conditions of this Agreement against the Account, Company, any Designee, the
Funds, Adviser or Distributors by the NASD, the SEC or any other regulatory body
provided that the terminating Party has a reasonable belief that the institution
of formal proceedings is not without foundation and will have a material adverse
impact on the terminating Party, (ii) by the non-assigning Party upon the
assignment of this Agreement in contravention of the terms hereof, or (iii) as
is required by law, order or instruction by a court of competent jurisdiction or
a regulatory body or self-regulatory organization with jurisdiction over the
terminating Party.
12.5 Limit on Termination. Notwithstanding the termination of this
Agreement with respect to any or all Funds, for so long as any Contracts remain
outstanding and invested in a Fund each Party to this Agreement shall continue
to perform such of its duties under this Agreement as are necessary to ensure
the continued tax deferred status thereof and the payment of benefits
thereunder, except to the extent proscribed by law, the SEC or other regulatory
body. Notwithstanding the foregoing, nothing in this Section 12.5 obligates a
Fund to continue in existence. In the event that any Fund elects to terminate
its operations, the Company shall, as soon as practicable, obtain an exemptive
order or order of substitution from the SEC to remove all Owners from the
applicable Fund.
13. Notices.
All notices under this Agreement shall be given in writing (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by registered or certified mail or by overnight delivery (postage
prepaid, return receipt requested) to the respective Parties as follows:
If to Strong Variable:
Strong Variable Insurance Funds, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Opportunity Fund II:
Strong Opportunity Fund II, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
16
<PAGE> 17
If to Adviser:
Strong Capital Management, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Distributors:
Strong Investments, Inc.
100 Heritage Reserve
Milwaukee, WI 53051
Attention: General Counsel
Facsimile No.: 414/359-3948
If to Company:
Provident Mutual Life and Annuity
Company of America
1000 Chesterbrook Blvd.
Berwyn, PA 19312
Attention: Ms. Nancy Mitchell
Facsimile No.:_________________
14. Miscellaneous.
14.1 Captions. The captions in this Agreement are included for
convenience of reference only and in no way affect the construction or effect of
any provisions hereof.
14.2 Enforceability. If any portion of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
the Agreement shall not be affected thereby.
14.3 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which taken together shall constitute one and the
same instrument.
14.4 Remedies not Exclusive. The rights, remedies and obligations
contained in this Agreement are cumulative and are in addition to any and all
rights, remedies and obligations, at law or in equity, which the Parties to this
Agreement are entitled to under state and federal laws.
14.5 Confidentiality. Subject to the requirements of legal process and
regulatory authority, the Funds and Distributors shall treat as confidential the
names and addresses of the owners of the Contracts and all information
reasonably identified as confidential in writing by the Company to this
Agreement and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the Company until such time
as it may come into the public domain.
17
<PAGE> 18
14.6 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Wisconsin applicable to
agreements fully executed and to be performed therein; exclusive of conflicts of
laws.
14.7 Survivability. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof
shall survive termination of this Agreement. In addition, all provisions of this
Agreement shall survive termination of this Agreement in the event that any
Contracts are invested in a Fund at the time the termination becomes effective
and shall survive for so long as such Contracts remain so invested.
14.8 Amendment and Waiver. No modification of any provision of this
Agreement will be binding unless in writing and executed by the Party to be
bound thereby. No waiver of any provision of this Agreement will be binding
unless in writing and executed by the Party granting such waiver.
Notwithstanding anything in this Agreement to the contrary, the Adviser may
unilaterally amend Exhibit A to this Agreement to add additional series of
Strong Variable Funds ("New Funds") as Funds by sending to the Company a written
notice of the New Funds. Any valid waiver of a provision set forth herein shall
not constitute a waiver of any other provision of this Agreement. In addition,
any such waiver shall constitute a present waiver of such provision and shall
not constitute a permanent future waiver of such provision.
14.9 Assignment. This Agreement shall be binding upon and shall inure
to the benefit of the Parties and their respective successors and assigns;
provided, however that neither this Agreement nor any rights, privileges, duties
or obligations of the Parties may be assigned by any Party without the written
consent of the other Parties or as expressly contemplated by this Agreement.
14.10 Entire Agreement. This Agreement contains the full and complete
understanding between the Parties with respect to the transactions covered and
contemplated under this Agreement, and supersedes all prior agreements and
understandings between the Parties relating to the subject matter hereof,
whether oral or written, express or implied.
14.11 Relationship of Parties; No Joint Venture, Etc. Except for the
limited purpose provided in Section 3.8, it is understood and agreed that the
Company and each of its Designees shall be acting as an independent contractor
and not as an employee or agent of the Adviser, Distributors or the Funds, and
none of the Parties shall hold itself out as an agent of any other Party with
the authority to bind such Party. Neither the execution nor performance of this
Agreement shall be deemed to create a partnership or joint venture by and among
any of the Company, any Designees, Funds, Adviser, or Distributors.
14.12 Expenses. All expenses incident to the performance by each Party
of its respective duties under this Agreement shall be paid by that Party.
14.13 Time of Essence. Time shall be of the essence in this Agreement.
14.14 Non-Exclusivity. Each of the Parties acknowledges and agrees that
this Agreement and the arrangements described herein are intended to be
non-exclusive and that each of the Parties is free to enter into similar
agreements and arrangements with other entities.
18
<PAGE> 19
14.15 Operations of Funds. In no way shall the provisions of this
Agreement limit the authority of the Funds, the Adviser or Distributors to take
such action as it may deem appropriate or advisable in connection with all
matters relating to the operation of such Fund and the sale of its shares. In no
way shall the provisions of this Agreement limit the authority of the Company to
take such action as it may deem appropriate or advisable in connection with all
matters relating to the provision of Services or the shares of funds other than
the Funds offered to the Account.
PROVIDENT MUTUAL LIFE AND ANNUITY
COMPANY OF AMERICA
-----------------------------------------
By
Name:
Title:
STRONG CAPITAL MANAGEMENT, INC.,
STRONG INVESTMENTS, INC.,
STRONG OPPORTUNITY FUND II, INC., and
STRONG VARIABLE INSURANCE FUNDS,
INC. on behalf of the Designated Portfolios
/s/ Stephen J. Shenkenberg
-------------------------------------------
Stephen J. Shenkenberg, Vice President
19
<PAGE> 20
EXHIBIT A
The following is a list of Designated Portfolios under this Agreement:
Strong Mid Cap Growth Fund II
20
<PAGE> 21
EXHIBIT B
THE SERVICES
Company or its Designees shall perform the following services.
Such services shall be the responsibility of the Company and shall not be the
responsibility of the Funds, Adviser or Distributors.
1. Maintain separate records for each Account, which records shall
reflect Fund shares ("Shares") purchased and redeemed, including the date and
price for all transactions, Share balances, and the name and address of each
Owner, including zip codes and tax identification numbers.
2. Credit contributions to individual Owner accounts and invest such
contributions in shares of the Funds to the extent so designated by the Owner.
3. Disburse or credit to the Owners, and maintain records of, all
proceeds of redemptions of Fund shares and all other distributions not
reinvested in shares.
4. Prepare and transmit to the Owners, periodic account statements
showing, among other things, the total number of Fund shares owned as of the
statement closing date, purchases and redemptions of shares during the period
covered by the statement, the net asset value of the Funds as of a recent date,
and the dividends and other distributions paid during the statement period
(whether paid in cash or reinvested in shares).
5. Transmit to the Owners, as required by applicable law, prospectuses,
proxy materials, shareholder reports, and other information provided by the
Adviser, Distributors or Funds and required to be sent to shareholders under the
Federal securities laws.
6. Transmit to Distributors purchase orders and redemption requests
placed by the Account and arrange for the transmission of funds to and from the
Funds.
7. Transmit to Distributors such periodic reports as Distributors shall
reasonably conclude is necessary to enable the Funds to comply with applicable
Federal securities and state Blue Sky requirements.
8. Transmit to each Account confirmations of purchase orders and
redemption requests placed by each Account.
9. Maintain all account balance information for the Account and daily
and monthly purchase summaries expressed in shares and dollar amounts.
10. Prepare, transmit and file any Federal, state and local government
reports and returns as required by law with respect to each account maintained
on behalf of the Account.
11. Respond to Owners' inquiries regarding, among other things, share
prices, account balances, dividend options, dividend amounts, and dividend
payment dates.
21
<PAGE> 22
SCHEDULE C-ACCOUNT INFORMATION
(FOR ACCOUNTS TO HAVE DIVIDENDS AND CAPITAL GAINS REINVESTED AUTOMATICALLY)
1. Entity in whose name each Account will be opened: ___________________________
Mailing address: ___________________________
___________________________
___________________________
2. Employer ID number (For internal usage only):
3. Authorized contact persons: The following persons are authorized on behalf of
the Company to effect transactions in each Account:
Name:_____________________________ Phone:_________________________________
Name:_____________________________ Phone:_________________________________
Name:_____________________________ Phone:_________________________________
Name:_____________________________ Phone:_________________________________
4. Will the Accounts have telephone exchange? _____Yes _____ No
(This option lets Company redeem shares by telephone and apply the
proceeds for purchase in another identically registered Account.)
5. Will the Accounts have telephone redemption? _____Yes _____ No
(This option lets Company sell shares by telephone. The proceeds will
be wired to the bank account specified below.)
6. All dividends and capital gains will be reinvested automatically.
7. Instructions for all outgoing wire transfers: ___________________________
___________________________
___________________________
___________________________
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Services Agreement between the Company,
Strong Capital Management, Inc. and Strong Investments, Inc.
9. COMPANY CERTIFIES UNDER PENALTY OF PERJURY THAT:
(i) THE NUMBER SHOWN ON THIS FORM IS THE CORRECT EMPLOYER ID NUMBER (OR
THAT COMPANY IS WAITING TO BE ISSUED AN EMPLOYER ID NUMBER), AND
(ii) COMPANY IS NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE (A) COMPANY
IS EXEMPT FROM BACKUP WITHHOLDING, OR (B) COMPANY HAS NOT BEEN NOTIFIED BY THE
INTERNAL
22
<PAGE> 23
REVENUE SERVICE ("IRS") THAT IT IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF
FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED THE
COMPANY THAT IT IS NO LONGER SUBJECT TO BACKUP WITHHOLDING.
(CROSS OUT (II) IF COMPANY HAS BEEN NOTIFIED BY THE IRS THAT IT IS SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON ITS TAX
RETURN.)
THE IRS DOES NOT REQUIRE COMPANY'S CONSENT TO ANY PROVISION OF THIS
DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
_________________________________ __________________
(Signature of Authorized Officer) (Date)
(Company shall inform Adviser and Distributors of any changes to information
provided in this Account Information Form pursuant to Section 13 of the
Agreement.)
Please Note: Distributors employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and may not be liable for
losses due to unauthorized or fraudulent instructions. Please see the prospectus
for the applicable Fund for more information on the telephone exchange and
redemption privileges.
23
<PAGE> 24
SCHEDULE C--ACCOUNT INFORMATION
(FOR ACCOUNTS TO HAVE DIVIDENDS AND CAPITAL GAINS PAID OUT)
1. Entity in whose name each Account will be opened: _________________________
Mailing address: _________________________
_________________________
_________________________
2. Employer ID number (For internal usage only):
3. Authorized contact persons: The following persons are authorized on behalf of
the Company to effect transactions in each Account:
Name:_____________________________ Phone:_________________________________
Name:_____________________________ Phone:_________________________________
Name:_____________________________ Phone:_________________________________
Name:_____________________________ Phone:_________________________________
4. Will the Accounts have telephone exchange? _____Yes _____ No
(This option lets Company redeem shares by telephone and apply the proceeds
for purchase in another identically registered Account.)
5. Will the Accounts have telephone redemption? _____Yes _____ No
(This option lets Company sell shares by telephone. The proceeds will be
wired to the bank account specified below.)
6. All dividends and capital gains will NOT be reinvested automatically.
7. Instructions for all outgoing wire transfers: ________________________
________________________
________________________
________________________
8. If this Account Information Form contains changed information, the
undersigned authorized officer has executed this amended Account Information
Form as of the date set forth below and acknowledges the agreements and
representations set forth in the Services Agreement between the Company, Strong
Capital Management, Inc. and Strong Investments, Inc.
9. COMPANY CERTIFIES UNDER PENALTY OF PERJURY THAT:
(i) THE NUMBER SHOWN ON THIS FORM IS THE CORRECT EMPLOYER ID NUMBER (OR
THAT COMPANY IS WAITING TO BE ISSUED AN EMPLOYER ID NUMBER), AND
(ii) COMPANY IS NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE (A) COMPANY
IS EXEMPT FROM BACKUP WITHHOLDING, OR (B) COMPANY HAS NOT BEEN NOTIFIED BY THE
INTERNAL
24
<PAGE> 25
REVENUE SERVICE ("IRS") THAT IT IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF
FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED THE
COMPANY THAT IT IS NO LONGER SUBJECT TO BACKUP WITHHOLDING.
(CROSS OUT (II) IF COMPANY HAS BEEN NOTIFIED BY THE IRS THAT IT IS SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON ITS TAX
RETURN.)
THE IRS DOES NOT REQUIRE COMPANY'S CONSENT TO ANY PROVISION OF THIS
DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING.
___________________________________ _________________
(Signature of Authorized Officer) (Date)
(Company shall inform Company and Distributors of any changes to information
provided in this Account Information Form pursuant to Section 13 of this
Agreement.)
Please Note: Distributors employs reasonable procedures to confirm that
instructions communicated by telephone are genuine and maY not be liable for
losses due to unauthorized or fraudulent instructions. Please see the prospectus
for the applicable Fund or more information on the telephone exchange and
redemption privileges.
25
<PAGE> 1
Exhibit (9)
CONSENT OF COUNSEL
I hereby consent to the use of and reference to my name under the
caption "Legal Matters" in the Statement of Additional Information filed that is
included in the Post-Effective Amendment No. 8 of the Registration Statement on
Form N-4 (File No.33-65512/811-6484) for the Providentmutual Variable Annuity
Separate Account, under the Securities Act of 1933 and the Investment Company
Act of 1940.
/s/ James G. Potter, Jr.
-------------------------
James G. Potter, Jr.
<PAGE> 1
Exhibit (10)(a)
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our
Firm under the caption "Legal Matters" in the Statement of Additional
Information that is included in Post-Effective Amendment No. 8 to the
Registration Statement (Nos. 33-65512/811-6484) on Form N-4 for the
Providentmutual Variable Annuity Separate Account, under the Securities Act of
1933 and the Investment Company Act of 1940, respectively. This consent does not
constitute a consent under section 7 of the Securities Act of 1933, and in
consenting to the use of our name and the references to our Firm under such
caption we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
said section 7 or the rules and regulations of the Securities and Exchange
Commission thereunder.
/s/ DRINKER BIDDLE & REATH LLP
-------------------------------
DRINKER BIDDLE & REATH LLP
Philadelphia, Pennsylvania
April 24, 2000
<PAGE> 1
Exhibit 10(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion, in this Post-Effective Amendment No. 8
to the Registration Statement under the Securities Act of 1933, as amended,
filed on Form N-4 (File No. 33-65512) for the Providentmutual Variable Annuity
Separate Account, of the following reports:
1. Our report dated February 7, 2000 on our audits of the financial
statements of Providentmutual Life and Annuity Company of America as of
December 31, 1999 and 1998 and for each of the three years in the period
ended December 31, 1999.
2. Our report dated February 17, 2000 on our audits of the financial
statements of the Providentmutual Variable Annuity Separate Account
(comprising thirty-nine subaccounts) 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.
We also consent to the reference to our Firm under the caption "Experts"
and "Financial Statements".
PRICEWATERHOUSECOOPERS LLP
Philadelphia, Pennsylvania
April 24, 2000
